LedgerX initiated its first long-term bitcoin futures contract on November 18. The LedgerX Long-Term Anticipation Security (LEAP) has an expiration date of December 28, 2018. The bitcoin LEAP gives the holder the right to buy Bitcoin on or before that date for a price of $10,000. That was a 30% premium when the contract was issued (BTC $7750 11/18). One week later bitcoin had covered nearly half the distance (BTC $8674 11/25) in premium to the $10,000 “strike price.” The contract cost $2250 ($10,000-$7750) and the contract’s market value gain was over $900. That is a 40% gain in a week. LedgerX CEO Paul Chou told Coindesk: "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 Frankenstein bitcoin futures market is alive and emboldened customers of the Chicago Mercantile Exchange (CME) demand access to the crypto-currency market. The CME intends to launch its bitcoin futures contract today, Monday the 18th of December The CME has submitted an application that is under review by the Commodity Futures Trading Commission (CFTC). CME customers (members minimum guaranty fund requirement is $50,000,000) have been watching bitcoin’s rise, but have been unable to trade their trusted dollars for the infant crypto-currency. CME customers will be able to buy or sell the price movement over a set period of time, most contracts significantly shorter than the recently issued one-year LEAP. Futures are securities, regulated by the CFTC and used, not only for “betting on the come”, but also to hedge against losses in more traditional portfolio assets. One might buy bitcoin but sell a contract against one’s position, thus receiving an immediate fiat currency inflow from the sale as insurance against a drop in the future price of bitcoin.
Futures are also held as short-term assets in investment portfolios of banks, brokers, mutual funds and insurance companies. Portfolio managers need “non-correlated” assets, such as gold, to balance a traditional portfolio with investments that are not affected by, or may benefit from, sudden economic or political changes. Gold also meets the three requirements to be considered currency: it is fungible (all units are identical, divisible, and countable), it is accessible, transportable, and globally accepted as a medium of exchange, and it is a durable store of value as a hedge against loss of buying power. Although gold continues to be mined, the population of the planet is growing faster than the supply of gold. In forty years, the population of the earth has increased by over three billion people while the supply of gold has only increased by two billion ounces. There is less and less gold per person on the planet.
When Satoshi Nakamoto wrote the open-source software that created bitcoin, he used gold as a model. Bitcoin, with its pre-programmed limit on issuance, is like gold in that it is rare and will rarify further as populations and economies grow. As a currency unit of account, it is the best computer science has to offer. As a store of value, it is an asset protected by a global network of computers that is synchronized every few minutes. But as a medium exchange, although bitcoin’s acceptance by sellers of goods and services is growing, so is the use of all-electric cars. Resistance remains among believers in fiat currency and the internal combustion engine. Few who have taken more than a passing glance can doubt crypto-currency’s efficacy as a unit of account or a store of value, but as a medium of exchange, it is handicapped by the unwillingness of vendors to accept a digital transmission from an iPhone instead of dollar bills.
Dollar bills are anonymous (undocumented and untracked) and accepted for almost anything anywhere on the planet, but when one accumulates, like Walter White in Breaking Bad, a storage unit packed with pallets of wrapped and stacked bills as large as a king-size bed, security and transportation become serious issues. One might deposit some spending money at a bank in order to buy gas and groceries with a Visa debit card, but any deposit of $10,000 or more would raise a red flag with the Internal Revenue service and allow user to be tracked by time and place. Visa’s advantage over bitcoin is that it can process 56,000 transactions per second and Bitcoin can only process se.
Bitcoin Cash launched on August 1st, with an eight-megabyte block capacity and the ability to adjust required transaction information in order to increase speed. In just over three months, Bitcoin Cash has done what bitcoin took eight years to do; Bitcoin Cash is trading higher than the price of gold. The SegWit2X failure in early November seemed to make BCH the go to crypto-currency for those who wished to exit bitcoin. Sale of one crypto-currency to buy another, especially BTC to BCH, is instantaneous compared to the possible days of delay to deposit and withdraw fiat currency from banks. A delay of at least two full days could be expected with an automated clearinghouse transaction (ACH).
When bitcoin holders learned of the SegWit2X failure, their wallets held coins at a new high of over $7900. If they chose to exit the bitcoin highway, they may have looked to the nearest exit ramps but with an eye toward accessible entry ramps. Some prescient sellers were also nimble enough to buy Bitcoin Cash, jumping from the down escalator to the up. Bitcoin dropped $2000 in market value, and Bitcoin Cash rose by $2000. Amazingly, the reverse of that trade appeared again when BCH dropped as BTC rose. But it did not matter, after all, because both coins ended a volatile two-week period at new highs.
It is not just the crypto-currency invaders who are vanquishing most vestiges of our previous analog lives. In 2003, Apple began selling digital music downloads for $.99 each. Netflix sells access to its digital library for $10.99 per month. Kindle books cost pennies to dollars for the ability to read on the bus. Those digital products are purchased with fiat currency. Bitcoin Cash intends to reverse that transaction and enable purchase of tangible and palpable products with digital currency. That would fix the medium of transaction leg of the crypto-currency three-legged stool and balance its effectiveness as a unit of account and a store of value.
The story the crypto-currency market tells today involves a future universal digital currency that an increasing number of participants believe is inevitable. Any percentage of the trillions controlled by banks, brokers, and hedge funds would significantly increase the volume of the nascent crypto-currency market. The flashflood of funds now flowing through crypto-currency valley is but a warning of the watery chaos possible if bitcoin futures allow greater access to government controlled fiat currencies. As bitcoin goes, for now, so goes the crypto-currency market. As bitcoin holders’ wealth increases, so will their need to trade, withdraw, or spend that wealth. With its multiplied transaction speed, Bitcoin Cash may become a favorite exit from the bitcoin highway.