This Bitfinex Credit Bubble cannot end well

[abercrombie]

impressive thread, very prophetic.  

side note, what's the FDIC doing about this?   

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[nrd525]

I'll admit that I was wrong. I thought the credit bubble would hold.  So far we've seen a partial unravel. If the price were to drop to say 440, we'd see another small to major crash (at least on Bitfinex).

[nrd525]

The swap rate is falling fast. May reach 0.03%/day.

[elebit]

I don't get it. With the 5k sellof, why didn't price drop more on Finex? Isn't this fishy?

Or are there dark orders in their orderbook?

[Wandererfromthenorth]

We had another liquidation despite no new Bitfinex low,



My strong suspicion is now that the report we got about someone's position not having been liquidated at the prior cascade even though his liquidation price was met was a common phenomenon. I'm guessing that Bitfinex decided to split one single liquidation somehow to limit its impact. How else would we have ~5k BTC sold at once even though the price did not go below the former 451 low?

Anyway, a decrease from 30 million to 21 million is quite a deleveraging. Things are much less unhealthy now, in my view.

Another flash crash to get rid of a portion of all these longs still there would have been nicer though.
But yeah, better now.

[Newbie1022]

The swap rate is falling fast. May reach 0.03%/day.

We are starting to get into credit card territory... which means people will soon lever back up.

[BitBits]

I don't get it. With the 5k sellof, why didn't price drop more on Finex? Isn't this fishy?
Or are there dark orders in their orderbook?

It is the fact that the order book is full of hidden orders (this is one of the functions at Bitfinex). I know this first hand, I see them all the time and I use them all the time myself.
So, this second sell off was not as drastic as the first one, most likely because we do have a lot of potential buyers who made sure they are "ready" this time for the next wave of liquidations on those remaining old  "moronic-long" positions. This also means that a great deal of swaps HAVE already changed hands AND that a big chunk of current outstanding borrowed swaps have fresh (and low) entry points.

Just to note, I did changed my mind too about this "credit bubble" warning. I originally argued against the significance of it, but at some point it began to make sense and time proved it to be a real thing (I am only surprised about why people didn't short much). However, I personally did not and still do not agree with any negative comments directed against Bitfinex team. They introduced a number of changes to address the issue like this and most importantly they (the trading engine) handled this latest crash extremely well.  

[MOB]

The credit level looks pretty reasonable at this point and I do not think it will just immediately start shooting upward again.  The greatly lowered fees combined with the hopes of another cascade should keep some of the loans out.

Also, keep in mind that the maintenance margin will be increasing by ~15% (from 13% to 15%) starting Monday.  The initial sell-off came within 24 hours of an email from BitFinex announcing that the latest series of changes, including that margin increase.  If that was one or two whales with those 5500BTC, then that latest change would have made a $50K difference on their margin.  Without this cascade now, presumably one could have been (and still might be?) touched off on Monday as soon as the new margin requirements are in effect.

[Newbie1022]

WOWOWOWOWOWOWOW!!! Wait a second... are they increasing allowable margin from 2.5 to 3.33... making credit looser... at the same time that they are making margin maintenance more austere??

I just read that. That just doesn't sound like it could be right. What are the implications?

[MOB]

WOWOWOWOWOWOWOW!!! Wait a second... are they increasing allowable margin from 2.5 to 3.33... making credit looser... at the same time that they are making margin maintenance more austere??

I just read that. That just doesn't sound like it could be right. What are the implications?

No, it is technically a decrease from 3.5 to 3.33, plus increasing the margin requirement.

From the email: "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."

Implications should be what we have been seeing for the last month--reduced outstanding swaps and lower rates if lenders think this reduces risk.

[Yololintian]

http://www.reddit.com/r/BitcoinMarkets/comments/2dohjg/im_josh_rossi_from_bitfinex_here_to_talk_about/

" We had approximately 650 bitcoins sold as the result of margin calls, out of a total amount of sales during this time of around 9000 coins. That is roughly 7%. Hardly, the cause of the drop in price. "

This sounds like complete bullshit, but I don't know why they would lie about it. Clearly around 9M of longs have been squeezed out, and about 6M during that crash. That is at least 10k bitcoins sold due to margin calls, and the volume was around 15k on the flash crash. So those numbers somewhat make sense, but only 650 in margin calls does not. Maybe this guy missed a 0 and meant 6500?

[nrd525]

Could the rest have been sold using stop losses?  Eg. people used stop losses to avoid being force liquidated.  I'm just guessing.

[leezay]

The swap rate is falling fast. May reach 0.03%/day.

We are starting to get into credit card territory... which means people will soon lever back up.

If it stay low at that rate for long, many lenders will just withdraw the money.

[Bitcoin_is_here_to_stay]

impressive thread, very prophetic.  

+1 Yeah, congrats, Blitz on calling this early.

[N12]

I think people are in the process of relevering. The bid side on Bitfinex is ridiculously high compared to Bitstamp.

[zedicus]

http://www.reddit.com/r/BitcoinMarkets/comments/2dohjg/im_josh_rossi_from_bitfinex_here_to_talk_about/

" We had approximately 650 bitcoins sold as the result of margin calls, out of a total amount of sales during this time of around 9000 coins. That is roughly 7%. Hardly, the cause of the drop in price. "

This sounds like complete bullshit, but I don't know why they would lie about it. Clearly around 9M of longs have been squeezed out, and about 6M during that crash. That is at least 10k bitcoins sold due to margin calls, and the volume was around 15k on the flash crash. So those numbers somewhat make sense, but only 650 in margin calls does not. Maybe this guy missed a 0 and meant 6500?

7% of trading volume is actually a lot, especially when that entire amount is on one side of the market. Additionally, from what I can tell much of this forced selling is done all at one time as over the past several days I have seen a sudden, sharp sell off that happened over the course of maybe 15 - 30 minutes.

I think that bitfinex should attempt to force sell margin positions in a more gradual way (maybe randomly selecting a certain percentage of accounts to force close positions every 30 minutes or every hour), and only force close positions all at the same time if equity levels were to reach a more critical level.

[gnode]

I think people are in the process of relevering. The bid side on Bitfinex is ridiculously high compared to Bitstamp.

Yes, and the shorts are trying to do the same move as last time.

[wachtwoord]

http://www.reddit.com/r/BitcoinMarkets/comments/2dohjg/im_josh_rossi_from_bitfinex_here_to_talk_about/

" We had approximately 650 bitcoins sold as the result of margin calls, out of a total amount of sales during this time of around 9000 coins. That is roughly 7%. Hardly, the cause of the drop in price. "

This sounds like complete bullshit, but I don't know why they would lie about it. Clearly around 9M of longs have been squeezed out, and about 6M during that crash. That is at least 10k bitcoins sold due to margin calls, and the volume was around 15k on the flash crash. So those numbers somewhat make sense, but only 650 in margin calls does not. Maybe this guy missed a 0 and meant 6500?

7% of trading volume is actually a lot, especially when that entire amount is on one side of the market. Additionally, from what I can tell much of this forced selling is done all at one time as over the past several days I have seen a sudden, sharp sell off that happened over the course of maybe 15 - 30 minutes.

I think that bitfinex should attempt to force sell margin positions in a more gradual way (maybe randomly selecting a certain percentage of accounts to force close positions every 30 minutes or every hour), and only force close positions all at the same time if equity levels were to reach a more critical level.

And the forced selling excludes the closing of margin positions before the actual market call. I think that number will be higher than the number of forced liquidations.

[21pilot]

I originally argued against the significance of it, but at some point it began to make sense and time proved it to be a real thing (I am only surprised about why people didn't short much).

this is exactly my opinion.
In hindsight it was really an obvious opportunity to open up significant short positions 

Additionally I don´t think it is true that many mining companies sell their BTC at Bitfinex, but rather use
Bitstamp for this.
Bitfinex seems to be catering mainly to traders.

[N12]

Dangerously close to prior 451 bottom, thus it might continue.

Edit: Longs now down from 31.8 million to 19.5. Near 40% reduction, which is quite healthy indeed.