Topic: This Bitfinex Credit Bubble cannot end well - page 26. (Read 62099 times)

The situation is more precarious than it would seem as the exit door for long traders is tiny if fire starts spreading.
That Bfx only now realizes the need to reduce margin from 2.5 to 1.5 for btc/ltc collateral and start collecting swap interests from traders just in case..

If true, doesn't that seem a tiny bit dangerous?

Think the latest news update said you can use bitcoin as collateral to "self fund".

Correct me if I am wrong.

We honestly don't know what their incentives are. They could be in the game and look to absorb thousands, maybe tens of thousands, of bitcoins that they could then later unwind on other exchanges. It's an unregulated market. The market is flat due largely to manipulation and the leveraged are losing their shirts. There really is nothing other than good conscience or a true belief in Bitcoins long-term potential that would stop them. Finally, even if they believe in the long-term potential of Bitcoin there are newer and more dazzling exchanges coming out every day. We are thinking on one hand that they don't want to kill the goose that laid the golden eggs, but at the same time what is their exit strategy when their market share gets encroached upon?

So, is that going to happen. Probably not. But do we know a damned thing about what their incentives are? Probably not.

I don't think it would be so unpredictable that it would cause havoc on the market, but rather it would be random, but also in small enough amounts so that market would not be greatly affected.

Doubt it will be predictable. I really don't think they will just dump immediately. They are already floating the interest amount, so it would easily be an amount they were willing to speculate on. They have a strong incentive NOT to crash the market, IMO.

With the new changes, do you think Bitfinex will liquidate BTC to USD in a predictable way? Or do you think they will speculate to some extent? (i.e. not dumping every day at 00:00 UTC, etc)

I'm sure there are people who owe much more than $10k. Given the volume at Bitfinex the past few months (aside from the current lull), it wouldn't surprise me at all. A few hundred BTC position could rack that up in a month at the current flash rate.

What one also needs to take into account is that borrowed swaps are changing trader's hands in extremely fast fashion, even though the total borrowed remains the same.
Swaps can be lent and borrowed for a maximum of 30 days only, so with the current $30 ml borrowed, we can say with absolute certainty that there is at least $1 ml turnover per day, due only to swaps expiration on any given day. This number is in fact much, much higher because loans can be offered for as little as just 2 days and a lot (most) of them are in fact in that range (one can see the duration which current offers have on the site).  The way it works is as follows: when trader has open position and his/her loan expires, new one is instantly created by the system automatically.

By the way, this makes me really wonder why would there be any demand for loans at all, sitting there for days, not filled, when trader can instead just go ahead and create the position and pick/replace swaps later on.

About holding onto open long positions and paying interest while market goes sideways or even down, must be the choice of traders, they must be stubbornly betting on a major uptrend no matter what, until they win. So, with the current rate of about 0.16% a day, they are drilling into their collateral at the rate of about 5% per month. I guess this is acceptable to all those holding on to their long positions (...currently all ~50,000 BTCs worth of them).

10,000 might be enough to liquidate a few positions. And 10,000 in the first day, plus 10,000 in the second, will take down a few more that don't have a clue about how much interest they owe.

I think the "won't affect current positions" just applies to the new limits 1.5:1, so they won't be liquidated because of that, but they will if they end with less than the required capital because of the payment of the interest.

So one take away is that they would not have said that unless some people owe bitfinex > 10k in interest.  So there are either some very large positions and/or some very old ones.

I'm not sure how this will work. The announcement said that it would be capped at $10k per day, so I'd think large trapped positions may have already started lowering their exposure after the announcement.

I also read today in the TV bitcoin chat (unsubstantiated) that BFX now said it won't affect old positions -- only new ones taken. So again, not sure what to think. We'll see.

The only asset we can't use at Bitfinex to go long on bitcoins, is darkcoin: we can borrower bitcoins on usds, btcs or, I think, also ltcs.

My guess is its partly a revolving door but also if you read some of these threads on here and reddit, the majority of people are expecting a bubble for no good reason so my guess is it is just a bunch of bull idiots expecting a bubble very soon, and they are bad traders so they don't understand yet how bad holding those loans is.

To go long you need collateral in USD.

Until now, Bitfinex only collected the interest in the moment the trader closed his position, with no interest paid on the interest that was accumulated. Now, after 21, this will change and the old interest in debt will be collected.

Some crazy bulls that have been long for months might get indeed liquidated because of that. It's impossible to guess how many.

I doubt about any conspiracy on the reason why the amount of swaps is so high. Some traders are jumping out, some bulls keep jumping in. I do believe that those more than 31 million usds in swaps were indeed converted mostly to bitcoin and that Bitfinex has about 40,000 btcs borrowed and 16,000 in collateral, ready to be dumped if bitcoin declines enough.

By the way, in a previous post, I presented some figures on the price at which we would see general liquidation. If we assume most bulls borrowers have collateral in bitcoins, the liquidation will be sooner, because their collateral would decrease also in value and not only the borrowed bitcoins. The number will be correct only for the ones that have collateral in USDs, but probably most won't keep fiat if they are bullish on bitcoin.

It should kill positions. I'm not sure it does, doesn't look like it. Either revolving door (I don't believe it, we should see more volume) or those longs are just holding on desperately. (If they are longs at all)

Well, there's Meta Trader 4 and FX Open. No interest/swaps. Isn't there no swaps on BTC.SX? Not sure. But you do then also have to deal with artificial spreads. But this kind of interest in a sideways market kills positions.

You might wonder why a trader would pay these rates. You'd have to ask them but my guess is convenience and simplicity plus what is the alternative if you want to margin trade btc but don't have ready access to cheap dollar loans.

As you say, it's a free market.

I'm not complaining about high swap rates. It's a free market.