Bitfinex Integrates Blockstream's Liquid Network for More Efficient Trading

Digital asset exchange Bitfinex has integrated Blockstream’s Liquid Network on its crypto trading platform. The Liquid Network is a cryptoasset settlement network which connects crypto exchanges and major institutions throughout the world, in order to facilitate quick and private bitcoin (BTC) transactions.

Liquid Network Facilitates “Rapid, Confidential, Secure” Transactions

As explained in a blog post, published on May 9, 2019, by Bitfinex’s management, the Liquid Network has been developed to meet the demands and requirements of cryptoasset traders. The settlement network aims to provide “rapid, confidential and secure” payment channels, which may be used to conduct Bitcoin transactions among different parties.

According to Bitfinex’s post, crypto traders will be able to “rapidly circulate Bitcoin and USDT” between different exchanges, in order to profit off of arbitrage and price fluctuations. This may potentially “inter-exchange spreads across major trading pairs,” Bitfinex’s blog explains.

In addition to creating tighter spreads, the integration of Blockstream’s Liquid Network will allow traders to “react to trading opportunities” a lot faster “due to significantly lowered settlement times,” Bitfinex noted. Moreover, Liquid Network integration will hide the “amounts and types” of cryptoassets being exchanged - which will “improve confidentiality” and reduce the chances of “front-running.”

Commenting on the benefits of adding the Liquid Network to Bitfinex’s trading platform, Paolo Ardoino, the Chief Technical Officer at Bitfinex, remarked:

Issuing Bitcoin, stablecoins, and various other digital assets under one blockchain platform makes a lot of sense. It reduces the integration burden for an exchange like ourselves, and traders can manage all their assets from a single wallet application. We’re excited to be active on the Liquid Network, and we’re looking forward to watching it develop.

Liquid Network May Be Used To “Tokenize Fiat Currencies”

As noted on Blockstream’s official website, the Liquid Network serves as a blockchain for cryptoaset “exchanges, brokers, and market makers.” As a settlement network, it includes a “Liquid’s Issued Assets feature,” which allows network participants to “tokenize fiat currencies, securities,” and digital assets.

According to Blockstream’s developers, digital assets on the Liquid Network are “traded within the same blockchain environment,” which is similar to the widely-used Bitcoin Core codebase. This helps to reduce the time required to perform integrations and it’s arguably a better option than using “multiple blockchains, clients, and APIs,” Blockstream’s development team states

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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