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Coinsetter raises $500k to bring leverage, shorting to Bitcoins

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Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#61

Post by derefr »

runT1ME wrote: post #35
fennecfoxen wrote: post #29

Earlier quoted context omitted.

It would indeed stabilize Bitcoin, but I don't see what's so ironic about it. Short-selling and other derivatives substantially stabilize a lot of markets, popular delusion to the contrary notwithstanding.

But now there is double the incentive to artificially drop the value of BitCoin as much as possible, no? I don't know how trading bitcoins work, but won't this increase volatility both ways in addition to overal stability (taken as an average).

Yes--basically, short-selling just creates the same kind of "flight to quality" gravity that kills markets when people start to feel pessimistic about them, but pulls in the opposite direction: so now, on average, everything will "draw a straight[er] line", but moment-to-moment you'll just have price spikes that kill the short positions in the same way price-plummets kill the long positions.

What Bitcoin really needs to smooth out its volatility, as far as I can tell, is HFT market-makers trading tiny amounts of BTC by the millisecond. Which should theoretically be easier with an all-digital currency--but, if done in "real" BTC, requires probably at least a million times the block-chain growth velocity Bitcoin currently has. It could still probably be done with "BTC liabilities" on a private exchange, though.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#62

Post by kevinpet »

minimax wrote: post #20

The people here talking about shorting bitcoin to moderate the bubble have no idea what they're talking about. Shorting a bubble is about the stupidest thing you can do. Here's how that math works: 1) You open a margin account with $10,000. 2) You borrow 25 BTC from your broker and sell them on the market at $200. You hope that the price crashes to $0 and your net profit will be $5,000. 3) What actually happens is th…

I talked about shorting bitcoin to moderate the bubble, and I have some idea what I'm talking about. Don't confuse "shorting will stabilize the price" with "it's a good idea to short bitcoin".

A shorting mechanism makes it possible for people who are not bullish to participate in the price discovery process. Without a way to short, there are only two participants in the price discovery mechanism -- those who previously acquired bitcoin and now think that they're overvalued and those who think they will continue to appreciate and want to buy more. There is no way for someone who bought at $20 and got out at $100 to express an opinion that $200 is an unsustainable bubble.

Kid Dynamite wrote a good post about how an inability to borrow can keep a market irrational for a long time here: http://kiddynamitesworld.com/on-misinterpreting-pslvs-premiu...

It's irrelevant whether shorting bitcoin is going to make anyone money, or when shorting will make people money vs. when it will wipe you out on a margin call. I'm only talking about how the ability to short will make the market more efficient.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#63

Post by kokey »

michaelochurch wrote: post #15

This is a big deal. With leverage and shorting, the only people who will have use for BitCoins (as opposed to a long position in a margin account) will be the small set who need the specific type of liquidity that BitCoin offers... and that will prove to be a small set. (People who need regular anonymous liquidity have other means.) I will also remark that, even when a bubble is underway, shorting is dangerous. If yo…

It's not risky if you know when and by how much it's going to go down. However, you need to have a time machine for that.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#64

Post by kokey »

minimax wrote: post #20

The people here talking about shorting bitcoin to moderate the bubble have no idea what they're talking about. Shorting a bubble is about the stupidest thing you can do. Here's how that math works: 1) You open a margin account with $10,000. 2) You borrow 25 BTC from your broker and sell them on the market at $200. You hope that the price crashes to $0 and your net profit will be $5,000. 3) What actually happens is th…

The more likely scenario is getting the timing wrong, e.g. price goes up to, say $300 before falling down to $100. If you don't have enough to cover it when it hits $300 or the balls to stay in until it goes down, you can still end up with a lot of pain. In the end it's the simplest to either go long or stay out, and let those who know how to manage the risk do the shorting work.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#65

Post by wamatt »

kevinpet wrote: post #62
minimax wrote: post #20

The people here talking about shorting bitcoin to moderate the bubble have no idea what they're talking about. Shorting a bubble is about the stupidest thing you can do. Here's how that math works: 1) You open a margin account with $10,000. 2) You borrow 25 BTC from your broker and sell them on the market at $200. You hope that the price crashes to $0 and your net profit will be $5,000. 3) What actually happens is th…

I talked about shorting bitcoin to moderate the bubble, and I have some idea what I'm talking about. Don't confuse "shorting will stabilize the price" with "it's a good idea to short bitcoin". A shorting mechanism makes it possible for people who are not bullish to participate in the price discovery process. Without a way to short, there are only two participants in the price discovery mechanism -- those who previous…

The implicit assumption that there is a bitcoin bubble, is not a fact.

Was the .com speculation the last two decades a bubble? Is Facebook stock circa 2007 a bubble? etc

Rational arguments can be both ways and I'd be wary of anyone selling certitude on either side the fence.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#66

Post by krichman »

conjecTech wrote: post #59

Long overdue. I've done some research on trying to short Bitcoins and could not come up with anything better than a naked short position or something with tremendous counterparty risk. I'm more interested in Bitcoins as a legitimate means of exchange rather than as an investment, and a service like this would enable me to protect against volatility, the same way similar services in existing ForEx markets protect borr…

How does the ability to short protect you? Genuinely curious, I don't know anything about markets beyond traditional buy and sell.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#67

Post by tocomment »

jacoblyles wrote: post #42
waterlesscloud wrote: post #16

Earlier quoted context omitted.

The real value in bitcoin is that it provides settlement from anywhere in the world to anywhere in the world in at most a couple of hours. Very few other options exist for such rapid settlement. Whatever happens with bitcoin, that pace of commerce exists in the world now. To me, the interesting thing to be doing at this point is figuring out how to take advantage of that speed with new business models.

No, the real value in bitcoin is the blockchain. It shows us a method to use to create and mutate an agreed-upon public state history using a p2p network. Namecoin shows that this can be used for other purposes than merely currency. Blockchain based coordination and provision of public goods is the future.

Hmm, that's an interesting point. I wonder if it could be adapted for secure online voting somehow? Perhaps we could finally have a system that's anonymous but prevents double voting?

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#68

Post by gwern »

tnorthcutt wrote: post #38
gwern wrote: post #23

Earlier quoted context omitted.

> and 80% of the global transaction volume is run through a company in Tokyo set up to trade Magic: The Gathering cards Gasp ! You're right! What other companies have I foolishly entrusted parts of my life to? /looks at his video game console, run by a company in Kyoto set up to sell handmade hanafuda cards Not you too, Nintendo! ;_; I don't know what to believe in now.

Video game console != currency exchange company.

That was not my point at all. My point was that patio11 is, shamefully, engaged in well-poisoning by bringing up the distant origins of MtGox, which have zero relevance to any consideration of MtGox's current professionalism, security, regulatory compliance, risks to users etc. (A point that you would think would be obvious to anyone on Hacker News, who is aware of how companies 'pivot' all the time.) It has changed too much, isn't even owned or run by the same people, and has a long enough and spotty enough track record to judge on its own.

I illustrate the irrelevance and fallacy by applying the same well-poisoning to a pleasingly symmetrical example: another Japanese company which was also set up to deal with playing cards - Nintendo. No one would dream of judging Nintendo by its playing cards origin, because that was a long time ago, different people are involved now, and it has ample room to judge it since. Just like MtGox.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#69

Post by mcherm »

tocomment wrote: post #67
jacoblyles wrote: post #42

Earlier quoted context omitted.

No, the real value in bitcoin is the blockchain. It shows us a method to use to create and mutate an agreed-upon public state history using a p2p network. Namecoin shows that this can be used for other purposes than merely currency. Blockchain based coordination and provision of public goods is the future.

Hmm, that's an interesting point. I wonder if it could be adapted for secure online voting somehow? Perhaps we could finally have a system that's anonymous but prevents double voting?

Voting is an incredibly hard problem. For instance, your description "anonymous but prevents double voting" is ripe for fraud: I go around paying people to vote for me (or intimidating them into doing so). The secret ballot, cast in public, is resistant to that attack.

More generally, one requirement of a voting system is that people trust it. Any elaborate system, no matter what it's theoretical advantages, can have a hard time meeting this hurdle because there are many people in the population who are NOT experts on cryptography and won't be comfortable with any elaborate system.

Re: Coinsetter raises $500k to bring leverage, shorting to Bitcoins

#70

Post by jessriedel »

betaclass wrote: post #58
jessriedel wrote: post #56

Earlier quoted context omitted.

Is there no scheme for shorting an asset over arbitrary timescales whose maximum possible loss is capped?

You BUY PUT options -- you buy the right to sale at a given price for some period of time. The most you can lose is what you paid out for the put option. If the price of the underlying commodity falls below the strike price, you essentially get the difference -- you buy at the new lower price and sell at the higher price.

Ahh I've of course heard of these. Thanks. This sounds like something Coinsetter would do. The only problem is that it puts the seller of the put option on the hook for an uncapped loss. Presumably there is some way to combine these techniques to allow downward pressure on a stock/index while making sure no one has to be so exposed.
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