This Bitfinex Credit Bubble cannot end well

[21pilot]

you can´t compare the current Bitcoin with Bitcoin when it started 

Today there are millions of venture capital coming into the BTC world, many exchanges etc.
Everything has matured and the big volatility with several market crashes won´t return in my opinion.

The issue is not bitcoin price crashes.

Several posters have pointed out the order book on Bitfinex is quite thin compare to the number of active swap they have.

bitfinex orderbook contains lots of hidden orders.
You don´t really know how much money there really is in bids.

I would guess that the biggest whales use these hidden orders quite regularly.

So I think except from the bitfinex staff no one has a clue how much money is really tied up in bids.

[1714176346]

1714176346

[InwardContour]

you can´t compare the current Bitcoin with Bitcoin when it started  

Today there are millions of venture capital coming into the BTC world, many exchanges etc.
Everything has matured and the big volatility with several market crashes won´t return in my opinion.

The issue is not bitcoin price crashes.

Several posters have pointed out the order book on Bitfinex is quite thin compare to the number of active swap they have.

bitfinex orderbook contains lots of hidden orders.
You don´t really know how much money there really is in bids.

I would guess that the biggest whales use these hidden orders quite regularly.

So I think except from the bitfinex staff no one has a clue how much money is really tied up in bids.

Another point is that, with efficient markets, the price on one exchange will affect the prices on other exchanges as people attempt to arbitrage or when people will buy on the cheaper exchange when then simply wish to purchase bitcoin.

EDIT: Or sell on the more expensive exchange when they wish to sell their bitcoin.

[Coinfan]

And the swaps are at almost 31.3 million, but the total bids in the orderbook above 35 usds shrunk to little more than 8,000 btcs.

I hope this silence from Bitfinex is because the current Public Relations just fired himself and Raphael is enjoying his weekend.

[CEG5952]

https://www.bitfinex.com/pages/announcements

Daily Settlement: Up until now, swap interest to liquidity providers has always been paid daily, but swap interest from traders is only collected when the positions is closed. While this makes sense from a certain perspective, it has the unintended consequence of effectively putting Bitfinex in the position of making 0% loans to cover the payments imbalance created by large “unrealized swap” balances, which really should be serviced by the P2P facility that we already have in place. Moreover, from a balance sheet perspective, we feel that it simply makes more sense to match the frequency of the collection and payment process. In order to implement this change, traders will need to select how they wish these daily payment to be made. The system will support a new variable for each position, “Swap Type”, which can have one of two values:

Daily (default): Swap interest will be automatically deducted from the collateral in trading wallet of a daily basis. If the correct currency is not present, an appropriate conversion will be performed to satisfy the payment.
Term: Swap interest will be capitalized in to position every night by automatically accessing swap offers to cover the required payment.

Existing positions will be phased into this process, with daily “catch-up” payments of no more than 10,000 USD.

These first two changes will be active on the 21st of July, 2014.

Curious to see what effect this has on price action. If I understand correctly, if you are fully leveraging BTC to hold a margin long position, under the default setup, Bitfinex will deduct the USD equivalent from your trading wallet to cover swap on a daily basis. Whether they then hold the BTC or liquidate it, I don't know. That last bit seems like something large position holders would want to pay attention to.

[Gimmelfarb]

Existing positions will be phased into this process, with daily “catch-up” payments of no more than 10,000 USD.

These first two changes will be active on the 21st of July, 2014.

does that mean that as of that deadline, they are going to chop people's trading wallet's down by their total outstanding swap, up to $10k daily? that will up people's margin requirement / margin call level. might drive Bitfinex price down.

[gizmoh]

Curious to see what effect this has on price action. If I understand correctly, if you are fully leveraging BTC to hold a margin long position, under the default setup, Bitfinex will deduct the USD equivalent from your trading wallet to cover swap on a daily basis. Whether they then hold the BTC or liquidate it, I don't know. That last bit seems like something large position holders would want to pay attention to.

Lenders need to be paid in USD, the BTC will thus be sold.

[wilfried]

https://www.bitfinex.com/pages/announcements

Daily Settlement: Up until now, swap interest to liquidity providers has always been paid daily, but swap interest from traders is only collected when the positions is closed. While this makes sense from a certain perspective, it has the unintended consequence of effectively putting Bitfinex in the position of making 0% loans to cover the payments imbalance created by large “unrealized swap” balances, which really should be serviced by the P2P facility that we already have in place. Moreover, from a balance sheet perspective, we feel that it simply makes more sense to match the frequency of the collection and payment process. In order to implement this change, traders will need to select how they wish these daily payment to be made. The system will support a new variable for each position, “Swap Type”, which can have one of two values:

Daily (default): Swap interest will be automatically deducted from the collateral in trading wallet of a daily basis. If the correct currency is not present, an appropriate conversion will be performed to satisfy the payment.
Term: Swap interest will be capitalized in to position every night by automatically accessing swap offers to cover the required payment.

Existing positions will be phased into this process, with daily “catch-up” payments of no more than 10,000 USD.

These first two changes will be active on the 21st of July, 2014.

Curious to see what effect this has on price action. If I understand correctly, if you are fully leveraging BTC to hold a margin long position, under the default setup, Bitfinex will deduct the USD equivalent from your trading wallet to cover swap on a daily basis. Whether they then hold the BTC or liquidate it, I don't know. That last bit seems like something large position holders would want to pay attention to.

what do you  mean?
if one has no usd in his wallet, but a btc long position, bfx will:
-sell btc to cover the swap cost
-make a margin call.
haha, if that results in a margin call, we will have a lot of fun an 21st

[Tzupy]

Considering the current growth rate of $ swaps, by the 21st July there should be about 34M$ total,
and with an average buying price of 600$, and the start of 16M$ on the 19th May (start of local uptrend),
about 30k BTC would have been bought on credit. The stage is going to be set for a nice flashcrash.

[myself]

imo people here dont understand the loans interest exposure here a example

a trader borrow 1000$ to go long and he goes buy and hold over time the borrowing cost go up to 100$ now the market crash and the trader got a 100% loss the total loss for bitfinex is not just 1000$ but is 1100$ because the loan interest is charged then the position is closed

i say that bitfinex have over 2 mill usd exposure from loans and the recent change was done to avoid loses on top of the the leverage change is a step to kill the bubble and reduce risk

get your pop corn this will be fun 

[CEG5952]

Well they've been effectively allowing more leverage than intended by calculating swaps this way. Bitfinex never was very good at math. Maybe they're finally starting to worry about the risk they are exposing themselves to by having such a shallow book while allowing so much leverage.

[ask]

Expect flash crash in next days at least on 21th. Ever day after 21th there will be a small dump because of daily btc to usd swap. I am dumping right now first 200BTC

[scarsbergholden]

Sounds like they want to start finally addressing this over-leveraging issue, and cut down people's margin a bit (at least the amount they were floating for people against their future closed position P/L).

[MoreFun]

Ever day after 21th there will be a small dump because of daily btc to usd swap. I am dumping right now first 200BTC

This dump will be sub 50BTC which is meaningless.

[Yololintian]

I was confused by the way they worded it... does this mean you cannot go 3.5:1 leverage long btc if you only have btc in your margin wallet now? Also, does anyone want to speculate the amount of total hidden orders above 100 or so? I don't think it would be more than the amount of not-hidden orders above that amount. I just want to get an idea about how much liquidity they actually have, because I'm finding the likelihood of a flash crash more and more likely as the interest the longs have to pay continues to pile on while the price continues to go nowhere.

[scarsbergholden]

Ever day after 21th there will be a small dump because of daily btc to usd swap. I am dumping right now first 200BTC

This dump will be sub 50BTC which is meaningless.

True. Plus, I'm not convinced they will dump immediately. This is just operational books for them. They were previously floating the loans and paying out the USD. They don't HAVE TO sell the BTC they take from trading accounts. And if they do sell it, or a % of it, they don't HAVE TO do it immediately or at some set time.

[Marbit]

They don't HAVE TO sell the BTC they take from trading accounts. And if they do sell it, or a % of it, they don't HAVE TO do it immediately or at some set time.

That's a good point. People were painting it like they would auto liquidate the BTC at a set time everyday or something. They may do it more like Bitpay. They could wait for orders to fill in, or sell it off exchange, or they could hold more BTC speculatively, if their operational costs allowed.

[InwardContour]

Expect flash crash in next days at least on 21th. Ever day after 21th there will be a small dump because of daily btc to usd swap. I am dumping right now first 200BTC

This is unlikely. The amount of BTC that would need to be sold as a result of bitfinex's new policy would be minimal

[twiifm]

Sounds like a textbook "Minsky moment"  if its true what this thread says about the margin trading.

Long positions on margin need the price to rise greater than the interest or else price will crash.

[theonewhowaskazu]

Long positions on margin need the price to rise greater than the interest

But isn't this true in pretty much every situation ever?

[twiifm]

Long positions on margin need the price to rise greater than the interest

But isn't this true in pretty much every situation ever?

It was true during 90s Asian financial crisis and 07 housing bubble