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2017-12-11 Week - Central Banks - Bitcoin Futures - Yield Curve

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This Week

10 year auctions will precede the Fed Funds Rate. A move higher on that rate may give markets freight.

The FOMC, BOE and ECB will all be releasing statements to markets this week. It is doubtful they will say anything good. If they indicate trying to drain liquidity from markets, it is going to be a blood-bath in stocks. That is unlikely, but possible.

Bitcoin Futures CME/CBOE

What does a futures contract in Bitcoin mean to an investor?

Nothing mostly. To a trader, it means higher volatility around contract close and market manipulation.

Starting this week, the CME and CBOE will be offering trade in bitcoin futures. This is a cash settled contract, which means that no actual bitcoins will ever trade hands. The contract is set to a peg on an alternate market. This means that when the contracts are set to close, those markets will explode with activity to move price to allow futures contract traders to cash in. This is what we have seen with gold, oil, copper and other futures contracts, so we shouldn`t expect anything different.

The CBOE contract is pegged to a single market Gemini. This is an auction market, so expect that there will be massive volume to bash around prices nearing the close of these contracts. It will likely be exposed, many years into the future, as a massive market manipulation by unscrupulous traders. That is the action we have come to expect from gold futures contracts, so we shouldn`t expect any changes to the status quo. When the market crashes, as it did yesterday, holders of Bitcoin Futures will be hard pressed for real price discovery.

The CME contract is even more dodgy. It DOES use a London Price Fix, which has often made news as trading houses manipulate prices. It also uses a basket of trading houses as reference prices. The CME contract is an attempt to capture the most important aspect of trading: Price Discovery.

These contracts are trying to be the REFERENCE PRICE for bitcoin. This means that when it discussed in the news, that is the price used to blather on about this market. It also means that it will be the chart used on trading terminals (critical for traders). It will be the price used for algorithms (although most are smarter than the humans trading), in so much as spreading and price manipulation are concerned. It will be the price used to manipulate markets by propaganda over substance.

Because bitcoin is traded across weekends, often with massive volumes, then anyone holding futures across the weekend would be taking a massive risk. This means that there will be a Friday exodus from these contracts. So be aware that if Friday volumes are high, a manipulated weekend is coming.

There would be only two reasons to hold a futures position over a weekend in bitcoin:

INSIDER TRADING: Trading on insider information because a news release concerning code change or legislation change would occur on that weekend.


MARKET MANIPULATION: Outright market manipulation attack on the price when counterparties would be unable to exit their futures contracts without a massive loss.

In the gold market, the futures trading price is used to define the real-world-price. That market is so loaded with short sellers and manipulation that if the gold futures market had actual investors trading (people wanting to take physical delivery) then it would collapse. There are massive numbers of outstanding contracts (sold short) for every ounce of ACTUAL physical gold in the bullion vaults. For Bitcoin Contracts, there is NO physical settlement so the price manipulation will be even easier.

Unlike gold, bitcoin trades instantly around the world 24 hours a day, 7 days a week. There is no London Fix for bitcoin (yet), which means that the price discovery is left to REAL markets. That means that all of the alternate marketplaces that crypto currency is traded will be loosely traded in correlation to the bitcoin price.

As bitcoin is the intermediary between many crypto currencies (much like the US dollar for oil trades) it is the primary-crypto. This means that it will continue to be in use as the center currency on a multi-leg spread. That means that it will continue heavy use in markets, regardless of the futures short-selling attempts to slam market price.

The true value of bitcoin is as a counter asset to fiat currency. Governments cannot print more bitcoin, but they have been carefree in printing their own currency. Governments cannot control bitcoin, or the flow of bitcoin. Bitcoin can move across borders more easily than any other asset in history, so they cannot control or regulate it. The true power of bitcoin is taking your hard earned money out of the hands of governments and banks.

Try to board a plane with a million US dollars in currency, gold, or bitcoin. Then you will know why the bitcoin price will continue to soar.

Yield Curve & Stocks

Markets are correlated. That is the first thing you lean as a trader, especially when spreading. Stock markets move (generally) inversely to bond markets. Bond yield goes up when traders sell and down when traders buy. Bond yield curve is traded when a spread across near and far term bonds is made. Yield curve trading is watching as long term investors decide how much time they want to lock up money at the current rate. Generally, longer term bond rates are more stable while near term are more volatile (because cash is locked for less time).

Yield curve explained:

Central bank manipulation of the bond markets has shifted these rates dramatically because of the wash of volume on longer dated bonds. Some central banks are holding these bonds to expiration while others are consolidating. Mostly, there is a move for a hands-off approach to these markets in the future, which means that one day price discovery may align with actual demand.

Investors desperate for return on investment will use bonds to hedge against a failing stock market. Because near term bonds don`t lock capital as long, they are used to maintain return when the stock market is expected to sell off. So a big buying of bonds (drop in yield) often occurs in a market down turn. A big volume of selling on near term bonds occurs in a market collapse because traders want access to their cash to go bargain-hunting when the stock market fails.

Judging by yield, big traders are expecting a stock move lower, soon. When that much capital thinks something is going to occur, it occurs. Hedge, spread or exit the stock market accordingly.


YOU ARE AN ADULT and must make your own decisions. ONLY YOU know what level of experience you possess. ONLY YOU know what level of risk you are willing to take. ONLY YOU know what your financial goals are, and to what lengths you are prepared to go to meet those goals. You will be the one to wear your losses, so trade with caution and do your own research.

Henry Ledyard is an independent trader. He has NO affiliations with banks, brokerages, funds, trading houses or markets. He trades for himself and posts trading ideas merely to share information. He does NOT want your money, advice or opinions. He does NOT want your unsolicited emails. If you require further financial advice, seek it elsewhere. Henry`s opinions should be considered as addled as his blog site:

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About the author

Henry Ledyard is a futures and options trader with over 20 years of trading experience and over 10 years of experience in trading futures. Henry Ledyard holds multiple degrees: BE Electrical Engineering, BS Physics, and BA Visual Arts. He has worked as a prop-trader (AU bonds, USA bonds) but found the bond market not conducive to his trading style. He currently trades for himself, and has no associations with any brokerage or firms. He has no boss and seeks no money for his information and trade ideas.

Henry’s trading focus is primarily on futures with longer term trades (hours to days) in tangibles (commodities and equities) with a real world bias. This is because high frequency trading algorithms are in control of much of the arbitrage trades and short term volatility.

Henry is predominantly a chart reader who looks for direction changes to enter and exit markets and is not a trend follower or scalper (much). His trade ideas are based on broader market forces creating opportunity while focusing on over-sold or over-bought moves. To make money in markets, he has to combine timing, direction and risk which can be a challenge (and may not suit your trading style). He is not an FX trader, nor stock trader (mostly) and tries to avoid bond markets except as a spread for other trades. He also avoids ETFs and many derivative products because of exaggerated leveraged moves.

Henry is based in Sydney, Australia and normally trades EU pre-market through the USA session with the occasional eye to Asia trade for indicators of direction.

The trade ideas expressed by Henry are places he sees potential for profit and may be as addlepated as his blog site:

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