Topic: Bitcoinica has paid out the first day's interest! (Read 3775 times)

zhoutong, I think the interest to pay for borrowing is way too high.

I planned to wait for my long position to become profitable again (could take months), but with such enourmous cost, waiting doesn't seem to be such a good option any more so it's probably best for me to take the losses and run.

I'm not even leveraged (if I include my BTC balance also), but the interest I receive is way less (no interest on my 50 BTC at all) than what I pay for holding the position.

Two questions:

• Do you plan to lower the swap points (as in change the formula to calculate them)?
• If I put enough USD in my account to put leverage below 1:1, will I still pay to lend money for my positions?

other than that: keep up the great work, I think what you're doing for bitcoin is good and you're doing it in a respectable way.

Zhou has already said that he's effectively trying to create a money market fund that attracts additional reserves to Bitcoinica upon which he will pay interest.  most money market depositors are conservative investors just looking for safety and stable return.  the last thing they expect is to lose their money.

a traditional money market only invests in "safe" securities like US Treasuries or other assorted short term debt both of which are highly liquid with fairly stable prices.  they try to not "break the buck" by maintaining a 1:1 value of the money you deposit to the money you can take out.  this all changes during times of stress.

as you can see, we have here a different model which takes these funds into a money market to invest in a start up highly volatile currency with leverage.  this money market should and needs to pay a high interest rate to compensate for the risk of losing its depositors money.

the parallel example we see in the real economy is that many US money market funds decided to reach out for higher yields via gov't debt in Europe the last couple of years and have paid the price dearly in the form of losses when the PIGS interest rates soared and the bond prices fell.  there is now talk of the US gov't requiring collateral posting by the money market funds which would effectively destroy the industry.  why would the financial regulators do this?  answer: to encourage a shifting of USD's from money mkts to the banking system.  don't forget; its always about saving the banks.

so while the interest rates being offered by Zhou look juicy and a no brainer, don't forget you could still lose it all.

Right, you need to strike a balance that doesn't excessively punish the people who give you 99% of your profits.  There should be little to no interest for a position unless the reserves are running low on that side.  I understand the need for consistent returns for depositors, but you don't need to consistently return over 5%.

Also, @myself, you don't earn the sell, you earn the buy, so it's only ~5.27 APY.

sure you can take that position. but there will be plenty of ppl willing to borrow your deposits despite the swap fee and leverage up their positions to speculate on the BTC price.

this is indeed a clever way to shore up the reserve accts.

Trading carries risk, so people trade only when they are confident about their decisions. A few cents of swap don't affect their decision much.

Deposit is risk-free, so there's a lot of difference between no returns and some returns.

By the way, you are not getting 20% APY. You always get the buying interest rate.

Well, it's different. The position swap is the difference between the buying rate of one currency and the selling rate of the other.

When we have enough USD, the buying-selling spread is larger, because more depositors share the fixed amount of interests (from position holders). Same thing applies to BTC.

Now, when you start a short position, you are selling BTC and buying USD. So you are paying the BTC selling interest and collecting the USD buying interest. In terms of BTC, what you pay will be used to pay the people who provide the BTC for you to sell. In terms of USD, you are collecting payments from people who use the USD you bought to trade.

However, the interest you collect can be less than what you pay, hence the negative swap.

We have the absolute incentive the stimulate trading activity so that we can earn more spreads (which earns us over 100x more than interest), but we have carefully considered the interest system to be the best solution to the reserve problems that we had in the past. In Economics terms, the demand for funds (position holding) is relatively price-inelastic and the supply of funds (deposits) is relatively price-elastic. Our aim is to ensure sufficient reserves while not affecting trading too much, and the base interest that we set exactly achieves this aim.

I see.  Most FOREX money markets will charge the swap for any position held overnight.  Since Bitcoinica is 24/7 they need to charge constantly.

We have already consulted financial and legal professionals about this. Please refer to our latest press release for details.

We are fully licensed, but it's a strategic move so we don't want to disclose the details too early.

Because we want to offer our customers a consistent payout. Our interest rate is calculated every 30 minutes based on our funds. There's no guarantee that we won't have a shortage of funds if people start to open positions in the same direction.

Our aim is to avoid the asterisk permanently. And we have to charge arbitrary swaps to fund the interest system.

Why do you need to continue paying interest if you have no shortage of funds?

Zhou,

just be aware that if you're paying out interest you could be running into some concocted international banking regulations.

at this point i only wish you spectacular success as this is what the community needs; another honest go to option.

We have no shortage of either currency, and we still have to pay deposits to people. The only way will be to collect position swaps.

This is funny to me. When people are long like crazy it's about to go down with a long squeeze right around the corner. Now that a lot of people are short it's also going down with apparently no fear of a short squeeze. Especially now that the ask side is very thin near the current price compared to what it was before, I would honestly worry if I was short right now.

I wouldn't be at all surprised if there is a bigger buyer simply waiting for a few more people to go short and then BOOM he drops a $250k bomb on the market, which would have some very interesting results with so many going short right now. It's still a bit risky but if a few more go short it might just be too tempting. We'll see what happens.

If you didn't notice this by yourself then I'll enlighten you: these figures are directly associated to current market conditions and, most notably, to size of shorts/longs on Bitcoinica. -$0.08 means that many folks on Bitcoinica are short now. Basically - if the interest is negative, there are more shorts than longs, and because it gets lower and lower, I feel that in very near future we'll see another downside.

www.gs.com now points to www.zt.com

Very clever

The more people put $/B in, the more there is in reserve for the leverages folk to play with and less startfishes.

I must suck very badly, that even with the smiley someone thought I was serious.

False.  There is very little risk, IMHO, and I trust you with my money, but there is nothing with no risk.


Don't quit your day job, you suck at jokes.

There are no risk at all. We collect swaps from traders and distribute a (large) fraction of them to depositors through interest payments. This is not a ponzi scheme or any risky investment. It's similar to a money market fund. (In fact, Bitcoinica is the first ever Bitcoin money market.)

We have a notable history of running a large-scale trading system with high security and availability.

It's important to also know that the interest rate will go down if there are a lot of spare deposits, and we can't guarantee any interest rates. According to my experience and understanding of the system, realistically the long-term APY interest rates for USD should be between 3% - 8%. (But again, this is not a guarantee, just a personal opinion.)

You don't have to do anything to earn the interest. Just deposit money and hold.

(I'm not going to start an exchange for now. We will continue using Mt. Gox until a better exchange comes out.)