Coinbase Reinstitutes Margin Trading!

in LeoFinance •  5 months ago 

Coinbase.png


Wow that picture is so old! (July 1, 2018) Remember when Coinbase only traded Bitcoin, Litecoin, and Ethereum? Crazy.


In any case, margin trading is returning to Coinbase Pro. Apparently they had margin trading for a little while when it was still called GDAX, but they discontinued that service for quite a while. Now it's back.


Upon refreshing my Coinbase Pro tab Goldman-Sachs was more than happy to tell me all about it.

coinbase-margin-trading.png

Wow, okay, so that's pretty badass. Considering MakerDAO margin trading is only 2x max and the interest rate currently fluctuates around the 9-10% levels, this service adds some healthy competition to the space. Sure, it's not decentralized... but it is undercutting the current available options. In fact, for many investors, this will be their first opportunity to margin trade at all.

So I joined the wait list and viewed the "tutorial" to learn more.

Surprisingly, I actually learned some things.

coinbase-margin-trading2.png

Looks like all the Bitcoin and USD in one's account will automatically be added to the collateral pool whether you decide to use this service or not. Interesting.

Also, who would ever hold USDC on Coinbase? Silly.

Only makes sense to hold USDC if you want it in a real crypto wallet or on an exchange that doesn't have USD. Whatever.

coinbase-margin-trading3.png

This is a bit convoluted. This "margin score" seems to be a custom system, the rules of which are unknown to me. Clearly, it's based on one's collateral to debt ratio, but the actual numbers are obscured.

Does a 30% margin score mean my collateral is only 30% of my total loan? I doubt it. MakerDAO margin trading requires that collateral be 150% at the very minimum. Is Coinbase going to allow me to open an actual line of credit even though my credit score is hot garbage? Again, I highly doubt it.

However, Coinbase could easily undercut MakerDAO and offer 100% collateral loans because they are a centralized service and can liquidate bad debt immediately, while the Maker network has to do all their dirty work on chain.

Also, it's important to note that MakerDAO has a 13% penalty liquidation fee. Coinbase can easily reduce this to 0%... again because they are a centralized service.

More importantly, it's also imperative to note that this margin score might actually be connected to credit scores. Coinbase knows everyone's identity. They can modify the margin scores and open extra lines of credit for users that have good credit. Very interesting indeed! Ah, the magic of centralization!

Conclusion

This is super bullish news imo. People love to gamble. Investing in crypto is already a huge gamble. Leveraged debt trading is just icing on the cake. I'm very interested to see how this turns out.

Will I use this service? Damn right I will.
I gotta put my money where my mouth is.


2016201720182019202020212022
$800$1600$3200$6400$12800$25600$51200

If I know for a "fact" that Bitcoin's support line is exponentially doubling every year, how could I not margin trade based on this information? It's just free money at this point.

For example, if Bitcoin crashed to $12800 at the end of the year (funny because it hasn't even gotten that high yet) I'd know to go all in on an 3x margin trade it.

At this point it doesn't even matter if altseason is back. An altcoin would have to outperform Bitcoin by 3x to make it worth it. Because Bitcoin is so much more consistent and less volatile than other projects, it's still more risk to fill up bags with altcoins than it is to 3x margin trade Bitcoin at the doubling line.

Hopefully I have access to this service by the time Bitcoin crashes back to the ultimate support.

#gamblegamble

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Still trying to wrap my head around margin trading and what exactly it is.

You use your investment as collateral for a loan, then you use that loan to buy more collateral.

Essentially in this context, say you have 1 Bitcoin on Coinbase.
You're telling Coinbase:

Hey, I have $10k worth of collateral on your platform; give me a loan.

So let's say Coinbase agrees and gives you a loan for 10k. Margin trading is when you take this loan and then use it to buy more Bitcoin. This would be a 2x trade, because your collateral is worth 10k and you bought 10k more on credit.

Unfortunately, let's say Bitcoin crashes 20% on you and your Bitcoin collateral is now only worth $8000. Coinbase might sell some of your Bitcoin because they're worried that you won't be able to pay back the loan they gave you.

However, if Bitcoin were to do something crazy like go x3... you just made a ton of money because your 2 Bitcoin is now worth $60,000. You can pay off the loan you took out and still have $50,000 leftover instead of the $30,000 it would have been had you not margin traded.

Good explanation.

Oh that makes a lot more sense, thanks for explaining it. That sounds awesome and scary at the same time. It seems like Coinbase is trying to act like a bank now, giving loans off the crypto. I don’t have a pro account though so not sure if pro is set up more like that format.

Wonder how bad the taxes would be on such moves

Nice! Now how do we get STEEM on there?

  ·  5 months ago (edited)

i know right?

we just gotta build more value.

steem will not be denied!

Instead of trying to get steem on more exchanges first, I head an idea about trying to get steem more pairings on the exchanges it is aleady on. Like a USDT pairing on binance for example. Then perhaps with more volume for steem overall we have an easier time listing on other exchanges?