Quote
Donald 03/05/12 10:59:
---------- Forwarded message ----------
From: Zhou Tong <>
Date: Thu, May 3, 2012 at 5:54 AM
Subject: Re: I want to deposit money on Bitcoinica
To: Tihan Seale <>
Cc: Donald Norman <>, "
<>, "
<was send to wrong email of mine, so donald is cc'ing me back in>


 Hi,

I'll look into the problem too. To my surprise (and maybe yours), it seems
that we bought some Bitcoins at too high prices. This might be an
explanation for the drop in equity for recent week.

I'll take these actions to try to rectify the problems:

- Increase the confidence level to 2500. Since the increase in guaranteed
liquidity, our percentage hedge has increased a lot. It makes sense to
"play big" since the market is more mature and much less volatile. We can
always revise this decision if anything changes.

- I don't really want to increase the spread, but I can keep adjusting it
based on my observations. If you permit, I will adjust between the range of
1.003 to 1.008. If our Mt. Gox fee is 0.25%, we can at least "break even"
with such settings.

We actually made a lot of money from position liquidations (except for the
huge and forced ones), because they often take place at relatively
unfavourable prices for the trading range. We have a huge open interest
right now (about 180K BTC for both sides) so our potential profit is high.
The biggest problem right now is that the market doesn't move. We did make
some profits when the price rose to $5.5 last time, but we lost them again
due to the bad investment decision.

Also, I propose a new feature to increase our revenue:

- Secured loans. We don't have to "settle" for our customers. We can allow
them to settle themselves at the prices they like. However, we are going to
charge the Sell interest when they have negative balances. A
forced-settlement system will be implemented instead.

They can borrow USD against their BTC balance, and vice versa. We may
require 200% mortgage (borrow up to $1 against $2 worth of BTC), and a
default reserve of 10% (if I borrowed $100 against 40 BTC at BTC/USD=5, the
default rate will be BTC/USD = 100 * 1.1 / 40 = 2.75).

The benefit of this system is to make the money flow faster within the
Bitcoin economy and we can rely on Mt. Gox less. It's like the bank's
overdraft facility that charges insane interests. But Bitcoin needs this.

Lastly, I have lowered the spread for the Exchange feature in a previous
git commit. The next thing I'm going to do is to limit the number of
exchange transactions each minute to prevent abuse, and then make the
spread more reflective of actual market liquidity. Then, we can offer the
Exchange feature to the mass audience because they can pay less to exchange
money on Bitcoinica. Exchange transactions will move the "surplus". They
are always some nice small market orders that generate profits for us.

Summary: strategies to make more profits:

- Less hedge.
- Faster money flow.
- More volume.
- More trades within the boundary (surplus is between -confidence_level to
+confidence_level).
- More open interest and more deposits (the interest differentials can
generate $1000+ revenue every month currently).

I can make a living without the salary, so skipping a few months before
resolving the problem completely isn't really the problem. Anyway, I'll try
to squeeze some time to implement these changes as soon as possible.

PS. I've traded almost A$20,000 with BitPiggy now. (And if it's
unprofitable for them, they shouldn't continue dealing with me.) They're
legit and what they are doing is viable. BitPiggy has much more starfish
than us, but this makes them look legit.


Best Regards,
Zhou Tong

On Thursday, 3 May 2012 at 12:51 PM, Tihan Seale wrote:

Ok. I'll look out for it.

If UserXXX is legit, we should consider hiring the
founder<http://www.linkedin.com/in/matholroyd> once
we're cash-flowing again. (He does contract work in Patrick's town and he
knows Rails and bitcoin.)

Speaking of that, Zhou I wanted your thoughts on the financial situation.
As you know, Bitcoinica went from cranking out 6-figure profit one month to
a flatline the next. I covered most of the deficit from the hack on the
assumption Bitcoinica profits would quickly fill in the rest. What's
happened instead is a consistent equity leak that has remained unresolved
for two months. We've gone from being short 40k to now being short 88k.

The Bitcoin Consultancy guys are aware of the problem and will be making
this their top priority as soon as they're up to speed on daily operation.
In the meantime, any company expense would be coming directly from user
deposits. We all feel this would be wrong.

Patrick, Donald and Amir have agreed not to take any salary until the
deficit is filled. We'd like to ask if you would consider doing the same.

On May 2, 2012, at 4:12 PM, Zhou Tong wrote:

Hi,

I've done the transfer. See what will happen then.

UserXXX offer good rates because they are more Aussies who are willing to
pay even more for Bitcoins. So basically everything is just more expensive
in Australia. (I can make a similar site too, but it's not worth the
chargeback risk.)


Best Regards,
Zhou Tong

Sent from my iPad

On 03/05/2012, at 6:55 AM, Tihan Seale <> wrote:

haha. Sure

I wonder how long UserXXX will last if they're selling at bad prices. Then
again, someone is probably doing the same thing to us. (It would explain
owner equity decline.)

I've pasted the wire transfer details for Bitcoinica's new account at Core
Credit. (Core Credit is a separate FSP that we created with upstream
banking at ASB Bank of New Zealand).

If this works well, we can use these wire deposit details going forward on
Bitcoinica's user deposit page. (The reference message is mandatory. The
first part is Bitcoinica's account number with Core Credit and the part
after the dash is the Bitcoinica user_id.)

Let me know when it's been sent and we'll keep an eye out for it. Copying
Donald and friends too so they're aware.

*SWIFT Field 32A (Currency, Amount)*
Amount: USD 20,000.00
*SWIFT Field 57a (Beneficiary Bank)*
SWIFT / BIC: ASBBNZ2A
Name: ASB Bank Limited
Address: 135 Albert Street
Location: Auckland 1010
Country: New Zealand
*SWIFT Field 59 (Beneficiary Customer)*
Name: Core Credit Limited
Address: Auckland, New Zealand
Account Number: 26821351-USD-37
*SWIFT Field 70 (Information)*
Reference Message: Bitcoinica 4103161-1



On May 2, 2012, at 8:04 AM, Zhou Tong wrote:

 Hi Tihan,

I have been using UserXXX for some time, and it seems that they are always
selling Bitcoins at above-market prices. For example:

The Mt. Gox price is about $5.12 now, and they are buying at A$5.07 (=
$5.22 USD).

I almost emptied my Bitcoinica balance dealing with them. I still have
about $20,000 remaining in Citibank Singapore (from previous wire
deposits), I think it will be great if I can send the money to Bitcoinica's
bank account, or whatever to reduce our Mt. Gox USD risk.

The scalability is actually not bad. I can sell between $2000 to $4000
worth of Bitcoins as frequently as twice a week.

I want to deposit $20,000 on Bitcoinica, LOL...


Best Regards,
Zhou Tong