Second, while I won’t comment on this particular strategy, I want to note that many so-called “arbitrage” systems are actually sleeves for another important risk: liquidity. These strategies typically assume normal trading behavior and don’t take into account that exchanges break during crisis events, the exact events (even if they’re rare “black swans”) which can leave you half in a trade and wearing massive exposure during extreme volatility. The analogy is picking up nickels before a bulldozer... use at your own risk.
Very true, especially with altcoins. In my experience, big deltas have been results of things like withdrawal suspensions.
Long answer - The biggest flaw lies in the "advantages" section:
Unlike other Bitcoin arbitrage systems, Blackbird doesn't sell but actually short sells Bitcoin on the short exchange
The problem is only Bitfinex allows short selling. So, the example is an excellent case of cherry picking.
There are other issues with their strategy too.
This arbitrage exists because of the huge counterparty risk of exchanges
> Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.
> We make no representations, warranties, or guarantees to you of any kind, including with respect to any right of redemption or exchange of Tethers for any property.
That doesn't make any sense. Those are absolutely outrageous terms of service for what Tether purports to be.
I thought the entire point of Tethers is that they're redeemable for USD on a 1-to-1 basis with a fixed exchange rate. That's exactly what the Tether FAQ says, but based on the actual ToS, I'd have to consider these statements to be absolute bullshit:
> Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.
The FAQ says "Tethers are redeemable pursuant to Tether's terms of service" and the ToS says "There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money"
That is just fucking outrageous. I'm sorry, but it is.
I do not understand how or why anyone would use Tether without a contractual guarantee from the issuer to redeem each token for the underlying currency that it reserves. Without this, there's no reason for Tether to have a value.
I thought that the concept of Tether had sound technical merit -- essentially, a cryptocurrency with a fixed exchange rate backed by a full-reserve central bank for each currency -- but when offered with those legal terms, I have to consider it a scam. Under their ToS, money can flow into Tether but not out!
I can speculate about all sorts of reasons why they might have put up those ToS, but at the end of the day, it's a morally wrong contractual relationship for them to have with their customers. They should operate like a bank or otherwise with a guarantee that customers can convert Tether back to the reserve currency.
Edit: While doing some searches on this topic, I also found a news article about their questionable ToS, quoting this statement from the company:
> Our Terms of Service have been carefully picked apart by various malcontents and twisted to suggest that Tethers would not be redeemable for currency on some bizarre, malicious whim by Tether. That is untrue. https://cointelegraph.com/news/tether-really-isnt-a-scam-com...
Yeah, okay guys ... this interpretation is not carefully picking apart the ToS with malcontent. It's just a basic plain English reading of the ToS. I would stay away from Tether, and any company that responds in this way to completely reasonable criticisms.
Now they nicely converge to 20000. You buy back a BTC on X, giving you a loss of 8000 USD. You sell a BTC on Y, giving you a nice 10000 USDT gain.
So, you realised and locked in the projected 2000 USD arb profits - oh, assuming the 10000 USDT you got on Y can actually be exchanged for 10000 USD. You have exposure now to USDT/USD, and your arb profit (in USD) depends on that cross.
Also, if the author is interested in increasing market efficiency, but not in exposing themselves to the risk of being caught in a halfway position when an exchange breaks, it makes sense to release as FOSS. The target users would then be the exchanges themselves.
Essentially conterparty risk is the risk that the other party to a contract, in this case the broker, defaults.
Bacause automated arbitrage trading requires you to hold your funds with the broker, rather than transferring them to your own (preferably cold) wallet, you are exposed to the risk that the broker goes out of business without returning your funds, or otherwise fails to live up to its side of the bargain.
With crypto-currency exchanges, that risk over the long term might be assessed to outweigh the possible rewards from arbitrage trading.
Just FYI I think you mean 'lose half its value'. I doubt we're going to see BTC go negative.
>> your maximum loss on an exchange won't be
>> greater than $xx no matter what.
I think the pathalogicial case is if the markets never converge significantly, or more likely diverge wildly, e.g. one gets hacked. Otherwise, Blackbird will wait it out until it hits a pre-determined settable profit margin.
I'm guessing plausible return rates are low, but with the relative safety you can risk a bit more than just "crystal-ball"ing the market or playing daily lows and highs.
As an experiement, go on to a site like CoinMarketCap. Click on BTC->Markets. Sort by price. It looks like a ton of arbitrage opportunities, right? Well... now try to take advantage of it.
While technically opportunities exist daily (compare the huge difference in prices this moment at https://coinmarketcap.com/currencies/bitcoin/#markets) but tough to execute due to BTC transfers or fiat transfers being high-friction.
The issue I ran into is you can't move dollars between exchanges easily, so to rebalance, you've got to switch to something else. So you're profiting from volatility on one side and then betting on it not happening when you rebalance... and for the rebalancing, you have to wait a lot longer (as compared to trading instantly between currencies on the same exchange).
The other issue is that you have to anchor to something, and you can't anchor to the USD generally because even dollars in various exchanges aren't effectively worth the same amount (since you can't get them out as quickly / easily / risklessly in all exchanges). So you've basically got to anchor to US dollars on a certain exchange, and make trades based on the value of, for example, "Litecoin if sold on GDAX." That adds complexity, but might just be the reality of arbitrage.
That and I'm not sure the order books were large enough to make anything other than small amounts of money. The "last sell" price is just that--the price it last sold for. It doesn't take a whole lot of money before you've driven the price toward parity (and your arbitrage opportunity away).
Anyway--for me it was just a winter vacation project more for the experience than expecting real success. And it may actually work better on a week that wasn't last week (which was a bit uncommon). I guess we'll see.
Person A is selling apples for $5 and buying for $4.50.
Person B is selling apples for $4 and buying for $3.50.
You buy apples from person B and sell to person A. Of course, this is a bit oversimplified- this project uses a few tricks to get around volatility.
An example is why Warren Buffett got special permission from SEC to withhold reporting his trades for longer periods then normal. If you know that WEB bought a stock today, then you know he’s done the research and it’s a clearly profitable trade to buy and hold it for the long run. If WEB had to report trades daily, he’d be out of business, he’d never be able to buy more than a tiny amount of a stock in a single day, because the next day its price would have increased at least 20%.
Selling any kind of successful trading system is to invite others into your trades and make them less profitable for you. Selling the system only makes sense if the system is unprofitable or it's so thinly profitable that selling it to suckers is more profitable.
Also, the implied premise here seems to be that nobody in their right mind would give up on something that made them money, hence it has to be a scam. I'd say that open source in general is a perfect example of people giving their work away for free for whatever reason. Maybe they would rather have fame (i.e. github stars), or maybe they want a developer career and see this as a way to get feedback on code they wrote. Or maybe they simply feel that the potential value they could gain from this wasn't high enough to make it interesting so they decided to set it free.
There isn’t a stock in the world you can buy even $1B of in a day without driving it’s price up dramatically yourself. So Buffett has to slowly accumulate a position over weeks and months.
Why would anyone release a market algorithm that was proven to make money? And if they did, by virtue of everyone jumping on to use it, would no longer work.
People do weird stuff all the time. Plus, you'd need a lot of capital to exploit this fully. The basic concept of arbitrage here seems reasonable to me.
> And if they did, by virtue of everyone jumping on to use it, would no longer work.
Yeah probably. But you'd be able to observe that when all the market prices converge.
"I will tell you that any piece of code that claims to make you money is not public."
In this case, Spread trading relies on a spread not widening
This tool advantage relies on the fact that NO bitcoin needs to be moved, so all posts about long time of btc transfers make (almost) no sense.
On the other side only ONE (so far) person mentioned (importantly) that it works only on bitfinex, and even him didnt clearly wrote that this work ONLY if bitfinex has higher price than other exchange (reducing arbitrage opportunities by half), because you can short btc only on bitfinex.
Where is HN from 5 years ago? :(
Bitfinex might well have higher BTC/USD. However, the reason is that people can't get USD off Bitfinex, and so buy BTC to get those off Bitfinex. Thus, if you try to do the arb, you buy BTC cheaply on exchange X (for USD), then sell BTC (simultaneously) expensively on Bitfinex (getting USD).
Now, to realise your paper gains, you either have to wait for the BTC price to converge and then unwind the trade backwards, and have some money left, or you have to get the USD off Bitfinex. But you can't. That's why the price of BTC was so high there in the first place.
TL;DR: Arb is not trivial.
To be fair, it does not appear to be pointed out in the readme.md, either.
As you can see, there wasn't much discussion. The noise has certainly increased, but at least there is a discussion going on now.
For that, reddit is ideal.
If you want to talk about this stuff, you want a forum full of financial trader people, not engineers.
Cryptocurrencies are technically amazing, and yet they fall short of actually solving any problem.
But I think the real reason the threads are low quality is a lot more disappointing. There are a lot of people who (often they aren't even HN regulars) have heavy vested interests in cryptocurrency, in a certain philosophy, in a certain coin, and so they brigade to protect their interests and to steer the ideas of the public in their preferred direction. So people will speak up even if they know it's not really their area of expertise
sounds top notch.
it's human nature, when some people have made lots on bitcoin the people who haven't get a crab mentality. i doubt it's a conspiracy
The assumption you may speak for the majority by sampling a small polarized set of data is interesting, but irrational.
As such it is market neutral (since prices should converge) and transaction time doesn't matter.
Still doesn't work too well.