Topic: USD Swap demand on Bitfinex has never been so high (Read 9398 times)

you see the downfall of bitcoin, lower and lower!

The crash in mid August really seems to have wiped out a lot of the long swaps. We're down quite a bit now, with no imminent recovery in sight! It's interesting, this could be a healthy sign for the economy. Unfortunately a lot of bulls may have lost their money... 

so you must have lost so much $$$

They've got problems with floating point arithmetics? Geez, that doesn't sound good at all. A badly programmed exchange may lose money without the operators even realizing it! I guess something similar happened in Japan until about half a year ago...

Firstly, they don't really insure lenders' money. If all positions had to be liquidated based on the order book, USD lenders would lose dearly -- very dearly. And Bitfinex makes no legal guarantees there.

But yeah, they could certainly go bankrupt... or simply run off with the money. I'd be weary to keep too much permanently parked in USD lending there, as I've heard more than one programmer remark that their platform is not coded well, and even that they don't understand the issues around floating point arithmetic. That would, in turn, make me worry about their security protocols. We know very little about the identities of Bitfinex's operators, and if they were to lose significantly in a hack, it may be easiest for them to simply cut and run.

Just a hypothetical...

What the heck is going on with all those swaps? I really wonder sometimes whether those credits are the reason for Bitcoin having trouble recovering at the moment. It's like the only ones who are profiting are the bears who are shorting correctly!

Where did you get the 0.1469%? Today it's 0.04% so it's not high but low and it's low because the USD lender faces virtually no risk (other than systemic exchange issues, etc).

For the offerer , there's low risk-return. It's high-risk (and potentially high return) for the USD BORROWER because if the bitcoin spent with the USD moves down too much, he might not be able to cover his debt fully.
So even if if you were referring to an old, higher lending rate, that's still low risk compared to the bitcoin holder/USD borrower's.

Risk is the exchange might go bankrupt.

The rate was high because the expected return of bitcoin investment is high. If investor is expecting more than the rate being taken, they will have no problem paying the lending rate.

A couple of holes in this analysis.

Without the benefit of any hindsight, those conditions do not necessarily represent a zero sum game or negate a bullish trend.
You are assuming that both parties have the same risk profile and they'd necessarily use the same money to bid on bitcoin so that they always swing to either side. Otherwise, if what you are saying is true, one half of the USD swap's order book would always be empty or largely empty.
I could just as easily wire in USD to lend it without being interested at all in bidding bitcoin and absorbing larger volatility. It's precisely the order book imbalance AND different risk profile that makes it a NON-zero sum game.

Rising interest rates are normally accompanied by rising bitcoin price , which can produce  vastly larger returns than the collected interest rate after selling the those coins and lending USD. In this case you are again making a similar assumption as before: that the higher-risk profile of a bitcoin speculator can just as easily be converted to the low-risk, low-return lender. Even after giving the benefit of the doubt why would they not instead lend bitcoins at a locked high rate if  they start to see price stagnation or foresee a decline?? It doesn't necessarily have to be USD lending.

It's not apples to oranges so in sum: I think the data and charts we see is so convoluted and represents different people with different interests and different investment horizons that it doesn't necessarily mean a move in any particular direction.

Better use and return of time spent in understanding the REAL fundamentals and valuation modeling  of bitcoin.

It seems like something is wrong because something is wrong. There is no way that you can collect that much interest unless that is the cost of risk OR the market is really poorly functioning.

Does it make more sense to low ball bid on Bitfinex or BTC-e? I ask because BTC-e seems to be responding more aggressively to price shocks due to a thinner order book. That said, it is my understanding that the leverage problem is on Bitfinex. Any thoughts on this matter?

Can someone please explain how exactly total return swaps work on bitfinex with USD. What type of risk is the offerer exposed to? Is the rate of return per day really .1469%? I dont understand how the rate of return could be so high without there being effective risk for the person offering the swap.

Loan demand is bullish.  That said, it just disappeared and the $5-$10 million might have been related to exploiting a slight bug in bitfinex with the goal of increasing the swap rate.

Compare Bitfinex swap rates with icbit.se futures.  Both expect the price to increase.  You can make 20-30%/APR guaranteed (assuming no hacks / scams) by buying a bitcoin now, getting a contract on icbit.se and selling it in December.  Why?  Because speculators think it will increase by more than 10-15% by December and are paying a heavy premium to bet on this.

There is no evidence that bitfinex swaps will decline significantly.  The historical record is that they keep increasing (and supporting an increasing number of long positions). I start using bitfinex when the swaps were only $100k-$300k or so (back in Jan/Feb 2013).

Speculators can convert their margin position to a real position with the "claim" feature.  I know I did.

This is also true. Not everyone has a bullish view on bitcoin and want to stay away.

Not accurate, this assumes that all the USD lenders would otherwise buy BTC. In fact there are many lenders who are only interested in staying in USD and using Bitfinex as a way to earn a higher "risk free" return on their USD than they can find elsewhere.

Good analysis.

But the final point is not right. Trader can't margin trade darkcoin yet.

No. Loan demand is not bullish because in order to fill the loan, someone else has to front the USD, which means that those USD cannot be used to buy bitcoins. It all sums out to zero. The only thing that really causes growth is when new fiat is wired in, which actually increases the amount of USD which can be used to bid on Bitcoins at a given time. Actually I would prefer no loans were given out at all and that all USD were directly used to obtain real bitcoins. The margin state is actually more bearish than the non margin state. Here are some more reasons why:

1. The margin positions only exist on paper in the user's account. The only thing he can possibly do with his position is dump it to take the shiny green profit figure shown next it. The user cannot withdraw those bitcoins or participate in the bitcoin ecosystem.
2. The user is subject to an interest rate which means it is most likely intended only to do a short term trade, and if the trend is not rising fast enough to be worth interest rates then he will dump.
3. The above factors reveal the psychology of a margin user which is just to do short term trading, dump, and make profits rather than being a long term investor in Bitcoin.
4. The rising interest rates entice bitcoin holders to dump their bitcoins to obtain USD to fulfill the loan demand.
5. The margin user can be liquidated and forced to dump if the price drops too low.
6. If people with real USD decide to leave the exchange after the margin contract period is up, this will also force liquidate the margin users.

FYI actually the loans can also be used to buy Litecoin and Darkcoin (duh) but the points above are stronger / more relevant.

uh, what?

it means that people want to borrow 11 million USD, (to buy Bitcoins, what else?), but they can only get 1.1 million

isn't that extremely bullish?!

I was lending all the money I have on BFX the day of the crash, I think it was Feb 10th, and I did not had any loss. The only thing that happened was: many of my lend lots where closed very rapidly (i think because of people were automatically forced to sell).

The only real risk tat I see with BFX is the fact that the company is really small and not incorporated, so they can simply vanish with not so much consequences for them.

Nick.

Did you know that Karpeles has a history of committing fraud?

Seeing as one of his fake volume trading bots, Willy, was set to make constant Bitcoin purchases regardless of price every 10 minutes or so, I would seriously doubt he would be into shorting Bitcoin. All he would be doing was buying and holding Bitcoin, ramp it with fake volume, sell expensive Bitcoin, crash market with the intent of equalizing all the fake Bitcoin trade he used to ramp market in first place (i.e. buying units back for fraction of what he sold for and keeping the mark-up for himself) and then wash, rinse, repeat. Obviously though, things ran out from under his control. You think none of the current batch of exchange owners would take the same risks as Karpeles? What is stopping them? If you ran your own exchange and you could multiply your earnings by an order of several magnitude, by using your inside knowledge to trigger stop orders, squeeze out margin traders, and generally front run the market, wouldn't you be tempted? You wouldn't have to go apeshit crazy like Karpeles did and you could still make a killing through taking liberties with your customers funds and trust whilst exposing yourself to only minimal risk. What Karpeles done was had a bot that just kept on buying and buying and buying. The man was either an idiot, delusional, or both. What shrewder and/or more risk adverse corrupt exchange operators could do is simply use their inside knowledge of trader orders and their ability to front run the market to skim a steady and continual layer of extra cream out of the market when things are relatively stable, and then take big extra chunks of meat out the market when things are volatile without exposing their manipulation to the dangers of going against the overall trend.