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mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-14 23:35
What do you think will happen to the BTC spot market with the introduction of the CME futures contract?

In principle the contract is a purely cash settled derivatives instrument. Yet, a lot of institutionals would probably trade it only in some combo with the spot market, so it's introduction will affect the spot market in some way. Lots of people seem tothink that it will just rally.

On the other hand, in case you witnessed what happened on Saturday night during the BCH (Bitcoin Cash) rally, there was tremendous pressure on the BTC network. Clearing became unbelievably slow and transaction fees surged. How would that play out when big money comes in. It almost feels like the technology governing the spot market is entirely inadequate to support institutional money and a derivatives market.

eläin


Total Posts: 63
Joined: Jun 2010
 
Posted: 2017-11-15 15:35
I assume that you mean the various Bitcoin exchanges like Coinbase and Gemini when you talk about the spot market and spot price. When trades happen on these exchanges no Bitcoins move on the BTC network (blockchain). So as long as these institutions trade on one of these exchanges it does not really matter how clogged up the actual Bitcoin network is. Though this does not mean that the clogged network cannot have an effect on the spot price. For example when someone holding their Bitcoins of the exchanges wants to sell, they will have to first transfer the Bitcoins to an exchange through the Bitcoin network/blockchain, and if the the user is unlucky or does not pay a high enough fee his Bitcoin could be stuck in a limbo for quite a long time (days), resulting in lower sell side pressure than "naturally" would occur. Somewhat perhaps ironically the more clogged up the network is, the more there is upside for the spot price at least in the short term. But at some point this (should Chew) turn into a negative from a fundamental aspect when the fees rise enough.


mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-15 16:12
Yes, this is what I mean by spot market.

Are you sure about that? Even if we both hold our balances on the same exchange and we both transact with each other, transactions have to go into the blockchain (ledger), so coins are most definitely moving around. What you are describing sounds like some kind of mechanism by which the exchange maintains some kind of ledger and transact validates transactions between parties independent of the actual network. I am not sure that this is what exchanges do, plus this is not what buying and selling bitcoin means. It's got to go into the blockchain dude, has to, plus where investors actually choose to keep their coins is up to them. It's not considered good practice to hold coins on exchanges. Being able to move funds around quickly and cheaply seems quite critical to me and that's just not the case of BTC.

Right now it feels that there is a lot of appetite for institutional investing in crypto, but then technology on which this should rest isn't really there.

EspressoLover


Total Posts: 320
Joined: Jan 2015
 
Posted: 2017-11-15 19:41
> Right now it feels that there is a lot of appetite for institutional investing in crypto, but then technology on which this should rest isn't really there.

Agree. The best business plan in a gold rush is to sell shovels.

I have no idea why no one is trying to build a serious spot exchange. It's not like the technology doesn't exist from actual exchanges. Even third world stock exchanges are pretty sophisticated now, because the major players license their systems out. These existing exchanges are just total garbage. Even GDAX, which is supposed to be the "professional exchange".

I think it'd be really easy to build something with the following features using off-the-shelf components:

- Actual co-location, not this AWS horseshit. Put it in 350 E Cermak, so it's easy to trade against the CME futures. (Plus this lets you sell microwave feeds from the CME for $$$)
- Full order book and trade data, on a real protocol like ITCH. No more web-socket snapshots.
- Matching engine with decent and deterministic latency and behavior.
- DMA only available to institutional, certified clients. Everyone else should have to use execution brokers. The exchange shouldn't be at risk of crashing because their frontend Node.js server gets hit with a DDoS.
- A real clearing system, where you're not constantly worried about the exchange losing your entire deposit. Stop having end-users directly hold balance on the exchange. Use well-capitalized institutional clearing brokers.
- And on that note, all crypto deposits should be in segregated multi-sig wallets. One key held by the exchange, one by the clearing broker, and one by a designated Big 5 Accounting firm which keeps they keys in cold storage. The latter should never get involved or take their keys out except in the event of a hack or dispute.
- I think given the above, you could probably get an insureCo to underwrite a reasonably priced policy against a hack. Having someone like Lloyds guarantee the crypto deposits is a huge step to getting the institutional money comfortable.

Anyone who set this up would easily garner nearly 100% of spot institutional market share.

EDIT Addendum: Not worth making a new post about. But CME just announced that BTC futs data is coming over the Equity channel, not the FX channel. Wonder if there's any rhyme or reason to this. (Besides just low-level networking issues)

Good questions outrank easy answers. -Paul Samuelson

jslade


Total Posts: 1132
Joined: Feb 2007
 
Posted: 2017-11-16 05:02
"What you are describing sounds like some kind of mechanism by which the exchange maintains some kind of ledger and transact validates transactions between parties independent of the actual network. "

No, what eläin is describing is called an exchange. It works just like NASDAQ, and uses similar software. The only crypto currency bullshit going on in Gemini or GDAX (none of the other ones in the US matter, though same story for most of them as well) is deposits and withdrawals, most of which are actually somewhat human intermediated.

I don't know why you guys think institutional players need the underlying in a cash settled futures contract. How many people run around with 10 tons of cocoa when they're fooling around on Nymex? Yes, it will probably make the price go up if/when it does get listed, because every positive mention makes the price go up. The ability to short will probably ultimately make the price less volatile though, as the Overstock dot coms of the world hedge out their risk from actually being long 10 tons of bitcoin.


"Learning, n. The kind of ignorance distinguishing the studious."

a路径积分


Total Posts: 80
Joined: Dec 2014
 
Posted: 2017-11-16 06:48
@EL Interesting food for thought. Will be interesting to see what workarounds are possible to set up a clearing framework around this. Risk tends to transfer down the regulatory gradient, not the other way around. It's near impossible to get any institution regulated as a bank to touch Bitcoin, Bitcoin-derived cash, and so on, so that leaves a handful of BD-sized buy-side entities that are likely to act as clearing members.

Even the most credible prop firms have difficulty establishing counterparty relationships with their Bitcoin-related assets. Know one bloke who had about 25,000 BTC backed by a reputable business worth more than that, but the bank where he maintains his primary checking account threatened to close his accounts if he deposited any cash originated from his Bitcoin proceeds.

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-17 17:53
OK, I have no idea exactly how transactions are being handled on these exchange and exactly at what frequency they are officially registered in the blockchain. I assume that there would be some kind of traffic into the network, but maybe that's only the case when transferring in and out of the exchange. I was assuming that there is some sort of clearing going on.

Not sure why keep saying that GDAX and Gemini are the only ones that matter. From my personal perspective GDAX is great and Gemini is def a piece of sh!t. Plus these exchanges let you transact BTC, ETH and LTC only.

I am not saying that there aren't going to be people purely speculating on futures, but that for any futures market to work somewhat smoothly you obviously need people with other needs also and these most definitely do care about the underlying.


jslade


Total Posts: 1132
Joined: Feb 2007
 
Posted: 2017-11-17 21:02
I keep saying GDAX and Gemini are the only ones that matter, because effectively they're the only ones that settle in USD in the US. OK, there is also Kraken, but that's a smaller amount and their exchange is held together with baling wire and websockets. FWIIW, Gemini also doesn't run on EC2 as GDAX does, and they'll rent you an actual colo with their hardware. Long term, Gemini looks much better. GDAX has a nice exchange, but their customer service is extremely bad, probably because most of their traffic is retail and crypto currency retail people are all insane.

The people who hold the underlying at this point are already forced to hold the underlying as part of their business. I mentioned Overstock. I guess the idea is more companies can hold underlying with less price risk. Don't know if they'll bother with futures, as it's largely been good being long BTC.

I can tell you with 100% certainty that no exchanges with any significant trading volume are doing any fancy on-chain things beyond deposits and withdrawals. Large crypto deposits are usually kept in cold storage.

"Learning, n. The kind of ignorance distinguishing the studious."

a路径积分


Total Posts: 80
Joined: Dec 2014
 
Posted: 2017-11-17 23:23
mtsm - Yes, generally only deposits and withdrawals register with the blockchain. The exchange might also segregate their deposits on hand onto separate (cold) wallets, which will also need to register with the blockchain.

eläin


Total Posts: 63
Joined: Jun 2010
 
Posted: 2017-11-18 00:49
mtsm trust jslade and keep your eyes closed Cool ; and what comes to you jslade, come to eu and I'll buy you a beer Blush. BTW, and for everyone else just go long BTC and everything will be good.

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-22 17:03
https://www.nytimes.com/2017/11/21/technology/bitcoin-bitfinex-tether.html

jslade


Total Posts: 1132
Joined: Feb 2007
 
Posted: 2017-11-22 21:25
There is actually a very good treatment of the Tether heist in reddit of all places.

https://np.reddit.com/r/CryptoCurrency/comments/7eho5y/tether_was_hacked_by_the_same_person_who_hacked/

Should put to rest fantasies about stuff like this being "untraceable."

Bitfinex is weird, and I wouldn't consider trading with them even if I could, but I'm pretty sure they're not going to blow up from a couple of small heists. They do almost a billion a day in trading volume.

"Learning, n. The kind of ignorance distinguishing the studious."

EspressoLover


Total Posts: 320
Joined: Jan 2015
 
Posted: 2017-11-25 17:47
> Clearing became unbelievably slow and transaction fees surged. How would that play out when big money comes in.

What's the status of the lightning network? I thought this technology was suppose to fix the issue, hence the big push for SegWit. Did lightning turn out to be vaporware?

Good questions outrank easy answers. -Paul Samuelson

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-29 17:06
GDAX is down...

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-11-29 22:19
These exchanges are a p.o.s.

Maggette


Total Posts: 1046
Joined: Jun 2007
 
Posted: 2017-11-30 13:41
Is there any work with reliable numbers on energy consumption?
I found this one rather worrying:
https://digiconomist.net/bitcoin-energy-consumption


I understand, there is stuff on the web that adds much less economic/social value than the crypto stuff, but if you expand on the idea of smart contracts and more crypto currencies: is there a point where energy might becom a problem?

Ich kam hierher und sah dich und deine Leute lächeln, und sagte mir: Maggette, scheiss auf den small talk, lass lieber deine Fäuste sprechen...

rowdyroddypiper
NP Wrestling Champion

Total Posts: 1181
Joined: Apr 2004
 
Posted: 2017-11-30 14:25
Lightning is paperware. Write a paper, get a bunch of accolades, collect advisor tokens for helping to pamp. The author has moved onto the next scaling scam called plasma. It's the Hadoop chain. Seriously, map reduce. The whole world is going streaming and these guys go batch.

The reason lightning will never work is that it's got dimensionality issues in terms of depth and breadth. There's no efficient method in lightning as constructed (distributed) to net globally (if they could, they'd have a golden goose) so instead, you must keep balance to transact on all of your possible channels.

There is a pretty good treatment of it

here.

Curious on any further comments you might have.

Revolution to the mean

EspressoLover


Total Posts: 320
Joined: Jan 2015
 
Posted: 2017-11-30 22:08
@rrp

Thanks for the insight and link. Intuitively that makes a lot sense. It did seem like the capital commitment for payment channel would be a non-starter. As a neophyte, it's hard to evaluate things like this in a vacuum. It's always very helpful to get this kind of no-bullshit opinion from an expert.

While you're here, let me float another half-baked idea. People want Litecoin's speed, but Bitcoin's price exposure. Why not create a "shadowcoin" backed by BTC. Set up the blockchain in the vein of litecoin or ethereum so that transactions are way faster and cheaper. But keep the price of the shadowcoin pegged to a very narrow window around 1 BTC.

Kind of like what Tether is to USD, but not totally shady. Use the cryptographic properties of bitcoin to do it in a trustless, decentralized and provable way. Kind of analogous to ETFs, with a pre-defined creation/redemption mechanism to keep price in line. The "vault" would just be public on Blockchain explorer, so that anyone can verify that the shadowcoin is honest. The founders could even get paid by setting up the shadow blockchain so they skim a certain percentage of the creation/redemption fees.

The fact that this doesn't already exists tells me there's something faulty with my reasoning. Either there's no real demand (people (irrationally) only want to hold pure BTC, even if a shadowcoin is provably backed), or the details to fill in the handwaving is way harder then it looks.

Good questions outrank easy answers. -Paul Samuelson

rowdyroddypiper
NP Wrestling Champion

Total Posts: 1181
Joined: Apr 2004
 
Posted: 2017-12-01 08:53
I think most smart people realize that cryptocurrency is neither meant to be fast nor cheap if it's intended to be highly decentralized. There is a good reason for the BTC block latency to have a 10 minute target. The increase in block time latency decreases the probability of chain splits and reorgs. You'd waste a lot of hash power and lower security by making block times shorter. If you cut it down to 5 minutes, sure. Probably not an issue. If you cut it down to something that is transactionally accepted like 2 seconds, then you're going to have lots and lots of issues. Bitcoin is not a transactional medium in the currently understood sense of the word. If you want to buy coffee use a cash or a credit card like a normal person.

I don't know how you'd have something pegged to BTC but mined like ethereum or litecoin? I mean what's the incentive for miners to mine the shadowcoin chain? The difficulty, variance, and rewards will be all cattywampus relative to the mining problem. Plenty of people talk about sidechains, drive chains, anchor chains, etc where you do something off chain and then anchor it using the bitcoin block chain but I think people that want fast, cheap, decentralized transactions are barking up the wrong tree in general.


Revolution to the mean

EspressoLover


Total Posts: 320
Joined: Jan 2015
 
Posted: 2017-12-01 20:54
Thanks for the color, rowdy. Was not even aware of those terms until your post. Seems like people have already thought about this a lot, before it occurred to me. One of the depressing things about a planet of 7 billion people is how few original ideas actually exist.

To confess I've been kind of obsessed with this idea the past few days. I've been doodling Alice/Bob diagrams nonstop. But hearing your opinion on the topic, I'm officially shuttering work on EspressoChain. Smiley

Good questions outrank easy answers. -Paul Samuelson

athletico


Total Posts: 954
Joined: Jun 2004
 
Posted: 2017-12-01 23:04
RRP, do you know approximately the number of USD (or EUR, etc) held collectively by all cryptoexchanges as reserve capital against a SHTF run-on-the-bank scenario? Maybe an estimate as a fraction of the BTC market cap? I'm trying to find some hard numbers but not getting very far. Coinbase claims to hold 100% of the dollars it receives in trade...is this generally true for all exchanges? Seems dubious...

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-12-07 17:33
coinbase/GDAX down again. At every big rally these places fold.

tbretagn


Total Posts: 259
Joined: Oct 2004
 
Posted: 2017-12-07 17:49
@athletico there was an interesting nytimers article about bitfinex and tether and that question about how much money backing the exchanges.

nyt - bitfixinex

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

Osiris2


Total Posts: 17
Joined: Sep 2017
 
Posted: 2017-12-07 18:25
Hearing rumors that some bigger players are pushing up the price as much as possible ahead of futures trading so they can crush it with short contracts ...

mtsm


Total Posts: 217
Joined: Dec 2010
 
Posted: 2017-12-07 18:59
Nothing surprises me at this stage. As a little fish you can game this a bit. Right now you can literally make a thousand bucks per unit every half hour or so by doing a catching the trend play. It's very volatile and on a relatively low frequency. The problem is that the exchange keeps folding - talking about GDAX here.
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