Bitfinex, a cryptocurrency 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. 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 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 cryptocurrency 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 coming days and weeks, and I expect the liquidity for Euro loans on Bitfinex will rival that of the 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). Considering the problems inherent with the convertibility of USD tether, though, 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.