Bitflyer, a global cryptocurrency exchange with headquarters in Japan implemented Swap for Difference (SFD) to Lightning FX.
Swap For Difference
This is implemented as a way to reduce price disparity between Lightning Spot (BTC/JPY) and Lightning FX. Lightning FX is Bitflyer’s Margin Trading Platform while Lightning Spot is its Normal Exchange. This is probably one reason why bitcoin’s prices have dropped last week. Bitflyer describes the situation as follows:
If the disparity reaches 10% or over, SFD will take effect. Users will pay SFD on trades that expand the disparity and will be granted SFD on trades that reduce the disparity. The amount paid or granted is calculated by multiplying the execution amount (JPY) and the SFD rate which is determined by the degree of the price disparity.
You can also view Bitflyer’s announcement on this page. Bitcoin Margin trading is a process wherein a trader borrows money from a broker or an exchange so that they can buy a larger amount of bitcoin than what they can usually by with their own.
The margin trade price before this announcement was 12% higher than normal price. When Swap For Difference was announced, margin traders began selling their positions close to the normal price. This put the price of BTC down in the margin trade rapidly as margin trades tried to cut their losses.
We can guess that there were too many bid (sell) orders than ask (buy). Traders, therefore, could not sell and keep the price down. Once traders lost over their deposit funds, they will sell their BTC in Bitflyer’s normal market. Thus, the bitcoin market cap in Bitflyer went down, and with Bitflyer as one of the exchanges with a high volume of trading, it affected the other exchanges’ as well.
BitFlyer is a leading cryptocurrency exchange with headquarters in Japan and has a global presence. It was first established in 2014. In 2015, it launched Lightning, a version of its cryptocurrency exchange that targets active traders. In November 2017, the company launches its bitcoin exchange in the US.
Bitcoin’s value rose to around $20,000 in December of last year, only to fall at just under $10,000 this January 2018, reflecting a similar pattern that this virtual currency displayed in past January 2017, 2016, and 2015. This led to Fundstrat Global Head – Mr. Tom Lee – to dub January as the best time to buy into bitcoins.
It is important to note that as the price of bitcoin went down, so does the value of other cryptocurrencies. Other reasons that get attributed to cryptocurrencies’ decline are the looming regulations in South Korea and China with regards to virtual currencies, as well as the exit of controversial digital currency – Bitconnect.