Nov 14, 2017

They said what? Bitcoin and Volatility

As CBOE and CME both racing to list bitcoin futures we see some surprising statements from leaders of financial industry. In a recent interview Thomas Peterffy was quoted as being very scared that abrupt moves in bitcoin could bankrupt smaller clearing firms, jeopardizing the entire structure of the markets. Unfortunately, the full quote is unavailable (if you find it, please email me) but what Barron's article implied seems very strange. While margins across the board are relatively low, it is unreasonable to expect them to be low for a completely new product in a completely new asset class. Clearing houses would not change the same margin (in%) for Eurodollar (low vol) and VIX (high vol) futures, and BTC futures are certainly going to be the most volatile of all products listed so far in the history of mankind (both spot VIX and BTCUSD have spot vol of about 100%, but VIX is mean-reverting so long-term vol is much lower) I expect that margin requirements of BTC futures will be highest we've ever seen, simply because clearing firms, large or small, don't want to go bankrupt, and will change rates they decide to be appropriate for the level of risk their customers take.

Another surprising quote comes from Terry Duffy: "I’m not going to let it go to zero" Well, I'm sure Mr Duffy is a very influential person, but he is not in a position to influence the market. So I watched the video where he elaborates on the trading halts that CME implements across products would apply for Bitcoin futures as well. So, not literally "I’m not going to let it go to zero;" more like "I’m not going to let it go from $7K to zero in a second"

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