February 27, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Dash (DASH)    + 7.313% 0.0243900 0.0222218
Factom (FCT)     – 3.927% 0.0026364 0.0023913
Bitcoin (XBC)    + 2.816% 7858.33 7515.52

Dash (DASH) News:

Version 12.1 Release [Dash Forum]

To trade Dash on BitMEX, please trade DASH7D


Factom (FCT) News:

SHA1 finally shown to be broken, Factom users unaffected. [Reddit]

To trade Factom on BitMEX, please trade FCT7D


Bitcoin (XBC) News:

Cloudflare Bug Triggers Password Warnings from Bitcoin Exchanges [CoinDesk]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17

February 24, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Bitcoin ETF (COIN)    + 29.817% 51.49 34.51
Zcash (ZEC)    + 9.514% 0.0285191 0.0228500
Bitcoin (XBC)    + 4.762% 7818.66 7400.74

Bitcoin ETF (COIN) News:

Bitcoin hits 3-year peak, nears record high on U.S. ETF approval talk [Reuters]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Zcash (ZEC) News:

New Release: 1.0.6 [ZcashFans]

To trade Zcash on BitMEX, please trade ZECH17


Bitcoin (XBC) News:

Bitcoin Original: Reinstate Satoshi’s original 32MB max block size [Reddit]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17

February 23, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Zcash (ZEC)     – 11.220% 0.02699 0.02378
Bitcoin ETF (COIN)    + 10.256% 40.00 31.30
Factom (FCT)     – 4.840% 0.0027700 0.0025244

Zcash (ZEC) News:

Zcash Prices Sink Below $30 in Market First [CoinDesk]

To trade Zcash on BitMEX, please trade ZECH17


Bitcoin ETF (COIN) News:

You Can Bet On Whether the SEC Approves the First Bitcoin ETF [Bloomberg]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Factom (FCT) News:

DHS S&T Awards Nearly $1M to Five Start-Ups for Phase 2 SVIP [America Security Today]

To trade Factom on BitMEX, please trade FCT7D

February 22, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Augur (REP)     – 10.798% 0.0047193 0.0041065
Monero (XMR)     – 9.291% 0.0113959 0.0108150
Bitcoin (XBC)    + 2.833% 7458.33 7231.33

Augur (REP) News:


To trade Augur on BitMEX, please trade REP7D


Monero (XMR) News:

Taxes with Monero (US) [Reddit]

To trade Monero on BitMEX, please trade XMR7D


Bitcoin (XBC) News:

LocalBitcoins Records Global All Time High; Chinese Volume up 5x [Cryptocoins News]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17

COIN ETF Mechanics

My 5 year trading career was spent as the head Asia Ex Japan Australia ETF market maker for Deutsche Bank and then Citibank. If the Winklevoss COIN ETF is approved, the price of Bitcoin will decisively punch through the last all time high. However the ways in which the ETF and the trading surrounding it will affect the Bitcoin exchange and trading ecosystem is just as important as the price spike.

A thorough understanding of how ETFs trade in both the primary and secondary market is essential to predicting the ways in which the ecosystem will change.

Below are useful definitions.

Primary Dealer (PD) or Authorised Participant (AP): These firms are allowed to create and redeem ETF units directly with the fund manager at the Net Asset Value.

Designated Market Maker (DMM): These firms have a contractual obligation to the exchange to provide continuous bid and ask quotes at a specified maximum spread through the trading day. Usually PDs and APs are also DMMs.

Net Asset Value (NAV): At the end of each trading day, the fund manager will value the assets held by the ETF and produce an NAV. The fund’s management fees will be taken from the NAV each day.

Indicative Net Asset Value (INAV): During the trading day, the INAV is calculated by valuing the underlying assets at current market prices.

Portfolio Composition File (PCF): Each morning the fund manager will publish the PCF file. This file tells traders what assets and in what quantities the ETF holds. Using the PCF file, traders compute the INAV or fair value of the ETF throughout the trading day.

Creation and Redemption Unit: This is the multiple of ETF shares that can be created or redeemed by the PD.

Creation Process

The most relevant aspect of the ETF is how units will come into existence.

DMMs initially will not carry inventory. One privilege they have is the ability to naked short the ETF. If a DMM is short ETF units by the end of the trading day, they must create new units by the settlement day which is trade date plus two business days (T+2).

As the DMM sells ETF units to the market, they will purchase Bitcoin in the quantities specified by the PCF file. Assume that 1 COIN share represents 0.01 Bitcoin. If the DMM sells 10,000 shares, they must buy 100 Bitcoin.

At the end of the trading day, the DMM will submit a creation request to the fund manager. The fund manager will give instructions for where the DMM must deposit Bitcoin.

If the creation unit is 1,000 shares, the DMM will submit an order for 10 creation units. The fund manager will supply instructions on what address to deposit Bitcoin. After the Bitcoin is sent, the fund manager will legally bring new ETF shares into existence and deposit them into the DMM’s Depository Trust Company (DTC) account.

The DMM will then deliver these shares to the exchange by the settlement date, and the exchange will credit customer accounts with ETF shares.

Large asset managers may not wish to purchase ETF shares in the secondary market because they intend to purchase a large amount. Instead they will contact a PD and ask them to create units on their behalf. The PD charges a fee for such trades.

Being a PD and or DMM of a popular ETF is a license to print money. PDs for the COIN ETF will make a killing.

Redemption Process

Assuming DMMs start with no Bitcoin inventory, if they become net long ETF shares then by the end of the trading day they can redeem. As traders sell ETF shares into the DMM, the DMM will hedge this long exposure by short selling Bitcoin.

Given that many of COIN’s DMMs are traditional trading houses and or banks, I do not believe they will avail themselves of margin or futures trading on non-US based and regulated exchanges. As a result the likely outcome is that DMMs will negotiate with Gemini and other US exchanges to borrow Bitcoin from the exchange’s inventory to short sell on the market.

In exchange for tendering ETF shares to the fund manager, the DMM will receive an amount of Bitcoin as specified by the PCF file. Once this Bitcoin is received, they will pay back their Bitcoin loan.

Hedging Exposure

The listed APs for COIN are Convergex, KCG, and Virtu Financial. I suspect that these firms will also act as DMMs.

None of these firms have a history of Bitcoin trading. That means that their comfort level with exchanges other than Gemini will be nil.

If COIN is as popular as we all expect, then DMMs will need to day trade a significant amount of Bitcoin. Liquidity on Gemini, Coinbase, and itBit will be challenging.

Due to regulations, US exchanges offer the least amount of Bitcoin trading products. Margin and futures trading is not offered. Even worse, the majority of supply is mined abroad. The over the top KYC requirements to open accounts in America scare many miners away from selling their coins on these exchanges. The stringent requirements also mean that exchanges can only service Americans.

Except for the Gemini auction, DMMs will not be able to cheaply trade Bitcoin on US-regulated exchanges. They will rely upon OTC brokers. The largest US-domiciled broker is Cumberland Mining, a subsidiary of DRW Trading. Cumberland can access the largest pools of liquidity through their long standing relationships with large traders and exchanges globally.

Market Structure Implications

Gemini sans Bitcoin ETF is irrelevant. If the ETF is approved, volumes on the exchange will ratchet higher. Coinbase and itBit will bite the dust. Traders arbitraging the ETF vs. Bitcoin will primarily trade on Gemini. It will be the most direct and easy hedge.

The daily Gemini auction will become the most important pricing signal. As the assets under management (AUM) of the ETF grows, the daily flows of creations and redemptions will underpin strong auction volumes.

International spot exchange volumes will benefit from OTC brokers sourcing intra-trading day liquidity. Those platforms where miners and traders feel comfortable buying and selling spot Bitcoin will benefit.

Let’s all come together and pray to our deity of choice for an approval. Also it would help if the twins deposit large brown paper bags of cash with relevant SEC decision makers. Make Bitcoin great again!

Pikeys, Rednecks, and Pineapples

I will speak heresy. Marine Le Pineapple Pen will win the 2017 French presidential election.

The first round of voting occurs in April. If no candidate receives a majority of votes, a runoff is held between first and second place.

Le Pen currently leads the pack. She is polling at 25% to 30%. Macron is the first loser; however, bookies expect him to carry the ultimate prize in the runoff.

Just like during the Brexit vote and US presidential election, the establishment cannot fathom a Le Pen victory. They comfortably believe she cannot overcome the racist stigma of her father. Also her plan to immediately remove France from the EU and redenominate all French law bonds into Francs is described as financial suicide by mainstream financial analysts.

Those who vote the “right” way portray those who dare dissent as racists, misogynists, and xenophobes. These pikeys are unanointed in the faith of Whole Foods, vinyasa yoga, and soylent. However the inability to conduct a good faith debate without branding your adversary with one of above mentioned epitaphs means that all polling data is bunk.

The polls said Brexit was doomed and Crooked Hillary would pantsuit walk her way into the oval office. People lied to pollsters to fit in. Le Pen’s support during the final runoff is misunderestimated.

Le Pen is “evil” because she dares to remove continental Europe’s second largest economy from the German economic ghetto that is the EU. Germany has gained the most from the vendor financing model enacted in Europe.

In order to buy German industrial goods, European countries gorged on debt. The TARGET 2 balances, which are the net liabilities between EU central banks, illustrate that Germany is owed nearly EUR 800 billion by the rest of the EU.

The off-again on-again risk of an EU breakup has weakened the Euro significantly. Since 2008, EURUSD has weakened by 30%. A weak EUR helps Germany compete with Japan and South Korea for the export of industrial goods. The economic misery suffered by Greece and other southern European nations actually helps Germany.

Germany even after all the benefits it received at the expense of their European brothers refuses to run a looser monetary policy to help the rest of Europe recover. Germany is not without its problems. Don’t forget about Deutsche Bank (DB). The bank is living on borrowed time. Should France pull out of the EU. DB will be toast. Any European bank that borrowed in EUR but holds EUR denominated local law bonds as assets is at risk of insolvency. These bonds will be redenominated into weaker domestic currencies during an EU breakup.

To save the banks, Der Spiegel and similar publications will work overtime to scare the plebes out of their desire to regain competitiveness. However in 2017, there are examples around of globe of how the establishment was neutered. The presidential race is Le Pen’s to lose.

Bitcoin devours market instability and produces stellar returns. 2017 will be no different. Traders globally sense a paradigm shift. That is one reason why the PBOC’s repeated attempts to crush the price are met with fierce resistance by Bitcoin bulls.

The first round of voting will be held on April 23rd. If needed, the runoff will be held on May 7th. The markets still don’t believe in Le Pineapple Pen. It is the perfect time to position one’s crypto portfolio to benefit from an “unlikely” victory.

From now until the COIN ETF decision on March 11th, there will be various opportunities to BTFD. The PBOC isn’t done yet. While the marginal effectiveness of their actions is waning, when they act it is a great opportunity to increase your exposure. The price will fall if the ETF is not approved. This might be the last best chance to acquire cheap Bitcoin before the French fireworks. This time, France might not raise the white flag.


The PBOC popped the 2013 Bitcoin bubble by instructing banks to close accounts of the exchanges. This spooked the market and lead to the initial drop. Then MtGox failed and the party was over for 2 years.

When Bitcoin flirted with 9,000 CNY in early January of this year, the PBOC sprung into action again. This time after jawboning the price lower, they brought the hammer down upon the Chinese exchanges. Over the past few weeks the following things have been implicitly banned by the PBOC, margin trading, zero fee trading, and Bitcoin withdrawals.

It is obvious that the PBOC feels threatened by the relentless rise of Bitcoin. However in this instance the marginal effectiveness of their actions is diminishing rapidly. After the initial standard warning from the PBOC that Bitcoin is volatile and not a nationally recognised currency, the price dropped 30%.

Undeterred, bullish traders bid the price back above $1,000 and it appeared that a full retrace would occur. Then the PBOC removed the Chinese secret success sauce of leverage and zero fees. The price went below $1,000, only to rally back in less than a week.

The PBOC continued with on-site “inspections” of all Chinese exchanges. They believed that KYC and AML regulations were not being followed correctly. Why all of a sudden is the PBOC interested in how exchanges conduct compliance? Surely it would have been appropriate to conduct similar site checks in 2014. However in 2014 the price went down and stayed down.

The inspections failed to produce enough fear needed to cause a serious correction. The ultimate bombshell was then dropped late last week: in order to comply with more stringent KYC and AML requirements, Chinese exchanges began halting Bitcoin withdrawals.

KYC and AML violations are used by governments worldwide to harass companies. CNY withdrawals were unaffected. If there really were lax KYC and AML controls at the exchanges, all withdrawal functions should have been ceased. It is obvious the PBOC intended for spooked traders to dump Bitcoin and withdraw CNY to the safety of national banks.

The big three exchanges (BTCC, Huobi, and OKCoin) have all shut Bitcoin withdrawals until mid-March. It appears that exchanges will be required to integrate systems that pass client information to the police and other relevant agencies.

This integration takes time and development resources. Smaller exchanges threw in the towel. HaoBTC was one exchange that decided to close its exchange business rather than completing the upgrade. Expect more second and third tier exchanges to shutter. Regulation always favours the incumbents.

If Bitcoin still creeps higher as the fear subsides, what else can the PBOC do to curtail the trading of Bitcoin in China and how will it affect the market structure?

Close All Exchanges

The PBOC could close all the known Bitcoin exchanges in China. Given that they have been unwilling to do that since 2013, I don’t think they will choose that nuclear option in this instance.

By threatening large exchange owners with the closure of their business and possible civil and criminal charges, the PBOC can effectively control the trading of Bitcoin. If they were to close the large exchanges, Bitcoin trading would move underground and would become uncontrollable.

In China, people build illegal power plants. Given the right financial incentives, underground Bitcoin exchanges will proliferate. The PBOC will be powerless to stop them. Chinese people will be able to fully use the pseudonymous features of Bitcoin.

Currently, moving large amounts of RMB offshore via Bitcoin for clients unwilling to go through KYC is impossible. If less scrupulous operators are given a business opportunity, black money will gush through Bitcoin.

The PBOC can barely control state owned banks, they won’t risk opening a gaping hole in their capital account by relinquishing leverage over the large Bitcoin exchange operators. Bitcoin withdrawals will be re-enabled in time with caveats.

Add Bitcoin to the FX Quota

Some traders speculate that Bitcoin purchases will be subtracted from each comrade’s $50,000 annual FX quota. That would mean that the PBOC re-classifies Bitcoin as a real currency. This is very unlikely.

If Bitcoin is re-classified as a real currency, it would give it legitimacy. Normal investors who shied away from Bitcoin due to the constant pronouncements from government agencies about its inherent risk and price volatility, might decide to place small amount of their investable assets in the cryptocurrency. The price would skyrocket.

In order for Bitcoin purchases to be properly debited against each citizen’s quota, all exchanges would need to interface direcly with the State Administration of Foreign Exchange (SAFE). There is a small possibility that the current KYC/AML upgrades are a step in that direction.

Bitcoin Birdcage

During a recent CCTV report about Bitcoin, commentators expressed a view that Bitcoin should not be banned but properly regulated. They used the metaphor of a birdcage. Bitcoin can still move, but its range of motion is restricted. Any views aired by CCTV come directly from the Party.

China like all other governments since the industrial revolution believe that through science, resources can be allocated effectively by government diktat. The command and control economy is sexy to bureaucrats. I fully expect China to attempt to create a Bitcoin walled-garden.

Withdrawals will be permitted to certain white-labelled addresses. Bitcoin may not leave these approved platforms. That effectively destroys the fungibility of Bitcoin.

If Bitcoin isn’t fungible, why would someone buy or trade it? Chinese traders may still trade on approved platforms if they believe one day the walled-garden will be removed. That may happen once the PBOC drastically devalues the Yuan.

OTC Trading

Bitcoin over-the-counter (OTC) platforms are the biggest beneficiaries. Bitcoin / CNY volumes on LocalBitcoins, the largest OTC Bitcoin trading exchange, spiked. The merits of owning unencumbered Bitcoin grow with each desperate action of the PBOC. Traders are willing to pay a significant premium to acquire coins they can actually use.

Some Chinese exchanges recognising the shift away from on-exchange trading, are even allowing OTC brokers to advertise openly in their WeChat and QQ groups. They want more deposits, so it is advantageous if clients are able to acquire Bitcoin and then deposit on the exchange. Why anyone would do that in the face of a withdrawal freeze is beyond me.

Price Implications

Chinese people will find a way to trade Bitcoin even if it is not officially permitted. Chinese people do not trust the government. Throughout history the ability for the central government, whether that was the Emperor or the Communist Party, to effectively govern outside of the capital is tenuous.

The financial incentives are too great for entrepreneurs not to offer the ability for comrades to trade Bitcoin. The transaction costs may rise, but Bitcoin in China is here to stay.

February 21, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Bitcoin ETF (COIN)    + 87.896% 37.81 18.01
Factom (FCT)     – 12.259% 0.0031300 0.0026853
Bitcoin (XBC)    + 2.169% 7267.33 7037.67

Bitcoin ETF (COIN) News:

The Bitcoin ETF Will Be Rejected According to Prediction Markets [Reddit]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Factom (FCT) News:

Applying Blockchain Tech to Medical Records for Improved Security and Access [haynesboone]

To trade Factom on BitMEX, please trade FCT7D


Bitcoin (XBC) News:

Bitcoin Upgrade Lumino Introduces a New Approach to Scalability [bitcoin.com]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17

February 20, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Bitcoin ETF (COIN)    – 54.497% 39.58 2.02
Dash (DASH)    + 5.451% 0.0226798 0.0201036
Bitcoin (XBC)     – 1.337% 7181.63 7051.93

Bitcoin ETF (COIN) News:

Who Decides on the Bitcoin ETF Applications? Meet the SEC ‘Voters’ – All Two of Them [Reddit]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17

Dash (DASH) News:

Privacy Crypto DASH Surges 10% to All-Time High of $23.88 [Razor Forex]

To trade Dash on BitMEX, please trade DASH7D

Bitcoin (XBC) News:

Governments and Banks Push Bitcoin Price to New Levels: Experts [Cointelegraph]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17

February 17, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Bitcoin ETF (COIN)    – 14.141% 38.90 34.00
Monero (XMR)    – 5.607% 0.0134842 0.0124594
Bitcoin (XBC)    + 1.334% 6826.73 6689.67

Bitcoin ETF (COIN) News:

Bitcoin Price Will Surge to $1645 in March If Winklevoss ETF Gets Green Light: Research [Cointelegraph]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Monero (XMR) News:

New features added to XMR-Stak [Reddit]

To trade Monero on BitMEX, please trade XMR7D


Bitcoin (XBC) News:

Blockchain Potential is ‘Very Promising and Challenging’, Says EU Commission [Cryptocoins News]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17


February 16, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Bitcoin ETF (COIN)    + 22.601% 39.60 31.20
Dash (DASH)    + 9.113% 0.0196100 0.0178124
Monero (XMR)    + 4.784% 0.0137700 0.0127601

Bitcoin ETF (COIN) News:

Investors Ignore Analysts, Bet on SEC Approving Bitcoin ETF [Cryptocoins News]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Dash (DASH) News:

Dash added to cryptocurrency derivative trading platform BitMEX [CryptoNinjas]

To trade Dash on BitMEX, please trade DASH7D


Monero (XMR) News:

Monero surpasses Litecoin to become 4th largest in coin market cap! [Reddit]

To trade Monero on BitMEX, please trade XMR7D

February 15, 2017 BitMEX Morning Report

Currency 24 Hour Return Day High Day Low
Ethereum (ETH)    + 13.070% 0.01340 0.01137
Bitcoin ETF (COIN)    + 6.954% 39.60 29.65
Bitcoin (XBC)    + 1.314% 6841.67 6601.00

Ethereum (ETH) News:

JP Morgan, Santander Said to Join New Ethereum Blockchain Group [CoinDesk]

To trade Ethereum on BitMEX, please trade ETH7D


Bitcoin ETF (COIN) News:

Needham: Outlook For Bitcoin ETF Approval Remains Unchanged [CoinDesk]

To trade Bitcoin ETF on BitMEX, please trade COIN_BH17


Bitcoin (XBC) News:

Former Governor PBoC on CCTV today: Bitcoin will continue to exist. We should properly regulate it rather than try to kill it [Twitter]

To trade Bitcoin / Yuan on BitMEX, please trade XBCH17