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BitCoin Gets a Futures Market
fireballrus writes "There is one more way to use your BitCoins rather than buying weed or socks. Recently, a Bitcoin Exchange called ICBIT quietly introduced a futures market, obviously using Bitcoins as its main currency. Gold futures trade roughly at 137 BTC/tr.oz and Sweet Crude Oil at 7.3 BTC/bbl. This may play a positive role in the Bitcoin economy which needs more ways to actually use coins instead of mining them." While this sounds intriguing, I'd like to hear a good case for why BitCoin makes sense in this context.
I've never understood the vitriol heaped on BitCoins in this forum. None of the stated reasons for "It'll never work" seem to hold under examination.
1) It's not based on anything
Well, neither are any of the major currencies, especially the dollar. The Euro is teetering on the brink of disaster, the Fed has been spraying money with a firehose, numerous South American currencies have gone bust - I just don't see any difference. ...except, that bitcoins are immune to *some* of the problems typically found in national currencies.
2) No one is using them
There was a time when no one used the internet, either, and look how big that got.
I'm not sure there is a point here - lots of things didn't get big and no one uses them (pets.com, anyone?), and lots of things got big and *everyone uses* them (google.com).
If you're saying that not enough people will *ever* use them, so that the idea won't take off, then that's an opinion. A lot of people are predicting success, so why are they wrong and you right?
3) It's a scam
All of the scams reported so far have been, effectively, companies trying to be a bank without banking regulation.
It's not a problem for BitCoin if someone convinces you to deposit your coins in their bank and then loses them, any more than it's a problem for US currency if someone convinces you to give them your money and loses it. People get scammed all the time, but it's not the fault of the currency.
Again, I don't see the difference. BitCoins are like money, and can be stolen like money. Why is having money any different?
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BitCoins doesn't solve all the problems of money, but it does solve a fair number of them. Logic and reason would seem to indicate that this is a better way to do currency.
I must be missing something.
Can one of the economists explain why it won't work?
I mean, explain it without appealing to emotion and irrational fear. Like, by using logic and evidence.
While this sounds intriguing, I'd like to hear a good case for why BitCoin makes sense in this context.
I'll give you a positive and a negative.
Positive - This make sense because "futures" relate back to the (expected) scarcity and surplus of real-world material goods, the availability of which has no connection to the value of the Euro vs the Yuan. It would make more sense to hedge crude in terms of soybeans than in dollars, yet we only really have the option of doing it in dollars.
Negative - Bitcoin lacks even the connection to reality that Dollars have by virtue of the latter's use in trade for otherwise-real-world products and services.
Now, you could take that in two ways - Connecting Bitcoin to commodities may make it more "meaningful" than most government-issued currencies, because it can float against the rest of the world's currencies to maintain an accurate reflection of the reality underlying production, rather than some random economic policy put in place by a central bank. On the flip side of that, you currently can't actually take delivery of 50 tons of pork denominated in Bitcoins, so this looks like a "futures" market in the worst speculative sense, without the faintest connection to the underlying commodities.
No doubt.
Futures and derivatives are NOT "capitalism". They are gambling. Pure and simple. This has been one of the main downfalls of banks and Wall Street, directly contributing to the 2008 debacle.
We should not base our economy on fake money. Investment is fine. And all investment is "gambling" to a certain extent... at least if it's done honestly.
BUT... speculation and derivatives are PURE gambling. It's nothing more than a government-sponsored casino.
Um... no, you're wrong. They are insurance. Producers of commodities often can not afford the ups and downs of the market. Specifically farmers. Futures allow them to sell their crop at a set price, and then if the market crashes they are protected... also, if there's a spike in price they do not profit like they normally would.
Capitalism requires transparency. The problem with overly complicated financial products isn't the products themselves, its the lack of transparency caused by their complexity. When a bank sells you a derivative that's based on mortgages, that's fine. When the bank gets permission from the federal government to give out loans to people that can clearly not afford to pay them back, and fails to disclose that to you... that's when there's a problem. The banks realized what the government was asking them to do was insane, but they didn't want to tick off their benefactors. So they gave out the loans anyway, and then sold the risk off in packages designed to hide them.
Not really, no. The government told them to be more liberal in their risk assessment for first time buyers. The banks COULD have offered modest loans for starter homes that the borrowers probably could have paid back, but instead FREELY CHOSE to talk their least financially savvy customers into huge loans on McMansions and to bury those hot potatoes in complex financial instruments so they could foist them off on others.
It was all quite profitable to a select few and devastating to the world economy.
Don't drink the cool aid.
>When the bank gets permission from the federal government to give out loans to people that can clearly not afford to pay them back, and fails to disclose that to you.
That's not what happened here.
What happened was that we had people making loans that they could be sold to "greater fools," i.e., Wall Street.
-Joe Broker makes a loan to Alice - Banks don't make loans anymore, brokers do.
-Alice can't pay it back, but Joe Broker says it's OK.
-Broker doesn't give a shit because he gets a commission for each loan sold. Falsified paperwork EVERYWHERE.
-Broker sends the paperwork to the bank. The bank doesn't give a shit because they can sell the loan to Wall Street.
-Wall Street separates and chops up the mortgages and securitises them by creating securities with different levels (tranches) in the security. These are the "Mortgage Backed Securities." AAA on the top, junk on the bottom.
-These are then sold as if they are all AAA to (see where this is going?) to retail and institutional investors.
-They are considered *cash equivalent* by nearly everyone, except people at places like Magnetar.
-The whole house of cards fell in 2007 and the people holding the bag were people like you and me and our retirement funds.
Meanwhile everyone in the entire system from the broker through Wall Street gets away with not even a slap on the wrist.
But that's not all!
In the chain of passing the buck, at each level, the transfers of these mortgages weren't (and still aren't) handled correctly. Hundreds of thousands, maybe millions, of mortgages have been passed along without the required good paperwork making the servicers of the mortgages in these loans *not* valid mortgagees. And when the loan goes belly up, and a servicer forecloses, there is often either fraudulent paperwork or no paperwork at all and *no right to foreclose*. And in the confusion, there have been people making monthly payments to servicers that don't even have the right to take money for the mortgage at all! That's what the whole robosigner scandal is about, and robosigning is still going on.
And to make it even worse, people have been kicked out of their homes while not even *having* a mortgage to begin with!
http://www.tampabay.com/news/business/realestate/bank-of-america-forecloses-on-house-that-couple-had-paid-cash-for/1072632
It is fraud on a national scale, and it was *not* at the government's prodding. Regulation after regulation was ignored. Rampant fraud was committed by brokers, securitizers, banks, everyone who should have done due diligence.
And the dearth of people going to prison for this shit is why we have Occupy Wall Street.
You have oversimplifed it and you have blamed the wrong people.
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BMO