Post
Topic
Board Bitcoin Discussion
CME futures open door to options and ETFs. Forward price to be higher than spot
by
Trickyt57
on 01/11/2017, 06:09:50 UTC
Today’s announcement by the CME that it will start trading cash settled bitcoin will push the price substantially higher for two reasons:

Acceptance

Technical

The first point is obvious.  Having bitcoin trade alongside mainstream investments like eurodollar, S&P, gold, etc will bring millions of new investors to bitcoin.

The technical point is that professionals will short the future, as the forward months will have higher prices than spot.   To cover themselves they need to own the spot = more buyers.

The second technical point will happen, but down the line could lead to a problem.

These futures are cash settled.  There is no actual delivery of bitcoin.   If volume on the futures becomes larger than the bitcoin exchanges, market manipulation will be a risk.   Example: I buy 10000 January 2018 bitcoin futures.   Minutes before expiry, I see that the market depth on one of the reference  exchanges is thin.   I hit the exchange with “buy at market” orders for 3000 bitcoin.   The price shoots up from $10’000 to $1 million.  Now the sellers of the future will need to pay me out in CASH, based on the photograph of that price.

Of course the market-makers will screw me over if I do that.  They will say it’s a repetition of what the Hunt brothers did.  They were the “Silver Bulls” who bought up all the physical supply of silver while being long the futures.  The price of silver crashed after new rules were brought in to stop them rolling all their contracts.  They became forced sellers.