Do Cryptos Need Futures and Options?

By | Jan 07, 2019

Do Cryptos Need Futures and Options?

Oh, maybe I’m biased because of my CME trading background. But my view is an unambiguous yes. Why?

One reason futures came into existence is delivery: unless you have a big backyard, storing 5,000 bushels of corn ain’t easy. The modern-day crypto equivalent is custodianship. A lot of actors don’t want the operational risk associated with taking physical coins. Separately, look at ETH; forced selling to create fiat liquidity in part drove prices down 94% as there were few options to lay off price risk or hedge. This is a highly nuanced point so please don’t misunderstand me: I’m not suggesting ETH would be worth more simply if futures and options existed; it’s complicated.

What I will say is this, a proper derivatives regime gives end users the most important ingredients of all: trust & confidence. Knowing you can hedge crude oil, soybean, or interest-rate risk allows banks, pensions, hedge funds, endowments to participate in a meaningful way and to put these assets on their balance sheet in the first place. The pricing distortions absent proper derivatives is hard to fathom. Imagine what it would cost to heat your home if natural gas were a long-only market. Does this violate Satoshi’s vision? Nah. He is (or was) a cool cat. He’d be down.

2019-01-08T15:54:26+00:00January 7th, 2019|

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