BTC - CME Futures - The Poison Apple is Being Served
Updated
The news of the CME futures market starting to trade Bitcoin' futures in December was announced yesterday. But many do not understand the futures market and moreover how they evolved into a speculative market. So before heading to the chart, it is important to understand how cash settled futures effect the market and or moreover how the market effects cash settled futures.
At $25 per contract and bitcoin trading at $11,000 your controlling 25x11,000 or $275,000. Now 25% margin is required (to my knowledge and some brokers may require more) so your required to maintain $68,750 cash or cash equals in your account. But let's say we have a swing like we did the other day $2000. 25x$2000 = $50,000. OUCH that means you just lost $50,000 unless it recovers, but if you do NOT have enough to maintain the $68,750 your position will be closed and you are screwed. So trading will be only for the fat cats that have millions in their accounts and can weather a $50,000 temporary down turn. So why would anyone want to trade the futures market on bitcoin? AHHHHHH it's a very easy market to manipulate for the fat cats and I think this is some of the reason for the price rise currently.
Let's say Imscrewingtheavg Joe Investment company has purchased 100k bitcoin. Hey there are some that have that much or friends that do. So they are selling contracts and the price is going against them and it's getting close to March delivery. Out of the blue you get HUGE 5000 sell orders across several exchanges. This clears out the bids, triggers stop losses, and creates a domino effect to the downside. The futures market follows which they are cleaning house on the average Joe, and with the money they make off the futures contracts they close out, they buy all their bitcoin back at a cheaper price. This happens in large markets such as gold and silver which are much more liquid then bitcoin so it can definitely and will most likely happen here. So keep this in mind and do NOT get spooked out of the market.
But here is an update of the chart I posted 2 days ago. Keep in mind there are multiple scenarios but these are probably the two most likely in my opinion. Now I have added in the $9500 range some bitcoin, and I have held out to see what happens. A break of $11,500 I will enter a trade for the $13,500-$15,000 level. If we drop down to the $8100, which was our original target level, I will add some more and look for a trade as well. Due to the publicity, and the fact Coinbase can hardly keep up with new accounts and transactions (now more accounts then Charles Schwabb), I just do NOT see a major correction here but you never know. If I want to trade futures, I want a hedge and a stack of bitcoins to hedge with. So I see more accumulating by larger institutions in the coming weeks leading up to dooms day! With only about 14 million or less coins available, and many not wanting to sell the ones they hold, I see the likely hood of a HUGE supply and demand issue, so it could get crazy from here. It's uncharted waters but I want to be long here as in my opinion demand will out weigh supply going into Futures trading. Time to make some money!
In closing, and in my opinion, the futures market is a poison apple' and I am not biting. It is clear why they wanted regulators to bless the product prior to trading, even though they do NOT need permission to implement a new product. Yes they can self certify and it was odd when I saw they were in discussion with regulators. But money speaks and I'm sure some hands were greased. I can understand the concern by many about this having an effect on the financial markets especially if we see a derivatives collapse like the housing market where brokerages can not cover the losses from their clients leading to bankruptcy. (Lehman Brothers comes to mind). This could effect the economy so they will want to hedge and they may do that by buying coins on the open market to hedge.
Of course collapses lead to regulations!
At $25 per contract and bitcoin trading at $11,000 your controlling 25x11,000 or $275,000. Now 25% margin is required (to my knowledge and some brokers may require more) so your required to maintain $68,750 cash or cash equals in your account. But let's say we have a swing like we did the other day $2000. 25x$2000 = $50,000. OUCH that means you just lost $50,000 unless it recovers, but if you do NOT have enough to maintain the $68,750 your position will be closed and you are screwed. So trading will be only for the fat cats that have millions in their accounts and can weather a $50,000 temporary down turn. So why would anyone want to trade the futures market on bitcoin? AHHHHHH it's a very easy market to manipulate for the fat cats and I think this is some of the reason for the price rise currently.
Let's say Imscrewingtheavg Joe Investment company has purchased 100k bitcoin. Hey there are some that have that much or friends that do. So they are selling contracts and the price is going against them and it's getting close to March delivery. Out of the blue you get HUGE 5000 sell orders across several exchanges. This clears out the bids, triggers stop losses, and creates a domino effect to the downside. The futures market follows which they are cleaning house on the average Joe, and with the money they make off the futures contracts they close out, they buy all their bitcoin back at a cheaper price. This happens in large markets such as gold and silver which are much more liquid then bitcoin so it can definitely and will most likely happen here. So keep this in mind and do NOT get spooked out of the market.
But here is an update of the chart I posted 2 days ago. Keep in mind there are multiple scenarios but these are probably the two most likely in my opinion. Now I have added in the $9500 range some bitcoin, and I have held out to see what happens. A break of $11,500 I will enter a trade for the $13,500-$15,000 level. If we drop down to the $8100, which was our original target level, I will add some more and look for a trade as well. Due to the publicity, and the fact Coinbase can hardly keep up with new accounts and transactions (now more accounts then Charles Schwabb), I just do NOT see a major correction here but you never know. If I want to trade futures, I want a hedge and a stack of bitcoins to hedge with. So I see more accumulating by larger institutions in the coming weeks leading up to dooms day! With only about 14 million or less coins available, and many not wanting to sell the ones they hold, I see the likely hood of a HUGE supply and demand issue, so it could get crazy from here. It's uncharted waters but I want to be long here as in my opinion demand will out weigh supply going into Futures trading. Time to make some money!
In closing, and in my opinion, the futures market is a poison apple' and I am not biting. It is clear why they wanted regulators to bless the product prior to trading, even though they do NOT need permission to implement a new product. Yes they can self certify and it was odd when I saw they were in discussion with regulators. But money speaks and I'm sure some hands were greased. I can understand the concern by many about this having an effect on the financial markets especially if we see a derivatives collapse like the housing market where brokerages can not cover the losses from their clients leading to bankruptcy. (Lehman Brothers comes to mind). This could effect the economy so they will want to hedge and they may do that by buying coins on the open market to hedge.
Of course collapses lead to regulations!
Note
Keep in mind in 2015 many were calling for a stock market bubble, then 2016 and now most of 2017 yet the stock market continues higher. Why? There are toooo many bears. Bubbles happen when there are toooo many bulls! So I do not see a big pullback and we would be lucky to hit $8100 are initial target level. I would be happy with $9000 at this point.Note
Nice upward move and we almost hit the 3.618 extension of wave ii which is also close to a psychological level of $12,000. So it would not be out of the ordinary to get a pullback here. Now keep in mind TA is not just guessing which way the equity will move but knowing what patterns and what levels are critical for your "guess" to be still valid. I know when I was bearish on the market even though I posted both thesis's many would think I was just bearish. That may have been my sentiment but if you have been in the markets for any amount of time you have an understanding that markets may move against you. So it's more important to understand what levels to look for to negate a thesis then to just have an arrow pointing up or down. This is an updated chart as I believe my level (iii) may have been early. EW is not a definite but a guide and 3 different TA's may have 4 different counts especially when it comes to fractals. Corrections are difficult to determine whether we are in the next wave up or still correcting. So here is what I am looking at for validation one way or the other. Note
Regardless of the path, my opinion is still in the long term we are moving higher.Note
cpnvlqkz05 pointed out I had the incorrect calculation for the futures contract. The correct calculation should be $5 price movement not $25. It is 5 bitcoin per contract. So the correct calculation would be 5x11,000 or $55,000. Thank you again for pointing that out!
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