Everything you wanted to know about BTC futures but were afraid to ask!

[fillippone]

I understand your point, being delusional about bakkt launch is easy, and I also expected more volumes at the start.
But we have to remember that this was one of the most ambitious plan to smuggle bitcoin into traditional finance. It had to take time, and now it’s starting to grind (we still are miles away from full potential in my opinion).
Regarding Binance and IEO, I don’t know the subject enough, but in my opinion they are long term irrelevant (but again, I might be wrong here).

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[bobitza]

I want to know the future of Bitcoin like? Especially, does the third halving event in Bitcoin history in the middle of May 2020 affect anything? The supply of Bitcoin released as a mining reward was once again cut. Will halving drive the price boom of Bitcoin?

[fillippone]

I want to know the future of Bitcoin like? Especially, does the third halving event in Bitcoin history in the middle of May 2020 affect anything? The supply of Bitcoin released as a mining reward was once again cut. Will halving drive the price boom of Bitcoin?

Just look at my signature and have a read:
Stock To Flow Model: Modeling Bitcoin's Value with Scarcity

[fillippone]

Marking to Market the positions, or margining, is something it is still on the to do losit of this thread.
Anyway here you get a glimpse of the problem.
I got a question form an user, and used it to clarify some point that could be easily misunderstood b non-technical people apporaching the matter:

CME did more BTC Options volume on Day 1 than Bakkt did today.
RIP Bakkt
Hardly knew you

Tiny bit early to judge, nonetheless gutting for Rekkt Bakkt

Bakkt trades options eventually settling into real Bitcoins.
CME   trades options eventually settling into shitcoin US Dollars.

Difference is not trivial.

Usual self-promoting ad:
Everything you wanted to know about BTC options but were afraid to ask!

Yeah, but in practice, is it really true?  Are we making a distinction without a difference?

Does BAKKT really have the bitcoins that they proclaim to have?

This is a naive question, bringing me some interesting other question, I will later try to answer.

Go for the naive part: Bakkt has the Bitcoin? YES.
How do I know? Contract specification.

When you own a future, you are constantly (well, at COB) called to margin your positions. This means that when you open a position in a future you are required to post a certain amount of cash along your position. You cannot open a position if you haven’t a big enough amount of cash in a collateral cash balance at the exchange. This amount is set by the exchange to cover the daily variation of the underlying (BTC, in this case, but this mechanism is valid for any underlying). At the end of the trading day this cash  balance is adjusted to reflect the P&L of the future position: money is poured in if your future position has gone in the right direction, otherwise the exchange take from this account the daily loss (and transfer it to your counterpart). In case the residual cash balance is lower than the initial margin, you are called to refill your margins (the infamous “margin call”, or to close forced into closing the position). This means two things: firstly the exchange has no credit risk: every counterpart has a daily margining so their exposure is not too big, second the P&L is actually credited daily in the exchange, so frauds are very limited.
So, can BAKKT exit scam you? Very unlikely, as this is the opposite way this business works (also:  BAKKT and maybe CME would suffer a tremendous reputation as risk putting their own existence at risk in case of a default).

The hard part in all this reasoning: is this margining all done in BTC? As per my explanation it should. But I don’t remember anything like that in the product specification. I will check later, when real life settles a little bit.
I am going also to put this answer in my future related thread, as it is a point I would have liked to cover, but I actually didn’t.

[JayJuanGee]

Marking to Market the positions, or margining, is something it is still on the to do losit of this thread.
Anyway here you get a glimpse of the problem.
I got a question form an user, and used it to clarify some point that could be easily misunderstood b non-technical people apporaching the matter:

CME did more BTC Options volume on Day 1 than Bakkt did today.
RIP Bakkt
Hardly knew you

Tiny bit early to judge, nonetheless gutting for Rekkt Bakkt

Bakkt trades options eventually settling into real Bitcoins.
CME   trades options eventually settling into shitcoin US Dollars.

Difference is not trivial.

Usual self-promoting ad:
Everything you wanted to know about BTC options but were afraid to ask!

Yeah, but in practice, is it really true?  Are we making a distinction without a difference?

Does BAKKT really have the bitcoins that they proclaim to have?

This is a naive question, bringing me some interesting other question, I will later try to answer.

Go for the naive part: Bakkt has the Bitcoin? YES.
How do I know? Contract specification.

When you own a future, you are constantly (well, at COB) called to margin your positions. This means that when you open a position in a future you are required to post a certain amount of cash along your position. You cannot open a position if you haven’t a big enough amount of cash in a collateral cash balance at the exchange. This amount is set by the exchange to cover the daily variation of the underlying (BTC, in this case, but this mechanism is valid for any underlying). At the end of the trading day this cash  balance is adjusted to reflect the P&L of the future position: money is poured in if your future position has gone in the right direction, otherwise the exchange take from this account the daily loss (and transfer it to your counterpart). In case the residual cash balance is lower than the initial margin, you are called to refill your margins (the infamous “margin call”, or to close forced into closing the position). This means two things: firstly the exchange has no credit risk: every counterpart has a daily margining so their exposure is not too big, second the P&L is actually credited daily in the exchange, so frauds are very limited.
So, can BAKKT exit scam you? Very unlikely, as this is the opposite way this business works (also:  BAKKT and maybe CME would suffer a tremendous reputation as risk putting their own existence at risk in case of a default).

The hard part in all this reasoning: is this margining all done in BTC? As per my explanation it should. But I don’t remember anything like that in the product specification. I will check later, when real life settles a little bit.
I am going also to put this answer in my future related thread, as it is a point I would have liked to cover, but I actually didn’t.

You likely know that I already responded in the WO thread.  Of course, I don't mind to continue such conversation over here to the extent that you or any other member wants to continue such conversation in this thread. As you can likely see from my response, I am not exactly convinced that there might not be fractional reserve practices going on that are not really tested or even revealed unless really extreme upwards BTC price conditions that are surely possible in bitcoin. 

[fillippone]

Of course I haven’t a clear answer.
In my opinion I see only downsides for CME and ICE to be caught playing with their customer’s money.
The main point is that this would ruin their main asset: their credibility as a top standing counterpart to trade with trillions of dollars-worth of derivatives.

I think it is not worth for them.
But it will be interesting to see how things get rolling in the next squeeze: traditional markets are not well prepared for the volatility in crypto’s.

[tbct_mt2]

In my opinion I see only downsides for CME and ICE to be caught playing with their customer’s money.

How to get details on total orders of bitcoin future and ordered prices as well as dates of expired contracts on CME and ICE? It is important to have some picture for the future price and movements of bitcoin. Could you help me, please.

[fillippone]

Order books are the depths of orders biddin and offering each future.
Every exchange offers this data via paying access. It’s an high frequency data, and very informative for professional player, given it’s very important to evaluate market liquidity and slippage (I.e. costs) when executing large trades.

I don’t think it’s very informative for future direction, as it is very easy to place big orders away from markets pulling them off when markets approach:,hence giving fake informations about trading intentions (albeit this would be a “slightly illegal” practice).

[tbct_mt2]

Order books are the depths of orders biddin and offering each future.
Every exchange offers this data via paying access. It’s an high frequency data, and very informative for professional player, given it’s very important to evaluate market liquidity and slippage (I.e. costs) when executing large trades.

I don’t think it’s very informative for future direction, as it is very easy to place big orders away from markets pulling them off when markets approach:,hence giving fake informations about trading intentions (albeit this would be a “slightly illegal” practice).

Appreciated your help. I implied about the filled orders, not waiting orders that can be cancelled. It is as same as tradings, data on past tradings like VPVR help us to have some strong points, resistances and supports at which the market will reach sometime in the future, pumps or dumps market will reach those ones someday in surprises of watchers.

[fillippone]

Order books are the depths of orders biddin and offering each future.
Every exchange offers this data via paying access. It’s an high frequency data, and very informative for professional player, given it’s very important to evaluate market liquidity and slippage (I.e. costs) when executing large trades.

I don’t think it’s very informative for future direction, as it is very easy to place big orders away from markets pulling them off when markets approach:,hence giving fake informations about trading intentions (albeit this would be a “slightly illegal” practice).

Appreciated your help. I implied about the filled orders, not waiting orders that can be cancelled. It is as same as tradings, data on past tradings like VPVR help us to have some strong points, resistances and supports at which the market will reach sometime in the future, pumps or dumps market will reach those ones someday in surprises of watchers.

Then what you need is historical data.
I think that a free account on tradingview would suffice for that.
Bests,
f.

[el kaka22]

I would like to ask one important thing; is the risk involved really that big?

I mean we all know that there is a bigger risk to use futures for example versus buying regularly, I keep on buying bitcoin more and more and right now I reached a level that doesn't make sense because I can't really make too much profit unless bitcoin reaches $100k or something, with futures there is a bigger reward but we all know with bigger reward comes bigger risk as well.

So, I would like to ask what is the risk level of futures versus regular buying (long of course, I don't short btc)? Would you say it is very risky and could lose everything very quickly, or is it just a bit riskier? Could I just do it in a way that I risk only slightly more than regular purchase without risking to go all broke?

[fillippone]

I would like to ask one important thing; is the risk involved really that big?
<...>

I would say that buying a future is not different buying the underlying exposure.
Future, generally speaking, have the feature of liquidity, while underlying might be difficult to trade( think of OIL future, for example).
For bitcoin there are a few advantages trading future versus trading bitcoin, but those advantages are mainly appreciated by institutional investors, not private investors.
So I think in your case you should stick to investing in bitcoin, not future.
Buying future wouldn't give any significative difference from buying bitcoins.

[Saint-loup]

I would like to ask one important thing; is the risk involved really that big?

I mean we all know that there is a bigger risk to use futures for example versus buying regularly, I keep on buying bitcoin more and more and right now I reached a level that doesn't make sense because I can't really make too much profit unless bitcoin reaches $100k or something, with futures there is a bigger reward but we all know with bigger reward comes bigger risk as well.

So, I would like to ask what is the risk level of futures versus regular buying (long of course, I don't short btc)? Would you say it is very risky and could lose everything very quickly, or is it just a bit riskier? Could I just do it in a way that I risk only slightly more than regular purchase without risking to go all broke?

Where have you seen it's more risky? And why it would be more risky? Only the leverage matters, but you can trade with no leverage on futures market, and important leverages on spot market, so there are not more risks in trading futures.
As fillippone said, you have much liquidity and volumes on futures market, so it can be easier to scalp and to do small backs and forths trades. Moreover fees are way cheaper, usually you have no funding fees for leverage orders, and negative fees for making orders. On the swaps market you have even negative funding fees for the short orders. And last but not least with futures you can make virtual cash and carry trades.

[tartibaya]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

[fillippone]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

The bitcoin is the new gold standard and hard money. Nothing prevent us building other layers on top of that for different purposes. The option of having the ultimate hard money is invaluable, and until today (until 2009) this option had been negated to each one of us. The option of having different kind of money for other uses if there is demand for it (speculation? Lending?) has a great value too.

[JayJuanGee]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

NOT like any of us can really do anything about the existence or NON-existence of such products.  Right?  Good to be aware of these kinds of products to the extent that they might be used to affect, control or manipulate price... or attempted to be used for such.

[fillippone]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

NOT like any of us can really do anything about the existence or NON-existence of such products.  Right?  Good to be aware of these kinds of products to the extent that they might be used to affect, control or manipulate price... or attempted to be used for such.

I think the market manipulation via futures is very overestimated.
Firstly their trading volumes is way less than the one a few big whale can shoot on the market.
Second it is only an historical moment. In the future the liquidity of bitcoin market will be big enough to prevent any “unfair” use of derivatives (think of fx markets today, where liquidity is so massive basically no one can move the markets).

[Hueristic]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

NOT like any of us can really do anything about the existence or NON-existence of such products.  Right?  Good to be aware of these kinds of products to the extent that they might be used to affect, control or manipulate price... or attempted to be used for such.

Actually there is, we can choose to not participate in the dilution of the asset class.

We can also educate those that ask this same question why these  unsettled "liquidity supplying, volatility squashing" markets should not be supported but rather the asset itself purchased and held.

Every coin being rolled over in house in these clearing houses is one less actually being bought on chain and that is a direct dilution of the cap.

Think of if no-one had herded to Walmart as was forewarned by so many of us..

[JayJuanGee]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

NOT like any of us can really do anything about the existence or NON-existence of such products.  Right?  Good to be aware of these kinds of products to the extent that they might be used to affect, control or manipulate price... or attempted to be used for such.

Actually there is, we can choose to not participate in the dilution of the asset class.

We can also educate those that ask this same question why these  unsettled "liquidity supplying, volatility squashing" markets should not be supported but rather the asset itself purchased and held.

Every coin being rolled over in house in these clearing houses is one less actually being bought on chain and that is a direct dilution of the cap.

Think of if no-one had herded to Walmart as was forewarned by so many of us..

Ok.  Fair enough.

I surely remain quite skeptical of these various products to the extent that they represent actual bitcoins, and I really have my doubts regarding the level of their being backed up by actual bitcoins.  Sure, some of them claim to have bitcoin and others don't even claim to be backed up by bitcoins.   

I do accept that there is some value in directly buying bitcoins and directly holding them, so I expect that at some points in our bitcoin future, there are going to be tests of the value of actually having your bitcoins and whether there might end up being some denigration of some of those products because the dynamics in manipulating bitcoin is different from manipulating a market like gold - in terms of at least how easily one can demand possession of millions of dollars of bitcoin and actual act upon such demand (within minutes - maybe 10 minutes to get a confirmation and an hour or so to be able to retransmit the value that you have taken into your possession), whereas the logistics to demand millions of dollars of gold and to verify it is a lot more cumbersome.

[Saint-loup]

I don't like futures for Bitcoin or Ethereum. Because they integrate the current economic system with blockchain. More precisely, they transfer the bad aspects of the current economy to the blockchain economy. Bitcoin is limited. So it is valuable.

NOT like any of us can really do anything about the existence or NON-existence of such products.  Right?  Good to be aware of these kinds of products to the extent that they might be used to affect, control or manipulate price... or attempted to be used for such.

Actually there is, we can choose to not participate in the dilution of the asset class.

We can also educate those that ask this same question why these  unsettled "liquidity supplying, volatility squashing" markets should not be supported but rather the asset itself purchased and held.

Every coin being rolled over in house in these clearing houses is one less actually being bought on chain and that is a direct dilution of the cap.

Think of if no-one had herded to Walmart as was forewarned by so many of us..

If you want institutional money, if you want big traders money for Bitcoin you can't avoid derivatives...
Moreover futures can be very useful for all the miners, they are able to sell at fixed prices several weeks or months before getting their bitcoins.
And don't forget that most of futures exchanges only accept bitcoins. So you need to buy "real" bitcoins before trading on them.