Show HN: TradeMore – Generate a return on your Bitcoin

You're right that among the safest places for your bitcoin is your own wallet. An even safer option is cold storage, using Coinbase, Elliptic etc. But the success of BTCJam and others suggests that individuals are willing to trade-off return for risk. Our model is very different from BTCJam, in that your bitcoin does not get sent to a borrower's private wallet. Bitcoin users by their nature are early adopters and interested in new ventures and new companies. We have users lending through us who have been burned badly before, but still want to try out our new service. We work hard to be as professional as possible and use industry best practices, including margin calls; stop-loss trades and a significant capital buffer. But if you're really worried about 'amateur hour' then that is fair enough - we'll try our best to convince you otherwise, but it's your money.

Hi aston. As you suggest in your post, the majority of demand for bitcoin borrowing comes from market making traders on bitcoin exchanges. They have a need to borrower for a number of reasons, including going short. You say that currently there are cheaper ways to short, which is true. For example, on Bitfinex the borrowing rate is something like 4% APR. However, the rate is also very volatile and can jump up to 50%+ when demand is high. That's one reason why borrowers receive funds from us. Another is that they can use their funds on Coinfloor, which offers access to the GBP/BTC market. Trading of this kind is very popular right now, so I can assure you that these people exist. You and other posters are right to be concerned about Ponzi scheme. What might reassure you and others is reading our full T&Cs - you'll see the time and care we have put in to them. They might give an indication of how we do not want to do anything illegal, or even unprofessional. However, there's always going to be an element of trust involved and if you're too suspicious then you should keep your bitcoin in your own wallet until we're able to prove ourselves.

Out of curiosity, what are the cheaper ways to short Bitcoin? The only ways that I'm familiar with involve borrowing bitcoins in some way, for example, Bitfinex offers what they call "swaps" to facilitate margin trading.

It's pretty clear that the reason for borrowing bitcoins is to allow shorting, in which case most of the time margin calls can cover the default risk.

To answer your earlier question, "... are there ways to invest your loan such that you could beat that rate? Consistently? The default rate is going to be sky high". I think the answer is that at scale, probably not; most people will lose money while doing heavy margin trading. But most of the time you won't lose the entire thing, you'll cash out your position at a loss and pay off the accrued interest. The only time you lose the entire amount is if you approach margin limits, in which case you'll be automatically liquidated by the exchange and the fees will be removed. The even more rare case is that the exchange is not able to liquidate your position because of an exceptionally large move in the BTC price, in which case the default coverage by the site becomes applicable.

This isn't to say that TradeMore is a legitimate site that won't steal your money, I'm just addressing the feasibility of the technique. The fact that they are a UK based company, with officers published on the site, is some comfort, though.

Correct me if I'm wrong, but are the following all true

- You're running this business as a UK limited company named after the founders, who are based in the UK

- Your scheme involves third parties, probably outside your control, performing arbitrage trades on third party platforms in an unstable asset with variable liquidity characteristics in order to turn BTC into more BTC

- You're marketing a service as a "loan" offering a "return" within a specific range and offering assurances about vetting third parties using the service and covering losses, but don't include even a boilerplate terms of service or risk warning

- Nobody on the team has a background in compliance or due diligence

- You're not Bitcoin billionaires

Assuming the above are true, I hope you have a very good lawyer. Since at a glance you actually appear to be real, traceable people I'll assume you're acting in good faith and not running a Ponzi scheme which would be my first assumption based on the website's claims otherwise, but the chances of you heading in the same direction as Ponzi-scheme operators in the likely event of something outside your control going wrong are very high indeed. In all sincerity, I'd encourage you to trade less unless you have the backing of someone with a deep understanding of relevant UK law and even deeper pockets.

Hi deweller. Yes, in the event that a borrower defaults we will use our own funds to repay you. Obviously, this requires you placing trust in TradeMore, but we will work hard to win this trust. One option is to start lending a small amount through us so that you can see what using our service is like. Full disclosure: we do not return lender funds in certain 'force majeure' events, such as a number of exchanges being undermined or entering bankruptcy. Hence, your funds are more secure in your own wallet or, even better, within cold storage. But if you are interested in earning a modest return on your holdings you might want to give us a try.

Hi ascorbic. Thanks for pointing us in the direction of the FCA, it’s good to get as many opinions on this as possible. Yes, we have consulted a lawyer specialising in English financial services regulation, as well as closely reading the FSMA Act 2000. I agree that bitcoin isn’t a ‘no-rules’ money, but I disagree that there is no difference in the requirements. This is because bitcoin and other digital currencies are not specified investments under FSMA (the relevant section of FSMA is 22). In our opinion it would be good for digital currencies if they were a specified investment, but currently they are not, and therefore they are not subject to the same regulations as cash or other traditional financial instruments. If you think I’m wrong please push back. This is an important point to clarify not just for us but other businesses in this space.

Thanks very much for this. We were actually aware of this already (specifically, it's an issue with the Fanboy Annoyances feature on Adblock) but we thought that, on balance, so few people would have this specific feature enabled that we would go without an ugly box altering them to this fact. Obviously some people do have it enabled - sorry it it cause inconvenience. I hope your comment stays near the top for clarification.

A Ponzi scheme is is where the operator pays returns to its investors out of the money brought in by new investors. That is not what is going on here.

TradeMore lends your money to borrowers who then pay the money back with interest. That is where the profit comes from.

If only 2 people use the system (1 lender and 1 borrower) the model still works. It does not depend on new investors to pay profits to previous investors.