XBT24H – BitMEX Blog https://blog.bitmex.com The official blog of BitMEX, the Bitcoin Mercantile Exchange. Wed, 28 Feb 2018 17:21:12 +0000 en-US hourly 1 https://wordpress.org/?v=4.9.4 https://blog.bitmex.com/wp-content/uploads/2015/03/favicon-128x128.png XBT24H – BitMEX Blog https://blog.bitmex.com 32 32 78374597 How To Roll Daily BitMEX Futures https://blog.bitmex.com/how-to-roll-daily-bitmex-futures/ Tue, 23 Feb 2016 05:45:15 +0000 http://23CA91D2-FACE-413C-BD61-5AC30C5D074B Many traders and market makers have asked for a way to roll their daily Bitcoin / USD futures contracts (XBT24H) from day to day. Each day at 12:00 GMT, any open position on XBT24H vanishes and traders must go long or short again. For traders wishing to have a constant exposure or hedge over the expiry and settlement period, a way to roll XBT24H contracts from day to day is desired.

BitMEX has now listed a 48 hour Bitcoin / USD futures contract, XBT48H. XBT48H expires every 24H, and becomes XBT24H, which will then expire 24 hours later. XBT48H will immediately re-list every 24H.

Expiry And Settlement

You buy 1,000 XBT48H contracts on T at 12:01 GMT. At 12:00 GMT T+1, the XBT48H expires and your long 1,000 contracts of XBT48H becomes a long position in XBT24H. Your average entry price is not affected.

Rolling XBT24H

Traders can use XBT48H to effectively roll their XBT24H position from day to day with very little market slippage.


You are long 1,000 XBT24H contracts at $500 and you want to keep your long position after XBT24H expires.

You buy 1,000 XBT48H contracts at $500 and sell 1,000 XBT24H contracts at $500 before XBT24H expires and settles. You now have a long 1,000 XBT48H position.

When XBT24H expires at 12:00 GMT. Your long 1,000 XBT48H position becomes a long XBT24H position, which will expire and settle in 24 hours.

XBT24H_48 Calendar Spread

Once traders become comfortable trading XBT48H, we will list the XBT24H_48H calendar spread. The calendar spread will have its own orderbook, which will make rolling XBT24H contracts even easier and cheaper.

We believe that the addition of the XBT48H contract will help market makers manage their positions better, which will in tern lead to more liquidity on BitMEX.

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Crypto Trader Digest – Dec 28 https://blog.bitmex.com/crypto-trader-digest-dec-28/ Tue, 29 Dec 2015 00:25:47 +0000 http://77D8ED6F-4D5F-41B9-8639-8DDD2CF76470 From DM To EM: AUD & CAD

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Australia and Canada are two Developed Markets (DM) that stand out in their reliance on commodity extraction to fuel their growth. The rise of China and the commodity super cycle over the past 30 years has proved a blessing for these two Commonwealth realms. Unlike many of HM’s past fiefdoms, these two countries were able to escape the middle income trap and become developed nations.

China imported raw commodities in size to fuel industrialisation, and then exported the finished knick-knacks to the world. Canada benefited from higher oil prices and expanded production into high cost per barrel regions like the Alberta tar sands. Australia provided China with raw industrial commodities like iron ore. The wealthy Chinese who wanted to safeguard their newfound riches started buying property in droves in marquee cities like Vancouver and Sydney, which sparked a housing boom. Rising commodity and housing prices made everyone feel like a winner.

Unfortunately the slowdown in Chinese economic activity and falling commodity prices landed a heavy blow to both countries in 2015. The eager Chinese property buyers are fading quickly. The enforcement of capital controls and a worsening business climate in China, has cooled investors desire for expensive Canadian and Australian property. Their currencies became a proxy bet on China, and as such received the stick. Bitcoin in AUD and CAD terms is up 140% from the beginning of 2015.

Faced with a deteriorating economy, the central banks of Canada and Australia will continue cutting interest rates. The Bank of Canada overnight rate is 0.50% and the Reserve Bank of Australia’s cash rate is 2.00%. These policy rates will be zero in to no time if there is no rebound in the Chinese economy and or commodity prices. With USD rates rising, CAD and AUD have much more pain ahead.

Canada and Australia’s situation is not different from EM countries like Brazil. Citizens who find themselves less wealthy, should look for alternative ways to protect what they have left. The fundamentals behind Bitcoin ownership in DM countries is no different than from EM ones. The incremental demand from Canada and Australia for Bitcoin won’t be on par with China, but every little bit counts.

China Doesn’t Believe In Santa

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Many thought a Santa rally would take Bitcoin over $480 on Christmas day. China said no and took the hammer to Bitcoin over the next two days, culminating in the XBTCNY rate trading at a discount. Some speculated that the ponzi scheme MMM’s operators were cashing out. There is a rumour that they halted withdrawals until January 5th. That might be true, but a more plausible explanation is that savvy traders chose a perfect time to execute a bear raid whilst the Christian world was singing Jingle Bells.

When Bitcoin trades at a discount in China, it surely points to an invalidation of my trade thesis of a weakening CNY pushing money into Bitcoin. However, I counter that nothing changed in terms of monetary policy over the weekend. The CNY is must depreciate vs. other currencies for the China to increase export competitiveness. And the economic climate in China is not improving, nor are capital controls getting looser.

The temporary dislocation in China is an excellent buying opportunity. If one doesn’t want to take an outright position, a China premium spread trade is a good strategy. Buying Bitcoin spot in CNY, and selling BitMEX weekly hedging contracts, XBU7D, is the appropriate expression of the trade thesis.

Step 1:

Buy Bitcoin / CNY onshore in China. If you are located outside of China, BTCC offers the ability to wire USD and convert into onshore CNY for the purpose of trading Bitcoin.

Step 2:

Sell BitMEX XBU7D futures contracts. These futures contracts are great for spread trades vs. spot because each contract represents $100 of Bitcoin at any price.

Step 3:

As Bitcoin / CNY trades at a larger and larger premium to Bitcoin / USD, the spread will widen and the trade will show a profit.

XBT Spot

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Those hoping for a Christmas miracle were witness to an epic dumpfest this past weekend. From $460, the market crashed with fury over a few hours and almost touched $400. $400 held and the market is now testing $430.

The period from December 25 to January 4th is a trading dead zone. Trading volumes globally will be thin as the world’s Bitcoin trading hubs, save Shanghai and Beijing, are effectively closed for business. Expect extreme market action in short bursts as traders run bear raids and short squeezes to inflict max pain on weak hands.

The relevant support and resistance levels are $400 and $475. A break below or above will usher in a flood of market volatility.

Last year, the Bitcoin price dropped 50% in the two days following the New Year. Expect extreme volatility as traders return with fresh eyes and a clean balance sheet.

Trade Recommendation:

BitMEX 100x Daily Bitcoin / USD Futures, XBT24H: Go long with an upside target price of $440.

BitMEX 50x Weekly Bitcoin / USD Futures, XBT7D: Go long with an upside target price of $460.

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Crypto Trader Digest – Nov 30 https://blog.bitmex.com/crypto-trader-digest-nov-30/ Mon, 30 Nov 2015 15:54:08 +0000 http://A82E136E-71C1-48DE-9E5A-79D5723D890B Welcome To BlockMEX



Arthur: Hi Garry (VC), I want to tell you about a pivot we just made. BitMEX is now BlockMEX, we allow trading of Blockchain Derivatives.

VC: Oh that’s great. You know we are not that interested in Bitcoin, but very positive about the Blockchain. Please tell me more.

Arthur: Clients use Blockshares to trade on BlockMEX. And we allow the trading of financial derivatives using the Blockchain.

VC: Wow that’s awesome. So you no longer use Bitcoin? You were previously called BitMEX right?

Arthur: We never were a Bitcoin company. The “Bit” merely stood for digital information, you know like Bits and Bytes.

VC: Gotcha. So what kind of Blockchain do you use for your derivatives, do you touch Bitcoin in any way?

Arthur: Touch Bitcoin, oh heavens no. We created our own Blockchain that uses Blockshares. It is proprietary to BlockMEX.

VC: Wow, you created your own Blockchain? I’m really impressed. So if anyone can trade anything using the BlockMEX Blockchain, how do regulations work?

Arthur: Regulations are irrelevant with the Blockchain. It’s all decentralised, so no legacy regulations apply to BlockMEX.

VC: Man, the Blockchain is so amazing. So what about trading volumes?

Arthur: We have not done a single trade on BlockMEX yet. That’s okay, we’re just pre-revenue. Our technology is meant for large financial institutions. We are going to revolutionise how they trade derivatives.

VC: I totally agree that legacy finance needs services like yours. What about your team? Finding good Blockchain engineers is getting harder and harder.

Arthur: Our team is top notch. We have expert MySQL and PHP developers straight from Tokyo. They have been involved with the Blockchain since 2010.

VC: I really think you guys are onto something. How can our firm, FOMO Capital, get involved?

Arthur: On the back of our strong traction, we are raising $116 million at a $500 million valuation.

VC: That sounds very reasonable. FOMO Capital typically writes checks for $50 to $100 million. We are interested in leading your round.

Chinese Exchanges: Bitcoin Shadow Banks


How do Chinese Bitcoin exchanges make money when they charge no fees to trade spot? When asked, management of the big three (OKCoin, Huobi, and BTCC) assure us that they do indeed make money. In this post, I will conduct a thought experiment as to how I would monetise a spot business that charges zero fees in China. I have no concrete evidence to back up any of my claims other than deductive logic.

China accounts for the vast majority of all on-exchange Bitcoin trading. Exchanges must therefore have a large balance of customer CNY and Bitcoin. I believe that Chinese exchanges act as shadow banks. They borrow at 0% from clients who wish to trade Bitcoin, and lend out customer funds by purchasing China debt instruments.

When the product is free, you are the product. Chinese Bitcoin exchanges use the captive CNY held to trade Bitcoin to earn interest income. How much does it cost to operate the exchange? I have no hard data, but the big three generally have around 150 staff. Assume an average salary of 10,000 CNY per month. Demand deposits yield between 3% to 5%; this is the least risky form of lending as it can be redeemed at any moment from the bank to satisfy withdrawals. The yearly salary costs alone are CNY 18 million. To earn that amount in interest income at 5% requires CNY 360 million or $56 million of stable customer funds. Given the reported trading volumes, it is reasonable to assume that the big three could each possibly hold this amount of capital.

Unfortunately only investing using demand deposits just barely covers salaries. If the exchange is to turn a profit, they must step out on the risk and maturity curve. Private companies cannot obtain credit from banks. All bank credit is reserved for State Owned Enterprises (SOE). In the last decade, high interest rate Wealth Management Products (WMP) have emerged to provide credit to SMEs. The banks underwrite these WMPs off balance sheet which are secured on a company’s assets. WMP yields range from 10% to 20% and have various maturities. Investors believe there is an implicit guarantee provided by the issuing bank. The belief is the government would not let WMPs fail because of the catastrophic losses retail investors would suffer. Therefore, in the few cases where it appeared a company would default on a WMP product, the banks have stepped up and rolled the debt.

Like any bank, a Chinese exchange must keep a portion of the float liquid so they can’t lend the entire balance out via WMPs. The below table assumes that the Demand Deposit rate is 5% and the WMP rate is 20% per annum. NIM is the Net Interest Margin, which in this case is the full interest rate since customers are paid nothing on CNY they hold with the exchange.

% Liquid % WMP Yearly NIM Costs Profit
50% 50% $7,031,250 $2,812,500 $4,218,750
40% 60% $7,875,000 $2,812,500 $5,062,500
30% 70% $8,718,750 $2,812,500 $5,906,250
20% 80% $9,562,500 $2,812,500 $6,750,000
10% 90% $10,406,250 $2,812,500 $7,593,750

As the table shows, the more credit and maturity risk management is willing to take the more money they make. Given there is no regulation as to how the exchange holds customer funds, management can invest in whatever they like to generate a positive NIM. It is not a far stretch to imagine the CEO’s punting the A share market in their spare to time to generate enhanced returns.

Bitcoin trading has become a side show, and these entrepreneurs have created very profitable banking institutions. Because they have excess cash, they are able to pledge customer CNY to fund whatever assets will generate a positive risk adjusted NIM. The Chinese Bitcoin exchange model will be copied in other emerging markets with broken credit intermediation and high nominal rates of interest. If I was opening a spot Bitcoin exchange in India, this is the model I would choose. Private credit in India is hard to come by, and nominal rates are sky high.

The Magic Number Is 6.40

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The IMF is set to announce the CNY’s inclusion into the SDR basket today. Analysts expect that after the inclusion, the PBOC will intervene less in the FX markets and allow the CNY to depreciate further. 6.4 is the highest level USDCNY reached this summer after the shock devaluation.

If USDCNY rises above 6.4, the dominoes may begin to fall. The expectation of future weakness will become more acute. Ordinary citizens will search for any means to preserve their purchasing power. The Bitcoin meme is gaining ground in the financial media. Zerohedge mentions Bitcoin daily when talking about the Chinese financial markets. Once the mainstream pundits at Bloomberg, FT, and WSJ discover Bitcoin, make sure you have your moon boots ready.

Apart from the Federal Reserve meeting December 16th, nothing else will have more impact on Bitcoin than the USDCNY exchange rate. The above chart shows the Bitcoin premium expansion as CNY has depreciated (as USDCNY rises, CNY is worth less USD). To check the PBOC’s daily USDCNY interbank rate click here. If you are lucky enough to have access to Bloomberg or Reuters, search for the USDCNY daily fix. It is announced each day at 9:15am Beijing Time GMT + 8.

Don’t fight the Fed. In Bitcoin, don’t fight the PBOC.

XBT Spot


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$400, here we come. Global macro is providing so many positive catalysts for Bitcoin it is hard to keep them all straight. Argentina has descended into currency chaos. The CNY depreciation continues. The Fed is expected to lift rates and torpedo asset markets globally.

Yet – $400 won’t be taken as easily as it was one month ago. The retrace from the graces of $500 has been slow and steady. However, the recent price action contains the wiff of FOMO, and the upward pressure is likely to accelerate if the CNY devaluation continues.

Trade Recommendation:

Daily 100x Futures, XBT24H: Buy XBT24H while spot is $375 to $380 with an upside target price of $385.

Weekly 50x Futures, XBT7D: Buy XBT7D while spot is $375 to $385 with an upside target price of $400.

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Crypto Trader Digest – Nov 3 https://blog.bitmex.com/crypto-trader-digest-nov-3/ Mon, 02 Nov 2015 16:23:03 +0000 http://14F446FF-B874-47A2-9DD9-1BBBE8A439E5 It’s China Stupid


As China goes, Bitcoin goes. This Halloween weekend, Bitoiners were either drinking in celebration, or fixated on their charts as China ripped and roared higher. XBTCNY reached a high of 2316 CNY or $364 this past Friday. I will devote the entirety of this week’s newsletter to questions surrounding China’s impact on Bitcoin.

Is China Using Bitcoin To Get USD?

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The PBOC is attempting to halt the hot money fleeing China. Since the 4% devaluation in late August, the authorities began actually enforcing capital controls. Bitcoin is legal in China, and individuals can wire RMB to one of several large Bitcoin exchanges to exchange RMB for Bitcoin. Once they have Bitcoin, they are free to transfer it anywhere in the world to buy goods or services, or convert into another fiat currency.

Further devaluation is forthcoming for the RMB. The Chinese citizens know this, and are searching for ways to protect their wealth. One popular theory is that through Bitcoin, Chinese households will get access to USD. The Bitcoin corridor is very narrow, and even a slight uptick in this sort of activity would cause trading volumes and the price to skyrocket.

The above chart shows the ratio of XBTCNY volume on OKCoin.cn, Huobi, and BTCC vs. XBTUSD volume on Bitfinex, Bitstamp, Coinbase, itBit, and OKCoin.com. Each was indexed at 100 on October 1st. Each subsequent day’s index looked at the change in volume vs. October 1st. If Chinese households were using Bitcoin as a USD conduit, then XBTCNY and XBTUSD volumes would have the same magnitude of increase.

The chart clearly shows that there were actual inflows into Bitcoin that didn’t fully leak into USD. This is very price positive. There is actual organic demand from China for wealth preservation or pure upward price speculation using Bitcoin. As the rest of the world piggybacks on the surge in Chinese demand, that ratio will fall further.

USDCNY vs. USDCNH: The Bitcoin Angle

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Currency trading in China is a complicated and fickle beast. There are three currency pairs to know about. The interbank USDCNY rate is set each morning at 9:15am by the PBOC. This is the rate at which member banks can trade USDCNY against the PBOC. USDCNY floats in a PBOC set band around the interbank USDCNY rate. USDCNY can only be traded onshore in China and is subject to capital controls. USDCNH is the offshore version of USDCNY. This pair floats in a band around the USDCNY rate. USDCNH cannot be imported onshore accept in a few circumstances that are irrelevant for this discussion.

USDCNY and USDCNH both have different forward curves, which represent the supply / demand dynamics of onshore and offshore CNY. Only domestic Chinese banks can participate in the deliverable USDCNY forward market, and this market is heavily regulated and monitored by the PBOC. Any bank globally can participate in the deliverable USDCNH forward market; the PBOC have very strong regulatory control over this market. Because of this, the USDCNH is a leading indicator of where the PBOC will set the interbank USDCNY, as banks can effectively use the offshore forward market to speculate. Recently USDCNH has traded at a higher price than USDCNY, which signals the market believes further CNY devaluation will occur.

The chart above shows the USDCNH premium (read: the market thinks CNY will be devalued) vs. the premium of Bitcoin in China. There is no clear correlation between the two metrics. The complicating factor is that the PBOC actively intervenes in the USDCNH forward market to narrow the differential. The PBOC does not want clear market signals of the impending devaluation. I still believe that a major motivating factor for China’s shift to Bitcoin is a real fear of currency devaluation.

How To Play The China Bitcoin Premium

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The China Bitcoin Premium chart as the most important chart in Bitcoin. The premium rose substantially during the recent run up in price. The 5%-10% region is very important. If the premium breaks out of this range, it means the usual avenues of arbitrage are broken. Arbitrageurs provide a price dampening effect in China. If they are unable to effectively move money between China and Hong Kong, then Bitcoin and China will soar farther and faster than in November 2013.

The premium is close to the 10% level. Let’s examine how to properly arbitrage this premium.

  1. Set up a Bitcoin account offshore (Bitstamp and Bitfinex are my top choices), and a Bitcoin account onshore (OKCoin.cn, Huobi, or BTCC are my top choices).
  2. Set up a mainland Chinese bank account. If you live in Hong Kong, take the bus to Shenzhen and you can open a bank account with just your passport. The Chinese banking system is very easy to enter, but hell to exit.
  3. Wire USD to your offshore exchange, then buy Bitcoin.
  4. Send the Bitcoin to your onshore exchange, sell it to realise CNY, then withdraw the CNY to your onshore bank account.
  5. Now comes the tricky part of converting CNY into USD or HKD. Every person is given a $50,000 equivalent FX limit each year in China. Assume that you have exhausted your limit. You can travel to China and withdraw 20,000 CNY and walk it across the border. If you want to do size, then you need a few friends to come with you each day. Or you can use a shadow bank to move the money from CNY to HKD. Unfortunately Beijing has begun cracking down on these bankers, and your money may or may not appear in Hong Kong.

With $10,000, you could make $800 per day in profit. However moving even $10,000 between China and Hong Kong on a daily basis is quite difficult. Therefore, I expect the premium to continue its upward ascent as the fear of continued CNY devaluation grows. Also remember that as the PBOC lowers the benchmark interest rates, it becomes less attractive to store savings with a bank, and more attractive to speculate on risky assets like Bitcoin.

Conclusion: Long And Strong


Unlike 2013, there are real concrete macro factors affecting the flow of CNY into Bitcoin. Bitcoin has passed through many trials and tribulations over the past two years. Many exchanges have fallen, but Bitcoin and the blockchain are still here. China and the rest of the world tackled the 2008 GFC by engaging in a money printing orgy. The effects of which are only starting to be felt. The volume of world trade is declining and the only method left for nominal growth is money printing. Nominal not real growth is all that matters so that banks can extinguish their pouch of non performing loans. The high priests of central banks will provide this growth at whatever social and or economic cost.

China “rescued” the world in 2008 by going on a massive credit fueled infrastructure spending spree. The PBOC now must fight the spectre of deflation. The tools at its disposal are rate cuts and currency debasement. Bitcoin and other non-standard risk assets will gain favor with a desperate populace trying to escape the jaws of inflation. Short this rally if you must, but cover before you bust.

XBT Spot


$330 dusted, $320 is history, $340 we are almost there. That statement is filled with hubris. As a speculator, I would like to see $300 put to the test and pass before I marched towards $400.

The volumes on non-Chinese exchanges have not increased enough at these levels. This week will be a true test. Will the $300 prices bring out the closet buyers. A good indicator will be premiums paid in America on LocalBitcoins. The volume on Coinbase will also be an important barometer. Coinbase operates the largest American Bitcoin brokerage service, and all that volume is passed onto their exchange. The largest trading market for Bitcoin has spoken, but we still need follow on support from the second fiddle, America.

Shorting this rally has proved fatal. If you want to express your bearishness, earn the carry by shorting the BitMEX daily 100x leveraged Bitcoin / USD futures contract, XBT24H, vs. buying spot.

Trade Recommendation:

If you are bearish, sell XBT24H vs. buy spot for a cash and carry arbitrage trade.

If you are bullish, buy weekly 50x leveraged Bitcoin / USD futures, XBT7D, while spot is $325 to $330.


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Crypto Trader Digest – Oct 26 https://blog.bitmex.com/crypto-trader-digest-oct-26/ Tue, 27 Oct 2015 09:40:52 +0000 http://10FFBBC6-2A25-40D5-9721-2973D83F9A34 To Print Money Is Glorious


On his southern tour of China in 1992, Deng Xiaoping was credited with uttering “To Get Rich is Glorious”. His program of Socialism with Chinese Characteristics unleashed one of modern times’ greatest transformations in a country’s wealth. Since the early 1990’s, China transitioned from the century of humiliation, to a century of prosperity and growth.

China’s growth over the past two decades is legendary, but underpinning this growth is one of the largest credit expansions in human history. Socialism with Chinese Characteristics is a euphemism for a red printing press. Printing money is as old as centralised government. China being China just did it larger and more in your face than any government in history. Since the 2008 GFC, China’s total debt to GDP has almost doubled to 180%. The gargantuan issuance of debt underpinned the creation of ghost cities and bridges to nowhere.

The great financialisation that began in 1971 when Nixon took America off the gold standard is reaching its expiry date. World growth is slowing evidenced by an across the board slump in industrial commodities. China is a highly levered to the global manufacturing economy, and the state owned banks (SOE) loan books are stuffed with industrial companies’ debt. This debt must be warehoused and rolled over to keep the many zombie SOE’s alive. As a result, the PBOC continues to aggressively ease monetary conditions.

This past weekend the Reserve Ratio Requirement was cut by 0.50%, and the benchmark lending rate by 0.25%. These desperate moves are meant to help banks deal with their toxic loan books. As deposit rates drop, the rush to sell CNY and convert into a higher yielding asset will intensify. The PBOC is clearly telegraphing that the CNY will depreciate in the near term. Mao’s red army is watching and as the they earn less and less at the bank, they will start to embrace risky assets. Bitcoin serves as a central bank put, an electronic means of wealth preservation, and a vehicle to export domestic capital.

$300 is just the beginning. If the China narrative catches hold again, a truly explosive upward price burst will occur. For the more patient traders, consider buying BitMEX’s 25x leveraged March 2016 Bitocin / USD futures contract, XBTH16.

XBT Term Structure

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The FOMO was strong this weekend. The amazing China pump to 1950 CNY ignited the inner bull in traders. The short end of the curve shot upwards. The long end barely budged. XBTZ15’s basis was flat, and XBTH16’s basis was up 8% on the week. Traders are still hesitant to believe the rebirth from the $200 to $300 purgatory. That is why the long end has not been bought as aggressively. Many traders expect a $300 breach, and then a quick tumble just like the other two attempts prior.

If the narrative around China grows, the medium term trend for Bitcoin is higher. If $300 can be broken and held for a week, then the FOMO will begin in earnest. Then the long end of the curve will skyrocket. Those patient enough to buy XBTH16 and sell XBTZ15 or spot, will be amply rewarded.

Trade Recommendation:

Buy XBTH16 vs. sell XBTZ15 or spot if you believe $300 can be broken and held for one week.

Dancing With The Daily

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If Bitcoin is fun, Bitcoin with 100x leverage is a hell of a party. BitMEX’s 100x daily expiring Bitcoin / USD futures contract, XBT24H, has quickly become our most popular product. Because of the heightened volatility and price rise, the premium intraday has been massive.

The above chart shows the premium of XBT24H over spot for October 25th from 00:00 GMT to 23:00 GMT. 12:00 GMT is the settlement time, and that is why there is a dip. Starting yesterday night during the pump to 1950 CNY, the premium of XBT24H reached 1.75% outright. For a contract that expires in 24 hours, that is massive. I call that the FOMO premium. In a trending market, traders following the trend and momentum will overpay for exposure. This is a perfect opportunity for spot vs. futures arbitrage.

The trade is to sell XBT24H and buy spot. This is not a perfect arbitrage. At certain prices, the short XBT24H’s negative USD gamma will cause a loss for the portfolio. The PNL function is quadratic so we can solve a priori for the two break even points. For this particular trade, break even is below $259.37 and above $337.71. Given the spot price was $293, it is extremely unlikely that XBT24H will settle outside of that range. This is a no brainer trade for an arbitrageur.

XBT Spot


Bitcoin traders have been praying to the goddess of volatility for the entire summer. She awoke with a vengeance this weekend. The price action in XBTCNY reminded me of 2013. The highs were high, and the retrace was violent and swift. XBTCNY touched 1950 (appx. $306), and then careened lower by 120 CNY to a low of 1830 this morning.

Bitstamp climbed to $296, and during the downdraft briefly touched below $280. The price action will subside this week, and another attempt will be made for $300 on XBTUSD, and 1950 for XBTCNY. Additional easing from the PBOC will lend the China narrative further firepower. Make no mistake, this is a healthy rally. Short at your own peril.

Trade Recommendation:

Buy the weekly 50x leveraged Bitcoin / USD futures contract, XBT7D, while spot is $280 to $285. The upside target price is $300.

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Crypto Trader Digest – Oct 12 https://blog.bitmex.com/crypto-trader-digest-oct-12/ Mon, 12 Oct 2015 15:50:38 +0000 http://FC130E05-EEEE-4350-B018-D098198D072C BitMEX Happenings

This past Tuesday, I participated on a FinTech disruption panel at the Bloomberg Most Influential Summit. [Video Link]

Also, I sat down for an interview with Coin Republic’s David Moskowitz. We talked about how and why Bitcoin businesses should hedge. [Video Link]

Announcing 100x Leveraged Daily Bitcoin Futures

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Due to the low price volatility, BitMEX has increased leverage on its daily (XBT24H) and weekly (XBT7D) Bitcoin / USD futures contracts. Traders can now use 100x leverage on XBT24H, and 50x leverage on XBT7D. Due to the tight trading ranges, traders employing scalping strategies should use these two contracts. Traders are not forced to use the maximum amount of leverage. If “Isolate Margin” is not enabled, the liquidation price will be calculated based on a trader’s total available equity with BitMEX.

The Wizards of Oz

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The last few weeks have witnessed the death of the cult of central banking. The investing narrative of the past 7 years was “central bankers can save the world economy”. With the ability to print unlimited money, there was no economic ill that couldn’t be cured. Investors who invested in risk assets were amply rewarded for their belief. The religion of central banking produced 0% interest rates and income inequality, and those who noticed the ills were regarded as Cassandras.

Nothing lasts forever, and market participants are now openly questioning the monetary policies followed by all central banks. Even central bankers themselves are quick to point out that they alone cannot produce an economic nirvana. Straight from the horse’s mouth, the G30 Group report highlights the dim view that central bankers have of themselves [link]:

Central bank policies since the outbreak of the crisis have made a crucial contribution to restoring the appearance of financial stability.

Nevertheless, for this appearance to become a reality, underlying problems rooted in very high debt levels must be resolved if global growth is to be more sustainably restored.

Investors construct narratives as shortcuts to process the incomplete information they have about the future. As the central bank omnipotence narrative wanes, investors might focus on cash flows again. The question used to be, which sectors will benefit the most from inflows of hot money. Whether or not a business can generate a net profit was of secondary concern. The question will now become, if free money is no longer effective in boosting asset prices, does this business produce a good or service that is actually desired by the market, and can they turn a profit.

The most important question is what assets can one buy to express a negative view on the effectiveness of central banking. Gold traditionally has been the go to asset, and the new kid on the block is Bitcoin. The 2015 narrative for Bitcoin was “Bitcoin bad, blockchain good”. Banks and other financial institutions eschewed the word Bitcoin, and transformed into digital payments and blockchain companies.

Bitcoin became the scarlet letter. The price and interest in the currency suffered as a result. The price fell 50%, and volatility remains at all time lows. As it becomes popular again to bash central bankers’ attempts to control every variable of the global economy, Gold and Bitcoin will benefit as an expression of dissatisfaction with the high priests and priestesses.

Now is the best time to increase exposure to assets that have fallen out of favour and price. Bitcoin will be fashionable again when the price exits its funk. Savvy traders who purchase Bitcoin derivatives now will see above average returns as premiums on the future value of Bitcoin rises as well as the price. Any product that has significant time value should be bought. For patient traders, BitMEX March 2016 futures are recommended. Between now and March we might get the first and last Federal Reserve rate hike, and/or a severe correction in the global financial markets. We are at the end of a 7 year bull market. Nothing moves in a straight line, or lasts forever.

How Liquid Is Your Portfolio?


Water, water, every where,
And all the boards did shrink;
Water, water, every where,
Nor any drop to drink.

— Coleridge, The Rime of the Ancient Mariner

A common refrain about Bitcoin from many institutional investors is its illiquidity. Bitcoin trades close to $100 million per day; this is very illiquid compared to G10 currency pairs. But what many forget is that in our centrally planned economic world, citizens are one government directive away from being unable to trade the assets in their portfolio.

Turning to the biggest success and failure of 2015, the Chinese equity market, many investors are learning just how liquid this market is. The Chinese government began aggressively pushing anyone and everyone to trade the stock market. The aggressive policies helped the market more than double in one year. But as the market corrected almost 50%, the government barred many large traders and funds from selling securities. The CSRC has to date brought 41 cases of “market manipulation” (read: selling stocks) against various institutions.

At certain points this year, the CSI300 futures contract was more liquid than Globex S&P Mini futures contract. And then the liquidity plummeted as the government began creating examples of traders attempting to realise profits or cut losses. Many in the west chided Chinese about their immature response to their stock market collapse. And many large investors have completely pulled out of China and will not return for some time.

This is not just a Chinese phenomenon. Bans on short selling and long selling were used during the GFC just 7 years ago. These same countries that claim to be committed to capitalist principles, have all implemented policies with a similar spirit.

If a market’s national government can effectively shut the market at a moment’s notice when it serves political ends, how liquid is your portfolio? Contrast this to Bitcoin, where there are a multitude of exchange operators. When MtGox went down, that wasn’t the end of Bitcoin trading. When Bitstamp got hacked and was offline for one week, people still exchanged Bitcoin in an orderly fashion. While the absolute liquidity is orders of magnitude less than other assets, at least Bitcoin can still be traded when the leading exchanges are shut down.

CSRC holds hearing for illegal stocks operations

XBT Term Structure

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Volatility continued to fall last week. XBT7D, XBTV15, and XBTH16’s basis all declined WoW. The drop in volatility is happening against a backdrop of a slowly building rally. If Bitcoin can break through $260, the surge of trading will lift the volatility out of its slump. XBTH16 has the most amount of time value remaining, therefore it has the greatest sensitivity to a move in basis. It is the most attractive contract to buy if one believes in a normalisation of volatility and a possible continuation of the rally.

Trade Recommendation:

Buy XBTH16 vs. sell XBTV15 to profit from a rise in price volatility and interest rates.

XBT Spot

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The slow ascent to $260 continues. Bitcoin / USD is now flirting with $250. There is formidable resistance at this level, but the underlying fundamentals of this rally are encouraging.

Golden Week is now finished in China, and price action will increase. The next major known event is the Silk Road auction, which takes place in early November.

Trade Recommendation:

Go long 50x leveraged weekly Bitcoin / USD futures (XBT7D) while spot is $245-$250. The upside target price is $260.

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Crypto Trader Digest – Sep 28 https://blog.bitmex.com/crypto-trader-digest-sep-28/ Mon, 28 Sep 2015 14:58:20 +0000 http://3306EB09-6BD4-4903-8DA2-9FF4B2BCE068 Daily 50x Leveraged Bitcoin / USD Futures Contracts

Last Friday we launched a daily 50x leveraged Bitcoin / USD futures contract with the symbol XBT24H. Due to the low volatility of Bitcoin, scalping or range trading is the preferred strategy of many day traders. With 50x leverage, traders can double their initial investment with only a 2% move in the spot price. XBT24H has quickly become our most popular contract, and we have added additional market makers to help improve liquidity.

Is Bitcoin A Safe Haven Asset?


Don’t fight the Fed was the investing mantra over the past 6 years. Indeed fund managers who did not heed that advice were eviscerated. The Fed did a beautiful job of constructing the narrative of central banking omnipotence. There was no economic problem that couldn’t be solved with lower interest rates, money printing, and equity market bubbles.

Nothing lasts forever and investors confidence in central bankers ability to engineer higher asset prices has come undone. It began in China where the PBOC lost the plot and has not been able to convince the hoard of ordinary punters to return to the tables. Next up was Grandma Yellen. Her concern over the weak world economy and markets was heard loud and clear except this time traders actually sold assets. The bribe of more free money didn’t turn the tide, and now the S&P 500 has given up all QE3 gains.

Where can investors hide? After falling almost 50% from the its high of $1,900 per ounce, gold was one of the best performing assets over the last few weeks. The question for Bitcoiners is whether Bitcoin will be viewed as a safe haven asset in the times of market turmoil to come. Market turmoil tends to benefit Bitcoin. The Grexit summer scare was negative for the broader financial markets, but Bitcoin performed beautifully in the risk-off environment. It traded up to $320. As soon as the Greeks folded to ze Germans, risk-on was back and Bitcoin fell back into low $200’s.

image (1)

The above graph shows the 30 day realised volatility over the past month. Volatility fallen by almost half in that time period. This is quite surprising when compared with a backdrop of a deteriorating global financial system. Once the world’s most volatile asset, Bitcoin has put many traders to sleep. As turmoil increases in the financial markets, Bitcoin is poised for a breakout in price and volatility.

The market neutral strategy is to buy October 2015 (XBTV15) 25x leveraged Bitcoin / USD futures contracts and short sell spot. An uptick in volatility on a breakout move will result in the XBTV15 premium rising. At that point sell XBV15 and buy back the shorted Bitcoin.

If you believe Bitcoin will begin behaving more akin to gold, go long December 2015 (XBTZ15) 25x leveraged Bitcoin / USD futures. It is still cheaper in basis terms than March 2016 (XBTH16) futures, but has sufficient time value to experience a nice pop if basis and price began moving upwards.

XBT Futures Term Structure

image (1)

Volatility continued falling last week. As a result, the term structure barely moved. The XBT term structure is in a healthy contango. The appropriate strategy is to sell XBTH16 and buy XBT7D and short roll. Below are a step by step instructions:

  1. Sell XBTH16 and buy XBT7D in equal contract amounts.

  2. When XBT7D expires, sell the next weekly expiring contract. This is called short rolling. The goal is to remain price neutral.

This trade has positive carry or Theta.

Daily BTC Theta = $Basis / Days Until Expiry * 0.00001 BTC Multiplier * Contracts

Assume that 100,000 contracts per side were traded.

XBTH16 Theta = $56.63 / 180 * 0.00001 BTC * 100,000 = +0.31 BTC
XBT7D Theta = $0.91 / 5 * 0.00001 BTC * 100,000 = -0.18 BTC

Daily BTC Theta = 0.31 BTC - 0.18 BTC = 0.13 BTC

Assume the curve does not shift, a 0.13 BTC profit each day will be earned from this carry trade.

If the short term rates rise significantly, there could be losses incurred when short rolling occurs. The point at which the short XBT7D has a negative daily BTC theta of 0.31 BTC is the break even.

0.31 BTC = $Basis / 5 * 0.00001 BTC * 100,000
$Basis = $1.55

A $1.55 basis equates to a 48.39% annualised percentage basis.

Assuming the rates do not rise on the XBTH16 contract, if the XBT7D annualised % basis rises above 48.39%, it is optimal to let it expire and sell the XBTH16 contracts at the Friday 12:00 GMT settlement.

The above example I walked through is a real world example of the basis trades I wrote about in our recent blog post Bitcoin Basis Futures Trading: Lesson 2. In Lesson 3, I will speak about risk management, and the different variables to monitor.

XBT Spot

Screen Shot 2015-09-28 at 6.01.07 pm

Bitcoin ended the weekend doldrums with a rally that began in the early afternoon China time. The price briefly broke through $240 on both Bitfinex and OKCoin USD. The move was a continuation of the spike in China early last week. This is a healthy rally. Higher highs are being made on increasing volume.

The near term price target is $250. Bitcoin failed there in the last liftoff attempt. Expect a cooling off period of a few days, and a general fade downwards. The retrace might lead to Bitcoin trading in the mid $230’s for a few trading sessions.

Trade Recommendation:

Buy weekly 25x leveraged Bitcoin/USD futures (XBT7D) while spot is $235-$240. The upside price target is $250.

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BitMEX Launches 50x Leveraged Daily Bitcoin Futures https://blog.bitmex.com/bitmex-launches-50x-leveraged-daily-bitcoin-futures/ Fri, 25 Sep 2015 13:10:08 +0000 http://262D636A-1C73-45A7-AF72-47B49B331C60 We are pleased to announce the launch of our daily expiring 50x leveraged Bitcoin / USD futures. The XBT24H contract will expire each day at 12:00 GMT based on the 11:30 GMT – 12:00 GMT TWAP price on the TradeBlock XBX index. If the Bitcoin / USD price moves 1% the value of XBT24H will move by 1%. Margin, profit, and loss are all conducted in Bitcoin.

The XBT24H future is ideal for short-term momentum, swing, and range traders. With 50x leverage, small movements in price can lead to large profits. XBT24H is live and available for trading. If you have any questions about our new product, please contact us at support@bitmex.com.

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