Futures and Bitcoin
We trade and invest using futures as a financial tool to gain exposure to the markets.
They are just that, a tool, for investing in the markets. While most investors are more
familiar with stocks and ETFs, futures allow us to create nearly identical exposures using
a slightly different tool.
In the last couple weeks I have heard more people talking about futures than ever before.
People totally unrelated to the markets, are asking me about futures. People who have
never traded a futures contract ever before, are talking about it. Why? Bitcoin.
While I will leave the bitcoin and blockchain discussion to another post, I will comment
on the importance of the imminent emergence of futures around this market.
At Auspice, our primary tool to trade is futures for several good reasons: Futures are
available in many globally diverse financial and commodity markets, they are 100%
transparent in pricing, liquidity is excellent, and it is just as easy to go short futures as it
is to go long. This is a very important feature for us given we are agnostic to the
direction of the market, rather targeting the trends either way. Many futures markets
trade 24 hours a day having evolved to electronic trading from physical trading pits in the
last decade. Moreover, the counterparty is the exchange and thus there is no counterparty
credit risk. Another key feature of futures is that they are very efficient given they trade
“on margin" freeing up capital for other investment purposes.
But probably one of the most comforting aspects of trading futures is that they are tightly
regulated as they are considered an integral part of the financial system. This creates
credibility, confidence and trust. As such, we believe it is one of the pieces of the puzzle
that not only legitimizes a marketplace but also enables mass acceptance. All of the
major financial markets have futures markets built around them. It brings together buyers
and importantly sellers. It brings together speculators, hedgers, both retail and
institutional creating a level playing field for all to participate in a forum that is designed
to protect investor assets.
Whether or not people will look back at this moment in time and view it as a "bitcoin
bubble" or not, many believe cryptocurrencies are here to stay. While some may argue
that trading Bitcoin futures on a regulated exchange is contrary to some of its founding
principles, the reality is that the futures market is a risk management tool for buyers and
sellers and does not detract from trading of the underlying asset. While futures cannot
make Bitcoin successful long term, it does add legitimacy to it as a real financial market.
And while there are many unknowns, we believe this changes the conversation.
IMPORTANT DISCLAIMERS AND NOTES
Futures trading is speculative and is not suitable for all customers. Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offence to claim otherwise.
Auspice Managed Futures Excess Return Index (AMFERI): The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The strategy focuses on Momentum and Term Structure strategies and uses a quantitative methodology to track either long or short positions in a diversified portfolio of exchange traded futures, which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available in total return (collateralized) and excess (non-collateralized) return versions.
Returns for Auspice Managed Futures Excess Return Index (AMFERI) represent returns calculated and published by the NYSE. The index does not have commissions, management/incentive fees, or operating expenses.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Price Return data is used (not including dividends).
60-40 Portfolio: 60% investment in SPY (S&P 500), 40% investment in IEF (intermediate term US Treasuries), rebalanced monthly.
For U.S. investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to Qualified Eligible Persons “QEP’s” as defined by CFTC Regulation 4.7.
For Canadian investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to “Accredited Investors” as defined by CSA NI 45-106.