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The Future of Money is Here: Zero Trust Digital Currency Contracts
BoomBustBTC contract
Note: New subscriber content available below.
I have created derivatives for Bitcoin that work exclusively on the Bitcoin network. They are capable of literally replacing the role of the large money center and investment banks. YES! This is a big thing. I will hopefully have a limited use beta example of the first product for the viewers of the show to experiment with. These products have been designed as zero trust contracts (meaning it was designed to eliminate the human judgment factor, thereby nearly completely automating the entire transaction). Currently, trust issues that the conventional OTC banking system products incur severely hamper free flowing capital markets. Greed begets inefficiencies. Digital zero trust contracts (as opposed to physical legal contracts) “theoretically” eliminate litigation and court involvement and expensive dispute resolution through means of the legal system. My BoomBust contracts allows anonymous parties to swap exposure in and out of Bitcoin from many widely traded currencies. (USD, EUR, YEN, CNY, etc.).
The state of the capitalist union today is ripe for Bitcoin activity to explode if knowledge of the platform spreads. Just to list of few catalysts:
- The lack of trust in the world’s reserve currency, the USD.
- The financial controls in the world’s most populous nations, India and China.
- The Pan-European sovereign debt crisis
- The confiscation of bank deposits in Cyprus (EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation) and Ireland (As Forewarned, Irish Savers Have Just Been "Cyprus'd", And There's MUCH MORE "Cyprusing" To Come) and eventually anywhere banks are overleveraged and/or undercapitalized.
- The billions of the great “unbanked” of the world, in both 3rd world nations and even in the most developed nations on earth, ex. right here in the US.
- The paltry returns on loans and bank deposits as well as the unsubstantiated bubble returns on risk assets – all stemming from the Fed’s unprecedented 6 year global ZIRP real time experiment. I commented on this back in 2008 (A real life, real time example of the Great Global Macro Experiment)and it’s still running strong.
Possible uses for the BoomBust contracts:
Simple investment/speculation
Those who want to gain exposure to a foreign or digital currency can easily enter into a swap to gain said exposure without actually having to purchase said currency (other than BTC, of course).
Hedging
The swap can be used as a simple hedge for any party that has large exposure to BTC, USD, EUR, etc., such as a retailer with low margins and high volume, ex. Chinese widget manufacturer or smartphone OEM, that accepts bitcoin but wants to hedge out the volatility and market risk. The BoomBust contracts can be layered, levered and/or compounded to make more complex hedges as well.
Capital flight/mobility & Banking System Bail-in protection
Parties who are domiciled in free flowing capital hostile states that have tight capital controls, ex. China, India, and now France with its 75% effective wealth confiscation scheme, etc. that have banned or limited BTC trading by banks and/or individuals can take advantage of the BoomBust contracts to gain multi-currency exposure without explicitly violating the law. Take note that the systems with the tightest capital controls have been the one’s exhibiting the most aggressive stance to bitcoin. Unfortunately, they don’t seem to understand what Bitcoin is and what it can do. I stand to educate the masses. See below…
Cyprus banks closed on a Friday and announced confiscation of assets over the weekend. These BoomBust contracts could have been used to move monetary value outside of the Cyprus banking system assuming the participants had a store of Bitcoin (it is rumored that this is how some of the Russian money was removed over the weekend). Let’s assume a small businessman would like to purchase $1M euro worth of bitcoin, yet is concerned that the BTC volatility may cause more of a loss than the Cypriot capital controls. He buys the BTC then hedges his large BTC position into EUR. He proceeds to do that with a quarter of his monthly cashflows, building up a sizeable, fully hedged position in cyberspace (thus, effectively offshore) and outside of the fragile Cyprus banking system. The Cyprus banks pull the trigger to confiscate funds and the Russian bank depositor has significant funds mobile and ready to deliver anywhere in the internet connected world within minutes, even on a Sunday afternoon.
Another example of dealing with a company with tight capital controls would be India. India has extremely tight capital controls that have (IMHO) hampered its economic progress relative to China, despite having similar populations and the advantage of a large indigenous English speaking population stemming from British occupation (easier to do business with the larger capitalist nations when more of your constituents speaks the native tongue).
India has effectively outlawed trading in bitcoin, but Indians can still participate in the evolution of money by taking advantage of the liberalised remittances scheme of the Central Bank of India, a person can remit up to 75,000 USD offshore annually. These monies can end up in a Bitcoin friendly jurisdiction (amazingly enough, like the US), and be used to purchase BTC hedged, via BoomBust contracts, back into rupees or the currency of choice.
indian BTC program
This can also work the other way around, which would actually be quite advantageous to the Indian government and potentially make them rethink the real world practicality of capital controls. Even in a country that has capital controls and fears Bitcoin may threaten its banks, a decentralized near friction free currency exchange would be beneficial solely do to international remittances from expats in foreign workers. A real world example are Indians that I know who lose significant money because of PayPal and Western Union fees (not to mention bank wire fees). Indians can send BoomBust digital contract rupee locked BTC home on a deferred basis. The registered exchange or ATM in India however could only be one-way so that it only accepts BTC from the Indian general public in exchange for rupees and not the other way around.
Spread Arbitrage
On Dec 13th, the EUR/USD exchange rate was roughly .78x, thus if one were to have sold 1 BTC into EUR than purchased USD, a $10.66 spread could have been realized over buying the USD with EUR directly.
arbitrage opp
Notice the differences in prices throughout the SAME MARKETS, contingent upon exchange.
BTC markets
I am happy to discuss this with institutional and professional subscribers whenever possible.
All paying subscribers (click here to subscribe) can download this introduction to our institutional level report on investing in cryptocurrencies: 
Digital Currencies' Risks, Rewards & Returns - An Into Into Bitcoin Investing For Longer Term Horizon. There will be much more to follow in the upcoming days. Below is the brief summary as how we have computed the following ratios:
Excess Risk Adjusted Return
Excess Risk Adjusted Return is defined as returns over and above the required return on asset based on its risk characteristics. BITCOIN being a very volatile asset, the required return of the currency has been computed using the CAPM (Capital Asset Pricing Model) approach. CAPM equation requires a variable known as Return on Market Portfolio (a portfolio comprising of all risky assets, conventional as well as alternative assets like antiques, currencies, private equity investments, etc.). For equity investments, general Market Index shall suffice but in our case the investment is altogether different (Digital Currency) and the conventional market index will be a bad proxy. Best Proxy in our case shall be a diversified Currency Portfolio – comprising all global as well as digital currencies. As such there exists no known proxy/Index consisting all Currencies, We have approximated it by using MSCI – EM Currency Index. The Index comprises a basket of 25 emerging market currencies.
Excess Risk Adjusted Return = (Return on Asset) – (Required Return on asset based on its risk characteristics)
Return on Asset (Ra) = Return on B ITCOIN for different periods like 3M, 6M 12M, etc.
Required Return on Asset = RFR + ? * (Rm – Ra)
RFR = Current US I year Treasury Yield
Beta = Covariance of (Returns on Asset & Returns on comparable Index) divided by Variance of (Index Returns)
Rm = Long term return on comparable Index, (in our case which is the Currency Index return comprising 25 Emerging Market currencies)
What's so eery is that now even Ben Bernanke and I actually agree upon something...
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check out my previous comment here - http://www.zerohedge.com/news/2014-01-04/bitcoin-brownstones-you-can-now...
The money laundering market estimated at 3.6% of global GDP
Trillions with a T.
http://www.fatf-gafi.org/pages/faq/moneylaundering/
Once ZeroCoin is implemented there will be no way to hold back the tide
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And - http://www.zerohedge.com/news/2014-01-03/bitcoin-versus-gold#comment-429...
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It will continue to be useful the black market whether people personal think its an NSA honey pot is irrelevant.
They in the next couple days they are launching an Onionland Stockexchange.
drfar5tik2x2ycwb.onion
kpvz7ki2v5agwt35.onion/wiki/index.php/Onion_Stock_Exchange_%28pastebin.com/wB3iGU3s%29
http://pastebin.com/wB3iGU3s
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Buy guns, id's, stolen credit cards cvv's, and a mountain of drugs. This is the backdrop of the crytocurrency scene if everything fails. This blackmarket generates hundreds of millions in sales annually and continues to grow at triple digit rates. Once large players move in we could see its economy eclipse smaller countries
I've already been researching almost 10 BTC options platforms. In most cases you would have actually lost money selling puts on BTC vs owning it outright on that last big drop because of the high risk premiums. Additionally most are European style contracts that can't be sold before expiration like their American style counterparts.
I won't even go into the regulation side of things. I'm going to probably try a few of them out with small amount of capital to see if they're legit.
How to bet against the bitcoin megabubble - The Term Sheet: Fortune's deals blogTerm Sheet
Reggie, there's a guy calling himself Himpton holding on line 1.
Bitcoins, Tulips, whatever !
Can you still buy intrade life insurance contract derivatives?
I know you are mr. goog, but if you want an iOS app, I am your man/team.
Cheers!
please stop this ....you're making my head spin
Kevlar - no small planes - no hot tubs - no hotel balconies.........
Free tip - do not store radioactive fissile material on balcony, even in refrigerator.
I hope you have a good lawyer on call, because the "big boys" are not going to like this.
power: the tragedy
toolbox?
1) print money and purchase what it is that catches
the eye.
2) avoid or destroy the obstacle in your path to
obtaining the object that catches the eye.
4) change the rules and the laws to facilitate obtaining
the object that catches the eye.
3) hire assassins to execute the bastards who interfere
with "the" plans to capture the object that catches
the eye reporting to
the collective "mind".
.
debate and argument, insight and introspection, have
a diminutive role to play
in the power tragedy. imho
"I hope you have a good lawyer on call"
I hope you have a good software engineer on call, because the existing software is very complex and buggy. My wallet client just crashed, no good explanation why. Now I have to debug the problem and hope that I didn't lose any valuable data.
Bitcoin at this time is highly experimental software. Many people have lost valuable data, others have been defrauded either through their own negligence or sophisticated networking attacks. You need to be fairly knowledgeable in software engineering to navigate the system, and even then, experienced people are having difficulties. Good luck.
What worries me is Reggie is talking about creating derivatives and hedges on ZeroHedge.
Add to that "digital" and "Internet" and "software" and "database" and it gets even more frightening.
I thought we wanted sound money, not a nebulous fiat deriviative hedge as an alternative to central bank fiat and the derivative hedging put/call casino we currently have (?).
That's a great contrarian sign to increase stacking.
I didn't quite think of that (the lingo) but I did notice it's the first finance post by Reggie in years in which he was optimistic :-)
What happens with the "value" of scamcoin when the value of fiat in terms of physical goods starts sinking?
you must have got one of the toll paying cars,
look for the toll free version if it comes
on line and empty your accounts to buy one.
Sorry... not relevant. It's about knowing how the light bulb does work, by learning how it doesn't. You're actually making an argument for the blockchain.
"Results? Why, man, I have gotten lots of results! If I find 10,000 ways something won't work, I haven't failed. I am not discouraged, because every wrong attempt discarded is often a step forward...." Thomas Edison
All tokenize of value is inherent in form of risk. Take as example, oh, saying copper, or subterranean copper ore in urban proximity... maybe dielectric potential is high, or is negligible, but cannot know before "extract". Suggest all speculator is wear heavy leather glove and thick rubber sole boot. This of course is only analogy and should not to be construe as any thing of actual.
:-)
Do you think the volatility can start to smoothen out if the the spread arb catches on?
Yes.
Reggie, there is a money trap at the exchanges right now... bigger more liquid funds need to be opened to let the pent up price discovery happen first and then I can see pairing work to flatten big swings
The climate right now is not friendly to it...innovation will have to circumvent the AML/KYC quicksand. Just look who are the major exchanges that everyone is quoting the 'prices' from? Now look at the state of their fiat inflow/outflow situation...
yeah... I am sounding the alarm.. expect a stormy spike in 'price' as it is held hostage with huge crashes or closeouts on the few areas money can escape.
I vote for you as leader of the new "not-the-central bank" Reggie.
Arbitrage by very nature is inherent short term in duration. Arbitrage is rely upon volatility. This is dynamic of market, free or fetter.
... but what is Boris know!?
Reggie, if interested, there is feedback on reddit, too.
http://www.reddit.com/r/Bitcoin/comments/1ugmrx/bitcoin_derivatives_have_arrived_this_is_huge/