When I was a trader at Goldman, it constantly bothered me that the trading mentality was too oriented around the zero sum idea — for one person to win, another has to lose. That’s a horrible way to go about things and also happens to be entirely inaccurate.
I would like to offer some current perspective on methods for the storage and custody of bitcoin and other digital assets. The perspective from LedgerX can be somewhat unique because while we’re a company operating in the nascent field of digital assets, we’re also a company that is heavily regulated by the U.S. federal government. LedgerX operates regulated market infrastructure– this includes an exchange and also a clearinghouse for fully-collateralized, physically-settled bitcoin swaps and options.
It surprises my friends when I tell them that my wife (also co-founder / president) and I do not own any bitcoin. Zero. We did this years ago to ensure that we were objective and committed to running LedgerX, and not like, sitting on an island somewhere and leaving our investors out to dry.
Yesterday was a good illustration of the problems someone has to solve before cash-settled bitcoin futures work. Bitcoin showed a little volatility: a 12% percent rise followed by an 18% percent drop over a total of fifteen hours. (This happens many times each year.) Simultaneously, both of the largest U.S.-based spot exchanges went down for most of the day.
Leaps (options with an expiration of one year or longer) are some of the most interesting financial instruments. They give a market driven view of risk far beyond something that would expire in a week, let alone what’s gleaned in a spot transaction.
After a series of record trading days at LedgerX, I had the opportunity to take time off for once and spend a day with my dogs. I have a fantastically cute Yorkie who responds incredibly, as any dog owner will appreciate, when I pet his head.
Long winded thoughts on the challenges of cash settled futures
First, a bit of trivia — LedgerX’s first pitch decks in 2014 focused on us offering cash settled Bitcoin contracts. It seemed like the easy way out, and the most convenient for all market participants who wanted to do pure speculation. So certainly the idea of doing cash only settlement (where neither party needs to touch Bitcoin) did not escape our consideration many years ago.