Menu IconA vertical stack of three evenly spaced horizontal lines. Greg Dwyer, head of business development at BitMEX, a bitcoin derivatives exchange based in the Seychelles, talks with Business Insider executive editor Sara Bitcoin margin trading about what investors should know about trading bitcoin futures.
Sara Silverstein: Help me understand how these bitcoin futures are going to work. Your betting on a future price of bitcoin. What is the underlying, what’s the reference point, how do they decide? I’ve seen a lot of different bitcoin prices every single day. Greg Dwyer: There are two main contracts being launched. There’s the CBOE and the CME which is coming out a few weeks later. The CBOE is pricing against the Gemini auction which settles at 4 p.
Whereas the CME is looking at a more broad, diverse index comprising of four exchanges. That’s going to be referenced at 4 p. Silverstein: So explain to me what are the issues for having an underlying like bitcoin that isn’t something that’s regularly traded on an exchange. So potentially we could see no trading occur. If there’s a 20 percent move over the weekend. And it opens that limit up on Monday and then no one’s going to be able to open or close positions until the following day. Dwyer: Right, so this also introduces, I believe, five other concerns given the fact that this does not trade like a regular, say, stock on an exchange, such as the NYSE.
Market manipulation, also there’s potential of systems overloading. There’s potential of DDoS attacks, there’s hard forks, and finally the way that these contracts are margined. Silverstein: So Market manipulation, how does that work? Dwyer: So let’s take the CBOE contract for example.
This is one exchange which compromises a relatively small amount of bitcoin dollar-traded volumes globally. So there are concerns that they could be priced — adverse price movements — due to this illiquidity. Or some bad actors in the space trying to move the price at settlement. The CME contract being more diversified on four exchanges alleviates this problem a bit. Silverstein: And what about the DDoS attacks? Dwyer: DDoS basically means that you’re trying to take down a system by overwhelming it with a large amount of traffic from various sources.