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.

 

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.

Crypto-Games Bankroll Returns

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.

Review of Hive Blockchain Technologies

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.

 

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.

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.

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.

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.