Arbitrage

Report: Crypto Hedge Fund Three Arrows Capital Pitched a GBTC Arbitrage Trade Before Rumored Collapse

22/06/2022 by Idelto Editor

Last week there was a lot of focus on the crypto hedge fund Three Arrows Capital (3AC) as the firm allegedly had a great deal of leveraged positions liquidated and there’s been speculation about insolvency. According to a recent report, 3AC’s over-the-counter (OTC) operation TPS Capital pitched a GBTC arbitrage opportunity before the company reportedly failed to meet margin calls.

3AC Co-Founder Says ‘Terra-Luna Situation Caught Us Very Much off Guard’ — FTX CEO Sam Bankman-Fried Insists Problems Like 3AC Couldn’t Have Happened With an Onchain Protocol

Before June 14, which was the last day Su Zhu tweeted, the co-founder of Three Arrows Capital Ltd. (3AC) was very active on Twitter. Since then, Zhu and 3AC co-founder Kyle Davies are not active on social media at all, but the silence has not stopped people from investigating the company. This is because various reports indicate that 3AC positions were liquidated and some reports speculate that the Terra LUNA and UST fallout crippled the company with “massive losses.” The same account indicates that it’s possible that it caused 3AC “to use more leverage to earn it back. Also known as ‘Revenge trading,’” the report added.

On June 17, it was reported by Reuters and the Wall Street Journal (WSJ) that 3AC was “exploring options, including the sale of assets and a bailout by another firm.” Davies spoke with the WSJ and he told the press that the “Terra-Luna situation caught us very much off guard.” Additionally, Michael Moro, the CEO of Genesis Trading, explained on Twitter that the firm “mitigated our losses” against a large counterparty that did not meet a margin call. He also added that no Genesis Trading client funds were impacted.

Then the FTX CEO Sam Bankman-Fried spoke about 3AC on June 19, and he stressed that issues like 3AC’s financial meltdown “couldn’t have happened with an on-chain protocol that was transparent.” Bankman-Fried’s statement stemmed from a question that asked how the crypto industry can ensure that a 3AC moment does not happen again.

Report Says 3AC’s OTC Desk TPS Capital Pitched a GBTC-Linked Trade Before the Alleged Collapse

Additionally, The Block reporter Frank Chaparro published a report that said “days before Three Arrows Capital blew up it was pitching investors on a new arbitrage trade.” Chaparro detailed that The Block reviewed investment documents that were allegedly pitched to investors by TPS Capital and the arbitrage opportunity involved GBTC, the Grayscale exchange-traded product tied to bitcoin (BTC). “They pitched to so many people,” an individual familiar with the matter told Chaparro.

“Three Arrows’ pitch was to structure a trade for counterparties that would offer the upside of the discount collapsing as the deadline neared for the SEC decision,” Chaparro wrote. “GBTC currently trades at a 33.75% discount to the price of Bitcoin, which it is meant to track.” Similar to the Celsius situation, the public has not really heard from anyone tied to 3AC. Although, the Celsius Network team did publish a blog post that noted the “process will take time.”

What do you think about the 3AC situation and the firm’s alleged GBTC arbitrage opportunity? Let us know what you think about this subject in the comments section below.

Discount on Grayscale’s GBTC Plunges to New Record Low as Competition From Emerging Rivals Intensifies

07/03/2021 by Idelto Editor

The premium on Grayscale Investment’s GBTC, which turned negative for the first time on February 23, is continuing its downward slide. As the latest Glassnode data shows, the GBTC was trading at a record low discount of -11.92% on March 4, 2021. According to the same data, this new low is a significant reversal from the December 21 premium of nearly 40%.

The Competition

This growth in the discount on GBTC comes as Grayscale Investments gradually shifts focus to altcoins. As reported by news.Bitcoin.com, Grayscale added 174,000 litecoins or almost 80% of the newly minted LTC in February of 2021. Similarly, the investment company also added 243,000 ETH to its ethereum holdings during the same period.

However, it is the discount on the GBTC that has sparked debate about what it might mean for holders of the investment product. Some have pointed to the launch of Purpose Bitcoin ETF as the primary reason for widening discount on the GBTC. After its launch on February 18, the ETF had amassed 11,141.2363 bitcoins as of March 2. Meanwhile, also sharing the same sentiment are analysts at the financial services giant JP Morgan. In addition to naming the increasing competition, the analysts also believe “profit booking” to be the other reason why the premium on GBTC has disappeared.

In the meantime, as Josh Frank, the founder and CEO at Thetie.io explains to news.Bitcoin.com, this scenario will not hold forever.

“This discount is not going to last forever because investors will take advantage of the discount on bitcoin they can hold in their retirement accounts,” said the founder.

The Premium Has Always Existed

Meanwhile, according to Frank, who previously explained in a Twitter thread why the premium on GBTC existed, institutions were getting “into the GBTC to arb the difference between the borrowing rate and the premium.” And as the CEO notes, this “trade worked for a really long time as retail consistently paid a premium on GBTC so they could get exposure in their retirement accounts.”

However, since the GBTC does not allow investors to redeem shares for underlying bitcoin and “as more investors came into arbitrage the premium, the amount of bitcoin held in GBTC skyrocketed thus exceeding the demand for GBTC by retail.”

Meanwhile, the CEO suggests that Grayscale will have to make some changes particularly to its annual management fee of 2%. Frank said:

I think Grayscale is going to have to respond to this by allowing investors to redeem shares for underlying BTC or the management fee will have to drop.

Meanwhile, on Twitter, some crypto enthusiasts agreed with the narrative that increasing competition could be the primary reason why the premium on GBTC has turned negative.

Premium or Discount

Nevertheless, others still think the discount will not impact Grayscale’s ability to profit from offloading the BTC. For instance, one Twitter user who uses the name Sandwich Toaster, claims that after buying the BTC between $20,000 and $40,000, Grayscale can now “sell them (BTC) with the 11% discount and still make a profit.”

Still, other users like Rama Rao are adamant that the GBTC should be trading at 20% to 30% premium on BTC but not everyone agrees. One user known as JPC thinks the opposite should hold. In his tweet, JPC said:

“GBTC could go to a 20-30% discount as more & more people learn about buying btc directly on exchanges.”

Do you agree that increased competition has led to the growing discount on GBTC? You can tell us what you think in the comments section below.

Decentralized Exchanges That Use Automated Market Makers Now Represent 93% of the Market

06/11/2020 by Idelto Editor

A recent report by Consensys says the surge in decentralized exchange (DEX) volumes in Q3 of 2020 is down to their adoption of the automated market maker (AMM). According to the report, DEXs that use AMM, a software that algorithmically creates token trading pairs, now represent 93% of the market.

The good side of AMMs

Already, as a consequence of using the AMM, Uniswap’s September traded volume topped $15.4 billion, a figure nearly $2 billion ahead than that of Coinbase’s. Prior to the surge in the use of AMMs, order-books were used instead.

The Consensys Defi report asserts that the increase in use of AMMs is largely down to them being “seen as a valuable way to reduce the chances of human error or manipulation and also to leave a clear audit trail for regulators.”

According to an excerpt from the report, the market maker software’s “success in Q3 proved that AMMs were ready for the mainstream — so much so that the total value of AMMs on Ethereum surpassed $4 billion.”

The key difference between AMMs and order books is that liquidity providers do not compete with each other for order flow. All the liquidity providers avail liquidity only at the prices established by the one algorithm that applies to everyone. The entire order flow is distributed among all the liquidity providers proportionally.

The counter-narrative

However, many within the Defi community space are making the argument against AMMs despite the embrace by DEXs. Expounding on this is Dmytro Volkov, the CTO at CEX.IO who makes one key point:

“(An) AMM creates an inefficient market! Arbitrageurs extract profit from the inefficiencies of liquidity providers, meaning that liquidity providers suffer a loss (or lose profit) to make that possible. This makes such markets very attractive to arbitrageurs because they provide profit basically without risk.”

Volkov also notes that “inefficient liquidity providers are up against arbitrageurs, who are professional or very experienced traders with fast, high-quality arbitrage algorithms.” According to him, the outcome of such a scenario is quite predictable, the professional traders will prevail.

So while the Defi report attributes the increased DEXs volume to use of AMMs, Volkov thinks liquidity providers that currently use this market-making technology, are only using this for the sake of “simplicity” despite the possibility they will incur losses.

Reiterating the same inefficiency point is Sam Bankman Fried (SBF) the CEO at FTX, whose tweet in October makes the argument that “liquidity providers are making a mistake, and bleeding to impermanent loss (IL) but don’t realize it.” The CEO, who says AMMs exist “because blockchains don’t have the throughput to support order-books,” argues that IL is just a “PC euphemism for doing bad trades.”

IL is when a liquidity provider has a temporary loss of funds because of volatility in a trading pair.

No sustainable use case

In his long Twitter thread, SBF ultimately concludes that “AMMs force you to always make two-sided markets at mid. That strategy does not generally do so well. And throwing math at it, or synthetic hedges, or whatever, doesn’t really help.”

In the meantime, John David Salbego, the founder and CEO at Anrkey X praises “the math, algos and initial premise” of AMMs but argues that “there is no real use case or sustainability with AMMs in their current state.”

Salbego, who generally echos the same sentiments as SBF and Volkov, is also concerned with other problems that plague AMMs such as high ETH gas fees, the arbitrage, market price fluctuations and the risk of not filling. Unsurprisingly, IL is cited as another hurdle as Salbego explains:

“Also, I do think having control over your IL is another major challenge holding back this technology, but I see some cool projects working on solutions that seem really promising.”

Dissenting view

However, other players like Viacheslav Akhmetov, the blockchain lead at Mercuryo.io remain hopeful about its prospects. Akhmetov points out that the concept of “AMM is still emerging and there are a lot of new things that could be introduced.”

Others think using a different blockchain could produce better results. Still, they acknowledge that the current popularity of the Ethereum blockchain makes switching between chains difficult.

What are your thoughts on the role of AMMs? Share your views in the comments section below.

The post Decentralized Exchanges That Use Automated Market Makers Now Represent 93% of the Market appeared first on Bitcoin News.

Bitcoin.com Exchange Now Supports Reserve’s Stablecoin RSV and the Utility Token RSR

16/04/2020 by Idelto Editor

Bitcoin.com Exchange Now Supports Reserve Stablecoin RSV and the Utility Token RSR

Bitcoin.com’s Exchange continues to grow and during the last few months, the platform has added support for a number of well known tokens. This week, the trading platform has added support for the Reserve stablecoin (RSV) and the project’s utility token (RSR). Bitcoin.com Exchange users will be able to trade RSV and RSR with trading pairs like bitcoin cash (BCH) and tether (USDT).

Also read: China’s Research Institute Updates Crypto Ranking — Review Affected by Pandemic

Bitcoin.com Exchange Adds Two Reserve Tokens – RSV and RSR

Since launching the trading platform Bitcoin.com Exchange last September, the service has seen considerable growth. The exchange is a simple-to-use trading engine that offers a variety of different cryptocurrencies. Popular digital assets hosted on the platform include coins like litecoin (LTC), ripple (XRP), tron (TRX), zcash (ZEC), stellar (XLM), dash (DASH) and eos (EOS) are paired with markets denominated in base currencies such as bitcoin cash (BCH), ETH, BTC, and tether (USDT). This week, the Bitcoin.com Exchange has added two different tokens from the Reserve project. The team behind Reserve wholeheartedly believes that everyone’s money “should be secure,” but also they also stress they are “building a universal store of value.”

In order to complete their goals, the Reserve team notes the project will move through three different phases that are increasingly decentralized. Reserve’s creators think that cryptocurrencies are a far better form of money, but they need to be both accessible and a store of value that can be leveraged as a unit of account. The project’s first phase will be more centralized where reserves are backed by collateral and pegged to the United States dollar. The second phase aims to utilize a “basket of assets” and still keep the USD peg. “And in the third and last phase,” the Reserve team says. “[Is] the dollar-peg, which would be abandoned to stabilize the real purchasing power of Reserve.

Stablecoins Offer a Hedge Against Volatile Markets

Bitcoin.com Exchange users will now have the chance to obtain or trade against Reserve tokens with BCH and USDT. The two tokens that will be added include the stablecoin (RSV) and Reserve’s utility token (RSR). When an open-finance stablecoin RSV is purchased, the team says the assets used to obtain RSV are “held in a collateral smart contract, so there is always a 1:1 collateralization.” The RSR token is a utility token that has a myriad of roles in the Reserve network. The Reserve project’s decentralized price-peg scheme is similar to the way Makerdao operates.

Stablecoins like Reserve offer a number of benefits for traders looking for arbitrage and those looking to hedge against big drops in value when the crypto economy slides. If you haven’t signed up for our trading platform, the process is quick and easy. Simply register with exchange.Bitcoin.com and you’ll be able to instantly trade, deposit, and withdraw your favorite digital assets. Bitcoin.com’s user interface is designed for ease-of-use combined with a professional-grade trading platform configured to offer seamless swaps in a secure environment.

What do you think about Bitcoin.com Exchange’s continued growth? Share your thoughts in the comments below.

The post Bitcoin.com Exchange Now Supports Reserve’s Stablecoin RSV and the Utility Token RSR appeared first on Bitcoin News.

Traders Flock to Tether, USDC, PAX – Stablecoins See Great Demand After Crypto Market Havoc

16/03/2020 by Idelto Editor

Traders Flock to Tether, USDC, PAX - Stablecoins See Great Demand After Market Havoc

Stablecoins have seen massive volume and growth this month especially after the market carnage on March 12. Per usual, tether has been the king of stablecoins following the market downturn, but the 4.6 billion USDT wasn’t enough for all the liquidity needed to shield the storm. Other tokens pegged to the U.S. dollar like USDC, TUSD, and PAX have reaped the benefits as well and a few of them have joined the top trading pairs with BTC.

Also Read: Bitcoin Cash IFP Debate: ABC Kicks Off Fundraiser, 3 Mining Pools Signal BCHN Support

Stablecoins See Increased Demand and Growth After Crypto Market Wrath

It’s a well known fact that lots of traders like stablecoins and they become useful hedges for people when crypto market prices suddenly dive. Despite a number of people not liking them and the controversies surrounding stablecoins, they have continued to grow very popular during the last few years. Tether (USDT) is the most used stablecoin and the token’s market capitalization is the largest to-date. In fact, USDT is usually the top trading pair with BTC and during the last week, the token captured between 60-75% of BTC trades.

At the time of writing, USDT has a market valuation of around $4.63 billion. Coinmarketcap.com (CMC) data shows reported traded volume for tether is $40.6 billion but messari.io’s “real volume” statistics claim its only $1 billion. Either way, statistical aggregation sites like CMC, markets.Bitcoin.com (6.4B), and messari.io both show that USDT has the most trade volume on March 15 out of 5,000+ coins.

Even though tethers have and still are capturing 60-75% of BTC trades during the last few days, other stablecoins have seen growth from the crypto price downturn as well. Cryptocompare.com stats show that stablecoins like USDC and PAX have been top five trading pairs with BTC. USDC is capturing 4.1% of BTC trades and PAX has around 3% according to cryptocompare.com data.

Usually, these stablecoins are not even close to making it into the top pair trading positions with BTC. On March 14, Circle cofounder Jeremy Allaire explained how USDC saw growth over the last couple of days. “USDC surging in market demand over the past days, reaching new ATH at $568M in circulation,” Allaire tweeted. “Fascinating to see ‘flight to safety’ within the crypto macro market, but also demand for high-quality USD liquidity for markets.” Allaire continued:

While not as exciting to see markets so crushed, it’s still rewarding to see that this entirely new, entirely digital, blockchain-based monetary infrastructure is working.

Stablecoin Arbitrage and Liquidity

While Allaire discussed the situation after the wrath on March 12, Paxos Global’s official Twitter account also tweeted about the various stablecoins they offer custody for and noted that the combined projects had a market capitalization of “more than $395 million as of March 12, 2020.” The stablecoin TUSD has also seen an uptick in volume and the approximate total value of TUSD’s market cap at press time is $132 million.

Paxos is a Trust company, meaning we are a qualified custodian for USD-backed #stablecoins. We power $PAX @PaxosStandard, $HUSD @Stablecoin_HUSD and $BUSD @binance Dollar, with a total market cap of more than $395 million as of March 12, 2020. https://t.co/ZWpJ2LUNkw

— Paxos (@PaxosGlobal) March 12, 2020

News.Bitcoin.com recently reported on the incident that took place with the Makerdao defi project after ETH prices dropped more than 40% on Thursday. At that time $4-4.5 million worth of Makerdao’s stablecoin DAI were undercollateralized. However, since then single collateral DAI tokens have been doing much better and on March 15 they are priced at $1.06 per token.

Even though most of the stablecoins are supposed to remain valued at one U.S. dollar after March 12, liquidity demand made prices fluctuate for all of the stablecoins in existence. At times prices have been a touch higher and sometimes stablecoin prices have been a hair lower than the USD peg. Crypto traders have found ways to leverage the current stablecoin arbitrage, which allows them to sell the tokens for higher profits using different markets. Traders have been using stablecoins for arbitrage for years and there are various blog posts and guides on the subject.

It’s likely that traders will continue to use stablecoins and ‘tether off’ in order to hedge the current storm. On Sunday, March 15, cryptocurrency markets have been lackluster and there haven’t been any huge moves. If coins like BCH, ETH, BTC, and many others see improved prices and gains soon then it’s likely traders will gradually exit their stablecoin hedge. However, if markets fall lower in the near future the ‘flight to safety’ within the cryptoconomy might be put to the test with significant stress. If crypto prices drop further liquidity issues could make dollarized tokens worth a lot more than the 5-10 cents higher we’re seeing today.

What do you think about the current market demand for stablecoins? Let us know what you think about this subject in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article. Price articles and market updates are intended for informational purposes only and should not be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Cryptocurrency prices referenced in this article were recorded on Sunday, March 15, 2020.

Image credits: Shutterstock, Markets.Bitcoin.com, Twitter, Fair Use, Wiki Commons, and Pixabay.

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