Bitcoin Forum

Is the economy in for another shock,   Could bitcoin be the future.  I have worked with Bloomberg for the last ten years and the talk here is exciting form a trading perspective.  What would happen to the valuations if bitcoin was not considered a currency but rather a commodity. The idea is relatively simple.  If we take the idea that bitcoin will become more popular and mining operations become more prevalent than eventual a wall will be hit.  Does bitcoin actually have a value or is it something that we can hold in the hopes that it will exponentially hit the prices of gold, and if it does how ling will it last.

Monday morning I am sitting down with an investment firm to work out the algorithm to augment and shock this industry.  It is not a currency but rather traded on the fear of lack of other opportunities.  There is a finite time in which it could be profitable.  A derivative will allow the mass majority of people to weigh in on the potential valuation an month, two or three in the future.  A derivative could crush this industry, there are currently no constraints and institutional investors want their piece of the profit with the risk of being stuck with bitcoin potentially negated.  It seems as if the big banks want their cut and a willing to screw all those that are trying to mine coins that have only intrinsic value.  Meaning that bitcoin would have a different value if you could trade it without every having to mine or own any bitcoin.

I would not want to be the one stuck holding the bag, so to speak. depending on the derivative bets , puts and calls these institutional investors are just betting on the future and what the masses think about the product.  Think of it like the Abacus fund from Goldman.  The mortgage holders did not loose their homes during the bet but if you bet incorrectly you could have lost a lot.  The only difference is that you guys are mining and holding a commodity thats value is based not on potential uses but rather on the emotions that have driven you from "mainstream" investment strategies.

If i was to place a bet on a derivative of this nature it would be that the value would collapse the longer that industry existed seeing that the demand of the "product" has no intrinsic value.   

This all may sound crazy to you but at the end of the day there is a recorded history of this

Thanks -

Al - Stock Analyst, M&A Consultant since 97' and the holder of over 7500 BTC

Damn AL,
I give you a glass of wine and leave you alone at my iMac and look at what you went and did?
Do you want to let them know how you "Short Sell" the Bitcoin.... Al will be joining the Forum soon... Ahhhh Shiiiiiit!

FUD

Al-

What happens when the buyers of btc options want delivery instead of a fiat profit?  The sellers of these options would certainly have to own some bitcoin to fulfill the contract then...where are they going to get it...

There is no physical constraint to delivery of btc...there is no limit as to who is able to take delivery of btc...

I don't have a crude oil storage tank in my backyard to take delivery of crude I buy via options...but I do have a blockchain.info wallet...

Borrow BTC, sell it, when price goes down, buy back, repay BTC loan, profit.

It's a Derivative, It would trading it on Wall Street. People with bitcoin already are not the target but rather the outside investors that are willing to take the risk,  With a derivative their is no need to take ownership of the commodity rather it is a straight up bet based on the future value the "winner" get paid with the money from the incorrect investors no bitcoin ever needs to trade hands.  it is not about trading bit coin but rather betting on the street.  the only downfall is if the derivative causes bitcoin value to plummet the people currently with bitcoin holdings or mining operations will be the ones loosing the most.  

"Burp" More Wine Please!!!!
Al -

but but but
There already are 'derivatives' of btc - people have done IPO activities selling stock in bitcoin and you can buy options on bitcoins and bonds and all sorts of stuff.
Mpex (just in case you guys missed it)

you didn't answer the question...I know it's a derivative that would trade on wall street....I asked what happens if buyers of btc calls, for example, actually want delivery of btc instead of settlement in fiat?

Your betting on Bitcoin Value not receiving BTC in return....
Wall Stret does NOT give a shit about your coin brother....
Have a good night im driving home now...
Tag you "IT" Vic...
Haha
Al-

lol...I think that says it all....bahaha...more wine?

How is your "sanitized" derivative (all positions are closed out before the settlement date with no actual trading) supposed to influence the bitcoin market?

You can't crash the real price without selling real bitcoins.  I guess you could hope to have a psychological effect on bitcoin holders, but I'm unconvinced.

I'll just translate for those who aren't in on the central banking crime syndicate.  This is talking about a vehicle for the banks to pay for someone to suppress the Bitcoin economy "by other means".  As in, "that's a nice business you got there, it would be a shame if something were to happen to it."

That I could believe.

This should get interesting when Popescu, cypherdoc, Death&Taxes have a good read.

Now that "Al" is sober maybe he could explain how side bets on BTC price, that are not even backed by real actual BTC are suposed to effect actual BTC price?  He said these Wall Street gamblers don't care about us and Bitcoin so why should we give a shit about them and their fiat gambling addiction?

... because psychological effects have never run rampage on the bitcoin price, for sure...  ;D

Paper gold is working so well for that market, seems silly not to try and pull the same stunt with paper Bitcoins.

I have a theory.

This is nothing more than a long winded version of "what if Wall Street big money comes in and manipulates the price of BTC to make a quick buck?" post we have seen a thousand times before.

The theory goes that they create a bunch of unbacked derivatives.  They also take up a large BTC trading position.  Sell a bunch of derivatives.  Using their large BTC holdings and obviously large USD holdings manipulate the BTC market to their advantage in this new derivative market.  If that is what is being proposed then I only see a bunch of fiat derivative gamblers being taken.  BTC traders can just go along for the ride.

Is that is "Al"?

Yeah, and wall street would get a short sharp lesson in volatility if they start to stir in bitcoins with their big paws.

Once the financial capitalists start messing around heavily with Bitcoin, Bitcoin will be doomed.

With commodities you have a paper trail that can be manipulated, counterfeited, and estimated with rehypothecations of assets. Traditional derivative bets cannot be made with Bitcoin because you will be forced to prove ownership by signing your addresses. Good luck loaning bitcoins you don't have. Someday you may even be required to use triple-entry accounting. Better enjoy the wine while you can.

The potential to manipulate bitcoin is actually really limited to those who don't want to profit.  Anything else is a really short-term phenomenon because after dumping all shares at the peak of a bubble to cause a cascading market crash, you have to buy them back right away or risk missing the dip.     Options trading might change this, but again somebody has to offer their bitcoins on the other side of the contract so the bitcoins have to come from somewhere.

Wallstreet getting into this in a larger way than they already are (look at tradehill) means the price goes up, alot.   They can profit from that rise and they can try to shake out weak hands so they can accumulate more bitcoin for cheaper, but ultimately unless you don't want to own bitcoins at the end of the manipulation, it's of limited effect.

When you sell PUT options on MPOE, or sell BTC/USD futures contracts on ICBIT, as two examples, the gains are earned in bitcoins.  So a favorable move (relative to the position) causes you to earn more bitcoins than you would have had simply holding a long position.   

It doesn't necessarily mean you don't want to hold bitcoins for the long term and instead could just mean that you believe the current exchange rate might be too high (or in the case of BUM3 futures contracts on ICBIT, you can earn profit from the current contango where the future sells at a price significantly higher than the spot price.)

So long as all holders must back their contracts with actual assets, not the supposed promise to buy said assets, I don't see a problem.

As I understand it options are (as the name might suggest) optional, once the contract expires the potential profit/loss can be calculated and the parties involved are credited/debited accordingly. Without ant BTC necessarily changing hands.

The 'option' part is that with the gains or losses, you can optionally trade the underlying equity involved with the gain (buy) or less (sell).

So BTC options are likely to happen whether you like it or not.

Please, drive bitcoin to a million each!!!  ;D

And please, short it!  ;D

Of couse they will.  Great!  As stated before if these options can be exersised then we can use them as just another way to obtain or sell actual BTC.  If they are not backed by actual BTC then they are just side bets on the price and we can just ignore them (or use if you like to gamble).

But what if the holder of the option wants to take delivery, not cash settlement?   With physical objects it makes sense to settle to cash so as not to incur transport costs, but with Bitcoin there is no advantage. 

So again, what happens if most options buyers use them as a way to buy "cheaper" bitcoins further out instead of trying to guess the price differential for paper profits?

For one thing, OP, your emphasis on "intrinsic value" is pretty cute. In a world where humans don't need to transact quickly over distance, maybe (and this is debatable) Aristotle's definition of money makes sense. But not anymore. Both tangibility and alternate-industrial-use are bugs, not features, of a money that's ideal for modern times.

I got a question and who said that this Al guy is really who he says he is and owns all these bitcoins.

Agreed.

Then they can take delivery. Every option has a buyer/seller. When an option is excercised there is a winner and a loser. The loser's account is debited, instead of the dollars being delivered to the winner, they are used to buy BTC. It's really just a matter of timing as to whether the dollars are converted to BTC at the point of option exercise, or later (or indeed as is likely the case in the real world,  at the point the option was written by the broker facilitating the option, who then profits from the spread and is hedged).

So if every trade is backed by the goods to perform the trade, it can't control the market price.  In order for the market price to be controlled by futures, they must dwarf the overall market in value by several orders of magnitude - Can't do that when all your trades require actual backing because most people choose to take delivery rather than convert to USD.

That's the trick to manipulating markets, you've got to be big BIG or have a group of medium-big players all acting as one.

Not true for all options, pork, orange juice, oil, indexes, etc. you cannot really take delivery of 1000 barrels of oil.  BUT with Bitcoin you can always easily take delivery.  So the real question is will these options be like options on stock (you can take delivery) or more like options on stock indexes (cant really take delivery of the entire dow, it is just a side bet).

Bah.  That is intrinsic value.  It is intrinsic to information that it can be easily transmitted over long distances.  It's intrinsic to strong encryption that it can ensure the privacy and integrity of transmitted information.

The problem isn't a lack of intrinsic value.  The problem is an archaic view of intrinsic value, and an archaic view of the function of money.  Currency transmits economic information over distance.  Money transmits economic information through time.  Gold is an excellent money, because gold today is the same as gold a thousand years from now.  Bitcoin is an excellent currency, because a Bitcoin in Siberia is the same as a Bitcoin in Miami.

The question is, is a Bitcoin today the same as a Bitcoin a hundred years in the future?  We don't know.  If it is, then they would be worth a million bucks each.

Not without a power station, power infra, EM antennas, EM modulation schemes, amplifiers, filters, routers, etc, etc, etc.
Information is pretty useless without a specific contruction to transfer it.
What you call intrinsic is pretty much defined by extrinsic factors.
With information you can even debate that information is almost fully defined by the environment.

But i think you are just using an arbitrary definition of intrinsic value.
Try this one: Intrinsic value of a thing is what you are left with when you subtract the economic value.
So think of all the things you can do with bitcoin information when you don't use it as a means of exchanging value.
This distinction is made to separate an objects usefullness in the market from its direct usefullness.

What you maybe refer to are intrinsic properties, which is a physical phenomenon and has nothing to do with the economic notion of intrinsic value altho some intrinsic properties of some things can give it intrinsic value.
A bread has the intrinsic property of energy storage.
When you sell the bread you exchanged it for its economic value (whatever the market is willing to give for it).
When you eat it you exchange it for its intrinsic value (it makes your hunger go away).

Same goes for an metal coin.
You can use it for its economic value (its face value).
Or you can use its intrinsic value (the value you give it for being able to use it for forging) and smelt it.

So if you were to find a way to use bitcoin in a way that has nothing to do with exchanging value then you would have found some intrinsic value.
Someone mentioned a few weeks ago that the blockchain could be used as a random number generator.
That could give some intrinsic value to the information in bitcoin.

But besides being used as a measure of value in the economy bitcoin has pretty little actual intrinsic value, which is good, as Melbustus mentions.

Altho in some very general sense you're right i would say that this is a pretty ugly oversimplification.
There are large overlaps between these notions as currency transfers value over time and money transfers value over distance.
So your way of defining the words is perfectly inadequate to separate the concepts.

The big word that is being ignored here is option.

They got there name because delivery is optional.

The abstractions are so deeply ingrained though, that the options themselves have become what people trade.



To address the point of *every* option being backed, it isn't.

Lets say the broker sells a call options. When it does so it becomes the counterparty, and must hedge its risk. (Whether they do is a different matter).

The perfect hedge is to trade the equity and collect the spread. (small guaranteed profit, you never go broke)

Another person comes along and wishes to sell a call, the broker will buy it. At this point the broker is no longer counterparty to anybody, as it can offset the one customer against the other. (and collects the spread doing so).

Now an option exists. It is not backed by goods. At option expiry the broker debits the loser and credits the winner. Delivery is just a case of whether the winner wants paying in dollars or to have his dollars converted to BTC.

I think we all know how options work.  Here is how I would use them (once they exist):

Buy a call.  Assuming the price of BTC goes up before the option expires then I will exercise my option and take deliver of my BTC.

If the seller of the call actually had the BTC no problem, they ship me the BTC.

If the call was naked then the seller of the call will be forced to go the maket and buy BTC in order to cover the call.

Wala - a new way to buy BTC!

Thats what I thought too.. at first...

Exactly - Literally the most convenient way to accept payment if you wind up wanting to exercise your option, is to simply have them send you the bitcoins.  If the price is volatile, what kind of idiot would sell an option naked for any length of time when the price could swing wildly against them, investors who don't want to go broke will buy the bitcoins at what they think is a cheap price, option the bitcoins when they feel the price is overbought and likely to fall to lock in their gains, with the worst case scenario being they sold their bitcoins at what seemed like a high price, but in fact wasn't.

Your upside is big, but your downside is capped.

So the market will stay small because going naked and getting it wrong could be so dramatically expensive.
Right?

Why would someone choose to take settle in cash rather than take delivery when at the very least there are less fees for the transaction.

This. They've done it with gold, no reason they can't do it with BTC. Futures markets usually trade magnitudes of amounts more of a commodity than there is in existence, and it doesn't really matter. Also, these futures markets have much better infrastructure than an exchange like Mtgox AND they're allowed to use leverage - all of which make it the number 1 place to be for price speculators. IN the end, the futures markets determine the price of the commodity and not the 'physical' or 'real' market.

For those that shrug off wall-st options trading as having no effect on bitcoin, consider the assassination market aspect of it. Obviously Bitcoin has drastic implications for the "powers that be" who derive much of their power via the control of fiat currencies. We know that, while big sells can trigger panic sells, exchange downtime and lag can also contribute. We could argue all day about which has more of an effect but in the end, right now we have Mt. Gox constantly lagging, BTC-e with its spottiness, Vircurex down for the weekend, Bitfloor with a "Some of our users are experiencing problems" message, other exchanges with problems of their own... It's not hard to DDOS these folks when they're being hit with ridiculous volume spikes that for some reason they failed to anticipate. And if you throw a few million or billion of fake fiat into a derivative, all of a sudden it becomes very profitable to fuck with the exchanges, release FUD news reports (if you're in the media business,) etc etc.
Of course none of this will work in the long run - the exchanges will learn to carry 10x normal capacity, the FUD news reports just end up getting more people to buy BTC - in the long run.

Please don't read this the wrong way - I'm obviously not saying that the only effect a wall st. derivatives market would have on bitcoin is via the assassination-market-type mechanism, nor am I saying that it would necessarily be a large or even significant aspect of it, nor am I saying that DDoS is responsible for all of our exchange troubles (it's not). Folks have this weird way of inferring the suggestion of one-to-one-causations for everything.

by the way, "Al" is just some pimply faced kid in his mom's basement who sold his only 3 coins at $94 and owes his pot dealer $500; desperate times call for desperate measures...  ;D ;D ;D

What he said, and the OP has a few facts about Bitcoin wrong, a few important facts. But hey ho, let the Wall Street criminals try, I look forward to it and giggle with my popcorn in anticipation :D

"Hey, wall street, i'll sell you 1 btc for £1 billion then you can play your silly paper games with that. Oh, you'll just pretend you have btc as you sell it to each other? Hahahaha, I have some monopoly money you can use." :D

When you're finished playing your games with your non-existant and useless paper, that you CAN'T send to anyone, we'll be laughing, and still  laughing :)

Maths > wall street stupidity/corruption

edit: Let me put it this way, when anyone with a wall street paper btc tries promising the toilet paper to anyone, sure! If another wall street wa.. I mean banker sells it to another wall street wanker, sure, be happy, go ahead :) Your imaginary paper will make the masses think that bitcoin is worth hell of a lot more of whatever its value will be at the time.

This will make masses of people, and people with lots of money, buy REAL bitcoins, increasing the real value (which is mathematically created as a weighted average and can not be increased by 'imaginary' paper money).

The paper btc will only carry value for the fools that accept it. And when they come face to face with someone who says "soo... send me the btc." They'll fall flat on their face, and suddenly they'll realise that their paper btc can't in fact imitate hard maths, and suddenly they'll realise how worthless their toilet paper is, and suddenly bOOm, sell sell sell, their silly toilet paper money disappears (whilst the real value of btc stays steady), and the wall street fools that brought into it are brought low. Whilst the real btc owners are giggling and eating their popcorn.

So, yes, create paper btc :) increase attention and value to real btc and draw the masses to us :) then watch as your toilet paper is extinguished as the 1st person refuses your paper money for real btc (and considering the peoples trust in the banks, that won't take long).

Satoshi already thought of this.

I'm not a trader, but i've been around a lot of them. I write software. This is my uninformed opinion:

Those personas like "al" are a dime a dozen. They are everywhere, and all over themselves with joy thinking this is the next big thing they're going to manipulate. They're never that smart, they tend to have 1 or 2 plays, and rinse and repeat based on the complete anarchy in the markets. They're cocky and tend to burn out badly, 'hyper-lame-and-sad-to-watch-your-jokes-are-tired-and-boring-nobody-cares' kind of thing.

It's likely right now (for the next few years) they'll be able to manipulate the BTC market fairly easily (or at least their bosses will)

But.. If this becomes a useful currency that people trade for goods and services, IMHO none of that will matter. The value will stabilise through billions of people's livelihoods and businesses.

The ONLY reason they had so much leverage in the past (till now) is because of the fiat and fractional reserve system, corrupt politics, and a broken economy allowing them to leverage themselves to the hilt.

They can try to 'fake' that, but it will never be the same for them if we drop the existing 'framework' and go back to a form of 'gold standard': 'crypto standard'

Just to be clear here, are you asking why people would trade options to make money?

A lot of people would trade BTC options whether these options allow delivery or not.

I only state that I personally could/would use them as a method to purchase BTC if these options allowed/required the option to take delivery.

Also, if people sell naked BTC options they get what they deserve if someone asks for delivery.

But the real question is would the trading of these options on a large scale affect the price of BTC?

Assuming people take delivery of BTC then I only see it as another way for people to purchase BTC therefore it probably would cause more buying pressure.

Assuming people do not take delivery then these are only side bets on the price, denomintate in USD or whatever other fiat currency they are sold in, so no real but possibly some psychological effect.

No... I'm asking why you don't recognize taking profit in Bitcoin as somehow not making money compared to taking that profit in some other currency?    Even if it's just to take delivery of the bitcoins so they can sell them at market rate in their local currency, it's still more efficient to take delivery of the bitcoins than trying to move the value in anything else.

Do you not consider Bitcoins money?  We both agree people want to profit, but I don't understand what the incentive is to accept those profits in a currency that is more expensive, slower, and passes through more hands before getting to you rather than one that doesn't.  Please help me see what I'm missing, because your position is confusing to me.

His point/position is that people that don't care about BTC can be happy as a pig in shit to just bet with dollars, take their profits and/or losses in dollars and never even touch BTC - and these people will be happy "making money" without even knowing what a BTC is let alone ever holding one.

The question I find interesting, the question posed by the OP is:  would this side betting have any affect on BTC (me, you)?  Do we care if all these side bets are placed or not?  I think not, but I am not 100% sure on that.

Can anyone come up with an example or explain why side bets, in dollars, even on a massive scale, would affect us over here in Bitcoinland?

The only thing I have come up with so far is that someone could place massive bets on the price of BTC in dollars, profits to be taken in dolars and then come over here into Bitcoinland and attempt to manipulate the price in order to win their bets.

But price manipulation of BTC is nothing new.  We are used to it we have adapted and, it is not without risk.

Options would help BTC in a number of ways.

If you can buy BTC options on CBOT (or other big exchanges, as opposed to MPEX), then mainstream adoption of BTC isn't far away - i.e. big companies start accepting them for bill payments, mainstream banks create BTC bank account forms, and ma & pa start buying groceries with them.

Ultimately though, the only things that count in terms of utility are the number of people using it, and the number of transactions.

Also people with long (or short) positions on BTC who want a hedge.

I haven't said you can't take BTC. On the contrary I explained several posts back how you can, because delivery is optional, and if you do all that happens is the broker pays your 'profit' from when the options is assigned in BTC instead of USD.

BurtW is right. Most people that trade options just do it for the currency the options are valued in and not the asset.

He is also right that you can use options to acquire an asset at a fixed price, by *OPTIONALLY* taking delivery of the good when the option is assigned.

I think you are confused because you don't seem to see how options work.

This is the theory behind what happens when an option is assigned (assuming they are both naked, which is usually the case):

When an option is assigned then the losing person must buy the asset at market price. The winning person buys the asset from the loser at the option strike price. The winning person then sells the asset back to the market at market price. Thus the loser has lost a dollar amount equivalent to the difference between the strike price and the market price multiplies by the number of options. Vice versa the winner has gained that same dollar amount.

In reality the underlying asset is not traded, instead the math is done and the money is transferred from one party to the other.

Effectively the profit and loss is derived form what would have happened if the two parties had bought/sold the equity. Hence the name derivative.

So now you can see how naked options are not only possible, but likely commonplace. In an earlier post you said something about how options can only be used to control the BTC price if the options market dwarfs the real market. I hope now you see how that can in fact be the case. I'f I've got millions riding on a given strike price, and it only costs me thousands to move the price where I want it ....

For a while, once this manipulation is discoved then I suspect the market for these hightly manipulated options would collapse.

as long as I don´t have to pay for their losses then I don´t give a damn of what they do.. ;)

And that's the faulty assumption - You're looking at bitcoin like an asset rather than a currency that's actually better at being money with lower costs at the very least.  That's why bitcoin is different when it comes to buying options.  Obviously if the market does not go in your favor, you will not exercise your option - but if the market DOES go in your favor, under what circumstance would it make sense to incur EXTRA COSTS to accept USD instead of just taking delivery of the BTC to whatever account you want at no cost to you (sender pays transaction fee)?

Still waiting for that in the gold market ;)

What did you think options were !?

Whether you like it or not, options behave like options!

The option contract has a value in whatever currency (typically dollars) and you can go long or short. The price of the contract depends on the strike price (typically in dolars) of the underlying asset (in this case BTC) that the contract is for.

I used the word asset because you can get options on anything commodities, equities or other currencies, like bitcoin. Its just terminology, the concept is identical.

You keep talking about fees? What fees? You go to your broker, you buy your option with dollars, you win or lose a certain amount of dollars. If you want to take delivery then you tick a box and your option will excercised and you'll get bitcoin (provided you have the funds to excercise your option).  

The broker makes its money on the spread, good look trying to avoid that... the house *always* wins.

Your counterparty is unlikely to be one person. It's the aggregate of everyone that took the opposite position. Either a punter who went naked on leverage, or if there were no sellers for your buys, then the broker would (should) have hedged the position.

What people ought to do, and what people do... two different things!

People do stupid stuff all the time, I'm certainly not exempt from that!

For sure if you own the underlying asset, or perhaps your livelihood depends on say a minimum corn price, then options can be useful took to hedge.

I'm not sure wall st plays it like that though ;)