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BitMEX Crypto Trader Digest Apr 07, 2017
From the Desk of Arthur Hayes
Co-Founder & CEO, BitMEX

I'm All Blocked Up



Will Segwit be activated? Will a hard fork occur? Will the block size ever increase? These are the burning questions that act as a drag on further Bitcoin price appreciation. I don’t know how it will all pan out, but that doesn’t mean that BitMEX can’t allow its clients the ability to profit by predicting how Bitcoin will or will not scale.

BitMEX is pleased to announce the launch of two prediction futures contracts themed around the ongoing Bitcoin scaling debate.

Segwit

SEGWIT, symbol: B_SEGWITZ17, is a prediction future on whether or not BIP141, also known as Segregated Witness, will be activated on the longest Bitcoin chain by the expiry date (31 December 2017, 12:00 UTC).

SEGWIT will settle at 100:

  • If BIP141 is activated during an “activation period” by the expiry date, and
  • The Bitcoin chain that activated SegWit must remain the Bitcoin chain with the largest hash power for 1,512 out of the following 2,016 blocks (75%). These 1,512 blocks must have passed by the expiry date.

SEGWIT will settle at 0 if the above conditions are not met.

What is an Activation Period?

An activation period spans one difficulty period (2016 blocks). 95% of the blocks mined during an activation period must signal acceptance of BIP141 for SegWit to be activated.

View Activation Periods

Big Blocks

BLOCKS, symbol: B_BLOCKSZ17, is a prediction future on whether a block larger than 1MB will be mined on the longest Bitcoin chain.

BLOCKS will settle at 100:

  • If a greater than 1MB block is mined on the Bitcoin chain with the largest hash power, and
  • If the Bitcoin chain that mined the greater than 1MB block must remain the Bitcoin chain with the largest hash power for 1,512 out of the following 2,016 blocks (75%). These 1,512 blocks must have passed by the expiry date.

BLOCKS will settle at 0 if the above conditions are not met.

Note that blocks of size > 1MB due to SegWit activation shall not mean a block greater than 1MB has been mined; BLOCKS is contingent on an actual base block size limit increase.

Trading Prediction Futures

Each contract can either settle at 100 or 0. The value of each contract is 0.0001 XBT multiplied by the futures price. For example, if you bought one contract at 50.00 , it would be worth 0.005 XBT. If the contract settled at 100, you would make 0.005 XBT. If the contract settled at 0, you would lose 0.005 XBT.

No leverage is offered on prediction futures contracts.

You will find all BitMEX prediction futures contracts under the tab entitled “Binary”. All prediction futures contracts’ symbols will begin with “B_”. This prefix denotes that contracts are binary, meaning they will either settle at 100 or 0.

Prediction Futures Series Guide

Baby Got BOOST



Before today, I would have thought ASICBOOST was a new form of energy drink. It even could be the long awaited reincarnation of 4Loco. Sadly that would not be nerdy enough.

An email from Greg Maxwell made the rounds yesterday, and is causing an uproar. Bitcoin Magazine published an article about the email that is going viral throughout the Bitcoin industry.
 

TLDR

  • An unnamed leading mining equipment manufacturer is using a patented technology, called ASICBOOST, to achieve efficiency gains of up to 30%.
  • If activated, Segregated Witness (SegWit) would eliminate any advantage for miners using the ASICBOOST technology.
  • Therefore the reason why large miners refuse to support SegWit activation is because they would lose their economic advantage.
  • Maxwell proffered a Bitcoin Improvement Proposal to eliminate gains achieved by using the ASICBOOST technology.
  • Although not explicitly mentioned, everyone assumes Maxwell spoke of Jihan Wu’s Bitmain.

Let’s Assume It's True

The purpose of this piece is not to argue whether or not I believe Maxwell. Rather I believe for good or bad, many in the community will agree with Maxwell's analysis and there will be a discernible impact on the Bitcoin price.

My base case is that SegWit will not be activated, and there will be no hard fork this year. If Jihan Wu is truly a Chinese devil (or Gweilo if he was white), and can secretly mine Bitcoin 30% cheaper than everyone else, my base case will hold.

If Bitmain captures above average profits mining Bitcoin as it currently stands, they have no reason to actually desire a contentious hard fork. They also would not want SegWit to smash the piggy bank. Therefore the optimal strategy is to vocally support a hard fork to erode support for SegWit.

SegWit to many is a convoluted way to scale Bitcoin. Many would just prefer a simple increase in the block size from 1MB to 2MB. However, Bitmain would never go so far as to actually conduct said hard fork.

In essence, Jihan can buy a new pad on the Hong Kong Peak each year under the status quo. Despite high Bitcoin network transaction fees, the price keeps rising. Users prefer Bitcoin as a store of value and a global form of money good collateral, to a fast and cheap payments network.

A continuation of the status quo is bullish for the price. The price dipped from $1,200 to below $900 on fears of a paradigm shift. If you believe the arguments put forth by Maxwell, then it makes business sense for Jihan to prefer the current small block, high fee, rising price situation.

The Market Hath Spoken

The price is steadily rising post publication of said article. If the community believes in the veracity of the claims put forward, the price will shortly surpass $1,200 and retest $1,300.

The Rock Is In The Building



Litecoin is affectionately referred to as “rock” by many crypto traders. Litecoin has acted like a rock in trader’s bags since it hit its all time high of $40 in 2013. The technical merits of why Litecoin should be worth more than $0 are few and far between. Litecoin exists on life support only because Chinese traders for some reason enjoy trading it. Mainly that is because it is the only shitcoin the big three Chinese exchanges (BTCC, Huobi, OKCoin) offer.

During the current 2017 altcoin bubble, rock caught a stray bid. The pump and dump operators finally decided it was Litecoin’s time to shine. Rock is up almost 200% since late March.

The narrative supporting the rally is that SegWit is close to being activated. The activation threshold on Litecoin is 75% vs. 95% for Bitcoin. Litecoin is a CTRL+C, CTRL+V of Bitcoin. The slight changes include being Scrypt mined, and a block time of 2.5 minutes on average.

Many traders point to Litecoin as proof that if Bitcoin activates SegWit the price should explode higher as well. Some seriously delusional traders con themselves into believing Litecoin could actually serve as a replacement for Bitcoin if the Core vs. Bitcoin Unlimited civil war results in a contentious hard fork.

Oblivious traders are filling their bags with new shiny rocks. How do I know? Because in a recent tweet, Coinbase CEO Brian Armstrong said they will list a Litecoin / USD pair. Altcoin pumps begin in earnest on Poloniex, and end when exchanges such as Coinbase and / or Bitfinex decide to list them.

A recent example of this phenomenon was Ether in Spring 2016. After a lacklustre performance in the secondary market from listing in August 2015 until January 2016, Ether ignited and went asymptotic. The peak during that particular rally was reached when Bitfinex announced it would list ETH. As soon as ETH listed on Bitfinex, the dump began.

Exchanges late to the party, even BitMEX is guilty of this from time to time, signal that peak fomo is near. Those traders tempting fate by holding Litecoin should be cautious. It isn’t called rock for nothing.

Algo Trading and Market Making Seminar Video

Thank you to everyone who attended the seminar on March 22nd. It was a full house. For those of you who could not attend, you can watch a recording on our YouTube Channel.

I will hold another seminar that will cover more advanced topics relating to market making later this summer.

Risk Disclaimer

BitMEX is not a licensed financial advisor. The information presented in this newsletter is an opinion, and is not purported to be fact. Bitcoin is a volatile instrument and can move quickly in any direction. BitMEX is not responsible for any trading loss incurred by following this advice.