When Hive Blockchain Technologies Ltd. was looking to tap into the cryptocurrency fervor by going public, Canada’s junior stock exchange was the obvious choice. The bar for listing was low. Retail investors, used to the rise and fall of penny stocks, were eager for the next hot thing.
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.
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.
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.
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.
A friend of mine invested in Crypto-Games.net ethereum bankroll a few months ago, and this post will evaluate those returns over this timeframe.
He deposited 27.85134771 ether on October 5, 2017 and he now has 28.42479382 ether, a gain of 0.57344611 ether.
To find the time weighted rate of return, I will divide 0.57344611 by 27.85134771, which is 2.05%. Then I will apply a factor of time. There have been 26 days in October, 30 days in November, and 17 days in December for a total of 73 days since he made his investment, divided by 365 days in the year equals 20% of the year. So I will take 2.06% divided by 20% of the year, to get an annualized rate of return of 10.29%.
10.29% rate of return is a high rate of return in the fiat world, but I guess this is commensurate with the risk of investing in an bankroll of an online casino running on ethereum? Another thing to keep in mind with this rate of return is the investor also gets the ups and downs of the price of ethereum since his unit of account is US dollars.
Back when I was a futures trader working at a Canadian bank, I’d often wonder why the future prices of certain commodities would be higher than spot prices, then at other times, those future prices would be lower than spot prices. I’d read somewhere that Keynes had written something about contango and backwardation, the terms used to describe when future prices are either higher or lower than current prices. So I decided to take the library and find out what Keynes actually wrote on the topic. It turns out, he didn’t say much, at least nothing useful in my opinion, but he’s quoted widely on the topic and even today, the wiki article is titled “normal backwardation” the term Keynes used to describe it.
There is nothing “normal” about either contango or backwardation. We can tell empirically from historical data that some things tend to be more often in one state or the other. the S&P 500 futures contract are almost always in contango, but the future price for oil is sometimes in contango and other times its in backwardation. So what gives? why? We still don’t know, but everyone has an opinion.
Keynes wrote in his Treatise on Money that backwardation is normal, and it comes from the idea that producers of commodities are more prone to hedge their price risk than consumers. Not sure these thoughts would hold up in the academic world of today (or maybe they would?), but nothing is “normal” in a free market, things only are based on your own perception of what is real. There are reasons why markets would be contango or backward, carrying costs, expectations of future value, etc.
Now that we’ve discovered blockchains and crypto currencies, we have more information to analyse and debate. Bitcoin has very little carrying costs, can be easily traded with very frictional costs, etc, and yet, the forward price for bitcoin currently trades in contango. The spot price on Deribit is 18500, the 1 month future is 18863, and the 3 month future is 20846. On the CME, the spot price is 18591, the 1 month future is 19105, 3 month is 19340, and the 6 month future is 19300.
We also know how much the rate is to borrow and lend bitcoins. We can see on Bitfinex and Poloniex that the interest rate on bitcoins is very low, close to zero.
How does the market’s expectation of future value impact the rate of interest bought and sold today? If I’m expecting something to become much more valuable in the future, then I’m willing to accept a lower rate of interest to lend it, and if I expect something to become less valuable in the future, then I’d demand a higher rate of interest. This can observed by comparing the rate of interest to lend/borrow US dollars on Bitfinex compared to the rate for bitcoins. The interest rate on US dollars, which maybe the market expects will become less valuable in the future commands a much higher rate than bitcoins, which the market might expect to become more valuable. Yet both rates are positive.
We are used to being compensated by a positive interest rate to lend our fiat money until a future date, and we are used to paying a price to borrow money today in order to pay it back at a later date. Could this be due to the productive capacity of capital? We live in a world where we can create more tomorrow with the capital we can marshall today. But we could just as easily demand the opposite. If the future liability of money is greater than its current value, then I’d like pay someone to take my money now, and get less of it back in the future. I’d accept a negative rate of interest in order to reduce my future liability. This state of economy is happening in some places today like Scandinavia, Japan, Switzerland, etc. In these places, capital is being used to consume today, and it’s not being invested productively, so interest rates become negative. Governments try and use Keynesian economics by increasing the money supply, trying to make the prices of things rise (since money is on the denominator), but the impact of increases in the money supply is also the expectation that it becomes less valuable in the future, so investors are willing to accept negative rates of interest because they know they will get more of it by way of the government (who is also who prints the money) in the future.
Augur project aims to be an open source decentralized prediction market running on the ethereum network. Its a really cool idea, but it seems like a long time until its ready for live real money trading, or maybe I’m just impatient?
Augur was founded in 2014 with the first release coming in June 2015. Development was funded token crowdsale in October 2015. In 2016, Augur beta was released for testing on the Ethereum testnet. The project has gone through a few iterations since then, and while the community is waiting for real money release, the value of Augur tokens has been on a wild ride. At the time it was issued, the Augur tokens were one of the biggest Ethereum ICOs ever. The current market cap of Augur tokens is 11 million “REP” worth almost 500 million US dollars at the time of writing.
Back in December 2016, the value of REP tokens had been falling since the ICO, trading under $3 per REP, but by the summer of 2017, the price had climbed near $35 per REP. After trading in a range to just below $17, the REP tokens are now trading at all time highs above $40.
I’m not sure we can use the price of Augur REP tokens as a sign of the project’s progress/success. The value of REP tokens are secured by the ethereum blockchain, so digital security of REP tokens is as strong as the ethereum blockchain itself, but at the price of alt coins has been rising across generally, the REP price has gained as well. Its unclear how much of the gains in REP price are due to the specific viability of the Augur project, and how much is due to the general rise in the market value of alt coins. One way to find out would be to construct an index of alt coins, and compare REP returns to that index, try and strip out the market risk.
I’d really like to see Augur and other open source prediction markets such as Gnosis be successful, and I think they will be eventually, but I wish progress towards real money trading would happen sooner. To follow the progress of Augur, check out their regular blog posts.
Let’s talk about how Augur will work. Augur isn’t a for profit business, it will be an open source decentralized prediction market. This distinction is very important because its open source decentralized nature will be one of the features that protects it from being shut down by governments. Since Augur will run on blockchain tokens, it will become very difficult (if not practically impossible) for governments to stop Augur. There will be an Augur app that provides a basic user interface, but the real volume of Augur will likely come by interacting with the network by way of their API, check out their API documentation. If Augur can exist for real money trading, then hosted service providers will emerge to provide users with services that will help users interact on the Augur network. This will come in the form of business that exist to house user accounts, historical data for users, to guard user’s data and money, to provide payment services, etc. There will be data service providers that provide useful information to users.
I can think of lot’s of viable business models that will come to exist once Augur exists for real money. There will also be all sorts of ethical issues that emerge such as what to do about death markets, etc.
The odds that Augur will exist for real money use are getting higher, and I think the odds are becoming likely.
A friend of mine who is an investor based in Ontario Canada asked me recently to provide him with my thoughts on Hive Blockchain Technologies, which is a TSX listed company based in Vancouver. Below are my thoughts.
My process to analyse a public company (in Canada and/or the US) is pretty straight forward. The first thing I do is a Google search for their name. This helps link me to their company website, but also helps me see the main pages that might be relevant. I arrive at Hive’s website and download their investor presentation which is a 38 page PDF. According to their investor presentation, Hive owns 2 GPU based mining facilities and owns the option to buy 2 more facilities from Genesis Mining (which is a cloud mining company, that I’ve used and reviewed on this blog). Genesis in turn owns 30% of Hive.
The first thing that strikes me as I’m reading Hive’s investor presentation is they are rightly currently focused on GPU based mining, which includes such currencies as Monero, Dash, ZCash, Ethereum. Bitcoin mining is not profitable anywhere in the world unless the miner can secure a subsidized price for power, and this usually involves some shady deal with some government or utility. From what I can see, its profitable to mine bitcoins if your facility is in a cold climate, with no taxes, right next door to a hydro electric facility so that no transmission costs are involved. This should be a hint to Ontario based towns with old hydro facilities, and a missed opportunity for Ontario Power Generation.
The problem with focusing on GPU based mining is that in the long run, the profitability of this type of mining should erode. As the market for the most popular based GPU based mining becomes more liquid, it should drive down mining profitability (especially when any kid living in his parents basement running a GPU rig is getting free electricity because his parents pay the utility bill) to the point where profit focused miners will need search further afield to less popular coins to mine. Could this be one of the reasons why Genesis is selling to Hive?
At the time of writing, Hive has a market cap of 800 million Canadian dollars. I visit Sedar.com to find their financial statements. According to their September 30th, 2017 filing, Hive has 5.8 mil in cash and receivables, almost 9 mil worth of equipment, and accounts payable of 3.2 mil. Looks like they spent more than 500k on marketing expenses and 129K on professional fees. These expenses are likely related to their fundraising. They also recorded a 2.7 mil expenses related to share based compensation.
Starting in on the notes from the financial statements, looks like Hive will recognize revenue from mined coins as they are mined and apply an exchange rate at the time the coins are mined, they will also recognize the change in value of their coins on hand based on current rates and apply the difference to current year’s profit/loss. This accounting method could cause their income/loss to swing wildly as the value of the currencies they mine rise and fall. This accounting method could also cause Hive to pay a lot more tax than they otherwise would because they are realizing the tax liability on an ongoing basis, as compared to a passive investor in cryptocurrencies who would only recognize the capital gains and losses as they are realized.
Hive will also depreciate their computer equipment on a four year straight line basis. This policy will also have a dramatic impact on earnings and taxes since these assets make up a large part of Hive’s balance sheet.
Digging further into the notes on the financial statements. The initial deals with Genesis leave Hive public shareholders in a secondary position. Genesis will hold the balance of power. The deal to sell Genesis their shares comes at a great expense to Hive’s shareholders. A finder’s fee of 3.9 million shares was paid to secure Genesis’s 30% stake, and at current market prices, these shares are worth 12 million dollars. Genesis is also the service provider to Hive’s mining operations, so now we have a situation where the “manager” of the assets is also the largest shareholder, I’ve seen situations like this before, and it never turns out good for public minority shareholders.
There have been a number of related party transactions over the past few quarters, and as a public minority shareholder, this would be a red flag.
So Hive doesn’t make profits, the only way they will make money is if the value of crypto currencies gain in value relative to the Canadian and US dollars. Who would want to invest in this company? I’d say lot’s of people actually. The main investor would be the retail investor in Canada and US who knows enough about crypto currencies to be suckered in my a slick investment sales process. These investors know the potential power of crypto currencies, but not enough to evaluate the profitability of Hive specifically. I think these investors would be better off holding the crypto currencies and riding the wave themselves, rather than entrusting their money to a company with a lot less accountability directly to them. Another strategy for the retail investor who is a potential investor in Hive is to treat their cryptocurrencies as a fun hobby and learn about how to mine themselves. Find a friend who lives in an apartment building where the building pays the electricity, and setup a small GPU mining rig in their apartment, share the profits. You’ll never get rich this way, but actually, the best way to get rich is to do something like the managers of Hive has done, know more than your investors and sell them the investment, pay yourself a handsome fee in the meantime.
Kudos to my friends for getting their CoinBerry bitcoin ATM featured in BlogTO 🙂
As the price of Bitcoin continues to skyrocket many are starting to notice and are wondering how they too can get in on the latest investment sensation. The simplest answer is you can either go online to a Bitcoin exchange like Coinsquare or buy directly at one of the many Bitcoin ATMs around Toronto.
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.