Well it took a little bit longer than expected...
But it looks like Hive has pumped off a local bottom 3 times with a week in between all of them. The volume is off the charts. CoinGecko is showing $1.7 Billion on a quarter billion market cap. And that's just the spot market. The new perps listing on Binance shows $1.6B over the last 24 hours just on this single exchange. The market-makers are going crazy and sloshing around massive amounts of Hive to each other, and I'm one of them.
4,380% yield
A -2% funding rate (which looks to be the maximum possible for perps) provides the opportunity for anyone to buy Hive on the exchange and get paid over 4000% APR for their trouble. The problem? Everyone on Hive knows we have a pump/dump pattern and nobody wants to buy the pump just to loose 30% of their money overnight.
This puts me and other Hive market makers in a unique position and a really profitable opportunity: anyone who holds liquid Hive can move it to Binance or MEXC and farm this 4000%+ yield for "zero" risk. I've already made $100 overnight since the fun started with $2500 worth of Hive.
How does it work?
Well first off when I use the term "risk free" it does not include the systemic risk of holding money on an exchange. MEXC and Binance can freeze your account and steal your money if they so choose, and there is little recourse if that happens especially for someone like me who isn't technically allowed to use MEXC in the first place (but do anyway with a VPN). MEXC pretends like they don't know but they absolutely do. They are in the business of making money after all.
x1 long is the key
So imagine you were holding liquid Hive somewhere... wouldn't it be nice to put that money to work? That's exactly what can be done with a negative funding rate like we see here. The longs are being paid big time. Just look at what happened while I slept:
Up $500 in 8 hours.
- This is done by sending your Hive to the exchange.
- Dumping all that Hive for USDT.
- Transferring the USDT to the Futures market.
- Opening a 1xLong on perps.
Notice how my "estimated liquidation price" is $0.0022. Meaning I don't loose my money unless Hive crashes to a fifth of a penny (and probably not even then). That's the magic of going 1x long; it's 100% collateralized and the user wanted to hold liquid Hive regardless.
I closed this position about an hour ago after we pumped again and it was up $400 just from price going up. Hard to imagine we maintain this momentum without dumping again, but you never know. It's not like Hive going up could ever be a bad thing for me so there's no reason to be greedy in a position this good. Ultimately I'd like the price to come down from here (for the trade not for my bags) so I can 1x long again and continue farming this badass yield.
Further explanation:
There seems to be a lot of confusion around how this all works. An x1 Long (using USDT collateral) is almost identical to holding the underlying asset at little to zero risk of liquidation. But more than that the funding rate is a device that ensures that market makers will act in their best interest to peg the futures market to the "real" spot market.
If everyone wants to short Hive because it just pumped hard (which is usually the case) and nobody wants to go long then the longs have to be hardcore incentivized. This is where the funding rate comes in. So if you were going to hold Hive anyway and it doesn't matter if number goes down or not... might as well farm some yield from it (if you don't mind exchange counterparty risk). However with Hive because so much stake is permanently powered up it creates this liquidity problem where many users don't have anything liquid. My advice would be to always have 5%-10% of your stack liquid so have at least a little wiggle room.
I still feel like it's confusing and I'm not explaining it very well... so I guess I'll have to think about it more and simplify the logic and reasoning in some other post for the newbies. Until then Pump It Up!
Don't forget that even 60 cent Hive is oversold.
Talk again at $1.60