Bitcoin Futures

On April 2nd, 2019 I messaged some friends saying, “Something just peaked above its 200 day moving average. :grinning:” I also sent the screen shot below and said that I was going to put more into bitcoin and other crypto currencies because of this.

Since then until the moment I write this, Bitcoin has increased nearly 62%, as you can see below. With this massive rise in less than 2 months, I think it is pretty likely that Bitcoin and other cryptocurrencies will have a temporary pull back soon, but until they fall below the 200 day moving average and stay below it for about a month I don’t plan to sell any of what I currently own.

 

However, I would like to have some of my traditional investments and cryptocurrenies in the same brokerage account to hedge each other. I want to be able to easily reallocate profits from one to the other. For example, while crypto currencies were doing amazing this month, my stocks were doing terrible. It would be helpful to have them in the same account so that now I could take some profits from cryptocurrencies and put them directly into stocks and other assets.

This has made me start looking at some other options for buying additional cryptocurrencies to serve as hedges in brokerage accounts and to enable me to use money that isn’t in a bank account.

Robinhood

If you live in one of the approximately 40 states that allow it, you can buy cryptocurrencies directly and commission free using Robinhood. Plus you can get a referral bonus if you use this link. This is the best option if you are just looking to use a taxable account. This option lets you buy in tiny amounts and makes tax time pretty simple. The only downside I see is that they don’t currently allow IRAs and not available in my state.

Bitcoin Futures

This is the scariest option for most people and for me. I have never purchased a future, but have considered buying Bitcoin futures soon. There are two versions of futures available for Bitcoin. The CME version with the symbol BRR will require about $40,000 currently. If you don’t see the problem there, then you must be richer than I am.

The CBOE version with the symbol GXBT is much more affordable because it has a contract size of one bitcoin putting the current price to buy with no leverage at $8,000. I still would like the contract size to be much smaller, but this one would at least make it possible to buy an amount I would be comfortable with in one account.

Investment Trust

Some brokers, like Interactive Brokers, allows you to buy GBTC which is an investment trust that holds Bitcoin. It is great because you can buy it in chucks less than $20 each. Unfortunately at times, it costs quite a bit more than the than it would to just buy bitcoin directly. Today it is selling for approximately 20% more than the cost of the Bitcoin it holds. 

Coinbase or Gemini

The other options are to just buy cryptocurrencies using Gemini or Coinbase. You can use them to buy with a bank account or a debit card if you use Coinbase. Plus if you use the link you get a bonus of some kind. 

What is best?

I think the best option depends on what you want to do. I currently only buy cryptocurrencies using Coinbase.com. I am unlikely to start buying the Grayscale Investment trust GBTC unless its premium to the amount of Bitcoin it holds comes down. For any cryptocurrency I want to just hold indefinitely and not buy and sell or rebalance with other assets I am just using Coinbase. For any Bitcoin I want to use as a hedge for my portfolio, I am going to look into using the CBOE Bitcoin futures, but if I was in a state that allowed Robinhood crypto I would just use that.

As always I would never invest more than I could afford to lose in something speculative like cryptocurrencies, but I am willing to take the risk because I think they are here to stay.

 

Updates

Bitcoin futures at Interactive Brokers are not available in IRA, where most of the available money is for me. Getting authorized to trade them in my margin account is probably not worth it. The premium on GBTC is 34% as you can see below. That plus a 2% annual fee makes it not very appealing buy. However, if i pay a 2% fee to buy at Coinbase then pay taxes when selling it could be worth holding some GBTC in an IRA. So, I may do that some, but for now most of my purchasing of cryptos will still be done using Coinbase or Gemini, while I wait for Robinhood crypto to become available to me.

 

 

 

2 thoughts on “Bitcoin Futures

  1. Stephen Tines, MD May 15, 2019 — 10:47 pm

    Really good info Charlie. And I like how you write. You may well gather a crowd!Keep it up!! https://charlestines.com/2019/01/11/profiting-from-a-30-drop/   And it was nice to see your 5/11/19 update….

    Like

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