Topic: This Bitfinex Credit Bubble cannot end well - page 31. (Read 62099 times)

https://www.bitfinex.com/pages/announcements


Curious to see what effect this has on price action. If I understand correctly, if you are fully leveraging BTC to hold a margin long position, under the default setup, Bitfinex will deduct the USD equivalent from your trading wallet to cover swap on a daily basis. Whether they then hold the BTC or liquidate it, I don't know. That last bit seems like something large position holders would want to pay attention to.

And the swaps are at almost 31.3 million, but the total bids in the orderbook above 35 usds shrunk to little more than 8,000 btcs.

I hope this silence from Bitfinex is because the current Public Relations just fired himself and Raphael is enjoying his weekend.

Another point is that, with efficient markets, the price on one exchange will affect the prices on other exchanges as people attempt to arbitrage or when people will buy on the cheaper exchange when then simply wish to purchase bitcoin.

EDIT: Or sell on the more expensive exchange when they wish to sell their bitcoin.

bitfinex orderbook contains lots of hidden orders.
You don´t really know how much money there really is in bids.

I would guess that the biggest whales use these hidden orders quite regularly.

So I think except from the bitfinex staff no one has a clue how much money is really tied up in bids.

The present size of an order book is not 100% of an issue as when volatility increases, the amount of volume traded will also increase, making it possible to liquidate positions. If it came down to it, they could also freeze trading and close positions on other, more liquid exchanges. 

The issue is not bitcoin price crashes.

Several posters have pointed out the order book on Bitfinex is quite thin compare to the number of active swap they have.

you can´t compare the current Bitcoin with Bitcoin when it started 

Today there are millions of venture capital coming into the BTC world, many exchanges etc.
Everything has matured and the big volatility with several market crashes won´t return in my opinion.

Bitcon already has had several downturns and several market crashes.

you really can´t compare BTC to other existing assets.
Maybe BTC will be the first asset to gradually climb to the moon.

In my opinion this is actually quite probable because of the scarcity in BTC and things
like the block reward halving...

Can you point out and refute the "nonsense" raise here?

The reason for this situation is the high interest rate:

Most fiat that arrives Bitfinex doesn't go to the orderbook as bids, instead it's lent because of the high interest rate. Also, many think it's no use to insert low bid orders in the orderbook, because in the case of a big flash crash, probably the trades will be reversed.

Borrowers mostly don't insert bids in the orderbook, at least not under 550 usds, since they are expecting the price to go up and are paying high interest rates for the fiat. They just buy the bitcoins as fast as compatible with a reasonable price.

Seems to be this demand pressure that makes the price of bitcoin higher than on Bitstamp or Btc-e. And this divergence in the prices doesn't go higher because this price attracts also more bitcoins to Bitfinex from arbitrageurs and people waiting for a higher price to sell.

In conclusion: there are higher amounts of fiat and bitcoins at Bitfinex, but most of the fiat doesn't go directly to the orderbook, instead is lent. And it's the fiat borrowers that are buying the big chunk of the bitcoins. Therefore, most of the buyers are people that must have the finger on the sell trigger in case of a small crash. But the higher price also attracts potential sellers of bitcoins, that are waiting for the right price, and that will also dump in case of a crash.

This is just unbelievable how this subject keeps getting "fueled" by SO much nonsense.
I deeply sympathize Bitfinex team for how much crap, from "some" people, they have to deal with.

Exactly -- you can't simply point to "increased growth" because it's simply not reflected by the order book. Clearly, USD swaps taken (at very high interest rates) are growing at a much fast pace than order book liquidity.

I think the main point is the ratio Volume of Swaps vs orderbook. If the first increases steadily at three times (just an example, I didn't do the math) the increase of the volume of the orderbook, that is a reason for concern and for the adoption of measures by Bitfinex to limit its grow.

On an healthy exchange both should increase at similar rates, as the number of customers grow. If most of the customers are bullish, that should have a similar impact on the swap volume and on the bids in the orderbook. This isn't happening.

They are mostly rhetoric questions, because (right or wrong) I think I know the answer. They did all of that because they are not lending money (or not big amounts, responsible by the increase of swaps) and, clearly, not creating fake fiat to lend to anyone.

I saw Bitfinex more than once adopting measures that hurt its short-term interest in order to defend its long-term interest or matters of reputation/principle (for instance, a recent one, even if symbolic: http://www.reddit.com/r/BitcoinMarkets/comments/28twpj/manipulating_bfx_swaps_for_fun_and_profit_a_howto/ciehls0 , you have to read the previous post).

A greedy or dishonest exchange wouldn't let customers to lend money and would control the supply of the money to lend it self at high interest rates. They decided that this policy would hurt the long-term interests, even if it could be very profitable on the short-term.

Several times Bitfinex reveled a clear concern with the excessive rates of interest. Again, they were putting the long-term interest ahead of the short-term, since they get more fees if the rates are high.

Dishonest persons don't think long-term, because they have no long-term plans for their business. So, I think they are an honest exchange.

That doesn't mean I like every thing about them, including (but not only) the current volume of swaps. Or that sometimes I don't hear a small voice saying "Fool, you are going to lose all your money on Bitfinex. Fool!".

As long as the average leverage ratio stays steady then there would not be a credit bubble growing. Any successful exchange that offers leverage would be expected to have credit balances grow as more customers deposit funds into the exchange looking to trade. 

Some very good questions you raise here. Only the top management of Bitfinex have all the answers, the rest of us can only speculate.

They did that once (as far as I know), on a more or less emergency situation under pressure from an important customer/partner(?).

If they were doing that, they could have earn millions lending money using their own "swap" system with little risk. Why then to accept customers to lend money? Why allow competition that ruins the interest rates? Why the effort to avoid rates higher than 1% a day, if they are lending? And if they made millions that way, why are we still talking to the founders? They surely would be rich enough to hire people.

They denied being lending money using their own system. I'm tempted to believe them, even if I asked the question and admitted that they might be lending now. I see no problem on them lending real Bitfinex money and their own personal profits. Even if I would rather see that money on bid orders on Bitfinex orderbook.

But if they are not lending, they don't have any reason to create fiat, specially for "friends". Buying bitcoins on fake fiat is too risky, it doesn't seem to be their type. It seems Gox ended bad also because of that.

If what myself talking about is true, they can just artificially create any amount of fiat and loan out and compound the problem when cascading margin call happen.

I can understand the reasons why they stop sending fiat/money to Bitstamp, even if they should have explained and announced the measure before adopting it.

But if they don't want to send Bitfinex fiat to Bitstamp it seems they have to use it to insert bid orders in Bitfinex's orderbook at median/low price to try to avoid a crash bigger than 40%. Those orders should be clearly identified as a Bitfinex orders for transparency.
No doubt, that can increase Bitfinex risk, but they were incurring in higher risk by sending the same amount to Bitstamp.

From a customers' security point of view, that this money is at Bitstamp or at the bid side of Bitfinex orderbook won't change much (it will matter to sellers' profits/losses, since sellers will have to sell much lower, but that is a trader's problem not a security issue of the exchange and all of its customers).

For all purposes, every time Bitfinex money ran out at Bitstamp, we could no longer sell bitcoins using Bitstamp bid orders. In reality, we were selling our bitcoins to Bitfinex and at much higher prices than if Bitfinex inserted bid orders at about 30% lower than current prices on its own bookorder, so the risk of Bitfinex was much higher.

I wonder where Bitfinex has its more than 1 million of profits they talked about some months ago. In swaps? Just earning 2% a year in a Hong Kong bank, like all our fiat sitting in their bank accounts?