TetraExchange. Bitcoin derivative approved.

[Wilhelm]

Just found this fantastic news.

http://www.coindesk.com/teraexchange-bitcoin-derivative-cftc/
http://247wallst.com/banking-finance/2014/09/12/meet-the-first-cftc-regulated-bitcoin-derivatives-trading-teraexchange/
http://finance.yahoo.com/news/teraexchange-launches-first-regulated-bitcoin-130500229.html
https://coinreport.net/teraexchange-launches-first-us-regulated-bitcoin-derivatives-trading/

and the list goes on

Any ideas if this will boost the price?
Or kill Bitcoin through shorting ...

[zimmah]

i'm not sure, many people say ETF will raise the price, and this is similar, isn't it?

but i don't really understand how all that crap works, i'm no expert on how wallstreet and such work. And it's completely a mystery to me why they can't just buy bitcoin, instead of using all that complicated third parties.

but if it raises prices than i don't really care.

[ssmc2]

http://cointelegraph.com/news/112474/will-a-bitcoin-etf-help-bitcoin-go-mainstream

I like Mr. Luria's price prediction in this article.  

[Wilhelm]

As far as I know it works as follows.

An ETF buys up a load of coins. Therefore an ETF is basically a small bank that must adhere to regulations.

A trader wanting to trade short or long borrows coins from the broker using his own account as collateral (called free margin).
If a trade turns into a loss it will be deducted from his collateral by selling off collateral to cover the losses.
If a trade turns into a profit, you will receive the profit.

This saves having to shift money from LTC to BTC to USD, etc. making trading much easier.


But TetraExchange does derivatives so you can probably do options and futures on Bitcoin.

[Hunyadi]

IMO at this point shorting might not be the best option.

[zimmah]

As far as I know it works as follows.

An ETF buys up a load of coins. Therefore an ETF is basically a small bank that must adhere to regulations.

A trader wanting to trade short or long borrows coins from the broker using his own account as collateral (called free margin).
If a trade turns into a loss it will be deducted from his collateral by selling off collateral to cover the losses.
If a trade turns into a profit, you will receive the profit.

This saves having to shift money from LTC to BTC to USD, etc. making trading much easier.


But TetraExchange does derivatives so you can probably do options and futures on Bitcoin.

but is wall street interested in and allowed to use this?

i mean, they are targeting wall street, aren't they?

[liquidiser]

Will this exchange have to buy up a load of coins to get started, or does it work differently to an ETF?

[liquidiser]

After reading the article I'm not sure if the exchange needs to buy any bitcoins at all. It says swaps there do not use actual bitcoins, it's all done with dollars. From the article

The bitcoin swap, like other financial products of its kind, enables parties holding the instrument to hedge against fluctuations in the digital currency’s value.

No actual bitcoins are exchanged during the process. Rather, the swaps are denominated in US dollars and actual transactions between counterparties use that currency as well.

[zimmah]

After reading the article I'm not sure if the exchange needs to buy any bitcoins at all. It says swaps there do not use actual bitcoins, it's all done with dollars. From the article

The bitcoin swap, like other financial products of its kind, enables parties holding the instrument to hedge against fluctuations in the digital currency’s value.

No actual bitcoins are exchanged during the process. Rather, the swaps are denominated in US dollars and actual transactions between counterparties use that currency as well.

so they are 'swapping' fractional reserve coins?

[liquidiser]

I read this coindesk article http://www.coindesk.com/teraexchange-bitcoin-derivative-cftc/

It gave me the impression that the exchange is trading in imaginary bitcoins because it says "no actual bitcoins are exchanged during the process". It goes on to say that the exchange allows institutions forbidden from investing in digital currency to invest in digital currency. From the article

The development of a bitcoin derivative pushes the broader market into uncharted waters, opening the door to move involvement from institutions that, in many cases, are prohibited by their own policies to invest in digital currency.

[Raystonn]

The link betwen the derivatives markets and the actual underlying (Bitcoin here) are always made by arbitrageurs.  For example, if the futures market for S&P 500 is overpriced, you short the future and buy the basket of stocks making up the S&P 500.  The prices will come back together and you will profit.  As a side effect, the futures markets thus track the underlying market very closely.  The same will be done for Bitcoin futures.  This means if the derivatives market is bid up to $10,000 / Bitcoin, Bitcoins will be bought and futures sold along the way to keep the two in sync.  There are your purchased Bitcoins.

[liquidiser]

So does the amount of bitcoins the exchange buys depend on how popular it becomes?

[Raystonn]

Again, the exchange buys no Bitcoins.  That is left to the arbitrageurs.  See my last post.

[liquidiser]

So does the amount of bitcoins the arbitrageurs buy depend on how popular the exchange becomes?

[Raystonn]

So does the amount of bitcoins the arbitrageurs buy depend on how popular the exchange becomes?

It depends on if there are any trading opportunities for arbitrageurs.  If the derivative gets too high or low compared to the actual price of Bitcoin, then arbitrageurs will take action to make a profit by bringing the prices together.  If the derivative is higher than Bitcoin, Bitcoins will be bought and derivative sold.  If the derivative is lower than Bitcoin, Bitcoins will be sold and derivative bought.  Buying pressure on the derivative will translate into buying pressure on Bitcoin itself.

[Wilhelm]

So does the amount of bitcoins the arbitrageurs buy depend on how popular the exchange becomes?

It depends on if there are any trading opportunities for arbitrageurs.  If the derivative gets too high or low compared to the actual price of Bitcoin, then arbitrageurs will take action to make a profit by bringing the prices together.  If the derivative is higher than Bitcoin, Bitcoins will be bought and derivative sold.  If the derivative is lower than Bitcoin, Bitcoins will be sold and derivative bought.  Buying pressure on the derivative will translate into buying pressure on Bitcoin itself.

So this puppy can push Bitcoin both ways?
Let's hope it boosts Bitcoin to da moon

[btcracer1]

Just found this fantastic news.

http://www.coindesk.com/teraexchange-bitcoin-derivative-cftc/
http://247wallst.com/banking-finance/2014/09/12/meet-the-first-cftc-regulated-bitcoin-derivatives-trading-teraexchange/
http://finance.yahoo.com/news/teraexchange-launches-first-regulated-bitcoin-130500229.html
https://coinreport.net/teraexchange-launches-first-us-regulated-bitcoin-derivatives-trading/

and the list goes on

Any ideas if this will boost the price?
Or kill Bitcoin through shorting ...

It won't boost the price, when a good news comes the price drops, this period is so strange.

[Raystonn]

We will have to see.  This is an OTC (over the counter) exchange.  So it's mainly for large investors still.  The COIN ETF will be a much bigger deal.

[zimmah]

We will have to see.  This is an OTC (over the counter) exchange.  So it's mainly for large investors still.  The COIN ETF will be a much bigger deal.

but if it targets investors who would otherwise not buy, the expected result is up.

question is, does this actually make investors who do not buy bitcoin, buy this thing instead? And will it have a large effect?

i guess all we can do is wait and see.

[Biodom]

We will have to see.  This is an OTC (over the counter) exchange.  So it's mainly for large investors still.  The COIN ETF will be a much bigger deal.

but if it targets investors who would otherwise not buy, the expected result is up.

question is, does this actually make investors who do not buy bitcoin, buy this thing instead? And will it have a large effect?

i guess all we can do is wait and see.

The derivatives make bitcoin look like all other stuff out there.
WE will end up with a bunch of derivatives with a notional value vastly exceeding BTC value. The result is short term stability, but longer term INSTABILITY.
So, if and when financial system crashes (who knows when), BTC will be taken down as well.