CBOE Will Start Bitcoin Futures Trading on December 10
bloomberg.com
bloomberg.com
- allow an explosion of ETF's, including levered ones, to begin trading. With futures you can now hedge out your bets so it should, at least in theory, be easier to find a counter party to write you a swap against bitcoin volatility. It also lays the ground work for the SEC to see a functioning market for these products which they ahve said is a prerequisite to allow bitcoin ETF's to trade.
- give some rules around what's considered a fork and what should be ignored in the bitcoin world. Each of these products will provide some "adult" guidance to other markets as to which alt coins, forks, etc should be considered vs ignored.
From an implementation perspective there are two differences I see between the COBE and CME implementations.
1) The CBOE’s contract size will be based on a single bitcoin, while the CME’s contract size will be based on five bitcoins, a current notional value of more than $50,000.
2) The CBOE’s contracts will be cleared by Options Clearing Corp. while CME will clear its own futures. The CME has estimated that initial margin on the contracts — or the amount of collateral set aside relative to the value of a trade — may be as high as 30 percent, an unusually high amount.
The initial margin is expected to cover a the movement of an observable through making the margin call, the period of time the margin call could be filled, declaring the counter-party in default and closing out the position. This normally adds up to a minimum of 2 working days.
Saying that it's beyond the realms of possibility for bitcoin to jump or fall 30% in 2 days seems ridiculous.
For example, on Dec 7, 2013, volatility between the high and the low was 54.6%. [1] However, it was lower for the other days of all 30 day periods that include that day, and averaged out to under 15%.
They also permit borrowing. If I borrow U.S. dollars from you and then disappear, a court can drain the funds (if they’re there) from my accounts. That wasn’t possible with cash. The capability enabled an explosion in credit and financial creativity.
Bitcoin, natively, is like cash. Borrowing and rates are afterthoughts. Futures fix that.
There is a certain hilarity in the multiple layers of hypocrisy here. A bankless Bitcoin coöpted by the banks. Investors wanting Bitcoin washed of its principles. Wall Street establishing itself as a gatekeeper to cheers from its detractors. Nevertheless, a lot of money is to be made.
I'm not judging said investors. As Matt Levine said, "'the need for a bitcoin ETF,' I once wrote, and it is just as true of a bitcoin future, 'is an argument against buying it'" [1]. Though, at this point, Wall Street is simply thrilled they've been given a magic number around which to design securities and for which any faults can be safely blamed on Silicon Valley.
[1] https://www.bloomberg.com/view/articles/2017-11-22/uber-hack...
Basically, borrow bitcoin and you are in a short BTC speculative trade, lend it and you are long the same. If you'd borrowed $100 worth of bitcoin last year, you'd owe what, $1,000 this year? It's not a loan, it's a bet. And how do futures fix this?
Rates? Even mentioning rates on a BTC "loan" sounds entirely out of place.
OK but money isn't just about credit. It has two other functions: store of value and means of exchange.
As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
I thought it might be interesting as a means of exchange, and maybe it is in certain situations, but commissions seem too high for use as a major global digital payment system. You pay out of your currency to BTC, then from BTC to the target currency, plus the transaction fees which can be prohibitive unless you're moving some serious loot. I make a lot of small international payments and would love a great solution, but I can't see bitcoin as it. Who actually uses BTC? I mean, other than speculators? ("Investor" is a euphemism here, buyers of bitcoin are commodity or currency speculators.)
> As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
If it ends up being an accepted store of value, this property will change over time. It'll look more like gold. Most people wouldn't' consider 'SPY' (SP 500 index shares) a store of value, but this is essentially how people are using them. You save money, and store it somewhere that will best preserve that value. Given the rate of asset price inflation, as well as increases in costs like medicine, you need to earn a return just to store the value.
The bitcoin price volatility you're seeing now is an adoption curve ramping up. Of course there are huge rewards for early adopters.
All it takes is enough people believing that this store of value works, acting on the belief, and that belief becomes real. Financial markets are formalized mechanism to control what is really like magic; beliefs that become real when sufficient people believe them.
I predict even when a better chain comes along than bitcoin, bitcoin will still enjoy the benefit of being the gateway to and from traditional funds. Demand for alts will create demand for bitcoin which I think we already see.
That's actually one of the biggest use-cases.
It's not the the libertarian segment of the community has done a 180 to cheer Wall St's cooption of bitcoin. Instead, you're witnessing a lot of people who hold bitcoin who are excited that more and more people appear to regard it as a serious store of value. These people are probably not libertarian types--they're interested in bitcoin as an investment, and don't really care if the additional money entering the ecosystem comes from Wall St.
In other words, you can take out a large short position without needing any fulfillment while at the same time it factors as 'shares short' against Bitcoin. 'Shares short' is a major component used by institutions to calculate or re-price to the downside and when these numbers are inflated that can result in inaccurate pricing for the benefit of the manipulator.
There are plenty of examples of this and one of the most high profile cases is related to OSTK (Overstock): https://en.wikipedia.org/wiki/Patrick_M._Byrne#Campaign_agai...
It's a high-level form of manipulation. This will also reduce Bitcoins volatility and opportunity for large gains in short periods of time.
Of course the reverse is true if institutions want to battle it out on the short and long side but meanwhile the banking divisions of investment banks (JPMorgan et al) remain scared to death of Bitcoin. Ultimately, Bitcoin will have to have more institutional allies and supporters than the worlds banks (banks hate Bitcoin, it makes them irrelevant in the near future) which is quite possible.
New cryptos with low floats (low circulating supply) won't be affected as much thereby offering larger gains in shorter periods of time which will attract more of the typical cryptocurrency day traders and traditional traders.
More on this here: https://news.ycombinator.com/item?id=13844765
"The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver the borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but "fail to deliver." This form is called naked short selling. These short sales are almost always done only by options market makers because they allegedly need to in order to maintain liquidity in the options markets. However, these options market makers are often the brokers or large hedge funds, who abuse the options market maker exemption. (For more, see How To Work Around A Market Maker's Tricks.)
Shorting Without Failing to Deliver There is another form of short selling, which I describe as synthetic short selling. This involves selling calls and/or buying puts. Selling calls makes you have negative deltas (a negative stock equivalent position) and so does buying puts. Neither of these positions requires borrowing stock or "failing to deliver" stock.
A collar is nothing more than a simultaneous sale of an out-of-the- money call and a purchase of an out-of-the-money put with the same expiration date. Another way to short sell is to sell a single stock future, which is equivalent to naked short selling. No shares are borrowed, however, and no shares are failed to deliver..."
"... There are similar future transfers if you have sold calls or sold single stock futures. When you buy puts and fully pay for them, there are none of these money transfers after the purchase, although the value of your account certainly fluctuates as the value of the puts fluctuates.
All of the above ways to obtain negative deltas cause pressure on the value of the stock similar to how straight sales of long stock puts pressure on the price of the stock..."
Continued via the link above which is well worth the read. All things considered, we are ultimately talking about derivatives and derivatives of derivatives.
source: cfa, sellside and buyside trader.
But.. Why spend something that is guaranteed to become more valuable? If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could. Doesn’t this completely undercut the idea of bitcoin as currency?
Nothing is guaranteed to become more valuable! In the US we’ve had a depression and even a recent recession to help teach us this. Guess it didn’t take.
If your expectation of bitcoin were that its value just doesnt decrease you have an incentive to turn your cash positions into bitcoin.
We could say people shouldnt have signficant cash reserves but reality shows otherwise.
It's also not correct that bitcoins are scarce. They're only scarce as long as there's a social agreement that 'bitcoins' are the one true cryptocurrency. It's trivial to create new cryptocurrencies or even fork the main bitcoin blockchain. That could turn on a dime and wipe out all of bitcoins value, if some new cryptocurrency comes along and everyone switches to it.
Let me illustrate it on a very simple scale. There are four participants in a market. Each one starts with 100 coins and $100 USD. Each coin is valued at a dollar. Minimum units are 1 coin and 1 dollar. What is the maximum market value?
The correct answer comes from a single pre-final stage:
One person has 400 coins another person has 400 USD and the other two people have nothing. At this point the person with 400 USD pays $400 USD for 1 coin giving all 400 coins value of $400 each i.e. $160,000, except there are no $160,000 in this market.
Bitcoin is a fad - it will be worthless. Shared public ledger is where the money is.
In your scenario, a third-party prints $159,600 USD. (aka inflation, government deficit/debt, quantitative easing...).
Time will tell who's right.
Do you at least accept that in the market described above coin value is fictitious as soon as totality of the market is value for coins is higher than $400?
[late edit]: Do note that it is not to mean that there's no money to be made before the collapse - there are tons of fools who are willing to part with it. That's why financial firms are starting to salivate looking at it.
When one person buys 1 USD for 400 BTC, that means the 400 USD is worth 160,000 BTC, but where are all the BTCs?
If that's not a good argument against the US dollar's viability as a currency (and it's not!) then your version is also not a good argument against Bitcoin's viability as a currency.
There are only 2 currencies. Your assertion that the exchange rate is bogus because it is possible to buy 1 BTC for $400 applies just as well in the opposite direction.
Was your $400 + 400 BTC model supposed to be an argument from first principles, or was it supposed to be a reference to some empirical evidence?
I don't think you're being as intellectually honest in this thread as you could be.
I am, however, yet to see a single article talking about USD being quoted in bitcoin. Just like I do not see any articles of USD being quoted in Samsung TVs. I do see bitcoin being quoted in USD. I see USD being quoted in Euros and I see Euros being quoted in USD.
That's why Sansung TVs and BTCs are not currency while USD and Euros are. So BTC is asset. Assets in an non-liquid markets are prone to enormous bubbles.
I'd suggest that discussing your point without the ad hominems makes for a stronger argument.
It's quite possible in 20 years that 0.000000000001 of a bitcoin will make the average house payment and by then, we'll have friendly names for all the decimal places.
Here's old school BTC:
No, it isn't.
You should do the math on that and figure out what the value of a single bitcoin would have to be to make it come true. If that doesn't wake you up to how ridiculous that claim is, I don't know what to tell you.
I'll even go incredibly easy on you and let you assume the average mortgage payment is only $100.
Hint: it's a number larger than the US GDP
It's somewhat terrifying to me that I even have to argue this with someone.
Say there is one hotel room and the alternative is sleeping on a park bench. The cost of the hotel room is 1 BTC. The price of Bitcoin is peggged to the perceived value of the room by the market.
The reason why currently the price of BTC is rising without goods being traded is speculation by investors that this will be possible in the future.
This is the equivalent that it costs $10 a night to stay in the hotel room but in 2 days time it will cost 1 BTC. If BTC is trading at $5 USD then it will be a good deal to buy BTC today as long as I have enough money that I’m not homeless in the interim.
the question is not how scarce Bitcoin is
the question is how abundant are fools
It's like Israeli Kibbutzim[1] had a members-only Communist-like system, by exploiting outside employees and living on government subsidies.
Most kibbutzim are not self-sufficient and have to employ non-kibbutz members as farm workers (or later factory workers).
The pool has been filling with a hose and now suddenly must be drained with a straw.
Then add on a system where sudden price drops instantly lower the transaction throughput (hashrate, while difficulty takes days to adjust). The straw gets kinked.
We got a window into this nightmare on nov 13, that was enough for me.
This is wrong. As the amount of coins grow, the amount of coins generated per block decreases (it halves every ~4 years). The difficulty is completely unrelated to the amount of coins in existence and is instead derived from the hashrate: as hashrate increases, difficulty increases, to target a block rate of 1 per 10 minutes.
> Doesn’t this completely undercut the idea of bitcoin as currency?
I don't think so. Right now people can buy bitcoin which is "guaranteed to become more valuable", and yet they still choose to buy things other than bitcoin with their USD.
Why would it be different if their base currency was BTC instead of USD?
Even if you don't think bitcoin is "guaranteed to become more valuable", there are plenty of things that are close approximations to that (pick any good investment), and yet people still choose to buy things other than investments. How do you explain that? Whatever reasoning you use to explain that can be applied verbatim to explain why people will buy things with BTC instead of just holding it.
Bitcoin started as currency, but its enormously deflationary record has turned it into an investment.
If you can explain why people might want other things more than they want bitcoin, you can explain why the existence of bitcoin won't prevent people from buying those things. And whether they already hold bitcoin or not is totally irrelevant.
There are already things you can buy that are likely to go up in value over time, relative to the US dollar (e.g. stock market index funds). If the existence of those investments (that people can buy instead of other things) doesn't stop people from buying other things, why would a deflationary bitcoin stop people from buying other things?
But that applies just as well even if you don't already own the bitcoin (you could just buy bitcoin instead of the other thing). Why does anyone buy anything that's not bitcoin? Because they want those things more than they want bitcoin. That doesn't stop being true just because you can pay for things in bitcoin.
Identical reasoning applies if you replace "bitcoin" with anything else that you think is going to go up in value over time. And people still buy things. The sky isn't going to fall down!
You don't see that as a problem? Why buy things with BTC when it's better (for now) to just hold it?
It's the same thing: opportunity cost of not owning Bitcoin (or any other investment). Each person decides how confortable they are with the risk.
Bitcoin's deflationary nature makes it bad as a currency. The rapid price gains do indeed prevent people from using it to buy things. Here, noted investor and Bitcoin proponent Fred Wilson has said he's stopped using it for commerce: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is in contrast with cash, which people don't hold on to in the same way. Nobody goes out to dinner and says, "I'm only getting a appetizer because this $20 bill will be worth more next week."
Bitcoin already exists in the world. People can already buy bitcoin instead of other things, and yet people still buy other things. Why is that?
Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
Investments already exist and yet they don't stop people from spending on other things.
Currencies are well-studied economic entities. So are investments. They have different purposes, and people behave differently with respect to them. You can feign ignorance of the two all you like, but that does not erase the difference.
> Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
People in fact do that all the time. People spend less so they can invest more. They trade currency for an asset whose value they expect to appreciate. If that asset does indeed appreciate, they are far more likely to hold onto it than cash, especially if they expect to it to appreciate yet more.
I gave you a specific example of a prominent investor and Bitcoin advocate shifting from treating Bitcoin as a currency to treating it as an investment. Which you ignored, just like you're ignoring basics facts about finance.
It's like saying all computers are basically the same -- which they are -- and then going on to conclude desktops and smartphones and rack-mounted servers are all interchangeable.
Bitcoin may be a great investment asset. Time will tell. But its deflationary nature and its high volatility make it a bad currency. That's in obvious contrast to the original intention, which was a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
See here, for example, for a prominent Bitcoin advocate explaining that he no longer uses it as a currency: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is especially a problem when a currency is used by a lot of people. It discourages economic activity and increases the value of debt. Imagine, for example, that you had taken out a Bitcoin-denominated car loan on Jan 1 2016 with a monthly payment of 1 BTC. That's about $440 at the time, or 15 hours at the median US wage. Now you'd have to work 40x as much to cover the loan payment, or about 20 hours a day just for your car. Meaning you would have been driven into bankruptcy.
Luckily for its users, Bitcoin never really took off as a currency, so their debts are in much more stable national currencies. But as you see with Fred Wilson, many experience sharp regret for the times they did use it as a currency.
Fred Wilson, a prominent VC investor and Bitcoin proponent, said as much in August: http://avc.com/2017/08/store-of-value-vs-payment-system/
Sweet.Because neither you nor anyone is certain Bitcoin will become more valuable. If you knew, you would put all your life savings into Bitcoin this very minute.
That's the reason I personally have been spending bitcoins for 7 years, and will continue spending them. For all I know BTC might crash tomorrow and never recover.
Yes, and this is a concern for many. Bitcoin might not be the winner for reasons like this, but it is a leader and currently is the winner. There are a lot of people now thinking about these problems and even in some cases, how to add things like inflation to Bitcoin so that people do start spending it more than hoarding it
So people are aware of it, it is just too early in a lot of ways to tell what is going to happen.
Personally, it wouldn't surprise me if Bitcoin is like Mosasic and eventually we are using Firefox, Chrome, etc equivalents of cryptocurrency years from now.
I also save my USD “as long as I possibly can,” by which I mean “until I value something more than the USD it costs to acquire.” In practice, that very frequently ends up being relatively small purchases of things I literally need to survive and function in society, like food, rent, and clothing, but beyond that I try to save as much USD as I can despite it being nearly guaranteed to decrease in value over time.
Keeping savings simple at times is prudent. I have a feeling a lot people are going to be mostly in cash in the next 18 months...
So you’ve not answered the questions of “why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there?” And how does bitcoin not consistently stay in a deflationary spiral?
Different people value different things differently, thus there is no universal agreement on what the “best investment” is. Remember that the price of Bitcoin cannot change without both a seller and a buyer. Each bitcoin bought is a bitcoin sold. The most obvious and simplistic example of a reason people might sell Bitcoins right now is that they are hungry and want food, but that generalizes to more complex differences between individuals’ time discount functions.
Its not guaranteed though. Bitcoin may go out of favor and coins can become worthless, doesn't matter how limited the supply is.
Why buy a computer/phone/car that is guaranteed to become cheaper next year, or obsolete within 2. If I were given the opportunity to purchase something that systematically becomes LESS expensive, I'd hold off on the purchase as long as I possibly could.
Because even in deflation, some trades are worth it.
At some point the expected increase in value will be on par with the utility value derived from making the transaction with the bitcoin you already have.
As with most financial assets with high liquidity, there is no such thing as "guaranteed to become more valuable". If it were, it would already be at that price.
- Unlike LedgerX, the futures will settle in cash, NOT in Bitcoin. So they won't directly create demand for more Bitcoin.
- In effect this is a "bookie pool" for institutions to place side-bets on bitcoin. Although there might be some consumer participation - I reached out to several CME brokers and at least two of them, NinjaTrader (US) and RBC (Canada), intend to provide the futures product to their retail investors (pending internal review).
- Biggest customers will probably be institutions who want to short (bet against) Bitcoin, and those who want to establish a long position (bet in favor of it) but are prevented from buying bitcoin directly (due to regulations, security / handling concerns, etc). You would think the CME trade throttling rules in particular would make buying the asset directly a more attractive option for those who want to go long and have access to other marketplaces (i.e. existing exchanges). For that reason, after the initial "rush" to get in, I think there's a risk the CBOE and CME markets will tend to attract more "shorters" than "longers".
- Naked shorts (placing short orders for assets you don't have and don't intend to buy) are an interesting aspect which I don't fully understand. I think the practice is illegal in US securities, although one of the exchanges from which the CME price index will be derived (Kraken) apparently already allows naked shorts (surprised that didn't catch the eye of regulators).
- A lot of the money in Bitcoin today is retail. Are those folks ideological, or easily spooked? (Probably a mix). What happens if folks start seeing red futures around the corner? Is there a risk the futures indices (with their more-disciplined institutional money) will start leading (rather than following) the Bitcoin price?
While I'm excited by this development (obviously a lot of great PR) I'm concerned there might be risk of it backfiring compared to the overly optimistic expectations I've been reading from existing Bitcoin holders. I really do hope it paves the way to ETF's (where you actually buy a basket of Bitcoin) - something I'd be a lot more excited for. In the meantime, here's hoping my cautious skepticism is unwarranted.
There's some good discussion over at Quora: https://www.quora.com/How-will-futures-trading-on-CME-affect...
BTC is difficult to short so if/when there is a sharp decline in price you have to rely on people buying futures instead of BTC outright. I suspect this isn't going to happen so on price declines the futures will fall further than BTC, also leading to bigger crashes in BTC.
Maybe that is a good strategy, wait for some weakness and sell the out of it to see how far it crashes.
Yes they're cash settled on the expiry date so on the 3rd Friday of the month the future that expires that date will have the same price as BTC.
When there is time to expiry though, what is the mechanism that keeps the prices aligned? If BTC is difficult to short natively, there isn't an easy way to keep the futures at fair price.
IE if BTC is worth 10k and someone keeps selling futures down to 9.5k, why would BTC drop? Only if a buyer chooses not to buy BTC but buys the future instead. But if the future keeps dropping those guys will get scared off.
The real thing is no one knows so we'll find out soon if/how this will work.
USD M2: https://tradingeconomics.com/united-states/money-supply-m2
tl;dr:
- Increase access to btc (futures can be more liquid than BC itself, which has large transaction costs and transfer times)
- Probably reduce price volatility in general, but futures could also compound speculation
My guess is that BTC will rise in price, and I think the recent price increases are partially explained by the news of future markets.
It seems like this thing is ripe to create either some systemic financial crisis or help governments of countries that are not exactly allied with us interests (china, dprk etc).
They can even make using PGP illegal, and there are politicians trying.
Unless you have a recent example?
For a reference, I mentioned your example of PGP, which would be made illegal to use under this proposed law https://www.scribd.com/doc/307378123/Burr-Encryption-Bill-Di...
I assume that most interested parties will use these for hedging purposes, but there's bound to be a few poor souls out there waiting to use these for speculation.
Since these are USD settled, futures might put a damper on the rate of increase.
Could be a great opportunity to arbitrage based off of price desync across exchanges.
You'll see some institutions move away from the BTC/USD market for this reason.
Failing that, ill settle for a x3 ETF
These products built on each other: the ability to hedge with futures will enable the creation of additional Bitcoin products and services, entangled with each other in complicated financial networks.
Regardless of what you think about it, Bitcoin is slowly but surely becoming a PERMANENT component of the world's financial infrastructure.
It's not difficult to imagine a future in which having some kind of Bitcoin exposure in a portfolio becomes conventional wisdom.
If I'm positive it's a pyramid scam, why should I put my money into it?
Likely what's happened/happening is money is being sucked out of our economy into a shadier one. Silly American buys some bitcoin with their credit card a Russian who spun up a miner buys some gold with their credit card debt. Silly people see bitcoin goes up, think equity's been created there. It's debt.
Remember, you'll need some idiot to buy your shares if you want to cash out.
It’s being propped up by a few huge investors. Once those investors have tripled their investment and grown bored speculating, they’ll move on, and there’ll be a run on crypto driving its value through the floor.
So any exposure through retirement accounts or other investment products seems really dangerous.
But idk
Can you point out to any example in history where an institutional investor has gotten out of investing because they have grown bored, and the profits they have are enough for them?
funds are usually made up of larger contributors so while idk of an investor that’s grown bored there are plenty of examples of funds offloading investments for other financial products
my prediction: huge amounts of bogus trades every day to manipulate it
"Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR." http://www.cmegroup.com/media-room/press-releases/2017/10/31...
Maybe in US inflation isn't a problem but in my country until a few years 7% inflation was low, although maybe the official inflation is low, but as far as I know asset prices have gone up due to quantitative easing.
I don't know how to read this other than as stating the same thing with different words, i.e. "tracking inflation" is just another way of saying that its valuable.
https://www.statista.com/statistics/299603/gold-demand-by-se...
Jewelry is definitely not just a fancier way to store gold. How many people do you know that sold their wedding rings when prices spiked?
I don't think intrinsic value is a meaningful term. Gold has been valued for millennia because it is very useful for making pretty things. And the price has been high for a long time because the supply of it is low.
There was a time when we hadn't the technology to produce aluminium in significant quantities like we do in today's factories, and it was more expensive than gold. And for that reason, it was used in jewellery, expensive cutlery and even the Washington monument.
Gold is mostly valuable for its scarcity and the way our culture has used scarce metals as a store of value, not because of its intrinsic value as a metal.
Today we can create artificial scarce tokens digitally, before using a centralised party to manage the ledger, today in a decentralised manner. Who knows whether gold's status will last, or in fact bitcoin's. Perhaps the noble notion of decentralisation won't be valued by markets in the end, perhaps there's no reason to respect one token's value for its scarcity when you can programmatically create a million clones on a single computer.
I've been a bitcoin enthusiast for half a decade, but the past few years I've seen a major decline in genuine interest in bitcoin other than as a get rich quick scheme. We used to have lots of cool and fun things going on, now it's bland and boring. People forget bitcoin's only value is its decentralised nature, yet the price increases don't reflect any significant growth in capturing the value of decentralisation, at all.
Thus, it is not the actual properties that make them desirable as jewelry. It is solely the fact that they are valuable that people want them for jewelry.
If the price of gold was to collapse tomorrow, it's use in jewellery would continue without pause.
You seem to ignore the simple fact that as demand grows for a limited resource, the price grows. So even if the "value" of bitcoin viz a viz decentralization has remained constant, its market cap goes up because demand has exploded.
There are many valuable things that are not made into jewelry. There are metals that are more valuable than gold, but they are not as commonly used in jewelry because they aren't as aesthetically appealing. Gold was used for making beautiful things in cultures that did not treat it as money. It became valued because it was uniquely workable, beautiful, and durable.
Part of gold's value is its rarity, certainly. But another part of it is utility. If investor demand for gold collapsed, it would still be valued.
Scarcity was necessary, for sure. But definitely not sufficient.
The intrinsic value of USD is it's the only currency you can use to pay taxes to the US government. The intrinsic value of gold is its industrial/commercial uses. The intrinsic value of bitcoin is a nearly incorruptable transaction ledger while also being trust less.
None of these things "just work", some or all will fail eventually.
If you look at an ATX motherboard from 2009 with an Intel processor and a MacBook Pro mainboard from 2017, the amount of material consumption to create a similar product has fallen dramatically. You can actually see Moore's Law, it's kinda beautiful.
Is there historical precedent for something to be as widely accepted as gold, which isn't considered valuable today?
https://gizmodo.com/how-aluminum-cost-more-than-gold-1575564...
This isn't intrinsic value. The government can conceivably decide USD is worthless (it won't, probably ever, unless the US collapses). USD relies on the US government for value.
Being able to burn money to start a fire would be intrinsic value. Same for gold's conductivity and its other industrial uses. They are physical properties.
Excuse me ?
What this is worth to the consumer (is currency a product? opinions vary) will vary, but diamonds without industrial use were valued at billions of dollars only 150 years ago. Large diamonds still carry multimillion dollar values, despite that a 32-karat diamond can be grown from carbon ash in a small plasma cell for only hundreds of dollars. Maybe even less if the laboratory is powered with a renewable energy source.
The diamond was perhaps my favorite currency to study. It is an object historically backed partially by human fascination with light, partially by industrial demand, but the industrial demand was slowly diminished by the introduction of synthetic grit and stones. Despite the low cost of manufacturing a synthetic diamond for jewelry, they usually depreciate immediately--that may be a comment on the consumer's demand by those who practice valuation, or it may be that a "used" diamond is somehow worth less than a "newly discovered or grown" diamond. Impossible to say.
Good talking to you!
https://en.wikipedia.org/wiki/List_of_aircraft_carriers_of_t...
and other things like that. Which is why even drug dealers that are hunted by the US trust US dollar.
But that is not income and would only put the US in debt, devaluing the USD.
I think the point he was alluding to is that countries hold a significant chunk of their foreign reserves in USD, which keeps demand for USD high. Other than the obvious trade aspect, one of the major reasons countries do so is because they purchase goods and services from the US military. (e.g. Japan, South Korea).
Saying Bitcoin is "backed" by generated electricity and computer hardware is like saying paper money is "backed" by the printing presses and labor that made it. Economically this is nonsense.
It is not backed by energy in a literal sense of course, that would be obviously meaningless. But the price of energy, BTC and mining difficulty are connected. A change in one variable affects the others.
From an economic standpoint it isn't backed by anything. Bitcoin doesn't have a direct correspondence with any commodity. I can't turn in a bitcoin and get the electricity back.
It's back by nothing. Monopoly money. So is the USD dollar and all other fiat currency. Bitcoin is a fiat currency without the fiat.
The labor of manufacture is perhaps why the fiat currency has value. This argument heads toward philosophy, but without the minting process (and its technological backbone), to some degree the dollar would be valueless cotton.
In nations where the fiat currency is printed on polymer, I feel that their fiat currency states something like, "Not only do we stand as the people of this nation and its currency, but our belief is such that we have printed the currency with a specialized ink on an advanced polymer."
Before you consider military or government or the world outlook, a belief like that is not worth nothing. That note has indeed been backed by something, and no way is it Monopoly money!
One thing we know is that you can't trust market participants: https://en.wikipedia.org/wiki/Libor_scandal
One thing this allows is shorting - unclear what it means wrt current price.
How can they grantee 'legality' of the coins being traded by those participants in the 2nd scenario? Let's say then the coins being traded in the 2nd scenario are identified by the IRS as 'bad coins' - will they freeze the coins held by that account until the legal dispute is settled?
How can you grantee the legality of coins in an option contract if the coins held by one party prior to the contract expiration are seized?
I'm very curious how they're going to handle these scenarios. Personally, I wouldn't trade on this.
Many investors want exposure to Bitcoin. A significant subset therof are perfectly happy with the financial system as is. They want Bitcoin to look like any other financial asset. These futures are the beginning of Wall Street serving that demand.
Disclaimer: This is not investment advice. Not all futures work like this. Review investments with a lawyer and/or investment advisor.
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
This is not unprecedented. If you look at weather futures, for example, nobody's going to want to take delivery of a petagram of cool air. Or think about index futures: who wants to receive 1 share of 500 different stocks at settlement time? When the underlying commodity is hard to work with and people still want to gamble^W hedge their risk, cash settlement solves plenty of problems.
That makes sense here. People who need wheat or steel to run their business and want to lock in prices might buy futures. But approximately nobody actually has a business need to deliver 1,000 bitcoins in February. At best, they might want to hedge some sort of risk. But more likely, it's straight up speculation from people who don't care about Bitcoin as such, but just want to get in on the action.