Thread by @JackMallers

1/ @Melt_Dem, I respectfully disagree. This is incorrect.

Yes, derivatives do help market efficiency and general price discovery.

However, no, of course they do not affect basic supply and demand.

https://twitter.com/Melt_Dem/status/1209457337393647617

2/ Derivatives derive their value from the underlying, settling against an index composed of spot exchanges. General arbitrage and market efficiencies will always keep derivatives tied to the underlying.

Traditionally, the premium on a future is only due to the cost of carry.

3/ Commodity derivatives were invented to simply transfer risk.

Corn farmers selling futures before a risky winter transfers their risk to a speculator, allowing the farmers to do what they're good at, farm corn.

This has nothing to do with the price of the asset.

4/ The producer of an asset does not "set the price." Price is a function of supply and demand. Anything is only worth what someone else is willing to pay for it.

The willingness for someone to acquire the asset, also known as demand, is what sets the price.

5/ This is why the halving is not priced in. When a market goes through such a supply shock (one that no other asset has ever been through), it's impossible to predict where demand will meet the new-found supply.

6/ I'm skeptical of those that think the halving is either priced in or will have no effect on the price of the underlying. Any experienced trader would disagree 🙂

However, time is the ultimate truth-teller, so we'll have to see how the next few years play out 🚀