TH1BTC Speculation Thread - Bitfinex Cloud Mining Contract

[greyphilosophy]

I feel your pain. I closed my position today at a total loss of .77 btc, and I count myself lucky it wasn't worse.  I think if bitfinex does this again they should offer unlimited swap contracts at a rate of 1.11% (rate of depreciation).  If they suddenly add more liquidity now though then I'll be pissed.

[nrd525]

Someone should start a bet on Bitbet.  Any suggestions?  Ex. you could bet that the contract would mine less than 1 BTC between Oct 15 and Dec 15.  Though that is actually a fairly boring bet as I'd give it a 90-95% probability.  You could have a bet that Bitfinex will reverse the trades.  That might get the manipulator worried.  Or you could bet that the contract value exceeds 2 BTC before it expires.

[nrd525]

I feel your pain. I closed my position today at a total loss of .77 btc, and I count myself lucky it wasn't worse.  I think if bitfinex does this again they should offer unlimited swap contracts at a rate of 1.11% (rate of depreciation).  If they suddenly add more liquidity now though then I'll be pissed.

I don't think they can offer naked swaps.  The swaps need to be backed up by something.  

They could possibly sell a set of two contracts for $0.
1. A short position
2. A long position

So you would spend $0 and receive one of each contract. Then you could buy and sell them - letting everyone be market makers.  If they aren't able to instantly add/remove mining capacity (and I think they lack this magical ability) then the "dividend" could be based on the mining of a pool - without actually doing any mining.  This "fake mining" has the tiny advantage of making you more money as you aren't adding to the mining hash rate. And you shouldn't need to pay the pool fee =)

I think this removes the need for swaps and might solve the manipulation problem.  Do you see any problems with it?

The University of Iowa Electronic Market (http://tippie.uiowa.edu/iem/) uses a similar approach. They sell contracts for political events like who will win the US presidential election (somehow this isn't seen as gambling). For $1, they issue three contracts 1) Democrat wins, 2) Republican wins, 3) Other wins.  One of these three contracts will be worth $1.  They also sell contracts based on a percent (Ex. percent of vote a political party will get in an election).

[odolvlobo]

Even assuming that the difficulty does not rise at all, the bid is more than the mining income will be. Bidders must now be expecting the difficulty to fall by 12/15 (by more than 10%). Or perhaps they are cex.io refugees that are happy to pay for the privilege of mining.

Assuming that the difficulty remains constant, mining income for 1 TH/s until 12/15 will be about 1.14 BTC.

0% difficulty increase - I get 0.94 BTC (Oct 10 to Dec 15 - and I only count half of Dec 15 due to it ending at noon).
Remember 3% pool fee.  Not sure how you'd be off by 17% though.

Thanks for correcting me. My spreadsheet had an error.

[nrd525]

I've appealed for help on reddit and am being misunderstood by people who don't understand the contract.

How will this end?
The interest rate is going up.  The TH1 swap market is very tight.  Currently there is unfilled demand for 2 TH1 contracts at 0.45%. Around 5 days ago, you could get swap for 0.25%.  For the past 2-3 days there has only been 0-3 TH1 contracts of swap on offer. The offer rate is 0.789% to 1%.

The price is going up.  Since Sept 18, the price has increased from 1.1 to 1.35.

The shorts will get squeezed.  However they might get squeezed by either 1) an increase in price due to people buying to close their position or 2) an increase in swap rates.

The increase in swap rates will cause people to want to close their position. However, they may also think that if they hold on that they will manage to cut their losses or even make a profit.  If they close their position, it is likely that new suckers who do not understand the market will take their place - so thus the price rise should be minimal.

If people become aware of this potential manipulation and demand for swap falls, it is possible that the manipulator will decide to exit the market - selling their shares for more than they bought them (perhaps 1.35 to 1.5) and having earned a daily dividend of around 1.5% (and also a 0.23% swap rate on maybe 50% of the contracts that they've lent out).   This could trigger a price collapse, or it is possible that another manipulator will take their place.

If people decide to hold on, swap rates will get even higher. They'll hit 1%/day soon, and continue climbing until they hit 3% in the last 30 days.

It is possible that other people will join with the manipulation and go long.  Either short-closing or people going long - could cause the contract price to spike to 2-3 BTC or more.  The entire ask wall could disappear and the basis for paying swap would be much greater.  If this happens, someone will decide to cash out and it might be the end of the manipulation.

If the manipulation ends, there is always the possibility of a second cycle of manipulation.

The only way to short this contract without massive risk is to wait until the last 30 days and get a 30 day swap at a fixed rate.

[lg1500]

I've appealed for help on reddit and am being misunderstood by people who don't understand the contract.

How will this end?
The interest rate is going up.  The TH1 swap market is very tight.  Currently there is unfilled demand for 2 TH1 contracts at 0.45%. Around 5 days ago, you could get swap for 0.25%.  For the past 2-3 days there has only been 0-3 TH1 contracts of swap on offer. The offer rate is 0.789% to 1%.

The price is going up.  Since Sept 18, the price has increased from 1.1 to 1.35.

The shorts will get squeezed.  However they might get squeezed by either 1) an increase in price due to people buying to close their position or 2) an increase in swap rates.

The increase in swap rates will cause people to want to close their position. However, they may also think that if they hold on that they will manage to cut their losses or even make a profit.  If they close their position, it is likely that new suckers who do not understand the market will take their place - so thus the price rise should be minimal.

If people become aware of this potential manipulation and demand for swap falls, it is possible that the manipulator will decide to exit the market - selling their shares for more than they bought them (perhaps 1.35 to 1.5) and having earned a daily dividend of around 1.5% (and also a 0.23% swap rate on maybe 50% of the contracts that they've lent out).   This could trigger a price collapse, or it is possible that another manipulator will take their place.

If people decide to hold on, swap rates will get even higher. They'll hit 1%/day soon, and continue climbing until they hit 3% in the last 30 days.

It is possible that other people will join with the manipulation and go long.  Either short-closing or people going long - could cause the contract price to spike to 2-3 BTC or more.  The entire ask wall could disappear and the basis for paying swap would be much greater.  If this happens, someone will decide to cash out and it might be the end of the manipulation.

If the manipulation ends, there is always the possibility of a second cycle of manipulation.

The only way to short this contract without massive risk is to wait until the last 30 days and get a 30 day swap at a fixed rate.

you forget about one, if bitfinex add more assets then all will change

[nrd525]

Right. 

Either
1) Bitfinex adds more contracts and the manipulator has enough funds to manipulate them. Damage increases.

2) Manipulator's funds are exceeded and the price collapses.

I think they are restricted in how many contracts they can add as they have real hardware backing up the contracts and their contract with the mining company limits their ability to add contracts.  As such, I think that adding more contracts will fail.

[nrd525]

Number of outstanding swaps: 302.49 TH1.  It will be interesting to track this number, as it should decline if people decide to stop shorting it.

Does anyone know what the highest value was?  I think it might have been as high as 318. I don't recall it going over 320.

For the record, I was shorting 38 TH1 contracts.  So when I closed my position - at least half of the shorts were taken over by new people.

[Timetwister]

They should sell an unlimited amount of TH1 at a certain price. For example, at the open price. And then reduce it every day by a certain percentage.

They could also add put options.

[odolvlobo]

They should sell an unlimited amount of TH1 at a certain price. For example, at the open price. And then reduce it every day by a certain percentage.

It's not that easy. The income generated by the contracts has to come from somewhere.

[lg1500]

if margin trading contract will fail, they should refund all victims =shorterst, 13 days since no more assets, i dont know what will happen with me i shorting 4 th from 12 days 1.3 prize, and manipulation was started since no more assets- swaps. this market th1 is not fair play since bitfinex randomly put new assets. and now 500 is all, and 300 = swap, and remaining 200 i think people want sell high, and all shorterst will be forced to liquidation

[lg1500]

but still chance  i think soon prize will dump, 300 th1 in swap but still 200 th1 remaining and can be dumped

[greyphilosophy]

It's not that easy. The income generated by the contracts has to come from somewhere.

Those who receive swaps (e.g. shorters) pay the dividend on the contract.  This allows those holding contracts to offer swap without losing dividend.

[nrd525]

Another solution: extending the maximum swap lifetime to 90 days.  The 30 day maximum is due to regulation - not sure if they are registered in the same country as when they changed it.

[lg1500]

look at buy support, nothing i hope prize will drop to 1.0-1.1 and bitfinex will add 500 more assets, and make some changes like 90 days swap, and better adjustment for max swap prize or aomething

[superbit]

Another solution: extending the maximum swap lifetime to 90 days.  The 30 day maximum is due to regulation - not sure if they are registered in the same country as when they changed it.

This might be a perfect solution.  Regulation was likely related to BTC and USD, doubtful the regulations would include lending hashing power.

Buy support does seem to be dropping but still totally being manipulated.

[nrd525]

Someone is selling. TH1 swap down to 292.5.  Price is down, but there is also nothing on the order book from 1.283 to 1.399.  Does the swap interest get calculated based on an average of the bid and ask, or something else?

[lg1500]

Someone is selling. TH1 swap down to 292.5.  Price is down, but there is also nothing on the order book from 1.283 to 1.399.  Does the swap interest get calculated based on an average of the bid and ask, or something else?

i dont know too why swap down for 10, after someone sold 10, but i think someone end swap time, and some swap provider sold 10 th1, but what with this guy who need more not existing swap to support position ? his short position is now without real swap ?

[Timetwister]

They should sell an unlimited amount of TH1 at a certain price. For example, at the open price. And then reduce it every day by a certain percentage.

It's not that easy. The income generated by the contracts has to come from somewhere.

From the estimated expected mined amount taking into account the total hashrate.

[Timetwister]

Another solution: extending the maximum swap lifetime to 90 days.  The 30 day maximum is due to regulation - not sure if they are registered in the same country as when they changed it.

But you still have the short squeeze problem. If price goes up a lot, you'll get liquidated.