When is Bitcoin Most Volatile?

A user made a search on this site a few days ago wondering “what time of day is bitcoin most volatile?”

I’ll attempt to answer this question below, and if you have your own questions about cryptocurrencies, bitcoin trading, or related topics, please use the contact form on this site, or reply to this or other posts, and I’ll do my best to provide an answer.

It’s nearly impossible to tell what time of day the bitcoin price is most volatile. Since bitcoin is traded on a number of different exchanges around the world, against multiple fiat and cryptocurrencies, we would need to build a program able to get the data and run some statistical analysis to determine an empirical answer.  I suggest pulling data from a number of exchanges using their APIs, and putting this data into a statistical program: even excel will do. You can use the data to try to determine when standard deviation is the highest, etc. There is probably not a single answer, but the data will help you determine an answer that’s helpful to you, so that you can apply this data to improve your own trading process.

There are some other measures of bitcoin volatility to keep in mind. Check out The Bitcoin Volatility Index bitvol.info for a measure of historical volatility. I also think the numbers calculated by Deribit based on their options market are your best source to determine implied volatility.

When thinking about volatility, it’s important to recognize the different types of volatility. Historical volatility, also referred to as “statistical volatility” or “realized volatility”, measures volatility of an underlying by calculating standard deviation over specific periods of time. In comparison, “implied volatility” measures the future expectation of volatility. To calculate implied volatility, use an options pricing model such as Black-Scholes to solve for the volatility variable (this can be done in excel), or use a web based option price calculator.

Trading Clam Coins

CLAM coins are a cryptocurrency based on a proof-of-stake mining method. One new CLAM coin is generated each minute and awarded to users by proportional lottery based on the number of CLAMs they have working on their miner. This means there will be 60 new CLAMs created per hour, 1,440 created per day, and 525,600 CLAMs created each year.

The value of each CLAM simply depends on the interaction of supply and demand; there is no central authority that controls the value of CLAMs and their price is completely up to markets. Since their inception, the value of CLAMs has generally been rising against the US & Canadian dollars much like most other crypto currencies. CLAM users can consult blockchain explorers to check addresses, monitor transactions, etc, and can view the market cap of CLAMs on sites such as CoinMarketCap. At the time of writing, there are about 2.7 million CLAMs outstanding worth about $20,000,000 US dollars.

To get into the CLAM economy, the first thing you should do is buy some CLAMS; since CLAMs are based on proof-of-stake, you can’t mine any CLAMs without first having some CLAMs to stake.

To buy CLAMs, the first step is to get some bitcoins. If you’re Canadian or American, use QuadrigaCX since you can make Canadian dollar deposits using Interac online and then exchange Canadian dollars for bitcoins. For Americans, try a service such as Coinbase.

Once you have your bitcoins, you have a few choices. If you want to trade your bitcoins for CLAMs, you can find 77% of the volume for CLAMs on Poloniex and the balance of volume on Bittrex.  If you are a little wary about using exchanges, you can also use a service such as ShapeShift. At the time of writing Changelly does not offer CLAMs.

If you really want to mine CLAMs, check out my friend’s post on github describing how to set up your own miner.

In my opinion, Poloniex is the best place to trade CLAMs. The market is fairly liquid, but it jumps around enough (this is CLAM coins after-all) that there are opportunities for traders. But keep in mind that you can really only trade the CLAM/BTC pair: there is no other markets for CLAMs to fiat other than private sales between friends, so unless your friends are really into trading CLAMs, it’s probably best to trade on Poloniex.

The nice feature about trading CLAMs on Poloniex is you can both borrow and lend CLAMs. This means you can jack up your leverage at pretty cheap rates. At the time of writing, you can borrow bitcoins against CLAMs for less than 0.001% per day, and you can borrow CLAMs for less than 0.001%. You can also get some pretty cheap leverage on Poloniex.

At the time of writing, here is the current bid/ask spread on both Poloniex and Bittrex:

Poloniex 0.00047464 bid / 0.00047500 ask

Bittrex 0.00047483 bid / 0.00048195 ask

So you can see the bid/ask spread is much tighter on Poloniex, representing their greater volume/liquidity, but interestingly, there is more than a 1% gap between the bid/offer for CLAM/BTC on Bittrex. This presents an opportunity for traders who can arbitrage the different prices between exchanges. The fees on Bittrex are 0.25% per trade, so there is certainly an opportunity for some market making using a bot. Here is a link to Bittrex API documentation.

One funny thing to be aware of when trading CLAMs: since the market is only worth about $20 mil USD in total, and more than half of those CLAMs are tied up on just-dice, the trading for CLAMs can be cornered in an old fashioned way. This happened a few months ago on Poloniex. My friend and I noticed the lending/borrowing rate for CLAMs on Poloniex jumped very high, over 1% per day, much higher than the mining rate, so we moved a few CLAMs to the exchange to lend them out. It looked bullish for CLAMs at the time as the market was well bid. A few weeks went by, and the price of CLAMs kept rising. All of a sudden the market fell out, and the price crashed by half in a few hours. We suspect a small number of traders were borrowing CLAMs at high rates (thereby getting short CLAMs in the process) and feeding the order book with stink bids, and then as they pulled their bids and started selling their CLAMs, the bottom fell out (into air pocket).

The lesson from this experience is to beware when margin interest rates move dramatically: when you wonder what is happening, and you don’t have what you believe is the answer, take it slow. Move with caution, or, if you’re super bold, take the opposite position and help bring the market back in line.

Deribit Options Trading Tail Risks

Deribit is a crypto-derivatives site featuring bitcoin futures and bitcoin options. Its a pretty cool site that offers some unique features unavailable to retail users in fiat economies. From a retail user’s perspective, being able to enter limit orders based on either the bitcoin value or the implied volatility value is a cool boost. When users enter an order based on an implied volatility number, the exchange automatically refreshes the order each 6 seconds based on the current variables. This way, a retail trader can enter an order that adjusts to the current market based on a fixed implied volatility number. This is something that most retail brokers in fiat economies do not offer. This type of functionality is obviously available to anyone accessing fiat exchanges using APIs: they simply need to write these crons into their own programs.

I’ve been a fan of trading tail risks ever since the days of InTrade when I wrote the tail risks on economic numbers each night for over a year and never had a losing trade. Its well documented today, with the popularity of behavioural economics over the past few decades, that the untrained human brain makes inaccurate estimates of long shots, and a small mis-estimate for a long shot can translate into a lot of missing/added value when the statistics don’t support such prices.  For example, casinos are able to get a bigger house edge for long shot bets compared to even money bets. Consider the high house edge for most land based keno — which is pure long shots — compared to the low house edge for baccarat, the core game of which is close to even money.

Let’s apply the idea that we don’t estimate tail risks accurately to look for ways to profit on Deribit.

Deribit lists serial expirations on monthly and weekly bitcoin options. As time goes by, and expirations get closer, many of the “deep out of the money” strike prices lose liquidity because the minimum tick value is greater than the theoretical value of these tail risks. These deep out of the money strikes will go “no bid” once their theoretical value is less than the minimum tick. This is where the opportunity to profit can be found. I’ve noticed that what I’m assuming are manual order entry retail users with bids posted in the deep out of the money strikes where the theoretical price is lower than the single tick value. I assume that these users entered limit orders without expiration dates and didn’t cancel those orders as the particular strike went “no bid”. Another explanation is a user is short a particular deep out of the money strike and rather than waiting till expiration, the user is willing to pay an above market rate to close out the worthless position in order to free up margin or clean their position book. Whatever the reason, these bids are “pennies from heaven” for the savvy trader.

See the screen shot below that shows the bid on a worthless option at 0.0002 btc. The theoretical value of this option is actually worth less than the minimum tick of 0.0001 btc. A word of warning for those thinking of playing the tail risks: make them covered and remember the old saying about picking up pennies in front of a slow moving steam roller. Most of the time you’ll be able to take the penny, but there is a long-shot chance that you get called away or put in, so you need to either have the capital or enough liquidity to cover (either buying back or hedging). The nice thing about Deribit options is they are settled based on a futures contract that is liquid on the same exchange.

 

Buy Bitcoins with Flexpin Vouchers in Canada

Canadians have a few choices when it comes to buying bitcoins in Canada. One of the methods involves using Flexpin vouchers to exchange for bitcoins using services such as Bitaccess. Check out this post about my experience using Flexpin vouchers to buy bitcoins in Canada.

I’d say the best way for Canadians to buy bitcoins is to use QuadrigaCX, which is a cryptocurrency exchange based in Vancouver. The challenge with using QuadrigaCX is many Canadians have trouble with (and/or hate to deal with) compliance. If you want full access to QuadrigaCX deposit and withdrawal methods, then you should follow all the Canadian AML rules by verifying your account. Check out this post for my tips on how to verify your QuadrigaCX account.

What’s causing the Bitcoin Price to rise?

What’s causing the price of bitcoins to rise so dramatically?  I get asked this question many times a day from friends and colleagues wondering what’s driving the price of bitcoins. My favourite response is the old trader’s adage, “more buyers than sellers”. Even though this response is a joke, the basic fundamentals are true (I guess that’s what makes it an “adage”). The reason why the bitcoin price is rising is because there are a lot more buyers than sellers. An increasing number of people around the world are buying bitcoins, and by most back of the napkin estimates, only a small fraction of the world’s population has any bitcoin yet, so we might be only scratching the surface of the bitcoin price rise.

I think its only a matter of time until a wave of new crypto currency users come from countries with failed governments. There are lots of examples of this happening already such as the number of luxury goods shops accepting bitcoin in popular tourist destinations in France and Switzerland, they are being used by the elite from African and middle eastern countries. There are more than 1 billion people living in India and their governments are ineffective and wasteful, they are subject to wild banking laws and black markets make up such a large part of the Indian economy, it only makes sense that many people in India will move away from using their government currency and use crypto currencies instead. The government will have to spend a lot of resources and restrict the freedoms of citizens to access the internet in order to try and stop this trend.

Where could the price of bitcoin go?  Anywhere the market decides. Nobody is in control of the bitcoin price, and this is part of its appeal. If the bitcoin blockchain cannot provide value to users, its market price will eventually fall, maybe it will crash, but whether its bitcoin or some of the many other crypto currencies, the idea of blockchains has been discovered, and this cannot be unlearned.

Those of us with bitcoins should be less concerned about whether the price rises or falls, and more concerned about what governments will do about it. As the crypto economies grow, they will erode the power of governments to tax residents who do not disclose their crypto income/assets. And there will be increasing arms race between the most sophisticated members of rich countries and their own governments who try to tax their crypto currency profits.

 

Trading Bitcoin Price Spreads Bitfinex, Poloniex, QuadrigaCX

As bitcoin gains popularity, more exchanges are emerging globally, each with its own pros and cons. With so many exchanges to trade on, deciding which one is right for you will depend on your trading strategy, and one strategy I’d like to highlight is spread trading. This means profiting from the different prices for bitcoins between various exchanges. In the example below I’ll use examples for Bitfinex, Poloniex, and QuadrigaCX.  I use QuadrigaCX as an example because this is the best place for Canadians to buy and sell bitcoins, and QuadrigaCX also offers a bitcoin/US dollar pair. Also keep in mind that Bitfinex & Poloniex use USD “tether” which is a representative token and not actual US dollars.

The strategies described below are probably best done using the API from each exchange. If you are not familiar with using web APIs, then the strategies below can still be used by entering your orders manually, but you can execute orders (and manage order books) much better using a program to enter orders for you instead of entering orders manually. Here are links to web API documentation for each exchange: Bitfinex API, Poloniex API, QuadrigaCX API.

Let’s take a look at the market on each of these three exchanges to see what the current spreads are. When I refer to the “spread”, I’m referring to the difference between the bid and ask prices posted to the exchange, and then I will compare the “spread” between each exchange to see if there are any profit opportunities.

At the time of writing, here are the current markets:

Poloniex 15,529 / 15,560

Bitfinex 15,526 / 15,538

QuadrigaCX 15,505 / 15,999

The first thing we should notice as we look at these bids and offers is the markets on Bitfinex and Poloniex are much tighter than the market on QuadrigaCX. There is a small difference (a fraction of 1%) between the bids and offers on both Bitfinex and Poloniex, but a few percent difference between bids and offers on QuadrigaCX. This is where the opportunity lies. Even though QuadrigaCX is based in Canada and largely deals with Canadian payment methods, they still post a USD market, but since moving USD in and out of QuadrigaCX is much less common than Canadian dollars, their USD markets are also much more shallow.

When evaluating these markets, we should also keep trading costs in mind. Explicit trading fees are the biggest expense, the only other expense being the implied cost of carrying the float of money required to make trades. Poloniex will cost about 0.25% per transaction (depending on your volume), Bitfinex will cost 0.20%, and QuadrigaCX charges 0.50% per transaction. So in order to make a profit, we need to at least cover these trading costs.

The lowest bid based on the price quoted above is QuadrigaCX @ 15,526 and the highest offer is QuadrigaCX @ 15,999. If you bought 1 bitcoin at 15,526 and sold at 15,999, your profit before commissions would be 473 (the difference between the buy and sell). But what are the fees? 77.63 on the buy side, and 80 on the sell side for a total of 157.63. So if you can make a market with a spread of 473 and incur 157.63 of costs, then your profit will be 315.37.

Is it this simple?  Well, yes and no. In one sense, anyone is free to post markets and wait for traders to take their bid or offer. But on the other hand, the market is wide for reason. Looking at the volume of trades on the BTC/USD market on QuadrigaCX, it can sometimes take more than an hour to go by between transactions. This light liquidity is the risk that you need to take in order to get the reward.

Another way to bridge this liquidity is to post bids and offers on QuadrigaCX, recognizing that the spread is the widest on this market, and when you do get filled on one leg of the trade, you can offset your risk by taking the opposite side of the trade on a more liquid exchange (such as Poloniex and Bitfinex). For example, if we post a bid of 15,510 and an offer of 15,900 on QuadrigaCX, and the 15,510 bid gets filled, we can still work our sell order on QuadrigaCX at 15,900, while we also work duplicate orders on other exchanges. We can work OCO orders (“order cancels other”) so that when one of our sales gets filled on one exchange, we cancel the other working orders. You can see how using a computer program (a “bot”) to do this type of trading is much better than doing it manually (unless you want to stare at a trading screen all day).

The program (or trading strategy) that you use must make the necessary calculations for you, so that your program (or you) can know where to place buys and sells. If you are writing a program to do this type of trading, you need to have the program run checks and make calculations, adjust orders according to formulas. You can either set cron jobs to refresh orders and calculations on specific time intervals, or have the program place buys and sells based on other triggers, or both. Once you understand how to price these types of markets, its really up to your imagination how to let the program run your trading strategy. You can take more or less market price risk, you can tie up more or less capital, you can have the strategy take a bullish or bearish strategy, and you can use other exchanges (such as Deribit) to hedge your risk.

If you are a programmer and you know how to use JavaScript, Nodejs, python, or other such languages to build these programs, but you don’t want to risk your own capital, I am happy to put up the money in exchange for your work, please feel free to contact me on this site, I’m always looking for more competent developers.

CBOE Bitcoin Futures Contract Specs

On December 10th 2017, the CBOE will launch bitcoin contracts for trading on their futures exchange. Below is a description of the key facts associated with the CBOE contracts. My initial thoughts are that with a contract size of 1 BTC on the CBOE compared to 5 BTC for the CME contract, the smaller CBOE contract might be more accessible to retail traders because of its smaller size. I also think that having two contracts with different sizes with some slight basis risk (due to the reference price each contract uses), the CME and CBOE contracts will compliment each other by adding greater liquidity in a similar way that e-mini and miny contracts did with other futures contracts. Both contracts will be cash settled based on their respective underlying indexes.

Another feature that will come out of the CBOE futures contracts if they take-off is the Gemini Exchange will likely get a lot more volume and attention, this is probably good for the Winklevoss twin’s business.

Here are the CBOE contract specs:

CBOE Bitcoin (USD) futures (XBT) are cash-settled futures contracts that are based on the Gemini auction price for bitcoin in U.S. dollars.

Contract multiplier is 1 bitcoin.

Ticker Symbol: XBT

Contract Expirations: “The Exchange may list for trading up to four near-term expiration weeks (“weekly” contracts), three near-term serial months (“serial” contracts), and three months on the March quarterly cycle (“quarterly” contracts).”

“Market Orders for XBT futures contracts will not be accepted. Any Market Orders for XBT futures contracts received by the Exchange will be automatically rejected. Stop Limit Orders are permitted during regular and extended trading hours for the XBT futures contract.”

Minimum Price Intervals: 10.00 points USD/XBT (equal to $10.00 per contract). The individual legs and net prices of spreads in XBT futures may be in increments of 0.01 points USD/XBT (equal to $0.01 per contract).

The reporting limit will be 5 contracts (this seems quite low, but maybe this is something that the CFTC wanted)

There will be price limits, please consult the exchange website for more information.

 

 

Bitcoin Futures on CME December 18th

Today the CME announced bitcoin futures trading will begin on December 18th, 2017. This is very exciting news for crypto market participants. Trading in bitcoin futures on a CFTC regulated exchange will move bitcoin closer to the mainstream, add practically unlimited liquidity, and provide bitcoin holders with a way to hedge their bitcoin price exposure to the USD fiat economy.

The CME bitcoin futures contracts will be cash settled based on the CME CF Bitcoin Reference Rate (BRR), which aggregates bitcoin trading activity across several spot exchanges between 3:00 p.m. and 4:00 p.m. London time each day. The contract size will be 5 bitcoins, which considering the current price of $10,000 BTC/USD, the notional value of each contract might be around $50,000. This contract size is probably too big for the average retail trader, but good enough for the rest of us.

FAQ: CME Bitcoin Futures – CME Group – CME Group

CME Group plans to launch Bitcoin futures contracts on December 18, 2017, pending regulatory review and certification. CME Bitcoin futures are based on the CME CF Bitcoin Reference Rate (BRR), which aggregates bitcoin trading activity across major bitcoin spot exchanges between 3:00 p.m. and 4:00 p.m. London time.

Bitcoin Futures Get Official Green Light From Regulators

CME, Cboe allowed to proceed after pledges to regulators CFTC says venues will help U.S. surveil bitcoin’s spot market CME Group Inc. and Cboe Global Markets Inc. are poised to offer bitcoin futures contracts, easing the way for mainstream investors to bet big while dragging regulators into a realm skeptics call a fad and fraud.

Bitfinex Euro Market Update

It’s been a few days since Bitfinex listed Euro trading, so we now have some more data to work with. Even though the Bitfinex USD market is based on tether, and fiat deposits/withdrawals will remain severely restricted, the USD market is still much larger than the Euro market. At the time of writing, the current bid/offer for borrowing/lending Euros on Bitfinex is 0.012% to 0.0243% per day. There is 13,000 bid and 140 offered, so the Euro lending/borrowing market is wide and illiquid. This presents some interesting challenges and opportunities. For those of us capable of making a market (either manually or using bots) the wide spread is not such a big deal, at least as long as our volume doesn’t overwhelm the market. For my purposes, I’d put up to 10,000 Euros into this market before I’d start to worry that I can’t get the money out to lenders frequently enough to earn a liquid rate. But it’s a double edged sword, a choice of risk to reward, about whether to get the money out to borrowers or to try and catch a sucker rate.

I’ve also noticed that the volume offered in the Euro lending book on Bitfinex is kinked. There is only about 360,000 Euros offered up to 0.08% per day (from a market of 0.025% per day) and then there is an additional 10,000,000 Euros offered at 0.083% per day. So someone must think this money gets taken at this rate at some chance that they are willing to let the cash sit on the exchange (with all those associated risks) until this time. Not my style of trading (I hate dead money), but it helps us get a sense of the possible outcomes (and the ceiling on rates).

A quick glance at the loan book total outstanding shows the USD amount at 461,787,500.86 and the Euro 190,431.82, so the Euro market on Bitfinex has a long way to go in order to catch up to the USD volume.