TL/DR:
Forecasts issuing of Bitmex fixed-income bonds, development of fixed-income market and leveraged interest-rate
Equity index perpetual swaps by Summer 2019
More quanto ALTUSD swaps like ETHUSD swap Q3/Q4 2019
No plans to curtail growth in $120 m. Insurance Fund
Plans for options platform in 12–18 months to compete with Deribit.
$10,000 by end of 2019 as result of more central bank liquidity. $50,000 or materially higher in five years as reaction against clampdown on cash.
N.b. Comments by BambouClub in Italics.
2:09 Beginning in 2013
Hayes started with Futures Arbitrage in 2013. He sold Futures on a Futures Exchange which traded at a premium to spot (i.e. contango), and hedged with (cheaper) spot at Mt.Gox, rolling it every month for 100–200% annualised return. He noted that there was a larger basis (Futures price — Spot price) than today.
Comment: This is a great arbitrage when Futures are in deep contango and your hedge is free. (No cost of holding Spot .) Futures markets currently trade in moderate backwardation, meaning Futures price < Spot price but not by much. So the arbitrage practised by Hayes is no longer available. What if you buy the cheaper Future at BitMEX and hedge with Short Spot at Bitfinex or Kraken? The interest you pay to short spot will kill the arbitrage.
5:05 Advantages of collateral vs USD cash collateral
On-board customer in 10 minutes at no cost
Process deposits and withdrawals with zero human intervention and without depending on bank and independent of bank’s policy about leveraged .
Comment: There are pluses (as outlined by Hayes) to as collateral at futures exchange. But there are also minuses to do with all Bitmex derivatives being quanto.
A quanto is a type of derivative in which the underlying (e.g. ) is denominated in one currency (USD), but the instrument itself is settled in another currency (). Quanto derivatives are convex a.k.a. non-linear. Here is the PnL for 5,041 $1 contracts of Futures shorted at current price ($5,041). Sheet made by @Cryptarbitrage.
The main problem is when you successfully short you get paid out in devalued . In an extreme bear scenario this can be a problem. Contrast with CME where collateral is USD and derivatives are not quanto. If goes almost to zero, shorters at CME get settled in USD and receive full benefit.
Another problem with collateral is traders need to put up much more collateral than CME traders. IMO Coinflex might steal BitMEX’s lunch because collateral will be Tether — making it independent of banks and available worldwide excl. USA — and the maximum collateral to open a $250,000 leveraged position will be $250,000.
6:45 Ambition to become biggest exchange in the world
Generational analysis. Baby boomers & Gen-X now disposing of assets. Millennials earning assets. Digital natives. Comfortable without human interaction e.g. Uber. Want 24/7 internet financial not 5-days a week.
Martin: Bitmex geared to speculators & short-term . What about savings & investment products, interest on ?
Development of debt market
How to generate income natively on ? Can only do this by lending. [This explains how to derive income from your by lending at Bitfinex and BitMEX.] Problem is default rates on lending are currently high. In tradition fixed-income high quality corporates issue short-term paper for funding — more financially efficient to borrow money than using retained earnings. AH sees exchanges and miners issuing short-term bonds. e.g. Bitmex / Kraken / Bitmain / Canaan 30-day zero-coupon bond paying interest reflecting market’s view of their credit risk. This will maintain integrity of these companies by demonstrating they service this debt and don’t spend all income on hookers and narcotics. This will establish risk-free curve and riskier borrowers can price themselves against large companies. People then select their own risk/reward debt to buy.
Fixed income markets > FX markets. Largest contract at CME is Eurodollar futures contract. Foresees interest rate derivatives based on risk-free credit curve.
15:05 Equity index perpetual swaps on BitMEX
Interviewer ask is BitMEX plans to enable investment of in equities, single-stock derivatives like 1Broker. Hayes states they plan Equity index product. BitMEX has funded a start-up in seed round — summer 2019 use to trade S&P 500 & NASDAQ indices. No BTCUSD risk, send , sell for USD, and trade EquityIndexUSD swap. Exit, close swap position for USD and back to . Will enable people in EMs to trade traditional equity indices. n.b. completely separate entity, not on Bitmex platform.
17:05 More ALTUSD swaps like ETHUSD swap Q3/Q4 2019
Launched ETHUSD swap in August 2018 and quickly became most traded ETHUSD instrument. Added quanto feature, i.e. as margin currency & PnL currency to trade ETH risk. Convex/ non-linear because of co-variance of & ETH. Opportunity to earn funding. People prefer USD pair futures to pair futures, plans to add more ALTUSD swaps when overload issue solved. Q3/Q4 2019.
The ETHUSD swap at BitMEX is quanto. Collateral and PnL settlement are in . This means when you Short ETHUSD you are also Short automatically. See how the ETHUSD contract value in USD falls as price falls even when ETHUSD price does not change. So to short ETHUSD with no BTCUSD risk you need to run a side-trade Shorting BTCUSD.
ETHUSD Contract = 0.001 mXBT x 162.83
= 0.16283 mXBT
= 0.00016283 XBT
= 0.00016283 x $5,055
= $0.823
The Deribit ETHUSD swap and Futures are superior.Collateral is ETH and there is no quanto effect. Also there is a ETHUSD Futures contract so you can hedge ETHUSD swap with Future to arbitrage funding which you cannot do at BitMEX.
20:44 Martin: More ALTUSD swaps might drive down prices of ALTs by enabling shorting as with ETHUSD. Hayes does not answer question. Says competitors’ swaps are different with ALT as margin (He is talking about Deribit which uses ETH margin for ETH swap, futures and options.) AH says BitMEX ALTUSD swaps are better as you can trade without your margin being exposed to ALTUSD risk.
This post, , sets out the argument that the ETHUSD swap had profound negative effect on the ETH price when it was introduced in August 2018.
21:45 Martin East vs West will BitMEX add lots of like Asian exchanges do? Hayes says no because derivatives require sufficient liquidity in spot market, spreads too wide, terrible for client. Wants liquid markets with full books where market-makers can make tight prices.
23:55 Martin ask about competitors. CME did record volume on 4 April $500, also Deribit / Bybit? Hayes says CME has different client base — institutional in US — Bitmex is mainly retail in Asia. And different product, lower leverage, USD margin. And it adds arbitrage opportunities between CME and BitMEX.
26:18 Martin API showing plans to add leverage. Will Bitmex make own ? Hayes says no, might be security, legal risk. Don’t need money.
28:01 What is overload and why does it happen?
In traditional finance exchanges they have seat-holders. Only they directly access market, & they provide brokerage services to end-clients. Retail traders not trade directly on NYSE/ CME. Send order to broker, broker checks collateral and pushes order to exchange and exchange matches. Bitmex retail client directly accesses matching engine with up to 100x. Trade engine has to risk-check order for enough margin. Can’t pause, match, re-start cos 50 bp maintenance margin. Ben Delo built system to get it to market asap & be mathematically correct, not optimising for speed & capacity. System being re-designed. Overload is better than delayed order — then limbo & learn in 10 minutes fill or no fill. Target 3–5 seconds of latency between pressing button & response. Overload provided quick certainty on if order is filled or not.
33:48 Are some people getting filled during overload? Is there some process of selection? No. Some clients have offered to pay to trade during overload.
35:00 Martin asks about Insurance Fund. Refers to . Does it need to be so large?
Hayes says . (Currently $120 million.)
Hayes says current volatility has been low since late-November 2018 at 20–30% annualised volatility.
Published at Sun, 14 Apr 2019 09:48:00 +0000
