X.IDIFF.SEP has settled

The previous Bitcoin network difficulty future settlement (X.IDIFF.JUN) saw an increase of network difficulty to 19`339`258, which at the time was considerableⁱ. Today's X.IDIFF.SEP settles at no less than 1.12628548 BTC per, almost fivefold that previous value.

During its lifetime X.IDIFF.SEP was significantly impaired first by the perceived and then by the actual unlikeliness of its coverage actually being sufficient. Indeed the settlement value for holders was 0.56083848 BTC, due to the 2.9x the previous settlement limit baked in. This comes to roughly half the final value of the contract. As one would expect in these circumstances volumes stayed well below the thrershold of relevancy.

The currently close future, X.IDIFF.DECⁱⁱ will be covered up to ideally 3.266227892 BTC perⁱⁱⁱ, corresponding to a difficulty on December 18th of ~326 million. Seeing how the estimated difficulty change for the next retarget (about ten days away) shows a further ~20% increase, I judge it unlikely that X.IDIFF.DEC is in any better position than X.IDIFF.SEP was with regards to coverage. Nevertheless, I don't think it's either sane or feasible to increase the upfront reserves required to create these, as currently the required collateral is quite significant^iv. The only reasonable avenue seems to be waiting for the difficulty to saturate, as it doesn't really make sense to try and catch runaway exponentials in financial instruments anyway, and in the meanwhile whatever legitimate hedging needs may be supplied as they have been supplied so far, through the venue of betting. I am however considering a split, something perhaps of the order of 1`000 to 1.

PS. Last settlement said

The good news is that coverage remained at all times sufficient, allowing traders to succesfully hedge their various exposure by using the instrument as intended and showing that the original parameters arbitrarily selected at the creation of the instrument back last year were judicious.

While I still believe the parameters were judiciously picked, permit me to lol.

1. A 4x increase over the 4`847`648 in March. [↩]
2. The first future traded was X.IDIFF.DEC back in late 2012. This means MPEx difficulty futures just got to be one year old, and X.IDIFF.DEC gets to be the future on the run for the second time so far! [↩]
3. There may obviously be contracts bought earlier. For instance should someone have bought X.IDIFF contracts sometime in February 2012 they would only be covered up to ~ 1.6 BTC each or so. [↩]
4. To best understand this : creating the furthest future available today, the X.IDIFF.SEP (settling on Sepember 17th 2014) requires ~79.66003205 BTC in collateral. Per contract. [↩]