Bitfinex  Review: A-

Bitfinex is a trading platform that exchanges three pairs at current: BTC/USD, LTC/BTC, and LTC/USD. Its different from an exchange in that it allows you much more freedom of action, and leverage. The leverage is limited at 2.5:1, but thats still quite a bit for such a volatile marketplace. The freedom of action comes in two ways; first, by allowing limit, market, stop, trailing stop, and fill/kill orders. Second, by allowing you to acquire (borrow) or offer (lend) liquidity on a free market contract for difference exchange. How it works is pretty simple. Heres a snapshot of the USD borrow/lend page from January 21st, 2014:

On the left are offers. On the right are bids. When you accept or offer liquidity, you choose the maximum time frame and the quantity, and the system matches your orders. They also utilize something called a flash return rate; this is essentially “one-click” lending. If you enable it, your offer goes in at the current flash return rate, and is more likely to fill quickly. Why is this useful to us? Well, first and most obviously, it lets you go long on leverage. You borrow USD through a contract for difference, buy BTC, wait for a price increase, sell it back, return the USD + interest, keep profits. It also lets you do something you CAN’T do most places: SHORT Bitcoin and Litecoin. Here’s a snapshot of their Bitcoin liquidity page:

You can borrow Bitcoin at a pretty incredibly low rate (and Litecoin similarly cheaply) [EDITORS NOTE: This article was published in January. Rates are different now.], sell them, re-buy, close short, profit. If youre looking for somewhere to short Bitcoin or Litecoin, or to use leverage, or to lend your spare USD, BTC, or LTC out, Bitfinex  is the place for you to be. Another benefit of Bitfinex is a very nice fee structure. They run a partial maker-taker system, where the market maker ends up paying between .1% and 0(!)%, and the taker pays .2%. I believe theyre able to offer these fees because of the unique free market leverage system they utilize. By moving their risk to the lenders, they lower fees. They also pick up a percentage of the interest (15%), which again helps to keep their advertised fees down while keeping profits up. Im a big fan of their business model.

What is there to dislike about Bitfinex? Low (but improving) liquidity. A recent major glitch  gave significant credence to the view held by some in the community that Bitfinex is not as careful as they should be when designing their exchange. Here and here for examples of what I meanthey are serious reports.

I disagree with this assessment only at its conclusion: that this makes it unsafe to deposit with them. Theyve shown that they are using the security measures appropriate and necessary for such a situation: keeping funds primarily in a cold wallet, manually reloading withdrawal totals past a certain amount, and covering any losses incurred as a result of coding errors themselves. It is impossible for a single error or glitch, to incur more than a certain total losses, and they have shown a willingness to cover losses if they can. The only thing to sincerely worry about is their complete failure, and that doesnt seem likely.

Details:

• 2.5:1 leverage, limit/market/stop/trailing stop/fill or kill, BTC/USD LTC/BTC and LTC/USD

• Low fees (.1%-0% for makers)
• Offers lending options, offering leverage is a free market
• Relatively good customer service, but lacking in technical assets
• Based in Hong Kong

Pros:

• I like their business model a lotthey offer lower fees by creating an alternative revenue stream: fees on interest paid to lenders.
• Easy access to 2.5:1 leverage
• A relatively clean and simple layout, although the writing needs to be redone by a native English speaker

Cons :

• Low liquidity on Litecoin (average day is

15k LTC ). More than once, Ive been stuck with a Litecoin short that worked out excellently, but wasnt able to close my position for good value because Bitfinex didnt catch up to the market quickly enough.