The incredibly impeccable timing of launching bitcoin futures at the very peak of the bubble.
When Cboe Global Markets – which owns the Chicago Board Options Exchange, BATS Global Markets, and others – started to let folks trade bitcoin futures contracts for the first time on December 10, 2017, it was greeted by deafening hoopla in the crypto community and in the crypto-bedazzled media. Within 24 hours bitcoin jumped by $2,000 to $17,382.
At the time, bitcoin was changing the world as we knew it, creating dreams by regular folks and their in-laws of becoming overnight billionaires or at least millionaires. Trading bitcoin futures contracts was just the next logical step in making bitcoin the mainstream millionaire-maker.
Then the Chicago Mercantile Exchange (CME) launched bitcoin futures on December 18, 2017. But on that day already the price of bitcoin had begun its epic collapse: When it comes to impeccable timing, few events can hold a candle to those two launch dates:
Futures trading can be used to bet on rising or falling prices, and this gave investors their first convenient chance to bet against the ludicrous run-up of bitcoin. Suddenly the bearish bets were the ones that made money.
So last week, the Chicago Board of Exchange (Cboe) announced that it would abandon bitcoin futures on its Cboe Futures Exchange (CFE):
CFE is not adding a Cboe Bitcoin (USD) (“XBT”) futures contract for trading in March 2019. CFE is assessing its approach with respect to how it plans to continue to offer digital asset derivatives for trading. While it considers its next steps, CFE does not currently intend to list additional XBT futures contracts for trading. Currently listed XBT futures contracts remain available for trading.
Currently offered contracts expire in April, May, and June. And then that’s it, unless after “assessing” things, Cboe changes its mind.
But bitcoin futures trading isn’t dead yet. CME Group has seen higher trading volumes than Cboe and told CoinDesk that it has “no changes to announce re our bitcoin futures contract.”
The bitcoin futures listed by both, Cboe and CME, are cash-settled, where at the end of the contract, one party pays the counterparty in US dollars for the difference in the spot price and the futures price. Other exchanges are planning to offer physically settled contracts that are settled by delivering the physical commodity, namely bitcoin, rather than dollars, but they’re stuck in regulatory limbo at the Commodity Futures Trading Commission.
If futures are volatile enough, you can make money or at least have fun trading them, up or down. Bitcoin futures have shown that. What has been a huge disappointment for the crypto crowd is that this type of futures trading, the mainstream cachet that comes with it, and all the hype surrounding the launch, hasn’t at all helped the price of bitcoin. And it may have indirectly contributed to pricking the bubble because there was suddenly a convenient way to make tons of money betting against it – and all the world could see it.
It’s not often that we get to see the details of how companies commit $7.4 billion worth of fraud. Read… Steinhoff Committed $7.4 Billion in Fraud (at least). Here’s How
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Like all those geniuses who bought houses right at the peak of the last bubble ….
Yes, but theses guys loaded up on puts and made a killing.
Wolf appears to be too polite to come out and say it directly, so I’ll finish the article: Gresham’s Law wins again.
Once bitcoin futures could be settled in US$ credit, not actual bitcoin, the $-credit financiers gained control of the bitcoin price.
The whole point of bitcoin was finite supply. The whole point of futures contracts settled in $-credit is unlimited supply. The actual supply and ownership of bitcoin is no longer relevant in setting its price. Cash futures contracts are to bitcoin what Kryptonite is to Superman.
So it’s Not a Surprise that futures contracts to be settled by actual bitcoin, are “stuck in regulatory limbo”.
Intended Result: “a convenient way to make tons of money betting against bitcoin” … a Big Short by those who had created the bubble and knew it had to come to an end?
“When it comes to impeccable timing, few events can hold a candle to those two launch dates.” – It wasn’t a question of timing, there was a cause-effect relationship.
The playbook for controlling the $-prices of “stockpile” commodities has been time-tested in the gold and silver markets. Bitcoin was a bubble to pop, and the cash-settled futures contract was the pin.
Anyone else seeking to re-establish sound money should AVOID “cash”-settled futures contracts. Gresham’s Law says that the intrinsically worthless money will inevitably undermine the valuable money wherever both can be used.
If so, on the one hand this may have been an attempt to destabilise its use, on the other it has wiped out the speculative side. Some will argue that futures add depth and stability to a market (in this case the value of the dollar re. btc) which would be important in terms of stabilising btc valuation of dollars and acceptance of use in terms of that stability for those using btc as intermediary to fiat . I think it would be fair to say that btc does not pretend to hold a specific value beyond what is chosen by its users, so this would all add up to being a demonstration of its resilience.
You may think “The whole point of bitcoin was finite supply”, but I think it was simply a manipulated market for money-laundering and millennial-exploitation.
It was definitely a great place for hackers to steal hundreds of millions of dollars of “bit-whatever”.
What’s next? Digital milk?
Couple of observations:
-Most futures contracts are settled in cash, whatever they are; it is unusual to settle in kind. Thus the value of futures contracts for any commodity dwarf the available supply by orders of magnitude.
-The total quantity of Bitcoin per se is ‘finite’, but Bitcoin is divided into Satoshis. There are 2.1 quadrillion Satoshis in 21 million Bitcoins. (100 million Satoshis to a Bitcoin). Even if a Satoshi traded at one cent US, the market cap of Bitcoin would be 21 Trillion dollars, or a million-dollar Bitcoin (amusingly, the prediction that John MacAfee made for one BTC ‘or he would eat his own xxxx’ was one million dollars).
By settling in cash ($) instead of bitcoin, the futures market can be completely independent of whether actual bitcoin holders accept the price chosen by those who hold bitcoin futures.
This effectively destroys the scarcity value resulting from HODL. You can HODL all you want, as long as — at the margin — there are some willing to sell their bitcoin at the price indicated by the futures. Which is apparently happening (https://localbitcoins.com/) as HODLers defect.
The entire episode can be filed under “Entirely predictable sequence of events”, other than the eventual steady-state value.
I was on a Southwest flight recently and they have Big Bang Theory episodes available. I watched one where the gang remembered mining bitcoin 10 years ago with a flashback to how it happened. And one of the lines was Sheldon saying something like let me see if I understand this….Bitcoin is a fake currency, made by computers, that you can’t see or touch and can’t be used to buy anything? Where do I sign up?
And it’s still so true about Bitcoin. It’s all a mirage. It’s as the Great Matthew Mcconaughey said in Wolf of Wall St….a fugazee.
This episode was based on real life. A guy in the UK threw out a comp with millions of BC. He offered to pay to excavate the land fill but they won’t let him. As I pointed out in a letter printed by the Globe and Mail, BC doesn’t belong to you they belong to your computer.
I also said that telling people you own BC is exactly like telling them you have a safe full of money. Since then there have been BC thefts not by hacking but at gun point. The victim transfers them and that’s it.
Moving on, the big attraction of BC (it is obviously not used as a currency) as an investment seems to be based on the limited supply.
But as any dealer in rarities will tell you, to have value it’s not enough to be rare.
Re: currency. The root word is ‘current’ You do not have to be bullish on the $US or euro to accept them as payment. You can exchange them instantly for almost anything.
The other big attraction seems to be that a transfer of BC is anonymous.
If this works for drug deals there must be honor among outlaws after all because the ‘stuff’ is usually carefully inspected.
For all legal deals the buyer usually wants a record of payment. As any bank manager knows, there is no legitimate reason for a party to demand a large sum in cash ( the purported aim of BC is to serve as cash)
This is a major red flag warning of fraud.
Which one is the bigger scam: (1) Bitcoin, (2) Elon Musk/Tesla, (3) Elizabeth Holmes/Theranos????
No contest if valuing in terms of peak bubble, total market cap: Bitcoin.
But I nominate the concept of “home ownership” via a 30 year mortage”.
Granted, many people have made a lot of money via the leverage of such an investment tool(especially in a uptrending/inflationary market), but many have ended up owning nothing, all the while making signifcant interest payments to banks.
Many more folks have participated / been victims in this decades long scam / delusion, than in BTC, Theranos, and Tesla. And at least Tesla makes a great car.
Ragnar, My home is paid off. I bought it to live in. It has been, and continues to be infinitely useful as my home with current value about 4 times the cost including interest. I had to live somewhere, right?
I agree with the rest of your thoughts. For that investment in that share of Tesla, what the devil do I get in return? Dividends? chance for big appreciation? any profits in sight….anywhere?
Being old school, Bit Coin is a scam….snake oil was the term a long time ago…
@CGB My complaint is not with the concept of home ownership, but with idea of the 30 year mortgage. What are the roots of the 30 year mortgage? How long have people been using this financial contract to purchase houses?
I did some quick research – and found this. Yes, I’m cherry picking out what I want, but….
https://www.mortgagecalculator.org/helpful-advice/american-mortgage-history.php
“The modern mortgage market began to take shape after the federal government intervened during the Great Depression. This intervention resulted in the formation of the Federal Housing Administration, the Federal National Mortgage Association, and the Home Owner’s Loan Corporation.”
“The Second World War introduced provisions written in the G.I. bill for veterans, including the formation of the VA mortgage insurance program. It provided excellent rates and became part of the compensation package of service members. Lending institutions intended for this to stimulating the housing market. The loan to value ratio increased 95 percent. In addition, the maximum mortgage term extended to thirty years.”
If we all instead only bought houses with cash, 5, 10, 15 year mortgages, houses would be much cheaper, and we would actually own them – at some point.
How many Americans live in the same place for 30 years? In a flat price market, how much equity is their after 10 years in “your” home if you buy it with a 30 YM and then move > sell it? In my experience it wasn’t a heck of a lot.
From the above quotes, it seems that once again the govt has gotten into something to help increase affordabiltiy/give move people access, and the system/ process / market ends up getting manipulated by major market players such that it becomes significantly more expensive.
College and health are similar victims / beneficiaries of such govt attention.
30 year fixed mortgages without any funny business like cash out refis have built wealth for literally hundreds of millions of Americans for several generations. T
To compare that with Bitcoin is ludicrous.
It’s funny how some people say 30 year fixed is a scam and then someone else on the same blog or discussion thread says ARMs are a scam and anyone who doesn’t get a fixed rate is a specuvator/FB who will get crushed by a reset.
Few people stay somewhere for 30 years. That’s true. But nobody really knows upfront if they will stay somewhere for 2 years or 7 years or 15 years either. And who knows, maybe you end up staying in the same house for 30 years. I had neighbors who had lived in their home for 45 years. You never know.
There’s no right or wrong answer. That’s the beauty of a free market. Some people want the security of a 30 year or 15 year fixed mortgage. Others are willing to take a risk with an ARM. And even within ARMs, there are 3 year, 5 year, 7 year and 10 year options, again depending on how risk averse the borrower is.
Every single borrower can decide from themselves what makes sense and what level of risk they are willing to take.
Is the 30 year mortgage really the product of the free market?
The 30 second research I did above suggests it wasn’t.
And how exactly do we have such low rates as we do today? Free market?
And what would happen to all that equity/home wealth that has been generated if rates hadn’t been ramped down for 35 years?
Would banks really lend to Joe Shmo w/o the federal back stop? Yes, individuals have profited, so?
Have you seen the stats on how much equity the typical American has in their home?… I’ll find it.. Raoul Pal had it on one of his RealVision presentations… I think its $50k. Which is why he’s long mobile homes. Folks are going to have to swap that equity into fix residence. Only mobile homes fit the bill.
@JSRG
Who does it benefit when car buyers financially pushed / stretched to extend loan terms from cash > 1 yr > 3yr > 5yr > 6 yrs? Banks, car sellers or the buyers?
The car can be more expensive, there can be more interest paid, and the buyer is in debt longer.
Oh yeah, the buyer can “afford” a more expensive car.
And back to 30YM: it is certainly true that over the past 40 years, in a declining interest rate / rising home price market, leveraged buyers have been big winners. But isn’t this simply a form a gambling? What happens when an individual, not a corporation, buys a house for $1,000,000 with a 30YM with rates at 3%, if rates simply normalize and move to 6%?
Buyer gets crushed.
My point is, the normalization of the idea of 30YM will lead many people to financial ruin in a declining price market.
You forgot the king of all scams….. the mighty USD….the greatest ponzi in history. The US prints unlimited dollars and gets to buy all the oil, resources, and goods it needs…lots of smoke traded for real assets…now that is a scam.
@albert
Agreed!
I’ve traveled a pretty lot all over the world, and One thing stands out at me, is how, it let’s say for example, in the Philippines, very very few people have their own personal car, whereas in United States you’ll have a woman who doesn’t even have a job and she’s 5 foot two and she’s driving a $70,000 Lexus SUV back-and-forth to the supermarket and yoga. Why? It’s hard not to think it’s due to the printing of the dollar. the power we get from the painting of the dollar and other countries and people’s actually accepting it for hard assets.
All I can say is, if I was a hard asset producer I’d be saying to people With usd / yen / euro, “screw your paper / digital / fiat , just show me gold.”
It’s hard for me to conceive how major players have not yet taken this course. Though, it is well argued that those that have, have been met with US military action.
No one was there to backstop bitcoin like the U.S stock market or it would be more than the one million dollar mark apiece today.
If I recall accurately, its independence from the Fed & regulators & Wall Street was one of the primary attractions.
Now you’re wondering why the stock mark wasn’t there to “backstop bitcoin”?
The me you’re kidding, right?
An overly complex version of a simple story of the close encounter between two fake currencies.
One conjured out of thin air over a century ago and a newer currency recently conjured out of imagination.
What percentage of neanderthal DNA do these two fake currencies require to become real?
Totally agree,well said WES .
“What percentage of neanderthal DNA do these two fake currencies require to become real?”
Bitcoin is a Homo sapien boondoggle, don’t blame it on Neanderthal man… he was too smart to do something that dumb.
Joan: Well that settles it!
Neither fake currencies have any neanderthal DNA!
Therefore neither fake currencies are real!
I predict genealogists will discover bitcoin is proof the poor Neanderthal man mated with inbred homo sapiens!
So you mean a currency developed to purchase illicit substances and takes an hour to process a transaction wasn’t the best investment, color me shocked.
Worse yet bitcoin created power blackouts so the poor couldn’t cook at times on there electric hotplates.
FED head Powell was recently commenting on the underemployed labor force again but I’m curious, any idea what those poor were “cooking”?
Spam!
What’s the real reason they are discontinuing it? After all they just provide a marketplace and can make money from both sides of the trade.
Considering make money by letting folks trade futures on weather (https://www.cmegroup.com/trading/weather/), making money off bitcoin futures shouldn’t be that hard.
See Also: Schadenfreude, Bwah-Ha-Ha
I always assumed Wisdom Seekers explanation was the reason. They rushed it to the futures market to take it down.
I remember the attitude of certain banking CEOs going from 1) it won’t work to 2) the central banks have to control money supply so it will not be allowed to work to 3) whispering among banking CEOs to 4) sure it will work so let’s create a futures market for it to “help” it work to 5) Oh too bad.
I’m tired of bitcoin. Bitcoin could have been amazing if it was useful as money, but it isn’t. I can’t walk into Walmart (I often overnight in their parking lot so it’s convenient) and buy provisions with bitcoin (or gold) so it has no value, to me, as money.
As I understand it, bitcoin relies on unknown, voluntary third parties to perform calculations to verify any transaction between potential buyers and sellers who have no way of knowing how much the transaction overhead will cost or how long it may take or if the transaction will even be verified.
It seems obvious to me bitcoin has no value as money. It was envisioned as a new money not controlled by central banks or the banking system but it has failed the purpose for which it was intended. The current “investment thesis” to own bitcoin is the greater fool theory, the problem with that thesis is the world always, eventually, runs out of greater fools (or the greater fools run out of money).
“…the problem with that thesis is the world always, eventually, runs out of greater fools (or the greater fools run out of money).”
I assure you it’s that fools run out of money. There is never shortage of greater fools.
Re: ‘can’t buy with gold’.
The US no longer prints very large denomination bills but they exist. However Walmart won’t take them.
It won’t take the Canadian 1000 dollar bill either.
They are however, money. You can always get face value for them in smaller bills but not while you wait.
Unless you live way out there, there will be a gold buyer within an hour who will exchange your gold at a more favorable rate than most currencies.
Gold is not just money it is a ‘super money’ always acceptable as a means of settling international debts, when a currency might not be.
Related: Germany was on the verge of being unable to pay for imports just before WWII. It financed the war largely with stolen gold from conquering Europe, often laundered through Switzerland.
The gold was not always in the form of bars.
“The incredibly impeccable timing of launching bitcoin futures at the very peak of the bubble.”
I doubt this was any coincidence.
And I’ll add, there are no documented cases where blockchain is being used except in the case of crypto currencies.
Isn’t “blockchain” a super-secure decentralized transaction journal & registry of exactly who owns what, unless, of course some bad guy steals hundreds of millions of them and nobody can find them again?
Sounds an awful lot like “trust me; I’m the internet, and I’m here to help you…’.
JC: Naaa. It’s all about the “special sauce”. Back in the old days we called it BS aka bovine excrement. Lol
https://readwrite.com/2018/07/18/5-real-life-blockchain-implementations-outside-of-cryptocurrency/
JC, the way I see it is you have a range going from centrally owned and supervised through to completely decentralised and private. Let’s for example say fiat is the first and gold the last, and then there are in-betweens. Crypto is part centralised because it must pass through a network registry to function, but that network can be private or supervised. So all of these have their own particular advantages/disadvantages depending on many factors that can be taken into account. I tend towards gold, but obviously enough people are finding use in bitcoin to give it a market price, even if there are vulnerabilities and speculation to that.
There is no point to a bitcoin futures market. In this respect it is like gold. The demand is in currency terms, not by weight. No one will ever need 2 bitcoin… rather they will need $8000.00 (or whatever cmv is) worth of bitcoin. The futures make no real sense to anyone in such a market and an event like a short squeeze is impossible because a bitcoin is infinitely divisible and no one uses them for squat. Its not like there’s a bitcoin warehouse that needs to hedge with a short sale. The same cannot be said for real commodities traded on the futures. I mention this only to ponder the situation gold has found itself in.
Who knows, maybe there are people accounting business in btc and it serves them to fix a dollar price for the duration of a cycle ?
Candle makers did not seeing it coming. Horse shoes were the way to go.Theres no way we are going to string wires every where for the stupidity of electricity. Steel rails running on the ground across a continent,insanity.if God wanted us to fly God would have given us wings.You can’t build roads every where even if you could build enough cars to put on them,learn horse shoeing.A computer in every home Ha Ha,what would you use it for anyway.A phone like Dick Tracy had on his wrist? Only in the funny books Stan.Crypto currency to defeat fiat money and preserve wealth ain’t no way that’s gonna fly.
Gold to defeat fiat money and preserve wealth, that’s gonna fly.
General acceptance based on an historical record.
Ditto and How about gold coupled to a block chain to avoid the onerous transaction fees.Big fan of both .
I’ll await with great laughter how the execs figure out how to “physically deliver” a virtual coin.
In my town there were three cash machines last summer.
One closed.
One now has a £1 fee to transact.
All the local retailers are slowly moving to card payments with fees, despite a few trying to stick to cash.
The signs are clear banks want to charge you to transact, and cash took away that capability.
Bitcoin and systems like it take away the risk of centralised cornering of the transaction market.
Bitcoin isn’t perfect, but the concept is sensible in a world where banks want you paying 2%+++ just to move money.
Yes btc crashed, I’m still up about 20x on initial investment.
Only idiots who bought in those final few months lost out.