This Bitfinex Credit Bubble cannot end well

[DavidHume]

And the credit bubble lives!!! Nice bleeder during the last rout. And yet, we sit over $30 million on Finex with other purveyors of leverage entering the game... and we are still falling anyways. =S Spooky!

This is irrational behavior also. The risk of putting money on the exchange is high but lenders are willing to lose it all to lend at around 30% rate.

[scarsbergholden]

Bitfinex give us a lot of nice numbers to work with. The rest of the exchanges don't and it is hard to make a good guess.

That's my main trouble with putting too much into Bitfinex's numbers. I don't see them as a driver of this market at all. They follow China to the tee pretty much, so I'd be much more interested to see numbers on Okcoin and BitVC/Huobi. Bitfinex calls may make us wick down, but I doubt they would drive the rest of the market down.

[efreeti]

Bitfinex give us a lot of nice numbers to work with. The rest of the exchanges don't and it is hard to make a good guess.

That's my main trouble with putting too much into Bitfinex's numbers. I don't see them as a driver of this market at all. They follow China to the tee pretty much, so I'd be much more interested to see numbers on Okcoin and BitVC/Huobi. Bitfinex calls may make us wick down, but I doubt they would drive the rest of the market down.

China is a huge market despite government banning the bank from servicing bitcoin related business. You can still gauge the sentiment of bitcoin in China using the price on bitfinex.

[trashman43]

Bitfinex give us a lot of nice numbers to work with. The rest of the exchanges don't and it is hard to make a good guess.

That's my main trouble with putting too much into Bitfinex's numbers. I don't see them as a driver of this market at all. They follow China to the tee pretty much, so I'd be much more interested to see numbers on Okcoin and BitVC/Huobi. Bitfinex calls may make us wick down, but I doubt they would drive the rest of the market down.

China is a huge market despite government banning the bank from servicing bitcoin related business. You can still gauge the sentiment of bitcoin in China using the price on bitfinex.

the price on bitfinex, sure, but how about the swaps? that is what this thread is about.

[madken7777]

Bitfinex give us a lot of nice numbers to work with. The rest of the exchanges don't and it is hard to make a good guess.

That's my main trouble with putting too much into Bitfinex's numbers. I don't see them as a driver of this market at all. They follow China to the tee pretty much, so I'd be much more interested to see numbers on Okcoin and BitVC/Huobi. Bitfinex calls may make us wick down, but I doubt they would drive the rest of the market down.

China is a huge market despite government banning the bank from servicing bitcoin related business. You can still gauge the sentiment of bitcoin in China using the price on bitfinex.

the price on bitfinex, sure, but how about the swaps? that is what this thread is about.

They send out an email on changing certain rules on margin. Not sure I truly understand the implication.

If someone want to put it in layman term, it will be truly appreciated.

[N12]

29.5 million.

[BitBits]

29.5 million.

Practically no change, while the price went down from about $630 to $525.

[manfred]

A full on professional audit from one of the big 4 audit firms  would be a great laugh here.

[molecular]

29.5 million.

Practically no change, while the price went down from about $630 to $525.

29.2

but yes: it's worrying this didn't get reduced much yet. Means there's a lot more to come < $500, should we visit that.

someone has guesstimated the "real cascade" would start at $450.

The only thing holding me back from getting fiat ready on finex is the fact that they might roll back the trades in case of chain-reaction event.

[N12]

The only thing holding me back from getting fiat ready on finex is the fact that they might roll back the trades in case of chain-reaction event.

Ironically, this policy of protecting lenders and punishing bidders makes such flash crashes more likely since there's little reason to bid low.

[Miz4r]

Max leverage is only 1.5:1 now right? You people focus too much on something totally insignificant, USD swaps will rather go up than down when the price moves further down because of increased USD demand. You're dreaming if you think a 1.5:1 max leverage will lead to a massive cascade of margin calls lol.

[fonzie]

Max leverage is only 1.5:1 now right? You people focus too much on something totally insignificant, USD swaps will rather go up than down when the price moves further down because of increased USD demand. You're dreaming if you think a 1.5:1 max leverage will lead to a massive cascade of margin calls lol.

Bitfinex leverage will not be decreased as much as announced 4 weeks earlier:

Hello,
In our ongoing effort to deliver the very best in crytocurrency trading, Bitfinex is pleased to announce several changes and enhancements to our margin system that will pave the way for better risk management, product-based margin requirements, and future trading products. We have also decided to streamline some of the associated margin features, updating and harmonizing margin terminology

1.We have decided to eliminate the “Choose your leverage” feature, i.e., 1:1, 2:1 & 2.5:1. Instead of this, we are implementing a “per-pair” leverage allowance. This will allow us to tailor the exposure based on the assets volatility. Virtually all users maximize this value, and since it is self-selected anyway, we have chosen to simplify our product by eliminating it.
2.We are also changing the way that we calculate “Tradeable Balance”. Currently, we do not consider the nature of a traders collateral when trading swaps, but that has lead to a loophole that allows a trader to effectively achieve 3.5:1 leverage by using BTC as collateral for a long BTC swap (most common example). While we are not particularly concerned about the effective leverage per se (see #3 below), we do, nonetheless want to harmonize risk management by considering any other collateral besides the one indicated by the pair (USD in the case of BTCUSD) as part of the allowing leverage for that position.
3.While we understand that #2 may impact some traders used to the “extra” leverage, we are counteracting its effects by increasing initial allowable leverage to 3.33:1. We are making this change in the context of making the following changes the margin terminology and parameters.
1.We will be changing any mention of “Leverage” to “Initial Margin” and representing it as a percentage instead of a ratio, which means that leverage of 2.5:1 would be represented as 40%. The new leverage of 3.33:1 will be shown as an Initial Margin of 30%.
2.Maintenance Margin will be increased slightly to 15% and will be fixed to be always be half of the Initial Margin for any giving swaps product.
3.These changes will allow us to easily adjust the margin parameters for a given swap pair to reflect marketplace realities as well as give us the ability to introduce future products that, for example, may be substantially less volatile, requiring less margin to trade. For the time being, 30%/15% margin parameters will be the same for all swap products.
The net effect of trader behavior and existing positions will be negligible and we look forward to delivering on the possibilities and new opportunities created by these changes. These changes will go into effect on Monday, August 18, 2014 at 00:00 UTC.

Thank you for choosing Bitfinex. We take the trust you place in us seriously, and are always striving to provide the fairest, and most cutting-edge platform in order to enable our customers trading needs.

Regards,
The Bitfinex Team
https://www.bitfinex.com/

[abercrombie]

This was posted yesterday in the Wall thread.  Somewhat an anatomy of the weak markets...

http://www.reddit.com/r/BitcoinMarkets/comments/2dag4l/bfx_margin_call_watchand_calculations/

650 buyers, margin calls at 540
640 buyers, margin calls at 530
630 buyers, margin calls at 520

[gizmoh]

They backpedaled on their 1.5:1  max leverage initiative which was meant to reduce swap growth..
Now its back to 3.33:1 leverage, giving more ammo to buyers to absorb more btc and hopefully prevent a flash crash. This is the latest move to prevent disaster..

[Tzupy]

They backpedaled on their 1.5:1  max leverage initiative which was meant to reduce swap growth..
Now its back to 3.33:1 leverage, giving more ammo to buyers to absorb more btc and hopefully prevent a flash crash. This is the latest move to prevent disaster..

If this works as intended - to absorb more BTC - then I'll be impressed. But if it won't be enough, oh boy, it will be fun to watch...
Quoting from wikipedia:
In the 1920s, margin requirements were loose. In other words, brokers required investors to put in very little of their own money. Whereas today, the Federal Reserve's margin requirement (under Regulation T) limits debt to 50 percent. During the 1920s leverage rates of up to 90 percent debt were not uncommon.[1] When the stock market started to contract, many individuals received margin calls. They had to deliver more money to their brokers or their shares would be sold. Since many individuals did not have the equity to cover their margin positions, their shares were sold, causing further market declines and further margin calls. This was one of the major contributing factors which led to the Stock Market Crash of 1929, which in turn contributed to the Great Depression

[Miz4r]

They backpedaled on their 1.5:1  max leverage initiative..Now its 3.33:1 leverage, giving more ammo to buyers to absorb more btc and hopefully prevent a flash crash. This is the latest move to prevent disaster..

I see, well that changes some things but I still don't see this cascading effect happen unless we drop like $100-150 very quickly so new positions can't form a proper cushion. Just because max leverage is now 3.33:1 doesn't mean all 29.5M USD use that max leverage, and besides 3.33:1 isn't stunningly high either.

[FattyMcButterpants]

someone has guesstimated the "real cascade" would start at $450.

we really have no idea. since we have no idea what level of margin leveraged longs are using. i, for example, don't leverage long but do leverage short -- but at never more than 1:1 or so. lots of assumptions around here that people by and large went full margin. that's a dumb assumption.

[fonzie]

According to Bitfinex, almost everyone uses MAX leverage:

"
1.We have decided to eliminate the “Choose your leverage” feature, i.e., 1:1, 2:1 & 2.5:1. Instead of this, we are implementing a “per-pair” leverage allowance. This will allow us to tailor the exposure based on the assets volatility. Virtually all users maximize this value, and since it is self-selected anyway, we have chosen to simplify our product by eliminating it."

[jillkelly]

According to Bitfinex, almost everyone uses MAX leverage:

"
1.We have decided to eliminate the “Choose your leverage” feature, i.e., 1:1, 2:1 & 2.5:1. Instead of this, we are implementing a “per-pair” leverage allowance. This will allow us to tailor the exposure based on the assets volatility. Virtually all users maximize this value, and since it is self-selected anyway, we have chosen to simplify our product by eliminating it."

couldn't that mean that everyone chooses 2.5:1 -- it was an option in user settings -- but not necessarily takes out a full margin position? i set mine to 2.5:1 but never did more than 1 or 1.5:1.

[fonzie]

According to Bitfinex, almost everyone uses MAX leverage:

"
1.We have decided to eliminate the “Choose your leverage” feature, i.e., 1:1, 2:1 & 2.5:1. Instead of this, we are implementing a “per-pair” leverage allowance. This will allow us to tailor the exposure based on the assets volatility. Virtually all users maximize this value, and since it is self-selected anyway, we have chosen to simplify our product by eliminating it."

couldn't that mean that everyone chooses 2.5:1 -- it was an option in user settings -- but not necessarily takes out a full margin position? i set mine to 2.5:1 but never did more than 1 or 1.5:1.

Possible