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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 13 Nov 2017
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      This decreases my level of interest about the CME Bitcoin futures:pic.twitter.com/L5oI6JS7zB

      3 replies 3 retweets 26 likes
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    2. Patrick McKenzie‏ @patio11 13 Nov 2017
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      Orderly administration of markets, OK whatever, I can understand that. But from a price discovery perspective my rationale for participation is that I have a strong belief that zero is the correct price.

      2 replies 2 retweets 12 likes
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    3. Patrick McKenzie‏ @patio11 13 Nov 2017
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      In the event that reality decides to converge catastrophically to Bitcoin's true value, I do not want institutional counterparties to get away with a haircut. Upside risk is uncapped; shorts (necessarily!) want to play for scalps.

      2 replies 0 retweets 8 likes
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    4. Patrick McKenzie‏ @patio11 14 Nov 2017
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      If this is a little unclear: the structure of these contracts is that, conceptually, there are two people: one promises to pay the other $FOO Bitcoins in USD in a year. That person is now short Bitcoin. The other is willing to pay for the Bitcoin; they're long.

      1 reply 0 retweets 7 likes
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    5. Patrick McKenzie‏ @patio11 14 Nov 2017
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      Why pay the BTC in USD? Because this a) this is a cash settled futures contract and b) it is cash settled because there exists substantial complexity to actually paying someone in BTC in status quo and future stats of world. (Yay, payment network of future.)

      2 replies 0 retweets 5 likes
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    6. Patrick McKenzie‏ @patio11 14 Nov 2017
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      So every day the CME marks these positions to market, saying "OK, those BTC that you're short are worth a total of $100 more than yesterday; settle up by paying your counterparty $100 today." (The actual money movement is more complicated.)

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    7. Patrick McKenzie‏ @patio11 14 Nov 2017
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      And the contracts are settled daily in this fashion, until one final cash settlement. Now here's the rub:

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    8. Patrick McKenzie‏ @patio11 14 Nov 2017
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      In the event BTC goes to nothing, the true settlement the short party should get is the entire cash value of the contract. "Well OK it looks like the 10 BTC you owe him are worth zero and we last assigned them a notional value of $75k, OK, fair's fair, here's your $75k."

      1 reply 1 retweet 4 likes
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    9. Patrick McKenzie‏ @patio11 14 Nov 2017
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      But what the CME is saying is "Look look look we know the value isn't actually zero even if the spot price is, well, technically speaking, a very zero looking sort of number if you squint at it. So we'll say the true price is e.g. $2.5k a piece and close the contracts."

      2 replies 1 retweet 3 likes
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      Patrick McKenzie‏ @patio11 14 Nov 2017
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      "Wait a minute... so I get $50k, not $75k." "Yep good math." "And who gets the $25k?" "Your counterparty." "WHY?" "Well we didn't want to wipe them out." "YOU WIPE PEOPLE OUT EVERY DAY. THAT IS A MAJOR PART OF YOUR JOB. THE ORDERLY WIPING OUT OF PEOPLE."

      12:11 AM - 14 Nov 2017
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      • Jonathan Paulson 🚲🚎🥑 Joachim Schipper Eli Courtwright Jake Schmidt 🥑🚲 sww1235 Marcel Popescu Chad Etzel
      2 replies 1 retweet 9 likes
        1. New conversation
        2. Patrick McKenzie‏ @patio11 14 Nov 2017
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          (It is! Most people involved in the futures market are using margin, to avoid tying up the amount of money notionally involved in future contracts. A sharp price movement in either direction generally wipes out some participants. Totally normal.)

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        3. Patrick McKenzie‏ @patio11 14 Nov 2017
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          e.g. I had at one point said "I'm going to deliver 1.25 million yen in a year in return for your $125k. Here's ~$6k of earnest money." A ~5% chance upwards in the price of yen makes my earnest money go away and the contract close out.

          1 reply 0 retweets 3 likes
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        4. Patrick McKenzie‏ @patio11 14 Nov 2017
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          12.5 million. Sorry, always get yen numbers mixed up. The reason to enter into this transaction for me wasn't speculation: I've got a modestly complicated international financial situation with income in JPY and expenses in USD, and I didn't want exchange risk.

          0 replies 0 retweets 3 likes
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        5. End of conversation
        1. New conversation
        2. kasey_junk‏ @kasey_junk 14 Nov 2017
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          Replying to @patio11

          That the CME prefers some participants to others is not remotely surprising to anyone who has ever traded there.

          1 reply 0 retweets 1 like
        3. Patrick McKenzie‏ @patio11 14 Nov 2017
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          Replying to @kasey_junk

          Is there any entry point into that topic you'd recommend for an interested non-professional? (Not terribly relevant for me careerwise at the moment but would love some bedtime reading.)

          1 reply 0 retweets 0 likes
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