Whether it’s the fact that Bitcoin is a nascent asset or the roots the industry has in gambling, crypto investors absolutely love to take on risk. This nature has primarily materialized on BitMEX, the leading cryptocurrency derivatives exchange that allows retail and institutional investors alike to get their hands dirty with margin (leverage) trading.
This, for those unaware, means that users can gain access to more cryptocurrency than they deposited by borrowing from exchanges, but thus taking on more risk.
Announced recently, Bitfinex wants to join BitMEX in offering 100x margin to its clients, meaning that a user with one BTC could make 100 BTC trades if he or she wanted to. This product was first hinted at on Tuesday morning by Paolo Ardoino, the chief technical officer of the popular exchange.
— Paolo Ardoino (@paoloardoino) June 24, 2019
Bitfinex Joins BitMEX in Offering 100x Leverage
Speaking to The Block in a recent exclusive, Ardoino explained that Bitfinex is on the verge of shipping a derivatives product that will allow for 100x leverage to its clientele. It is “now ready for prime time”, the Bitfinex C-suite member said.
This offering will one-up Bitfinex’s current margin system, which allows for up to 3.3x leverage. It is important to point out that this new derivative will not replace the old system. Right now, it is unclear how the fees for this product will operate, but Bitfinex’s competitor, BitMEX, does have very steep rates for 100x leverage trades for obvious reasons.
Per the CTO, only “verified” customers will be able to use this feature, which is much unlike BitMEX’s free-for-all business model. “Verified” presumably means investors that have passed the proper know-your-customer (KYC) processes and have adequate capital to support 100x margin trades, which most define as pure gambles.
This news comes hot on the heels of Binance’s foray into margin trading. Per a number of comments from Twitter users and Binance’s chief executive, Changpeng Zhao, the feature is currently only available for a select group of customers, mostly whales and institutions, and on the most liquid cryptocurrencies, namely Bitcoin. But, the exchange has hinted that it will roll out margin to all KYC-verified users (no discussion of U.S.-availability yet) with due time.
Speaking to The Block, Darius Sit of QCP Capital has noted that it will be interesting to see how the futures/derivatives markets develop, especially with Binance now in the fray:
“Futures liquidity has been centralized on BitMEX and Deribit. Interesting to see if Binance can steal some of that flow… not sure how easy it will be to take some of that away from BitMEX.”
Bitcoin Futures’ Volumes Surge
The new products from Bitfinex and Binance may be a move to capture the newfound demand for Bitcoin, which has materialized quite well in the derivatives market. In fact, as of the time of writing this, BitMEX has registered over $13 billion worth of volume on its Bitcoin contract, marking a new all-time high.
The demand for margin was further accentuated when Bitcoin flash crashed from $13,800 to $11,800 in minutes, as CoinDesk claims BitMEX registered over $687 million during the first fifteen minutes for the decline.
On the institutional-centric derivatives markets, namely the CME, volumes have also boomed. Spotted by analyst CryptOrca, the volume for the exchange’s June 2019 product traded nearly 16,000 contracts by early-afternoon in New York, representing 80,000 BTC worth of volume.
— CryptOrca (@CryptOrca) June 26, 2019
This strong demand for the financial vehicle continued into the afternoon, with the CME’s volume ticker now reading at just shy of 21,400 contracts. With these figures in mind, it should come as no surprise that big names in the cryptocurrency market are looking to continue to dip their toes in derivatives.