Bitcoin Futures Guide Markets Blog

Ethereum drops 50% in value after $50million taken from TheDAO

6/18/2016

Ethereum in the past 1.5 days has lost 50% of its value in USD terms, a massive drop being compared to the MtGox of Bitcoin. In the chart above you see just how bad the damage was in Bitfinex exchange.

The drop came amid news Friday morning that new "decentralised venture capital" smart contract token DAO - which touts itself as the first Decentralized Autonomous Organization, had an exploit that was weeks old which went unpatched and caused a hacker to syphon over a million ETH, nearly $50 million.

The response from Ethereum Foundation lead Vitalik was to demand a rollback, as released in a pastebin containing logs from a Skype group chat between exchange representatives and cryptocurrency developers. The supposedly "decentralised" cryptocurrency Ethereum, was suddenly proposing hardforks in order to bail out a bug in theDAO, one of their smart contracts. This was unprecedented and seemed a lot more like Ripple and not so much like bitcoin.

The market continues to fall and is clearly not pleased with such control behind exerted behind the scenes between high ETH and DAO holders.

Traders and commentators are calling this a Too Big To Fail moment, where millionaire ETH holders heavily invested in DAO, including Vitalik, need to bail out and protect these $50 Million from being taken, in order to save their own butts. Unfortunately, those who had prior failed smart contracts which lost money, or prior hacks where Ethereum was lost, won't be getting any special forks to get their money back. They just weren't big enough, or weren't directly connected to Ethereum founder Vitalik.

Where Ethereum fails, Bitcoin thrives. A robust and conservative blockchain, the original cryptocurrency bitcoin has been surging in price, here's the latest 12 hour chart out of Huobi CNY:

Bitcoin's price performance has been phenomenal the past months, with the CNY price now above 5,000 this weekend. Some may call this just a bubble, but with the block reward halving just weeks away, this has real fundamental drivers to it.

Stay tuned, be careful with Ethereum and trust in bitcoin above all.

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How to sign up for Whale Club bitcoin trading competition tournament - $15,000 in Winnings

6/15/2016

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Trading world markets with bitcoin

Bitcoin CFD site Whale Club has been hard at work this year putting together really great products for bitcoin users worldwide. With a humble start only offering BTC/USD trading at modest leverage, WhaleClub has now expanded to a wide array of products giving you access to the global markets with your bitcoin.

They offer you the flexibility to either use the site to make UNLEVERAGED positions, in the form of an investment. Or you can borrow funds from them to go long or short on leverage. Here's what they offer as of June 2016:

Note that WhaleClub is still a 100% bitcoin only website, keeping you secure and safe from fiat shenanigans with banks and governments. You can now trade BTC/USD, ETH/USD in crypto land. And you in FOREX you can currently trade EUR/USD pair. In Commodities you can trade Oil and Gold price. You can also trade the S&P index. Finally, you can trade hot stocks like Facebook, Apple, and Tesla.

If you decide to use leverage, note that you will be charged financing fees for borrowing money to enter a position. If you just use 1x no leverage, as if you are buying or selling the asset normally, then you don't pay ANY fees! This makes WhaleClub an excellent option for people who want to either use their bitcoin to make more bitcoin by accessing these financial markets that normally require providing documents and other things to a regulated broker.

Enter Free Bitcoin Trading Tournament

Here are some instructions for how you can enter two hot new summer tournaments at WhaleClub: Classic and Turbo.

Step 1 - Sign up for WhaleClub trading account (it's free and fast).

Step 2 - Go to the tournament signup link here.

Step 3 - Click the "Enter" button, it's that simple.

Now you're entered into the tournament! They also have a $5,000 binary options tournament, you can sign up for it here.

Best of luck and practice your trading while you wait - the tournament starts July 1st. See you there!

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US Financial Regulator CFTC Slams Bitfinex with $75,000 Fine

6/2/2016

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The Commodity Futures Trading Commission (CFTC) announced today that they have ordered and settled a complaint against BFXNA Inc. d/b/a Bitfinex (Bitfinex) for:

...offering illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies, and for failing to register as a Futures Commission Merchant (FCM) as required by the Commodity Exchange Act (CEA).

Residents of United States outside of New York are still able to trade on Bitfinex and it's not clear what steps were taken to become compliant with the Commodity Exchange Act.

For now their products: including swaps (margin funding) and margin trading work fine.

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Q&A with Dr. Timo Schlaefer, CEO of Crypto Facilities, up and coming Bitcoin Futures Exchange

6/1/2016

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CryptoFacilities has been doing fantastic things in the cryptocurrency derivatives space. Since the start 2016 they have gotten CME collaboration, a Ripple partnership, new high leverage products, and official FCA regulation as a true futures exchange.

They are known for providing professional bitcoin futures that do not have socialized losses, and while their volume is low compared to competitors OKCoin and BitMEX, they have been building a strong foundation for growth.

CEO Timo Schlaefer agreed to a Q&A so I use the opportunity to ask some questions about his new Turbo product, as well as bigger picture issues on the bitcoin derivatives industry in general and what CryptoFacilities will be doing in the future.

Interview Start

BitcoinFuturesGuide: Many of our readers are completely new to derivatives and are not convinced that they need traditional lower (3-6x leverage) bitcoin futures. What would you tell a bitcoiner -- whether they're executives at a bitcoin company holding lots of bitcoin on their balance sheet, or they're a mid-sized holdier of 10-20 bitcoin -- about why they should use normal CryptoFacilities bitcoin futures?

Timo Schlaefer:

If you just want to invest in bitcoin, i.e. buy and hold, you won’t need derivatives. They are very useful however for frequent trading as fees are typically much lower than in regular spot trading. With futures you can also go short, i.e. profit from price declines. This also allows you to get rid of bitcoin risk that you may not actually want without selling your bitcoins. For instance, a bitcoin payment processor may need to hold a certain amount of bitcoins to run the business but may not want to have exposure to bitcoin. In this scenario, shorting a bitcoin Futures will remove this risk without selling the bitcoins.

Futures also provide interesting trading and arbitrage opportunities. Typically, they trade somewhat away from the bitcoin “spot” price, and this price differential can be locked in to make a low-risk profit. There is also the opportunity to trade the differential between different Futures on the same platform or across different platforms, or between Futures and the spot price.

BFG: The bitcoin community is buzzing about your collaboration with the world's largest derivatives provider CME Group to construct reference indices to bitcoin spot market. Can you tell us a bit more about this?

TS:

It is extremely exciting that a market leader such as the CME Group is taking an interest in bitcoin and we feel privileged to be working with them. Bitcoin is a pretty new asset class, and for this asset class to develop further we need reliable reference prices. Together with CME Group we are developing a methodology to provide a once-a-day reference rate that will be published at 4 p.m. London time, as well as a real-time index representing the current market price of bitcoin which will be published approximately once per second and is suitable for marking bitcoin-risky portfolios, executing intra-day bitcoin transactions and risk management.

We aim at bringing together all the major source of bitcoin liquidity and combining them in a transparent, robust and replicable manner. The daily reference rate will additionally be overseen by a supervisory committee of leading market participants and industry experts. So we hope than everyone will have a vested interested in these reference rates and that they become a universally trusted and used source for the bitcoin price.

BFG: Your new Turbo product has a Weekly and Biweekly contract offered where there's 50x max leverage. To an existing bitcoin speculator who uses OKCoin, BitMEX, CFD sites, or even Bitfinex and Kraken on margin trading -- what would you tell them about why they should be trading your Turbo futures contracts instead?

TS:

The order book of our front week Turbo generally provides a very good level of liquidity – in most market environments you should be able to buy or sell around 25 contracts (worth 25 bitcoins) 5 BPs away from the bid price. Our transaction fees are between 1 and 5 BPs, and we do not charge any fees for maintaining a position, which makes total fees very competitive. We also do not have socialized losses, so we will not see us seizing any of your equity in case your get stopped out.

BFG: On other exchanges, people have experienced that when one marketmaker monopolizes liquidity provision, the spreads can make it difficult for people to trade profitably on short-term moves. This results in a CFD-like experience for traders, in practice. How confident can your clients be that the liquidity that we currently see in the orderbooks of CryptoFacilities futures contracts, which is quite healthy, will not disappear and leave large spreads to trap them when theres some volatility?

TS: We currently have an average bid-spread spread of 8 to 10 BPs in the front week contracts of our Futures which we believe is very good. We have not observed the situation you describe and certainly would step in to prevent this from happening.

BFG: You and your exchange have had a certain opinion about high leverage products in the past. Can you explain how your philosophy on this has changed now with the Turbo product. And if not, do you consider Turbo "true futures" given that there is such a 2% initial margin requirement (50x)?

TS:

Crypto Facilities offers regulated trading products that satisfy professional standards. The bitcoin world runs a little different than traditional finance, and we accommodate for that to the extend we think our products are still safe to trade.

Our bitcoin Futures provides 6x leverage and has never experienced a credit event since it was launched 15 months ago. At the same time we recognize that there are market participants who seek higher leverage and are willing to tolerate a higher level of counterparty risk. For this use-case we have launched the Turbo Futures which provides 50x leverage. The Turbo does not in any way change the risk profile of your “regular” Futures trades as it sits in a completely independent margin account, so there are no cross-effects between both products. It also does not change the risk profile of Crypto Facilities as we are not a counterparty in the trades on our platform.

Also, we have spent a lot of effort on developing mechanisms to prevent price manipulation and self-perpetuating price moves on our market. Price manipulation is a major issue in bitcoin, in particular in bitcoin derivatives and it is essential to protect market participants against it.

BFG: BitMEX has recently made another strategic pivot in their product offerings by abandoning futures and collapsing them all into one "swap" product for each currency pair. Are there any plans or interest at CryptoFacilities in developing swaps or something similar that gives investors an ability to earn interest payments on their bitcoin rather than merely speculating on price and premium changes in futures?

TS:

We currently have no plans to offer this kind of product. The idea behind perpetual swaps is probably to simplify trading, but this comes at the expense of transparency and tractability. For instance, if you hold a swap for a certain time, you will not know in advance what your lending costs/profit are going to be since the interest rate changes continuously. With Futures there is no such issue as you lock in the price at the beginning of the trade, so you know what you get.

BitcoinFuturesGuide: New exchanges on the scene like Coinpit and CRIX are planning to offer futures with no socialized losses. You were one of the first to offer this product to bitcoin traders in early 2015. Do you think the socialized loss model is going to disappear over time when competing with termination products emerging like Turbo?

TS:

I am not a fan of socialized loss systems at all, they tend to be intransparent and create systemic risks and conflicts of interest. I would be very surprised if a regulator ever approved a socialized loss system. We believe that our termination system, which manages credit risk bilaterally between counterparties, is safer and easier to understand.

I don’t think there will be a universal move away from socialized losses though. There is always going to be a need for more casual, unregulated speculation, and this system seems to work well enough for that in most cases.

BitcoinFuturesGuide: You recently announced a partnership with Ripple, to offer derivatives solutions for traders in that market. How broad is your vision for products on CryptoFacilities? Will it remain a bitcoin-only website? Or will other cryptocurrencies be depositable? And plans for fiat integration?

TS:

We like XRP [Altcoin Ripple's currency code] and think that it has some very useful and unique characteristics. What is currently lacking is the ability to trade XRP in a more versatile way, for instance to put on a short trade to hedge your exposure, and we are working on creating this market.

We ultimately want to extend our product range to all major digital assets and permit deposits in various digital currencies and fiat.

BitcoinFuturesGuide: Former CFTC chairman Bart Chilton recently openly stated that regulations need to be more lax for crypto. There are currently no legal exchanges for Americans to trade bitcoin derivatives on. Bitstamp was able to achieve EU wide recognition as a normal (nonderivatives) exchange. CryptoFacilities has recently achieved FCA permission to offer the first regulated futures on bitcoin. How promising are such efforts at acquiring similar regulatory recognition in the US and EU?

TS:

It is exciting that we are now able to offer our bitcoin futures to retail and professional investors in the UK and other European countries in a manner that is compliant with FCA regulations. This is a global first and certainly a step towards a more mature market.

The regulatory hurdles in the US for derivatives trading are high, in particular if retail investors are involved, and certainly difficult to overcome for a company with limited financial resources. Unless there is some softening of digital asset-specific regulations, I’d predict that the US market for digital asset derivatives remains effectively closed for new fintech companies.

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