200 Swipes: A New Way Chinese Avoid Capital Controls


The phenomenon of Chinese money fleeing China is causing asset prices around the globe to skyrocket. The most preferred asset is foreign property. A recent statistic said that Chinese buyers accounted for a third of all residential home purchases in Vancouver.

Massive capital flight is a big problem for the Beijing. The war chest of foreign reserves is being depleted quickly, and the PBOC will need all the firepower it can muster to soften the blow from rising non-performing loans (NPLs) held by the banking sector. To stem the outflows, various measures were introduced.

Previously a popular evasion method was to buy insurance policies in Hong Kong with China UnionPay cards. Bus loads of mainlanders arrived in Hong Kong and formed long queues outside of Prudential and AIA. Health and travel insurance policies were favoured because comrades could purchase policies exceeding the $50,000 yearly FX limit legally.

To stop the bad behaviour a limit of $5,000 per transaction was instituted on overseas UnionPay transactions. What do you do when you have a million dollar policy but have a low transaction limit? You continuously swipe your UnionPay card until you pay the policy’s premium.
Bloomberg sheds more light on the swipe happy Chinese:

A Chinese firm that brokers insurance policies, Henan-based Hong Kong Easiness Wealth Management, is offering travel to Hong Kong, including free airfare and accommodation, for mainland Chinese to buy insurance products. Those buying policies valued at more than 500,000 yuan ($77,000) get a first-class ticket plus two nights in a five-star hotel. Such a purchase would require at least 15 card swipes. A first group of four couples was to arrive in Hong Kong on Tuesday to buy critical illness insurance with a 100,000 first-year premium from AIA, while a higher-spending trip was scheduled for May, said Li Yida, the company’s owner.

“We will guide them through the whole process and swipe cards with them,” he said. “We’ve told them to bring more than one credit card, as they will be able to try more cards if one of them is not working.”
Other family members of Ng’s client who purchased the HK$28 million in policies traveled to Hong Kong during the weekend after the electronic transfer ban to purchase their own policies worth HK$10 million, requiring an additional 200 swipes of their credit cards, Ng said. The swiping process for the family took about two days each time, he said.

Earlier this year, the State Administration of Foreign Exchange (SAFE) stopped reporting certain monetary statistics that allowed for analysts to understand if reserves were growing or shrinking accurately. Many analysts believe China’s reserves decline by $100 billion per month due to capital outflows. The same analysts believe that once the reserves dip below $2.7 trillion, China is in trouble. This is due to cash pledged for various projects and initiatives. China’s FX reserves were $3.3 trillion at the end of 2015. At the current burn rate, China will be short on cash by the summer of this year.
When governments stop producing certain economic figures, they usually have something to hide. Whether it’s swiping a UnionPay card 200 times to buy gigantic insurance policies, faking import invoices, or buying foreign assets at any price, Chinese individuals and companies are shedding CNY at a record clip.


The China A50 Index (index members are the largest 50 China A share stocks) is up almost 10% since mid-February. BitMEX’s China A50 Futures contract gives investors the ability to go both long and short China with 25x leverage by using Bitcoin. China still has a few months before cracks could start appearing once more. To ride the bullish momentum, buy the April China A50 contract, A50J16. For bears, A50J16 represents one of the only ways go short China with leverage.

Crypto Trader Digest – Jan 4

BitMEX In 2016


El Nino ain’t got nothing on BitMEX. BitMEX is bringing the fire in 2016. We have a long list of development items and we aim to deliver on them in a timely fashion. First up: new order types. This month we will add:

  • Stop Market Orders
  • Trailing Stop Orders
  • Hidden Orders
  • Iceberg Orders
  • One Cancels The Other (OCO) Orders

Please keep providing your feedback. BitMEX aims to be the most trader-friendly platform in Bitcoin.

Arbitrage Webinar


As the general knowledge about derivatives trading grows, traders begin using more sophisticated strategies and instruments. BitMEX is committed to educating traders about the uses of Bitcoin derivatives. I will be hosting a series of Webinars in January that will go through the basics of futures trading and arbitrage strategies. Lesson 1 will cover these topics:

  • Differences between Spot, Margin, and Futures trading
  • Differences between Quanto and Inverse Futures
  • How to price Quanto and Inverse Futures contracts

Lesson 1 will air this Friday January 8 at 03:00 GMT. The slide deck and example spreadsheets will be made available on Thursday. Q&A will be allowed during the presentation. If you are unable to view the Webinar live, a recording will be posted on our YouTube channel afterwards.

We will post links in the site chat and BitMEX Blog.

2016 Themes

Forecasting the future price of Bitcoin is a fool’s errand. Many pundits will throw out bold predictions on both the up- and down-side. However, successful traders position their portfolios to benefit from the overarching themes or narratives of the current moment. In this week’s Crypto Trader Digest, I will lay out three major themes that will shape 2016 and the trajectory of Bitcoin.

China Devaluation Dance


China is Bitcoin. The majority of hashing power is located in China, and the majority of trading volume occurs on XBTCNY. Failure to properly interpret PBOC monetary policy could prove fatal.

China is the largest consumer of raw commodities and energy. Once consumed, China produces low cost goods that the world enjoys. The big problem for China is that the majority of this trade is conducted in USD. Commodities are priced in USD and many buyers purchase China’s goods with USD because they do not hold Yuan (CNY). As a result, China has a large portfolio consisting mainly of US Treasuries. As BNP Paribas and many other companies and countries have experienced, if you transact anywhere globally using USD you are essentially Washington’s bottom bitch. After the Century of Humiliation, China is not keen on being beholden to Washington.

China has begun to liberalise the trading of the Yuan, and has set up trading hubs across the globe to trade CNH. CNH is the offshore version of CNY. CNH behaves more according to market forces than CNY. Currently the two are not fungible for most actors. China has begun signing large deals priced in Yuan rather than USD. The expanded use of CNH means that onshore CNY will follow CNH rather than the other way around.

At the same time, the PBOC is beginning to allow market forces to weaken its currency. A weaker CNY allows China to become more competitive vs. other global exporters. The sea change began in August 2015. The PBOC in one week devalued the CNY by 4%, and sent a message that the strong Yuan period was over. Over the past 4 months, CNY has gotten weaker and weaker. The PBOC sets the onshore rate each morning, however CNH trades at a much weaker level as traders expect the devaluation to continue.

In addition, the PBOC has clarified that it looks at the CNY vs. a basket of major global currencies, not just against the USD. The CFETS RMB Index shows that the CNY has actually appreciated over the past 12 months. In 2016, the PBOC must become more aggressive in the pace and size of devaluation in order regain lost ground. Given the vast amount of QE that the ECB and BOJ have engaged in, the PBOC has a lot of work to do.

The writing is on the wall, and those with a vast hoard of legal and illegal wealth are running for the exits. Hundreds of billions of USD fled China in 2015. The PBOC has begun enforcing capital controls to stem the tide. Bitcoin remains open as a legal channel through which capital can flow from China to the rest of the world. Given the relative illiquidity of Bitcoin, even a minuscule amount of capital choosing this channel will completely re-rate Bitcoin to much higher prices.

The ingredients of lower domestic CNY interest rates, a weaker CNY, the greater importance of offshore CNH, and the desire to preserve CNY denominated wealth point to Bitcoin trading higher in CNY terms. Traders must continue to watch the China Bitcoin Premium, the daily PBOC CNY fixing, and the spread between CNY and CNH.

Capital Controls Are Coming … For Everyone


Physical banknotes are the bane of governments globally. They are an anonymous bearer instrument. Taxing and monitoring physical cash is a tall order for most governments. Due to the computer revolution, the majority of the developed world holds money in the form of electronic credits with a regulated bank. These electronic bank notes are easily tracked and taxed.

The current problem for central bankers is that a vast amount of debt was extended for dubious purposes, and inflation must be engineered to make financial institutions whole. First central banks took rates to 0% (ZIRP), then they began buying all types of assets (QE), and now they are going nuclear with negative interest rates (NIRP).

The problem with NIRP is that if the bank charges you to hold your money, you will convert electronic into physical banknotes. When this process happens en masse, that is a bank run. If physical cash was banned, there would be nowhere to hide. Faced with NIRP, either you leave your money at the bank, spend it, or buy risky assets. Low risk saving is not an option.

The biggest NIRP offenders are several European nations (Switzerland, Sweden, Denmark, and the ECB). In Sweden and Denmark, physical cash is barely used. While many hail the effortless ways in which payments are made, the populace is surrendering their financial freedom. In other nations there is a limit on cash transactions. French residents have a 1,000 Euro limit and non-residents a 10,000 one. In America, the cops just steal your money using bogus civil asset forfeiture laws and make you fight lengthy court battles to get it back. The message is clear: holding physical cash is not only unwanted, but could even be illegal.

Using the preferred boogiemen of towel-clad men with beards holding AK-47’s, world leaders will enact more restrictions on the use of physical banknotes. Capital controls are coming for everyone globally. Converting a portion of your electronic fiat credits into electronic Bitcoin is prudent.

The Have And The Halve Nots


This July, the much-anticipated Bitcoin Halving will occur. The block reward will halve from 25 to 12.5 Bitcoin. The community is rife with speculation as to how the price will react to this momentous event. Some believe this a structural reason why the Bitcoin price should skyrocket and others believe it’s a non-event. Let’s examine the various effects of halving and their possible price impact.

Bitcoin Inflation Will Decline

A block is mined every 10 minutes on average. That equates to a 3,600 XBT increase in the money supply daily. That will drop to 1,800 XBT after the halving. Over the past 30 days, the average daily trading volume (ADV) across all exchanges was 2.63 XBT million.

Currently the daily Bitcoin inflation is 0.13% of ADV, and future inflation would be 0.065%. Based on the percentage of daily volume, if the miners sold all the new Bitcoin mined it would have 0 price impact. Some would argue that the trading volumes of the big three Chinese exchanges are hocus pocus. To make a conservative estimate, let’s go with that: assume that only 20% of the trading volumes across OKCoin, Huobi, and BTCC is “real”. That leads to an ADV of 642 thousand XBT. The daily current and future inflation then represents 0.56% and 0.23% respectively. Even then, it is still an inconsequential amount.

Those who base their bullish bias on this thesis need to go back to the drawing board.

Transaction Fees Will Increase

Miners are compensated primarily through the block reward. Absent a doubling in price, miners will see their earnings drop by 50%. In order for them to be equal pre vs. post halving, transaction (tx) fees will need to double. Higher fees means that Bitcoin will be less useful for micropayments. Many in the community would like Bitcoin become cost effective for large and small transactions alike, and larger fees are a big fear.

However, tx fees don’t necessarily have to rise. Based on anecdotal evidence, I believe that the marginal cost to product a Bitcoin for the largest mining pools is between $100 to $200. At a price of $430, their gross margins are 330% to 115% respectively. Based on the USD and XBT P2P interest rates on Bitfinex, I would price a plain vanilla July 2016 Bitcoin / USD futures contract at $430 (the term structure is relatively flat).

Even with a 50% smaller block reward, the majority of large miners are still profitable. Low cost producers will be able to offer the same tx fees and obtain more market share. Unless the miners form a cartel, the likely outcome is that tx fees will be unaffected by the halving. Unfortunately for miners, their margins will get crushed and due to competitive forces they cannot unilaterally raise fees. If transaction volumes continue to increase, miners will recoup these losses with higher throughput on the network.

I see no salient positive or negative impact on the future price.

Halving Volatility

Whatever happens, there is sure to be extreme volatility around the event. Bitcoin is a much different animal this halving. The attention being focused on this event is sure to generate wild swings in the price. In late March, BitMEX will list a September 2016 25x leveraged Bitcoin / USD futures contract. Traders who wish to play the pre vs. post Bitcoin halving spread, should trade the June 2016 (XBTM16) vs. the September 2016 (XBTU16) futures contract.

I suspect that due to the expectation for fireworks, the XBTU16 will trade at a substantial premium to XBTM16. Selling volatility by selling XBTU16 and buying XBTM16 could be a profitable strategy.

The Most Important Chart In Bitcoin

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The PBOC is back at it again. Today they devalued the Yuan by the most in 2 months. Their first shock and awe campaign sliced 4% off the Yuan’s value vs. the USD. Then the PBOC sold US Treasuries to support the CNY in the open market.

Since August, the PBOC has been hard at work stemming the enormous flow of capital fleeing China. The $50,000 per year FX limit is beginning to be enforced by banks. There is now a yearly 100,000 CNY limit on overseas UnionPay withdrawals. And I have heard anecdotal stories about the closure black market CNY / HKD money changers in China and Hong Kong.

Today’s action might be the resumption of the devaluation trend the PBOC embarked upon this summer. With the closure of the easy, cheap, and convenient ways to squirrel cash out of China, Bitcoin becomes more attractive. If Bitcoin emerges as a legal means to export capital out of China, the premium for it onshore in China will rise.

In my post China Bitcoin Premium Points To Moon, I presented a one month chart of the Bitcoin premium (OKCoin XBTCNY vs. Bitstamp XBTUSD) starting August 30th. The above chart is an extension of that time series. The premium dipped to 1%, but during the recent rally has resumed its climb above 2%. If this premium continues to rise above 5%, then we know China truly appreciates Bitcoin’s potential as a means of wealth preservation.

If the PBOC renews its devaluation of the Yuan, watch this chart closely. A lot of money through a small door will spell riches for those positioned correctly.

China Bitcoin Premium Points To Moon

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During the November 2013 Bitcoin bubble, the belief was that Chinese people would rush to convert their RMB into Bitcoin to escape the financial repression they faced at home. That did not come to pass as it was still very easy and cheap to spirit capital out of China. That all changed this summer when the PBOC shocked the world by devaluing the CNY by 4% over one week.

The PBOC did not stop there. The Chinese government is aggressively trying to stem the capital flight out of China. Many real estate commentators have lamented how Chinese buyers have slowed down the pace of property purchases because of the increasing difficulty they face exporting their RMB.

In my article Hello Bitcoin: China Begins Enforcing Capital Controls, I speculated on the potential impact on the Bitcoin price if for the purposes of real estate Chinese buyers began using Bitcoin to export their wealth.

The first signs of a possible shift of wealth from China outwards through Bitcoin will be the premium of BTCCNY to BTCUSD. The above chart shows the 24 hour moving average of the premium between Bitstamp (BTCUSD) and OKCoin (BTCCNY) over the past 30 days. While the absolute premium at the present moment is not large, the trend is up and to the right. I plotted the premium against the price of Bitcoin. The two exhibit no correlation over this 30 day time period; however, I predict that if premium continues to rises, it will lay the groundwork for a moon shot.

In the 3% to 5% premium range, it becomes worthwhile to buy offshore, sell onshore in China, and remit money between China and Hong Kong. The difficult step is bringing CNY from China into Hong Kong. If you cross the border between the two territories the legal limit is 20,000 CNY (3,000 USD). At a 5% premium that is a 150 USD gross profit before exchange fees and bank wire fees. That isn’t compelling. This trade needs to be done in a size >$10,000 on a daily basis and electronically. Previously there certain individuals who would take CNY onshore in China and remit you HKD or USD offshore into Hong Kong in any size.

If truly the traditional avenues of moving money between China and Hong Kong have been shut, then the premium will rise above 5%. That presents a clear signal that there is an imbalance of demand to sell CNY and buy Bitcoin. That is when the rocket ship will ignite.

Hello Bitcoin: China Begins Actually Enforcing Capital Controls


Faced with a depreciating currency and an acceleration of elites running for the exit, China is actually beginning to enforce capital controls. The official individual FX limit is $50,000 per year. But for those with the right connections, RMB flowed out of China like water. The amount of illegal capital repatriation from China has been estimated in the trillions of USD. Now that is all changed. Xi Jinping is hell bent on transitioning the Chinese economy into one lead by domestic consumption rather than by investment. GDP growth has slowed, and at the same time the strengthening USD has forced the PBOC to allow the RMB to weaken.

Property markets in favoured jurisdictions have seen furious buying by cash rich Chinese. The Chinese hoard levitated property prices in Vancouver, Sydney, New York City, and parts of California. The explosive growth is about to come to an abrupt halt, if the PBOC has it way. They have instructed banks to begin enforcing the $50,000 limit and to look through the ultimate beneficiary account to determine if bundling of funds is occurring. [AFR]

The crackdown from Beijing has seen Chinese banks setting up watch lists for unusual transactions, according to one bank manager, who asked not to be named as he was not authorised to speak about the policy.

He said the operation was aimed at cracking down on a practice whereby family and friends of those wanting to purchase a property overseas all transfer US$50,000 into an overseas account. That’s the limit each Chinese individual is allowed to move out of the country each year.

The purchaser then pays back his friends and family in China and uses the money from the overseas account to put down a deposit on the property.

However, banks are now tracking the source of funds for overseas bank accounts that have received more than US$200,000 within 90 days, according to the bank manager, who works in Shanghai for one of the major state-owned banks.

“We have always had this policy but now it has been restated and is being enforced more strictly,” he said.

“In the past we could find a way around these rules but now all those ways have been blocked.”

“I’m sure this would be having an impact on overseas property purchases,” he said.

Sydney and Melbourne are starting to feel the pinch [AFR].

Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls.

One Chinese agent said the latest efforts by the central government to avoid large capital outflows were having a “significant impact” on his business.

“It has affected 70 to 80 per cent of current transactions and some have already been suspended,” said the agent who asked not to be named.

The tighter foreign exchange rules are also set to impact the federal government’s relaunched Significant Investor Visa (SIV), which provides fast-tracked residency for those investing at least $5 million into Australia.

“I think it will be big, big trouble for the SIV program because the amount of money is just too large,” said one Shanghai-based adviser, who sells Australian property and advises wealthy clients on their migration plans.

Only seven SIV applications have been submitted since the new rules were introduced on July 1, which require investors to put their money into riskier assets such as venture capital and emerging companies.

The fall 2013 Bitcoin bubble was fuelled by speculation that Chinese investors would be able to send their capital abroad by using Bitcoin. The problem was the grey channels were by and large much cheaper and easier than using Bitcoin. Therefore the massive inflows never materialised. The situation is grossly different now. The PBOC is actively enforcing the controls and the avenues open to the Chinese are rapidly disappearing.

The big question for anyone attempting sell RMB / buy Bitcoin then sell Bitcoin / buy USD (or another G10 currency) is liquidity. I took data from Bitcoinity.org about trading volumes for BTCCNY and BTCUSD. For the Chinese exchanges I divided their reported volume by 2 because they double count trades. Over the past 30 days the average daily trading volume was 82,400 BTC. To minimise price impact, assume that you trade 30% in line with volume. At a BTCCNY rate of 1,500 CNY, that comes to a total of 51,180,000 CNY of Bitcoin that can be traded per day with minimal price impact. I did the same calculations for the top BTCUSD exchanges, and the amount is 39,366,600 CNY. Because you need convert RMB -> BTC -> USD, I assume that 39,366,600 CNY worth of BTC can be traded each day with minimal price impact.

Chinese people love property. It is one of the preferred vehicles in which park their cash abroad. The other benefit is they can ship their families off to obtain passports in better jurisdictions. The below table shows how many equivalent houses Chinese buyers could purchase each day using Bitcoin.

City Median House Price Equivalent Houses
Sydney 1,000,000 AUD 8.7
Arcadia California 1,084,500 USD 5.7
New York City 572,800 USD 10.79
Vancouver 900,592 CAD 9.1

According to the National Realtors Organisation, for the 12 months ending March 2014 Chinese people bought $22 billion in property in America. Per day that equates to roughly 368 million CNY, or over 9 days worth of Bitcoin trading. This happens each day, and this is just for America. Chinese will not all rush to use Bitcoin as a method of wealth transfer, but with no other options they will get creative. The largest Bitcoin exchanges globally are in China. In China, you can wire CNY to the exchange, buy Bitcoin, and remit Bitcoin outwards in under 30 minutes for 0 fee. The foundation is there, and now there is a real pain point. As the capital account of China deteriorates due to slowing global growth, a stronger USD, and competitive devaluation by their trading partners, the only way out may be Bitcoin.


2014 Profile of International Buying Activity

Median house price in Sydney tops $1 million for first time

Arcadia Home Prices & Values

New York Home Prices & Values

Canada National Average Price Map

Crypto Trader Digest – July 27

BitMEX Happenings

Zero Fees:

From now until September 1, 2015, trading fees across BitMEX are now zero!

25x Leveraged Bitcoin Futures:

BitMEX has raised leverage on our XBT Bitcoin / USD futures contracts to 25x.

New Simplified UI:

The new Simplified UI is now live. Traders may now choose from the “Basic” or “Advanced” layout.

25x Leveraged Bitcoin Futures Contracts

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25x Leverage:

BitMEX aims to serve the entire crypto trading community. The return profile of our XBT quanto Bitcoin futures contracts is ideal for speculators. Starting today, we have raised the leverage to 25x for all XBT contracts. For example, if you wished to open a position worth 100 Bitcoin, you only need 4 Bitcoin of margin.

High-leverage instruments are high-risk. During fast moving markets, it is possible that some traders may go bankrupt. To ensure a zero sum system, BitMEX developed the Dynamic Profit Equalisation system. Traders can withdraw realised profit from the system subject to an adjustment.

Profits are held until settlement or rebalancing of a particular contract. The system loss is calculated, and trader’s profits are adjusted proportionally. Using BitMEX’s state-of-the-art trading engine, BitMEX is able to calculate the projected loss percentage in real-time, giving traders the chance to make trading decisions based on the anticipated systemic loss.


The implied profit adjustment, if any, is displayed on the order book at all times. We want users to enter into trades with full knowledge of the state of the system.

Manipulation Prevention:

To discourage traders from attempting to manipulate the futures market with the intention of causing margin calls, the futures contracts for margin and unrealised pnl purposes will be marked at the Bitfinex spot price plus an exchange set offset. The mark price will generally be set to match the prevailing futures last traded price. It will change in real time with the movement of the spot price. If a trader attempts to aggressively push the last traded price away from the mark price, traders will not be liquidated. The mark price has no effect on realised pnl.

To learn more about the DPE system, please read the blog post Dynamic Profit Equalisation.

Bitcoin Escapes The Commodity Carnage


Last week, the global commodity complex got choke slammed. Gold and silver were monkey hammered through key support levels. The world is afraid of a strong dollar and a less investment-focused Chinese economy. The Australian dollar (the purest play in currency land on commodity strength) is in free fall.

The world economy is not well. Apart from super luxury homes and apartments, people can afford less and less with their stagnating or declining incomes. China is transitioning away from breakneck industrialisation. Chinese electricity consumption (this is about the only statistic you can somewhat trust coming from China) grew at the slowest pace in 30 years.

Bitcoin, the newest monetary commodity on the block, stood its ground. The only global growth area is financial repression. Governments are ratcheting up their efforts to sequester and steal their citizens’ wealth. More and more people are waking up to the fact that the socialist utopia promised by their elected or unelected kleptocrats is a chimera. Governments with their backs to the wall will always steal their citizens’ money with capital controls and inflation. Bet on this one area of global growth by going long Bitcoin.

I Told You So


f you repeat something enough, people will get the message. Many economic pundits globally have been warning Greeks since the beginning of 2015 that a depositor bail-in was coming. The recent Greek capitulation to their European overlords has changed nothing for ordinary citizens. The capital controls remain in place. Businesses cannot import the goods they need. And with each passing day probability and magnitude of a depositor bail-in grows. Now Reuters predicts that capital controls will last for months.

The Europeans have refused to hand over fresh Euros to recapitalise Greek banks. They fear their domestic populations will balk at tax dollars going into the black hole that is the Greek banking system. The capital controls remain, and as a pre-condition for any bailout it is almost certain that ordinary depositors will not see a portion of their wealth ever again.

At this juncture, the Greeks have only themselves to blame. They elected Syriza on the promise of repudiating the austerity platform. That was the moment to pull money out of Greek banks and spirit it away abroad. The wealthy Greeks got out of Dodge and left the plebes to fend for themselves on 60 Euros per day.

In the past 2 years, the first world has been given two concrete examples of capital controls and depositor theft. If you haven’t gotten the message by now, I don’t know what will convince you that money in a bank isn’t yours. This doesn’t mean you should rush to store all your wealth under your mattress or start setting up offshore bank accounts. Recent events have shown that storing 100% of your wealth in your domestic banking system is risky. Diversification is key.

Bitcoin is one pillar of a proper diversification strategy. Capital controls and banking closures are usually the precursor of violence. If you had to relocate, possessing an asset that can be exchanged globally for other currencies or goods is prudent. In addition to your cache of gold and silver coins, consider a Bitcoin wallet filled with emergency funds. The beauty of Bitcoin will make itself apparent during a breakdown of polite society.

Increase Your Bitcoin ROE With Futures Arbitrage


There are now a few platforms offering Bitcoin futures products. In any new market, there are sometimes large price discrepancies between similar products. Traders with sufficient knowledge can employ arbitrage strategies and profit from market inefficiencies. Futures vs. futures arbitrage is one strategy that can increase the return on your dormant Bitcoin.

This strategy is geared towards traders who have a core holding of Bitcoin that they don’t plan on selling. Assume that there are two futures contracts that have the same return profile and expire on the same date. Futures A and B trade at $100 and $110 respectively, and expire in one month. Each futures contract requires margin of 20% in Bitcoin.

You decide to buy future A and sell B to capture the $10 premium. On an annualised basis, you have earned ($110 / $100 – 1) * 12 = 120%. The good thing about futures is the use of leverage. 120% is your un-levered return; however for this trade you only had to put up 20% equity on each side. Your real return on equity (ROE) is 120% * 1/40% = 300%.

Weekly Review: Bitcoin Investment Products

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Week Ending GBTC Avg Volume WoW % Chg % Premium XBT Avg Volume WoW % Chg % Premium
7/17/2015 760 XBT 6.03% 1,441 XBT -0.17%
7/24/2015 311 XBT -59.07% 8.71% 295 XBT -79.55% -0.32%

XBT Spot

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Chop, Chop, Chop. Bitcoin exited the $270’s with a bang straight on through to $295. Ever since, the price has been dancing to the tune of LTC, and chopping up trader’s portfolios in the process. $300 looms large, but the battle for that mountaintop is proving intense. It is a tough call to discern whether Bitcoin will collapse to $200, or rise above $300-$320.

The temporary removal of a formal Grexit has left Bitcoin searching for a narrative to carry it higher. In the absence of a new strong narrative, expect the price to languish. The longer it spends within striking distance of $300, the more vulnerable it is to a well executed bear raid.

One last attempt to breach $300 in this rally is likely. Failure to scale this peak will give the bears a perfect opportunity to inflict a severe mental and economic blow to the bulls. The past attempt and failures at $300 were followed by a swift downdraft. Expect the operators to go for blood and attempt to puncture $200 once more. In the absence of a global macro wobble, unlevered buyers should wait for cheap pickings in the low $200’s.

Trade Recommendation:

Buy XBTN15 while spot is below $290. The upside target price is $300. If the price trades below $280 again, close the long position.

Crypto Trader Daily – 26 April 2015

Price Action

Another push was made for $210 today. The price reached a low of $213 on Bitfinex before rallying back to $220. The retrace was a weak attempt at a rally. A renewed fade to $210 will begin shortly, and expect a hard fought battle. The overall downward trend remains, and the market awaits the all-important retest of $200.


Trade Idea

Sell XBUK15 above $215 with a $210 target price.


In the News

Capital Controls Arrive: Greece Begins Confiscating Deposits Of “Small Debtors” (Zerohedge)

The “War on Cash” Migrates to Switzerland (Contra Corner)

Crypto Trader Daily – 21 April 2015

Price Action

All quiet on the trading front. The price range was $222 to $227 on a light volume day. The market is in another holding pattern awaiting a sudden move higher or lower. $230 looks to be a formidable level to punch through. Expect the market to drift lower and retest $218.


Trade Idea

Accumulate short positions in XBUK15 in the high $220s looking with a downside target price of $218.


In the News

The Bankster War on Cash; JPMorganChase Begins to Prohibit the Storage of Cash in Its Safety Deposit Boxes (EPJ)

Tsipras to Seize Public-Sector Funds to Keep Greece Afloat (Bloomberg)

US Police Officer Charged with Receiving Stolen Bitcoin Miners (CoinDesk)