November 24, 2021
November 24, 2021
LVL’s mission is to lead the world's transition to Bitcoin. It is becoming clear that this transition is inevitable just like electric cars were inevitable. However, that does not happen without a standout leader like Tesla blazing an innovative path which others follow. LVL is leading this charge for Bitcoin. There are many challenges to overcome in this transition. Two of the biggest challenges today are fees and the scariness of volatility. LVL is working to address these challenges in an innovative way, and that is what we are here to discuss today.
Until the dollar dies, people will need to be able to convert between Bitcoin and cash. You likely get paid in cash, the businesses you go to only accept cash, but you’re better off holding Bitcoin. This creates a constant need for this conversion.
Where there is a need, there is exploitation.
In traditional finance, people used to pay at checkout with cash and checks. That became cumbersome, so there became a need for a simpler solution: a magic little card to hold money. This need is exploited as well. When you swipe your card at a business, there are many intermediaries that help facilitate that transaction, and each of them takes a small cut. The payment system has become a swamp of very hungry hippos, each of which are taxing businesses and consumers with fees for their next meal.
Unfortunately, instead of innovating and improving this swamp, most Bitcoin exchanges have joined it. There are two types of fees that these intermediary hippos love to eat: trading fees and spreads.
Trading fees are a pay-to-play type fee. On Coinbase, you may pay up to 0.5% just to make your conversion, and that fee goes up to 2.5% for the little guys. This is simply a tax on participation - an unnecessary money grab. Why do they charge this fee? Who knows, they don’t even try to explain or defend it. This part of the swamp is easy to fix, you just don’t charge it.
The next fee is the spread. Spread is the difference in price between the prevailing market price, and what you can actually buy or sell bitcoin for. Spreads are different from trading fees, because they are an inherent part of any marketplace (not just Bitcoin markets). No one wants to sell something for a loss, so sellers will always charge a slightly higher price than the market. In kind, buyers will always want to buy at a lower price. The spread is fundamental to markets. Spreads exist on all trades and conversions, on any exchange, and this is not a fundamentally bad thing. What’s bad is a lack of transparency about these spreads and who is feasting on them.
Liquidity is a need. Needs are exploited.
Companies like Robinhood, Cash App, and Strike, are happy to tell you they offer “free trading”. But, if it's free, then how do they make millions of dollars from your trading? Simply put, they are lying to you. Trading is never free because of spreads. On these platforms, when you buy or sell, you are not trading with another individual. You are buying from or selling to a trading firm, who is profiting from that spread, and kicking back some of that profit to the exchange. When Bitcoin is priced at $60k, and you place a buy order, it will get filled at a slightly higher price. Instead of charging a trading fee, these hungry hippos hide their fee in that spread and feast on it. Nom nom nom.
These companies and exchanges are the hungry hippo intermediaries of Bitcoin taxing the adoption and use of bitcoin.
So, what is LVL doing to clean out this swamp? Well, trading fees are an easy fix, we just don’t charge them (wild idea, we know). On the other hand, spreads are inherent, but the solution to them is transparency and who earns them. This is where Market Making on LVL comes in. Market Making allows spreads to be fully transparent and 100% of the profit goes to users not LVL. Spreads are a need we refuse to exploit.
Market Making is an automated trading account that is available to all LVL members, and optional to use. It allows any member to be the exchange - filling trades and earning that spread income instead of LVL or any hired partner. Market Making holds half cash and half bitcoin and uses these funds to fill other member’s trades. The reason we offer market making is because we are not going to lie to you. Trading is not free. It has a cost. Instead of joining a long line of intermediaries, we’re removing them and allowing consumers to earn that money instead.
There are two main benefits from using Market Making.
First and most importantly, it allows the community to power the transition to Bitcoin. Individuals can now help their neighbors buy Bitcoin for the first time and earn potential income for their efforts. This is revolutionary and the power of this cannot be understated. Goodbye hungry hippos.
Second, it allows newcomers a way to get exposure to Bitcoin in a less volatile way as you can see in the results below.
We previously shared the market making performance results from Q2, and we are now proud to share the results from Q3 of this year. We’ve now seen two quarters of Market Making results. In the second quarter, Bitcoin went down and Market Making went down - but not as much. In the third quarter, Bitcoin went up and Market Making went up - but not as much. In both quarters, Market Making exhibited substantially reduced volatility compared to Bitcoin, or a basket of cash and Bitcoin.
There is no magic liquidity machine, and there is no magic investment vehicle. Investing in Market Making involves risk of loss, both from the volatile nature of the underlying assets as well as the risk of investing in Market Making not Bitcoin. But it serves an important role in ridding Bitcoin of the very hungry hippos slowing things down. Market Making is included in LVL Premium along with chat-based support with a LVL Pro. Speak to your LVL Pro to help better understand the risks of Market Making.