Topic: This Bitfinex Credit Bubble cannot end well - page 36. (Read 62099 times)

I think there are some fundamental misunderstandings, to be honest. One poster earlier said that BFX would be "sued" if they did not fulfill their swap insurance obligations.

And what obligations would those be?

They may collect a % of swap fees to insure against catastrophe, but this is a very paltry sum compared to outstanding long swaps.

I used to lend $$ on BFX, but I got less comfortable with it when they removed Bistamp liquidity. I don't like how they never really explained their decision behind that, as far as I know, anyway. There is too much money lent vs. the bids, IMO, and they don't guarantee lender's money.

There is a lot of risk involved, though many don't like to admit. I guess on a forum where almost 100% are probably bulls...

I have to agree -- given the volatility of bitcoin and the track record of exchanges, I can't imagine people just want to throw their savings onto BFX (LOL) and lend it out indefinitely for rates that very well may considered usurious in many jurisdictions. I do keep funds there (I spread across several exchanges), so when I sell too early () I lend out 2 days at a time. But always nervous, doesn't feel good being locked in those contracts....

I doubt most lenders lend out for months given the risk of goxings. Most are just lending out for a brief period.

To be honest, I don't think it's an inaccurate title, if sensationalist. Again, I think it would be prudent to consider the possibilities that a) the order book may not fill in to provide sufficient liquidity in a crash (right now, it's paper thin), and b) that in such a situation, we may not immediately recover most or all of those losses. At that point, we are at the whims of BFX -- how much loss will they take? How much will lenders take? Or will they just hold traders hostage indefinitely by locking the market down? Swap insurance is pathetic compared to the leverage allowed. They keep saying "it's less risky than it used to be" -- yeah, leverage allowed was even more insane before, but volume was lower and Bitstamp liquidity was there. That doesn't mean that at 2.5x that there is sufficient liquidity to justify the level of long swaps vs. order book.

And why the fuck is Bitstamp liquidity gone, now that leverage has risen to unprecedented levels?

Like someone else said, just keep thinking happy thoughts. But the answers provided by BFX do not begin to address the reality.

more and more people are realizing 10% interest a month on bitfinex will almost certainly make more than long term btc holding.

At 10%/month (what I've been making at finex), btc would have to be 6000 in 2 years.

Precisely.

Exchange operators and conflict of interest n all that.

Seems to me that if Bitfinex were to have it's way, that Bitcoin would be getting pumped to the stratosphere, Huobi and OKCoin also. It seems that it is mainly selling pressure on Bitstamp and/or Bitstamp's reluctance to embrace China and Bitfinex pumps that is holding market in place. So we have Bitstamp, the one solid trustworthy exchange where there is no leveraged trading and who have the highest likelihood of having all the USD and BTC that they say they do who are 'weighing down' the market, and then we have the ramping 0% trading fee fake volume Chinese markets (are we supposed to believe that they really make their money just on deposit fees and VIP memberships?) and Bitfinex, where fake volume and liar walls are part of the fixtures and fittings and where their is leveraged trading with USD swaps hitting all time highs despite usurious compound interest rates and the fact that the market remains stagnant.  

Makes you wonder on what grounds or rather, what is driving the pump on Bitfinex. Could it be over-extended leverage held by a whole bunch of 'all or nothing' Kamikaze traders, perhaps with a spot of fractional reserve lending going on? Have the exchange operators a special interest in pulling this off? Are the exchange operators themselves engaging in this ramp attempt in huge leveraged long positions with some set price objective at which they plan to quietly cash in their own positions at? If any of the above were to ring true, would it be beyond the exchange operators to attempt to use artificial numbers to influence the market direction and supports?

People can cry conspiracy theorist all they like. If this ramp were to be based largely on hot air and illusion, and a lot of people were to end up getting burned, it wouldn't exactly be a novel event in Bitcoinland. To completely discount anything like what I have typed above ringing true, one would have to have faith and integrity of those operating these exchanges. So do you all trust Bitfinex? I know I don't!

His "main point" is that finex traders are overleveraged to the long side. Since this is the speculation subforum, if one group of market participants does something that another group of market participants thinks is dumb, we will discuss it. That is all.

Title is a bit sensationalist, but not claiming anything per se wrong. He could change it, I guess, but doesn't have to.

How would you know if the answer was honest? Frankly, I think this sort of "customer service" is very odd and off-putting in the realm of commodity exchange.

Since Bitstamp routing is gone, definitely not my exchange of choice. Maybe if they recover some liquidity.

An exchange giving out insider info and pumping?   Gotta make you wonder

This is one of my favorite things about Rafael. During the bubble last year, I emailed and asked how much new fiat was entering the exchanges. He actually gave me an honest answer. I knew right away the bubble wasn't even close to stopping.

This is the kind of information that is priceless.  And its nice that Bitfinex provides this type of personalized and honest (even if not politically correct) feedback and customer service.

Thats why they have been my exchange of choice and will continue to be.

I still don't get your "main point" of concern. What is it?
Where exactly do you see a problem, if "this" will continue? The fact is, if no other exchanger, as good on features (or better) pops up some time soon, "this" absolutely WILL (!!!) continue.
For some reason, you seem to see the growth of borrowed swaps, as if it did not have any backing. But, it does! Once again, at Bitfinex it is technically impossible to borrow more that 2.5 times (maximum !!!) of the funds which people actually deposited into the system. If borrowed by traders USD swaps are currently at 25mln, it does mean that these same traders have a total of at least 20mln on their accounts. If a month from now this number becomes 50mln, it means there is at least 40mln on the accounts of traders. Also, the current 2.5 factor here is the absolute maximum allowed. In reality, not everyone who uses the leverage is always "all in to the max", which means the "backing" is in fact even higher.

RE: "...sooner or later people will be forced to deleverage, be it more gently or more dramatically..."
This same thing applies to trading without leveraging. This market is highly volatile, so whatever happens "sooner or later" will happen on all exchangers and so far, we see nearly perfect reflection of trading patterns between all exchangers, price wise and trading patterns wise. I don't see why would such correlation change because of leveraging. There is active trading going on, for every sell there is a buy and like wise, for every leveraging there is deleveraging. The two processes are highly dynamic and are taking place at the same time.

Well, why then stop there with the title? Something is line with a title like "WARNING: Bitfinex is nearing a complete collapse !!!" would for sure do a much better job "attracting" even more readers.
Considering the fact that you generally seem to agree with at least some of the arguments in this thread, how about changing the title to something more neutral, perhaps with the question mark? This would still show your opinion and will be seen as an invitation to discuss.

Respectfully,

I wouldn't worry so much about the number of loans outstanding because as the site grows more people are going to open accounts and utilize leverage. I would say it would be natural for more loans to be outstanding. What this chart does not display is the overall leverage of accounts.

This is important because if overall leverage is too high then in the event of a flash crash or price spike then the exchange may not be able to force close positions quickly enough if liquidity is not there. It could be very possible that some of the accounts have very low leverage (well under 1.2:1). 

Couple clarifications,

1. I never meant to imply that Bitfinex (the platform) is under threat by this (as oda correctly assumed). I don't have any reason for believing that Bitfinex is unsafe nor untrustworthy (in the contrary, I like their way of BTC audits), and I don't want to convey such a thing.

2. My main point is just that IF this continues for much longer (a divergence between price and active USD swaps), sooner or later people will be forced to deleverage, be it more gently or more dramatically. And of course this is just extrapolation that relies on few factors and educated guesswork, same as most all of speculation.

3. True on the title, it is sensationalistic in two ways, but it's just reflecting my opinion and it attracts readers.

Thanks for all the input everyone.

Traders tend to close winning positions too early and losing position too late.
This is human nature and has been documented to be the case on every market ( stocks, bonds, currencies etc), not only in the bitcoin world.
I read various articles about the fact that most traders trim their winners and let their losers run, which is exactly the opposite of what one should do.
The worst enemy of each trader is his/her instinct.
On top of that I believe we all agree with the fact that we are long overdue another big jump and judging from the type of customers BFX welcomes onboard every day ( all sort of deep pocketed financial institutions) it is going to happen soon.
Last year this time we verified young miners that wanted to sell some bitcoins to go on holidays, this year is the grey haired wall street guy that wants to buy bitcoins for millions of dollars.

Having said that you also probably agree with me that " The Bitfinex Credit Bubble cannot end well" is some kind of a non neutral title.
And you probably also agree with me that wise people should try to behave wisely as they are taken into high consideration by the community.
The bitcoin world, as every other financial world is based on trust and trust must be defended against discriminatory attacks.
We do monitor our traders constantly and constantly come up with more and more sophisticated solutions to avoid crashes.
They are smart people and they do nothing wrong in believing this wonderful thing called bitcoin will change the world and the life of each of us.


That's my opinion.  

Having said that I think I will go for a swim, need to do some sport.

Have a good weekend

Giancarlo
Bitfinex Team

Hey,

I didnt want to participate in the discussion as I love reading analysis of economic metrics and don't have necessarily anything useful to add, but maybe want to correct some points.

You are right that the increase in USD swap is not necessarily reflecting an increase our active users. Actually, the distribution of long positions size is VERY variable (ie a lot of small positions, a few big positions, classical 80%-20% something).
However I do not think the trading volume is also a very good indicator, for the same reason, and also the fact that volume also depends on volatility.

As for will it end badly I don't think so. Our users are mostly bitcoiners, they are really long and ready to pay a high rate for this, especially because of some "information" circulating about the bubble spiking again for the 24th of July. But if you note, the spike of margin rates is getting lower over time than what it used to be, to a point where it is imho sustainable (less than 100% a year is not unreasonable for bitcoin)

Finally we have taken some steps in order to prevent flash crashes like february. Of course we cannot make bids appear magically, but the worse that could happen is a price significantly depressed on bitfinex compared to other exchanges, until arbitrage made its magic. I want to believe the orderbooks of exchanges do not reflect all the money there is to make the price, the price itself is a signal upon which actors act to buy and sell, send USD or BTC to exchanges,...

Well, an interesting topic, questions we did certainly discuss internally believe me

Raphael

@Giancarlo, BitBits

Maybe there is some very basic misunderstanding going on in this discussion... If I understood Blitz' post correctly, the following summary is the essence of the problem:


Bitfinex traders are kinda retarded for not winding down their longs, despite the price going counter to their position.


That claim itself is debatable (and you can very much disagree with Blitz on this), but it is not (mainly) an attack on Bitfinex, so there's no need to argue against his point from the angle of "trying to protect the exchange's reputation".

Can we agree on this part?


P.S. I traded on finex myself, and will probably do so again in the future. I have nothing against the exchange, and don't (for example) buy the front running accusations made in another thread.

See bfxdata.com for historical data on all sorts of volumes.

Regarding all these comments on "credit bubble" and "overleveraging", I don't understand what is the issue some of the posters here have.
The lending thing at Bitfinex is just an extra feature. Absolutely all brokers, big or small, stocks trading or Forex trading, who offer leveraged trading, are ALL taking the liabilities entirely upon themselves. They protect themselves by margin requirements, limiting the leverage rate, forced position liquidations and for the extreme situations - trading halting. All of these parameters are being set depending of the particular trading market or the commodity peculiarities. This is exact same thing what Bitfinex does and THAT, is in fact my own opinion about what the "effectively insured" mostly means - technical solution (not financial).

Moreover, the fact that borrowed by traders assets are "visible" to the public, makes this platform a lot more transparent than anybody else.
Just look at BTC-e, for instance. Leverage there is higher, they have flat, one time fee and traders there are borrowing from thin air, God knows how much. I am not saying however that BTC-e is guaranteed to be insolvent due to margin trading, I am sure they are relying on the same technical solutions as all other brokers have, but don't you see the advantages of Bitfinex in terms of transparency in this respect?
Why inventing the negativity?

EDIT: posted at about the same time as Giancarlo above. Didn't mean to "interfere"...

Odakrell

my point is: to take a single shot (end of november) and to extrapolate a theory is dangerous as it can paint a completely distorted picture.
How about this: on december 20th 2013 (20 days later) the BTC price was 600 and total swaps were 10 millions.
This means that actually total swaps increased 2.5 times ( guess what.... same as shorts!) since that date.

Long story short: Bitfinex isn't more dangerous than what it was back in december 2013, it is actually less dangerous as it decreased maximum leverage from 5 to 2.5 as outlined by Bitbits in his good analysis ( hattip to him).

As previously stated I'm not the best PR guy in town ( probably the worst, I have no problem in admitting it ) but I will always stand against any attack to Bitfinex that seems to be wrongly undermining confidence in our business.
I do accept educated critics and always try to correct things that can be improved, but this was something else.
To be "politically correct" in my answers is not my goal.
I do care a lot about our customers assets and I will always do anything I can in order to defend them.

That's all I have to say about it.

Thanks a lot and have a great day

Giancarlo
Bitfinex Team


edit: Bitbits answer was quicker than mine....
 

Good point. I didn't really fact check it, but Blitz mentioned 9 vs 2. Should look at it myself to see why he got that number instead of yours.

The menacing part (that he pointed out) is that over the time period in which the long to short ratio rose, price decline. That is, and I agree with him there, one big fat long squeeze waiting to happen.