This Bitfinex Credit Bubble cannot end well

[molecular]

This is getting to be a concern.

I've got some low-placed bids, but the problem with that is that if there is a flash crash, Bitfinex has an algorithm to delay it. And they also might intervene to reverse orders as they have done once.  So it is hard to predict how to take advantage of this.  I'm guessing that a small crash will be acceptable, but a larger one could be slowed down (and thus partially stopped) or lead to reversed orders.  So very low bids are less likelier to succeed that you would otherwise expect.

A cascading short-squeeze would mean the price will crash upwards, not downwards, right?

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[molecular]

Still no proper squeeze 

I wouldn't expect it at these prices. At 400, 500 it might get interesting.

[GIANNAT]

A cascading short-squeeze would mean the price will crash upwards, not downwards, right?

Yes, when a squeeze of this kind happen people have to buy back to liquidate their position, kicking the price even higher. Hence the cascade effect with all those who follow

[phoenix1]

Anyone consider the possibility that some nervous/smart (time will be the arbiter) miners may be using shorts on BFX to hedge some of their future production in uncertain times. This would make that portion pretty much un-sqeezable as they are not really naked short.

I have no idea if this is practice is currently going on, but as the market matures I would imagine it will almost certainly appear in the same way it exists in other commodity markets.

Just throwing it out there, as the number seems, on the surface, alarmingly high. But perhaps it is in part evolution of the ecosytstem.

I do however think that the numbers of both longs and shorts are disproportionate to the amount of liquidity can BFX provide, and that is cause for some concern.

[Yololintian]

Huge short squeeze to happen in the coming weeks. The market is reacting very bullishly to crappy news about bitstamp, and sellers are exhausted for now. I think testing $340 is a given on bitfinex, but shorts aren't even closing as we start this correction... so a massive short squeeze could get us much higher.

[bassclef]

Still no proper squeeze 

I wouldn't expect it at these prices. At 400, 500 it might get interesting.

You can drag it out indefinitely as long as you have btc to add to your trading account. This increases your collateral and you won't get margin called. It depends when they decide enough is enough and accept losses, that's when you'll see the squeeze of longer-term shorts.

[RoadTrain]

Anyone consider the possibility that some nervous/smart (time will be the arbiter) miners may be using shorts on BFX to hedge some of their future production in uncertain times. This would make that portion pretty much un-sqeezable as they are not really naked short.

I have no idea if this is practice is currently going on, but as the market matures I would imagine it will almost certainly appear in the same way it exists in other commodity markets.

That's actually a good point, though I think using futures or options is more appropriate for hedging.
Hedging is very popular among commodity producers, like oil producers. Bitcoin miners can also be treated as commodity producers

[Hunyadi]

BTC    21,498.27 BTC 

22,011.32 BTC 

23,364.13 BTC

23,879.67 BTC

24,747.02 BTC

[inca]

BTC    21,498.27 BTC 

22,011.32 BTC 

23,364.13 BTC

23,879.67 BTC

24,747.02 BTC

Not long now.

[gotmilk_]

I'm really interested how Bitfinex trading engine will manage next short squeeze...

[Hunyadi]

BTC    21,498.27 BTC  

22,011.32 BTC  

23,364.13 BTC

23,879.67 BTC

24,747.02 BTC

25,113.01 BTC



e. 25,629.97 BTC

[molecular]

Anyone consider the possibility that some nervous/smart (time will be the arbiter) miners may be using shorts on BFX to hedge some of their future production in uncertain times. This would make that portion pretty much un-sqeezable as they are not really naked short.

You cannot be naked short on bitfinex (unless you're the operator). Only leveraged (1:2? 1:3? I don't even know).

If miners are hedging with borrowed coins then yes: they are squeezable. Unless they have the coins in the first place in which case they could've just sold their own coins instead.

If it was possible to be 'naked short', then those naked shorts would be unsqueezable because: no collateral, no margin call.

Or am I misunderstanding something? What exactly do you mean by 'not really naked short'.

[nrd525]

It isn't a bubble until it grows 4-5%/day.

25,641.

 

[Chalkbot]

It isn't a bubble until it grows 4-5%/day.

25,641.

 

So, I must be missing something that maybe you guys can explain. How do you expect this rising short position to explode upward (in the near term) when there is the equivalent of 65,200 coins in long positions waiting to cover? Isn't the best case scenario a small jump in price that immediately gets dumped on?

[inca]

It isn't a bubble until it grows 4-5%/day.

25,641.

 

So, I must be missing something that maybe you guys can explain. How do you expect this rising short position to explode upward (in the near term) when there is the equivalent of 65,200 coins in long positions waiting to cover? Isn't the best case scenario a small jump in price that immediately gets dumped on?

If you look at the long USD swaps they are down roughly 12 million dollars from a few months ago.

Looking at the short swaps, if they have been sold into the market then a short squeeze is very likely. This can cascade like previous price collapses, but upwards.

If the extra few thousand coins are being hoovered up and held on margin to be sold into the market then a large sell could also happen.

Historically, such a high ratio of shorts heralds a rise in the price. But who knows..

[RoadTrain]

Anyone consider the possibility that some nervous/smart (time will be the arbiter) miners may be using shorts on BFX to hedge some of their future production in uncertain times. This would make that portion pretty much un-sqeezable as they are not really naked short.

You cannot be naked short on bitfinex (unless you're the operator). Only leveraged (1:2? 1:3? I don't even know).

If miners are hedging with borrowed coins then yes: they are squeezable. Unless they have the coins in the first place in which case they could've just sold their own coins instead.

If it was possible to be 'naked short', then those naked shorts would be unsqueezable because: no collateral, no margin call.

Or am I misunderstanding something? What exactly do you mean by 'not really naked short'.

Yep, I think being simply short or hedged is essentially the same thing. Either way you must have collateral to borrow against. While naked shorting by definition implies selling what you doesn't have. It can only happen in systems where settlement is postponed, which is not the case with Bitcoin markets.

The only difference between simply shorting and hedging is that hedged miners have the required 'coinflow' to back their position. Price movements with proper hedging are neutral to their position, so they can get margin called only if the squeeze happens fast and their position is too large when compared to their coinflow. Moreover, normally the position must be rolled over as coins are mined.

Anyways I don't think that hedging this way is a good practice. Using futures and options is more logical in my opinion.

[JerryCurlzzz]

This data is very misleading. The increasing (ATH) number of shorts doesn't exist in a vacuum. We don't know how much of these swaps are a) new traders/increased liquidity vs. old liquidity and b) how many swaps are actively being used to take short positions.

Follow this data at your peril.

[RoadTrain]

This data is very misleading. The increasing (ATH) number of shorts doesn't exist in a vacuum. We don't know how much of these swaps are a) new traders/increased liquidity vs. old liquidity and b) how many swaps are actively being used to take short positions.

Follow this data at your peril.

About b. Is there any point in borrowing without opening a position? You still have to pay interest, what's the point?

[myself]

https://i.imgur.com/2tIPKUq.png

via /r/bitcoinmarkets

[Hunyadi]

https://i.imgur.com/2tIPKUq.png

via /r/bitcoinmarkets

Quite interesting! Thanks for posting!