Bitcoin Futures for the People



Dueling bitcoin futures come out soon from Chicago. One from the CME and the other from the Chicago Board of Exchange (CBOE). Much has been made of futures contracts on bitcoin, but the contract specifications themselves are most important for market participants. CME’s bitcoin futures favor institutional investors while those from the CBOE are beneficial to individuals.

Futures are financial contracts for the delivery of and payment for commodities on a date in the future. In the past, the commodities were physical assets such as corn and then financial assets like bonds and stocks, starting in the 1970s. Now, bitcoin is the commodity. Futures can be use to shift risk, speculate on price, and act as a substitute for the commodity itself.

Futures contracts can be purchased on margin, similar to the down payment when buying a house. Each futures exchange (CME, CBOE) sets the margin percentage and amount of margin is based upon the contract’s value. So if margin is 30% and the contract value is $10,000, then only $3,000 is needed to purchase the futures contract.

Contract value is based upon a multiple of the underlying commodity, in this case, bitcoin. CME’s  bitcoin futures multiple is five while only one for CBOE’s bitcoin futures. So if one bitcoin is worth $10,000, then contract values are $50,000 and $10,000 respectively. This means, that less margin is required to trade the CBOE bitcoin futures and than for those from the CME.

It also means bitcoin futures from the CBOE will favor the individual, rather than the institutional investor.


Coinbase Custody: Cheap?


Coinbase found another way to make money off cryptocurrencies with its custodial services for institutional investors. Announced this week, Coinbase Custody will charge sovereign wealth funds, traditional hedge funds, family offices, and others 10 basis points to store digital assets, such as bitcoin, litecoin, ethereum, and ERC 20 tokens. For some, there may be cheaper way to own digital assets.

At this moment in time, cryptocurrencies acts less like currencies and more like commodities. Often bitcoin is called digital gold; a storer of value rather than means of payment. This is due in part to the limited transaction processing of the bitcoin protocol. But owning digital asset presents custody issues for institutional investors.

The situation is no different than fifteen years ago when institutional investors wanted to own real commodities, such as industrial metals and agricultural products. As with digital assets, owning real assets is challenging due to storage, transportation, and insurance costs. Back then Wall Street solve the challenge by providing institutions with synthetic exposure with derivatives: commodity swaps, exchange traded futures, and structured notes.

So it is ironic, that this week the CME announced the terms of its BTC futures contracts. The CME is home to many of the future contracts that make up the commodity indices that institutions invested in many years ago; this includes the Goldman Sachs Commodity Index. CME’s bitcoin futures could be listed in the second week of December and will required more margin than “traditional” contracts.

While sovereign wealth funds or hedge funds may opt for real digital assets, others may want only synthetic exposure. CME’s BTC futures contracts offer another way for institutions, including mutual funds, to provide bitcoin exposure by rolling over the futures contracts, much the same way as with traditional commodity futures. BTC futures can also simplify ownership for retail investors with the creation of synthetic bitcoin exchange traded funds; one of which was recently proposed by Proshares.


Apple Really Likes Trump’s Tax Plan



Facebook, Alphabet, and especially Apple will really like Trump’s Tax Plan.  Under the various proposals, repatriated overseas cash receives a special tax break for US corporations.

Per the most recent SEC filings, 60% of Alphabet’s cash was overseas, Facebook held about 37% of its cash, overseas, and 94% of Apple’s cash was held overseas.

Yale Earns 15% From VC


The Yale Endowment’s venture capital assets earned about 15% over the ten year period ending on June 30, 2017. In addition, venture capital now makes up 17.1% of the Endowment; which is an increase from the 16.2% of the prior fiscal year.

Those facts come from the recent Yale’s 2016-2017 Financial Report. As previously reported, the Yale Endowment grew assets to $27.2 billion after earning 11.3% for the 2017 fiscal year. Not yet disclosed: the Endowment, overall, earned 6.6% for ten years ended June 30, 2017, which is a lot less than its venture capital returns.
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