You’ve probably read in the “news” by now that Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (Cboe) are preparing to launch “bitcoin” futures, the former next week and the latter any minute now. What you probably missed in the frenzy, hype, and clickbait headlines is that these fiat financial instruments simply aren’t important and don’t matter to Bitcoin.
Here’s why :
1. These “bitcoin” futures are settled in cash. Based on the USD “price” of bitcoin set by
Winkelvii USG site Gemini and furthermore settled in USD, there are actually no private keys, addresses, nodes, p2p networks, or mining involved in these “bitcoin” futures or anything that they come into contact with. So unlike those newbie Wall Street traders who once in a while took physical delivery of 1.3 mn chicken eggs or 47`000 barrels of brent, there will be no digital transfers of any assets when the Cboe and CME “bitcoin” futures expire. Kind of galling, isn’t it ? The one asset listed on either exchange that could actually be settled quickly, cleanly, and with the most modest of physical storage requirements is settled in… printolade. Sorta puts this whole marketing charade in perspective, doesn’t it ?i The end result is that these “bitcoin” futures are more akin to Vegas sports betting than commodities trading. Whether or not Tiger Woods is 2:1 against or 10:1 against at the 2018 Masters doesn’t change the mechanics of his golf swing or how firm the conditions at Augusta National will be. Tiger’s going to either win or lose of his own accord. Same goes for these cash-settled “bitcoin” futures. They have nothing to do with Bitcoin and certainly no impact worth mentioning.ii
2. Inadequate margin requirements. Margin on CME is currently set at 35% and Cboe at 44%. Compare this with only 4% for oil futures and you’d think that the two fiat futures giants were being overly cautious. That is, until you remember that their respective “bitcoin” trading engines are only plugged in from 8:30am – 3:15pm Monday to Friday… Maybe you haven’t been around long enough to observe this first-hand, but 10% per day moves for 3-4 consecutive days can easily happen a few times in a calendar per year. Given that Bitcoin is traded on other exchanges and on other platforms 24/7/365, allowing margin trading at all on a commodity that’s as volatile and widely traded at Bitcoin is bound to burn more than a few Wall Street newbies, but mostly their dumb, greedy clients.
3. Stone age circuit breakers. Cboe will stop trading for two minutes if the price deviates 10% from the previous day’s close, and stop trading for five minutes if the price deviates by 20%. Over at CME, it’s two minutes stoppage at 7% and 13% before trading halts completely for the day at 20%. These aren’t five sigma events, these are annual, even monthly events. CME and Cboe seem to have no notion that they’re not trading pork bellies and that no chicom bitcoin miner is going to hedge their investment on a Chicago-based exchange in the way that a Illinois pig farmer hedges their herd.
These are the three most salient points, at least, but suffice to say that all this hoopla tells us only that gamblers will gamble on anything, including two cockroaches scurrying across the pizza parlour floor. Just don’t expect those cockroach bets to have anything to do with the outcomes of the competition. That shit’s been foregone since 2013.
This might come as a surprise to some of you, but you know what Uncle Al used to say about kinetics disposing.
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- Chicago just can’t seem to live down the fact that the World’s Fair was 124 years ago and that it’s been largely downhill ever since. It’s a beautiful city architecturally, don’t get me wrong, but a leading global centre of commerce and trade it ain’t. ↩
- As Cboe trading just went live a few hours ago, they’re already having issues with website traffic volume. Nothing like a like exposure to the new global frontier to stress test your wobbly fiat designs. ↩