BitMEX CEO Gives Bitcoin 101 Talk to Rotary Club of Hong Kong

The talk focused on the basics of what Bitcoin is, what problems it solves, and what BitMEX offers. Although many of the attendees knew very little about Bitcoin before the talk, they asked very probing and intelligent questions.

On June 10, 2014, BitMEX CEO Arthur Hayes gave a talk on Bitcoin 101 to the Rotary Club of Hong Kong.  The event was well attended by club members who are very prominent in the Hong Kong business world.

The talk focused on the basics of what Bitcoin is, what problems it solves, and what BitMEX offers. Although many of the attendees knew very little about Bitcoin before the talk, they asked very probing and intelligent questions.

10June2014_Club Meeting_Guest Speaker_Arthur Hayes (2)
BitMEX CEO Arthur Hayes accepts a gift from Terrill L. Frantz the acting president of the Rotary Club of Hong Kong.

USD Interest Rates Lift BTC Forwards Market

Given the current interest rate regime a one year forward on the price of Bitcoin should be trading over $1,200. If you want to peer into the future, consider that crystal ball.

The most important element in any forecast on the forward value of a currency pair is the interest rate differential between the two currencies. Bitcoin to date does not have a reliable interest rate market. Lending out your Bitcoin is a fools errand. The internet is filled with stories of defaults on peer to peer Bitcoin lending platforms. However, where unsecured USD lending is concerned it’s a different matter.

The most popular unsecured lending market for USD which is then used as leverage to buy Bitcoin is on Bitfinex. Traders can deposit their idle USDs and earn a generous return on them. Currently traders can receive 0.30% per day on their USD, that’s 108% per year!

The rate at which traders are willing to borrow USD to speculate on the future price of Bitcoin goes hand in hand with the market movement. The Bitcoin price has shot up over $200 in the last two weeks and interest rates have spiked as well. Given the current interest rate regime a one year forward on the price of Bitcoin should be trading over $1,200. If you want to peer into the future, consider that crystal ball.

 

Thoughts On China’s “Ban” On Bitcoin

When the dust settles and all the banks and payment processors are in compliance we expect the Bitcoin price to fall to the recent lows of $360 and BTCCNY to be at a 5%-10% discount to BTCUSD. Then buy your coins back at a discount, transfer to an exchange where you can withdraw USD and collect a nice profit.

Last week Caixin posted an article claiming that the PBOC was not satisfied with how banks and third-party payment processors were interpreting it’s ban on financial institutions processing payments related to Bitcoin based businesses. Subsequently a few exchanges announced that their bank accounts at certain onshore Chinese banks were shut. The Bitcoin price fell around 12% after the announcement and then further to around $425 on Bitstamp. The price on the leading Chinese exchanges traded at around a 3-5% discount to Bitstamp.

Fast-forward to today on the eve of the Labour Day weekend holiday and the Bitcoin price has recovered around $25 to $450 and the Chinese exchanges are trading slightly more expensive than Bitstamp. Even after all of this noise from the PBOC you can still fund  your Bitcoin account with CNY at certain exchanges using Bank of China. How this is possible when the PBOC has repeatedly said that financial institutions cannot process Bitcoin based payments is very puzzling.

The Caixin article postulates that the new “deadline” for compliance is May 10th. We at BitMEX are in the business of facilitating betting men and women. If we were in your shoes, we would be opening accounts at the leading Chinese Bitcoin exchanges such as OKCoin and BTCChina and buying coins on Bitstamp transferring them to a Chinese exchange and selling Bitcoin for CNY. A four day bank holiday is the perfect time to force compliance with the central bank’s directive. When the dust settles and all the banks and payment processors are in compliance we expect the Bitcoin price to fall to the recent lows of $360 and BTCCNY to be at a 5%-10% discount to BTCUSD. Then buy your coins back at a discount, transfer to an exchange where you can withdraw USD and collect a nice profit.

Good luck, and happy trading!

Bitcoin Derivatives, How Much Are They Costing You? A Primer On CFDs

Make sure you read the fine print; not all derivatives exchanges and brokers are created equal. You might believe that Bitcoin is going to $10,000 per coin or to $0, but if you are trading CFDs and the market isn’t moving you are going to be up the creek without a paddle.

The next frontier in Bitcoin trading is certainly the derivative space. Traders are actively looking for exchanges that allow them to trade futures, options and other derivatives. A host of FX brokers and exchanges have opened up recently and are offering derivative products. By far the most popular offering is a Contract For Difference (CFD).

According to Investopedia a CFD is:

This is generally an easier method of settlement because losses and gains are paid in cash. CFDs provide investors with the all the benefits and risks of owning a security without actually owning it.

What makes CFDs so popular is the extreme leverage that different brokers will offer clients. As of right now there are CFD brokers offering up to 20x leverage on Bitcoin vs. the US dollar. Unfortunately this enhanced leverage comes a cost, and most likely a very great one that many investors just don’t realize.

To trade a CFD a trader will need to post margin to fund his position. The lower the margin the higher the leverage (e.g. 10% margin requirement leads to 10x leverage). There are two numbers traders need to pay attention to, the initial margin and the maintenance margin. The Initial Margin (IM) is the amount you must deposit with your broker or exchange to initiate a position long or short. The Maintenance Margin (MM) is the bare minimum amount of margin you must have against your portfolio. If you breach this level, your broker or the exchange will margin call you and close all of your open positions.

The margin process is pretty straight forward. So now let’s look at how CFD brokers are making money. Your broker will normally charge you a daily funding charge. Essentially this is the interest rate you pay to borrow money from the broker and gain access to higher leverage. These usually range from 0.10% to 1.00% per day on the total notional of you position. For example, you have a long Bitcoin vs. USD position with a Bitcoin notional of 100 BTC. You deposit 10 BTC for initial margin and if your margin balance drops below 5 BTC you will be margin called and the broker will close you positions. The daily funding charge is 0.50% per day which equals 0.50 BTC per day of fees (0.50% * 100 BTC Notional Position).  If the BTCUSD rate does not move, you will be margin called in 25 days just from the funding charges alone; you have a 5 BTC cushion (10 BTC IM – 5 BTC MM) therefore 5 BTC / 0.50% Daily = 25 days. Talk about a usurious interest rate, you are paying over 500% annualized in interest just to trade this derivative ((1 + 0.005)^365 – 1 = 502%).

Make sure you read the fine print; not all derivatives exchanges and brokers are created equal. You might believe that Bitcoin is going to $10,000 per coin or to $0, but if you are trading CFDs and the market isn’t moving you are going to be up the creek without a paddle.

CEO Arthur Hayes To Speak On Bitcoin Derivatives At Inside Bitcoins Hong Kong

BitMEX CEO Arthur Hayes will be speaking on the 25th of June from 3:00 PM to 3:45 PM on Bitcoin derivatives and the current market structure.

BitMEX CEO Arthur Hayes will be speaking on the 25th of June from 3:00 PM to 3:45 PM on Bitcoin derivatives and the current market structure.

Bitcoin Derivatives: What Are They? And Why We Need Them

While trading volumes on spot exchanges have risen dramatically since early 2013, the derivative market remains nascent and grossly underdeveloped. Many high profile figures in the Bitcoin community have been calling for a liquid derivatives market. This panel will examine what is meant by a Bitcoin derivative, the different uses of derivatives by different market participants, and the benefits to having a liquid and robust market. We will examine the current landscape of derivatives products and help attendees grasp the different uses and risks with trading different types of derivatives. We will also look to the established market of fiat currency derivatives to gauge what sort of market growth is needed to develop a healthy ecosystem.

Inside Bitcoins Hong Kong