The Bubbly Bitcoin Thread -- Merged Threads

[markyh]

30 minutes ago, adamLancs said:

.

It's not a bubble, it's a transition. Quote me in 5 years.

No need, I will just rebroadcast this over the blockchain for twittercoin, from the Citadel we both reside in!

Edited December 13, 2017 by markyh

[adamLancs]

Just now, markyh said:

No need, I will just rebroadcast this over the blockchain for twiitercoin, from the Citadel we both reside in!

Haha. People will be getting paid for their tweets by then.

S&S - The stock market is heavily underpinned by a stream of QE from central banks worldwide, they call them "relief funds". If you take those away then you're in trouble. They won't, though. Everybody likes waking up to a spring in their step and 2% inflation apparently. The Keynesian wet dream. If something is going to end badly it's kicking the can and postponing that monster of a recession that needed to happen.

[dgul]

7 hours ago, Rave said:

OK well that's fine, but if by definition someone has to be taking a short position, who is it? If it's not the punters, then it must be the CBOE?

Please don't think I'm trying to be argumentative (easy to get that impression on this thread!  ) , I'm almost certainly just being dim- but i don't get it.

The way we all look at these things is that the people who think it will go down take the short.  The people who think it'll go up take the long.

The detail is a bit more nuanced (but amounts to the same thing)

The futures price is a bet on the price at a certain point in the future.  In the case of the Cboe futures the 'first' contract to get there is for 17th Jan 18 (at 4pm, Chicago time).  The deal is, you have to promise to either buy or sell the thing at the price on that final day.  Most futures end up actually being settled by cash instead, but the mechanisms of that sort of cash settlement is a bit more complex.  Some futures are settled explicitly using the cash price at the end point.  The Bitcoin futures are like this.

So, you get a load of people saying that on 4pm 17th Jan they'll either buy or sell a load of Bitcoins.  Only it is cash settled, which means that everyone will actually get/pay the profit/loss that they'd have made if they did get Bitcoins and immediately sold them, or had to buy Bitcoins to give to the exchange.  So, if I said I'd buy 100 Bitcoins at $10k and some guy called Doug said he'd sell 100 Bitcoins at that price, then instead of Doug having to sell to the exchange 100 Bitcoins @ $10k, and then they sell the 100 Bitcoins to for $10k -- if Bitcoin was at $15k, Doug would give 100*(15k-10k)=$500,000 to the exchange (this is his loss if he had to buy 100 bitcoins at $15k and then immediately sell them to the exchange for $10k), and the exchange would give $500,000 to me (which is how much extra it would cost me to buy 100 Bitcoins at the $10k I'd bet at, if they actually cost $15k).

This process seems convoluted, but actually makes sense if you think about where these sort of markets came from.  You'd have a large farmer (say) saying they'd sell some wheat when the harvest came in, but that they'd like to set the price in stone early.  The 'buyer' would promise to buy it at a price, the farmer would promise to sell it.

So, what about the price of the contract.  This is set by a sort of auction process.  I might have a pile of Bitcoins that I want to sell, but not for less than $20k.  I can then put it on something like a bulletin board saying I'll sell at $20k if anyone wants to take the other side of the deal'.  Anther guy might think that he'd buy, but not above $10k.  Obviously, us two aren't going to meet in the middle, but in reality the prices are much closer together, usually around the actual price of the thing on that day, but not necessarily.  So, eventually you get a pair of matched contracts that say 'okay, you promise to buy at that price, I'll promise to sell'.  Note that each contract is 1 Bitcoin -- so if my 'promise to buy' is for 100 Bitcoins it might be that there are loads of different people on the other side of the trade. 

The important point of the pricing is that there's always a promise to buy matching a promise to sell.  If there aren't enough promises to buy then the futures price will go down until there is.  Similarly, if there aren't enough promises to sell then the price will go up.  But, at each point where a futures contract is made, the promises to buy and promises to sell will balance.

Is that it?  Not quite.  The contracts are freely tradeable.  I can sell my promise to someone else.  So, halfway between here and the point where the futures contract is settled, I can make a deal with someone else to take over my promise.  Say I said I'd promise to buy at $10k and the price is now $15k, but I have a sneaking suspicion that it'll be lower when the contract is settled, but I've found someone that believes it'll be much higher on the contract settlement date.   I can negotiate with that other person that they pay me $5k per coin now and take over the promise.  Everyone's happy, right?  Anyway, there tends to be loads of such exchanges mid-contract, and that is kind-of what moves the price when people see the trades moving the price about.

So, eventually the settlement time comes.  The bell rings and everyone nets out their positions.  If you've promised to sell/buy and you got the bet wrong, you've got to pay up.  Can't pay?  Well, you have to.  To reduce the risk of people not being able to pay up, brokers (the people you actually buy these things from) will demand that you leave a % of your promise with them, just to make it easier for you to pay up when you make a stonking loss -- so the point of 'paying up' is just that amount you left with them either getting bigger (yea!) or smaller (boo!).

With physical settlement the settlement process can lead to problems.  The famous example is the Hunt Brothers in the 1970s.  They'd bought up all the actual physical silver around, but no-one seemed to know (well, know the risks, anyway).  Then, when it came for the futures contract to be settled, no-one would sell the silver to the people that had promised (were legally mandated) to buy.  The Hunt Brothers could dictate the price, and, knowing that a load a people had no choice but to buy, they put the price up.  Crypto people are a bit cross that this doesn't apply to the Bitcoin futures, but, frankly, if they were settled with physical then there'd be too much scope for people mucking about on the settlement date.

Anyway.  That's the futures market.

Oh, and my guess as to a price crash by end Jan?  It is all about the first contract reaching settlement.

 

 

[Rave]

Thanks for your very readable refresher on Futures  . What led me to ask the question was this section of the Shaun Richards blog post (that I linked to originally):

"Next is that one of the benefits of futures trading may not actually apply and h/t to @chigrl for raising the issue. Remember I said that allowing short selling was one of the key points of a futures contract? Well here are the rules of Interactive Brokers and the emphasis is mine.

Due to the extreme volatility of cryptocurrencies, clients will be unable to assume a short position including as part of a spread. The only time a short order will be allowed will be in the case of a roll trade that results in a long position. In addition, market orders will not be accepted.

If this is in any way widespread the whole concept of a futures contract on Bitcoin may be holed below the waterline. As I pointed out earlier the ability to sell short is if not the modus operandi a big point of having a futures market. Added to that is that there are of course plenty of risks in being long Bitcoin at current levels. Are market prices supposed to bring a balance between the risk of buying and selling?"

This is the second result when you google "bitcoin futures short position":

https://www.bloomberg.com/news/articles/2017-12-12/bitcoin-short-shortage-keeps-crypto-futures-wobbling-above-spot

..and so, while I'm undoubtedly still being dim, I'm none the wiser as to how anyone could- at this point in time- profit from shorting bitcoin. 

 

[ddd]

Houses start selling for Bitcoin. 

 

https://www.cnbc.com/2017/12/13/bitcoin-is-the-only-payment-this-condo-seller-will-accept.html

 

I wonder how this would impact real estate taxes. I also wonder which country will be first to declare itself free and open, tax free on their hodlings for crypto hodlers to move to. 

[Darby Ram]

14 minutes ago, ddd said:

Houses start selling for Bitcoin. 

 

https://www.cnbc.com/2017/12/13/bitcoin-is-the-only-payment-this-condo-seller-will-accept.html

 

I wonder how this would impact real estate taxes. I also wonder which country will be first to declare itself free and open, tax free on their hodlings for crypto hodlers to move to. 

On the first point, why would the currency used for the transaction affect the taxes due? 

On the second point, it's irrelevant unless the hodlers also give up their original citizenship. Otherwise they would still be subject to CGT in their home country.

This is dangerously close to 'new paradigm' stuff - Bitcoin rising in price does not erase existing laws!

Edited December 13, 2017 by Darby Ram

[dgul]

13 minutes ago, Rave said:

Thanks for your very readable refresher on Futures  . What led me to ask the question was this section of the Shaun Richards blog post (that I linked to originally):

"Next is that one of the benefits of futures trading may not actually apply and h/t to @chigrl for raising the issue. Remember I said that allowing short selling was one of the key points of a futures contract? Well here are the rules of Interactive Brokers and the emphasis is mine.

Due to the extreme volatility of cryptocurrencies, clients will be unable to assume a short position including as part of a spread. The only time a short order will be allowed will be in the case of a roll trade that results in a long position. In addition, market orders will not be accepted.

If this is in any way widespread the whole concept of a futures contract on Bitcoin may be holed below the waterline. As I pointed out earlier the ability to sell short is if not the modus operandi a big point of having a futures market. Added to that is that there are of course plenty of risks in being long Bitcoin at current levels. Are market prices supposed to bring a balance between the risk of buying and selling?"

This is the second result when you google "bitcoin futures short position":

https://www.bloomberg.com/news/articles/2017-12-12/bitcoin-short-shortage-keeps-crypto-futures-wobbling-above-spot

..and so, while I'm undoubtedly still being dim, I'm none the wiser as to how anyone could- at this point in time- profit from shorting bitcoin. 

 

That doesn't make sense.  You can't have a one sided futures position.  Anyway, the Cboe contracts definitely have a short position.

That said, I have heard that brokers are being very lopsided when it comes to the margins they demand.  It is 50% of contract value for a long (ie, they ask for $9k today for every Bitcoin you promise to buy at $18k.  That would cover the price going down to $9k.  If it went down further they'd have to chase you for the money (or maybe they'd just sell the contract to someone else and take the $9k).  I've seen short margins at $40k per Bitcoin -- that is, you might be betting on Bitcoin going down, but they're worried that it'll go up to $50k+ before Jan.  note, this isn't them predicting that it will, more that they're saying 'we don't take a position on this, so you have to prepare for worst-case'.

[markyh]

42 minutes ago, Rave said:

Thanks for your very readable refresher on Futures  . What led me to ask the question was this section of the Shaun Richards blog post (that I linked to originally):

"Next is that one of the benefits of futures trading may not actually apply and h/t to @chigrl for raising the issue. Remember I said that allowing short selling was one of the key points of a futures contract? Well here are the rules of Interactive Brokers and the emphasis is mine.

Due to the extreme volatility of cryptocurrencies, clients will be unable to assume a short position including as part of a spread. The only time a short order will be allowed will be in the case of a roll trade that results in a long position. In addition, market orders will not be accepted.

If this is in any way widespread the whole concept of a futures contract on Bitcoin may be holed below the waterline. As I pointed out earlier the ability to sell short is if not the modus operandi a big point of having a futures market. Added to that is that there are of course plenty of risks in being long Bitcoin at current levels. Are market prices supposed to bring a balance between the risk of buying and selling?"

This is the second result when you google "bitcoin futures short position":

https://www.bloomberg.com/news/articles/2017-12-12/bitcoin-short-shortage-keeps-crypto-futures-wobbling-above-spot

..and so, while I'm undoubtedly still being dim, I'm none the wiser as to how anyone could- at this point in time- profit from shorting bitcoin. 

 

Watch these 3  Bloomberg videos yesterday with the third with interactive Brokers, who are trading 50% of the Bitcoin futures volume. They are scared shitless of shorting Bitcoin due to price movements and worried that if the smaller brokers  allow shorting and BTC goes long, the margin losses will be more than just the losses on Bitcoin and all the value of settlement checks for all contracts will get swallowed up to cover bad bitcoin short positions and bring down the clearing broker.

This is why such a huge spread between the spot price and futures price, lack of shorts. He ended saying if shorts where allowed the minimum margin cover would be $100k!!!!

They are scared of the Crypto beast for now! 

https://www.bloomberg.com/news/articles/2017-12-12/bitcoin-short-shortage-keeps-crypto-futures-wobbling-above-spot

Edited December 13, 2017 by markyh

[dgul]

29 minutes ago, ddd said:

Houses start selling for Bitcoin. 

 

https://www.cnbc.com/2017/12/13/bitcoin-is-the-only-payment-this-condo-seller-will-accept.html

 

I wonder how this would impact real estate taxes. I also wonder which country will be first to declare itself free and open, tax free on their hodlings for crypto hodlers to move to. 

All transactions will be priced at £ equivalent, and taxes charged accordingly.

[guest_northshore]

32 minutes ago, Rave said:

..and so, while I'm undoubtedly still being dim, I'm none the wiser as to how anyone could- at this point in time- profit from shorting bitcoin.

That was just at Interactive Brokers. They've since changed it to allow shorting, although at 5x margin of a long. Biggest general problem is that a long has max risk of price = 0, short that price = anything higher. In reality most futures trades aren't outright positions anyway, usually taking a view on a particular aspect or risk management - hedges, spread trades or structures with/without options. In a particularly illiquid and opaque market that again likely dampens interest in shorting because downside risk/reward is too great (of being outright short).

[markyh]

15 minutes ago, Darby Ram said:

 

On the second point, it's irrelevant unless the hodlers also give up their original citizenship. Otherwise they would still be subject to CGT in their home country.

Not in the uk if you "reside" abroad for 5 years or more, there are strict rules on how many days you can be in the uk p/a after you notify HMRC you are now ex-pat. But after 5 years have passed and you stayed within the rules you can come back in 5 years a 1 day with your gainz UK CGT free.

[Bear Hug]

42 minutes ago, Rave said:

 

Due to the extreme volatility of cryptocurrencies, clients will be unable to assume a short position including as part of a spread. The only time a short order will be allowed will be in the case of a roll trade that results in a long position. In addition, market orders will not be accepted.

 

 

6 minutes ago, dgul said:

That doesn't make sense.  You can't have a one sided futures position.  Anyway, the Cboe contracts definitely have a short position.

Agreed that it didn't make sense.  I read that article and had the same question as Rave but couldn't be bothered to copy/paste all that

[Rave]

OK fair enough then, cheers!

[GreenDevil]

Looking forward to the flash crash in bitcoin futures.

Stick a bid in 100$, you never know, might get lucky!

[GreenDevil]

52 minutes ago, Rave said:

..and so, while I'm undoubtedly still being dim, I'm none the wiser as to how anyone could- at this point in time- profit from shorting bitcoin. 

 

Being able to naked short bitcoin is only one strategy. A more common strategy is to own 5 real bitcoins, and sell one futures contract. That way you are locking in a price if you expect a price drop. You are not short the market. You can buy back your short once the market correction is over. You can then assume a net long position. If youre wrong and the price goes to 20,000 you close out both the long and the short for a net break even.

[dgul]

2 minutes ago, GreenDevil said:

Being able to naked short bitcoin is only one strategy. A more common strategy is to own 5 real bitcoins, and sell one futures contract. That way you are locking in a price if you expect a price drop. You are not short the market. You can buy back your short once the market correction is over. You can then assume a net long position. If youre wrong and the price goes to 20,000 you close out both the long and the short for a net break even.

Well, that sort of thing might be a sensible play, but in that example you might be better off just selling and rebuying the Bitcoin.

There are two circumstances where you'd play with the futures while holding physical:

• You really feel that it would go down, but it would take some time to get you Bitcoin out of cold-storage, so you short the future while you sort out the physical.
• The costs associated with moving in and out are large, so you make the bet on the futures market; if it turns out evens you've just got the futures costs to pay (this isn't necessarily the case at the moment, but it is a potential reason for hedging physical with futures).

[ddd]

26 minutes ago, dgul said:

All transactions will be priced at £ equivalent, and taxes charged accordingly.

I said real estate, not UK housing market. 

[Inoperational Bumblebee]

@markyh, I'm surprised you're waiting until you hit £100k to buy a £70 hardware wallet to protect it. Seems bonkers to me!

I use a Ledger Nano S and I think it's really good. Lots of different coins cab be stored on it too.

[markyh]

5 minutes ago, Inoperational Bumblebee said:

@markyh, I'm surprised you're waiting until you hit £100k to buy a £70 hardware wallet to protect it. Seems bonkers to me!

I use a Ledger Nano S and I think it's really good. Lots of different coins cab be stored on it too.

it will only be a few days though, week at most! 

[ddd]

35 minutes ago, markyh said:

it will only be a few days though, week at most! 

It shows how times have changed. I had to wait 3 months for my Ledger. 

[Darby Ram]

1 hour ago, markyh said:

Not in the uk if you "reside" abroad for 5 years or more, there are strict rules on how many days you can be in the uk p/a after you notify HMRC you are now ex-pat. But after 5 years have passed and you stayed within the rules you can come back in 5 years a 1 day with your gainz UK CGT free.

But this is precisely my point. Those rules - the British rules that define who is and isn't an expat, and the rates of CGT due - have exactly zero to do with Bitcoin.

In fact, the last place I saw decanting oneself to Malta for tax purposes discussed in detail was the BTL Scum Regrouping etc thread. Any hodler should be wary of tax/life advice that sounds like it could be lifted from the PovertyLater forum.

[ddd]

9 minutes ago, Darby Ram said:

But this is precisely my point. Those rules - the British rules that define who is and isn't an expat, and the rates of CGT due - have exactly zero to do with Bitcoin.

In fact, the last place I saw decanting oneself to Malta for tax purposes discussed in detail was the BTL Scum Regrouping etc thread. Any hodler should be wary of tax/life advice that sounds like it could be lifted from the PovertyLater forum.

That was the point of my question. I wonder which country will give free citizenship and tax amnesty on their Bitcoins. This is ~2 years away. 

[taderuk]

10 hours ago, dgul said:

The way we all look at these things is that the people who think it will go down take the short.  The people who think it'll go up take the long.

The detail is a bit more nuanced (but amounts to the same thing)

The futures price is a bet on the price at a certain point in the future.  In the case of the Cboe futures the 'first' contract to get there is for 17th Jan 18 (at 4pm, Chicago time).  The deal is, you have to promise to either buy or sell the thing at the price on that final day.  Most futures end up actually being settled by cash instead, but the mechanisms of that sort of cash settlement is a bit more complex.  Some futures are settled explicitly using the cash price at the end point.  The Bitcoin futures are like this.

So, you get a load of people saying that on 4pm 17th Jan they'll either buy or sell a load of Bitcoins.  Only it is cash settled, which means that everyone will actually get/pay the profit/loss that they'd have made if they did get Bitcoins and immediately sold them, or had to buy Bitcoins to give to the exchange.  So, if I said I'd buy 100 Bitcoins at $10k and some guy called Doug said he'd sell 100 Bitcoins at that price, then instead of Doug having to sell to the exchange 100 Bitcoins @ $10k, and then they sell the 100 Bitcoins to for $10k -- if Bitcoin was at $15k, Doug would give 100*(15k-10k)=$500,000 to the exchange (this is his loss if he had to buy 100 bitcoins at $15k and then immediately sell them to the exchange for $10k), and the exchange would give $500,000 to me (which is how much extra it would cost me to buy 100 Bitcoins at the $10k I'd bet at, if they actually cost $15k).

This process seems convoluted, but actually makes sense if you think about where these sort of markets came from.  You'd have a large farmer (say) saying they'd sell some wheat when the harvest came in, but that they'd like to set the price in stone early.  The 'buyer' would promise to buy it at a price, the farmer would promise to sell it.

So, what about the price of the contract.  This is set by a sort of auction process.  I might have a pile of Bitcoins that I want to sell, but not for less than $20k.  I can then put it on something like a bulletin board saying I'll sell at $20k if anyone wants to take the other side of the deal'.  Anther guy might think that he'd buy, but not above $10k.  Obviously, us two aren't going to meet in the middle, but in reality the prices are much closer together, usually around the actual price of the thing on that day, but not necessarily.  So, eventually you get a pair of matched contracts that say 'okay, you promise to buy at that price, I'll promise to sell'.  Note that each contract is 1 Bitcoin -- so if my 'promise to buy' is for 100 Bitcoins it might be that there are loads of different people on the other side of the trade. 

The important point of the pricing is that there's always a promise to buy matching a promise to sell.  If there aren't enough promises to buy then the futures price will go down until there is.  Similarly, if there aren't enough promises to sell then the price will go up.  But, at each point where a futures contract is made, the promises to buy and promises to sell will balance.

Is that it?  Not quite.  The contracts are freely tradeable.  I can sell my promise to someone else.  So, halfway between here and the point where the futures contract is settled, I can make a deal with someone else to take over my promise.  Say I said I'd promise to buy at $10k and the price is now $15k, but I have a sneaking suspicion that it'll be lower when the contract is settled, but I've found someone that believes it'll be much higher on the contract settlement date.   I can negotiate with that other person that they pay me $5k per coin now and take over the promise.  Everyone's happy, right?  Anyway, there tends to be loads of such exchanges mid-contract, and that is kind-of what moves the price when people see the trades moving the price about.

So, eventually the settlement time comes.  The bell rings and everyone nets out their positions.  If you've promised to sell/buy and you got the bet wrong, you've got to pay up.  Can't pay?  Well, you have to.  To reduce the risk of people not being able to pay up, brokers (the people you actually buy these things from) will demand that you leave a % of your promise with them, just to make it easier for you to pay up when you make a stonking loss -- so the point of 'paying up' is just that amount you left with them either getting bigger (yea!) or smaller (boo!).

With physical settlement the settlement process can lead to problems.  The famous example is the Hunt Brothers in the 1970s.  They'd bought up all the actual physical silver around, but no-one seemed to know (well, know the risks, anyway).  Then, when it came for the futures contract to be settled, no-one would sell the silver to the people that had promised (were legally mandated) to buy.  The Hunt Brothers could dictate the price, and, knowing that a load a people had no choice but to buy, they put the price up.  Crypto people are a bit cross that this doesn't apply to the Bitcoin futures, but, frankly, if they were settled with physical then there'd be too much scope for people mucking about on the settlement date.

Anyway.  That's the futures market.

Oh, and my guess as to a price crash by end Jan?  It is all about the first contract reaching settlement.

 

 

Great layman's terms explanation.

[dugsbody]

My Ledger Nano S arrives soon. What is a reasonable transaction fee to pay at the moment to have the transaction processed within 6 hours? I want to transfer a tiny amount first and go through the reset and restore process before sending all the rest.

[goldbug9999]

$6 or so according to this ...

https://estimatefee.com/