There is a fallacy that Bitcoin has no CashFlow. That’s what Warren Buffet thinks.
Wrong. Bitcoin has Cashflow.
Where is the Cashflow?
Lending to Margin-Traders at Exchanges
Arbitrage of the Basis (Contango or Backwardation) of Bitcoin Futures at BitMEX, OKEX, CME & CBOT
I only treat Lending at Exchanges for now. (I might treat income from HFs and Arbitrage of the Basis in a follow-up piece.)
Lending at Exchanges
You can lend your Bitcoin to margin traders at BitMEX, Poloniex and Bitfinex. Annual compounded rates of over a million percent have been available in the past and this writer has lent at those rates. I provide evidence of that 1,000,000 % below.
At time of writing (20 May 2018) 50,000 Bitcoin with a value of $415 million are out on loan at Bitfinex at 0.01% Daily / 3.6% Annualised (compounded).
You can lend USD as well as Bitcoin to margin traders at Bitfinex. The exchange works like a bank In Real Life pumped on steroids. In Real Life saving rates average about 1% annually in the advanced economies of the OECD. (E.g. Japan 0.1%, Germany 0.1%, UK 1.9%, US 2.35%.) In the Bitcoin world annualised USD rates of 30%-100% are often available, particularly when the market is bullish. How is this possible? Traders at Bitfinex wishing to buy Bitcoin on leverage need to borrow USD to do so. It is the other users of the exchange who lend them these dollars. But USD is in short supply at Bitfinex when the Bitcoin market is optimistic because most users want to be holding Bitcoin not dollars to benefit from the price appreciation.
At time of writing USD with value $720 million are being lent out at Bitfinexat 0.065% Daily / 26% Annualised (compounded).
When the Bitcoin market is bullish then USD rates tend to exceed Bitcoin rates. (Margin traders need to borrow USD to finance their BTCUSD Longs.) When the market is bearish the BTC rate exceeds the USD rate as traders need to borrow Bitcoin to Short it.
Source BFXData.com. See how Rates on USD lending (Blue line) are lower in 2018 than in 2017 as result of bear Bitcoin market in 2018. A Daily rate of 0.1% equates to an annual compounded rate of 44%. Bitfinexed is like a savings bank on steroids.
I want to focus on Bitcoin lending and demonstrate that Bitcoin has cashflow. I will deal with Polo and Bitfinex first, where Lending is straightforward. Lending Bitcoin at BitMEX often offers the best rates, but it is a little tricky.
Lending at Poloniex
You can lend BTC to margin traders at Polo who are going Long on ALTBTC positions with leverage. (They need to borrow BTC to pay for the ALT positions.) There is no USD Lending market at Polo.
When Alts are pumping you will get a great Lending rate; rates will be modest when Altcoin markets are quiet of falling. Rates can go batshit when there is volatility incoming. A daily rate of 0.1593% seen in the table below is 79% compounded annualised.
Poloniex BTC Lending rate - you need to scroll down to see where the first sizeable loans are offered. People gearing up to buy alts. pic.twitter.com/kYiDREIYMh— BambouClub (@BambouClub) June 15, 2017
Rates exploded in the run-up to the Bitcoin Cash Hard Fork on 1 August 2017. The reason was every man and his dog moved their BTC off the exchanges into cold storage to ensure they received their Bitcoin Cash. So there was very little Supply of Bitcoin available for Lending.
BTC lending rate at Poloniex now 0.4906% daily, 500% annual. This should be a case study in Economics textbooks one day. pic.twitter.com/ijFifVyLCr— BambouClub (@BambouClub) July 29, 2017
Lent 4 BTC at Polo at 1 million % APR for 60 days just before Fork. Interest payments are now 0.53 BTC = 6.46 $BCH at 0.082.— BambouClub (@BambouClub) August 5, 2017
54 days to go.
Zooming out, we can see that pronounced effect of thr Bitcoin Cash Hard Fork on 1 August 2017. (Data is from Bitfinex but the point stands.)
Source BFXData.com. See how Rates on BTC lending (Blue line) exploded at 1 August 2017. And see how BTC lending rate is highish in Feb and March 2018 as ascendant bears borrowed BTC to short. A Daily rate of 0.05% equates to an annual compounded rate of 20%.
How to earn this interest at Poloniex? It’s easy. Move BTC to your Polo Lending Wallet and offer them for Loan under the Lending tab. You need to set an Amount, a Duration, and a Rate. Set a rate that is in line with the market as seen in Loan Offers . If you try for too high a rate your Offer will not get filled. You can ignore the Loan Demands table.
Lending at Bitfinex
Lending is called Funding at Bitfinex. (And confusingly, Funding at Kraken means Deposits and Withdrawals.)
a. You can lend BTC to fund margin traders at Bitfinex who are going Long on ALTBTC positions with leverage.
b. Bitfinex also offers BTCUSD margin trading (unlike Polo) so you can lend BTC to those going Short on BTCUSD . (They need to possess BTC to sell it.)
c. You can also lend USD to traders going Long on BTCUSD and ALTUSD.
USD rates at Bitfinex tend to dwarf those available In Real Life.
You can currently earn a fortune lending USD at Bitfinex.— BambouClub (@BambouClub) October 14, 2017
Daily Rate: 0.24273%
Annualised rate: 146.95 % p.a. pic.twitter.com/feJZDQ7uTn
So, how to lend at Bitfinex? Again, it’s easy. Move BTC or USD to your Funding Wallet. Then go to the Funding Tab and make your Loan Offers, setting an Amount, a Period and a Rate.
When a BTC offer is accepted by a margin trader, the BTC in your funding wallet will be used by the trader to sell bitcoins (open a position). When the trader completes a trade by closing the position, they buy BTC which is returned to your wallet.
Use the Auto-Renew feature to avoid a lot of donkey work. More info. on Funding at Bitfinex.
There are great stats available on Bitfinex Funding.
You can also lend ALTS at Bitfinex. (You lend them to margin traders shorting them.)
So at time of writing (20 May 2018) $720 million are being lent out at Daily 0.065% / 26% annualised, and 50,000 Bitcoin with value of $415 million at 0.01% Daily / 3.6% annualised.
Lending at BitMEX
Rates for Funding at BitMEX are often the highest in the crypto space. It is not so straightforward as lending at Poloniex and Bitfinex.
When net sentiment in the XBTUSD market is bullish, you earn funding income by shorting the XBTUSD Swap contract. (Shorting Bitcoin essentially means you are holding a USD position.) This was the case for most of 2017.
When net sentiment in the XBTUSD market is bearish, you earn funding by going Long the XBTUSD Swap. Ths has applied to most of 2018.
A few things to note when the objective is purely to maximise funding income:
Funding fees and rebates apply to the XBTUSD Swap contract only. There is no Funding of the Bitcoin Futures contracts.
Use small Leverage to avoid getting Liquidated.
You must ensure your overall BitMEX portfolio (BTC in Wallet, BTC exposed in positions) is delta-neutral, i.e. unaffected by moves in XBTUSD. You need to use the Bitcoin Futures contract to hedge your XBTUSD Swap position to achieve this.
How to find out if you should go Long or Short to get the Funding?
The Funding Rate for the current 8-hour Session is displayed in the Contract Details box bottom-left.
Positive Funding Rate means Longs pay Shorts.
Hover over the box to see Predicted Funding Rate for next Session.
The Funding History page shows the history.
Interest is paid every 8 hour period, so 3 times a day. At 4am UTC then at midday UTC and then at 8PM UTC.
When you are shorting Bitcoin your position (Unrealised PNL) will change according to price of Bitcoin, until you close your short, at which point you will turn it into a Realised PNL. But your interest payments will be realised (Realised PNL) every 8 hours and come into your account.
Whe you are comfortable with shorting with 1x leverage, you can try 2x. Shorting on 2x allows you to keep some of your Bitcoin in cold storage, so you are exposed to less counterparty risk to BitMEX. Watch the market and add extra margin if the price gets near to your Liquidation price to avoid Liquidation.
More detail on this trade in this essay: XBTUSD The Philosopher’s Stone and Earning Interest Income on XBTUSD with Minimised Risk.
Check the Market for Lending
Rates (Daily) at 19 May 2018.
Rates (Annual compounded) at 19 May 2018.
BitMEX often offers the best BTC Lending rates in the crypto space. Open a BitMEX account and save on fees with this coupon