The Big Bitcoin Short: Hedge Funds Set To Battle Fanatics In Epic Showdown

Got it? Great.

And although that’s really all you need to know, the imminent launch of Bitcoin futures will invariably spark endless discussions about what the implications are for what is quickly turning into one of the most spectacular bubbles in history.

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See the thing is, if you’d dug around in your couch cushions, scrounged up a dollar in real coins, and invested it in Bitcoin back in 2010, that dollar’s worth of metal would now be worth about $1.5 million. By contrast, a dollar invested in the S&P in 2010 would be worth $4 now, and that’s assuming you reinvested the dividends. So you can see why some folks are anxious to short this insanity.

As things currently stand, shorting this in size is almost impossible. “With the existing exchanges, no one can get in and short $1 million,” Michael Moro, CEO of Genesis Global Trading told Bloomberg earlier this week, adding that “it’s really small potatoes on what you can do today.”

Between the CME, Cboe and Nasdaq, that’s about to change. “The futures reduce the frictions of going short more than they do of going long, so it’s probably net bearish,” Bloomberg quotes Craig Pirrong, a business professor at the University of Houston, as saying, in the same piece linked above. “Having this instrument that makes it easier to short might keep the bitcoin price a little closer to reality.”

One particularly amusing characteristic of the Bitcoin mania is that in addition to being the bubbliest bubble in the history of bubbles, it’s also seen as something akin to a safe haven.

According to BullionVault, the number of first-time precious-metal investors dove by 20% in the last year and has now hit its lowest monthly level in 24 months.

“The crypto-currency plainly offers investors a hot speculation and not a safe haven right now,” Adrian Ash, director of research, told Bloomberg in an emailed statement. Yes “plainly.” But that is not at all “plain” to all of the people who have convinced themselves that somehow, a digital currency that is not backed by anything, trades solely on the greater fool theory, and is subject to hacks and all manner of regulatory risk, is a substitute for gold which, while itself devoid of any intrinsic worth, has generally withstood the test of time when it comes to serving as a store of value.

In fact, Bitcoin investors have become so convinced that the digital tokens are akin to precious metals that Goldman felt the need to pen a lengthy piece earlier this year explaining why Bitcoin is not in fact gold. Recall this excerpt:

Unit of account: Gold is clearly better at holding its purchasing power, and has much lower daily volatility.

We have also noted previously that gold has an extremely long history of broadly maintaining its purchasing power. In contrast, in their extremely short history, cryptocurrencies have failed to maintain anything like price stability. Exhibit 64 shows that Bitcoin/USD volatility averaged almost 7 times that of gold in 2017.

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And so, as the faithful prepare to square off with hedge funds who are eager to short this, we wanted to remind you about what LendEDU found last month when they surveyed 564 Americans who have invested in Bitcoin.

There are a number of interesting takeaways from the poll, but a couple of the especially amusing highlights include this chart which shows that only 14% of “investors” are willing to admit that this is pure, unadulterated speculation based entirely on the greater fool theory of investing:

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Better still was the response LendEDU got when they asked how far Bitcoin would have to run in order to convince people to sell:

7. At what price per Bitcoin would you be willing to sell all of your Bitcoin investment?

On average, respondents reported that they would be willing to sell all of their Bitcoin investment at $196,165.79 per Bitcoin.

At the time of the survey, Bitcoin was trading at $6,490.

So the stage is set for a truly epic battle between big money that now has the vehicles it needs to bet against the craze and the crypto disciples who swear they won’t sell until at least $200,000.

Place your bets.

Battle

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7 thoughts on “The Big Bitcoin Short: Hedge Funds Set To Battle Fanatics In Epic Showdown

  1. The thing is… you’re not really shorting anything. You don’t buy in or pay out in BTC. It’s all in dollars which never touch BTC. It’s just placing side bets. It’s not like a stock where to short you actually have to rent some BTC and then give it back later.

  2. Yes I am thinking similarly. I haven’t read the prospectus (yet) but I imagine these will just be tied to a XBT index. So even if hedge funds go and put selling pressure on futures, if they never touch the actual coins, how much impact will this actually have?

    While on the subject, I don’t necessarily think it’s all greater fool theory. The problem is with the XBT markets is low visibility. It could be a handful of large buyers just manipulating and bidding up the price, with retail money flooding in to add fuel. When the big players have cashed out enough, that’s when the illusion will fall. Actually the biggest scam in history at this point.

    • That’s my read on it – its strictly settle to cash contract based on the USD reference price on Gemini (I think). The promotional literature had an interesting reference to its practical hedging utility for holders of Bitcoin. So, let’s see – with most commodities that I, as a holder, would be hedging, assuming I have possession of the physical product, I can insure that product against physical loss. How do I insure against the “physical” loss/theft/destruction of my Bitcoin. Does The Travelers offer a Bitcoin loss policy?

      I wonder who will be using these contracts as a hedge to their Bitcoin holdings.

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