CME Ethereum Price Index

CME Group and Crypto Facilities (CF) have reteamed to bring enhanced pricing information to one of the top five global cryptocurrencies.

Introducing CME CF Ether-Dollar Reference Rate and CME CF Ether-Dollar Real-Time Index, both available on the CME Group website.

The new pricing indicators are designed to: 

  • Offer price transparency, real-time replicability and reliable benchmark sources for price discovery
  • Accelerate the professionalization of Ether trading
  • Complement our Bitcoin Reference Rate (BRR) and Bitcoin Real-Time Index (BRTI)
  • Draw on our experience developing global pricing benchmarks

Three Ways to Access Streaming and Historical Data: 

  • CME Group website
  • CME DataMine
  • Market Data Platform (MDP)

Deribit vs Bitmex UP contracts

Deribit users received an e-mail outlining the difference between their options contracts and the Bitmex UP contracts recently released. Here is the text of their e-mail:

Last week, Bitmex introduced a new contract named UP (Upside Profit) Contract. This contract is basically an option on BTC, exactly like the options traded on Deribit.

 

The prices of Deribit options are established by buyers and sellers in the market. Anybody can participate at any time in the bidding process, provided enough margin in the user account.

 

The Bitmex UP contracts can only be bought. There is only one party that can short the contract, which is only one market maker designated by Bitmex. This market maker seems to be doing quite well, as the price at which the contracts have been issued are around 10 times higher than the contracts with the same specifications on Deribit (the only difference being that Deribit options expire a couple of hours earlier than the UP contracts on Bitmex).

 

The buyers of the UP contracts on Bitmex must have been unaware of the fact that they could have gotten an almost 10 times better deal on Deribit. We will explain this below with an example.

 

Looking at the Bitmex UP contract with expiry date 4 May 2018 and strike price of 10250, the current ask price for this contract is 0.0033 BTC. This contract would give a payout of the difference between the settlement price and the strike price whenever the price of BTC is higher than 10250 on the 4th of May. The contract size is 0.1 BTC, meaning that a trader would have to buy 10 of the contracts to get the full difference between strike price and settlement price (if settlement price is higher than 10250).

 

Looking at the 4 May 2018 contract on Deribit with strike price 10250, the current ask price is 0.0039 BTC. At first sight, the market on Deribit and Bitmex seem somewhat in line, but the contracts on Deribit are options on 1 BTC, while the contracts on Bitmex are options on 0.1 BTC.

 

This means that a trader on Bitmex would have to spend 0.0033*10=0.033 BTC to get the same exposure as buying on Deribit a single 4 May 2018 contract for 0.0039 BTC. Thus, in this case, a buyer is 8 times better off on Deribit than on Bitmex. In other words, traders could have saved almost 90% of their investments in Bitmex UP contracts by buying similar contracts on Deribit.

 

We hope the huge discrepancy between options prices on Deribit and Bitmex cannot only be explained by the fact that there is a single party who is allowed to short sell those contracts. We believe a mistake has been made as for the issuing price of the contracts. Let’s see if the UP contracts will get more reasonable prices in the coming weeks.

blockHACK Barrie Blockchain Fintech Hackathon

A fintech blockchain hackathon is coming to Barrie Ontario on March 23rd/24th. Developers will be competing for $5,000 cash awarded to the best projects hacked together over the course of the event. Mentors will be available to coach the participants. This event is a great opportunity for junior developers in Barrie who want to learn about fintech blockchain applications and gain access to opportunities in the fintech blockchain sector.

blockHACK – CODE * LEARN * MEET * EAT

Whether you are an beginner or expert with an interest in Bitcoin, Ethereum or other blockchain projects our Blockchain Hackathon is a two day event you really will not want to miss.

How Does Bitfinex Funding Work?

If you have spare bitcoins kicking around, one way to use them is by lending them out to margin traders on an exchange such as Bitfinex. This post will explain how the Bitfinex funding market works, and how you can use it to earn more bitcoins (and even US dollar tether).

Bitfinex is a cryptocurrency exchange. Users can signup to Bitfinex to trade cryptocurrencies such as bitcoins, ethereum, bitcoin cash, and many others. One of the unique features of Bitfinex is their margin funding markets. For users who want to add leverage to their positions and users who want to earn interest on their bitcoins, Bitfinex offers a margin funding order book where those users can exchange margin funding with each other. So if you’re a trader with a bullish view on ETH over BTC, you can actually borrow BTC on Bitfinex and use those borrowed funds to jack up your ETHBTC position. This funding isn’t free, so users can also choose to lend those BTC and earn a daily interest rate.  The user funding market is an ingenious feature offered by Bitfinex which is one of the main reasons the exchange has attracted so much volume. Whereas a typical margin loan is made by a broker or dealer, as the exchange Bitfinex cuts out these middleman (as they remain as the middleman themselves).

What kinds of rates can lenders expect to receive? Since Bitfinex runs an open order book for funding, the rate you will receive is simply result of of supply and demand, and so the rate you will receive will fluctuate as the market dictates. Rates are quoted as percent per day. To find the simply daily annualized rate, multiply by 365 or use your own formula to find an APR. Follow this link to BFXdata where you can view historical Bitfinex funding rates. You will see that bitcoin funding mostly range from 0.01% per day and sometimes spike up to 0.60% per day.

What are the risks? Other than interest rate risk, and the risk that their bitcoins fall against your own unit of account (your home fiat currency?), the main risks that Bitfinex lenders face is the default risk of borrowers and the credit risk of Bitfinex itself. The risk that borrowers default is actually very low, in fact its so low that you will probably never have a borrow default on a loan. Why?  Because of the Bitfinex margin limits. Follow this link for a description of the margin rules. Bitfinex borrowers receive a margin call when the net value of their account equity reaches 22.5%. When the net value of their account falls below 15% of your borrowed funding value, the position will be force-liquidated.  Since Bitfinex is a very liquid exchange, and since there are so many ways to arbitrage the bitcoin price, the exchange can virtually always liquidate positions to make the lender whole.

The credit risk of Bitfinex is the main risk for lenders. Even though the risk of any individual defaulting is very low (virtually non-existent), the main risk is Bitfinex itself goes bust or gets hacked, and this is not pie in the sky, its happened before and it could happen again. I personally think the risk of Bitfinex being hacked again in a major way is low, the rate of return users can earn by funding margin loans reflects this risk.  Bitfinex funding does not earn you free money. I hope eventually clearing houses (maybe blockchain based clearinghouses?) will emerge to reduce the exchange default risk.

So, you want to earn some bitcoin interest by lending your funds out on Bitfinex? After you open an account, you deposit your bitcoins, and move them to your funding wallet. Now you can place an order to lend out your coins using similar mechanics to trading stocks and cryptos. There is an order book with bids and offers, choose your strategy and work your lending book. You can use the Bitfinex Flash Return Rate (FRR) which is kinda like the average daily rate on funding to automatically renew your loans, or you can auto renew at a fixed price, or you can manually update your loans using your fingers or the Bitfinex API.

Bitfinex also charges fees on margin funding. At the time of writing fees are 15% of the interest you earn.

If you have questions about Bitfinex lending, please post your comments below and I’ll do my best to answer specific questions.

What is Lightning Network?

The Lightning Network is a payment system being developed for bitcoin. The Lightning Network hopes to contribute to overcoming some of the bitcoin blockchain’s payment scalability “problems”/costs. The system is currently in testnet, but has been used for a few transactions, and seems to work. It would be used as an off-chain protocol similar in some ways to XCP.

Basically, the Lightning Network will be a peer to peer system for making micropayments of digital cryptocurrency through a scale-free network of bidirectional payment channels without delegating custody of funds or trust to third parties.

The Lightning Network has the potential to dramatically reduce the cost and time of bitcoin payments, which would reduce one of the major criticisms of bitcoin payments in their current form. It would shift the debate about scalability away from the blockchain itself and onto services using the bitcoin blockchain’s core verification system. I have been expecting more initiatives like the Lightning Network to emerge. I also expect more hosted services and payments processors to emerge as volume on the most popular blockchains continues to increase. I believe these developments will have the impact of driving transaction volume back to main blockchains with the largest network effects as mediums of exchange such as bitcoins, and away from many of the other alt coins that attempt to solve the payment scalability problem in other ways.

Cryoto Crash, What Goes Up?

The value of bitcoin plunged 20% against the value of USD overnight, and some of the typical outcomes are happening. The rate to borrow/lend USD on Bitfinex is currently around 87%. This means someone holding $100,000 on Bitfinex is earning $230 per day of interest. Keep in mind Bitfinex uses USD tether, and the best way to withdraw it is to convert to bitcoins and withdraw those, but 87% is still a very high number.

I’m surprised the rate to borrow/lend bitcoins for margin on Poloniex is still very low. The rate has barely changed as the price of bitcoins has gone up and now down over the past few weeks. I would have expected there to be lot’s more margin demand as the price of bitcoin has been increasingly volatile.

News of volume increasing on options exchanges should also be good for traders. On Deribit, implied volatilities spiked overnight. The implied vol on offers is well over 200% today, this is an opportunity for bitcoin holders who want to trade some time/volatility today in exchange for some limited upside in the future.

The order book on QuadrigaCX is full, and shows similar liquidity to the past few weeks. The price of bitcoin on QuadrigaCX is actually higher than the price on rival exchanges. At the time of writing, there is an opportunity for traders to earn arbitrage profits by selling bitcoin on QuadrigaCX for $12,700 and buying bitcoin on Poloniex at $12,562 and/or Bitfinex at $,12,540. The spread is about 1.5% which covers the fees to make the trade. This should be a golden opportunity for those of us running market making bots.

 

Trading Bitcoin in Canada: how much does it cost?

Have you decided to trade bitcoins, or are you looking for the best venue to trade?  The post below will review some popular exchanges and describe some of the costs and benefits of each.

Before diving into the specifics, it’s important to recognize the difference between a primary exchange and a service provider. A primary exchange includes exchanges such as Bitfinex, Poloniex, and QuadrigaCX, which are the venues where traders interact. Other services such as QuickBT provide foreign exchange services but do not run exchanges per se. This distinction is important depending on the functionality you require to execute your trading strategy.

CoinSquare, trading fees range from 0.1% to 0.2%, no API access, no affiliate, could be a reason why liquidity is a bit lower on this exchange.

QuadrigaCX, trading fees range from 0.2% to 0.5%, decent API documentation, highest CAD to crypto liquidity.

Kraken, trading fees range from 0.16% to 0.26%, robust API, high liquidity, global exchange offering a few different fiat to crypto pairs.

Bitcoin Trading Canada

If you want to buy bitcoins in Canada or sell bitcoins in Canada, you have a few choices. Where is the best place to trade bitcoins in Canada?  It depends on what you are trying to do, below I will list a few different options.

The key factor for Canadians who want to trade bitcoin is to find a venue that accepts Canadian dollars! There are many bitcoin exchanges around the world, but most offer trading in bitcoin against the biggest fiat currencies such USD, CNY, EURO, YEN, but the Canadian dollar is not really offered except by a few specific Canadian exchanges.

When you’re looking to buy some bitcoins. I think the best place to start is to find a friend who can give you some of their bitcoins in exchange for cash or Interac e-transfer. If you can obtain bitcoins in this fashion, you can avoid a lot of the legal/technical challenges that come with verifying your account.

Keep in mind that established exchanges offering services to Canadians should comply with Canadian AML rules including FINTRAC compliance. There are certain exemptions based on the nature and size of the transaction, but otherwise, you will need to prove your identity to the exchange provider in order for you to safely transfer Canadian dollars to the exchange.

So if you don’t have a friend who can trade bitcoins with you, you’ll need to find a crypto exchange that services Canadians.

The best place to trade bitcoins in Canada is by using QuadrigaCX. QuadrigaCX has the highest volume of any Canadian bitcoin exchange, and very low fees, 0.50% (less than 1%) per transaction. QuadrigaCX complies with Canadian AML laws, so you’ll have to identify yourself in order to gain full deposit and withdrawal functionality, but once you do this, you’ll be able to move Canadian dollars directly from your bank account into crypto currencies.

To avoid this compliance, you can use a service such as QuickBT or CanadianBitcoins, but beware that fees will be much higher. Even most bitcoin ATMs in Canada will require you to submit your cell number and retrieve a code in order to prove basic info before you can process a transaction. These services will charge you anywhere from 5% to 10% of the value of your transaction, and your transaction limits will be severely restricted.  Check out this site that provides a map of bitcoin ATMs.

Check out my blog post about using BitAccess using Flexpin Vouchers.

A few other exchanges that Canadians should consider include Kraken & CoinSquare.  I’ve tried a few times to verify my account with Kraken, and for whatever reason, they will not process it. I haven’t spent much time figuring out why. With CoinSquare, they are based in Canada and comply with Canadian laws, but they are just a little bit more expensive and less liquid than QuadrigaCX.