This Bitfinex Credit Bubble cannot end well

[MatTheCat]

believe me they do, look how many "features" did they deploy after they kicked me out 

What's your story with Bfx?

A former disgruntled employee, who made it his business to bash Bitfinex with every opportunity (...for about some year now I think)

Crooks should be bad mouthed at every opportunity.

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[molecular]

What do we think gang? Is ol' faithful going to blow Monday or are we going to get enough of an uptick from the Dell news once people wake up in China that it is going to save the riskiest players? I recently adjusted my position entering back in on the Dell news this morning, but still entering some flash crash catching bids on the exchanges in case she blows. I'm interested in hearing people's thoughts and analysis. You all have been around the block longer than I have.

The secret to a good orgasm is to hold it back for as long as possible.

Analogies aside: I don't know when (or even if) "she's going to blow", but back on topic:

I really don't understand how the USD swaps can be so high permanently. Price has been largely "stable" for a long time now and if I had a long position on borrowed money (let's say 0.1 %/day) established below current price, I'd have either closed it or claimed the coins (if leveraged < 1) a long time ago.

I really have no good explanation for this.

Has this thread come up with any convincing explanation yet?

[Marbit]

I really have no good explanation for this.

Has this thread come up with any convincing explanation yet?

I've been following the thread, and I'd say no. I've been wondering if there has been a revolving door of swap holders during this sideways market, with most closing after a short period with no up momentum, and a minority holding for a longer term move.

[davidgdg]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

BTW have you seen the APRs charged by payday loans companies?

http://www.thebureauinvestigates.com/2013/09/05/payday-loans-companies-charging-up-to-7000-experience-huge-growth/

As high as 7,000 %

Makes the Bitfinex swap rates look paltry.

[molecular]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

I'm not complaining about high swap rates. It's a free market.

[davidgdg]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

I'm not complaining about high swap rates. It's a free market.

You might wonder why a trader would pay these rates. You'd have to ask them but my guess is convenience and simplicity plus what is the alternative if you want to margin trade btc but don't have ready access to cheap dollar loans.

As you say, it's a free market.

[scarsbergholden]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

I'm not complaining about high swap rates. It's a free market.

You might wonder why a trader would pay these rates. You'd have to ask them but my guess is convenience and simplicity plus what is the alternative if you want to margin trade btc but don't have ready access to cheap dollar loans.

As you say, it's a free market.

Well, there's Meta Trader 4 and FX Open. No interest/swaps. Isn't there no swaps on BTC.SX? Not sure. But you do then also have to deal with artificial spreads. But this kind of interest in a sideways market kills positions.

[molecular]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

I'm not complaining about high swap rates. It's a free market.

You might wonder why a trader would pay these rates. You'd have to ask them but my guess is convenience and simplicity plus what is the alternative if you want to margin trade btc but don't have ready access to cheap dollar loans.

As you say, it's a free market.

Well, there's Meta Trader 4 and FX Open. No interest/swaps. Isn't there no swaps on BTC.SX? Not sure. But you do then also have to deal with artificial spreads. But this kind of interest in a sideways market kills positions.

It should kill positions. I'm not sure it does, doesn't look like it. Either revolving door (I don't believe it, we should see more volume) or those longs are just holding on desperately. (If they are longs at all)

[Coinfan]

Until now, Bitfinex only collected the interest in the moment the trader closed his position, with no interest paid on the interest that was accumulated. Now, after 21, this will change and the old interest in debt will be collected.

Some crazy bulls that have been long for months might get indeed liquidated because of that. It's impossible to guess how many.

I doubt about any conspiracy on the reason why the amount of swaps is so high. Some traders are jumping out, some bulls keep jumping in. I do believe that those more than 31 million usds in swaps were indeed converted mostly to bitcoin and that Bitfinex has about 40,000 btcs borrowed and 16,000 in collateral, ready to be dumped if bitcoin declines enough.

By the way, in a previous post, I presented some figures on the price at which we would see general liquidation. If we assume most bulls borrowers have collateral in bitcoins, the liquidation will be sooner, because their collateral would decrease also in value and not only the borrowed bitcoins. The number will be correct only for the ones that have collateral in USDs, but probably most won't keep fiat if they are bullish on bitcoin.

[molecular]

To go long you need collateral in USD.

[Yololintian]

Molecular: These are loans funded by lenders sending hard cash to an unknown company in an unknown jurisdiction with no recourse if things go wrong. Nobody will lend money on that basis without a damn good return.

I'm not complaining about high swap rates. It's a free market.

You might wonder why a trader would pay these rates. You'd have to ask them but my guess is convenience and simplicity plus what is the alternative if you want to margin trade btc but don't have ready access to cheap dollar loans.

As you say, it's a free market.

Well, there's Meta Trader 4 and FX Open. No interest/swaps. Isn't there no swaps on BTC.SX? Not sure. But you do then also have to deal with artificial spreads. But this kind of interest in a sideways market kills positions.

It should kill positions. I'm not sure it does, doesn't look like it. Either revolving door (I don't believe it, we should see more volume) or those longs are just holding on desperately. (If they are longs at all)

My guess is its partly a revolving door but also if you read some of these threads on here and reddit, the majority of people are expecting a bubble for no good reason so my guess is it is just a bunch of bull idiots expecting a bubble very soon, and they are bad traders so they don't understand yet how bad holding those loans is.

[Coinfan]

The only asset we can't use at Bitfinex to go long on bitcoins, is darkcoin: we can borrower bitcoins on usds, btcs or, I think, also ltcs.

[scarsbergholden]

Until now, Bitfinex only collected the interest in the moment the trader closed his position, with no interest paid on the interest that was accumulated. Now, after 21, this will change and the old interest in debt will be collected.

Some crazy bulls that have been long for months might get indeed liquidated because of that. It's impossible to guess how many.

I'm not sure how this will work. The announcement said that it would be capped at $10k per day, so I'd think large trapped positions may have already started lowering their exposure after the announcement.

I also read today in the TV bitcoin chat (unsubstantiated) that BFX now said it won't affect old positions -- only new ones taken. So again, not sure what to think. We'll see.

[thezerg]

Until now, Bitfinex only collected the interest in the moment the trader closed his position, with no interest paid on the interest that was accumulated. Now, after 21, this will change and the old interest in debt will be collected.

Some crazy bulls that have been long for months might get indeed liquidated because of that. It's impossible to guess how many.

I'm not sure how this will work. The announcement said that it would be capped at $10k per day, so I'd think large trapped positions may have already started lowering their exposure after the announcement.

I also read today in the TV bitcoin chat (unsubstantiated) that BFX now said it won't affect old positions -- only new ones taken. So again, not sure what to think. We'll see.

So one take away is that they would not have said that unless some people owe bitfinex > 10k in interest.  So there are either some very large positions and/or some very old ones.

[Coinfan]

10,000 might be enough to liquidate a few positions. And 10,000 in the first day, plus 10,000 in the second, will take down a few more that don't have a clue about how much interest they owe.

I think the "won't affect current positions" just applies to the new limits 1.5:1, so they won't be liquidated because of that, but they will if they end with less than the required capital because of the payment of the interest.

[BitBits]

What one also needs to take into account is that borrowed swaps are changing trader's hands in extremely fast fashion, even though the total borrowed remains the same.
Swaps can be lent and borrowed for a maximum of 30 days only, so with the current $30 ml borrowed, we can say with absolute certainty that there is at least $1 ml turnover per day, due only to swaps expiration on any given day. This number is in fact much, much higher because loans can be offered for as little as just 2 days and a lot (most) of them are in fact in that range (one can see the duration which current offers have on the site).  The way it works is as follows: when trader has open position and his/her loan expires, new one is instantly created by the system automatically.

By the way, this makes me really wonder why would there be any demand for loans at all, sitting there for days, not filled, when trader can instead just go ahead and create the position and pick/replace swaps later on.

About holding onto open long positions and paying interest while market goes sideways or even down, must be the choice of traders, they must be stubbornly betting on a major uptrend no matter what, until they win. So, with the current rate of about 0.16% a day, they are drilling into their collateral at the rate of about 5% per month. I guess this is acceptable to all those holding on to their long positions (...currently all ~50,000 BTCs worth of them).

[scarsbergholden]

Until now, Bitfinex only collected the interest in the moment the trader closed his position, with no interest paid on the interest that was accumulated. Now, after 21, this will change and the old interest in debt will be collected.

Some crazy bulls that have been long for months might get indeed liquidated because of that. It's impossible to guess how many.

I'm not sure how this will work. The announcement said that it would be capped at $10k per day, so I'd think large trapped positions may have already started lowering their exposure after the announcement.

I also read today in the TV bitcoin chat (unsubstantiated) that BFX now said it won't affect old positions -- only new ones taken. So again, not sure what to think. We'll see.

So one take away is that they would not have said that unless some people owe bitfinex > 10k in interest.  So there are either some very large positions and/or some very old ones.

I'm sure there are people who owe much more than $10k. Given the volume at Bitfinex the past few months (aside from the current lull), it wouldn't surprise me at all. A few hundred BTC position could rack that up in a month at the current flash rate.

[HarHarHar9965]

With the new changes, do you think Bitfinex will liquidate BTC to USD in a predictable way? Or do you think they will speculate to some extent? (i.e. not dumping every day at 00:00 UTC, etc)

[scarsbergholden]

With the new changes, do you think Bitfinex will liquidate BTC to USD in a predictable way? Or do you think they will speculate to some extent? (i.e. not dumping every day at 00:00 UTC, etc)

Doubt it will be predictable. I really don't think they will just dump immediately. They are already floating the interest amount, so it would easily be an amount they were willing to speculate on. They have a strong incentive NOT to crash the market, IMO.

[IacceptBTC]

With the new changes, do you think Bitfinex will liquidate BTC to USD in a predictable way? Or do you think they will speculate to some extent? (i.e. not dumping every day at 00:00 UTC, etc)

Doubt it will be predictable. I really don't think they will just dump immediately. They are already floating the interest amount, so it would easily be an amount they were willing to speculate on. They have a strong incentive NOT to crash the market, IMO.

I don't think it would be so unpredictable that it would cause havoc on the market, but rather it would be random, but also in small enough amounts so that market would not be greatly affected.