Crypto Trader Digest – Feb 2

You Like It Hard Or Soft, Baby?

massage

Core, Classic, Hard Fork, Soft Fork, SegWit, …the number of terms and proposals released regarding the block size debate has become daunting. We traders are simple creatures. Whether hard or soft, the word fork doesn’t sound auspicious.

As the debate drags on with no implemented solution, the upper ceiling on Bitcoin’s short term price hardens. Since the Bitcoin Hearnia, the price has been unable to hold $400. The $350 to $400 range holds true, and absent a macro economic catalyst the risk of a break below $350 and a retest of $300 grows.

While I believe in the soundness of my Yuan devaluation call, I would not take long term outright long positions. The flurry of technical announcements have usually been price negative as the community further divides.

The addition of leverage is both a blessing and a curse. Using BitMEX futures contracts to construct spread or arbitrage trades and adding a healthy dose of leverage is the preferred strategy in these choppy times.

2016 will witness bans on physical cash, negative interest rates, and competitive devaluation. These trends are all net positive for Bitcoin. Use the dips in the market to go long volatility and interest rates. Buying BitMEX quarterly (XBTH16) or bi-quarterly (XBTM16) futures contracts vs. shorting the weekly (XBT7D) contract is an appealing spread trade. The negative carry of the long dated futures contracts can be covered by selling XBT7D and short rolling week to week. The strategy is price neutral and benefits if volatility and or interest rates rise. Volatility and interest rates will rise during a sustained upward Bitcoin rally, especially if there is a shocking macro economic development precipitating the price movement.

We recently concluded our series of arbitrage webinars. Over the course of four lessons, I explained the basics of arbitrage and basis trading on BitMEX. Please visit the BitMEX YouTube Channel to view the lessons.

Gepetto’s Children

GeppetoWorkshop

Central bankers are well-paid liars. Last week the BOJ inflicted max pain on JPY longs when they announced negative interest rates. In the weeks leading up to the policy change, Kuroda-san stated that the BOJ would not go negative in the near future. After sippin’ bubbly in Davos, he had a change of heart and decided to cross the Rubicon.

This action confirms the futility of QE. Japan has suckled on the money-printing teet for over two decades. The results: an economy stuck at 0% growth. Even with the gobs of money floating in Japan, the Nikkei has still failed to retake its 1989 high. Faced with failure, they entered the last stage before helicopter money: NIRP. Two of the four most important central banks now employ NIRP (ECB and BOJ). The Fed hasn’t joined the party yet, but that is probably only one presidential election away. Trump or Sanders may not like the fed, but Grandma Yellen still has two years left. If the S&P 500 touches 666 again, you can bet the Fed will roll out all the stops to keep the dream alive.

The PBOC joined the party late, but they are ginning up Mao’s printers. As the calls for a Yuan devaluation crescendo, the PBOC holds steadfast that the Yuan will not devalue. They even trolled George Soros in the People’s Daily for even hinting that he might short the Yuan. China does not have the time or political will to internally devalue by firing millions of migrant laborers, and allowing SOE firms to fail. The Yuan must and will devalue.

Now that two of China’s biggest export competitors are trashing their currencies in hopes to export deflation and goods abroad, China must respond forcefully. The PBOC has been busy abusing Yuan shorters and closing the gates on the obvious ways that capital flees the country. The legal yearly limit for FX is $50,000 per comrade. China has $3.3 trillion in reserves. It would take only 5% of China’s 1.3 billion population to convert their legal amount of Yuan into a foreign currency for the reserves to be depleted this year. There is no way but down.

The PBOC attempted the slow and steady approach. However, unpatriotic comrades began front running them, as evidenced by the widening gap between CNH and CNY. The PBOC then went nuclear on CNH shorts by cornering the spot market and kicking foreign banks out of the onshore market. All the while proclaiming, all is good and no further devaluation will occur. Liar liar pants on fire!

The PBOC will orchestrate a China style devaluation, big, bold, and in your face. It will happen when people least expect it, or are least prepared to react. The Chinese New Year holiday presents an excellent opportunity to shock the markets. Going long XBTCNY vs. short XBTUSD with futures, spot, or a combination of both is an asymmetric bet. Worst case, the PBOC keeps the Yuan stable and continues to bleed FX reserves. Best case, the PBOC devalues big and Bitcoin goes nuts.

If you place trust in Gepetto’s Children, I have an apartment in Ordos to sell you.

China Warns Soros Against Starting A Currency War: “You Cannot Possibly Succeed, Ha, Ha”

币界新闻择要 – 一月十八日

闹翻了的开发者

cartman

当纽约时报转载有关Mike Hearn(比特币其中一个领导开发人员)怒退比特币的报道,价格在一天之内暴跌2成。报道概括了基本上是“比特币因为比特币社群没有接纳BitcoinXT方案来处理现在的块链大少的问题,结果就不忿中离比特币,然后把他的比特币丢光砸到$350的低位。

 

那么Mike有暴露比特币的新问题吗?在他翻桌前后的分别只是我们能在纽约时报网站上找到这编报道。靠着消息做空100倍的投资者先恭喜你一下,不过我们必须审视现在的情况和消息,继续部署下一步。

现况1: 砖块容量无法上升,比特币未来可能成为一种结算工具,而对于平民来说手续费根本昂贵得不能运作。Mike认为这个情况是十分糟糕的,并认为比特币用该用作一个网络的交易媒介,就如电子黄金一样。不过,正如我们不会拿着公斤条逛街,也没有人会在比特币网络一聪一聪的交易。即使比特币最终真的是成为了大宗交易的工具,这亦如黄金一样的情况,不会否认了比特币作为国际认何的购买力盛載工具。

 

现况2:中国是最大的算力生产地加上中国互联网废得很…. 我自己去过中国,的确是慢得要死,不过就没有听过一个中国矿工说这个是问题啊!一样 – 对比特币没有影响

Mike试图制定一个解决方案以解决比特币扩容的问题,遗憾的是它并不是大家目光所在的地方。一怒之下宣布比特币“死亡”。比特币的实力是其必须进行共识才能更改现行的机制。如果你是因为一两个人的开发路程开个小差而看空比特币,大概你就不太理解比特币这个共识概念的要点。要是Mike认为为比特币导航开发是艰难的任务,我就真期待他在R3这个大型金融机构里面与其他人合作的情景。我期待几年后能见到一编跟R3闹翻分手的报道。

我怀疑Mike会否真的永远离开比特币。他希望比特币能够扩容的话,现在这个情况令矿工们睡个大觉后利润掉了2成,令持币人身家大缩水,应该就是促使比特币圈子为比特币止跌而尽快下决定的好方法了…..

投资者该做啥了?比特币基本上是被宏观情绪所影响,纽约时报这份文章应该还在传开,即使比特币触底反弹了30刀到$380,但是这并不是熊市的结局。我预期直到人行继续为人民币贬值就会开始令比特币返回升轨,虽然我个人认为人民币贬值是在16年的比特币大利好,不过波动始终都是存在。要是跌破$350,下行的支撑大概会在$300。

保本是现在的首要条件,持多仓过夜的风险现在仍是蛮高的,如果希望在这些阶段能保本获利,可以考虑做一些套利和差价交易。

参考资料:

A Bitcoin Believer’s Crisis of Faith

新年快乐?

year of monkey

央妈在16年面对着一个大难题,国际贸易放缓,银行系统充斥着坏账,股市大跌,唯一能够救援的方法就是把贬值输出,这代表将国内利率调低,并削弱本国货币。

对于中国的问题是,大家都知道人民币会持续走低。有个脑袋的人都希望在人行继续搞砸之前逃离。人民币与离岸人民币息差扩大正是一个很好的例子。中国人民银行正在关闭所有可以将中国资本出逃的途径。纠正这场信贷泡沫,救亡的方法缺一不可。

纵观货币史,各国央行和政府很多时候都在周末或假日宣布大规模货币政策的变化。中国人民银行现在真的是蛮幸运;中国农历新年假期正是一个良机,在没有资金外流的威胁时来个大幅贬值人民币并降息。中国的银行体系和资本市场将会在2月7号至13日关闭。在农历新年,央妈就像按了游戏的暂停键,趁机刷个好成绩。我预期贬值幅度为5-10%,如果你同意我的观点,以下是一些交易建议:

1:做空USDCNH,基本投资者都应该会尝试去做,不过基于离岸息率上升,准备率要求提升,央妈透过出手打压做空令部分投资者不能参与这场贬值

2:做空 CNH无本金交割远期(NDF)和期权也是选择,不过大部分读者应该都没法参与这些交易… 不过比特币也是一个可行的途径

3:做多或买入 XBTCNY 做空XBTUSD (基于银行假期,7-13号期间无法额外存款加仓)

4: 做多周交割BitVC人民币期货,做空BitMEX XBT7D

  • 因为BitVC是基于人民币交易所平均指标价格来交割,而BitMEX周交割期货则是基于XBX(美金交易所)指标交割。对冲了比特币波动风险,净头寸剩下USDCNY。同时因为这个交易是建机于比特币保证金上,你可以在假期间随时加仓

5:做多 BitMEX 三月交割期货XBTH16,做空BitMEX周交割XBT7D

  • 这是一个波动率和利率的投资。如果出现贬值,比特币将大幅反弹。对于比特币的价格和波动率预期将增加。由于三月期货对比周期货有更多的时间价值,它会的溢价会上升比较多。

你可能会问:如果人民币贬值比特币就会升值,我不干脆做多比特币?

的确,不过生活就是充满变数。或许比特币又会再“死”?或许人民币不贬值?或许…..

利用价差交易策略限制了风险,限制了盈利上限。我们必须好好管理风险才能驶得万年船

参考资料

BitMEX 套利全攻略在线直播 — 第三课

感谢参与先前课堂的各位,第三课将会在1月21号上午11时(GMT+8)开始,内容包括

 

  • 构建期货期限结构
  • 溢价波动套利

第三课直播链接

第二课录影

第三课的讲义会在前一天上载到博客

Crypto Trader Digest – Jan 18

Bitcoin Hearnia

cartman

The New York Times article about Mike Hearn’s ragequit from Bitcoin tanked the price 20% in 24 hours. Hearn called Bitcoin a failed project due to the failure of the community to adopt his BitcoinXT solution to the block size debate. He then threw all his toys, said he’s done with Bitcoin, and “sold” his stash. Slowly then quickly the price dumped to a low of $350.

Did Hearn reveal any new flaws in Bitcoin? No. The difference is that the New York Time wrote about it, and he was a core developer. When the New York Times writes something negative about Bitcoin emanating from a long time Bitcoiner you have to take notice. But after the knee-jerk reaction to go short 100x, you must evaluate whether any new information has entered the market.

Without a larger block size, Bitcoin could be relegated to a settlement currency that’s too expensive for small transactions. Hearn argues that this is a bad thing. Bitcoin is used primarily as collateral that can be accessed by anyone with an internet connection. Bitcoin is digital gold. We don’t carry around 1oz gold coins, nor do most people send around 1 Satoshi. If Bitcoin ultimately is only used for larger transactions, that doesn’t diminish its central role as a global form of collateral.

The Chinese own the majority of the hashing power. Nothing new here. Chinese internet sucks. Yeah, I’ve been there and agree, but I haven’t heard any Chinese miners cite that as a concern. Also, nothing new here.

Hearn attempted to craft a solution to the block size issue. Unfortunately it wasn’t gaining traction as quickly as he would liked so he declared Bitcoin dead. Bitcoin’s strength is the consensus mechanism by which changes must be made. If you are bearish Bitcoin because one or two men couldn’t immediately change the course of the project on their timetable, you have missed the entire point of Bitcoin. If Hearn thought trying to steer the course of Bitcoin was tough, I can’t wait to see how he handles dealing with large financial institutions at R3. R3 is an organisation that is bringing together large financial institutions to craft blockchain solutions. I look forward to a followup article in 2 years when he ragequits R3.

Will Hearn quit Bitcoin forever? I highly doubt it. Hearn wants the block size to be increased. How better to galvanise the community to adopt a solution than hitting everyone where it hurts. If a New York Times article drops miners’ revenue and retained earnings by 20% in 24 hours, they will make finding a solution a priority.

What should traders do? Bitcoin is ruled by sentiment. This article is still propagating. Even though the price rebounded sharply from $350 to $380, this is not over yet until… Until the PBOC resumes devaluing the CNY. A break below $350 will lead to a retest of $300. While I believe China’s CNY devaluation is the most important bullish factor in 2016, nothing moves in a straight line.

Capital preservation is rule #1. Outright positioning longer than a few hours will be tough until the PBOC shows its hand again. Spread trades are like those mentioned in the previous section are more prudent. The Bitcoin frown will not be turned upside down while this story is making the rounds.

A Bitcoin Believer’s Crisis of Faith

How To Trade Chinese New Year

year of monkey

China has a tough road ahead in 2016. Faced with collapsing world trade and a banking system bloated with bad loans, they have no choice but to export deflation abroad. That means lowering domestic interest rates, and weakening their currency.

The problem for China is that everyone knows the CNY is heading lower. Rich and poor comrades are rushing to front run the PBOC. The widening of the CNY vs. CNH spread was the perfect example. The PBOC is closing all obvious channels by which Chinese capital can escape. They need every Kuai to help rectify their gigantic credit bubble.

Looking through monetary history, central banks and governments like to unveil massive monetary policy changes during the weekend or bank holidays. The PBOC is quite lucky; the Chinese New Year holiday presents an excellent opportunity to massively devalue the Yuan and cut interest rates without the threat of capital flight. The Chinese banking system and capital markets will be closed from February 7-13. During Chinese new year, all things financial come to a halt. The PBOC has free reign to duck hunt dormant capital with impunity.

The PBOC will schlong (I hope The Donald retweets this) the CNY by devaluing it 5%-10%. That is my prediction. The next question is: if you share my view, what trades are appropriate?

The no brainer trade from August 2015 until last week was to short USDCNH. CNH is the offshore and unrestricted flavor of the RMB. The CNY is the onshore and restricted version. The PBOC is determined to stamp out large short sellers of CNH. They began heavily intervening in the spot market causing overnight CNH interest rates to spike. Shorts must pay overnight to borrow CNH. Today the PBOC imposed reserve ratio requirements on Mainland banks who hold CNH offshore. This further restricts supply, as banks cannot lend freely to willing speculators.

Institutional investors have access to CNH NDFs (non-deliverable forwards) and CNH currency options. The majority of readers cannot trade these products. Don’t be sad, that’s why there is Bitcoin. Below are my top Chinese New Year trades.

Long XBTCNY vs. Short XBTUSD Spot

For those who can deposit CNY onto a Chinese exchange, sell CNY vs. buy Bitcoin onshore in China. Then sell Bitcoin vs. buy USD on your prefered margin trading platform. You need to use a margin trading platform where you can borrow Bitcoin with which to short. The Bitcoin risk cancels out, and long USD vs. short CNY remains.

Due to the banking holiday, the CNY must be in China before February 7th. Also you will not be able to add additional size to the position until after Chinese New Year.

Long Weekly BitVC CNY Futures vs. Short Weekly BitMEX XBT7D Futures

The BitVC futures settle based on the CNY price of Bitcoin on the major Chinese exchanges. The BitMEX weekly futures settle on the TradeBlock XBX Index, which represents the major USD Bitcoin exchanges. Again the Bitcoin risk cancels out, and traders are left long USD vs. short CNY. The advantage of this strategy is that margin can be posted solely in Bitcoin. You can upsize the trade during the bank holiday period if it is going in your favor.

Long BitMEX March XBTH16 Futures vs. Short BitMEX Weekly XBT7D Futures

This is a volatility and interest rate play. If the devaluation occurs, Bitcoin will rally sharply. Forward expectations for price and volatility of Bitcoin will increase. Because the March future has more time value than the weekly future, it will appreciate more.

If the expectation is for CNY to devalue and Bitcoin to rally, why not just go long Bitcoin? There are no guarantees in life. Using spread trade strategies limits risk, but also the upside. If the devaluation doesn’t come to pass, the losses will be much less than an outright long position.

Yuan Borrowing Rate Surges in Hong Kong: What You Need to Know

China Said to Put Reserve Rule on Offshore Bank Yuan Funds

BitMEX Arbitrage Webinar Lesson 3

Thank you to everyone who tuned into Lesson 2 last Wednesday. Lesson 3 will air this Thursday 21 January 03:00 GMT.

Lesson 3 Topics:

  • Constructing Futures Term Structure
  • Curve Steepeners
  • Curve Flatteners

Lesson 3 Live Broadcast Link

Lesson 2 Recording

Lesson 3’s slide deck and spreadsheets will be provided on our blog and via email prior to Thursday.