What could go wrong?




Exchanges used by CBEX can liquidate CBEX's derivative positions even at a profit if the other side of the trade is bankrupt.  While this does not automatically result in a loss (the first time it happened it caused a profit) it still might cause CBEX's securities positions to be different than its intended balance.

Effective negative interest rates


In CBEX's experience the bitcoin futures general trade at a premium to the underlying price.  However at the time at which we may need to hedge you the futures may trade under the underlying index price effecting a negative interest rate.  The future may move down even further (creating a profit on a short position), but there is simply no way to predict a market.  So, you may end up with fewer bitcoin than when you started as the future begins to trade at a premium, causing a loss on the short position we have taken for you.

Execution Difficulties


Some service interruption or error could result in the Long or Short positions malfunctioning.  Maybe the Internet goes out.  Even if we had this algorithm coded to the Exchange API’s nothing is infallible.  My experience is that I have been able to execute trades, but I also screwed up an experiment because I didn’t realize I had lost internet at home and I double-entered a buy order to cover a short position (I won’t do this at home again).

Irrational Pricing


A lot of my strategy is based on derivative Contracts in this plan.  The book, “The Big Short,” by Michael Lewis and the eponymous movie staring Brad Pitt recently explored this phenomenon.  Crypto markets seem rational, but any derivative Contract can trade out of sync with the underlying asset from which the Contract theoretically derives its value.  In the end a counter-party has to buy from you at a price set in the marketplace and that price may seem irrational.  It would seem that the exchanges I have found match liquidation engines pretty well to the spot markets on which their pricing is based, but mispricing is still a risk to consider.

API feed errors


Contract underwriters use feeds from BTX exchanges (“Exchanges”) to price contracts.  By posting collateral in the same amount of the SWAP position CBEX does not risk auto-liquidation.  However, I have to be very careful when entering the Contracts to have the exchange pricing up simultaneously.



Although I was completely reimbursed I personally had BTX stolen on an Exchange, Xcoins.io.  Mt. Gox is the most famous example of theft and insolvency, see https://en.wikipedia.org/wiki/Mt._Gox#Insolvency_and_shutdown.  It is clear that it is dangerous to keep BTX’ private keys necessary for transfer on the internet.  It is likely a lot of our loan volume will come from Poloniex, the largest Exchange, and I am unfamiliar with their security.  I have seen other explicit statements from, for example, #4 ranked Bitfinex about keeping BTX in cold storage. [1] In other words Bitfinex keeps the keys off the internet so they cannot be stolen, except minimal amounts for liquidity.  I know from some private dealings that other smaller exchanges do the same. The fear of theft may be a cause of the high returns available, so we just have to deal with the good and the bad.  I have started to put my own money on BTX exchanges, but I acknowledge that if the BTX is stolen there is little or no chance I will see it again.

Even in using an industry-known product such as Trezor (https://trezor.io/) one potential director of CBEX has advanced theories about potential security holes.  Almost any amount of theft-paranoia is warranted and vigilance is constant.  Hopefully CBEX’s attempts to recruit a military cyber-security expert as a director as evidence of CBEXs resolve to preserve its customers’ money.

Trends changing


BTX prices relative to the dollar, interest rates and other factors and assumption are from a historic basis.  The trends could change.


Exchange Difficulties


The exchanges may malfunction in some way adversely effecting CBEX.  A major exchange problem like Mt. Gox may cause a sell-off in bitcoin.  Once the People’s Bank of China stopped withdrawals from OK Coin and than caused a selloff also. Some CMF customers will be hedged, but price swings can be immediate and wild.


Transfer Errors


If you transfer BTX to the wrong place, there is no getting it back.  If I have a person sitting around me, I always get them to watch while I say out loud what I am doing.  You can also send the wrong kind of Cypto on the wrong blockchain.  Stupid errors are final in the Cypto world.


Loss of Passwords


We keep a list of passwords on a CRM with encryption.  The Exchanges have records of certain employees.  While unlikely passwords and keys can be lost. 


Coin Forks


There is much current drama about the hard fork of Bitcoin resulting in Bitcoin Cash.  This was possible because a large minor and some major spot exchanges supported the hard fork.  However, remember anybody can create a hard fork at any time.  It is realistically hard to get any momentum and Bitcoin Cash was preceded by a huge and contentious debate between Core Developers and Miners.  That said, it can always happen.


Liquidity issues

CBEX Is dependent on independent 3rd party buyers, sellers and exchanges.  Our company cannot function without their presence and should liquidity dry up we may not be able to function properly for some period.  


CBEX may have to shut iteslf down for technical reasons, lack of inventory, security concerns or imbalances between supply and demand.  This may cause CBEX' customers to miss trades important to them during times of market volatility. 

[1] https://en.bitcoin.it/wiki/How_to_set_up_a_secure_offline_savings_wallet