Blackbird: Bitcoin arbitrage

For people wondering, does it work? Short answer. No.

Long answer - The biggest flaw lies in the "advantages" section:

Unlike other Bitcoin arbitrage systems, Blackbird doesn't sell but actually short sells Bitcoin on the short exchange

The problem is only Bitfinex allows short selling. So, the example is an excellent case of cherry picking.

There are other issues with their strategy too.

This strategy used to kinda work (before it was exploited by people) manually across multiple exchanges that allow short selling. It's just that Bitfinex is the only one that's supported by this software.

You can also short on poloniex

I'm still trying to get over the idea of advertising software like this with code for two exchanges (Kraken, EXMO) marked "untested". Perhaps it is not ready for public release yet.

who said the creator is the one who posted this

Also, Bitfinex almost always has a lower price than the other exchanges so there's almost no opportunities to actually do this; the only major exception was when the trustworthiness of Bitfinex's dollar deposits themselves were in question, which is a bad time to be doing arbitrage. Plus, you're going to be paying interest on your shorts for the entire time period they're open which eats into your profits. There's also the risk of the price increasing enough that a margin call liquidates your short position before the prices converge enough that you can close your position and take a profit.

But not BTC/USD, only BTC/USDT, opening another can of worms.

Also Bitfinex uses Tether tokens, not USD, which are by their own terms of service worthless, and it's dubious as to whether their actually backed by any real USD.

This arbitrage exists because of the huge counterparty risk of exchanges

You don’t need to short BTC/USD you just need to be able to short. You can always convert to USD after your arbitrage gains in BTC, which I do and have done.

Suppose on exchange X, BTC/USD trades at 12000, on exchange Y, BTC/USDT at 10000. You sell an expensive BTC on X (for 12000 USD), you buy a cheap BTC on Y (for 10000 USDT).

Now they nicely converge to 20000. You buy back a BTC on X, giving you a loss of 8000 USD. You sell a BTC on Y, giving you a nice 10000 USDT gain.

So, you realised and locked in the projected 2000 USD arb profits - oh, assuming the 10000 USDT you got on Y can actually be exchanged for 10000 USD. You have exposure now to USDT/USD, and your arb profit (in USD) depends on that cross.

it doesn't have to be the creator posting for this to be advertising.

No, you don’t arb on BTC/USDT. You arb on XXX/BTC and then convert BTC to USD regularly on GDAX.

I thought you were being hyperbolic about Tether tokens being worthless. Turns out you're completely right: https://tether.to/legal/

> Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.

> We make no representations, warranties, or guarantees to you of any kind, including with respect to any right of redemption or exchange of Tethers for any property.

That doesn't make any sense. Those are absolutely outrageous terms of service for what Tether purports to be.

I thought the entire point of Tethers is that they're redeemable for USD on a 1-to-1 basis with a fixed exchange rate. That's exactly what the Tether FAQ says, but based on the actual ToS, I'd have to consider these statements to be absolute bullshit:

> Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.

https://tether.to/faqs/

The FAQ says "Tethers are redeemable[] pursuant to Tether's terms of service" and the ToS says "There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money"

That is just fucking outrageous. I'm sorry, but it is.

I do not understand how or why anyone would use Tether without a contractual guarantee from the issuer to redeem each token for the underlying currency that it reserves. Without this, there's no reason for Tether to have a value.

I thought that the concept of Tether had sound technical merit -- essentially, a cryptocurrency with a fixed exchange rate backed by a full-reserve central bank for each currency -- but when offered with those legal terms, I have to consider it a scam. Under their ToS, money can flow into Tether but not out!

I can speculate about all sorts of reasons why they might have put up those ToS, but at the end of the day, it's a morally wrong contractual relationship for them to have with their customers. They should operate like a bank or otherwise with a guarantee that customers can convert Tether back to the reserve currency.

Edit: While doing some searches on this topic, I also found a news article about their questionable ToS, quoting this statement from the company:

> Our Terms of Service have been carefully picked apart by various malcontents and twisted to suggest that Tethers would not be redeemable for currency on some bizarre, malicious whim by Tether. That is untrue. https://cointelegraph.com/news/tether-really-isnt-a-scam-com...

Yeah, okay guys ... this interpretation is not carefully picking apart the ToS with malcontent. It's just a basic plain English reading of the ToS. I would stay away from Tether, and any company that responds in this way to completely reasonable criticisms.

And you can't withdraw anymore. [0] The whole trick was that Bitfinex could claim to have a price for USD, because they have a price for USDT, and the ratio of USDT/USD is 1. But since they've printed over 1 billion USDT without any assurance that they have USD to back them up, and now you can't withdraw at the source for the USD that they supposedly have backed in a bank somewhere, expect the value of USDT/USD to plummet on exchanges. Fun times.

[0] https://tether.to/wallet-service-and-platform-update/ [1] https://wallet.tether.to/transparency

Got it. So we agree, the arb has to be on the same cross (XXX/BTC) on different exchanges.

Yup. Bittrex is a good companion