Also, there is strong psychological resistance to selling something that has gone up a lot, and which promises to go up even more. Bitcoin millionaires are hoarders. They treasure the possession of their rare and valuable tokens.
Bitcoin millionaires are also fairly well connected. There is not all that many of them. Bitcoin is not like gold. It's not owned by a large number of relatively ordinary people. Its owned and controlled by a tiny elite of early adopters.
This means that they have tremendous influence on the price. They can pump and dump, drawing in people and frightening them away, thereby achieving the dual purpose of making money and hiking the price.
However, very little money can be taken out of a pump and dump scheme. A few suckers can be fleeced. But it must not be done too aggressively. The net effect must be a gain so that more people can be drawn in.
What all of this means is that Bitcoin has not really made anyone very rich, except on paper. The money pulled in has barely covered the energy cost of mining and transactions.
But now that there are futures being traded in Bitcoin, hoarders have another way of making money. They can sell their Bitcoins without the risk of loosing them. Bitcoin millionaires have finally a safe way to eat their cake and keep it.
The way this works is that the owners of Bitcoins can sell an option for a future delivery. A Bitcoin millionaire can promise to deliver Bitcoins at a certain price a few months down the road. For this promise he receives a sum of money.
Let's say the current price of Bitcoin is 17000 dollars and the future contract estimates the price to be 18000 dollars. The option sold will fetch the seller 1000 dollars. If the seller of the option, also sells his Bitcoin, he has 18000 dollars.
Instead of a risky pump and dump scheme, Bitcoin millionaires now have a risk free futures option scheme. If Bitcoin stays below 18000 dollars until the expiry date, the sellers make a profit. At expiry date, they can buy back their Bitcoin and pocket the difference. If Bitcoin hits 18000 dollars, they can cover their bets by buying back the Bitcoin at no loss except transaction fees and the Bitcoin put into the bet.
The only risk that the seller runs is the price gain above 18000. All other risk is moved over into the hands of the option buyer who takes a loss if the price of Bitcoin does not reach 18000 dollars by expiry date.
An interesting effect of this is that hoarders who sell their Bitcoin in order to buy them back at a profit in the future will no longer want the price of Bitcoin to go up. They will want the price to go down. The lower the price goes, the more money they can pocket while owning no fewer Bitcoins in the process.
This means that there will be fewer Bitcoin millionaires willing to participate in the much riskier pump and dump schemes that they employed to push the price of Bitcoin up. With less pump and dump, prices will no longer be pushed higher. They will either stabilize or fall, depending on how aggressively the hoarders sell into the futures market.
If there are more futures sold than Bitcoins bought, we know that hoarders are selling in the hope that prices will not go up.
As it happens, that's exactly what's going on. There is more futures selling than there is spot buying.
If this trend continues, Bitcoin's astronomic rise will be a thing of the past. There will be no more pump and dump. There will instead be a slow decline, which will gradually accelerate as true price discovery sets in.
 |
| Whale |
By Michaël CATANZARITI - by Michaël CATANZARITI, CC BY-SA 3.0, Link
No comments:
Post a Comment