Category Archives: Capital Markets

Bitcoin Exchange

So today two things happened that felt like my head exploded.  First, an ATM machine is being set up in Toronto specifically for bitcoins. Second, Wired magazine wrote an article where the makers of Coin base suggested there was a need for a Bitcoin exchange. Since I’m in the business of trying to find a marketable need for a mini derivative exchange, this seemed that everything was falling into place.

At once. Before I’m ready.

So the wise thing would be to wait until all the work was perfect and then announce that the product is available to the masses.

Instead, after reading the Lean Startup, I’m just going to throw it out there and see if anyone is interested. Seems a waste to create something no one wants.

And its more fun and exciting this way.

Submit Order

I’ve had the pieces in place for a while, but I finally connected up the dots. Basically, Weather Futures allows a user to select a security (City + Date) and use that security to enter an order.

Weather Options, Celebrities and Traffic don’t work yet. Weather Futures isn’t fully complete either – but I’m further along. Small steps.

Next steps:

  1. Send the order to the exchange
  2. Have periodic updates from the exchange to the web for status updates/trade fills
  3. Have periodic updates from the web to the custody system for settlement
  4. Have periodic updates from the custody system to the web for status updates

Also, once the flow is entered, there appear to be duplicates in the Security database. Three securities exist when there should only be one. Clean-up required.

Disruptive Technologies

A “recent” article on weather derivatives at Time.com – cost for $100k of “Snow Insurance” costs $19,000.

I’m hoping to cut that cost by 97% (if it refers to a Future). For weather options, it’s more difficult to estimate the market price of a Snow put option without critical mass on the exchange.

Forbes has a more recent article. Nobody wants to buy or sell Snow derivatives. Not one was traded in 2013. Perhaps I can offer a new approach?

Kickstarter Detour

I’m currently reading “the Lean Startup” by Eric Ries and have decided I may have done a common faux-pas: I’ve created something without knowing whether the public at-large even cares. The quickest way to test my hypothesis (i.e. that this isn’t a complete waste of time) is to put the project up on Kickstarter – the crowd-funding site.

In some ways, this is publicity stunt. I can gauge interest in the project solely by the number of people who pony up a few dollars to help out.

In other ways, this is the perfect test. The people on crowd-funding sites like Kickstarter are what I call “Consumer Investors” (somewhat different than “Retail Investors”) and its those people I expect to use my site.

Consumer Investors fund projects that are cool, or push boundaries beyond what’s offered today. They’re less focused on profit than on creating something new. Retail investors still believe the stock market isn’t fixed and it’s still possible to profit from it over time. Consumer investors have decided they don’t care – they’d rather use their money in small increments for something they can personally get behind before it becomes corporatized and overrun by greedy financiers.

So here’s Massive Rainfall. Let the testing begin.

The Purpose of Micro-Derivatives

Derivatives, in the past, have served a simple purpose: to divide up the risk of some commodity’s “price” that businesses rely on, and to pass that risk onto others who are more able to manage that risk.

Equities or shares of a company are a type of derivative by their very nature. Equities derive their value from the underlying company’s assets and its expected profits.

Bonds or loans are derivatives of a contract with their value derived from the PAR value at maturity, the likelihood of repayment and the duration when that repayment is due, among other things.

Could we not come up with derivatives outside of of the Equity, Bond or Commodity markets? Once started, it’s difficult to stop:

  • Baseball player’s salaries
  • Traffic at 6:30pm on a Friday on the I-95 highway within Detroit’s boundaries
  • Goals per game by the Toronto Maple Leafs
  • Number of babies born each month in New York
  • Temperature at Mid-Day on a specific date
  • Life expectancy of certain celebrities
  • The costs associated with a tornado destroying your home

The distinction of whether this is “gambling” or “hedging” seems to lie in whether there is a business need to quantify a given risk. Insurance is a derivative only by another name. Insurance fills an emotional need of the person avoiding risk. Derivative is a speculative investment prone to destroying our financial markets and sending us head-long into a recession.

Derivatives need a better PR manager.