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.
- Be a company located anywhere.
- Pay a structuring desk to set up a Special Purpose Vehicle in Europe that will issue the bonds.
- Wait for ECB to buy your debt.
- 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!