I don't understand how, since the Futures contracts do not get settled in Bitcoin, the for example, shorting of Bitcoin Futures, will affect the actual price. Can someone explain?
hmm, I still don't quite understand. The bitcoin exchange would have to believe the futures market prices if I'm not mistaken. There wouldn't be an actual effect. Am I making sense?
Say Bitcoin is trading at $15K on the bitcoin exchanges, and $14K on the futures exchange.
If someone has funds on both, they can sell on the bitcoin exchange and buy on the futures exchange to make $1K profit without changing their exposure, 'risk free'.
Unlike other kinds of arbitrage, however, because the futures settle in USD value, you'd have to move that USD to the exchange and rebuy to get back into a position to repeat. I think settling in USD will somewhat suppress the effect of futures market short pressure (have to rebuy to sell again, unless on exchange with naked shorts available to users with only USD balances), but only time will tell.
Ok so this is the first time I'm hearing about arbitrage, so I did some googling to find out what it is. Here is what I am unsure of, Bitcoin is Bitcoin, it's an asset that you buy from an exchange (or mine) where as futures contracts are just contracts that don't equate to bitcoin and are not redeemable in bitcoin. This makes arbitrage not possible. That is my understanding.
This could create some 'tail-wags-dog' behavior, but at this point it is anyone's guess how this will play out.