Trading ShitCoin2x

The underlying index for BitMEX futures and swaps contracts on Bitcoin / USD and Bitcoin / JPY will not include the SegWit2x coin (B2X). Theoretically the futures and swaps should trade at a discount to reflect the B2X dividend received by all holders of Bitcoin on the ex-date. My trading thesis is that similar to the Bitcoin Cash hard fork, the futures and swaps will behave as expected.

Savvy and unemotional traders made significant profits without taking any price risk by taking advantage of the market dislocations. The following trade ideas will focus on the XBT/USD spot market, the XBTUSD swap, and the XBTZ17 futures contract.

Trades Pre-Fork

Given the market knows that BitMEX will not adjust the underlying indices, XBTZ17’s basis will trade lower to reflect the implied value of B2X. Thankfully due the current bull market, XBTZ17 trades at a positive basis. This is a perfect entry point for the following trade.

Sell XBTZ17 vs. Buy spot Bitcoin

A few exchanges (Coinbase & Bitfinex) have already announced that they will disperse B2X to all holders of Bitcoin on the ex-date in a 1:1 ratio. Therefore, once the spread is put on, the physical Bitcoin purchased as a hedge should be sent to any exchange that will split the coins for you. This allows you to sell any B2X received immediately. He who sells first, sells best.

On the ex-date (expected to be on or around November 20th), you will receive B2X in a 1:1 ratio. These B2X coins should be immediately sold for USD. At the same time, the futures should trade at a discount or negative basis. The short futures position must covered, and the physical Bitcoin hedge sold as well for USD.

Initial Trade:

Short XBTZ17
Long XBT

At Fork Time:

Receive B2X

Trade Unwind Proceedure:

Close XBTZ17, by buying
Sell XBT
Sell B2X

Trade Profit and Loss

Because you were able to enter the futures vs. spot trade at a positive basis, the B2X you sold is pure profit. Also, because you were able to cover the futures contracts at negative basis you will pick up additional basis related profit.

If the futures are trading at a discount when you entered the spread, then you must predict whether the percentage discount is less than the expected B2X / Bitcoin ratio. Or you must have a longer term positive view on the value of B2X.

What Can Go Wrong

If you entered the futures vs. spot trade at a positive basis and the fork does not occur, you will still profit. However, you will be required to hold the spread until expiry in late December. Depending on your hurdle rate, this opportunity cost may outweigh the basis profit received.

If you entered the futures vs. spot trade at a negative basis and the fork does not occur, you will post a loss in the amount of the negative basis.

When you unwind the futures vs. spot spread, the futures contract might trade at a large positive basis. If this happens, you must hold the spread until expiry. The only thing you lose is opportunity cost on the capital tied up in the position.

Right Before and During the Fork Trades

In the hours preceding the Bitcoin Cash fork, the XBTUSD swap traded at a large discount, and the funding was negative. A negative funding rate means that shorts pay longs. This discount is due to traders selling XBTUSD vs. buying Bitcoin spot right before the ex-date so they can “create” B2X without any price risk.

Or traders fearful of negative consequences for Bitcoin due the hard fork are locking in the USD value of their physical coins. The XBTZ17 futures contract will also be sold such that it exhibits a negative basis as well.

Traders may earn the B2X USD value synthetically by taking these countertrades.

Buy XBTUSD vs. Short Bitcoin spot

Profit is earned two ways. Firstly, XBTUSD’s basis will swing from negative to flat in the hours after the fork. Your are long the basis, therefore you profit. Secondly, the funding rate is negative. You will earn Bitcoin interest ever 8 hours while the rate is negative.

Buy XBTZ17 vs. Short Bitcoin spot

XBTZ17 should trade with a negative basis as well. Traders can purchase the futures contract, and sell it hours after the ex-date once the basis rebounds.

The one wrinkle to these trades is where to short Bitcoin spot. This is a very important consideration. If the exchange where you short Bitcoin forces shorts to deliver B2X, then the trade should not be put on. Additionally, borrow rates for Bitcoin will spike shortly before the ex-date. It is entirely possible that borrow fees eclipse the basis and funding profit earned on the long XBTUSD position.

Most exchanges that offer margin trading will not force shorts to deliver or cover B2X. Forcing a large number of shorts to cover in the illiquid B2X spot market could be disastrous. Therefore, most exchanges will not credit Bitcoin lenders with B2X or force Bitcoin shorts to deliver B2X.


经过一年多的时间,现在是时侯分析XBTUSD资金利率的可预测性了。 XBTUSD 100x杠杆合约是一个没有到期日的比特币兑美元掉期合约。为了根据现货市场价格来为掉期合约定价,买空方或卖空方需要根据市场对未来价格的预期来支付对方利息(亦称为资金费用)。利息一般取决于过去8小时的加权平均掉期溢价及现货价格。



我分析了2017年3月至今的数据。我的数据包含了每8小时的资金利率,及其后8小时XBTUSD掉期合约的对数收益率(log return)。

T0: 现在

T1: 未来八小时









假设资金利率达顶点(+ 0.375%),我们是否能够更准确地预测XBTUSD未来8小时内的回报是否为负数呢?


1bps = 0.01%

平均值: 1.66bps

标准差: 17.13bps

我先组成一西格玛(One Sigma)及二西格玛(Two Sigma)带,然后进行均值回归测试。

1 西格玛 = 1标准差





西格玛 资金利率 样本数量 成功百分比 累积资金利率 累积XBTUSD回报 累积回报 总观察数量占比
-2 -32.61 21 47.62% -7.71% 3.36% 11.07% 4.01%
-1 -15.47 62 53.23% -16.76% -18.15% -1.38% 11.83%
1 18.80 81 45.68% 25.10% -14.77% 10.33% 15.46%
2 35.93 36 44.44% 13.49% 6.90% 20.39% 6.87%

样本数量 – 在524个资金周期中,这显示了资金利率低过或等于调整后西格玛测试的次数(假设资金利率为负数)。

成功百分比(%)– 在样本总数中,这代表当资金利率为负数时,得到正回报的次数。反之亦然。

累积回报 – 这是不论成功或失败情况下所得的净回报(包括资金利率)。如果资金利率为负数,对买空方来说,你会因为利率为负数而得到资金;如果资金利率为正数,对卖空方来说,你会因为利率为正数而得到资金。

总观察数量占比 – 样本数量/ 524(资金周期总数)








BitMEX (


XBTUSD Funding Mean Reversion Strategy


After over a year in existence, it is time to analyse the predictive properties of the XBTUSD funding rate. The XBTUSD 100x leveraged contract is a Bitcoin / USD total return swap that has no expiry date. To anchor the price of the swap back to the spot market, an interest payment (we call this funding) is exchanged between longs and shorts. The interest rate by and large is determined by the previously observed 8-hour time weighted average premium of the swap vs. the spot price.

The funding rate is published with an 8-hour grace period before it is charged. That allows traders who do not wish to pay or receive funding to exit their positions before the funding timestamp. The question is, can you predict the future price of Bitcoin by the published funding rate?

I have analysed data from March 2017 until now. My data series consists of the funding rate every 8 hours, and the log return of the XBTUSD swap over the next 8 hours.

T0: Now
T1: 8 hours in the future

X-axis: Funding Rate published T0 to be charged at T1
Y-axis: Log(XBTUSD P1 / XBTUSD P0)

Simple Regression

The above chart is a XY scatter plot of the data. The chart clearly illustrates the funding rate contains no significant predictive power.

Digging Deeper

When the funding is extremely positive or negative, this could signal a reversal in the market’s direction i.e. mean reversion. Using an extreme funding rate as the signal, we can take the counter trend position.


If the published funding is at the maximum +0.375%, does that predict with greater accuracy whether the return of XBTUSD in the next 8 hours will be negative?

To further analyse this hypothesis, I calculated the sample mean and standard deviation of the funding rate in basis points (bps).

1bps = 0.01%
Mean: 1.66bps
Standard Deviation: 17.13bps

I constructed one and two sigma bands. I then conducted mean reversion tests.

1 Sigma = 1 Standard Deviation


A large negative funding rate predicts a positive return for the next 8 hour period. A large positive funding rate predicts a negative return for the next 8 hour period.

The magnitude of the funding rate tested depends on the number of sigmas away from the mean.

The following table lists the results.

Sigmas Funding Rate Sample Size % Success Cumulative Funding Cumulative XBTUSD Return Cumulative Return % of Total Observations
-2 -32.61 21 47.62% -7.71% 3.36% 11.07% 4.01%
-1 -15.47 62 53.23% -16.76% -18.15% -1.38% 11.83%
1 18.80 81 45.68% 25.10% -14.77% 10.33% 15.46%
2 35.93 36 44.44% 13.49% 6.90% 20.39% 6.87%

Sample Size – Out of 524 funding periods, this is the number of times that the funding rate was less than or equal to the sigma adjusted test (assuming a negative funding rate).

% Success – Out of the sample size, this is the number of times where the funding rate was negative and the next period return was positive or vice versa.

Cumulative Return – This is the net return, including funding, of both success and failure situations. If the funding rate is negative, you go long, and you receive funding because the rate is negative. If the funding rate is positive, you go short, and you receive funding because the rate is positive.

% of Total Observations – Sample Size / 524 (Total Number of Funding Periods)


The data clearly illustrates that traders may use an extreme funding rate as a signal to take the counter trend position. The added benefit of receiving funding for bucking the trend is what provides a significant majority of this strategy’s returns.

A simple trading algo can be constructed to capture this alpha. At each funding timestamp, if the funding rate is above or below your limit, place the counter trend trade. Immediately after the next funding timestamp, close your XBTUSD position.

The one caveat is the sample size is still relatively small. I will revisit this study early next year to observe if the results change.



本周,中国人民银行规定禁止投资及交易ICO(“虚拟货币首次公开发售”)项目 。然而,当我们认真分析后,似乎感觉这个禁令有点雷声大雨点小。分析了其向公众公布禁令的方式和迟迟未开展的行动后,我更相信这项禁令的宣传意义更大。








中国人民银行可能已经禁止中国ICO的发行及交易;然而,他们并没有限制ICO融资方法及渠道。 ICO的革命性在于其资金来自于以非政府统一的货币,通常是比特币或以太币。


中国人民银行并不愚蠢。他们非常了解ICO项目中资金流入及流出的方式。因此,ICO新条例中的漏洞显然是故意的 。这次PBOC的公关做的很漂亮。

中国人民银行展示了它对零售投资者的关心。 PBOC避免投资者在这种高风险的新投资市场中亏损。但如果PBOC真的关心中国的金融体系的健康,便应该放缓一直使得房地产价格膨胀的银行信贷 。但这永远不会发生,所以透过另一个行业来证明它们的用心良苦。











ICO资产类别还是非常小众的。但现在中央电视台正在教育着每个中国人什么是ICO 。更多的人会尝试着购买这个被禁的资产。这对市场来说不是负面消息,这反而是任何替代资产最想要发生的事情之一。






BitMEX (

The Big Bad Wolf

This week the PBOC decreed that its plebes may not invest or trade Initial Coin Offerings (ICOs). However when one engages in critical thought, it appears this ban has more bark than bite. Examining the way in which the ban was presented to the public, and the actions that were not taken, leads me to believe that this ban is for publicity only.

What Is Banned

ICOs are considered an illegal form of financing by the PBOC. Exchanges must stop supporting any trading of the tokens. Almost immediately most of the Chinese ICO trading platforms shut down. Over the past few days, many exchanges delisted any tokens from their platform. As you can imagine, without the cannon fodder of retail punters, token prices initially collapsed.

Projects that raised money from Chinese nationals must refund them their Bitcoin or Ether. Since in practice, this is impossible to accomplish, the PBOC now has a nice excuse to shut down any exchange it wishes for violating the law.

Token exchange owners must take their butt finessing with a smile on their face. They must bend over again when asked, or the PBOC will find them in violation of a law that is impossible to abide by.

Similar to the large exchanges that deal with RMB to Bitcoin or Ether trading, the PBOC now has token trading platforms firmly under their control. That is the primary reason for these new regulations.

What Is Not Banned

The PBOC might have banned the issuance and trading of ICOs in China; however, they did not outlaw the way in which ICOs are funded. The revolutionary aspect of ICOs is that the money raised is in the form of a non-governmentally aligned currency. Usually that is Bitcoin or Ether.

If Chinese punters can still convert RMB into Bitcoin or Ether legally, and withdraw their digital currency from the exchange, they can still subscribe for any ICO they wish. Once the trader’s assets are purely in the crypto space, it is very difficult for the PBOC to control where that money goes.

The PBOC isn’t stupid. They are very informed on how money flows into and out of ICOs. Therefore, this was a deliberate omission from the new ICO regulations. What the PBOC did is construct a beautiful piece of PR.

The PBOC demonstrated that it cares about the wellbeing of retail investors. The PBOC has prevented investors from losing money in this risky and volatile new asset class. If the PBOC really cared about the financial health of China it would stop propping up the property market by continuing to allow banks to issue credit. But that will never happen, so another industry was targeted to prove their good intentions.

By allowing the big three exchanges to continue business as usual, the PBOC is allowing the ICO market to limp along in China. The high priests recognise that a vibrant ICO market in China is valuable. It helps promote entrepreneurs to create the next wave of useful technological applications that could propel China forward.

The National Congress

The 19th National Congress of the Communist Party begins in October. Every aspect of life in China is affected by this pow-wow. Xi Jinping must present a country that is chugging along towards greatness. No outward crack in the veneer of harmony and prosperity is allowed.

The once vibrant ICO industry in China was a liability. The amounts of money raised grew and grew, and the risk of a high profile project absconding with hundreds of millions of dollars could not be ignored. The last thing Beijing needs before the all-important National Congress is a horde of destitute punters protesting about losing their money in one or more shitcoins.

One day after the ban, CCTV ran a piece about the cessation of ICO trading in China. They claimed that 60 ICOs raised 2.616bn CNY, across 47 platforms, involving 105,000 investors. The highly coordinated nature of the announcement and than a prime time television piece about the new regulations is good theatre. Insecure governments will create good theatre in advance of important jamborees. The plebes must feel the love.

The Future, BTFD!

The crypto market does not respect the PBOC like it once did. Bitcoin and Ether declined 15% and 20% respectively immediately following the ban. However, both have almost paired Monday’s losses. To many traders, this ban presented a perfect opportunity to increase their exposure to the asset class.

While the PBOC banned ICOs, it did not address the root cause of why Chinese investors are desperate to hand their savings to teams with slick websites. The property market is still too expensive for most traders, and after the 2015 carnage, many traders avoid the A-share market. The PBOC continues to allow domestic banks to expand the money supply through aggressive lending. This unabashed money printing creates a fear amongst comrades of a massive upcoming devaluation of the RMB. Any asset or scheme that can generate inflation beating returns excites desperate Chinese savers.

After experiencing a modicum of freedom over the investment of their savings, Chinese investors will chafe under these new regulations. The forbidden fruit tastes sweeter. By banning ICOs, the PBOC just created the industry’s best marketing tool.

The ICO asset class is still very niche. But now that CCTV is educating everyone in China about what they are. More people will attempt to purchase this taboo asset. Far from negative, this is one of the best things that could happen to any alternative asset.

ICO fundraising in China will move underground. After the National Congress, the restrictions on ICO fundraising will loosen. Remember the “crackdown” on the big three exchanges earlier this year. After a few months, the PBOC relented and allowed trading and withdrawals to function normally again.

Savvy offshore trading platforms will profit from the gap in the market caused by the closure of the leading onshore Chinese trading platforms. While overt fundraising through WeChat and QQ groups will cease for now, motivated ICO promoters will create innovative ways to access the insatiable demand for alternative savings products from Chinese investors.


硬分叉来了又走了,我们现在好多了。根据你询问的对象不同,比特币现金到底是一个巨大的成功或失败这个问题的答案个有千秋。交易员们只关心盈利 。恐惧,贪婪和交易平台制定的政策不同为交易员们提供了利润丰厚的套利机会。


即便SegWit已经被激活,放大潜在交易容量的辩论还依然持续着。在今年秋天,比特币很有可能再次硬分叉。一个激活了SegWit以及拥有2MB区块大小(SegWit2x)版本的比特币将开始被交易。因此,交易员应该在硬分叉发生的整个过程中了解如何使用衍生工具赚钱 。




任何数字货币的硬分叉都与股票分红类似 。在任何试点网络的哈希值是有限的 。矿工将根据价格比率来决定挖哪一种数字货币的矿。然后,挖矿难度将会根据在哈希力和价格比例达到平衡的前提下来进行调整。价格导致挖矿难度进行调整。


登记日过后,股票将会除息。股票价格将根据支付的股息金额而下降。如果我们认为硬分叉与派股息相似,那么比特币除息日为8月1日 。 比特币的价格应该根据比特币现金价值而相应降低。

实际上,由于价格导致难度调整,比特币不一定会根据比特币现金的价值下跌 。此外,与股票派的现金股息不同,比特币现金是一种可交易货币,其价值亦会波动。


比特币期货市场也会出现同样的现象。 BitMEX决定XBTUSD和XBTU17所依据的指数里不包括比特币现金的价值。交易员若希望在没有任何比特币价格风险的情况下建比特币现金仓位,他们可以先购买比特币,然后出售与美元等值的掉期或期货合约,然后他们将收到比特币现金。请注意,他们将不会在BitMEX上收到比特币保证金相应的比特币现金。

理论上来说XBTUSD和XBTU17相对市场上的比特币现金应该有价格折扣。 与比特币现金的价格的巨大差异来自于对未来价格的未知。



上图是7月30日至8月3日XBTU17的价格折扣。该图表显示,交易员由于试图创建没有市场风险比特币现金将期货价格推向逆价差。在登记日前几个小时价格折扣接近5% 。

上述图表是XBTUSD在同一时期内的百分比溢价或折扣。交易员也透过出售XBTUSD来建立比特币现金仓位。掉期价格有着逆价差,导致空头方需要支付多头方。在这段时间内,空头方支付了交易金额的3.51% 。值得注意的是,该掉期在登记日之前的几个小时的折价也达到 3.52% 。

以下交易假设您对比特币现金的前景保持中性。 比特币现金可能成功也可能失败,但我将描述的交易将产生可预测的回报。所描述的交易也没有比特币/美元价格风险。


交易1:购买XBTU17 vs  做空现货比特币

在这段期间比特币的借贷利率上涨 。我们并不建议在借贷利率高昂的情况下借比特币 。谨慎的交易员应在事件发生前就准备好信贷额度。这使得他们能够以更便宜的价格锁定借贷利率。


使用上述图表作为交易指引,在硬分叉发生前几个小时执行交易来获得最佳回报,当其他交易方是最不理性的时候。最好的一点是,基础如同预期一般在硬分叉之后快速的恢复到中位数 。因此,借用比特币的时间是有限的。

假设您每天支付1%的借款利率来借比特币。 24小时内,XBTU17的折扣从5%跌至1%。因此,您可以在一天内赚取3%的利润。

交易2:购买XBTUSD vs 做空现货比特币






硬分叉已经结束了。比特币社区内用户均放下了心头大石,但对冲的仓位需要进行平仓。任何建了比特币现金仓位的 交易员都持有了它,并且必须关闭做空的衍生头寸。问题是,如果比特币随着市场平仓的过程中上涨,,基准将上涨,对冲交易方则需要以一个较高溢价来平仓 。


上图是8月3日至8日的XBTU17溢价。价格大幅上涨是发生在价格突破3000美元的时候。值得注意的是,交易员 在硬分叉之后仍有几天的时间以折扣价交易XBTU17。做了这些交易的交易员是你在乘坐公共汽车时试驾兰博基尼。


交易:购买XBTU17 vs  做空XBTUSD


因此,XBTU17基准将从负转向正。由于XBTU17基数向平均值回升,XBTUSD的资金将从负向转为正。您可以从XBTU17基准上涨中受益,再加上您空头的XBTUSD对冲也将在每8个小时收到利息收入。 搞定!


SegWit2x 硬分叉

比特币现金是今年晚些时候大事件的热身。大区块支持者和SegWit的推崇者相信,他们的想法在 最近的硬分叉事件上得到了证实。大区块支持者指出比特币现金的价值高于零代表了市场对规模解决方案是有需求的。支持SegWit的人们指出,比特币价格的上涨证明了市场对其规模解决方案的重视。


这个不安的情绪会盖过比特币的价格。在硬分叉发生之前,价格应该不会突破 5,000美元。这情况就像复制了比特币现金硬分叉时的情况,只不过盘子更大了点。上述的交易模式和市场场景将在几个月内保持可操作性及相关性。



BitMEX (

Push It

The hard fork came, went, and now we are much better for it. Depending on who you ask, Bitcoin Cash is a roaring success or failure. Traders are neutral beings only concerned with generating profit. The fear, greed, and widely different policies enacted by exchanges offered juicy arbitrage opportunities.

Bitcoin Cash was not the first altcoin to enter existence through a hard fork of Bitcoin. However, it was the first to be widely publicised. Even the New York Times wrote decent articles explaining what Bitcoin Cash was, and what it could mean for Bitcoin.

Even though SegWit is activated, the scaling debate is not finished. Later this fall, it is extremely likely that Bitcoin will hard fork again. A version of Bitcoin with SegWit and a 2MB block size (SegWit2x) will begin trading. Therefore, traders should learn about how to make money using derivatives before, during, and after a hard fork.


I will use the example of Bitcoin (XBT) and Bitcoin Cash (BCH) in this theoretical example.

A hard fork of any digital currency is akin to a stock dividend. There is a finite amount of network hash power at any time. Miners will decide which version of a coin to mine based on the price ratio. The difficulty will then adjust to bring the ratio of hash power and price into equilibrium. Price leads difficulty adjustments.

1 August 13:17 UTC was the record date for BCH distribution. If you held XBT on that date, you theoretically were entitled to BCH in a 1:1 ratio. If you purchased Bitcoin after the record date, you did not receive BCH.

After the record date, a stock goes ex-dividend. The stock price will drop by the dividend that is paid. If we believe that hard forks act like dividends, then XBT went ex-div on August 1st. XBT should have dropped by the value of BCH.

In practice, because price leads difficulty adjustment, it isn’t necessarily true that XBT will or should drop immediately by the value of BCH. Additionally, unlike stock dividends which are a discrete amount of cash, BCH is a tradable currency and its value fluctuates.

Holders of long futures contract do not receive dividends. Therefore a futures contract should trade at a discount relative to the expected dividend payment. If it doesn’t, arbitrageurs will buy a stock and sell the future. They will receive the dividend payment from their long stock position, and if that is greater than the futures discount, they make money.

The same phenomenon should occur in the Bitcoin futures markets. BitMEX decided that our XBTUSD and XBTU17 products underlying index would not include the value of BCH. Traders who wished to create BCH without any XBT price risk bought XBT, then sold the USD equivalent number of swap or futures contracts, and then receive BCH. Note, they would not receive any BCH for XBT margin held on BitMEX.

XBTUSD and XBTU17 theoretically should trade at a discount relative to the value the market places on BCH. The big difference with BCH is that the future price is unknown.

Pre-Fork XBTUSD and XBTU17 Behaviour

The above chart is the outright % discount of XBTU17 from July 30th to August 3rd. The chart illustrates that traders attempting to create BCH without market risk drove the futures into extreme backwardation. The discount reached almost 5% hours before the record date.

The above chart is the outright % premium or discount of XBTUSD during the same time period. Traders also sold XBTUSD to create BCH. The swap was backwardated, which resulted in shorts paying longs funding. Over this time period shorts paid 3.51% of funding. Remarkably the swap reached an outright 3.52% discount hours before the record date.

The following trades assume you have no view on the viability of BCH. BCH may or may not be successful, but the trades I will describe yielded predictable positive returns. The trades described also have no Bitcoin / USD price risk.

Trade 1: Buy XBTU17 vs. Short XBT Spot

Predictably interest rates to borrow Bitcoin spiked during this period. Borrowing Bitcoin during the eye of the storm is not advisable. Prudent traders should have credit lines in place well in advance of the event. That allows them to lock in much cheaper rates.

Using the above chart as a guide, putting this trade on hours before the fork yields the best returns. That is when traders are the most irrational. The best part is that the basis will mean revert quickly, and it did, after the fork. Therefore you limit the amount of time you pay to borrow Bitcoin.

Assume you paid an egregious 1% per day to borrow Bitcoin. XBTU17’s discount went from 5% to 1% in 24 hours. Therefore, you could have earned 3% in one day on this trade.

Trade 2: Buy XBTUSD vs. Short XBT Spot

Again the best time to put this trade on is hours before the fork. The beauty of funding is that for the rate to go from negative to positive, the swap must go from trading at a discount to a premium. Therefore you get paid twice.

You capture the full discount, plus when you exit, the swap will be at a premium. While the swap basis mean reverts, you also get paid interest every 8 hours for being short. Once the published rate is positive, you close you long at a premium. After August 1st, it took a subsequent ten funding periods before the rate was positive again.

Post-Fork XBTUSD and XBTU17 Behaviour

The fork is over. The community breathes a sigh of relieve and hedges must be unwound. Any trader that created their BCH now has it, and must close short derivative positions. The problem is that if Bitcoin rallies alongside the unwind, basis will rise, and hedgers will be forced to cover at much higher premiums.

A priori we know the short squeeze will be violent. Therefore it is prudent to go long basis after the record date.

The above chart is the XBTU17 outright % premium from August 3rd to 8th. The massive jump in premium occurred as the price broke $3,000. Remarkably traders were given an opportunity for days following the fork to buy XBTU17 at a discount. Those that did are test driving Lambos while you ride the bus.

The above chart is the XBTUSD outright % premium over the same time period. The spike in premium occurred as the price broke $3,000. During that same time period, the funding went from negative to positive. In total, shorts received 1.76% of funding.

Trade: Buy XBTU17 vs. Short XBTUSD

The aim of this trade is to play the mean reversion of XBTU17 basis. Hedgers on the margin will choose to short the future to create BCH because the interest rate they pay via the discount pre-fork is fixed. As opposed to XBTUSD which has a variable interest rate, and cannot be known a priori.

Therefore XBTU17 basis will go from negative to positive. As the XBTU17 basis mean reverts, XBTUSD’s funding will shift from negative to positive. You benefit from a rising XBTU17 basis, plus your short XBTUSD hedge also receives interest income every 8 hours. Booyakasha!

SegWit2x Hard Fork

Bitcoin Cash was a warm up for the main event later this year. Both the big blockers and SegWit disciples believe their cause was vindicated by the recent hard fork. Big blockers point to the non-zero value of BCH as proof the market values their scaling solution. SegWit folks point to the high and rising price of Bitcoin as proof that the market values their scaling solution.

Neither side will back down before the SegWit2x hard fork put forward in the New York Agreement. The Fear Uncertainty and Doubt (FUD) surrounding the SegWit2x hard fork will be deafening.

This FUD will put a lid on the Bitcoin price. $5,000 will not be broken until after the hard fork occurs. This sets up an exact replica of the Bitcoin Cash hard fork with more money on the line. The trades and scenarios described above will remain relevant in a few months time.







部分比特币交易员秉持着这种自我承担的精神。但是,其他交易员对比特币运作模式与其他受监管的资产市场运作模式不同而表示担心。在最近一篇标题为Meet ‘Spoofy’. How a single entity dominates the price of Bitcoin.”的媒体文章中,作者对一群交易员欺骗市场和扭曲市场行为感到愤怒。作者确实对Tether提出了有意思的指控; 然而,这个问题只能留给未来文章去解释了。








































BitMEX (

I Ain’t Yo Daddy

This July the BitMEX team absconded to Milwaukee, Wisconsin for a team offsite. Milwaukee in the summer is beautiful. I thoroughly enjoyed morning runs on the banks of lakes and rivers in clean, crisp, and dry air. I’m currently training for Winter squash season in Hong Kong. Anything that makes keeping to my cardio schedule easier is appreciated.

One day at lunch Ben and his wife wanted to eat oysters. They left the table and returned shortly afterwards. Ben recounted how they attempted to purchase oysters, but due to a silly regulation, they had to be seated, served, and supervised while eating them. There was a long line for table service so they were unable to consume anything.

The nanny state is alive and well. Two adults cannot be trusted to put a shell to their mouth and slurp a morsel of food. Instead, they must be supervised by another human, and pay tips and tax for that privilege.

The infantilization of the global population shows no signs of abating. The government injects itself into every aspect of our lives, and in most cases we are worse off for it. Bitcoin in some respects is a reaction against this trend.

Bitcoin and the digital currency industry empowers adults to take control of their financial well being. This is liberating, but it comes with costs. Adults are expected to make informed decisions by ingesting all available information. Adults make their own good and bad choices. There is no CEO of Bitcoin to tell adults how to behave, where to trade, protect them if they lose their password, or police trading venues.

Some Bitcoin traders live by this ethos of personal responsibility. However, many of these same traders express concern that Bitcoin markets do not operate like other regulated asset classes. In a recent Medium article entitled “Meet ‘Spoofy’. How a Single entity dominates the price of Bitcoin.”, the author rants and raves about how a trader or group of traders are spoofing and distorting the market. The author does present interesting allegations about Tether; however, that rabbit hole is best addressed in another newsletter.

I wholeheartedly do not wish Bitcoin to trade like traditional assets. Traders should be free to, well trade. I will detail certain market practices, and why I believe they pose no threat to the integrity of the Bitcoin markets.

Insider Trading

The job of a trader is to have better information than the market. That is the textbook definition of insider trading. Traders who do not use inside information will not make money.

Insider trading is most policed in the equity markets. The reason why there are discontinuous jumps in the price of stocks is that information is held back from the market. If all available information could be traded upon at any time, trading patterns would be smoother.

American regulators are the most aggressive prosecutors of insider traders. The irony is that US congressmen and women are allowed to insider trade on companies which they essentially regulate. That creates an interesting love triangle.

Companies lobby (aka bribe) lawmakers about regulations. The lawmakers know that certain decisions they make will positively or negatively impact the stock price once made public. These same lawmakers then trade on this information and earn above average returns.

Excessive regulation and legalese provide a defensive moat for large companies against small ones. The cycle perpetuates itself because only large and well heeled companies can afford the cost of continuous bribery. This bribery presents a much better return on investment than improving their underlying product.

Lawmakers receive cash on both sides of the equation. Their reelection campaigns are funded by big business, and they get to trade the stock ahead of important regulatory changes. A variant of this triangle is present in most heavily bureaucratic governments.

Bitcoin trading occurs across a set of unaffiliated exchanges and various jurisdictions. The notion of what could constitute inside information is difficult to discern. Given the lack of a generally accepted theory on the fundamental value of Bitcoin, a piece of market news has positive or negative implications depending on who you ask.

In the ICO and altcoin markets, knowledge about potential partnerships, software bugs, or completion of certain development milestones before the general public can provide immense profits. The traders who invest the time speaking with the developers and are active in the community, are the traders who make the most money.

What a thought, if you put more effort into your craft, you make more money.


Spoofing is illegal on most regulated exchanges. Spoofing is the act of posting a order you do not have the intention of honoring. Spoofing is bluffing.

I find it incredible that this is illegal in certain markets. If you wanted to buy $1 billion worth of Bitcoin right now, would you tell the market? No. A smart trader would bluff that they wished to sell $1 billion worth of Bitcoin, and then if the market believes him and trades lower, buy at a lower price.

If a trader has the collateral needed to place an order, he or she should be allowed to place that order. Whether or not he intends to get filled is irrelevant. The big problem, however, is if the exchange violates price -> time priority in order to let the spoofer get off the hook, if a legitimate trade occurs based on their price.

Rather than focus on the flashing of large orders on Bitcoin exchanges, the author of the above mentioned article should focus on whether price -> time order matching priority was violated.

Speaking for BitMEX, price -> time priority is sacrosanct. We have never, and will never violate this essential law of order matching.

Many point and click traders believe that the mythical market makers on most Bitcoin exchanges are allowed to violate price -> time priority. The human trader sees a price, they think about it, then place a manual order. The order they thought would be instantly filled is not. Now the market has moved away from them. They cry foul. They believe their order should have been filled, and somehow the market maker was able to get out of a valid trade.

At BitMEX order matching is done atomically. If your order submission creates a match, there is no way a market maker can pull their quote before being filled. I reiterate, price -> time priority always holds at BitMEX.

Point and click traders must recognise that the human eye to brain to motor function loop is extremely slow when compared to a trading robot. You are slow, but the exchange in most cases is not at fault.

If you cannot accept your inferiority as a human, either trade with a robot, or trade using a higher time frame.


The most successful Bitcoin exchanges have the most pristine reputations. There is no deposit insurance or global Bitcoin trading cop to run to. If you do not approve of the way an exchange operates or their business practices, you are free to leave the platform at any time.

In order to retain customers, exchange operators must cater to their users. Contrast that to traditional asset markets. Financial institutions fluff regulators rather than improve the experience of their paying customers.

Reputations take forever to build, and are tarnished instantly.

Regulatory agencies can be bought, and most are held captive to the industries they police. Most high level jobs at financial institutions are held by ex-regulators. There has to be a pot of gold at the end of the rainbow to entice capable individuals to accept government jobs that pay less than the private sector.

Adults trading digital currency markets have extreme power to shape the collective trading experience. A tweet or reddit post from a KOL greatly impacts the perceived safety and integrity of an exchange. Adults should use this power to create a trading environment that is conducive to safety and wealth generation.

The above mentioned Medium article is a great example. The mainstream financial press picked up on this and amplified the reach of the author’s views. These views are not kind on many of the exchanges mentioned in the post. This surely will drive business to other outfits who, rightly or wrongly, are deemed to be honest.

The court of public opinion is the best motivator.

Day Traders

If you cannot devote at least 12 hours per day in chat rooms, on message boards, and constantly monitoring your positions, do not day trade digital currencies. Trading with a less than 1 week time horizon is dangerous if you cannot devote yourself to being on call 24/7.

This is a market for adults. Be an adult, educate yourself, and in the process obtain true freedom.





国当局最近阻止比特币发展的行动让我联想起了约翰·戴维森·洛克菲勒(John D. Rockefeller) 当初扼制初期石油市场的行动。洛克菲勒之所以能够像神一般的控制着石油行业是因为他铲除了“杂草”。













比特大陸(Bitmain)绝对是主导中国比特币矿业的领军机构 。内蒙古和邻近省份的绝大多数工厂都如此操作,共同占有大量哈希算力。



我相信北京对互联网的应对方式可以作为对比特币的一个借鉴。北京容忍虛拟私人网络的存在,并出售专用线路让某些组织绕过大型防火墙。 虛拟私人网络对许多读者来说是很便宜且容易的;不过,绝大多数中国群众仍然很穷,无法支付虛拟私人网络的成本,更重要的是他没有这方面的欲望。他们很满意中国内联网的现状,也没有翻墙的欲望。

只要普罗大众的思想不被开放的互联网荼毒,北京对少数富豪精英追逐网络自由这件事采取开放态度。一个最好的例子是我在上海的一个朋友所从事的工作。他的工作是教导准备到国外求学的中国精英学生们如何透过互联网获取某些历史事件的正确版本 。中国觉得群众可以无知,但他们不希望自己最好最出色的精英们与国际同辈相比相形见绌。






BitMEX (

Pay to Play

Chinese Miner: I would like to build a new mine in China.

Beijing: Well Sheeeeeeit. Partner, you’re gonna have to pay to play.

The recent actions by Chinese authorities to stymie the growth of Bitcoin reminded me of John D. Rockefeller’s quest to tame the infantile oil market. Rockefeller was able to exert god-like control over the oil industry because he eradicated wildcatters.

Wildcatters were small outfits that drilled oil wells wherever they could. They were not organised, and this chaotic drilling reduced the lifespan of oil patches and caused intense volatility in the price of oil. The ways in which Rockefeller culled the wildcatters earned him the title of a Robber Baron.

The Chinese government and Rockefeller have many things in common. The Chinese government wants to control every aspect of the economy. When a new sector emerges, they allow fierce competition. Once a few winners have emerged they decimate the small fish, and present the survives with an offer they can’t refuse. Pay to play, or die.

The payment can be in many forms. But essentially Beijing can tap dat ass whenever it likes, and you better smile during the session. The Bitcoin mining industry is no different.

Local governments all vie to post earth shattering growth numbers every quarter. They will do anything in their power to achieve growth. Success guarantees a seat at the table in Beijing, and riches for your family.

For this reason, as well as overinvestment in aluminum production capacity, many poor parts of north western China have an abundance of electrical generation capacity. The boom in Bitcoin mining meant that anyone with capital and some connections at the local government level could profitably mine Bitcoin. Read the BitMEX Research report titled Mining Incentives – Part 2 – Why Is China Dominant in Bitcoin Mining, for a more indepth discussion of this topic.

The Chinese mining industry is dominated by a few large pool operators and miners. However, there are scores of smaller mining outfits. Beijing has little visibility into many of the smaller outfits. That could not continue forever.

A recently leaked document outlines how Beijing may block the propagation of Bitcoin blocks via the Great Firewall (GFW). Many correctly pointed out that miners could easily evade these measures through the use of VPNs. I brought this up with a laowai mining friend of mine during the recent Bitkan conference. He said that the use of a VPN or other means to evade the GFW would slow down the broadcast of your successfully mined block to the point where someone else would beat you to the punch.

In his opinion, these actions will kill all small mining outfits. The big boys can afford direct lines that bypass the GFW. Beijing sells these lines to compliant comrades, and can monitor all traffic. The fees paid are akin to a bribe to the government to continue operation. Absent this, you will be too slow to compete internationally. Now Beijing has complete control over the success or failure of your business, and you will pay whatever they ask.

He further added:

For instance, Inner Mongolia has relatively low population and economic growth. No one wants to move there. A few years ago the local Inner Mongolian government offered Chinese companies large pieces of land if they moved operations from other provinces. Each company who moved there actually got two titles, one for building manufacturing facilities and the other for strip mining coal.

The companies could cheaply and easily mine the coal for sale or build their own smaller coal power plants to run their operations. This led to a staggering amount of coal power plants in Inner Mongolia, most of them fairly small, around 50 to 250 MW.

After these companies moved there they were hit by the global slowdown in the commodity industry. Almost everyone of these factories started mining Bitcoin on the side. They write off miners as an equipment expense, and use the higher electricity usage costs to lower corporate profit and tax. In return they get a consistent side revenue that is not taxed.

While Bitmain is certainly the biggest miner in China, it by no means dominates. The vast majority of factories in Inner Mongolia and neighboring provinces are all doing this and collectively represent a significant amount of hash power.

I think this is the most likely the reason for the mainland crackdown on mining as all these factories are avoiding tax and laundering profits. By shutting things down at a network level that will force a greater centralization, the large players will then get licensed, and the government can regulate and tax them. In my opinion I don’t believe mining will be dead in China, I think it will become a permissioned industry.

The 21 million Bitcoin question is whether Beijing would use its new power to attempt to kill Bitcoin. Given that many local governments and senior members of the party profit from the continuation of mining racket, I believe the status quo suits Beijing.

Beijing’s treatment of the internet is an apt comparison for how I believe they will treat Bitcoin. Beijing tolerates the existence of VPNs, and sells private lines to bypass the GFW to certain organisations. Operation of a VPN seems cheap and easy to many readers; however, the vast majority of the Chinese masses are too poor to purchase a VPN, and more importantly have no desire. They are perfectly content with the China intranet, and have no desire to escape.

Beijing has no problem with the wealthy elite enjoying a few freedoms, as long as the mindset of the masses is not poisoned. A prime example is the job of a friend of mine in Shanghai. He re-taught elite Chinese students slated to study abroad the correct version of certain historical events. China has no problem with the masses being ignorant, but they don’t want their best and brightest to appear stupid vs. their international peers.

The recent closure of exchanges, banning of ICO fund raising, and the probable disruption of the Bitcoin network by poisoning block propagation, ensures that the masses may not enjoy the fruits of cryptocurrency, but the wealthy few can.

Time will tell whether Bitcoin and other cryptocurrencies present a real value proposition to the Chinese masses. If cryptocurrencies are like water, they will reach the lowest point given enough time. If they are not, then a small percentage of Chinese investors will continue to trade, invest, and use the technology.


为什么我们作为一个行业,要寻求来自于我们试图颠覆的行业-金融业的认可?对于大多数人来说,去忽视来自于我们这个时代两位最强大的金融家:摩根大通的杰米·戴蒙 (Jamie Dimon)和桥水(Bridgewater)的雷伊·達里奧(Ray Dalio) 的言论是很困难的。






想象一下自己生活在数千年前早期人类文明世界,在黄金被认定为“金钱”之前。你的部落或村庄仍然使用用贝壳作为交易的媒介。贝壳非常罕见所以具有价值。他们很容易被辨认,也很难假冒。然而,要储存大量的贝壳是很困难的,随着时间的流逝,贝壳也会被分解。随身携带大量的贝壳也是相当困难的。由于伊隆·马斯克(Elon Musk)当时还没有出生,这些贝壳没法自动驾驶。




然而, 一个参与会议的女人认为黄金能够做出好的珠宝饰物。它非常有光泽,看起来比村民穿戴的饰品好多了。她问你黄金的来源,并问你是否能帮助她将黄金变为珠宝。



这时村里的长老开始担心。他们的财富都是以贝壳的形态存放着。面对更好的交易媒介黄金,贝壳每年贬值。更糟糕的是,由于黄金罕见的,具有惰性的,无法伪造的并易于运输等特性,一些商人倾向在出售商品时收取黄金而不是贝壳 。





从以物易物,商品货币(黄金)到纸币,加密货币,每一次转型都是一个从极大波动性趋向稳定的过程。新形式的货币在前一秒仍然无法购买任何商品和服务,突然间它的购买力就会迅速增加。因为网络效应, 不同形式的货币转型肯定是混乱的。















BitMEX (