There could soon be a new way to bet on bitcoin – and it promises to be an even wilder ride than the cryptocurrency

Menu IconA vertical stack of three evenly spaced horizontal lines. The New York Stock Exchange is looking to list a number of funds linked to bitcoin futures there could soon be a new way to bet on bitcoin – and it promises to be an even wilder ride than the cryptocurrency its NYSE Arca venue. The leveraged ETFs, which go long and short, would multiple the spine-tingling volatility of bitcoin.

Some products could also expose investors to more risk. The new leveraged and inverse exchange-traded funds, planned by ETF-maker Direxion Asset Management, are designed to track trading in bitcoin futures markets, not bitcoin itself. The leveraged ETFs, according to the filing, seek to provide investors returns that multiply returns in the underlying market. Such products also expose investors to more risk.

If an investor were to go long by buying a share of the 1. 25X Bull Fund, and bitcoin dropped, their losses would be multiplied by 1. To be clear, leveraged and inverse ETFs are an investment product designed for the very short term and typically don’t achieve their investment objectives over the course of weeks or months. Josiah Hernandez, chief strategy officer at Coinsource, said an ETF tied to bitcoin futures would likely be approved before one tied to bitcoin, but he said the former is riskier. Derivatives sometimes stray meaningfully from the underlying in terms of price with markets as young as bitcoin,” Hernandez told Business Insider. This has already occurred with futures, evidenced by the spread that has existed between futures products and spot markets,” he added. Developing an ETF on top of this can compound the risk of decoupling of price movements between ETF and spot markets.

This makes the market more risky because it makes hedging more challenging, according to Hernandez. If approved by the SEC, they would trade on NYSE Arca, a secondary marketplace. The exchange said the products would “enhance competition among market participants, to the benefit of investors and the marketplace. NYSE, however, used this exact language in a separate filing dated December 15 for an unrelated product it was seeking to list on its NYSE American market. The New York Stock Exchange has multiple filings with the SEC regarding bitcoin-linked products. As previously reported by Business Insider, the exchange asked regulators to approve two bitcoin ETFs in a December 19 filing. The red-hot cryptocurrency, which is known for its volatility, has captured the attention of both Main Street and Wall Street.

A spokesperson for NYSE declined to comment on the matter. Get the latest Bitcoin price here. Turn on desktop notifications for breaking stories about interest? Turn on desktop notifications for breaking news? Why is Facebook keen on robots? In this photo provided by Loon LLC, a balloon launches from Loon’s launch site Winnemucca, Nev. FILE – This March 29, 2017, file photo shows a sign outside the Comcast Center in Philadelphia.

A firefighting aircraft makes a water drop on a wildfire approaching a house, Tuesday, July 17, 2018 in Spokane, Wash. FILE – This Wednesday, April 26, 2017 file photo shows a Google icon on a mobile phone, in Philadelphia. PHOTO: Elon Musk speaks onstage at Elon Musk Answers Your Questions! 12 new moons discovered around Jupiter A survey of the gas giant brings the total of moons surrounding the planet to 79. The virtual currency craze is on a tear, with new virtual currencies emerging every day. The New York Times just ran a series of articles about them last week. Charles Ponzi would be so proud!

A payment system, supposedly secured and anonymous. Bitcoin, starting with its payment system. The ledger is crucial to the system because it allows users to verify that a transaction request between two parties is not fraudulent. Joe’s Pizza wants to make sure that this is a valid transaction. One may wonder why it is so difficult to add a page to the ledger. The main goal is to make the payment system more secure by preventing double spending of bitcoins.

There could soon be a new way to bet on bitcoin - and it promises to be an even wilder ride than the cryptocurrency

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Another reason is to maintain the value of bitcoins by making sure that they are not put in circulation too quickly. We will come back to this second reason later and focus on the first. Given that all transaction requests are known, all other accountants could easily verify that this transaction is invalid by checking prior transactions of Mr. To be able to cheat the system, Mr. You will notice that so far we have not described bitcoins themselves. We merely presented the architecture of a payment system with some security features.

Bitcoins and BTC come into the picture when one wonders how to reward the crucial work done by the miners. But miners are crucial to the trustworthiness of the bitcoin payment system, so they should be rewarded. These physical coins are representation of virtual coins and are funded via the income earned by the issuer of physical bitcoins. The creator of this system does not seem to see that this hard limit on bitcoin supply implies that, given transaction fees, the larger the number of transactions, the more bitcoins will go to the transaction payments and the less will be available for other purposes. One could avoid this by lowering the fee inversely with the amount of transactions, but that would reduce the incentive to be an accountant at the time when more are needed. We are told that bitcoins are to be considered an alternative monetary instrument.

Let’s take this proposition seriously and analyze it. Frankly, looking at the previous bitcoin creation mechanism, I see Easter egg hunting rather than mining. Gold only exists in a relevant quantity only in specific geological soil so you are not going to mine randomly. Mining also requires digging and here you are merely looking around for the coveted item. It’s important to realize that block generation is like a lottery.

If your hash is below the target, then you win. In addition, once you mine the gold nuggets they need much further processing before becoming coins whereas bitcoins are directly usable. Like all financial instruments, monetary instruments have an issuer who promises to do something in the future. There are one or two common promises embedded in monetary instruments. One is that they are convertible into something else, another is that the issuer will accept them as final means of payment from his debtors. Given the nature of monetary instruments, they have also other characteristics common to all financial instruments.

First, all financial instruments are accounting creatures. They are the asset of the bearer and the liability of the issuer. Gold coins were the liability of, e. King, Federal Reserve notes are liability of the Federal Reserve, and coins are the liability of the Treasury. Given that bitcoins are supposed to be monetary instruments, they must follow the preceding basic rules of finance.

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In other words who put the eggs in the forest and is willing to accept them in payments due to him or her. I can tell you the answer for Easter eggs: none of the persons who put them in the forest promised to accept them in payments. We just established that bitcoins are not financial instrument, but let us, for the sake of argument, continue to assume that they are. This means that they must have a fair value. Now what is the fair value of a bitcoin?

For the sake of argument, we might assume that their maturity is infinite because we are stuck with them forever once they are created. This would have been different if there had been an issuer who took back bitcoins at face value in payments. This was actually a mistake made throughout history. The supply of monetary instruments needs to be elastic enough to change with the demand for them. Currently, the only things that give bitcoins value as commodities is their utility and their scarcity. People love the beauty, spiritual meaning, and taste of Easter eggs and so are willing to pay for them.

Is there anything to love about bitcoins? People involved in illegal activities and money laundering, who have a phobia of Big Brother or who just hate the federal government, find utility in this means of payment because bitcoins allow to access the anonymous payment system. One may note that what gives value to bitcoins is not that there are redeemable in dollars. The structure of the payment system, not bitcoins, is actually what makes the bitcoin project so successful. It is supposedly so secretive that you can trade a bunch of illegal stuff and evade taxes. Of course, there is a slippery slope.

A perfectly inelastic supply curve with a volatile demand curve is a recipe for wide price fluctuations of bitcoins in USD. Put simply, Bitcoins are purely speculative assets. Extrapolating bitcoin difficulty or price is pure voodoo. But don’t get lost in the woods! By the way, just for full disclosure, those who organized the hunt collected a bunch of eggs before the forest opened to the public. Footnote:  Is all this consistent with MMT? MMT does not state that all monetary instruments are government issued or that every unit of account must have its origin in a government declaration.

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This entry was posted in Eric Tymoigne and tagged bitcoin, fair price. There’s nothing magical about it other than a very easy system of moving those assets between owners. Unlike normal cash, you can’t dig around down the side of the sofa to find those lost coins. If you lose your private key, your entire bit coin wallet becomes unusable. But certainly they are more akin to tulip bulbs than monetary instruments. Sure it’s a commodity, sort of like dollars, something you want to stash away for a rainy day.

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1000 per btc I’m not going to lose my wallet. Dollars are monetary instruments, not commodities. Been saying that for a while now . This article would be a nice addition to the bitcoin discussion if it didn’t contain references to tulips and the black market. What seemed to be an insightful article on the hard economics of bitcoin turned out to be another thinly veiled attempt at condescension.

I thought you had something useful for us. The article does explain how to make bitcoins sound monetary instruments. As it stands I can’t be for it. Too many flaws that probably result from thinking of money as equivalent to gold. We have been down that road before and it never ended well. I am also not for or against bitcoins per se.

If one makes the bitcoin redeemable, if some regulations are included, if supply is made elastic, bitcoins will be a much more sound system. How widely it will be used is anybody’s guess. I thought they were counted as a form of equity? Are they liabilities in the sense that a share is a liability of the company that issues it?

Yes coins are counted as equity. Some argue that equity is a form of liability, but even if you leave that aside clearly coins are clearly a debt instrument not an equity instrument. US Coins are debt free money. Bitcoin is a debt free entity object. How can coins simply be called equity? Isn’t equity what is left over after liabilities are subtracted from assets? That leftover is then a liability due to the owners.

Payment of dividends is justified by that leftover. What might occur if the USA accepted payment of taxes in x bitcoins or y dollars, where x and y are set by tax code and not by current market exchange rates? MMT has interesting implications about the capacity of the federal government to do more to improve economic conditions for the poor. However, one ill that is eroding the balance of power between federal and state governments is the ability of the federal government to use its currency powers to effect policy that states cannot match. Thus, I have been entertaining the idea of state issued currencies, where the power to issue currency and tax that currency resides at the state level. This kind of approach, if allowed, would re-balance power back towards states, refocus politics to local government, and a number of other,probably healthy development. I am quite ignorant of the legality of such a power grab by the states, although slightly aware that there might past court decision that did not permit States this power.

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It would be a bit like during the gold standard when the government stood ready to buy gold at a given price. If it does enters the bitcoins system, it will require regulation etc. 2- California was on the road to create its own currency during the crisis. In terms of economics though the role of state and local government has increased dramatically not decreased! Most spending on goods and services by the government is done by state and local government not the federal governments. If you mean to exclude transfer payments from the discussion, I suppose that might be correct. However, my experience, without researching 50 states worth of data, is that my state and local taxes have always been far lower than my Federal taxes.

Rather than 50 separate currencies, the Feds should give dollars to states on a per capita basis, in order to relieve some of the constraints of their monetary non-sovereignty, and allow them to afford the federal mandates they are forced to fund. I suppose it is OK for California to pay employees with tax credit coupons in a crisis, but I wonder how spendable a Calidollar would be in Padukah? What confusion, with exchange rates and all? Hey, I just happened upon your blog.

Bla Bla Bla…

I’m interested in MMT and other economic perspectives, but at the same time I think it’s valid to point out that you’re shoehorning new types of currency into models that were designed to handle fiat money. The results you get may be wrong due to the inapplicability of the model to this case. I agree with you that bitcoins are commodity money, but I don’t think their value is zero. Let me make another comparison of bitcoins to gold.

So let’s look at the value of bitcoins in this context. If you read the whitepaper, you will see that bitcoins were designed to be the first method of payment online without trusting intermediaries. If this central point went down — which it did — it killed the whole system. This is REAL VALUE for real people, and in aggregate represents a tremendous market cap. Here is another way to look at it: before bitcoins, there was NO WAY that I could purchase things online without trusting an intermediary, such as a bunch of credit card processors, banks, and governments. The transaction fees in addition were high, and I paid them for the convenience of easily making the payment online.

Think of bitcoin miners as full-reserve banks, which they will become roughly equivalent in the limit as the returns from mining are eclipsed by the fees. If that fee is too low, you’ll have to wait until some bank agrees to accept your transaction. So bitcoins are a commodity which has real value — something that guys like Peter Schiff don’t seem to get or acknowledge when they hawk gold. 3 is the reason that new cryptocurrencies can’t just spring up and be worth the same amount as bitcoin.

We have to consider here metcalfe’s law. Gresham’s law doesn’t really apply because no government is going to set the exchange rate between bitcoins and, say, litecoins. In short — the value of bitcoins may be in a bubble, but underlying that is Metcalfe’s law. Even after the novelty wears off, there is real value in this commodity that is increasing, and the difference between bitcoins’ intrinsic properties and gold’s intrinsic properties are things like easy online payments anywhere in the world, low transaction fees, and lower exposure to various types of risks.

Back in colonial times it made sense to do so too. Easter egg and tulip comparisons seem off. If someone gives me an Easter egg and I don’t consume it its still an Easter egg I can give to someone else. Can’t bitcoin have value because its a more convenient form of exchange? Can’t Bitcoin be valued because people want to avoid these fees? If king stops accepting gold coins in payment, their price will fall to their intrinsic value.

That instrinsic value is the market price of gold, which varies in function of the supply and demand for gold. Sometimes the intrinsic value went above the face value and coins would be melted down to extract the gold. Usually the gold price won’t be zero unless nobody wants them. Bitcoins are similar, as long as they have a utility they will have a non-zero price as a commodity given scarcity. And you would pay the king at a well known value: the face value.