What is Bitfinex?
Bitfinex is an online trading platform primarily based around cryptocurrency called Bitcoin.
It offers three main tools to earn money:
- currency exchange
- margin trading
- liquidity providing
Currency exchange works pretty much the same way as in a bank.
You give them your money of a particular currency, and they exchange it for another one based on a current exchange rate.
The difference is that you can offer your money for a different exchange rate on Bitfinex, and once the rate is available, the transaction is closed.
Margin trading allows you to borrow money from lenders to speculate on future Bitcoin price.
Let’s say you have $1000 in your margin wallet, the price of 1BTC is $100 and you think that it goes up in the future.
Based on your leverage (e.g. 2:1) you will borrow a maximum of $2 000 and buy 20BTC for it.
If your prediction was right and price of 1BTC went up to $120, once you close the deal your gross profit is 20BTC * $120 - $2 000 = $400. Your net profit is little less because you have to pay lenders an hourly fee for borrowing their money and Bitfinex takes its share as well.
But instead of buying 10BTC with your money and earning "only" $200, you’ve made twice as much with borrowed money. The same principle applies for speculating on price drops.
Your initial $1 000 acts as a security deposit in case your prediction wasn’t right and you either closed the deal yourself or you got a margin call from Bitfinex, and your transaction is closed automatically.
Liquidity providing means you act as a lender to margin traders.
You decide what amount and what daily rate you’re willing to lend your money for.
Once a borrower’s demand matches your offer he gets the money to speculate on a BTC price, and you start earning your daily share.
If something goes terribly wrong because the borrower didn’t correctly predict the price and he loses all his money, his transaction is automatically closed by the system, and you get back everything you lent.
This is what makes this particular type of investment very safe (and profitable), and that’s why I will further focus on it.
How to set up my account?
Before you can start lending money, make sure to register to Bitfinex.
Open Bitfinex website (affiliate link which will get you a 10% discount on fees for the first 30 days), hit the big red "Sing Up" button and fill out all the information.
For "Default currency for fees" choose "Dollar" and for "Account Type" select "Trader" in case you would want to speculate on Bitcoin price in the future.
If you don’t intend on speculating choose “Exchange” so at least you can exchange Bitcoins for Dollars and vice versa. You never know when you might need it in the future.
If you’ve already opened "Sign up" page without the affiliate link, but you still want to get 10% discount, please use this code: P1odZd0Bkc
After successful registration, you should deposit either Dollars or Bitcoins to your account.
You have to be verified to deposit Dollars so if you already own Bitcoins it’s much convenient to transfer it to your Bitfinex wallet.
Once you’ve transferred Bitcoins into your account make sure to exchange it for Dollars, because lending Dollars it’s much liquid than lending Bitcoins.
Now just transfer your money into your Deposit wallet and you’re prepared for lending your money.
How to lend my money?
Borrowing money (providing liquidity or offering swap contracts) is relatively easy.
Go to the Swap page and switch from "Receive Swap" to "Offer Swap". Specify the period in days for how long do you want to lend your money, what daily rate and how much Dollars are you willing to lend.
The minimum swap offer is currently $50, but they change it quite frequently. Once you’re ok with the values, click big green "Offer Swap" button, and you’re all done.
From now on traders are able to borrow money from you, and once they do, you’ll start receiving your interest rate at the end of the day (0:00AM GMT+0).
How much can I earn?
The amount of money you can make is of course based on how much money you lend, but also on the current demand/offer ratio, current Bitcoin to Dollar price, whether a market sentiment is bearish (price goes down) or bullish (price goes up), etc.
This makes the average interest rate on swaps vary from 0.0X to 0.X% a day so that you can earn as much as 60-100% or as little as 10% a year or anything in between.
I was able to make 33.31% from July the 5th 2013 till the end of the year 2013.
This year was little worse, yet I earned 26.93% from the beginning of the year 2014 until yesterday (July 27th, 2014). I could get around 28.5-29%, but I was traveling South Korea in April, and I didn’t have much time to lend the money then.
See the table below tables for monthly statistics.
As you can see the profit might be really high, in my case over 50% a year on average.
If you can invest just a couple of thousand dollars, it can easily cover part of your everyday expenses. A risk/reward ratio is in my opinion very high in favor of reward, but BE AWARE!
Bitfinex operates only little over a year. They’re based in the Virgin Islands and even though they underwent a security audit in April 2014 (
only for logged in users the link is gone), they work hard on their platform adding new features regularly, and everything seems they are reputable, you can never be 100% confident that they will operate another year or five.
The golden rule of investing applies here as well: ONLY INVEST WHAT YOU CAN AFFORD TO LOSE!
Good luck if you’re determined to start building your passive income and be sure to check an upcoming article about tips & tricks on how to get the most out of Bitfinex.
I’ve created a PHP bot to do all the boring work for you. Just put it on your web server and run it via cron, let’s say every hour. Enjoy!