Bitfinex adds Euro margin trading

Bitfinex, a crypto currency exchange that has been wrapped up in speculation about their relationship to tether, has now listed Euro trading pairs. Bitfinex has also offered Euros for margin trading so users can either borrow or lend Euros for margin.

I have few details on what will back up the Euros on Bitfinex, whether these are a type of tether, how users can deposit and withdraw Euros, etc, but I entered the Bitfinex Euro lending market last night. I’ve been lending USD on Bitfinex since they launched the market, and have found USD lending to be profitable, even after the exchange hacks. There are times when liquidity dries up or when demand for USD loans grows quickly as traders borrow to jump on the rising bitcoin price, and rates for USD loans get very high and this is when lenders need to expand their outstanding loans as well as the duration of their lending portfolio.

Although the overall risk of USD lending on Bitfinex is also very high, the risk that an individual borrower defaults is actually quite low since the exchange has enough liquidity to match any margin call blow-out, and since there are so many competing crypto currency exchanges nowadays, the arbitrage opportunities drive cross exchange liquidity, re-enforcing the low risk of margin loan defaults. I imagine the market for Euros on Bitfinex will be similar to the market for USD in this respect.

At the time of writing, a few hours after their launch, the margin loan volume for Euros on Bitfinex is still pretty shallow, but I bet that other traders will be drawn to it over the days and weeks, and I expect the liquidity for Euro loans on Bitfinex will rival their USD market soon enough. Going forward, I expect the USD market will still remain larger than the Euro market since the USD has more liquidity across all platforms/exchanges (including fiat markets), but considering the problems inherent with the convertibility of USD tether, the Euro market on Bitfinex might get a slight edge.

To start my Bitfinex Euro lending book, I didn’t deposit Euros from fiat, and I don’t plan on withdrawing Euros to fiat, instead, I’ll fund my Euro loans by exchanging bitcoins and other cryptos already in my Bitfinex account. To get the Euros out again, I’ll convert them back to cryptos and then send those cryptos off the exchange to another platform/address/account.

Trade Bitcoins, Ethereum, Litecoin Online

I frequently get asked about how to trade crypto currencies. Aspiring traders see the daily swings in the bitcoin price and wonder whether they should take up trying to pick the highs and lows by trading. This post will describe some trading methods and provide you with a list of venues where you can trade.

The first thing to understand about crypto currencies such at bitcoin, ether, and litecoins, is their value is represented by their market price which is simply set by the powers of supply and demand. There is no central authority that determines their market price, so if you want to profit from the daily price swings, you’ll need to have a trading strategy that takes advantage of this volatility.

You’ll also need to choose your trading venue(s). Where you trade will be based on your trading strategy, but also on your legal/tax jurisdiction. Since you’ll need to comply with the laws of your local government, you should choose exchanges that are compliant for you. The place where you trade will be different if you’re American, Canadian, European, Japanese, etc. And sub-state governments such as provinces and states will also have their own laws. It’s common today for each US and European state to regulate bitcoin differently so do careful research to ensure you are trading in a tax compliant way.

The place(s) where you trade will also depend on your strategy. If you are arbitraging the bitcoin price between different exchanges you’ll need to hold accounts at more than one place, and also have wallets that serve as conduits/transfer nodes for cash, if you’re making your trades manually you’ll be more concerned about the trading dashboard and other human readable analytics, but if you’re using a bot to conduct your trades you’ll need the best API access with easy to use functionality.

Here is a step-by-step tutorial of how to trade on QuadrigaCX, a Canadian based bitcoin exchange. Once you open your account, you can fund it with Canadian dollars using Interac if you verify your account. You can also fund your QuadrigaCX account with bitcoin, ethereum, and litecoin without verification.

Once logged into QuadrigaCX, choose the “trade” tab from the header menu near the top of the page. As the image below shows, you’ll arrive at a page that shows the current market for CAD/BTC with a simple interface you can use to buy and sell. You’ll notice the best bids are listed on the left side in green, and the best offers are listed on the right side in red. These prices are bids and offers from other users on QuadrigaCX just like yourself who are buying and selling. You might be familiar with a market like this since it operates just like a stock market such as the TSX and NASDAQ.

 

 

You’ll notice on the image above, the current market has a best bid of $9,995.01 and a best offer of $10,000.06. This means another user is willing to buy at $9,995.01 and another user is willing to sell at $10,000.06. If you’d like to make a trade right away (a market order) you can sell to the user bidding $9,995.01 and buy from the user offering $10,000.06.  Depending on your trading strategy, you might only be willing to buy at $9,500, so in this case, you can place a order at that price and join the other bids in the order book. Your order will be placed with the quantity you determine at $9,500 until the market drifts down to that level and another user chooses to sell you their bitcoins at that price. Conversely, if you’d like to sell your bitcoins, but only at $10,500, you can place this order as well.

On QuadrigaCX, limit orders placed manually on the dashboard do not have expiration dates, so all orders are essentially good till cancelled (GTC).

As you review the order book from the image above, you will also notice an “amount” beside each price listed in the order book. This is the quantity being bid or offered by all users at that price. This quantity will help you determine whether your order can be filled entirely at the posted price or whether you should choose to pay up or offer down from the best posted price.

 

 

When trading, always keep the fees in mind QuadrigaCX charges an explicit fee of 0.50% per transaction. So if you buy 1 bitcoin at $10,000 CAD, your actual cost will be $10,050. You should also pay attention to the “spread”, which is the difference between the best bids and offers. Using the example above, with a current bid of $9,995.01 and an offer of $10,000.06 the spread is $5.05 or 0.06%. The spread represents an implicit cost of trading too.

Here’s an example of an easy to implement manual trading strategy with a bullish bias. Say you have $1,000 CAD to trade with, you’ve noticed the price of bitcoin is quite volatile, so you plan to make a market on QuadrigaCX to take advantage of this volatility. You will risk 10% of your account with each trade so your unit size will be 0.01 bitcoins since the current price is $10,000.

You place an order to buy 0.01 btc @ $9,993, which is slightly below the current market price using the example image above. You place the order and wait for the market to come to you, when your order is filled, place an order that is 3% above your purchase price (9993 * 1.03 = $10,292), enter your order to sell 0.01 btc @ 10,292 and leave the order in the market.

In the meantime, if you’re still feeling bullish, place another order below the current market, and if this order is also filled, place an order 3% above your fill price. Keep doing this until you reach the maximum value of your account. As you do this, the price of bitcoin will bounce around going up and down, and your orders will fill at prices where you make a spread between your buys and sells. You profit when the price of bitcoin trades within the range of volatility your limit orders imply, and you lose when the price of bitcoins drops straight down.

This is a simple market making strategy with a bullish bias that takes advantage of the volatile price of bitcoin. You can obviously tweak your own strategy to suit your own goals. You could use technical analysis to choose your entry and exit points, etc. Its completely up to you!

Follow this link for a long list of exchanges from around the world.

QuadrigaCX Common Account Verification Questions

Opening an account at QuadrigaCX is the best way for Canadians to buy and sell cryptocurrencies such as bitcoins, ethereum, and litecoin. If you are a Canadian who wants to begin trading or investing in cryptocurrencies on a safe Canadian based bitcoin exchange then you’ll need to open and verify your QuadrigaCX account. It might seem daunting at first, to give QuadrigaCX your personal information, but this is for your own safety since QuadrigaCX is complying with all Canadian money laundering law (AML) so you can be sure you’re following all relevant Canadian laws by using QuadrigaCX.

To verify your QuadrigaCX account, you can either connect your Equifax account, or you can upload your identification manually. The information required includes:

  • A Photo or scan of a Passport or Drivers license – must be in colour
  • A Photo or scan of a bank statement or utility bill showing your name and full address
  • A Photo of yourself holding the government issued ID that you have provided

When I registered, I took a picture of my drivers license from my phone, I downloaded a copy of my phone bill from Rogers.com, and I took a picture of myself holding my drivers license. A few minutes later, a representative from QuadrigaCX called me to confirm my identity, and even asked me to confirm some credentials listed on my LinkedIn profile.

 

 

Here are some common verification questions:

How long does ID & Address verification take?

ID & Address verification is processed manually by the QuadrigaCX Fraud & Compliance team and they aspire to process all new applicants within 72 hours. However, during times of incredible demand for crypto-currencies, there may be delays.

What do you require for ID & Address Verification?

QuadrigaCX uses a manual process performed by members of their Fraud & Compliance team.

Requirements:
– Photo or scan of a Passport or Driver’s license – must be in colour
– Photo or scan of a bank statement or utility bill showing your name and full address
– Photo of yourself holding the government issued ID that you’ve provided. In the same picture have a note that reads “ID VERIFICATION FOR QUADRIGACX.COM” along with today’s date. Make sure your face will be clearly visible and that all ID details are clearly readable.
– Business accounts are required to provide an extra document that supports you are in control of the company, such as articles of incorporation and corporate resolutions.

All of these requirements must be uploaded via the secure file upload within the verification section.

Does QuadrigaCX accept international IDs?

Yes, QuadrigaCX accepts IDs from almost all countries with the exception of the Unites States of America. Canadian Money Service Business (MSB) laws prohibit QuadrigaCX from servicing clients within the Unites States of America. QuadrigaCX will not service US citizens or clients utilizing bank accounts domiciled within the Unites States of America.

Do I need to be verified to trade on QuadrigaCX?

Verification is not required if you plan to fund your QuadrigaCX account with bitcoin, ether, or litecoin and then trade on the exchange for any other fiat or crypto currency.

How does the verification process work?

For Canadian users, QuadrigaCX offers two methods of verification. To become verified, users must complete at least one of the two verification methods:

  1. ID & Address verification where you securely upload copies of your ID and proof of address.
  2. Instant verification in partnership with Equifax where you are served multiple choice questions based on information within your credit file.

By completing either form of verification you enable numerous funding options. Users who complete ID verification gain maximum Interac Online limits and those who complete both methods of verification unlock additional access to EFT (Electronic Funds Transfer) funding.

Do I need to be verified to withdraw?

Verification is not required withdraw any fiat or crypto currency from the exchange. Verification is only required to fund your account with CAD or USD.

What is QuadrigaCX?

QuadrigaCX is a crypto currency exchange, which allows users to buy and sell bitcoin, ether, litecoin, US dollars, and Canadian dollars on an open market. Users are able to place buy and sell orders in the QuadrigaCX marketplace to exchange their digital currency. This enables users to buy/sell their crypto currencies to others users who are also looking to do the opposite. QuadrigaCX has no control over the current price of Bitcoins traded in the marketplace.

What makes QuadrigaCX special for Canadian investors is that it complies with all Canadian money laundering laws (AML) and enables Canadians to trade their crypto currency on an established Canadian based market.

How to price CoinRoster bitcoin pools

This post will describe how to use binary options to estimate the odds of a pari-mutuel pool. Friends of mine run a fantasy sports site called CoinRoster where they host pari-mutuel pools on a variety of topics including the bitcoin price. The CoinRoster bitcoin pools are fairly straight forward, users are presented with a binary question such as “will the bitcoin price be over/under a fixed price at a future date”. As the image below shows, at the time of writing, CoinRoster had a pool asking whether the price of bitcoin will be above or below $5,000 USD on February 1st 2017 based on the CME reference price. This pool closes in a few hours with the current bitcoin price is $6,352.

This is a simple market with two possible outcomes, the price will either be $5,000 and above, or below $5,000 as described by the pool’s terms. With the current price of $6,352, we can use a binary options calculator to determine the theoretical price for each outcome. We can even go a step further by converting the binary option price into an odds number format that you prefer, in the example below, I use decimal odds.

To start, let’s tally all the information we need to price the binary option:

Days Till Expiration 92
Strike Price $5,000
Underlying Price $6,352
Volatility 90%
Risk Free Rate 1.25%
Distributions 0

The days till expiration is the settlement date of the pool, in this case, the pool closes on October 31st, and settles based on the February 1st price, this is 92 days.  The strike price is $5,000 since this is the price that the pool uses to determine the outcome (either above or below). The underlying price is the current price of bitcoin, which is $6,352. To estimate the volatility, I used the average implied volatility rate for options on deribit.com, I chose a level of 90%.  I used a risk free rate of 1.25% and there are no dividends or distributions which might impact the price, so this number is zero.

Now we have all the variables, to determine the binary option prices, simply visit a free binary options calculator online and plug in the numbers, below is a screenshot.

With these variables entered, we get a result of a binary call price of 0.62 and a put price of 0.38. The first thing we should notice is since there are only two possible outcomes, the sum of call and put prices should be exactly 1.00. We should also notice that the call option is worth much more than the put option, this makes intuitive sense since the strike price is $5,000, while the underlying price is currently $6,352, making the call option “in the money”.

The binary option values can also be viewed as percentage chances, in other words, a binary option value of 0.62 is like saying there is a 62% chance of the outcome happening. To convert the binary option into an odds format such as decimal odds, simply divide 1 into the binary price = 1 / 0.62 =  1.612 or oppositely 1 / 0.38 = 2.63. Now we have an estimated price for each outcome in this pool, 1.612 for above and 2.63 for below.

In this example, the main variable that will impact the calculation is the volatility rate. We could assume different levels of volatility and get much different results. For example, instead of using a volatility level of 90%, if we used a level of 30%, the result would be binary prices of 0.935 call and 0.065 put. This makes intuitive sense since the less volatile the underlying is, the less likely it is to make big swings “out of the money” in this case, below $5,000 by February 1st.

The CoinRoster bitcoin pools are fun ways to bet on the price of bitcoin, whether you are hedging or speculating.

CME to launch bitcoin contracts

Very exciting news from CME today, they plan to launch bitcoin futures contracts in Q4 2017! If it comes true, I think this would be one of the most dramatic events in the history of crypto currencies. Having a transparent US regulated futures market (can we also hope for options on futures eventually?) will have a cascading effect on the rest of the market. Think about the reasons why regulators have been denying ETF and other crypto product applications, because they say the secondary market is not developed enough, well, if the CME is hosting a liquid market, it becomes impossible to deny ETF applications. There is every reason to believe once the CME bitcoin markets are established, tracker ETFs will be approved and listed on recognized US exchanges as well.

When FX markets were launched on the CME in the 1970s, they supported the growth of a new global market for free floating fiat currencies. I hope something similar happens as the CME begins to host crypto markets, since it will become impossible for governments to deny their efficacy.

CME Group Announces Launch of Bitcoin Futures – CME Group

CHICAGO, Oct. 31, 2017 /PRNewswire/ — CME Group, the world’s leading and most diverse derivatives marketplace, today announced it intends to launch bitcoin futures in the fourth quarter of 2017, pending all relevant regulatory review periods. The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S.

Clam Coin Interest Rates Soaring

Usually, the mining yield for Clam Coins, a proof of stake cryptocurrency, is high enough that I don’t use Poloniex to lend my clams, but over the past few days as the price of clam coins has been rising, the interest rate to lend/borrow clams has gone through the roof. At the time of writing, the lending/borrowing rate for clams on Poloniex is over 2% per day!

What are the reasons why the rate on clams is so high? Obviously there are far more users willing to borrow clams then are willing to lend them, the liquidity on clams is less than many other cryptos, and there are probably less clam users paying attention to the lending rates on Poloniex and so there is a lag of time between when the capital flows to Poloniex from the miners.

Generally, I’m bullish on the price of clam coins. For what its worth, they have recently broke out to the upside after trading in a tight range for several weeks on the Poloniex clam/btc market. Users who are interested in clams have a few ways to get in on this market, they can use Poloniex to exchange btc for clams, or they can bypass the exchange and use ShapeShift to send the clams to a miner like Just-Dice.

How to Trade on an Exchange

This post will examine the way a price is formed on an exchange, and also show you how to trade on an exchange, whether you are trading stocks, options, or bitcoins.

What is an exchange?  An exchange is an organized market where things are traded. An exchange is a bit different from an informal market because an exchange provides a venue, standard rules, and becomes the host that participants can trust. In an informal market, traders must rely on the credit worthiness of each other in order enforce agreements. An exchange provides a middleman function that facilitates trade. The venue (whether its physical or digital) provides a place where traders can go to view prices and volume, and get information on the underlying market. Standard rules means that traders don’t have to negotiate specifics each time they make a transaction on an exchange, they can simply rely on the exchange’s standard rules, this promotes fungibility of the underlying things being traded.

Exchanges make money by charging fees to users. This usually comes in the form of a fee per transaction, but can also come in the form of a fee for the right to participate or to provide brokerage services (historically referred to seats). Exchanges do not get involved as principals or agents. The principals to each transaction are the proprietary traders and the agents are the brokers working for their clients. This way, the exchange does not take positions, and so does not take any market risk. Sometimes, a clearinghouse is used by an exchange in order to store the credit risk of market participants. A clearinghouse provides another layer of security to market participants, and especially in markets with leverage such as futures/options, a clearinghouse reduces credit risk and allows participants to trade anonymously, which further facilitates trade.

So you have some basic understanding of free market economics, and you want to get involved, where do you begin? One of the greatest strengths of our modern world is that anyone with access to a computer and an internet connection can get involved in trading on exchanges. With the advent of crypto currencies, there are very low barriers to entry. If you want to trade stocks on recognized exchanges such as NYSE and Euronext, you will need to hold an account with a registered broker in your jurisdiction. This can be difficult if you live outside of a rich country, but anyone can open an account on a crypto currency exchange such as Bitfinex, Poloniex, and Deribit.

Once you have decided which exchange you want to trade on and what your trading strategy might be (write it down or e-mail it to yourself), you will need to open an account and make a deposit to the exchange. In the case of a crypto currency exchange, all that you’ll need to disclose about yourself is a username/e-mail/password. Your account may be restricted in some ways (maybe deposit/withdrawal limits) unless you disclose more information, but an anonymous account is a possible way to start. Once your account is opened, you will need to make a deposit. You’ll need to navigate the process the exchanges provides to you.

After you’ve made a deposit, you can enter the market and make some trades. Whatever your goals might be, you’ll need to begin by be offering what you have deposited for sale, or putting up your deposited funds as collateral to make a trade. Let’s walk through an example using a deposit of bitcoins on Bitfinex.  The first thing you need to do is obtain some bitcoins, then you’ll need to open an account with Bitfinex and send those bitcoins to your Bitfinex account. Once your bitcoins are being held in your Bitfinex account, you can trade those bitcoins for another currency on the exchange. You can begin to offer to sell your bitcoins for ether on Bitfinex by finding the market for that pair, and viewing the current order book.

The order book for eth/btc on Bitfinex will show all the bids and offers for that pair. The bids are the amounts/prices that other traders are willing to buy, and offers are the amounts/prices that other traders are willing to sell. If you want to sell btc for eth, then you will place an order to sell, and join the offers. If the highest bid is 13 and the lowest offer is 14, then this means the market price will fall someone between those two prices. If you want to sell at the market, you can enter an order to sell your bitcoins at a price of 13 and this will result in a “fill” because you have taken your order “to the market” and “hit the bid”. If you decide that a price of 13 is too low, maybe you think a price of 13.50 is the price you want, then you can enter an order to sell your bitcoins for 13.50 and this will result in your order being the best offer, and make the current market 13 bid and 13.50 ask.  Your offer to sell at 13.50 will join the order book until which time another trader decides to make an exchange with you at this price.

As you can see, exchange prices do not arrive out of thin air. Prices are determined by the interaction of buyers and sellers, bids and offers. There is no central authority that determines prices in a free market on a fair exchange. There may be factors that can influence the decisions of traders, but they are still free to determine the prices they are willing to buy and sell for.

Continuing with the example above. If the current market is 13 bid and 14 ask, and you decide that your bitcoins are worth more than 14, you can enter an order for a higher price, at whatever level you decide. You can even offer to sell your bitcoins for 16, 50, 1,000, or any number, and your order will join the order book. If you choose to offer your bitcoins for sale at 20, your order will join the offer side of the order book until which time you cancel/change it or another trader buys your bitcoins from you at that price. Remember, if the market is currently 13 bid and 14 ask, traders will only buy your bitcoins at 20 when 20 is the best offer. This means that all the other offers in the order book between 14 and 20 must either be cancelled or filled, basically, the price must rise to 20 for your order to be filled.

At first, you might be confused by the functioning of a free market, but I think once you make some trades and see how an exchange operates, you will become more comfortable with the strategies that other trades and market participants discuss.

Deribit Suffers Loss – Remains Solvent

Deribit recently announced they have suffered losses due to liquidations triggered by margin calls. Essentially what happened was as the market prices changed, margin calls and forced liquidations were triggered, and the market did not have enough liquidity to fill all the orders in an orderly manner, so as positions were blown out, there was a big gap in fill prices to where theoretical prices might be. The beneficiaries were the market makers who let the market gap down, then filled margin liquidation orders at prices well below expected prices. The exchange made up the difference (since the liquidated positions were the result of margin calls), and then asked major market makers to eat some of the loss, which it sounds like they did.  Below is a copy of the text provided by Deribit.

The case highlights another situation where market participants are at risk since crypto financial intermediaries such as exchanges provide users with too little information about their financial position. With the absence of clearinghouses or independent rating agencies, users are left bearing a lot of risk, and its difficult for users to guage the magnitude of this risk.

Yesterday around 14.00 UTC we had liquidation algorithms of portfolio margin users creation a chaos in the 29 December future. This resulted finally in bankruptcies of more than 105 BTC. Further various client accounts had unjust losses due to liquidations as well.

 

We had to halt trading yesterday for a while to fix the issue before we could continue again. We are sorry for the downtime.

 

We solved the issue of the losses by contacting our biggest market makers and traders that have been making profits trading against the malicious algorithm at prices far above the market. We are grateful for their understanding of the incident and for their direct support of our exchange.

 

Further we decided to refill the insurance fund further such that all other traders will remain completely unaffected and no profits will be socialized among other traders in this session at all.

 

The total final loss left for the exchange amounts to around 60 BTC (or USD 235.000 at the time of writing). Please note that all users’ funds are safe and we as an exchange can, of course, handle a loss of 60 BTC. The exchange will continue operating as normal.

 

This was our first major incident since we opened doors for trading in the summer of 2016. We will work hard now to improve various liquidation algorithms such that this could never occur again. This might further delay the launch of new products like Ethereum futures and our upcoming Spot Exchange.

The insurance fund will also be replenished again with 25 BTC.

High Interest Savings Accounts Rates Update (2017/09/19)

Since Bank of Canada raised benchmark rates a few weeks ago, by this time, all the major HISA issuers in Canada have updated their corresponding rates. The average rate on a high interest savings account that can be purchased through the brokerage channel is now 0.95%. Yes, still less than 1%, but 10 bps higher than it had been before the Bank of Canada raised rates.

Click here to view current rates

The standout rate among those that I follow is Home Trust HISA which is currently offering 1.00%. This rate has dropped slightly and the spread between this rate and competitors has narrowed since Berkshire Hathaway took a position at the lender. Also, at the recent shareholders meeting to decide whether to issue more shares to Berkshire chose, the shareholders voted not raise more capital. This gives Berkshire more limited control of the company going forward, and also signals to the market that the lender has found better liquidity. This is also evidenced by the rate being offered on Home Trust HISAs.