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Author Topic: Bitcoinica's Interest System  (Read 11593 times)
zhoutong
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February 13, 2012, 12:12:11 PM
 #1

We are glad to announce that we have started the public test run of our interest system. We are the first website to offer interests for Bitcoin deposits. This post is intended to explain how the system works.

For prevailing interest rates, please visit https://www.bitcoinica.com/pages/interest

For interest rates charts, please visit http://charts.bitcoinica.com/interest_rates

Daily Pip vs APY

Daily Pip is the standard unit of interest rate in Bitcoinica. A pip represents 0.01% in interest rates. (e.g. 4.17 means interest of 0.0417% daily).

APY stands for Annualized Percentage Yield. It's a representative measure of interest rate that helps you to compare with similar products (bank deposits, bonds, money market funds, etc). Bitcoinica deposits are compounded daily, therefore if the interest rate is 4.17 (daily pip), the APY should be 1.000417^365 -1 = 16.44%.

Assuming you deposit $10,000 with us and the interest rate is always 4.17, you will get $4.17 every day or $1,644 every year (with compound interest).

Position swap

Due to the interest rate differentials, BTC/USD positions carry some interests. When you long BTC/USD, essentially you are buying BTC and selling USD at the same time. Assuming that USD interest rate is higher than BTC interest rate, you should pay for the interest difference if you want to keep your positions. The interest difference is position swap.

Our Interest Rates page shows the effective hourly swap points for BTC/USD positions. For example,

Quote
Long Position   -$0.21
Short Position   $0.18

That means you have to pay $0.21 every hour if you keep a $10,000 worth of long BTC/USD position, and you are entitled to receive $0.18 every hour if you keep a $10,000 worth of short BTC/USD position.

The position swap is equal to the difference between the buying interest rate of the currency that you bought and the selling interest rate of the currency that you sold. (Long BTC/USD: BTC Buy - USD Sell. Short BTC/USD: USD Buy - BTC Sell.)

The value of a trade is the multiplication of the absolute amount and the base price. If the base price is negative, the value of the trade is zero.

How to get paid?

We calculate your interest payment every hour, and we pay you every day between 00:00 - 01:00 UTC if your unsettled interest payment is at least 0.01 (in either USD or BTC).

For open positions, we calculate the swap every hour, and you will receive/pay the position swap when you fully liquidate the position.

Is Bitcoinica a ponzi/pyramid scheme?

The general aim of our interest system is to encourage people to deposit their money with us so that we can provide more reserves for leveraged trading. Also, we want to design the first money market for the Bitcoin community.

All the interest rates you see are prevailing rates. They are subject to change every 30 minutes depending on actual demand and supply of money, and our reserve levels. We never guarantee a fixed earnings for your deposits.

Our general design principle is that we always pay less interest to our customers than what we receive from them as position swaps. Therefore, we will never use your deposits to pay for someone else's interest payment. This will make sure that we're not running a ponzi scheme or pyramid scheme.

What's the maximum interest rate?

The maximum interest rate for now is 5.0 daily pips. That's 20.02% APY. This interest rate cap is subject to change.

Is Bitcoinica licensed to run this?

Yes, we are now a fully licensed financial services provider. Unfortunately, we are not able to disclose more information at this moment. We will announce this in detail at a later date.

When does the test run end?

The test run will end at February 16, 00:00:00 UTC. You don't pay/receive position swaps if you close your positions before that. But you are entitled to receive interest payments on your currency account balances. If you close your positions after the cut-off date, you will still have to pay/receive the position swaps incurred before the cut-off date.

What's the interest rate now?


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February 13, 2012, 12:25:11 PM
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Soothe our fears and tell us why Bitcoinica will not be hacked and tell us about how our money will not be stolen out of thin air?

The Communists say, equal labour entitles man to equal enjoyment. No, equal labour does not entitle you to it, but equal enjoyment alone entitles you to equal enjoyment. Enjoy, then you are entitled to enjoyment. But, if you have laboured and let the enjoyment be taken from you, then – ‘it serves you right.’ If you take the enjoyment, it is your right.
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February 13, 2012, 12:41:09 PM
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Soothe our fears and tell us why Bitcoinica will not be hacked and tell us about how our money will not be stolen out of thin air?

Bitcoinica has been running great for the last 5 months, and we're the fastest growing Bitcoin business ever. Also, we will soon announce our new corporate status.

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February 13, 2012, 01:15:12 PM
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Soothe our fears and tell us why Bitcoinica will not be hacked and tell us about how our money will not be stolen out of thin air?

Bitcoinica has been running great for the last 5 months, and we're the fastest growing Bitcoin business ever. Also, we will soon announce our new corporate status.
Thank you. One more thing:

Will you ever require IRS paperwork and identification for large American Bitcoin withdrawals? If you ever have to, will you warn us beforehand?

The Communists say, equal labour entitles man to equal enjoyment. No, equal labour does not entitle you to it, but equal enjoyment alone entitles you to equal enjoyment. Enjoy, then you are entitled to enjoyment. But, if you have laboured and let the enjoyment be taken from you, then – ‘it serves you right.’ If you take the enjoyment, it is your right.
zhoutong
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February 13, 2012, 01:24:09 PM
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Soothe our fears and tell us why Bitcoinica will not be hacked and tell us about how our money will not be stolen out of thin air?

Bitcoinica has been running great for the last 5 months, and we're the fastest growing Bitcoin business ever. Also, we will soon announce our new corporate status.
Thank you. One more thing:

Will you ever require IRS paperwork and identification for large American Bitcoin withdrawals? If you ever have to, will you warn us beforehand?

Currently we don't have any KYC procedures. However, in the process of being fully compliant, we may have to require identification one day, but we will definitely announce in advance. Just don't worry about it.

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zhoutong
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February 13, 2012, 02:29:30 PM
 #6

typical zhoutong, he makes an announcement and then just ignores questions he doesn't like

edit: please provide company info, i found nothing on your website

Currently, I'm the official operator of Bitcoinica, and I'm also the CEO of xWaylab Inc., a Delaware-based corporation. I'm ignoring your question because that has been addressed 5 months ago on bitcointalk.org.

However, there is going to be a change in the corporate status to allow financial services to be provided with full compliance, but we are unable to disclose more information.

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February 13, 2012, 02:38:54 PM
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typical zhoutong, he makes an announcement and then just ignores questions he doesn't like

edit: please provide company info, i found nothing on your website

Currently, I'm the official operator of Bitcoinica, and I'm also the CEO of xWaylab Inc., a Delaware-based corporation. I'm ignoring your question because that has been addressed 5 months ago on bitcointalk.org.

However, there is going to be a change in the corporate status to allow financial services to be provided with full compliance, but we are unable to disclose more information.

Ok i understand. I'm not aware of any discussion regarding your company, so please provide some links to it. Please post some contact information, phone, address and such, company website doesn't seem to be up.

edit: is this information accurate ?

Quote
Tong, Zhou
xWaylab Inc.
2711 Centerville Road
Wilmington, Delaware 19808
United States
Telephone: +1.3024828086
Fax: +1.3024828086

BTCitcoin: An Idea Worth Saving - Q&A with bitcoins on rugatu.com - Check my rep
zhoutong
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February 13, 2012, 04:05:58 PM
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typical zhoutong, he makes an announcement and then just ignores questions he doesn't like

edit: please provide company info, i found nothing on your website

Currently, I'm the official operator of Bitcoinica, and I'm also the CEO of xWaylab Inc., a Delaware-based corporation. I'm ignoring your question because that has been addressed 5 months ago on bitcointalk.org.

However, there is going to be a change in the corporate status to allow financial services to be provided with full compliance, but we are unable to disclose more information.

Ok i understand. I'm not aware of any discussion regarding your company, so please provide some links to it. Please post some contact information, phone, address and such, company website doesn't seem to be up.

edit: is this information accurate ?

Quote
Tong, Zhou
xWaylab Inc.
2711 Centerville Road
Wilmington, Delaware 19808
United States
Telephone: +1.3024828086
Fax: +1.3024828086

Yes, this is the information that we submitted to the registered agent during the incorporation. All our identity information is on file with our registered agent.

I can totally understand the community's general feelings towards a new Bitcoin business, and that happened to Bitcoinica before. But now I guess the majority of the community has no trust issues with us and the primary debatable topics are more related to the whole Bitcoin market.

We have a significant market share in Bitcoin trading, and we are also holding a huge amount of customer deposits.

In the future a few weeks, we will make our legal information fully available to our users. So please just wait while we're getting everything ready.

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RandyMarsh
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February 13, 2012, 06:53:43 PM
 #9

Do we receive interest on currency balances if even if those balances are being used in an open position?

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February 13, 2012, 07:30:44 PM
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Where can I find the rate for currency that is not in position? I see rates for buy/sell, but not for funds alone. Or am I missing something?
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February 13, 2012, 07:46:19 PM
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Where can I find the rate for currency that is not in position? I see rates for buy/sell, but not for funds alone. Or am I missing something?

For a currency balance the interest rate is the buy interest rate for that currency; It says so on the Bitcoinica Interest Rate Page:

Quote
How does interest rate affect you?
Currency account USD balance
We pay you interest every day based on USD Buy interest rate, compounded daily.

Currency account BTC balance
We pay you interest every day based on BTC Buy interest rate, compounded daily.

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February 13, 2012, 07:50:56 PM
 #12

Zhou this is interesting, but its an unconventional way of doing it.

usually interest is only paid to customers on unallocated deposits.
usually interest is only charged to customers on their margin balance, not the full value of the position

From what you described, interest is paid and charged on the full amounts in either case, correct?  Based on the spread, its possible that every account will lose money if BTC price is unchanged?  Because I am paying more interest to hold my long position than I am receiving for my deposit.  is that correct?

Can you calculate for me in this example:

- I deposit $10,000 USD
- I open a long BTC/USD position for the full amount, 1:1, NO margin

what am I charged for interest on the position?
what am I paid on the deposit?

In conventional finance, both items would be zero.  But what is it like in zhoutongs world?



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February 13, 2012, 08:15:01 PM
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very confused  Undecided

could someone make a formula to calculate this by inputting all the different fields of one's position

atm it looks to me like Zhoutong is going to tax you about 20% per annum for going long & reward you with 12.55% for shorting, I hope that I've got this wrong, that's assuming your margin deposit is in BTC which pays next to nothing

& edit: as he's offering 12.55% annual interest for parking US $ with him will this maybe result in a flood of them & what would be the likely repercussions of having so much spare $ on hand for perhaps people to then go long BTC with them, I think that KT is trying to be making the starfish an endangered species with this

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edit 2: a formula like this would be most welcome as atm I haven't a clue as to what he's just implemented to positions already open

the formulae for calculating the ZT price is:

entry field 1: Long / Short
entry field 2: Current Bid (changes to Ask if you've entered Short)
entry field 3: Net Value
entry field 4: Maintenance
entry field 5: Amount
entry field 6: BTC Balance

The calc then does the formulae:

F1 = Long
F2 - (F3 - F4) / (F5 + F6) = ZT

F1 = Short
F2 + (F3 - F4) / (F5 - F6) = ZT

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February 13, 2012, 08:34:43 PM
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Where can I find the rate for currency that is not in position? I see rates for buy/sell, but not for funds alone. Or am I missing something?

For a currency balance the interest rate is the buy interest rate for that currency; It says so on the Bitcoinica Interest Rate Page:

Quote
How does interest rate affect you?
Currency account USD balance
We pay you interest every day based on USD Buy interest rate, compounded daily.

Currency account BTC balance
We pay you interest every day based on BTC Buy interest rate, compounded daily.

Ueah, missed that.

So basically the system is penalizing account with BTC (because daily pip for them is close to none), and favorizing accounts with USD. That sucks, because I mostly keep my balances in BTC Sad.
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February 13, 2012, 08:36:59 PM
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So basically the system is penalizing account with BTC (because daily pip for them is close to none), and favorizing accounts with USD. That sucks, because I mostly keep my balances in BTC Sad.

you can always Exchange your currency using the great exchange rates on Bitcoinica!

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February 13, 2012, 09:19:19 PM
 #16

Two More Questions

1. What is the exact formula for Swap? My sums based on your descriptions aren't working out.

2. Why do you have differing Buy and Sell interest Rates for a single currency? My reasoning: If holding a currency earns you X% of balance then selling that currency should cost you X% too.

There's probably a lot more to question two than the simple way I've put it, I'd like to be set straight.

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February 13, 2012, 10:08:47 PM
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So basically the system is penalizing account with BTC (because daily pip for them is close to none), and favorizing accounts with USD. That sucks, because I mostly keep my balances in BTC Sad.

you can always Exchange your currency using the great exchange rates on Bitcoinica!

Yeah, but it basically puts me into forced short position long-term (when BTC price goes up I lose money), which is not something I want.

And the rates when exchanging larger amounts of BTC (like more than 1k) are far from good.
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February 13, 2012, 10:21:54 PM
 #18

What reasoning is there for a position swap?
I am sure this all makes alot of sense and is reasonable for you, but it smells like a tax on using bitcoinica with leverage.
What is the relationship between this position swap and the (58% hedged) info available on your site, if any at all?

Edit:
It is a tax in your own words:
"Our general design principle is that we always pay less interest to our customers than what we receive from them as position swaps."

You claim
"The general aim of our interest system is to encourage people to deposit their money with us so that we can provide more reserves for leveraged trading. Also, we want to design the first money market for the Bitcoin community. "

Indeed, it favours people deposit money and not do anything with it. And if one dares take on a position, he will get taxed with leverage * differential interest rate.

"They are subject to change every 30 minutes depending on actual demand and supply of money"
"That's 20.02% APY. This interest rate cap is subject to change."

So it can change every 30 minutes, and the cap in place is subject to change?

Currently we don't have any KYC procedures. However, in the process of being fully compliant, we may have to require identification one day, but we will definitely announce in advance. Just don't worry about it.

Thanks for the advice.

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February 13, 2012, 10:32:04 PM
 #19


Our Interest Rates page shows the effective hourly swap points for BTC/USD positions. For example,


I hope this gets rid of the No Reserve problems.  Will their be an API for that returns the hourly swap points?

Introducing constraints to the economy only serves to limit what can be economical.
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February 13, 2012, 10:36:39 PM
 #20

12 cents are yours now, bears  Sad
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