December 2017: Crypto-Currencies —
Anyone who knows me, at all, knows I absolutely hate high frequency trading (HFT) computers.
They are NOT the same as old pit traders or market makers. They take liquidity and do NOT provide it. They used to be an inconvenience in the markets and now are a fact of life. In many cases they are the market(s). So I have reluctantly accepted them like an obnoxious, noisy neighbor, and live with them. But enough ranting about HFTs.
Similarly, I have been very reluctant to jump on the Crypto Bandwagon.
I had hoped they would remain contained to the fringe or just go away – because of the dangers they potentially present – but now I have to again reluctantly accept that they are going to be around for the foreseeable future.
They may even be a nail in the coffin of central banksters and their fiat currencies.
But several recent events have caused me to finally take this crypto-currency thing much more seriously, much sooner . . . so I’ll start this new feature of the Chartsky Blog with a spotlight on them. The main crypto, of course, is Bitcoin (CF).
So much is happening so fast . . .
C.M.E. To Offer BitCoin Futures
On October 31, 2017 the Chicago Mercantile Exchange (C.M.E.) announced it intended to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods.
Bitcoin Futures – Will There Be Sufficient Control?
Like I wrote above, at just the end of October (a few WEEKS ago) both the Chicago Mercantile Exchange (C.M.E.) and their rival Chicago Board Options Exchange (CBOE) announced they would begin trading futures contracts in Bitcoin because of unrestrained popular demand – as soon as they received regulatory approval.
That approval was “fast tracked” because . . . well, because the banksters wanted it and we all know who actually controls the Exchanges and the “oversight” agencies, don’t we? More about that below . . .
So starting next Monday – December 10, 2017 for the CBOE – who won the “We’re first!” Race – and the Monday after that – December 17, 2017 — for silver medalist C.M.E. – we’ll all be able to speculate until we drop as to the hyper-volatile Bitcoin, through Bitcoin futures.
This may wind-up being little more than a last-ditch, desperate step taken by central banksters to try and have a shot at keeping control of “money.”
But I think, ultimately, Bitcoin futures can be good news and bad news.
Where should I even start?
First, these contracts are supposed to be settled in cash; and, since both Exchanges are in the U.S. that means we’re about to see dollar-based bets on where the price of Bitcoin will go at some point in the future.
And there is virtually no limit to how many times our friendly banksters can hit CTRL+P and create those dollars with which to speculate in Bitcoin futures!
There is, likewise, no limit as to how leveraged Wells Fargo or Citi or JPMorgan or Goldman-Sach$ can become in a wildly and violently hysterical Bitcoin market.
But that’s old news. They already use depositors’ money to place derivative bets – oops, errrr, I mean “manage their balance sheets.”
Let’s start with something a lot more basic.
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Futures contracts were originally created – and for a long time only used – to hedge the future price of a commodity with the element of time.
The analogy I like to use in my LIVE! Trading Room is Crude Oil (CL). An oil production company knows it will have, say, 100,000 barrels of crude oil to sell in 2-months while a refinery knows it will need that same 100,000 barrels to refine. The Oil Company looks and sees price is relatively stable and thinks it might drop so they lock-in the sale of their oil today. Same with the Refinery who sees price, does their calculations, decides there is a nice profit margin for refining oil at today’s price – and similarly locks it in. When the contract expires, each jumps through a few more hoops, but Oil Company produces the 100,000 barrels and the refinery takes delivery of them. Both are happy.
If I buy a Crude Oil (CL) futures contract, and hold it through expiration, I can expect to pony-up, pay for and take delivery of 1,000 barrels of crude oil.
Same with corn, wheat, soybeans, oats, hogs, cattle, etc.
By contrast, a cash-settled contract is effectively no different than a CFD offered by your friendly Cayman Islands Forex Broker. A CFD is a cash for difference BET on the movement of something’s price. They have absolutely no effect on the supply or demand for a physical commodity or thing – like the crude oil example above.
CFDs are like a bet on the Final Four during March Madness or the 2016 Election or Brexit or the Super Bowl. If you want to bet on those, you can go to Vegas. If you’re a bankster, you need to base your bet on some tangible asset. That CFD — that BET — is then purely derivative of the underlying “asset” – or at least it’s supposed to be – and we all know the banksters learned their lesson in 2008 and would never, ever be using depositor’s money to place bets on derivatives again . . . right?
In case you don’t already know, here’s something that may keep you up at night: an alarming table showing the assets of major banks and the multiple times their entire net worth they are exposed already to bets, oops, errr, again, derivative investments:
Anyway, the structure of CFD markets often have a secondary effect on the market of the underlying “asset.” We all know traders look for any edge they can find. It’s why they pay exorbitant or extortionate “rent” to co-locate their data servers as close to the Exchange as possible. To shave-off a few milliseconds! It takes about 300 milliseconds to blink! Sometimes the futures markets make a significant leading move and drag-along the underlying asset — sometimes it’s a result of arbitrage — but a more sinister application is the way central banksters have manipulated gold and silver for decades!
Think I wear a tin-foil hat?
Well, many of us long-time traders saw years and years and YEARS ago that there was something terribly wrong in the Gold (GC) futures market and spot gold prices.
Gold – and to a lesser degree, silver – has been an “alternate” currency for millennia.
Yeah, yeah, in hindsight we can now clearly see that central banksters were taking control of entire countries’ economies. And a huge threat to their plans was any form of alternate to fiat currency (paper currency printed out of thin air by central banksters and not backed-up by gold — or silver).
Gold itself then was a huge threat. So was silver.
In a nutshell, here’s the way I understand their criminal scheme – as ADMITTED by a co-conspirator, DeutschBank – in Court, in a lawsuit (and, as a footnote, after being totally absolved previously by an intentionally blind CFTC “investigation” while this criminal scheme was going on):
(1) Banksters MASSIVELY short sell futures on Comex (now absorbed by the C.M.E.) in sudden and extremely large quantities – at odd times, without any accompanying news and often during the middle of the night – dropping prices significantly (price spikes).
(2) This triggers stop-losses, margin calls, and related ETF withdrawals, which further lower the spot price of the precious metal.
(3) The banks repurchase these lower-priced shares and redeem them for physical bullion.
(4) The bullion is then sold on the London Bullion Exchange, further putting selling pressure on the precious metal and lowering its price.
The documents DeutschBank surrendered in the class-action lawsuit against it FOR PRICE RIGGING revealed that it coordinated with other banks to manipulate the spot market for silver, manipulate the bid-ask spread, coordinate trades, and share customer order and proprietary information, among other illegal rigging strategies like front-running.
Don’t worry, they also admitted the same criminal scheme was used to manipulate gold — and they had been doing it for years and YEARS!
Here’s a chat between DB and HSBC discussing customer orders and how to manipulate the price of silver. Not arguably . . . ADMITTED by DeutschBank:
Another chat transcript from May 11, 2011 reveals a Deutsche Bank trader telling a UBS trader that the cartel “WERE THE SILVER MARKET”(sic) based on feedback from outside traders to which UBS replies, referring to the silver market “we smashed it good”, leading to the following lament “fking hell UBS now u make me regret not joining.”
Finally, for all those traders who wonder what happened to their stops as a result of dramatic moves in the price, here is the answer: a June 2011 chat between a UBS and a DB trader comes down to the following: “if you have stops… who ya gonna call… STOP BUSTERS”
Futures were a huge part of the criminal scheme – so the tail winds-up wagging the dog!
I’m worried about how much of an effect this will have in Bitcoin futures.
The central banksters once targeted silver and gold as clear and present dangers to their absolute control over the world’s economies. They criminally conspired to manipulate the value of YOUR silver and gold! NOT ONE SINGLE PERSON WAS CHARGED WITH A CRIME – except some low-level scapegoat! They’re still doing it today! Last year, their PR corporate-controlled propaganda media began the war on cash – which was next-up to be obliterated as a means to tighten their noose. But crypto-currencies sprang-up. Now, they are squarely in the cross-hairs.
I have explained the mechanism by which central banksters can and will use a cash-settled futures market to gain control over the price of Bitcoin – over which they formerly had ZERO control and perceive as a direct threat to their competing fiat currencies. The futures contracts will bring absolutely zero liquidity to the Bitcoin environment.
But there is hope . . .
Why? Because the C.M.E. and CBOE are not open 24/7 – while Bitcoin and other crypto-currencies trade 24-hours a day, every single day of the year! Blockchains operate all day, every day. Given their world-wide popularity, there is no reason they should ever stop trading.
Depending on their size and frequency, any gaps between when “spot Bitcoin” trades and when the futures are available through C.M.E.s Globex (and CBOE — but C.M.E. will take the lion’s share of Bitcoin futures) could cause huge and confidence-destroying arbitrage.
Blockchain-equivalent platforms are growing in stability and once they have finally proven themselves reliable and trustworthy the central banksters worst nightmare could be right in front of them: A blockchain-based and crypto-coin settled futures market that can compete with the fiat currencies on the CME or the CBOE.
Can you imagine USD-BTC? EUR-BTC?
In other words: true, unrestrained, uncontrolled alternatives to fiat currency!
But, until then, what might happen when JPMorgan or Citi or HSBC or DeutschBank or some other one over-leverages in BTC and it moves suddenly and dramatically against them? Their balance sheets are insolvent now but for some non-GAAP smoke-and-mirrors accounting — specifically including not ever (yet) having to mark to market the true value of the TRILLIONS in derivative bets — oops, errr, again I mean “investments,” they are carrying
And this exposure is only magnified many, many times because the HFT computers will be turned on and turned loose to trade BTC from day #1.
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$15,000 $16,000 $17,000 $18,000 $19,000 — Now This Smoke-And-Mirrors “Asset” Has A Bigger Market Cap Than Major Corporations
What Could Possibly Go Wrong Here?
Well, first, as of today (December 8th) — with the new futures contracts scheduled to start trading in 3-days, next Monday — there are widely different quotes for Bitcoin — depending on where you look!
GDAX is flashing $15,500, BitStamp is signaling a plunge to $14,500, and Bloomberg’s aggregate price is around $15,000 — all of which are well down from yesterday’s record highs.
GDAX showed yesterday (12/7) Bitcoin trading up to $19,697 before chopping and then selling-off to $13,788 before finally recovering.
Today (12/8) — as of 10:00 a.m. when I am writing this — GDAX showed Bitcoin back over $16,500 and climbing . . . Heck, while I watched it this morning it climbed over 6% in just a few minutes.
This hyper-volatility — of something that will be the underlying asset for a futures contract starting in just a few days — is alarming!
According to Bloomberg, if the upcoming futures contracts had been trading, the crypto-currency’s jaw-dropping rally itself would have triggered so-called circuit breakers on seven of the past 10 days, pausing or even halting trading to ensure an orderly session, based on rules planned by exchanges.
Bitcoin futures (BTC) are something I would consider possibly looking at in the LIVE! Trading Room once there is enough stability and volume. But if the futures are anywhere near as volatile as Bitcoin itself has been these last few days, there will be several serious problems.
For those keeping track, this is how long it has taken Bitcoin to vault over key psychological levels:
- $0000 – $1000: 1789 days
- $1000- $2000: 1271 days
- $2000- $3000: 23 days
- $3000- $4000: 62 days
- $4000- $5000: 61 days
- $5000- $6000: 8 days
- $6000- $7000: 13 days
- $7000- $8000: 14 days
- $8000- $9000: 9 days
- $9000-$10000: 2 days
- $10000-$11000: 1 day
- $11000-$12000: 6 days
- $12000-$13000: 17 hours
- $13000-$14000: 4 hours
- $14000-$15000: 10 hours
- $15000-$16000: 5 hours
- $16000-$17000: 2 hours
- $17000-$18000: 10 minutes
- $18000-$19000: 3 minutes
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However, there’s more to be worried about. At least for me.
Bitcoin’s total market capitalization is now MORE than some significant and well-known corporations.
It’s market cap right now — at $16,500 — is worth more than:
- McDonalds @ $135-Billion
- IBM @ $143-Billion
- Disney @ $151-Billion
- Boeing @ $152-Billion
- Cisco @ $169-Billion
- General Electric @ $175-Billion
- Toyota @ $184-Billion
- Citigroup @ $194-Billion
- Verizon @ $195-Billion
- Coca-Cola @ $196-Billion
- AT&T @ $206-Billion
- Intel @ $213-Billion
- Procter & Gamble @ $220-Billion
It is approaching WAL-MART @ $260-BILLION!
But for some time yesterday — it was worth MORE than Wal-Mart!
To me, this is very alarming.
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BTC (Bitcoin futures) may sooner develop into a stable alternative, or rather addition, to the currencies component of a wealth management strategy similar to what I teach One-On-One students.
We may one day look back and laugh at the “early days of Bitcoin.”
But I’m not really laughing today.
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As Planned — Bitcoin Futures Trading Will Mainstream Crypto-Currencies . . . Right?
Bloomberg is reporting today (December 9th) exactly what I first wrote about several days ago. Namely, Bitcoin futures start trading on CBOE Monday (12/10) and follow-up opening on the C.M.E. (12/17). That interest will likely be restrained at first but this will open the door to institutional traders (i.e., Hedge Funds and your friendly, big banksters).
Already we see new Hedge Funds being formed which are designed to BET on the flailing price of this hyper-volatile . . . well, this VIOLENTLY volatile Bitcoin market. For example, Galaxy Investment Partners [Note: Which I absolutely in NO way recommend or endorse!] — which is seeking to raise $500-Million to speculate in BTC.
Hedge funds, and to a lesser degree the banksters who already have their HFTs . . . are all starving for “alpha” — heck, just look at the 3X over-subscription to 100-YEAR Argentine Bonds paying, what, 3%. 100-YEAR bonds — just because they can get 3% now as opposed to the stock markets that won’t move 3% with dynamite — when who even knows what the government of Argentina will look like in 10-years or 20-years — much less 100-years?! So do you really think hedge funds and banksters will sit-out something this volatile?
We day trade some of the most reasonably volatile and potentially profitable futures markets in the LIVE! Trading Room. And even though we may one day look at BTC for possible inclusion in the LIVE! Trading Room, that day will not be anytime soon. I expect it to gain traction slowly, if at all, and become a part of the basket which I teach folks how to use managing their wealth in One-On-One before we day trade BTC.
However, at least one other Trading Room has already sent-out an e-mail advertising their intent to trade BTC beginning Day #1. While day trading is more aggressive than, say, swing trading — we’re not gunslingers in the LIVE! Trading Room. You could make a huge return but you could even more easily seriously damage or blow-out your Trading Account. Please be careful if trading BTC!
Anyway, I’ve also cautioned about the strong likelihood (and explained how it would happen) for arbitrage between Bitcoin futures — which do not trade 24/7 — and “spot Bitcoin” — which can and does trade 24/7.
All of that is echoed in the following quote from today (12/9): “There will be a ramp-up time,” said Ari Paul, chief investment officer of Blocktower Capital Advisors LP. “There just isn’t a rush. The professional traders will mostly be looking to do arbitrage, between the futures and bitcoin itself. I don’t expect massive money flows right away but then I expect gradual buying from people who want passive exposure” without buying bitcoin directly.
As a reminder, here’s a chart showing Bitcoin’s meteoric rise:
[Note: Admittedly the chart is dated since BTC has already topped $19,000 — but it shows the significant rise from announcement by the CBOE and the almost parabolic rise since announcement by the C.M.E.].
Looking at that chart, a very likely reason for Bitcoin’s rocket rise since the CME’s announcement (where the lion’s share of Bitcoin futures will be traded) is accumulation ahead of that futures trading by the banksters. It’s an integral component in their manipulation of gold and silver (as written extensively above) and may well be in anticipation of those imminent futures contracts. If they want to manipuate the price they will need access to a supply of Bitcoins. Or, they may simply be ready to SMASH the futures price and, effectively, lock-in massive gains . . . resulting in their before-year-end alpha.
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Again . . . What Could Go Wrong?
As a little extra information, the CBOE and C.M.E. got permission on December 1st to offer the futures contracts — after just a few weeks of consideration — only after pledging to the Commodity Futures Trading Commission (CFTC) that the products don’t run afoul of the law, in a process called self-certification.
Talk about the inmates running the asylum!
Isn’t the CFTC supposed to verify that?
Can we go to Court in advance and promise we really, really won’t speed and have any Judge allow us a special license and immunity from radar so we can then drive any way we want?
THIS — self-certification — no real or effective oversight by the regulatory agencies — is just one reason why the financial house of cards is so precarious!
“Derivatives should have the effect of bringing a deeper liquidity to the market which should reduce volatility,” said Alistair Milne, chief investment officer and co-founder of Altana Digital Currency Fund that is based in Monaco. “As the whole cryptocurrency economy gets bigger the volatility should reduce.”
Well, that’s fine, except it’s also just blatantly, flat-out wrong! I’ve explained it in detail above. The futures contracts will bring absolutely ZERO liquidity to the Bitcoin market. It will provide an excellent opportunity for the banksters’ HFT computers to arbitrage the futures with the wildly fluctuating prices of Bitcoins across their “spot exchanges.”
Please don’t think I’m always this negative or pessimistic. I’m usually optimistic! But I’ll also call a spade a spade. And, like me, not everyone is convinced this is all a rainbows and unicorns good idea.
On December 6th, the Futures Industry Association (FIA) — a group of major banks, brokers and traders — said the contracts were rushed without enough consideration of the risks. Last month, Thomas Peterffy, the billionaire chairman of Interactive Brokers Group Inc., (IB) wrote an open letter to CFTC Chairman J. Christopher Giancarlo, arguing that Bitcoin’s large price swings mean its futures contracts shouldn’t be allowed on platforms that clear other derivatives.
In other words, something else I haven’t even written about: the potential adverse effect of a wildly fluctuating “money” on fiat currencies. Now THAT could impact us directly in the LIVE! Trading Room since we do currently day trade some of those other currencies.
Still, Interactive Brokers (IB) isn’t too concerned, or wants the commissions at least, and so will offer its customers access to the futures, though with greater restrictions. They won’t be able to go short — betting that prices will decline. Just, WOW! That sounds like the Chinese Stock Market to me. IB’s margin requirement, or how much investors have to set aside as collateral, will be at least 50 percent. Higher than either CBOE’s or CME’s margin requirements.
What could go wrong? A lot! ALL of this should be jumping up-and-down waving huge red flags for anyone considering trading BTC any time soon (IMO)!
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More Coming . . .
Check back soon.
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