December 09, 2017
By Kinsey Grant - December 07, 2017 (www.thestreet.com)
If you're not buying into the bitcoin hype, now could be the time to go short, as fees related to placing a short bet on the cryptocurrency could more than double
when bitcoin futures go live next week.
Bitcoin is going wild Thursday, Dec. 7. But if you're not buying the rally, now could be the time to place your short bets.
The digital currency has surpassed five major threshold prices in the past two days. After trading above $16,100 midday Thursday, bitcoin pared gains slightly, still higher 16.18% for the day to $15,971.05 Thursday afternoon.
The surge in price comes ahead of the Sunday, Dec. 10, start date for bitcoin futures on Cboe. A week later, on Dec. 17, bitcoin futures will become available on CME. Investors looking to short bitcoin need to take action before futures start trading, according to S3 Analytics.
Shorts on Grayscale Investment's Bitcoin Investment Trust (GBTC) , which is the only ETF whose performance is directly tethered to bitcoin's market price, has averaged $21 million for the year. Short interest hit a high of $71 million on Tuesday, Dec. 5.
Shorts are down $45.9 million in year-to-date mark-to-market loss, S3 wrote, or down 217%. About $39 million of that loss has been registered since October, when the bitcoin rally amped up considerably.
But the cost to short bitcoin hasn't been cheap, S3 found. Stock borrow costs have averaged a 10.2% fee for the year, and "borrow rates are getting more expensive as borrow supply diminishes," S3 said. Since GBTC is more of a retail-owned stock than an institutionally owned stock, new shorts are being charged an 18.5% fee.
"If short interest continues to climb, we should see new borrow rates hit the 50% fee level quickly," S3 said.
The cost to short the GBTC fund could rise higher than 50% and possibly near 100% by the time the first futures contract trades, S3 noted. Many analysts have asserted bitcoin is headed for a pullback when futures open for trading.
"While the futures contract will allow easier and safer bitcoin short selling, it will also allow for easier and safer bitcoin long buying," S3 said. "Long GBTC holders may feel the pain of its 53% asset premium shrinking, while short-sellers will probably be incurring a 50%+ stock borrow fee -- both sides will be paying a premium in order to ride the bitcoin roller coaster once the Cboe futures start trading."
November 18, 2017
By Michael del Castillo - November 18, 2017 (www.coindesk.com)
LedgerX just initiated its first long-term bitcoin futures option.
Called a Long-Term Equity Anticipation Security (LEAPS), the trade was matched by the platform this morning and is set to expire on December 28, 2018.
Under the terms of the deal, the buyer has the right to buy bitcoin at a price of $10,000 at that date, or almost a 30 percent premium on today's price.
Yet, because the buyer only makes money if the price is more than $10,000 (called the strike price), the investment can be seen as a reflection of the level of confidence that the price will reach that level by the agreed upon date.
Such long term futures options have long been seen in the industry as a much needed sign of maturity, and could in part help pave the way for even more institutional money to enter the space.
In an exclusive interview with CoinDesk, LedgerX CEO Paul Chou sought to position the milestone as just the first of many more before the cryptocurrency market can truly be considered mature.
"There will be, I expect, a lot more trades down the line. This is the first one, but it at least gives you the first guess from different institutional traders as to what bitcoin's dynamics will look like from now until 2018."
The trade option was listed by LedgerX late Friday night, and to Chou's surprise, two institutional investors agreed to the terms of the deal just one day later.
Under the terms, the buyer agreed to a price of $2,250.25 for the trade, meaning the seller collects that money if the price is less that $10,000 by the end of next year, and the buyer gets to purchase bitcoin at the strike price if it is higher.
Unlike a futures swap however, the buyer is not obliged to purchase the asset.
"If the price goes to zero, you don't have to pay $10,000 for it," Chou said. "But if a year from now it's at $20,000, then you can exercise your options."
Based on LedgerX's own calculations (made using the Nobel-prize winning Black-Scholes financial markets model), the startup believes there is a 25 percent chance that bitcoin will reach that level in the allotted time.
While this is the first LEAPS financial instrument matched by New York-based LedgerX, they've been conducting increasingly high trade volumes since their soft launch a month ago.
As reported by CoinDesk, LedgerX traded $1 million in bitcoin derivatives its first week of trading, ending Oct. 20.
Since then, the first cryptocurrency firm to be granted a derivatives clearing organization (DCO) license by the CFTC has posted a $1 million day, a $1.6 million day and on November 15, a record $2.6 million day.
Since LedgerX listed the LEAPS option at 5:30 Friday evening, Chou says they saw an additional $500,000 traded before midnight. "That's for a holiday week too," he said. "So we were shocked." He estimates the company has conducted approximately $16 million in notional bitcoin transactions to date.
While the startup's numbers seem to indicated active early interest, legacy institutions such as the Chicago Mercantile Exchange (CME Group) and the Chicago Board Options Exchange (CBOE) have both recently revealed their own similar plans.
Though Chou hopes to maintain his first-mover advantage, he said there's no hard date to launch into full operation. Rather, his team wants to make sure the platform scales well beyond the 1 million messages it sends per day before this milestone. He says he'd be "surprised" if that takes "more than a month," concluding:
"But it might be sooner."
Crystal ball image via Shutterstock
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.