Derivatives like futures will be great for bitcoin, before they destroy it

[ktabb]

Bitcoin has a few major problems that prevent it from being usable as a currency. The largest is its volatility. Futures can help vendors deal with this by locking in prices. This would allow bitcoin to move from it's measly little market cap in the tens or hundreds of billions, up to the trillions, where it needs to be as a currency. It can also help stabilize the volatility. Without something like futures, it is highly unlikely that bitcoin will survive (currently it is definitely in bubble territory, being overinflated based on hype rather than intrinsic value).

All that being said, derivatives will be the downfall of bitcoin as well. It's only a matter of time before people start trading bitcoin options in addition to futures. Where has trading derivatives of securities that hold no intrinsic value caused problems before? Just take a look back at the synthetic CDOs that allowed billions of dollars to be invested in mortgage securities that contained nowhere near that value in assets. Banks have done this before and crashed the entire economy. Bitcoin isn't on nearly that large of a scale yet, but it seems to be following a similar pattern and heading in a similar direction.

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[DaMut]

first of all Bitcoin will never can be used as a currency,
at best it will only be an online payment,
it can not be used as a currency because it does not have a physical form.
we ever heard about 'casascius' as its physical form,but it's far from enough to replace the Fiat itself.
in brief 'casascius' can not be used as a payment in real life and because of that Bitcoin will never can be.

and about Derivatives or futures or something else,
it's all about our own view.
some of them think the other way and some people think another,everybody have their own perspective.
it's a gamble in my opinion,but Bitcoin need it.
for Bitcoin everything is a double edge sword because it has an advantage but at the same time it has disadvantage.
we need to get out from the safe zone,

[TheQuin]

Where has trading derivatives of securities that hold no intrinsic value caused problems before? Just take a look back at the synthetic CDOs that allowed billions of dollars to be invested in mortgage securities that contained nowhere near that value in assets.

That's a misunderstanding of what futures and options are compared to CDOs. Futures and options are deliverable, that is you can hold them until they expire and then take delivery of whatever the contract is for. Or if you hold a short position then you can settle it by delivering whatever the contract is for. So they do indeed have intrinsic value.
CDOs are just a means of selling debt in packages, there is no comparison at all.

[ktabb]

Where has trading derivatives of securities that hold no intrinsic value caused problems before? Just take a look back at the synthetic CDOs that allowed billions of dollars to be invested in mortgage securities that contained nowhere near that value in assets.

That's a misunderstanding of what futures and options are compared to CDOs. Futures and options are deliverable, that is you can hold them until they expire and then take delivery of whatever the contract is for. Or if you hold a short position then you can settle it by delivering whatever the contract is for. So they do indeed have intrinsic value.
CDOs are just a means of selling debt in packages, there is no comparison at all.

You missed the word “synthetic”, which completely changes what you are talking about. Synthetic CDOs are a derivative of CDOs. There is nothing wrong with CDOs and they themselves did not cause the economy to collapse... its the derivatives of them that did this. Futures and options both allow vastly more money to be invested in something than the intrinsic value of the underlying asset. This is a quality of synthetic CDOs too, and it will allow people to throw irresponsible amounts of money into extremely volatile assets backed by bitcoin, which is really dangerous.

[ktabb]

first of all Bitcoin will never can be used as a currency,
at best it will only be an online payment,
it can not be used as a currency because it does not have a physical form.
we ever heard about 'casascius' as its physical form,but it's far from enough to replace the Fiat itself.
in brief 'casascius' can not be used as a payment in real life and because of that Bitcoin will never can be.

and about Derivatives or futures or something else,
it's all about our own view.
some of them think the other way and some people think another,everybody have their own perspective.
it's a gamble in my opinion,but Bitcoin need it.
for Bitcoin everything is a double edge sword because it has an advantage but at the same time it has disadvantage.
we need to get out from the safe zone,

If bitcoin is never used as a currency then it has zero value and should trade at exactly $0.00 per coin. That’s literally what its purpose is. It is not needed at all as a form of online payment since we have credit cards, bank transfers, Venmo, and tons of other services for that.

[DaMut]

~snip~

If bitcoin is never used as a currency then it has zero value and should trade at exactly $0.00 per coin. That’s literally what its purpose is. It is not needed at all as a form of online payment since we have credit cards, bank transfers, Venmo, and tons of other services for that.

No you get it wrong mate,
Bitcoin can not be a 'Currency',that mean it can not be used as a payment in our real life.
but right now we can use it to pay something,which mean it has an usability as a payment system.
payment system and currency are totally different mate,
currency need a physical form because it will be used in the real life,
online payment system did not need it at all,for example paypal,neteller and something like that.
in other words,it has a value because it can be used as a payment,but it will never can be a 'currency'.

Currency = Fiat ( Dollar,Pound,Bath,etc etc)
Payment Point/Online payment = Bitcoin or something similiar to that.

[TheQuin]

You missed the word “synthetic”, which completely changes what you are talking about. Synthetic CDOs are a derivative of CDOs. There is nothing wrong with CDOs and they themselves did not cause the economy to collapse... its the derivatives of them that did this. Futures and options both allow vastly more money to be invested in something than the intrinsic value of the underlying asset. This is a quality of synthetic CDOs too, and it will allow people to throw irresponsible amounts of money into extremely volatile assets backed by bitcoin, which is really dangerous.

No, that really doesn't change anything. It was the CDOs that had no actual value. The loans they were made up from were sliced and diced so as hide the fact that most of them were subprime and worthless. The rating agencies gave them AAA ratings which then allowed funds to invest in them that couldn't have done without the AAA rating. Derivatives may well have magnified the effect but they were not the underlying cause. The obfuscation of the intrinsic value was the problem, not the leverage. In the same way, a Bitcoin futures contract will not cause "people to throw irresponsible amounts of money" at Bitcoin, that happens already. It just allows a new class of investor to get involved through a trusted exchange. There will be full transparency of what the underlying asset is and what it is worth at any time as it is Bitcoin.

[Torque]

If you believe your post headline...

..then can we at least get to the 'Derivatives will be GREAT for Bitcoin' part first, before talk about destruction? Or are you deliberately trying to jump past that part? 

[ktabb]

You missed the word “synthetic”, which completely changes what you are talking about. Synthetic CDOs are a derivative of CDOs. There is nothing wrong with CDOs and they themselves did not cause the economy to collapse... its the derivatives of them that did this. Futures and options both allow vastly more money to be invested in something than the intrinsic value of the underlying asset. This is a quality of synthetic CDOs too, and it will allow people to throw irresponsible amounts of money into extremely volatile assets backed by bitcoin, which is really dangerous.

No, that really doesn't change anything. It was the CDOs that had no actual value. The loans they were made up from were sliced and diced so as hide the fact that most of them were subprime and worthless. The rating agencies gave them AAA ratings which then allowed funds to invest in them that couldn't have done without the AAA rating. Derivatives may well have magnified the effect but they were not the underlying cause. The obfuscation of the intrinsic value was the problem, not the leverage. In the same way, a Bitcoin futures contract will not cause "people to throw irresponsible amounts of money" at Bitcoin, that happens already. It just allows a new class of investor to get involved through a trusted exchange. There will be full transparency of what the underlying asset is and what it is worth at any time as it is Bitcoin.

Of course the CDO ratings were a problem but CDOs alone didn’t crash the economy. You are right that synthetic CDOs magnified the effect, but they magnified it massively. That is why it had such a massive impact. Synthetic CDOs cause what would have been a large problem in the housing market into a massive once-in-a-lifetime world wide economic collapse.

You say that derivatives of bitcoin won’t cause investors to throw an irresponsible amount of money at bitcoin because they’ve already done that, and you also say it attracts a new class of investor... but you fail to mention that the new classes of investors being brought in are institutional, and derivatives allow them to throw even MORE money into bitcoin. Just because it is already overhyped doesn’t mean it can’t get even more overhyped.

[ktabb]

If you believe your post headline...

..then can we at least get to the 'Derivatives will be GREAT for Bitcoin' part first, before talk about destruction? Or are you deliberately trying to jump past that part? 

Did you forget to read the first paragraph of my original post? Futures can help vendors lock in prices when they are accepting bitcoin payments.

[alyssa85]

There is a really interesting article on Reddit about what happened to the stock market in the 1980's when the CME first introduced futures for the S&P in 1982:

https://www.reddit.com/r/Bitcoin/comments/7d964e/1987_stock_market_crash_and_bitcoin/

The market pumped like crazy, and then crashed in 1987. I recommend everyone read that thread, it's an interesting window into how derivatives influence the underlying asset.

[Torque]

[TheQuin]

Of course the CDO ratings were a problem but CDOs alone didn’t crash the economy. You are right that synthetic CDOs magnified the effect, but they magnified it massively. That is why it had such a massive impact. Synthetic CDOs cause what would have been a large problem in the housing market into a massive once-in-a-lifetime world wide economic collapse.

So why don't other futures cause economic collapses? Why not gold, oil, wheat, Euro, bonds... there are futures in almost all commodities and financial instruments. The simple answer is that they are all backed by the value of the underlying asset being traded in. Only in CDOs did it turn out that the underlying asset wasn't really there. The properties the loans were secured on didn't support their value. That was the cause, derivatives were the means. Unless you are telling me that Bitcoins don't really exist and can't be sold in exchange for dollars to value they are quoted at there is no similarity.

You say that derivatives of bitcoin won’t cause investors to throw an irresponsible amount of money at bitcoin because they’ve already done that, and you also say it attracts a new class of investor... but you fail to mention that the new classes of investors being brought in are institutional, and derivatives allow them to throw even MORE money into bitcoin. Just because it is already overhyped doesn’t mean it can’t get even more overhyped.

Which is all good. The market cap of Bitcoin is $130Bn right now. In 1999 the internet bubble was in the trillions and that is where this is going. There probably will be a bursting of the bubble one day but it's a long time off yet. When it happens the best will survive and surpass their bubble peaks a few years later in the same way the best internet companies did.

[ktabb]

Of course the CDO ratings were a problem but CDOs alone didn’t crash the economy. You are right that synthetic CDOs magnified the effect, but they magnified it massively. That is why it had such a massive impact. Synthetic CDOs cause what would have been a large problem in the housing market into a massive once-in-a-lifetime world wide economic collapse.

So why don't other futures cause economic collapses? Why not gold, oil, wheat, Euro, bonds... there are futures in almost all commodities and financial instruments. The simple answer is that they are all backed by the value of the underlying asset being traded in. Only in CDOs did it turn out that the underlying asset wasn't really there. The properties the loans were secured on didn't support their value. That was the cause, derivatives were the means. Unless you are telling me that Bitcoins don't really exist and can't be sold in exchange for dollars to value they are quoted at there is no similarity.

You say that derivatives of bitcoin won’t cause investors to throw an irresponsible amount of money at bitcoin because they’ve already done that, and you also say it attracts a new class of investor... but you fail to mention that the new classes of investors being brought in are institutional, and derivatives allow them to throw even MORE money into bitcoin. Just because it is already overhyped doesn’t mean it can’t get even more overhyped.

Which is all good. The market cap of Bitcoin is $130Bn right now. In 1999 the internet bubble was in the trillions and that is where this is going. There probably will be a bursting of the bubble one day but it's a long time off yet. When it happens the best will survive and surpass their bubble peaks a few years later in the same way the best internet companies did.

You got everything right in the first paragraph. Yes, I am saying that the value of the underlying asset is not there. Bitcoin has the POTENTIAL to be valuable because of its properties as a currency, but as I mentioned initially, it is useless right now due to its volatility. This is a whole separate discussion though. Also, just because someone is willing to pay x amount of dollars for an asset does not mean it is worth that much. People paid crazy amounts for tulips, just like they did for CDOs.

As to your second point, Bitcoin is innovative and crypto is a very interesting idea, but it is nowhere near the scale of the internet. The internet has impacts on all areas of our lives and bitcoin only pertains to money. Blockchain technology has a lot of potential, but not bitcoin itself (at least compared to the internet). I’m not saying the bitcoin bubble is going to burst tomorrow or that it is near its peak, but to say it will go into the trillions is ridiculous IMO.

[Torque]

You got everything right in the first paragraph. Yes, I am saying that the value of the underlying asset is not there. Bitcoin has the POTENTIAL to be valuable because of its properties as a currency

That's not the only thing that gives Bitcoin its value. Its potential as a deflationary store of value is another. Doesn't have to be completely stable for that function to work either, look at Gold and Silver. Look at real estate, collectables, art, etc. Also, Bitcoin is decentralized, permissionless, trustless, borderless, censorship-resistant, no-middleman transactions, etc. the list of other attributes that give it value goes on and on.

People paid crazy amounts for tulips

This ignorant myth needs to die. Seriously. READ:
https://www.reddit.com/r/Bitcoin/comments/76fg7j/bitcoin_aint_tulips_in_fact_tulips_aint_tulips/
More reading:
https://stratechery.com/2017/tulips-myths-and-cryptocurrencies/

[TheQuin]

Yes, I am saying that the value of the underlying asset is not there.
....
Also, just because someone is willing to pay x amount of dollars for an asset does not mean it is worth that much. People paid crazy amounts for tulips, just like they did for CDOs.

We're getting somewhere now. The difference is that you can actually sell Bitcoins for the price they are quoted at. You could not get the value of a CDO back either from the people who held the mortgages or from selling the foreclosed property. Actually, the very definition of value (in the market sense) is exactly that. What someone is willing to pay for it. Futures and options that are backed by something you can sell at the value the contract trades at don't cause a financial collapse.
 

As to your second point, Bitcoin is innovative and crypto is a very interesting idea, but it is nowhere near the scale of the internet. The internet has impacts on all areas of our lives and bitcoin only pertains to money. Blockchain technology has a lot of potential, but not bitcoin itself (at least compared to the internet). I’m not saying the bitcoin bubble is going to burst tomorrow or that it is near its peak, but to say it will go into the trillions is ridiculous IMO.

The internet bubble wasn't the internet, that had been around a lot longer. It was a whole bunch of startup companies that saw the potential to use it to launch innovative new businesses. Most were completely useless and fell by the wayside, a few of the biggest corporations that now exist survived.
The analogy is that blockchain is the internet. Bitcoin is analogous to a major infrastructure company providing the backbone to host the internet. That will come more apparent in coming years when things like Lightning Network happen.
As for my prediction of trillions, it's just that a prediction. None of us can claim to know really what will happen. I may be over-optimistic and be proved wrong, but it certainly isn't ridiculous.

[Kingofbitcoin12345]

I’d rather be in the bubble than being negative with it all the time and reading your latest post is convincing. Bitcoin will not hit 5000$ and so on.. I really love reading someone’s opinion who hardly believe that bitcoin is nothing in this world and looking forward of its downfall but keep on being disappointed and dismayed for it still unstoppable.. This is something that needs attention by the way,, it is signs of depression..

Bitcoin will and always be increasing and those trying to paint it black and give bad comment about it like disc embedded with scratches that it’s keep repeating but no sense..

[fabiorem]

These people who sold at the bottom are funny.

[European Central Bank]

If bitcoin is never used as a currency then it has zero value and should trade at exactly $0.00 per coin. That’s literally what its purpose is. It is not needed at all as a form of online payment since we have credit cards, bank transfers, Venmo, and tons of other services for that.

almost all of bitcoin's current value is from speculation.

in future its use as a store of value and form of financial protection will be just as big if not bigger.

currency will possibly never become one of its main uses.

[ktabb]

Yes, I am saying that the value of the underlying asset is not there.
....
Also, just because someone is willing to pay x amount of dollars for an asset does not mean it is worth that much. People paid crazy amounts for tulips, just like they did for CDOs.

We're getting somewhere now. The difference is that you can actually sell Bitcoins for the price they are quoted at. You could not get the value of a CDO back either from the people who held the mortgages or from selling the foreclosed property. Actually, the very definition of value (in the market sense) is exactly that. What someone is willing to pay for it. Futures and options that are backed by something you can sell at the value the contract trades at don't cause a financial collapse.
 

As to your second point, Bitcoin is innovative and crypto is a very interesting idea, but it is nowhere near the scale of the internet. The internet has impacts on all areas of our lives and bitcoin only pertains to money. Blockchain technology has a lot of potential, but not bitcoin itself (at least compared to the internet). I’m not saying the bitcoin bubble is going to burst tomorrow or that it is near its peak, but to say it will go into the trillions is ridiculous IMO.

The internet bubble wasn't the internet, that had been around a lot longer. It was a whole bunch of startup companies that saw the potential to use it to launch innovative new businesses. Most were completely useless and fell by the wayside, a few of the biggest corporations that now exist survived.
The analogy is that blockchain is the internet. Bitcoin is analogous to a major infrastructure company providing the backbone to host the internet. That will come more apparent in coming years when things like Lightning Network happen.
As for my prediction of trillions, it's just that a prediction. None of us can claim to know really what will happen. I may be over-optimistic and be proved wrong, but it certainly isn't ridiculous.

You could get the value of a CDO back by simply selling the CDO. Furthermore, you could get the value back in the actual houses themselves, which were selling at crazy values. By that standard, the “value” was there. The issue was that the houses weren’t actually worth that much despite the fact that you could find some schmuck who would take out an adjustable rate mortgage and pay you a crazy amount of money for it, and then turn around and sell that mortgage to a bank who puts it in another CDO. The market was willing to pay that much, but that doesn’t mean the houses are worth that much. That’s what I fear will happen with bitcoin as people start trading derivatives and using leverage. I don’t think bitcoin is any different in the sense of the underlying asset potentially being overvalued.

As to your second point, I could see the crypto market reaching trillions as a whole at some point, but I don’t think it will be justified.