Crypto Trader Digest – Mar 28

I Think I’m Turning Japanese


Japan is the unorthodox monetary policy guinea pig. A future of tentacle porn and massive money printing awaits all developed nations. After over two decades of print and pray (maybe try just the tip?), Japan has arrived at the final solution: helicopter money.

Helicopter money, or basic income as many governments label it, is an attempt to jump start spending by handing cash directly to consumers. Instead of enriching only those who hold real assets (stocks, bonds, and real estate) via central bank bond buying, Japan will hand out vouchers to low-income young people so they may purchase “daily necessities”.

Helicopter money is nothing new. Some European countries have experimented with this flavor of money printing as well. The difference is that Japan has the world’s largest government debt load as a percentage of productive output. The BOJ puts other central banks to shame in their attempts to reflate a dying economy and country.

Japan produces some of the world’s most delicious produce (make sure it’s not from Fukushima), but imports virtually all of its energy needs. Abe-san and Kuroda-san’s policy of massive money printing trashed the yen, and made life for ordinary Japanese citizens very expensive. First it will be young poor people, soon it will be most able-bodied adults who will receive some form of government handout. The only result will be a cheaper yen, and rampant energy and food inflation. Even though Japan has a healthy farming sector, farmers still need to consume imported energy to grow and transport their crops.

Japanese housewives are renowned for their penchant to speculate in foreign exchange. What happens when they discover Bitcoin and other digital currencies? They can be bought over the internet (Japan has the world’s fastest internet after South Korea), and instantly they can protect and store their wealth. While the USD is the cleanest dirty sheet, it will get trashed as well vs. gold, digital currencies, and other real assets once Grandma Yellen goes negative.

Most of you aren’t Japanese; however that doesn’t mean BitMEX doesn’t have a way for you to profit from Kuroda-san’s freebasing habit. In the next few weeks, in cooperation with Quoine (the largest Bitcoin / Yen exchange), we will launch a daily Bitcoin / Yen futures contract: XBJ24H. Japanese traders will have direct access to XBJ24H through their account with Quoine, and BitMEX will also offer the product via our platform.

Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash “Gift-Certificate” Money Drop To Young People

Brexit Maybe?


The odds of Brexit are climbing, averaging 35% across various betting platforms. Some unofficial polls put the “Leave” vote above 40%. The referendum will be held on June 23rd.

Brexit would be catastrophic for the EU project. EU skeptic parties continue to poll better and better. If one of the richest countries in Europe leaves the EU project, the calls for Portugal, Italy, Greece, and Spain (the PIGS) to exit from their citizens will gain force.

All of the PIGS have massive debt problems. Either they continue suffering from high unemployment, or devalue and accept their old domestic currency. These are the only options to regain competitiveness vis-a-vis ze Germans. After 7 years of “austerity” the plebes are fed up. However, they have been sufficiently scared about the possible post-EU apocalypse to vote themselves out of the Euro. That all changes if Brexit occurs.

The Bitcoin rocketship will ignite if the odds increase further. To gain an appreciation for the positive price effect, chart Bitcoin during the Grexit saga last summer. Brexit is still too far in the future and the odds too low to be on many traders’ radars yet. It is the perfect time to go Bitcoin volatility if one believes that the likelihood of Brexit will increase.

The BitMEX Bitcoin / USD September futures contract, XBTU16, is the ideal product to trade. It settles well after the referendum date. If Brexit does occur, the whole of Europe will decend into chaos over the summer. Greece is out of money again, surprise surprise. They will be back at Merkel’s feet begging for more cash this summer. Maybe this time around the population will follow through on their threat to leave the Euro, and redonominate their debt into Drachmas. These fears will multiply and cause a bid for safe-haven assets like Gold and Bitcoin if Brexit occurs. The aftermath will be more wild than the Brexit vote itself. These fears will be priced into markets if the odds of Brexit increase. That is why a contract like XBTU16 that expires in the fall will be bid up if the odds of Brexit increase.

XBTU16 currently trades at a 62% per annum (PA) premium. Historically, three and six month BitMEX contracts have traded between 40% to over 100% PA premiums. If the Brexit odds increase, XBTU16 is poised to trade at the upper end of that range. In order to isolate the XBTU16’s premium, buy XBTU16 vs. short selling spot Bitcoin.

Brexit Referendum Betting Odds

NYT Kneels At The Alter Of Ether


I wanna get down on my knees and start pleasing Jesus, I wanna feel his salvation all over my face!

— Faith +1

Ethereum is on the warpath and is zeroing in on Bitcoin.

A recent article published by the New York Times (NYT) describes it as a Bitcoin 2.0, a new currency that can overcome obstacles which Bitcoin can’t. Having risen by nearly 1700% in the past three months from trough to peak, it is clear that Ethereum is a serious contender and is now the 2nd largest Cryptocurrency available, overtaking the likes of Litecoin.

Is this exponential rise going to continue? The price has been plateauing lately, almost taking a breather; however no doubt there are a lot of traders with fingers twitching over that buy button, myself invcluded. Anyone who was trading Bitcoin back in 2011 and 2012 must surely feel some sort of déjà vu.

Why has it come to this? The article highlights a few reasons, some of which the Bitcoin community are highly aware of already. Firstly, this tedious battle on the future of Bitcoin between Core and Classic has led to a number of startups and traders lacking the confidence to invest further into the currency and look for alternative virtual currencies. We can all agree that trading Bitcoin over this period has been lacklustre and boring, and until we have a clear answer on what is going to happen I don’t think we are out of this rangebound yet.

Furthermore, Ethereum provides a way to create smart contracts easily. Personally I think this is huge – already the finance community are looking into this and has gained a lot of attention from companies such as JPMorgan, Microsoft and IBM. Smart contracts can save a whole lot of time and money, especially in finance and banking where traditional contracts (such as in inventory financing) can take days if not weeks to execute. Backoffice functions benefit as well, which have a number of different databases and clutter in which a number of things can and will go wrong (being told you are short $5 bucks of an illiquid stock on settlement day and you’re going to enter a ‘buy-in’ was never a fun thing to hear from your backoffice).

Given the fact that the NYT is almost ‘pumping’ ETH, I would suggest to get on board the gravy train. We should witness further news forthcoming about it if discussions between Core and Classic do not go anywhere and Bitcoin remains in a deadzone. This all points to one way ticket for ETH. I recommend buying the dips – anywhere below 0.024 Ether / Bitcoin is attractive. BitMEX is the only exchange to offer a 25x leveraged Ether / Bitcoin futures contract, ETH7D, so get your bids in early and enjoy the ride.

Crypto Trader Digest – Feb 22

China Loves The Crack Pipe


Beijing and economic analysts agree that China’s economy needs to wean itself off debt based GDP growth. The transformation of the Chinese economy requires hard political choices. Economic rebalancing cannot happen without some stakeholders feeling acute pain. Someone must pay for the losses due to the over extension of credit over the last decade.

In the past Beijing opted for inflation and currency debasement. This time around, many thought that Beijing would finally inflict pain on the state owned enterprises who benefited the most from cheap credit. However the latest new loan figures suggest Beijing continues to smoke the pipe. Banks extended 2.51tn CNY in January, a new record. Unfortunately more loans are producing less and less nominal growth.

Banks lend at the behest of the government. If new loans are surging, it is because Beijing has chosen the path of least resistance. Looking back to the 1990’s, Beijing dealt with banking sector losses with crippling inflation and a massive devaluation of the Yuan.

This time around China is not an Asian backwater, but the second largest global economy. There are now various ways for investors globally to express a view on the Chinese economy through different investment products. BitMEX traders can now express direct bets on the direction of the Chinese economy. The BitMEX China A50 Index Futures contract (A50G16) allows traders to bet with leverage (up to 25x) on the Chinese stock market. The good thing about the A50 index is that it is comprised mostly of banks and real estate developers. The A50 index is very sensitive to investors’ views on the future of the Chinese banking system, which is precisely the sector that will lead China to oblivion or nirvana.

China’s New Credit Surges to Record on Seasonal Lending Binge

Grexit : Armageddon :: Brexit : ?

NOTE ALTERNATE CROP Mayor of London Boris Johnson salutes from the deck of the tall ship Tenacious, which is moored at Woolwich, in east London, as part of the month long Totally Thames festival.

While Greece was on the verge of liberating themselves from Euro hell, the mainstream media (MSM) began scaring the world as to what would happen if the Greek people voted for financial freedom. In the end, the sheep and their shepherds were sufficiently scared back into line. This bought the pro-EU crowd a few precious months.

EU politicians have always feared referendums where the people were actually asked if they wanted EU membership. Each time it appears that they will vote No, the MSM bombards the airwaves with the consequences of leaving the EU. The big daddy of of them all, Britain, is set to vote in late June on whether to remain in the EU. Germany is the biggest daddy, but they are about the only country that has benefited from the debt-vendor financing that is EU economics.

I give credit to British politicians for abstaining from adopting the Euro. But now the plebs must vote on whether to remain in the political union with all it’s benefits(?). David Cameron put on a good show by taking the fight to Brussels and demanding concessions if he was to publically support continued membership in the EU. Boris Johnson (the Mayor of London) has hailed this is a once-in-a-lifetime opportunity to ditch the EU. Oh yeah, it’s going to get interesting.

A Yes vote is not a forgone conclusion. A No vote would be catastrophic to the EU. The countries that would actually benefit the most from exiting the EU would find renewed strength to oppose their country’s membership. PIGS, Portugal Italy Greece Spain.

Last summer presented empirical evidence that Bitcoin reacts positively to the possibility of a EU and Euro breakup. One of the best ways to express an out of the money view on Brexit and ultimately the acceleration of the EU’s demise is to purchase June Bitcoin volatility. Buying the BitMEX June futures contract (XBTM16) vs. short selling spot is a great way to isolate the Bitcoin volatility component. XBTM16 expires one day after the Brexit vote on June 23rd. If Brexit odds begin rising, Bitcoin will begin to rally sharply. This is a classic Buy the Rumor, Sell the Fact. As the fear of breakup intensifies, traders will begin purchasing safe haven assets like Bitcoin and Gold. The fear to reality spread will be highest just days before the vote, and that is the perfect time to unwind the trade.

Boris Johnson backs Brexit as he hails ‘once-in-a-lifetime opportunity’ to vote to leave EU

The Price Is Everything

Screen Shot 2016-02-22 at 14.47.08

I was beginning to lose faith in the function of the Bitcoin price to force economically prudent actions by the miners. My faith was restored this weekend during the Bitcoin Roundtable in Hong Kong. BitMEX remains neutral on Bitcoin Classic vs. Core. What we do want is stability in the protocol so that users may use Bitcoin as a common form of collateral to trade financial derivatives.

The largest miners and exchanges met in Hong Kong and discussed a roadmap for a block size increase in conjunction with the Bitcoin core developers. Early Sunday morning, they released the Bitcoin Roundtable Consensus. The price began its ascent Saturday afternoon as roundtable participants tweeted updates on the progress of the meeting.

Once the official communique was released, the price spiked to a high of $451 and 2,995 CNY. Core will release Segregated Witness, and commit to a hard fork in January 2017 with a block size increase of 2 MB to 4 MB. More importantly, the participants committed to not supporting Bitcoin Classic. The participants represent 80% of the network hashing power. Classic needs 75% of hashing power consensus to be activated. If the participants stick to their word, Bitcoin Classic is dead on arrival.

In the end, the motivating factor was the Bitcoin price. Given the global financial system wobbles, Bitcoin should be well above $500. However at the time when Bitcoin could be shining, the community is mired in trench warfare over how to increase network capacity. Those with the most to lose, the miners, finally got their act together and organised a meeting with the Bitcoin core developers and came to an understanding.

The price is the most important signal as to the health of Bitcoin. That one number pronounces Bitcoin a success or failure in real time by collating the buying and selling preferences of millions of people instantaneously. Bitcoin is an open source project, and this is not the last time crisis that it will face. Hopefully at the next fork in the road, the miners will react more quickly to secure their economic interests.

Bitcoin Roundtable Consensus


Crypto Trader Digest – Feb 15

New BitMEX API Goodies


If you have been following BitMEX Testnet, you will have noticed many new features. We are rolling them into the live exchange over the following weeks.

Today we have released new order placement methods and order types.

New Placement Methods:

For market makers, bulk order placement and amend is now available through the API. Previously, to amend an order, one had to cancel and replace the order. Now amending order quantity of price is available both for single orders and for groups.

All bulk operations execute atomically and fail as a group if any order is invalid.

New Order Types:

We’ve added standard Market and Stop Market orders to the available order types. We’ve also added the following advanced orders:

OCO (One Cancels the Other) – OCO orders allow traders to place simultaneous Stop and Take Profit orders. When one order is triggered, the other will be cancelled. Via the API, any number of orders can be linked, allowing very advanced trading strategies, especially in combination with:

OTO (One Triggers the Other) – OTO orders allow orders to be automatically placed one a primary order fully executes. Certain

Trailing Stop – A Trailing Stop follows the current market price at an offset, enabling a trade to remain open, yet closing if the market changes direction by a certain amount.

Post-Only – Post-Only orders ensure that if it would execute against the market, it would be canelled, ensuring your order receives the Maker rebate.

Many of these new order types will be exposed on the frontend shortly. Please view the API Changelog for a complete rundown of the new features.

NIRP Or Bust


While China was celebrating the Year of the Monkey, the global banking system began crumbling. Europe once again became the epicenter of banking woes. Lead by Deutsche Bank, banks across Europe received their humble pie. The bankers began crying out for Super Mario Draghi to outlaw cash, so that NIRP can be pursued even more aggressively.

Net Interest Margin (NIM) is the secret sauce of banks. The nominal level of interest rates doesn’t matter as long as the bank can earn a spread between depositors and the lending book. The only lending banks do these days is to central banks. Therefore, they need to earn a spread between what the pay or charge their depositors and the interest they receive or pay on their reserves with the central bank.

Banks cannot pass on greater charges to their customers than they pay at the central bank while physical cash exists in abundance. If banks push rates too negative on their borrowers, a bank run will ensue. Interest rates will continue to go lower and as they do measures will be put in place to effectively ban cash. Today Super Mario decreed that Toadstool will no longer receive fresh new 500 Euro notes aka Bin Ladens (you’ve heard about them, but never seen one).

Central banks are listening, and this is just the first action in a series of many that will stamp out physical cash. Europe is ground zero for NIRP. The successful measures will be employed rapidly by all major economies. Those who sell first, sell best.

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

Bitcoin Volatility Compression

The last few months have been very frustrating for traders. The relentless decline in price volatility has almost transformed Bitcoin into a regular currency. The charts above show the realised 30 day volatility for XBTUSD (Bitcoin), EURUSD, and USDJPY. EURUSD and USDJPY are two of the most traded currencies globally. They are the most “mature” currency pairs one can trade.

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The Volatility Ratio is constructed by dividing the 30d realised volatility of Bitcoin by the average of the EURUSD and USDJPY 30d realised volatilities. During the price collapse at the beginning of the year, the ratio reached its highest value of 14.53x. Currently Bitcoin volatility has compressed significantly and the ratio now stands at 1.89x.

Has Bitcoin crossed the chasm from a pure speculative magic internet currency to a “stable” currency? No. Bitcoin still lacks many of the facets of global major currency. Local currency debt market? No. Liquid spot and derivatives market? No. Used in every day transactions? No. Volatility will return in a large way, because Bitcoin is still a very speculative currency, commodity, or store of value (take your pick). This lull in trading activity and volatility presents an great opportunity for traders establishing long positions.

Bitcoin is a long dated call option. It will either by worth nothing, or a lot. An option is most valuable when the volatility of the underlying asset is the highest. Bitcoin volatility has taken a nose dive, and so has the price. For long term terms (5 year trade horizon, and can stomach a >50% mark to market loss), the current price to volatility situation presents an optimal buying opportunity. Timing the bottom is a fools errand, if you have a long term vision whether you buy and the price drops 20% or more is irrelevant. You are gunning for a 5x, 10x, or beyond return. With that in mind, accumulating long dated futures contracts is a prudent strategy.

As Bitcoin volatility normalises, USD swap rates will begin rising. With higher volatility, speculators will re-enter the market and push USD swap rates higher. The risk / reward for leveraged longs is always better than leveraged shorts. USD to Bitcoin rate differential will widen, and longer dated futures contracts will become more expensive. The BitMEX 25 December 2015 Bitcoin / USD futures contract, XBUZ15, trades at a minimum premium to spot. Long term traders who want to take advantage of the low volatility and price should buy this futures contract.