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Tiny $217 Options Trade on Bitcoin Blockchain Could Be Wall Street’s Death Knell

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Tiny $217 Options Trade on Bitcoin Blockchain Could Be Wall Street’s Death Knell

The cryptocurrency industry isn’t replacing Wall Street just yet. But inventors and entrepreneurs are working on it, with some initial success, albeit modest.

In this case, an option premium of 0.0202 bitcoin ($217 at the time) paid via a smart contract may have just become the proof of concept.

The latest target for blockchain disruption is options trading tied to the Standard & Poor’s 500 Index, the main benchmark for U.S. stocks. It’s a massive market, with roughly $400 billion of the options changing hands every day last year, on average.

Under the current setup, Wall Street firms typically execute the trades and handle the settlement afterward – essentially making sure the securities end up in the buyer’s account, and that the cash ends up with the seller. But for investors, the process can be expensive, due to the middlemen fees being charged, and slow, with settlement typically taking a day or two.

In July, Emmanuel Goh, CEO of London-based firm skew., a startup specializing in analytical tools for the crypto industry, says he came up with the idea of using the bitcoin blockchain – the decentralized computer network underpinning the decade-old cryptocurrency – to trade S&P 500 options.

Goh was previously a trader in London for JPMorgan Chase, the largest U.S. bank, where he slung options on auto, chemical, consumer and industrial stocks. In other words, the options market is an arena he knows well, at least in the traditional sense. Earlier this month, skew. (which spells its name with a period) announced $2 million in seed funding from several venture capital firms, including the Silicon Valley icon Kleiner Perkins.

The S&P options project was entirely experimental, Goh told CoinDesk – the challenge was mainly to see if it could be done. (The publicity probably doesn’t hurt, either.) Since the trade would essentially be automated via computer programming, it would be less expensive to conduct and settle a lot faster, maybe in just 10 or 15 minutes, according to Goh.

Goh said the technology that made it possible comes from Crypto Garage, a subsidiary of the publicly traded, Tokyo-based tech firm Digital Garage. Crypto Garage has developed an expertise in smart contracts, small strings of programming that can be encoded into the bitcoin blockchain to run when activated.

The transaction needed to cross on the bitcoin blockchain, Goh said, because it’s the most secure in the industry, even though smart contracts are generally considered easier to program on the ethereum network.

The transaction

So on Sept. 6, Goh says, he took some British pounds from an in-house research-and-development fund at skew. converted those into bitcoin, and then used the proceeds to buy 10 S&P 500 call spreads – a popular type of option – from Crypto Garage, all under a new smart contract, with terms agreed to by both counterparties in minutes. The expiration date for the options was set for the third Friday of the month, similar to the standard practice on many exchanges.

At the outset, Skew. paid an option premium of 0.0202 bitcoin ($217 at the time) via the smart contract, and Crypto Garage posted 0.04667 bitcoin as collateral.

On Sept. 20, the expiration date, the smart contract automatically used a price feed from Atlanta-based Intercontinental Exchange (parent company of the New York Stock Exchange) to establish the final price for the S&P 500.

The trade went in skew.’s favor, resulting in a payout of 0.036 bitcoin ($365 at the time). Crypto Garage got 0.01 bitcoin of its collateral back. (Skew later sent some money back to Crypto Garage, as a true-up.)

Above is an image produced with data from the bitcoin blockchain – the trade settlement, at expiry. Initially daunting, it’s the elegant simplicity here that is the promise of a blockchain-driven future.

At the top, that string of letters and numbers in blue is the ID number for the transaction. On the left, the blue string is the address where the collateral is stored, and the white number is the amount of collateral, in BTC. On the right, the top blue string is the address of the winning counterparty in the trade, which got back the white number of bitcoin, and the blue address just below that is for the losing counterparty, which gets back the leftover collateral. In yellow, on the lower right, it shows that the transaction was confirmed 2068 times by the blockchain and then the yellow number of bitcoin is the total BTC proceeds distributed to the two counterparties from the collateral, after deducting the fees.

Scaling limitations

For Goh, the big takeaway from the exercise is that it worked.

“The trade settlement took 45 minutes to process, with total transaction costs equal to a few U.S. dollars,” he said. “The smart contract knows exactly how much the parties will get back.”

In theory, he says, the cost would have remained the same even if the notional amount of the trade had stretched into the millions or billions of dollars.

The important part, he says, is that “you don’t have all the intermediaries.”

Could the new process be scaled up to handle the volume of S&P options trades currently handled by securities firms? Probably not without improvements to the bitcoin blockchain’s processing capacity, Goh says. But a lot of programmers are working on doing just that.

In the annals of technological breakthroughs, it’s not exactly Ben Franklin hanging a key on the end of a kite. But the little $217 options trade might be a step forward in making financial markets cheaper and faster to use – with less Wall Street involvement.

Bitcoin News

Cryptocurrency And Blockchain News Update 21st October 2019

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HTC CELL PHONE CAN RUN A FULL BITCOIN NODE
Cryptocurrency And Blockchain News Update 21st October 2019

New York Court Postpones SEC Hearing About Telegram

The United States District Court for the Southern District of New York has postponed the hearing regarding the Securities and Exchange Commission’s injunction filing against Telegram Open Network (TON) and its Gram token to Feb. 18–19, 2020. Recently, the SEC has claimed that not only did Telegram violate the U.S. securities laws during its initial coin offering (ICO), but it also is seeking a preliminary injunction to prevent Telegram from further violations.

Tron CEO – Says He is Not Investing in Poloniex

Tron founder and CEO Justin Sun seemed to have refuted recent reports suggesting that he is leading an investment group behind the acquisition of cryptocurrency exchange Poloniex. In a recent statement Sun has claimed that he is “not buying anything,” noting that he is an investor and disclosing some of his crypto assets

Ethereum Based Token Created As An Incentive For Workers

Enterprise Ethereum Alliance has created a token system to encourage the active contribution of member organizations and their employees to the cooperative.  The tokens are powered by the EEA’s Off-chain Trusted Compute Specification and is said to be trustworthy enough for use both within and between different companies. The system was first demonstrated at the Devcon5 conference at the start of October in Osaka as part of an experiment conducted inside the EEA.

Bittrex Is Closing Operations In 31 Countries

Bittrex International, The Malta-based international unit of United States’ crypto exchange Bittrex, will cease operations in Venezuela and 30 other countries.  In an email to Venezuelan customers, Bittrex International announced that the exchange will halt account and trading access to users on Oct. 29, asking them to withdraw their funds with the exchange before that date.  But Venezuela is not the only country that is going to be parting ways with the exchange. Bittrex will be halting the service for, Afghanistan, Egypt, Bosnia and Herzegovina, Cambodia, the Central African Republic, the Democratic Republic of the Congo, Ivory Coast, Tunisia, Ethiopia, Uganda and Yemen, and others.

HTC Creates A Phone That Can Run A Bitcoin Node

The Taiwanese electronics giant HTC has launched its new smartphone which is called the Exodus 1s, This device enables users to run a full Bitcoin node on mobile. The phone was launched at a Lightning Conference in Berlin on Oct. 19 and started selling the first devices during the even using the Lightning payment network.

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Bitcoin Halving to Push Market Cap Into the Trillions?

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Bitcoin Halving to Push Market Cap Into the Trillions?

May 2020 will signal the third time that Bitcoin’s mining rewards will be halved, and it is set to be exponentially more dramatic than the last two times. Basing predictions on previous performances that followed the drop in the supply of new Bitcoin, it can be expected that the market cap could reach into the trillions.

Bitcoin’s current market cap sits at $142 billion, or $0.1 trillion, and its highest reach was $0.3 trillion back in December 2017. Bitcoin has yet to compete with other larger trillion-dollar markets, such as gold, which sits at $8 trillion.

This could all change in the years following May 2020. Looking over how Bitcoin performed following the previous two halvings, where macro-economic factors saw in an increase in demand due to a vast cut in supply, a trillion-dollar market cap is not just possible, but also probable.

A Look Back in Time

Pointed out by a Reddit user, slvbtc, the years following the cut in supply of new circulating Bitcoins saw dramatic rises in market cap, and prices. The author notes:

“Prior to the November 2012 halving the price was $12 and there were 50 Bitcoin being mined per block ($600) meaning the market was absorbing $604,800 of new Bitcoin per week. That halving reduced the new supply by $302,400 per week causing the market cap to rise by $14 billion dollars over the following year.”

That is a reasonably dramatic boost in the cryptocurrency market cap, but when the next halving came around, in July 2016, the market cap of the major cryptocurrency had compounding growth as, over the next 18 months, it shot up to a staggering $300 billion.bitcoin

“Prior to the July 2016 halving the price was $650 and there was 25 bitcoin being mined per block ($16,250) meaning the market was absorbing $16,380,000 of new bitcoin per week. That halving reduced the new supply by $8,190,000 per week,” added slvbtc.

Bitcoin’s Most Dramatic Move Yet

Basing his predictions on what has come before, slvbtc predicts that, with the price of Bitcoin hypothetically at $10,000 before the supply cut, Bitcoin’s market cap should rise to trillions of dollars.

With Bitcoin at $10,000 before the halving, and 12.5 of it being mined per block ($125,000), that means $126,000,000 worth of new Bitcoin is entering the ecosystem per week. However, with that 50 percent cut after May 2020, the new supply with drop by “$63,000,000 per week potentially causing the market cap to rise by trillions of dollars over the following 2 to 3 years,” he adds.

bitcoin

Entering the Big Time

Bitcoin has made a rather big impression on the global markets – especially for something that does not have such a big market cap relative to other markets and commodities. For Bitcoin to cross over into the trillions and start rubbing shoulders with gold and the like would be huge for the coin and its place in the global markets.

Is history destined to repeat itself? Are we soon going to be seeing Bitcoin overtake gold in market cap with new price highs due to increasing demand from a lower supply? Let us know your thoughts in the comments below.

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Cameron Winklevoss Says To Buy BTC to Escape Negative Yield Bonds

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Bitcoin (BTC) bull and co-founder of Gemini crypto exchange Cameron Winklevoss have noted that the volume of negative interest bonds accounts for $17 trillion and has urged the public to buy Bitcoin.

In an Oct. 17 tweet, Winklevoss wrote:

“17 trillion dollars are currently held in negative interest bonds. 17 trillion reasons why you should own bitcoin.”

In a series of comments to the tweet, one of the users argued that “migrating this over to Bitcoin is a huge challenge,” to which Winklevoss asked which challenges they are referring to, further stating that it takes less than two minutes to open an account on a crypto exchange. However, when the user asked how one can move negative debt to BTC in that volume, Winklevoss did not respond.

Earlier in October, Tone Vays, a veteran trader and Bitcoin expert, expressed a stance similar to Winklevoss, saying: “As more and more Developed nations try to eliminate cash and implement negative interest rates, this can drive many people into Bitcoin.” In mid-August, Deutsche Bank reported that 27% of global bonds traded were negative yield at the time, so expected to pay out less than their initial cost.

This represented $15 trillion worth of debt, or as VanEck digital asset director, Gabor Gurbacs, commented, that was 75 times the total Bitcoin market cap. “It’s time for Plan ₿!” Gurbacs added. At the same time, the Bank of Japan said that central banks can not use digital currencies to enforce negative interest rates. Masayoshi Amamiya, deputy governor of the Bank of Japan, said that states issuing digital currency with a negative interest rate would force inhabitants towards cash. Amamiya argued:

“To overcome the nominal zero lower bound, central banks would need to eliminate cash. Eliminating cash would make settlement infrastructure inconvenient for the public, so no central bank would do this.”

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