The Battle of the Grated Cheese and Bitcoins
By: Lynette Lim
Dear Friends,
Two weeks ago I became a mother of four. I had returned a favor of a friend to look after her two children over the weekend. The children were very close in age (4, 6, 7, 7+, respectively); and for the most part they played with each other and were quite self-contained. They did not disturb the adults very much except when they were hungry or when a fight broke out. When the latter happened, there would first be some screaming/screeching, and then the sound of footsteps closing in on me.
After being the judge of numerous fights, I concluded that there were essentially two reasons for the fighting. The first pertained to the scarcity of resources, when one child was perceived to have more than the other (e.g., “He played with this toy more than me. It’s my turn now”). The second type of fight pertained to ideologies, where one child had a different idea of how things should be done. An example of this was when playing a board game (Risk), my son got upset with one of the other children because he didn’t play the game right.
Do you see the parallel of this with our real world of real wars and disputes? We fight over resources, especially when they are scarce, and ideologies! Is it that simple?
There was one game the children invented that particularly fascinated me, as it didn’t break into a fight. There was a sizable piece of cheese on the counter, and the boys decided that they wanted to grate it and then eat it. Since the boys were older, they had the skills required to grate the cheese. The girls saw the grated cheese and of course wanted it. The boys then said that to have the cheese, the girls would need to have money.
“But we don’t have any money” the girls lamented.
“Well, you can make some pretend money!” J said.
So the girls went off and started writing numbers on post-its. The girls handed out their freshly minted money while the boys happily gave away some of the cheese.
After about five minutes, the boys said: “Hey we need more money for our cheese! It is running out!”
So the girls doubled their actions, and started scribbling more and more blue dollars until there were dollars all on the floor.
“Stop! We don’t need so much money now!” the boys lamented.
“Well, we want to buy everything you have!” said M.
“Lunchtime!” I shouted, and the game came to natural halt.
As I marveled at the ingenuity of the kids, I realized very quickly that they were in effect playing out the role of central bank in nations! The role of central bank has been vital to the stability of a nation’s economy. Countries like Greece failed when central banks failed to perform their fiduciary duties.
That is also why in the derivatives world, when two major exchanges (CME and CBOE) plan to launch Bitcoin futures product this month, it is worthwhile to pause and think deeper and harder of the potential risks and threats to the traders and the overall stability of our financial markets. Thomas Peterffy, Founder and CEO of Interactive Brokers Group, Inc. recently voiced his concerns publicly to the CFTC chairman about the volatility of bitcoin itself. Peterffy requested that the cryptocurrency product be cleared in a separate clearing system isolated from other products.
Barron's: Why Interactive Brokers Founder Fears Bitcoin Futures
A broker asked me casually what I thought about this. I told him that our approach is cautious optimism. Traders flock to products that have volatility and I can’t think of any product that has higher volatility than Bitcoin. But as a clearing firm and members of these exchanges, we would need to consider all aspects of risks and implement policies and procedures like margins, account size, position size, etc. to ensure that we are able to manage the risks we undertake of the customers.
Just like all aspects of life, it is a juggling act of balancing risk and returns.
As the year come to a close, I hope you will spend great time with family and friends in this holiday season.
** Latest Update on Bitcoin
Phillip Capital has begun clearing trades for Bitcoin on CBOE which started on Sunday the 10th December. Our risk policy is that we are restricting contracts per person to trade and customers must be fully margined until further notice. If you have further enquiries, please email us at sales@phillipcapital.com