the short of a lifetime

[myself]

https://www.bitfinex.com/pages/announcements/?id=23

Introducing mining contracts
Posted: about 4 hours ago

We are pleased to offer mining contracts as trading product on the Bitfinex platform. We have worked for some time to develop what we believe is a superior approach to “cloud mining” that is smartly packaged to offer simplicity and transparency. While we are very excited about this offering, please note that we consider this a “live beta” as we continue to tweak the product to meet the need of our traders. Because it is a beta phase product, the first “tranche” is purposely small and short-dated. As we gain experience in administering this product, assess demand, and incorporate feedback from our traders, we will introduced larger and longer dated tranches. The contract specifications follow:

Trading Pair: TH1BTC
Tranche Size: 100 THS (terahashes per second)
Expiration: 3 Months
Pool: TH1 is part of a larger pool (~3,500 THS total). Statistics regarding this pool will be posted regularly along with blockchain transaction id’s will be posted and frequently updated.
Pool Fee: 3%
Hosting: All hosting, power and maintenance cost for the duration of the contract is included in the price per TH.
Margin: TH1 can be borrowed and sold short. We will start out with a 25% Initial Margin Requirement, but we see that going as low as 12.5% in the near future.
Dividends: The blockchain time stamp on block rewards will be used to determine “holders of record” at the time that the block was mined. Positions will be aggregated between balances in the Exchange Wallet and trading position in the trading wallet to determine a “net position”. Dividends will be computed as the pro rata share of the block reward less the pool fee. Longs will get paid dividends in their default wallet. Shorts will pay dividends from the Trading Wallet only. Longs who provide TH1 swap liquidity will still receive dividends.
The product is designed as a “depleting asset”, whose value will continue to go down all the way to zero at expiration. Coupled with the fact that all hosting and maintenance is already included, we expect fair value analysis to be much easier for the average trader and cloud miner. TH1 will also be the first shortable mining contract (that we are aware of) further enhancing efficient price discovery. Trading will commence at 9 AM EDT on Monday September 15, 2014. We welcome your feedback and, as always, we thank you for your business and continued support.

[Torque]

The bold part, can someone ELI5 please?

[yokosan]

The bold part, can someone ELI5 please?

I will give you $5 if you pay me $10.

[thezerg]

The bold part, can someone ELI5 please?

You are buying 100 THS for 3 months.  Let's say you think that you would get X BTC in that time.  So today you might be willing to pay about X for this contract.

But in 1.5 months, you would only pay X/2 because there is only half the time left.
in 2 months X/3
in 3 months less 1 minute you'd be willing to pay nothing for it.


EDIT:  it will be interesting to see what traders value these at...

[myself]

The bold part, can someone ELI5 please?

shorts pay money to longs

longs pay a premium so people actually short this

if the longs pay to much premium they lose money even after dividends

given the nature btc traders where they only know to buy i expect the premium to get huge

note: shorting makes money only if the daily interest is below 0,21%

[nrd525]

Really?  I'm having trouble with the numbers, but I think shorting will make you money at up to somewhere between 0.6%-1%/day.  I'm assuming a 10% increase in difficulty.

[grappa_barricata]

There are almost no swaps available to short this. Someone has to buy the thing before being able to offer it for lending.

[HI-TEC99]

What happens if the difficulty shoots up faster than everyone predicts?

[myself]

What happens if the difficulty shoots up faster than everyone predicts?

best short ever ?

i mean the 1th value drop allot because diff increase so shorts should make good money

[adamstgBit]

i almost want to create an account and get verified and all that to short this. almost. 

[nrd525]

It's weird that there are only 37 TH1 swaps (on the stats page).  I think almost everyone should be offering for swap - or you lose 0.5-1%/day.

Also - is this a weird situation where the fact that you can lend out swaps at 1/day% will make the contract sell for more than it is worth (in terms of mining BTC)?

[nrd525]

TH1 fell as low as 1.35 and is now around 1.4.  Unfortunately I missed out.  There is still a lack of details about what this actually is.

[Bejkn]

bad felling, I cant understand why is this

[grappa_barricata]

bad felling, I cant understand why is this

Bitfinex dumped some more TH1. Apparently, they are declaring it only after the fact.
The dump started before the announcement was added. Also the extra swaps were added before the news release. Not fair, bitfinex. At all.

[Newbie1022]

bad felling, I cant understand why is this

Bitfinex dumped some more TH1. Apparently, they are declaring it only after the fact.
The dump started before the announcement was added. Also the extra swaps were added before the news release. Not fair, bitfinex. At all.

So this thing is now worth more and I am going to get murdered on my short, suddenly?

[adamstgBit]

bad felling, I cant understand why is this

Bitfinex dumped some more TH1. Apparently, they are declaring it only after the fact.
The dump started before the announcement was added. Also the extra swaps were added before the news release. Not fair, bitfinex. At all.

So this thing is now worth more and I am going to get murdered on my short, suddenly?

dumping more hashing power on the market? isn't this good for shorts?

[grappa_barricata]

bad felling, I cant understand why is this

Bitfinex dumped some more TH1. Apparently, they are declaring it only after the fact.
The dump started before the announcement was added. Also the extra swaps were added before the news release. Not fair, bitfinex. At all.

So this thing is now worth more and I am going to get murdered on my short, suddenly?

dumping more hashing power on the market? isn't this good for shorts?

The fact is that knowing that 100TH1 were in existence one take a trading strategy. Then all of a sudden new TH1 swaps came out of nowhere, followed by sell offers that can't possibly be there. Then more market sells, all the while up to margin calling almost all longs. Then, and only then, the announcement came out. Its language say that they will add these TH1 in a while, but this is not what happened.

We will be adding additional hashing capacity to TH1, increasing it to a total of 200 THS (terahashes per second) in an effort provide greater liquidity and enhance price discovery in both the exchange and swaps market. The additional capacity will be added immediately after the next block is mined.

[DavidHume]

Price is at around 1.2 with very little market depth.

Anyone figure what the actual fair value the contract is at?

[nrd525]

With a 10% difficulty increase, someone calculated 1.15.  I'm not an expert on difficulty increases. It seems like anything from 5-30% is possible.  So the current 1.15 is a decent price, but I wouldn't risk it unless I knew that mining difficulty was going to slow down.

I'm guessing that the TH1 swap rate is going to drop to 10-20% APR - so you won't get significant income from that.  But if not, the extra swap revenue can increase the value of the TH1 contract.

The great thing about price discovery is that people are discovering that mining contract prices are inflated (by losing 30-40% of its value in one day).  Which isn't news to most people who know how to run a bitcoin mining calculator.  This is probably great for the "market", but I'm not sure about how selling over-priced mining contracts to its customers helps Bitfinex?

[grappa_barricata]

With a 10% difficulty increase, someone calculated 1.15.  I'm not an expert on difficulty increases. It seems like anything from 5-30% is possible.  So the current 1.15 is a decent price, but I wouldn't risk it unless I knew that mining difficulty was going to slow down.

I'm guessing that the TH1 swap rate is going to drop to 10-20% APR - so you won't get significant income from that.  But if not, the extra swap revenue can increase the value of the TH1 contract.

The great thing about price discovery is that people are discovering that mining contract prices are inflated (by losing 30-40% of its value in one day).  Which isn't news to most people who know how to run a bitcoin mining calculator.  This is probably great for the "market", but I'm not sure about how selling over-priced mining contracts to its customers helps Bitfinex?

Indeed. I was not commenting that price needed to be higher. Just that it is a bit shady to start selling 100 TH1 in a market that had a bid depth of 15 TH1 at the time, and then after the fact announce that 'we will sell shortly'.