Price Stability & Futures

[MadBanker]

My first post here. I am interested in views on BTC futures trading, and the effect it will have on price stability. I am really only interested in informed views, not unfounded fears or gut feelings. I have a view, but will wait until others comment before sharing. Thanks, MadBanker.

[Chrisoldinho]

I think the price will hike over time, pushing beyond the $300 USD level, only IMO of course.

[Breaksalad]

I think the price will hike over time, pushing beyond the $300 USD level, only IMO of course.

I'll second that.

[Coinus Maximus]

I dont think there is a straight answer to your question. A futures market opens up liquidity to new entrants, as well as making investing less capital intensive and hence leverage easier. This has the potential to both allow more market makers to provide more liquidity to avoid big dislocations, but it also allows more CTA-type speculators to more easily pound the market with leveraged strategies.
So the question is: If you build it, who will come?

[agentbluescreen]

My first post here. I am interested in views on BTC futures trading, and the effect it will have on price stability. I am really only interested in informed views, not unfounded fears or gut feelings. I have a view, but will wait until others comment before sharing. Thanks, MadBanker.

I think you'll find plenty of my and other's views in these other "stability" and "futures derivative token" related threads. I'm glad to see your recognition of exactly what is we are all actually talking about here! 

Other / Newbies / Re: stable bitcoin pricing...The "Bubbles with Bitcoins" nightmare
https://bitcointalk.org/index.php?topic=175708.msg1832923#msg1832923

Other / Newbies / Do Bitcoins need something REAL to back them?
https://bitcointalk.org/index.php?topic=180009.msg1880436#msg1880436

Economy / Speculation / Re: Gold collapsing. Bitcoin TOO!
https://bitcointalk.org/index.php?topic=177949.msg1859342#msg1859342

Other / Newbies / Re: Fractional reserve banking
https://bitcointalk.org/index.php?topic=160362.msg1839605#msg1839605

[mercSuey]

I'm of the opinion cryptocoins' virtue is from possessing the safe-haven characteristics of precious metals, but with the ability to use like fiat currency.  Cryptocoins' usage and adoption rate is dependent on security and confirmation speed.  Perhaps confirmations not allowing transactions to be as fast as say, credit card payments, is the trade-off for merchants to accept cryptocoins as a method of payment and accepting the inherent risks associated with cryptocoins versus broadening their market to more potential customers.  In general, I feel cryptocoins will steadily gain traction and thus added liquidity from increased usage shall push prices higher over time, as it is a finite resource.  But if futures can aid merchants/businesses to hedge risks so that adopting cryptocoins becomes a win-win, then we will see a new level of adoption and usage across all industries, not just basic consumer retail.

[MadBanker]

So as promised (or threatened), my thinking is that futures trading will improve stability. I am not generally a fan of derivatives voodoo. (I like a quote I heard that described them as WMD - can't remember who by).

My justification is a bunch of academic research from the Federal Reserve of Minneapolis in 1986, which is pretty heavy, but if I understand it well enough make a good case for improving stability when the shocks only come from the demand side:

Kawai considers the case of speculation through futures trading in storable commodities. He uses a mean-variable framework in which agents have homogenous beliefs. He finds that if the primary source of randomness in the commodity market is through disturbances to consumption demand, then the introduction of futures market will stabilize spot prices; on the other hand, if the inventory demand disturbance is the preponderant shock, futures trading tends to destabilize prices.

http://minneapolisfed.contentdm.oclc.org/cdm/singleitem/collection/p15334coll1/id/397/rec/5

I would be interested if any maths geeks out there can validate my interpretation of the report.