Bitcoin futures

I hope I am not too immodest if I feel like my Bitcoin series has aged pretty well.

I do have a long-ish follow-up post percolating in my head, but I need some time to pull it together and research a few questions first (e.g. did anyone at the FT ever manage to make a true statement about this topic?)

But I had to get this one off my mind. Tonight, ZeroHedge (I know, I know, bear with me) is tracking the CBOE’s Bitcoin futures contract that just launched today. And they present this rather interesting chart:

bitcoin chart

This shows the Bitcoin futures rocketing higher than the spot price. I find this interesting for two reasons.

First, I am not sure exactly what “spot” means in this context. Anybody can exchange Bitcoins with anybody else for anything at any time. Unless there are deep, well-arbitraged markets out there, it is not clear that “spot” is even well-defined.

Second, and more interestingly, there is simply No Way for the futures price to get much higher than spot for something like Bitcoin. Because if it did, anyone could perform the arbitrage: Sell the futures; buy actual Bitcoins; deliver them at expiration. Bitcoins have no cost of carry, so whence the contango? (always wanted to say that)

I do not claim to be an expert, but I am pretty sure there are only two possibilities. Either (a) the “spot” price is a fiction, and our hypothetical arbitrageur(s) cannot actually acquire Bitcoins so cheaply; or (b) the poor retail punters who decided to call a top on BTC tonight and go short are getting a call from Mr. Margin.

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