Ask HN: Why can’t you short cryptocurrencies in fiat? | Hacker News Reader

Ask HN: Why can’t you short cryptocurrencies in fiat?

There appear to be many on HN who are sceptical of the utility and value of cryptocurrencies. And more generally, plenty of people feel that cryptocurrencies are a bubble. If we want to back our intuition fro profit, it would seem we should be able to buy a put option on say Bitcoin. However, it doesn’t seem like such an instrument exists. All methods of shorting cryptocurrencies seem to involve buying cryptocurrencies with which to buy the option, then taking your profit in cryptocurrencies or tethers. Why can’t we go to an established exchange, buy a put option with say USD, and receive any profits in USD?

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You are looking for "quanto" options.

You are right these dont exist in any meaningful form at the moment. However USD(T/C) quanto swaps exist (a.k.a. perpetuals) on all major exchanges and fufil linear short payoff profiles. If you are looking for the convexity of an options payoff and still want it USD "settled", you can construct a portfolio of a long/short quanto swap (binance, ftx etc.) and a option (likely on deribit) to synthetically generate the same payoff profile (note not cross margined). You will need to manage and calculate the "PnL" (which is the difference of the quanto options value vs. a regular options value) and hedge it yourself dynamically via the swap. If that all sounds very complicated, thats because it is. You should realise that on a risk neutral basis options and swaps are equivalent and all you are doing via an option is taking leverage and a view on implied volatility, all whilst probably paying a fat bid ask/spread. You probably are better off trading a liquid swap at your desired leverage level (which can be set to match the delta of the option you have your eye on)...

Alternatively if you are looking to do a trade on NASDAQ you could just buy puts on a company like Microstrategy (MSTR) which tracks the price of BTC reasonably closely (due to their large balance sheet holdings).

Once (or perhaps "if") Crypto ETF's are eventually approved by the SEC, liquid USD options markets will follow.

Source: I am a former investment bank derivatives trader.

Thanks for the input, and yes it all sounds very complicated. The tip about using MSTR as a proxy does sound appealing, particularly as I'm not much of a fan of their product anyway.

Do crypto exchanges earn most of their revenue from promotion of trade or by manipulation of it?

We really don't know the answer because they are opaque black boxes operating without any oversight. Your example is one where they don't seem particularly concerned with promoting trade opportunities.

The biggest common fallacy in the crypto marketplace is the assumption that the "exchanges" operate as honest brokers and market makers just like their counterparts in regulated markets.

Seems like Michael Burry thinks they should be shorted, but the mechanics to short aren't there: https://www.cnbc.com/2021/10/15/michael-burry-of-the-big-sho...

When a standard market behaviour like shorting isn't available, its tempting to ask qui bono. Given the guarantee of profit in being a market maker, even at only fractions of traded value you would think somebody would do it for the revenue.

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