Casper Cheng – BitMEX Blog The official blog of BitMEX, the Bitcoin Mercantile Exchange. Wed, 28 Feb 2018 05:25:57 +0000 en-US hourly 1 Casper Cheng – BitMEX Blog 32 32 78374597 Hold The Line Sat, 08 Apr 2017 15:16:44 +0000

Throughout China’s history, northern rulers struggled to effectively control those to the south and west of them. The varied ethnicities, topography, and economies of China meant that no ruler was able to retain absolute power for long. Due to relative global peace and globalisation since WW2, the Communist Party of China (CCP) has been able to maintain control by bribing the masses with employment.

Rich people don’t have kids. As a result, after the baby boom in the mid-20th century, the global developed and developing population rate has fallen or will soon fall below the replacement rate. The replacement rate is defined as a woman birthing 2.1 children over her productive lifetime. Africa is the one exception, but unfortunately their consumption power cannot replace dying first-world consumers.

Xi Jinping’s mission to solidify the political base of the Communist Party of China occurs at a time when global demand for goods is falling, wages in China are rising, and the population is aging. Any perceived threat to the continuation of the CCP’s rule cannot be tolerated. 99% of humans aren’t communist, capitalist or any other “ist”, they are hungry.

China must feed its billion plus population by providing employment. Without employment, young men transform from docile workers to cannon fodder for skilled orators and politicians.

These trends explain why this year’s National Congress is of extreme importance. Calm must be maintained at all costs. However, internal monetary pressures continue to build.

Grandma Yellen unleashed another 0.25% rate hike last week. She also did not alter the forward guidance. Another two rate hikes are expected this year, and some analysts believe the Fed could and should increase the pace of hikes.

The Fed should raise rates faster while the market shrugs them off. The S&P 500, which is the only economic indicator of importance, has not reacted negatively to rising rates. Yellen has cover to raise more aggressively. The higher rates go now, the more they can be cut when the next financial crisis strikes.

For China, USD interest rate normalisation puts increasing pressure on the CNY. In a normal year, this would not be an issue. The PBOC could raise rates onshore, or allow the CNY to weaken. However the directive is for a calm period before the National Congress.

The PBOC can’t materially tighten rates onshore lest they pop the gargantuan property bubble. The Chinese property market is a government sanctioned ponzi scheme. Developers, which are some of the most valuable companies in China, borrow money from financially repressed savers. The developers then purchase land from local governments, who “buy” land from their peasant subjects at below market rates.

The developer must build, sell, and refinance before the bill comes due for past loans. Should rates rise materially, developers will be forced to dump inventory en masse.

Over 70% of household wealth is trapped in property. Each time it appears that Beijing will allow the market to correct, they relent in the face of sure losses from a wide swath of the population.

Tiananmen Square essentially was an inflation inspired middle class protest against the CCP. However in 1989, the middle class were mostly teachers, in 2017 they are hundreds of millions of property punters. Impoverish them, and the CCP will see its mandate to rule evaporate.

The second option of a material currency devaluation is also off the table for the time being. A 20% to 30% one-off devaluation is needed. However, an action of that magnitude would portray China’s economy as both weak internally and externally. A perceived “weak” China will not be tolerated while the new leadership ascends.

A recent Bloomberg article illustrates that Xi Jinping is not relenting in his dive to tame China.

For the first time local party committees are using “negative lists” — including everything from bribe-taking to involvement with illegal construction projects — to screen delegations to the 19th Party Congress, which will set China’s political hierarchy for the next five years. A front-page article endorsing the moves in the party’s flagship People’s Daily newspaper Monday showed the push has support from the highest levels.

The negative lists — a concept often associated with trade negotiations in which anything not specifically mentioned is allowed — gives Xi yet another tool to shape the key party gathering in Beijing. While no date has been set, it’s expected to occur in the second half of the year.

The twice-a-decade congress is crucial for Xi to secure lasting influence beyond 2022, when his own tenure would be expected to end. At this year’s meeting, 11 of 25 Politburo members — including five of seven members on its supreme Standing Committee — could be replaced.

Bitcoin Withdrawals

Mandated by the PBOC, the large exchanges are implementing new KYC and AML policies. Certain accounts must now travel in person to the exchanges’ offices for physical checks of identity. If followed, this will make client onboarding expensive and extremely bureaucratic. The end result will be less people trading on exchange, and more trading on OTC platforms such as LocalBitcoins.

I believe that withdrawals will not resume until after the National Congress and a subsequent CNY devaluation. However, a recent notice from Huobi implies an imminent lifting of the withdrawal ban. To withdraw Bitcoin, clients must state and prove where the coins will go, and state the purpose of the withdrawal. Responses such as “I want to escape a weak CNY” will certainly not fly.

True to form, the government is saddling exchanges with needless bureaucracy to bankrupt those with weak balance sheets. The PBOC will keep inventing new KYC / AML policies until they are ready to allow Bitcoin to be freely traded again.

Unfortunately Chinese comrades aren’t stupid. They recognise the perilous state of the economy and still hold Bitcoin IOU’s on exchanges. The expected stampede for the exits by selling Bitcoin to withdraw CNY has not happened en masse. Held long enough, this Bitcoin IOU could protect wealth against the imminent devaluation. This is one reason why the price still hovers around $1,000.

4776 4771
OPEC : Oil :: Miners : Bitcoin Sat, 08 Apr 2017 15:16:42 +0000

Jihan Wu, CEO of Bitmain the world’s largest operator and producer of mining equipment, made an apt comparison between the Bitcoin scaling issue and the oil market.

OPEC in their quest to maintain high oil prices sowed the seeds for American shale oil. The high oil price allowed engineers to explore and drill for more expensive shale oil. Shale oil’s extraction price continues to decline as technology improves. As the supply of oil increased, prices fell, and OPEC’s hold on the market withered.

According to Jihan, Bitcoin miners are like OPEC. A small number of players control the majority of the hashrate. Bitcoin transaction volumes have increased, but the network can only process a finite amount of transactions. Therefore, transaction fees rose alongside the price.

Miners are happy. Some users are not. As a work around, some developers (core) altered the Bitcoin protocol allowing it to process more transactions without the need for a larger miner produced hashrate. If these off-chain scaling solutions are successful (e.g. The Lightning Network), miner’s earnings from transaction fees could decline.

On the margin, either you view Bitcoin more as a store of value akin to gold, or a payments network. If Bitcoin is more a store of value, the price of transactions is of little concern. Gold is rarely used for day to day commerce. It is used to store large amounts of wealth, and as a settlement currency for large notional transactions. Therefore the velocity of gold is low.

If Bitcoin is more a decentralised payments network, then the price and speed of a transaction is paramount. Bitcoin must be able to compete with credit card networks such as Visa and Mastercard if it is to become a real payments solution. Currently Bitcoin is clunky and expensive and is no match to these incumbents.

If neither SegWit nor a block size increase reaches consensus, Bitcoin will continue to travel down the road to becoming another form of money good collateral that is expensive in small quantities to move. To many miners this is a perfectly acceptable solution as long as the price remains high. Given that blocks are full, transaction fees are high, and the price continues to rise, users view Bitcoin more a store of value than a payments protocol.

The question is, can another cryptocurrency become a store of value, and be cheap and fast to send. Should another coin achieve this feat, it will become a major challenger to Bitcoin. To date, no coin is within striking distance of Bitcoin. Many claim that Ether will unseat Bitcoin, but it does not command the same global mindspace as Bitcoin.

Will a group of miners engage in a contentious hard fork, I don’t know. But I do know humans. Humans are lazy and greedy. Regardless of the temper tantrums thrown on various social media platforms, miners care about their bottom line. Doing nothing will not harm them in the short to medium term.

A Bitcoin hard fork will not be as cute and cuddly as Ethereum’s. The Ether market cap was barely $1 billion when the DAO disaster necessitated a face saving hard fork. Bitcoin is worth $17 billion. The amount of money invested in mining equipment, exchanges, and wallets tailored for Bitcoin is orders of magnitude larger than for Ethereum.

A failed hard fork that leaves a minority chain commanding a double digit percent of the network hashing power will not be viewed kindly. Unlike Ether and Ether Classic, the sum of the newly formed majority and minority chains will be drastically lower than the pre-fork value of Bitcoin. Ether never positioned itself as a store of value or a payments protocol. It is fuel for decentralised applications.

Bitcoin’s value is its relative stability vs. other cryptocurrencies. Disrupt that stability and its status as the reserve currency of crypto will evaporate. The challenger that does emerge will certainly not use Bitcoin’s Proof of Work algorithm. If successful, the challenger will render all Bitcoin ASIC mining equipment worthless.

Is Jihan going to stake the future of his Billion dollar mining company on a hard fork that could go pear shaped? No chance.

4775 4770
The Holy Trinity: Bitcoin, Ether, and DAO Tue, 24 May 2016 02:00:03 +0000 http://BB19F025-895E-4074-B60D-75F30BF2BBA5

In the name of the Father (Bitcoin)
The Son (Ether)
And the Holy Ghost (DAO)

— The gospel according to Satoshi

The trading dynamics between Bitcoin, Ether, and DAO dominated the trading landscape over the past month. This Thursday the DAO Initial Coin Offering (ICO) ends. Subsequently, DAO will be available to trade on the secondary market.

Since the beginning of May, ETH is up 95% in Bitcoin terms and 91% USD terms. Bitcoin is down 2% in USD terms. Each DAO token holds 0.01 ETH. DAO could be a colossal flop, but by virtue of its ETH holdings, holders have already doubled their money.

The hard decision is when to sell. The longer one holds DAO after the ICO, the greater the chance a portion of the ETH in the fund will be sequestered towards an approved project. A bird in the hand is worth two in the bush. The fact that 90% of startups fail will weigh on DAO holders’ willingness to take a chance by holding DAO for a long period of time.

The are two ways to cash in DAO for a “harder” currency. When DAO/XBT lists on spot exchanges, holders can dump their DAO for Bitcoin. Or the more technically savvy can use the inbuilt code to burn DAO for ETH.

Crypto traders are lazy folk. If I could sell it now for Bitcoin with minimal hassle, I won’t try to do it via the DAO code. There might even be bugs in the implementation that makes it impossible to burn DAO tokens, without a major upgrade. At the very least, it will take 7 weeks after launch.

Once holders obtain Bitcoin, will they sell Bitcoin for USD or hold Bitcoin? Given that the average DAO holder is already comfortable with holding a portion of their assets in a crypto currency, I doubt they will convert their Bitcoin into USD. This will lead to upward pressure on the Bitcoin price.

I expect Bitcoin to sag and ETH to pump during the last days of the DAO ICO. Buy the rumor, sell the fact. I predict that once DAO lists, holders will opt for the easy 2x return rather than risk their gains on a bunch of startups that may be scams. That means Bitcoin up, ETH and DAO down.

2502 2460
CNY Premium on the Rise Tue, 24 May 2016 02:00:02 +0000 http://87C5D251-780A-466F-8940-362ADF746277

It has been a while since we have seen BTCCNY trading at a premium to BTCUSD, but now we are seeing numbers climbing up to 1.8%. Late last year, we saw premiums driving up over 2.5% which lead to the infamous bull run to $504. Is this the first sign of a renewed interest in Bitcoin?

The mainstream school of thought is that given the capital controls in China, Bitcoin is the perfect tool to legally move money out of China. However, that is unlikely the case given the number of loopholes available to the Chinese, such as faking import invoices, swiping your UnionPay card 200x or even legally investing in businesses in the US via the EB-5 visa program. Furthermore, I spoke with a few funds here in New York that were interested in dabbling in Bitcoin as a way of investing in the US for Chinese customers. What was interesting was that they informed me their clients would only be willing to pay about 75bps as cost, given other ways of moving cash out of China is cheaper and ‘simpler’. With a premium close to 2%, slippage, market impact cost, and trading fees, you can start to see that it becomes quite expensive to convert CNY into USD using Bitcoin.

Having said that, could it be renewed interest in Bitcoin from the Chinese? Unlikely given the state of the market right now and with Ethereum and DAO taking all the spotlight. A more plausible theory is related to USDCNH and devaluation expectations. After the PBOC took its break of devaluations in January, there is a renewed expectation that we could be seeing some this coming Summer.

When an official announcement is made from the PBOC, much-welcomed volatility will come back into Bitcoin. Given the cheap basis on June and September contracts, the trade recommendation is to long either June or September and hedge with the XBTUSD swap. Thus if we see a strong, sudden deval we should expect a good FOMO to occur in Bitcoin. Happy Trading!


2490 2462
Introducing: DA BlockMEX Tue, 24 May 2016 01:59:59 +0000 http://272945F2-A001-4EB3-878F-2A0E27A30A11 mo-money-mo-problems

In November 2015, BitMEX rebranded to BlockMEX and raised 21 million in a Series A from FOMO Capital. After almost 6 months, BlockMEX has burned most of the money and is raising its Series B.

Arthur: Hey Garry, thanks for seeing me for coffee. How has it been?

VC: It’s going well. I’m looking forward to the summer. Taking the family to a Bali for a nice vacation.

Arthur: Bali is great. I just got back from a one month yoga retreat in Ubud. I wouldn’t be caught dead near Kuta these days. It’s totally overrun with Australian teenagers.

VC: I totally hear ya. We have this sick villa in Seminyak near Potato Head. So what’s going on with BlockMEX?

Arthur: Things have been going great. We now have over 10 million customers.

VC: Wow, that’s amazing. What are trading volumes like?

Arthur: We don’t record that data. It’s not relevant to our business. It’s all about new user signups. We aggressively pay to acquire users via referral bonuses and an affiliate program.

VC: Oh really? So you have a negative gross margin business?

Arthur: Yes.

VC: As an exchange I would have thought that trading volumes are the most important metric. That’s what you earn fees off of right?

Arthur: Well that’s how it worked in old finance. In the Blockchain world, it’s all about signing up a lot of users. We will worry about trading volumes once everyone has Blockchain shares. But, we have just shifted focus again to Digital Assets, and renamed to Digital Asset Blockchain Mercantile Exchange – DA BlockMEX.

VC: DA BlockMEX huh.

Arthur: It’s pronounced DAaaaa BlockMEX. Like a rapper would.

VC: Ok, got it. Digital Assets, you mean shitcoins?

Arthur: Well I wouldn’t call them shitcoins. Just other digital currencies besides Blockchain shares. It will open up a true path to actual revenue and profitability. We call it the Pump ‘n Dump method. It has three phases:

Accumulation, Phase 1: Identify the most attractive new digital assets. Basically we canvass senior management and see if anyone is a bag-holder in any coin, is a lead developer on a coin, or has previously accumulated a large stake in a coin.

Pump, Phase 2: We “accidentally” leak a user interface that shows the new coin being added. This causes the trading community to FOMO into the coin because they believe that once the coin is offered to our 10 million users it will spike higher. We then promptly deny that we will ever list said coin.

Dump, Phase 3: We list the coin and senior management dumps their holdings onto our users causing the price to crash. DA BlockMEX gets a 50% cut of any profits a senior manager makes.

VC: Wow, sounds like a scam.

Arthur: You just don’t understand. This is Blockchain.

VC: All that sounds promising. What else did you spend the 21 million we gave you on?

Arthur: First we had to acquire and retain top talent. As I mentioned before we scooped up all the best PHP developers from MtGox. On the business and trading side, we hired Nick Leeson and brought in a bunch of ex Long Term Capital Management traders. They really understand risk management.

To foster the right office culture, Tuesday night is Hookers and Blow night. We go to Wanchai get some 8-balls, viagra, and have at it. Friday night is Models and Bottles night. You won’t see us at Volar with anything less than a Jeroboam of Dom P.

VC: And the rest? 21 million dollars is a lot of money to spend in 6 months.

Arthur: Well an entire floor office at the IFC is quite expensive. Also running a negative gross margin business gets expensive at scale.

VC: Ok, so how much are you looking to raise? and at what valuation for your Series B?

Arthur: 100 million dollars at a 1 billion dollar valuation.

VC: So that would make DA BlockMEX the first unicorn Blockchain shares startup? That’s a punchy valuation. FOMO Capital will definitely lead the round based on your strong traction, but the fundraising environment is cooling a bit. I am going to speak with Elizabeth Holmes at Theranos. I hear she has some extra cash laying around, and she’s bloody smart.

2506 2459
Announcing the Launch of the Perpetual XBTUSD Leveraged Swap Fri, 13 May 2016 06:04:39 +0000 http://CCB033DE-0E6F-44BA-B737-656C7B060146 BitMEX is proud to announce that we are officially launching the world’s first perpetual XBTUSD leveraged swap product. XBTUSD allows you to trade the Bitcoin / USD exchange rate with up to 100x leverage with no expiry.

How Does It Work?

  1. XBTUSD is perpetual and does not expire. You can keep your positions open for as long as you like.
  2. Longs and shorts receive or pay interest each day based on the Bitfinex USD and Bitcoin lending market. It’s just like margin trading, but with the highest leverage offered by any exchange.
  3. Longs profit when the price rises; shorts profit when the price falls.

For more information, please read the Swaps Guide and also the XBTUSD Contract Specifications.

Launch Date

Friday 13 May 2016 at 12:00 UTC

Note: The daily XBT24H, rolling XBT48H, and weekly XBT7D and XBU7D contracts will be delisted. However, the quarterly XBTM16 and semi-annual XBTU16 contracts will remain until their respective expiries.

API Changes

The following fields have been added to the instrument table:


]]> 2415 2413 Crypto Trader Digest – May 9 Tue, 10 May 2016 02:40:13 +0000 http://F3A51F83-53FF-4A4D-8254-0AE929BB22CB

ETHXBT Swaps Live

This past Friday, we launched our first swap product, ETHXBT. Traders can go long or short the Ether / Bitcoin exchange rate with up to 33x leverage, and fund their position with Bitcoin. ETHXBT trades like spot and does not expire.

We recently increased the leverage from 25x to 33x. ETHXBT is the only product globally offering leverage over 5x.

Please read Swaps 101 to learn exactly how the this product works.

We are very happy with how the product is trading. Traders appreciate the high leverage and the fact that ETHXBT does not expire. Our next goal is to launch XBTUSD.

XBTUSD will be a swap product for the Bitcoin / USD exchange rate. Each swap will be worth $1 of Bitcoin at any price. Buyers will pay the Bitfinex USD lending rate and receive the Bitcoin lending rate. Sellers will receive the Bitfinex USD rate and pay the Bitcoin rate. XBTUSD is already live on BitMEX Testnet.

When XBTUSD is launched, XBT24H, XBT48H, XBT7D, and XBU7D will be delisted as they expire. XBTM16 and XBTU16 will continue trading until expiration. We have not decided whether we will list additional longer dated quanto futures contracts once these expire. We appreciate your feedback on the matter.

Litecoin Returns

Many traders badgered us to relist a Litecoin futures contract. We listened, and LTCXBT is now live. LTCXBT is a swap product similar to ETHXBT.

LTCXBT allows traders to go long or short the Bitfinex Litecoin / Bitcoin exchange rate with up to 25x leverage. Traders must fund their position with Bitcoin. Buyers pay the Bitfinex Bitcoin lending rate, and receive the Litecoin rate. Sellers receive the Bitcoin rate and pay the Litecoin rate. Just like ETHXBT, LTCXBT does not expire.

500 Euro Note Gets Dodo’d

The ECB decreed that by the end of 2018, issuance of the 500 Euro note will cease. [ZH] Earlier this year, the ECB expressed its displeasure with the ability of plebes to store wealth outside the Euro banking cartel. This is the first step towards steeply lower negative rates.

This is a significant development in the war on cash. If the ECB can persuade the SNB (Swiss National Bank) to eliminate the 1,000 CHF note, then total domination of Europe’s monetary supply can begin.

Europeans slowly are realising how the monetary priests of Europe mean to fleece them of the privilege to save. Converting electronic bank credits into physical large denomination notes won’t save you. After issuance has ceased, the ECB will pressure banks to enact large fees to change large denomination notes into smaller ones. Imagine paying a few percentage points for the privilege of converting a 500 Euro note into five 100 Euro notes.

The smart savers will slowly convert electronic bank credits into a form of non-governmentally aligned electronic money. Bitcoin is the most liquid form of e-gold.

Europe and Japan lead the developed world in the push for larger negative rates. Super Mario recently launched QE for the world, and Kuroda-san will bring the bazooka out once more lest the market take USDJPY below 100.

Gold used to be a great way to protect your wealth from idiotic monetary policy, but x-ray’s and other advanced search techniques will make hoarding gold a fool’s errand. With an internet connection, a mobile phone, and a Bitcoin wallet, you can save and spend your wealth when you please, without permission from a bank.

HK Trade Invoicing Fraud Escape Hatch Closing

China’s capital controls historically have been as loose as Hester Prynne. The easiest way to move large sums into and out of China was via trade invoice fraud in Hong Kong.

The fraud is simple: A Chinese company submits a receipt importing $100 worth of goods from Hong Kong. The PBOC allows the company to FX CNY into USD. Now the company has $100 to pay for the goods. However, the value of the goods is vastly lower than $100. The company pockets the difference in USD and has escaped a depreciating Yuan.

Reuters reports that: “Hong Kong is conducting a multi-pronged customs, shipping and financial sector crackdown against so-called fake trade invoicing that allows billions of dollars of capital to leave China illegally.”

Beijing obviously called up their stooge CY Leung (the unelected CEO of Hong Kong) and told him to shut it down. This is by far the and most important channel of money out of China.

Next on the list is corporate M&A. Ever wonder why Chinese corporates are scrambling to buy foreign firms in completely different industries? Well if you buy a company abroad, you can legally convert CNY to USD or Euros to complete the transaction.

CLSA recently reported that Foreign Direct Investment has been eclipsed by Outward Direct Investment. It is plainly clear what Chinese corporates are doing, it is now up to Beijing to shut down yet another avenue for CNY to leave the Middle Kingdom.

As the larger and more popular avenues to skirt capital controls are closed, it will put pressure on those methods still remaining. Selling CNY and buying Bitcoin isLEGAL in China. While the liquidity is certainly too low to handle Billions of CNY, even a modest uptick in flows from CNY to Bitcoin will rerate the whole digital currency sector higher.

Using LTCXBT To Play The Next LTC Pump ‘n Dump

The following strategy is aimed at holders of Bitcoin that want to create a positive carry strategy with the optionality to profit from the next Litecoin pump and dump.

Trade Mechanics:

  1. Sell Bitcoin and buy physical Litecoin. This must be done without borrowing Bitcoin on margin. Assume you purchased 10,000 LTC.
  2. Sell 10,000 LTCXBT swaps on BitMEX.
  3. Loan out your 10,000 LTC on Bitfinex, and earn the LTC rate.
  4. You will pay the LTC rate on your short LTCXBT position.
  5. You will earn the XBT rate on your LTCXBT short position.

This trade is a positive carry trade because you earn the XBT lending rate on Bitfinex through the LTCXBT swap. Your earnings from lending out LTC are negated because you must pay the LTC rate through your LTCXBT position.

Now you wait. Preceding the pump, the operators will reserve all the available LTC in the lending market. This eliminates the ability for traders to short LTC on margin, and it forces those who are short on margin to cover or be margin called when their LTC loans expire.

This strategy allows Bitcoin holders to build Litecoin inventory and get paid at the same time, with no risk. When the pump arrives (you will know because LTC lending rates begin to rise quickly), do the following to unwind the trade:

Buy back your short LTCXBT swaps. Now you are left naked long LTC. Before you liquidate your physical LTC, continue lending at the existing rate. The LTCXBT swap’s LTC funding rate will adjust only after 24 hours, which means that you will pay a lower rate via the swap than you currently receive on your physical LTC.

When the time is right, liquidate your long LTC position for Bitcoin. Sit back like Scrooge McDuck on your pile of Bitcoin.

Bitcoin: Still Alive

Bitcoin rallied last week with a high on Bitfinex just over $470, and China finally breaking 3,000, before a sharp rejection down to $435 (and 2,800). We have since recovered and trading in a $450 range. Interestingly Coinbase is now trading at a 1.2% premium to Bitfinex and the other major exchanges, leading the pack for once. Only time will tell whether there is increased purchasing going on in the US, or Bitfinex is taking a breather.

On that point, the USD borrow rates have come back down to ‘normalized’ 15%pa levels on Bitfinex since the dump. Prior to the this we were seeing transactions at 30%pa – indicating that demand for that FOMO has dropped.

Looking at technicals, it appears that we are heading towards the closure of an upper-triangle, with the cross expected to happen towards the end of May at a price of $465. One may point to a similarity to the price action late Dec ’15 – Jan ’16 whereby we had a push up to $470, rejected to low $400 levels and back up to $470 again only to have a strong reaction to the downside to $350. However, this rise up has been different, more stable with less intrusive green candles and I feel we may then make a clear push onwards to levels closer to $1000 than to $0.

If we do break the upper triangle, and with the clock ticking closer to the halving, we are going to experience some much-welcomed volatility that is more likely to be priced for the upside. If I am correct, then the current June and September contracts traded on BitMEX are currently underpriced. Both are pricing around 65%pa basis, and since FOMO typically occurs towards the front end more so than the back end, a good hedged trade to take would be to long the June contract and short the September. BitMEX offers 25x leverage on both contracts, and as always, Happy Trading!

Risk Disclaimer

BitMEX is not a licensed financial advisor. The information presented in this newsletter is an opinion, and is not purported to be fact. Bitcoin is a volatile instrument and can move quickly in any direction. BitMEX is not responsible for any trading loss incurred by following this advice.
YouTube 2407 2405
Crypto Trader Digest – May 2 Mon, 02 May 2016 14:45:49 +0000 http://75833C00-4D94-465D-A8AF-8B03732F2C66

Clef Integration And Trailing Stops

BitMEX has partnered with Clef. Clef is an innovative way of account verification. Gone are emails, passwords, and 2FA; with just one simple phone app, you can log into your BitMEX account securely and quickly.

Clef completely replaces your entire login – no more username or password to remember. It also allows you to manage your session length from your phone. With the security & control of this approach, we are able to offer a session length of up to 1 month (up from 1 day) if you manage your session with Clef.

In other news, Trailing Stops are now available through the BitMEX UI. A Trailing Stop is a Stop order that moves dynamically with the price of the contract. Use Trailing Stops to better manage take profit and stop loss orders.

Just A Pale Cherub

Daenerys returned to the Dothraki after hitting the dessert buffet, hard, sans dragons. In the presence of the Khal she claimed to be the mother of dragons. He laughed in her face. She was more a pale cherub than the Khaleesi.

In Bitcoin, the same has happened today – without the theme song. Craig Wright claims to be Satoshi Nakamoto, but his proof remains elusive. We are to believe that two dudes witnessed Craig sign block #1 and #9. There is nothing more antithetical to Bitcoin than this. A community based on mathematical proof & cryptography is supposed to just believe two dudes saw Craig do the the dirty.

Wright put forward a signature to prove his identity. It turned out to be copy+pasted from public signature data available from very early blockchain transactions. Is there any question that Wright is a scam artist? What does this say about the very public figures that are vouching for him?

Even the Economist couldn’t hold back extreme skepticism of Wright’s assertions. I am surprised they even ran such a weak story. A painful retraction is inevitable.

Much smarter people than myself are waging successful war on this flimflam story on Reddit. I want to focus on the price implications.

After the articles and blog posts were published, Bitcoin received the stick. Today is a Chinese public holiday so volumes are muted. Traders are afraid that if Satoshi is outed, a government will force him to sell his stash to pay taxes.

Wright is Australian; capital gains taxes are assessed once the asset is sold. If they just sit there, then no tax is due. But even if he really is Satoshi, the thing traders fear most will not happen. Those coins will not be dumped any time soon. He claims he doesn’t have access to them, a Seychelles trust does.

After the initial shock, what is the best trade? During this afternoon’s pukefest, BitMEX June futures, XBTM16, got slaughtered. The % basis PA went from 65% to 35% in a matter of hours. Given the remaining time value in the June futures, this is a golden opportunity to buy low.

The price will either collapse testing $400, or continue the upward ascent towards $500. At the $400 level, bottom feeders will aggressively buy cheap longer dated futures contracts. If we continue towards $500, traders will FOMO into June futures because they rightly believe if that level is breached, the market will gap higher aggressively.

The trade is to buy BitMEX June futures, XBTM16, vs. short sell spot Bitcoin.

Et Tu, Broker?

The NIRP hydra slithered into a new market recently. Interactive Brokers notified all holders of JPY cash balances that they will be charged 0.25% per annum on cash balances. [ZeroHedge] Deposit holders until now were mostly shielded from the effects of NIRP. While they earned nothing at the bank, at least they weren’t charged outright.

Interactive Brokers cannot be happy about this decision. Even more Yen will flow into physical cash. It will not be used to purchased overvalued equities, bonds, or speculate in the FX casino. Interactive Brokers undertook this action because their bank began NIRP’ing them.

Koruda-san disappointed markets greatly by denying further monetary stimulus. The ineffectiveness of the BOJ’s monetary policy in Japan has elicited new solutions to increase consumer spending and investing. [Bloomberg] A wealth tax on inert corporate cash is the new trial balloon being floated.

One proposal states that corporations be charged 2% per annum on cash balances. While the intended outcome is for increased spending on salaries and or CAPEX, this will certainly not happen. If corporates didn’t feel Japanese business conditions warranted increased spending before, they certainly won’t in the face of blatant expropriation.

Corporates will sell JPY and invest in any corporate or government backed debt instrument internationally. A deposit tax will certainly accomplish the BOJ’s goal of a weaker Yen. However after trillions of Yen crowd out other global investors from positively yielding securities, other countries will adopt similar policies lest their currency appreciate too greatly vs. the Yen (read China and Europe).

Retail Japanese investors possess fewer options than rich corporates. If their favorite broker begins charging them for cash balances, they will seek out safes, mattresses, gold, and alternative digital assets (read Bitcoin).

Mrs. Wantanabe is trading Bitcoin. Her trading activity is increasing. Average daily volumes at Quoine and Bitflyer have doubled since January. Japanese policy-makers are fighting a losing battle. No amount of money printing will fix a dying population. The surging inflation for consumer goods and energy will only retard family formation further. But try they must, and Bitcoin / Yen is quickly becoming a pair to watch. In cooperation with BitMEX, Quoine is launching Bitcoin / Yen 100x leveraged daily futures contract, XBJ24H. It is nearing completion. Soon anyone with Bitcoin will be able to participate in this market.

The Oracle Of Beijing: SOE Banks

The most pressing concern for any government is how to finance itself. Usually governments recognise they can acquire the savings of their subjects via the banking system. The government bestows economic rents upon banks, who in return are mandated to hold a certain percentage of funds in government bonds. Fragile By Design: The Political Origins of Banking Crises and Scarce Credit by Charles W. Calomiris and Stephen H. Haber is an excellent book that describes the relationship between the form of government and the evolution of a country’s banking system.

While the Chinese government essentially owns all the banks, that doesn’t mean that citizens will place their savings with them. Citizens do so because they earn a return on deposits, and holding wealth in cash is very tough. The largest denomination in China is 100 CNY (about US$15). With such small denomination physical bills, it becomes quite difficult to buy big ticket items (cars, property, stocks, bonds) in cash. Thus citizens must transact through the government banking system.

If you happened to live or work in China a decade ago, a common sight would be an auntie lugging around a trash bag full of cash to buy an expensive good. Ever wonder why Chinese love man-bags? Try carrying around 10,000 CNY in cash; it’s quite tough using a traditional wallet.

China extended a gargantuan amount of credit over the past decade. Malinvestment and outright theft was rife. The consequences are rising non-performing loans (NPLs) at state-owned banks (SOE) banks, and capital flight (those who enriched themselves are getting out while they can).

Beijing has two options to deal with the issue.

Option 1: Extend more credit to roll-over the bad loans. This expands the money supply and creates inflation. Historically the citizenry bears this inflation tax through lower real-yields on banking deposits, and a weaker CNY. This option retards the transformation of China into a more consumer lead economy, which is a major policy goal of Beijing.

Option 2: Allow inefficient SOE industrial companies to go bankrupt. Beijing instructs the SOE banks to extend no further credit. This option creates massive unemployment. The masses of workers who migrated from rural inland farms to the vibrant coast will be cast back into the poor hinterland. This options creates social unrest, and investors in industrial firms’ equity and debt get bageled. When the elites and the poor have a common cause, watch out.

As a foreigner not privy to the inner workings of the standing committee, I can only glean Beijing’s intentions through the actions of various SOE companies, especially the banks.

Managers of SOE banks have a tough gig. They must please Beijing at the same time as their investors, both domestic and foreign. The big four banks (ICBC, Bank of China, China Construction Bank, and Agricultural Bank of China) are expected to show net profit growth each year. China is growing, the banks should be making more and more money. Bankers will do anything, cut any corners, fudge any accounting ratios in order to show YoY growth.

ICBC and Bank of China recently reported a growth in earnings; however to accomplish this feat, they had to breach the government mandated 150% bad-loan provision coverage. [Bloomberg] The C-suite managers are party officials; they would not breach these requirements unless Beijing tacitly approved.

It appears Beijing chose Option 1: the silent but deadly inflation tax. This confirms my view that the CNY will depreciate implicitly internally or explicitly externally. Whether the PBOC depreciates the CNY outright is irrelevant. As Chinese savers receive less on demand deposits, they will move out on the risk curve. We can see the effects of that in real estate, commodities, gold, and silver trading recently.

Any scarce money good asset, collateral, or commodity that can be purchased with a depreciating CNY will rocket higher in price. The whole digital currency complex will be re-rated higher as desperate Chinese savers do anything to preserve purchasing power. While the PBOC deflected attention from the CNY by halting the outward depreciation, watch the banks. Beijing’s policy actions will be transmitted through their favourite conduit. Those who listen will be made rich.

Earning Swap Rates With Less Counterparty Risk

Bitcoin lending rates on Poloniex were over 1% per day when Ether was pumping earlier this year. The one thing that kept many traders from lending more Bitcoin on Poloniex was counterparty risk. 100% of your capital was at risk. Using the new BitMEX P2P swap product, traders will be able to earn the swap rate with less counterparty risk.

Trade Mechanics:

  1. Deposit Bitcoin as margin on BitMEX.
  2. Sell ETHXBT, the BitMEX P2P swap product.
  3. Sell Bitcoin, and buy Ether.
  4. Store your Ether securely.

Sellers of the ETHXBT contract receive the Poloniex Bitcoin borrow rate and pay the Ether borrow rate. Because the Bitcoin rate was higher than the Ether rate, ETHXBT sellers would receive daily income in Bitcoin.

The long ETH position is used to hedge the short ETHXBT position. When the daily interest received falls below your required rate of return, buy back the ETHXBT contracts and sell Ether for Bitcoin.

Due to the 25x ETHXBT leverage, you are only required to hold 4% of the value of the position with BitMEX. Rather than 100% of your capital being at risk, only 4% is. Even though not one Satoshi is held with Poloniex, you can still earn the high lending rates.

Once the BitMEX swap structure is live on all products, the trade can be done with USD and Bitcoin. Instead of lending USD on Bitfinex and placing 100% of your capital at risk, you can achieve the same economics with as little as 1% of your capital at risk on BitMEX.

More announcements about the launch date of ETHXBT will be forthcoming. As always, we appreciate feedback on how we can make this product better. You can trade a free beta version today on Testnet.

Risk Disclaimer

BitMEX is not a licensed financial advisor. The information presented in this newsletter is an opinion, and is not purported to be fact. Bitcoin is a volatile instrument and can move quickly in any direction. BitMEX is not responsible for any trading loss incurred by following this advice.
YouTube 2389 2387
Crypto Trader Digest – Apr 25 Tue, 26 Apr 2016 01:20:22 +0000 http://9B9F38C2-1D83-4739-8E10-4D3487A87451

Consensus 2016

Our Manager of Business Development, Greg Dwyer, will be in New York during the Consensus conference from May 2-4. While he won’t be attending the conference, he is free to meet with anyone who is in the city. Please get in contact with us (simply reply to this email) to arrange a meeting.

Questions About BitMEX P2P Swaps

After outlining our new P2P swap product, we received great feedback from a number of traders. There were a few common questions that I want to address.

To recap: We are looking at a new type of product we call a P2P Swap. It is designed to trade just like margin trading on Fiat/Crypto platforms, but with higher leverage and entirely in Bitcoin.

A move to this product would greatly simplify our product offerings and consolidate liquidity. Instead of splitting liquidity among five Bitcoin contracts, each with different expiries, rules, leverage, and orderbooks, we would consolidate into a single market per currency pair.

This instrument would not expire, but has a number of mechanisms designed to make it trade in-line with spot, while also emulating the same basis that short- and long-dated futures enjoy.

The questions we have seen so far:

Who determines the daily funding rate?

The funding rates are determined in the free market on margin trading platforms. For our first product ETHXBT, the Bitcoin and Ether funding rate is provided by Poloniex.

Do both buyers and sellers pay?

Buyers pay interest on the difference between the quote currency (XBT) and base currency (ETH) lending rates. For sellers, it is reversed. For example, the XBT lending rate on Poloniex at the time of writing is 0.0382%, and the ETH lending rate is 0.0209%. Longs would pay shorts 0.0173%/day

Is the funding rate known in advance?

Yes. The rate for the next 24 hours is determined by the average rate over the preceding 24 hour period.

How do we ensure the swap is anchored to spot?

The mechanism that forces the swap to trade around the spot price is the weekly cash rebalance. Those with unrealised profit will be able to withdraw or re-leverage their gains each week. The explicit realisation of the cash profit will act as a pseudo delivery mechanism for the performance of the underlying asset.

How would this product behave on the quanto Bitcoin futures contracts?

When we apply this structure to our Bitcoin products, we will launch it using the inverse style payout. Each contract will be worth $1 of Bitcoin. The USD exposure is linear, which will eliminate the need to price perpetual upside gamma risk. The aim is to have a product that acts like spot, but has the leverage that BitMEX users have come to love.

What will happen to the longer dated June and September futures contracts?

These contracts will continue to trade, and will expire on schedule. The current plan is to have only one product per underlying. This will concentrate liquidity, and improve the trading experience for everyone.

Draghi’s Blue Magic

Once upon a time, Draghi would only sell his monetary heroin to EU banks who held beaten up EU sovereign bonds. That worked for a few years, but the junkies needed something more pure. Now any company that, with the help of an altruistic bank Debt Capital Markets desk (plus a few points on the package), can obtain Draghi’s new Blue Magic. Frank Lukas would be proud.

The road to free money is quite simple.

  1. Be a company located anywhere.
  2. Pay a structuring desk to set up a Special Purpose Vehicle in Europe that will issue the bonds.
  3. Wait for ECB to buy your debt.
  4. Take your newly minted Euros and sell them for the domestic currency you desire.

The ECB accomplishes two goals:

Goal 1: Finding a new pool of debt to buy; as hard as it is to believe, the ECB was running out of government bonds that it could legally purchase.

Goal 2: Weaken the Euro.

Draghi unleashed the QE World, and now the Fed, BOJ, and PBOC must respond. The most drastic actions will come from the BOJ and PBOC. China, Europe, and Japan are export competitors. The PBOC has been very clear that it intends to weaken the Yuan vs. its major trading partners.

The Fed and BOJ both meet this week. Given the desperation of the BOJ, the market is expecting something shocking. The recent actions by the ECB will definitely affect their next insane money printing scheme.

The one-two punch of a weaker Euro and Yen will push the PBOC back into action. After aggressively weakening the Yuan in January, the PBOC took a breather. A rate hike by the fed would be the icing on the cake. The PBOC would have no choice by the slash the Yuan.

The PBOC could also enlarge its balance sheet and explicitly assume the vast amount of NPLs of industrial companies held by state owned banks. If European companies get free money from the ECB, why shouldn’t Mao’s children obtain similar terms from the PBOC?

A cheaper Yuan is rocket fuel for Bitcoin. The China Bitcoin premium contracted alongside an appreciating Yuan. $500 is a foregone conclusion if the PBOC goes nuclear once more.

The SPV Loophole: Draghi Just Unleashed “QE For The Entire World”… And May Have Bailed Out US Shale

It’s Coming

What a week this past week in Bitcoin trading has been. Moving from 430 to a FOMO seen on Bitstamp up to 470 (approx. 9.3% return). Technically we are approaching some key support/resistance levels, the first of which is the 3,000 CNY level which we failed to break over the weekend. Previous recent attempts to break these levels resulted in sharp drops down. December saw a breakout up to $475 only to be rejected and a few weeks later we were back in $350 territory. Past this and some eyes are on the other key level of $680, being the support/resistance level after the 2013 pump and dump.

However this recent rise up has been on less volume, suggesting less FOMOing and more of a fundamental movement. What seems to be the most correlated is the news of the recent larger mined blocks on the Segregated Witness Testnet bringing back into discussion the Core vs Classic debate and perhaps some consensus towards a final goal.

The discussion about the Bitcoin Halving is also heating up, with Google Trends showing the interest is on the rise. The previous halving in 2013 showed a decent rally in Bitcoin, however one can attribute this rise to reasons outside the halving such as Silk Road. The reaction to this coming event I feel will be more unknown, demand still needs to outstrip the supply of coins already in existence for there to be an economic reason for a price rise, and it doesn’t seem to be there just yet.

The best way to play this volatility is to put bets on the basis levels in futures. Recently the basis on the longer dated June and September futures listed on BitMEX has jumped from around 50% p.a. levels to over 90% p.a. currently. Historically these are still low, and thus if we see a breakout above 3,000 CNY, expect these to rise higher. A basis trade would be to long September and short one of the closer expiry contracts such as the daily or weekly, this way you are hedged and playing the FOMO on the curve.

As always, happy trading!

Risk Disclaimer

BitMEX is not a licensed financial advisor. The information presented in this newsletter is an opinion, and is not purported to be fact. Bitcoin is a volatile instrument and can move quickly in any direction. BitMEX is not responsible for any trading loss incurred by following this advice.
YouTube 2373 2371
Crypto Trader Digest – Apr 18 Tue, 19 Apr 2016 04:12:26 +0000 http://AB3ED414-8680-4C91-98B3-3504A0121909 #Winning

The BitMEX team travelled down to Singapore for Tech In Asia’s Singapore conference. We won a spot to pitch at the DBS FinTech Battle and Area Battle.

We won both competitions. Thank you to everyone reading this who saw us pitch. It is a great thing to spread awareness about Bitcoin.

BitMEX beats 475 startups to win Tech in Asia Singapore Arena

Simplifying BitMEX with Peer-To-Peer Swaps

Futures contracts are confusing to many crypto traders. The various expiry dates and ticker symbols only add to the complexity. How can we create an instrument that feels like spot or margin trading, but has the high leverage that traders desire? We’ve been spending the last months working on a solution: a P2P swap without expiry.

Product Description

This product is a synthetic instrument designed to follow traditional margin trading as closely as possible.

Each day at 12:00 GMT, long holders pay a daily funding rate, and short holders receive a daily funding rate. The rate is determined by the funding index. The funding is paid in Bitcoin.

Funding Bitcoin Payment = Bitcoin Notional * Daily Funding Rate

The product is marked to the underlying spot price for the purpose of unrealised PNL (profit and loss) and liquidations. Each Friday at 12:00 GMT, rebalancing occurs. At a rebalance, unrealised PNL becomes realised PNL; any profit adjustment will be applied as well.


Expiries are gone. The synthetic interest-bearing structure emulates futures contracts of any expiry. The basis you pay or receive is equal to the length that you hold the contract.

As a significant bonus, liquidity will no longer be spread across various maturities. This should significantly improve our XBT series, which currently has 5 expiries. Note that if and when we roll this structure out to the XBT series, existing long-dated contracts will remain active until expiry. At expiry, to concentrate liquidity, they will not relist.

Compared to margin trading on other platforms, BitMEX P2P swaps will provide increased leverage, deeper funding limits, and greater simplicity. Because all lending is synthetic, no crypto or fiat needs to change hands, nor do users need to use any currency other than Bitcoin.

P2P Ether Swap, ETHXBT

Ether will see first iteration of this new product type. Buyers of ETHXBT will post Bitcoin as margin, and pay a daily funding rate based on the previous 24 hour average Poloniex Bitcoin offer rate. Sellers will receive the Bitcoin funding that buyers pay each day.

The contract will be marked to the Ether / Bitcoin Poloniex spot rate. Each Friday at 12:00 GMT, the unrealised PNL will be realised at the Ether / Bitcoin Poloniex spot rate.

ETHXBT is currently live on BitMEX Testnet. We welcome all user feedback on how to improve this new product.

In Other News: Airbnb’s Achilles Heel, and its Bitcoin Solution

Airbnb has unlocked a vast amount of value in underused residential properties. Much to the dismay of the hotel and guesthouse industry, travelers are flocking to Airbnb for their accommodation needs.

The incumbents fight Airbnb through antiquated guest house ordinances. They attempt to scare hosts by lobbying the government to selectively enforce unneeded and unwanted laws. Unfortunately the value gained by hosting is too large for hosts to stop.

Companies like Airbnb and Uber are disruptive, but they have one giant achilles heel: payments.

Unfortunately, Airbnb and Uber must rely on banks and other financial institutions to process the payments to hosts and drivers. All it takes is a call from a government regulator or banks, and the party stops. Overnight their businesses could be worth zero.

Operation Choke Point is a very successful strategy that the US Department of Justice uses against industries that are not illegal, but the government disapproves of. It has successfully used these strategies on the Gaming, Adult Entertainment, and Cannabis sectors.

It is almost impossible for businesses operating in these industries to obtain banking partners. As a result, they are cash heavy and their growth is curtailed.

Airbnb took the right step towards addressing this problem through their aqui-hire of ChangeCoin [Business Insider]. It is likely that they will use the acquired talent to implement a more secure form of payment using Bitcoin or another digital currency. If customers pay using a decentralized currency like BItcoin, Airbnb and similar companies can grow much larger.

The killer app for Bitcoin is something we already use daily. If companies like Airbnb can use their UX/UI skills to make paying with Bitcoin seamless and painless, adoption of Bitcoin and other crypto currencies will explode. Any marketplace app that is disrupting an entrenched incumbent should take notice, and begin thinking about how they will solve a payments halt.

Deny Until You Don’t

Ether: What a ride!

Price action was on a one way trip down from 0.025 ETH/BTC to a low of 0.0165, only to drift upwards to the 0.021. The drift upwards could be attributed to the rumour that OKCoin will add ETH for trading. They have since released a statement on Twitter denying this.

If you are feeling déjà vu, it’s because BitFinex released a similar denial announcement back in February only to list ETH for trading about two weeks later. What happened to the price in that time? Leading up to the denial from BitFinex, the price rose 50%; from their denial to actual listing (Feb 25 – Mar 12), the price went from 0.015 to a peak of 0.035 (133% return).

If there is one rule that I have learnt in the Crypto market it’s to FOMO ‘buy the rumour, sell the fact’. This could present a good opportunity to buy ETH before OKCoin decides to list it (if in fact they do). It makes sense for them, since it is listed on almost every other exchange now; furthermore it trades 20x more volume than LTC [CoinMarketCap].

Turning to technical analysis, we are entering an interesting zone here where the long-term and short-term trend ranges cross. 0.02 ETH/BTC is where these ranges intersect; it will be interesting over the next week to see where we break out. I am feeling bullish given the OKCoin rumour. Whether going long or short, judicious use of Stop Limit Orders is advised.

YouTube 2367 2365