Bitcoin Futures And The Need For Control

Tyler Durden's picture

Authored by Tom Luongo,

I’ve been asked by a few subscribers to further discuss the potential effect of the major exchanges starting up futures trading in Bitcoin.  Last month the CME Group and the CBOE – Chicago Board of Exchange — announced they would begin trading futures contracts in Bitcoin due to popular demand.

image courtesy of CoinTelegraph

The SEC fast-tracked approval, because, what the big banks want the big banks get.  This is called ‘regulatory capture’ for short.   Trading is due to begin on December 10th.

Now there are a lot of issues here but the main thing is that these are cash-settled contracts.  This means that, for all intents and purposes, these are dollar-based bets on where the price of Bitcoin is going in the future.

And dollars, unlike Bitcoin, are in nearly infinite supply.  I’ve heard arguments that the recent price rise in Bitcoin is partly because the CME and CBOE are building inventory.  That’s pure disinformation.  What inventory are they building when they are never going to settle the trades in Bitcoin?

Futures Imperfect

Futures markets are a function of coordinating supply of an asset with time.  If you anticipate the future need for a few million barrels of oil and want to lock in your future liability to obtain said oil, you buy some oil futures which will deliver you that oil on by that date.

By contrast, a cash-settled contract is, in effect, no different than a CFD offered by a forex broker.  A CFD is a contract for difference which are simply bets on the movement in price of something.  They are divorced from the underlying asset and do not affect its supply or demand like an asset-settled futures contract is.

CFD’s are really no different than betting on a football game or who will win the election.  It is a pure derivative of the underlying asset and has no relation whatsoever to the trading behavior of the asset itself.

Except, of course, that traders who are looking for any edge they can get will use that data to influence their decisions.  And so, as a secondary or tertiary effect, the structure of CFD markets have an effect on the market of the underlying asset.

In short, the tail wags the dog.

The question on everyone’s mind is, how much of an effect this will be.

The analogue for stocks is the VIX — the volatility index.  The VIX is its own market which itself is a prime indicator of where the market is headed.  The VIX is manipulated all day every day in the equity markets to support whatever narrative the political class, Wall St. and the central banks want us to believe.

The VIX used to be a small market.  But, in today’s yield-starved, central-bank-coordinated world, where price discovery is suppressed in the name of market ‘stability,’ the VIX now IS the equity market.

And this is the mechanism by which a cash-settled futures market can be used to gain control over the price of Bitcoin.  It will bring absolutely zero liquidity to the Bitcoin environment natively.

It will simply make high-frequency scam-trading and spoofing in Bitcoin an official part of the market through the creation of a near-infinite supply of dollars.  And the issuers of that supply will use those price moves to push or pull the Bitcoin market itself to fit the needs of the banks and exchanges whose business is most threatened by Bitcoin’s existence.

The Blockchain Threat

When you look around the blockchain space you can very easily see that there are a number of projects attempting to marginalize the existing financial trading infrastructure.

They are building blockchain analogues which require no third party to settle and clear trades or provide liquidity pools.  From cross-chain atomic swaps to distributed exchanges with direct fiat conversion,  the cryptocurrency community is becoming focused on replacing the current system with one less subject to manipulation through central bank largess.

The central banks themselves know they are under attack at an existential level.  And it is why the major ones will never truly embrace digital assets in any substantive way.

In my first article for I cover why the Federal Reserve would never create  a crypto-dollar.

Bitcoin is a digital analogue to gold with respect to the Federal Reserve. So, the Fed, which props up confidence in the dollar by marginalizing gold, will never create a Bitcoin-derivative. Doing that would state categorically it doesn’t have faith in its own currency. Why create a crypto-dollar when the real dollar (itself just as much a digital asset as Bitcoin) works just fine.

We have historical precedence for this with gold.  And I remember the crowing in the gold community when the SPDR Gold ETF (NYSE:GLD) was formed.  All the same liquidity and ‘bringing the big boys in’ arguments were made and yet, buried deep in the prospectus was the poison pill about how the ETF dealt with settlement and what assets it actually held — futures contracts, not gold.

And is it any surprise that with the rise of GLD the leverage on the gold futures platforms around the world has risen to astronomical levels?

So, don’t think for a minute that the CME or the CBOE are implementing Bitcoin futures for our benefit or simply because they want a cut of the action.  No, they are doing so because they see the existential threat to their business and are moving to defend it by becoming part of the action.

The Way Forward

But, there is a silver lining to this. 

Bitcoin is not an asset where the existing power structure can coordinate pricing worldwide 24/7.  And Bitcoin trades, much to the consternation of everyone in power, 24/7.

Gold is easily manipulated (up and down) because like all other assets trading on official exchanges, gold closes on Friday afternoon and doesn’t start up again until Sunday afternoon.  That’s two days of policy coordination talks, headlines, bad-bank settlements and the rest to ensure that it, like any other systemically-important asset, does not spasm in price and cost anyone important too much money.

Blockchains operate all day, everyday.  And there truly is no reason why they should ever stop trading. So, the future exchanges, if they are planning on trying to control the Bitcoin price through their derivatives, better be subtle about it.

Because what they bring to the table first and foremost is their imprimatur of professionalism.  These are supposed to be the most trusted, most sophisticated market making platforms in the world.

And their entry into this space is supposed to professionalize the way Bitcoin is traded and price discovery achieved.  And without 24/7 exchange coverage they better behave themselves or the market will lose confidence in the product very quickly as arbitrage effects will destroy their credibility.

Because, remember, once the blockchain-equivalent platforms are up and stable there will be a whole new level of trust added to the financial system.  There is absolutely zero reason why a blockchain based, coin-settled futures market can’t compete with the CME Group or the CBOE.

At which point we enter into a whole different regime of price discovery.

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Five Star's picture

Congress is working on Bill S.1241 to 'criminalize deliberate concealment of property or the control of a financial account' aimed at Bitcoin:

SafelyGraze's picture

demolition of the pontiac silverdome failed on the first try

but on the second try, they added jet fuel to ensure modest success

still no freefall, though

pull it!

nope-1004's picture

Get ready for the waterfall.


InjectTheVenom's picture

CME & CBOE ....

>>>>    roadblock    or

>>>>    threat

tmosley's picture

>What inventory are they building when they are never going to settle the trades in Bitcoin?

The inventory they will slam the price with to fleece the idiots who have exposure to their paper crypto rape dungeon.

Davidduke2000's picture

they cannot influence anything, only some people who missed the boat maybe tempted to buy paper bitcoins, but the real bitcoin price would not be affected. picture the new Chinese-Russian gold market with their own tickers and real price for physical gold that determine the real price, the CME will be out of business. 

nope-1004's picture

They control everything.  That's what a "futures" market is.  It's a proxy for real price, set by .gov and its member banks to control global finances and the USD.  Is the current price of gold / silver / copper / platinum.... set by a futures market price?  Or by the underlying physical demand?

Real price discovery will not occur as long as the USD is in widespread use.  Till then, pockets of speculative price action occur (like bigcoin now) but Western based financial futures markets are the command center for global control.


Urban Roman's picture

The futures "market" will consist of a couple satoshis and several trillion in naked shorts ... what could possibly go wrong with that?

fx's picture

Official futures trading on BTC will all but kill BTC. iF only via a bitfinex collapse. So far shorting BTC was next to impossible and there was a sellers strike. Next thing you know, the cme tail wags the BTC dog and all of a sudden BTC experiences sustained downward volatility

Ramesees's picture

These futures markets are cash settled.  They control 0 bitcoin.  

Thalamus's picture

Just like Silver and Gold on the Comex

mytwocentimes's picture

I get this and still ... if I were buying/selling a position on CME/CBOE ... I (not the exchange) would look to hold BTC to safeguard my position (to a certain degree), no ??  This means that a rational CME/CBOE-player will buy inventory in BTC ... *must* buy ... no ??

mytwocentimes's picture

I get this and still ... if I were buying/selling a position on CME/CBOE ... I (not the exchange) would look to hold BTC to safeguard my position (to a certain degree), no ??  This means that a rational CME/CBOE-player will buy inventory in BTC ... *must* buy ... no ??

Antifaschistische's picture

or, maybe the absurd notion of naked short selling a crypto just illuminates the absurdity of a guy (like me) being able to sell a 100 truck delivery of oil when I don't have a well, don't have any oil storage, and I don't have a truck.

caveat emptor.   let'er rip.

tmosley's picture

That is what I am saying. They will lose money in the actual crypto market, but more than make up for it in thier fake muppet market.

MonetaryApostate's picture

Blank Check Bankers want to control everything & skull fck the serfs every time, but something tells me they'll end up legislating away the market.

holgerdanske's picture

Can't fucking wait for that!

chubbar's picture

Here's what I know, every fucking thing is a casino, a gamble. No financial instrument isn't controlled by something or some group or someone, to their benefit. Also, maybe it's just me, but I'm witnessing people who in the past were pretty straight shooters now start cheating and acting poorly. I don't know if I'm just imagining this or not.

So, with all that said, I just don't trust anyone or especially the gov't. That means the stock market, bond market, futures, options, real estate, banks, you name it, I think it's all rigged and/or will confiscate your shit if/when they feel like it, with the gov'ts blessing. I hold physical metals because I can touch them and control them, outside of armed robbery, which I deem is less likely than unarmed robbery from the gov't, I feel safe that I'll at least get to keep SOME wealth.

It means that I give up future gains for peace of mind, but so far I'm sleeping pretty well and that has to be worth something.

Davidduke2000's picture

they cannot crush anything, soon or late a major crisis worldwide would make precious metal impossible to buy, anybody who cannot take the heat should leave the kitchen also people should not use the food money to buy precious metals.

quadraspleen's picture

"Because what they bring to the table first and foremost is their imprimatur of professionalism.  These are supposed to be the most trusted, most sophisticated market making platforms in the world."

and this is a joke right?

actual lol

Mine Is Bigger's picture

I am skeptical that cash-settle markets would make a huge impact on bitcoin prices.

Bitcoin futures are basically a casino where people use bitcoin prices instead of roulettes or dices.

But I am no expert and am waiting to see how it all unfolds with an open mind.


One thing though, as a HODLR since 2011-2012, I would not sell even if bitcoin prices halved.

I have lived through 70-80% plunges only to see bitcoin prices come back stronger.

This will end one day, no doubt, but I am comfortable betting that the mega uptrend will continue for at least several more years.

Ramesees's picture

They will make some changes around the settlement time when bots frantically try to edge the price up or down depending on how their masters have their positions but not enough to move the price a whole lot.

One good thing about BTC being so expensive is that it's more difficult to manipulate the price. Roger Ver and other whales think twice before they dump 1500 BTC just to move the price $1,000.  

balanced's picture

What happens when the CMEs circuit breakers are tripped, suspending futures trades, while exchanges continue trading? Uh oh.

Txpl9421's picture

My bet is we will see that happen several times in the first couple of weeks. 

I will laugh my ass when they they "trip" the breakers.  And the bitcoin world just keeps rolling on down the street.

BetterRalph's picture

I've had an unfortunate silver bell incident, if you happen to find any of my STOLEN SILVER BELLS out there please mail them to me for Christmas.

Killtruck's picture

BTC is global. South Koreans competing with Venezuelans competing with Russians and Chinese. 

Fuckin' HODL!

2rigged2fail's picture

Just needs a little thermite

nuubee's picture

How retarded. Bitcoin is open, everyone can see what each "account" has in it.

Politicians don't understand the internet.

seek's picture

Which will have no effect on legitimate users, just as KYC doesn't impact the USD.

Plus it will have no effect on holders of BTC that aren't US citizens.

tbh, I think TPTB are scared of bitcoin not because it's concealed or secret but because it's open. It's pretty damn easy to audit once you know the addresses involved. It can be secret, but you have to put the effort into it, moreso than using pallets of cash.

Buckaroo Banzai's picture

Seek, you are exactly right. BitCoin might be pseudonymous, but it operates on a public ledger, 100% transparent, and nothing terrifies them more than transparency. They want to make you think that money launderers and criminals use BitCoin, but 90% of criminal money is laundered in dollars at criminal-friendly banks like HSBC who either keep two sets of books, or pay off the bank regulators, or both. No serious criminal in their right mind would use any technology that keeps a public ledger!

We have lived too long with a financial system that caters to the biggest criminals while chasing down the small criminals. While cryptocurrencies might let the small criminals slip through the cracks, the big criminals are going to have a very, very difficult time covering their tracks in a public ledger financial system.

Peacefulwarrior's picture

Exactly the Miners will be classified as Banks.. I was wondering when this might happen, good find

Consuelo's picture

+1 for cutting through the crap.


That last paragraph...

Sad, but true.

HRClinton's picture

The Congress works for their financial (((masters))), not the people who voted them in.

They are merely running interference for the Cartel of fiat banksters.

Their function is to keep the Debt Slaves on the Plantation: "Can't have the Slaves get all uppity and think that they are free to leave, or to behave as they wish."

"CCs and AU could buy their freedom, and that must not be allowed!", is the thinking of the parasitic fiat (((owners))).

ZH Snob's picture

I predict the longs will win, win, win, scaring the shorts out of shorty short shorts.

nuubee's picture

Pretty much exactly this. Future trading is gambling used to control a market.

vq1's picture

"naked. short. selling. This will certainly be bad.

Also- Many people getting into crypto in the last few months are only speculating. They do not care about "being your own bank." In fact all their btc holding is on coinbase and they do not have access to their own private keys. They only want to buy and sell for a profit. If thats all you want to do, then there is no reason to hold the asset itself. Much like the paper gold market today, no one feels the need to have the gold itself, everyone just gambles with the paper.

This will make it harder for people who are trying to use btc as an actual currency. How can a store accept btc when hedgefunds are manipulating the price daily? Im not trying to FUD, but I am really not happy about the futures market. Maybe they will just have one huge short sell, kill the price, shake off all the speculators and non-enthusiasts and then we can get back to focusing on the tech, not price."

Davidduke2000's picture

do not get carried away bitcoin is only speculative nothing more, anything with no intrinsic value is speculative like stocks. we saw 1929 that the best stocks were selling for pennies after a high of $500. even in 2000 the dot com bubble, the stocks that were selling for $900 dropped to less than 50 cents.

vq1's picture

lets talk again in a year or so, we'll see how it turns out.

Thalamus's picture

Does the USD have intrinsic value?

Davidduke2000's picture

NO, I am watching the real time ticker and do not see $12000.


LawsofPhysics's picture

LOL!!! Last time I checked I still use dollars to buy bitcoin and can still convert bitcoin back into dollars...

Impress me, detach bitcoin from all fiat...  ...become a true facilitator of exchange between producers and consumers (like ebay or paypal)!!!  E-by was great before they started taking such a large chunk of every transaction.


1stepcloser's picture

CME Bitcoin exchange Qoute $400

Coinbase Bitcoin exchange Qoute $11,800


All you need to know...

Davidduke2000's picture

CME futures cannot stop bitcoin because there is an independent maker for it so maybe the casino will have few players but the price will be determined by real offer and demand, meaning if you have no bitcoins you cannot sell fuck all.

class of 68's picture


You underestimate the power of the CME/CBOE.

I have been on both exchanges and sure BTC is new but it will surely be affected by major players on the CME. Small bids

and spoofing now on kraken, bitfinex etc will be overwhelmed when a major short arrives on the CME. I've seen it in the metals

and on the SPOOS. 

Seems to me this market is ripe for a major pullback of thousands of dollars. All that's needed are a few major houses hitting

sell 100,000 BTC contracts at the market (come on).. as in the Bache days gone by. The bids will evaporate and look out below.


tropicthunder's picture

The launch of BTC FUTURES on not 1 but 3 US EXCHANGES is the equalivent of the CRYPTO NUKE being loaded onto the Enola Gay..