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Are there actually folks out there willing to pay a 10%+ a year interest rate to take a loan denominated in BTC? Bitcoin's price is all over the place, and ofte

by aston 12y ago

Are there actually folks out there willing to pay a 10%+ a year interest rate to take a loan denominated in BTC? Bitcoin's price is all over the place, and often moves up very quickly, so even if the loan were at 0% it would be a bad idea. But at 10%, you have to ask, are there any ways to invest your loan such that you could beat that rate? Consistently? The default rate is going to be sky high. The only rational explanations here are 1) these people are actually intending to short Bitcoin and don't realize there are cheaper ways or 2) these people don't exist, and this is a Ponzi scheme. The latter seems more likely, especially since this site claims to be covering losses on defaults (an even crazier idea than taking a BTC loan in the first place).

sdouglas 12y ago
Hi aston. As you suggest in your post, the majority of demand for bitcoin borrowing comes from market making traders on bitcoin exchanges. They have a need to borrower for a number of reasons, including going short. You say that currently there are cheaper ways to short, which is true. For example, on Bitfinex the borrowing rate is something like 4% APR. However, the rate is also very volatile and can jump up to 50%+ when demand is high. That's one reason why borrowers receive funds from us. Another is that they can use their funds on Coinfloor, which offers access to the GBP/BTC market. Trading of this kind is very popular right now, so I can assure you that these people exist. You and other posters are right to be concerned about Ponzi scheme. What might reassure you and others is reading our full T&Cs - you'll see the time and care we have put in to them. They might give an indication of how we do not want to do anything illegal, or even unprofessional. However, there's always going to be an element of trust involved and if you're too suspicious then you should keep your bitcoin in your own wallet until we're able to prove ourselves.
andrewla 12y ago
Out of curiosity, what are the cheaper ways to short Bitcoin? The only ways that I'm familiar with involve borrowing bitcoins in some way, for example, Bitfinex offers what they call "swaps" to facilitate margin trading. It's pretty clear that the reason for borrowing bitcoins is to allow shorting, in which case most of the time margin calls can cover the default risk. To answer your earlier question, "... are there ways to invest your loan such that you could beat that rate? Consistently? The default rate is going to be sky high". I think the answer is that at scale, probably not; most people will lose money while doing heavy margin trading. But most of the time you won't lose the entire thing, you'll cash out your position at a loss and pay off the accrued interest. The only time you lose the entire amount is if you approach margin limits, in which case you'll be automatically liquidated by the exchange and the fees will be removed. The even more rare case is that the exchange is not able to liquidate your position because of an exceptionally large move in the BTC price, in which case the default coverage by the site becomes applicable. This isn't to say that TradeMore is a legitimate site that won't steal your money, I'm just addressing the feasibility of the technique. The fact that they are a UK based company, with officers published on the site, is some comfort, though.

by aston 12y ago

sdouglas 12y ago

Hi aston. As you suggest in your post, the majority of demand for bitcoin borrowing comes from market making traders on bitcoin exchanges. They have a need to borrower for a number of reasons, including going short. You say that currently there are cheaper ways to short, which is true. For example, on Bitfinex the borrowing rate is something like 4% APR. However, the rate is also very volatile and can jump up to 50%+ when demand is high. That's one reason why borrowers receive funds from us. Another is that they can use their funds on Coinfloor, which offers access to the GBP/BTC market. Trading of this kind is very popular right now, so I can assure you that these people exist. You and other posters are right to be concerned about Ponzi scheme. What might reassure you and others is reading our full T&Cs - you'll see the time and care we have put in to them. They might give an indication of how we do not want to do anything illegal, or even unprofessional. However, there's always going to be an element of trust involved and if you're too suspicious then you should keep your bitcoin in your own wallet until we're able to prove ourselves.

andrewla 12y ago

Out of curiosity, what are the cheaper ways to short Bitcoin? The only ways that I'm familiar with involve borrowing bitcoins in some way, for example, Bitfinex offers what they call "swaps" to facilitate margin trading. It's pretty clear that the reason for borrowing bitcoins is to allow shorting, in which case most of the time margin calls can cover the default risk. To answer your earlier question, "... are there ways to invest your loan such that you could beat that rate? Consistently? The default rate is going to be sky high". I think the answer is that at scale, probably not; most people will lose money while doing heavy margin trading. But most of the time you won't lose the entire thing, you'll cash out your position at a loss and pay off the accrued interest. The only time you lose the entire amount is if you approach margin limits, in which case you'll be automatically liquidated by the exchange and the fees will be removed. The even more rare case is that the exchange is not able to liquidate your position because of an exceptionally large move in the BTC price, in which case the default coverage by the site becomes applicable. This isn't to say that TradeMore is a legitimate site that won't steal your money, I'm just addressing the feasibility of the technique. The fact that they are a UK based company, with officers published on the site, is some comfort, though.