Bitcoin Forum

At first glance, this may appear a negative for Bitcoin - interest charged for holding a long Bitcoin position?


Yes, more interest is returned by shorting BTC.

http://noblenomads.com/wp-content/uploads/2012/02/bitcoinica-interest.png (http://noblenomads.com/?attachment_id=1180)

Some of the recent drop from the mid-$5/BTC range to the high-$4/BTC level can certainly be attributed to this. How much is uncertain, but it definitely isn't propping up the rate.

Correct me if anything is mistaken...

One of the issues here is that there has recently been insufficient net capital flow from other sources to provide a major push in either direction. In order for capital to flow into the Bitcoin system, awareness and adoption need to occur. With Bitcoinica offering interest payments for long USD trading positions at a ridiculously high rate, it will catch on sooner rather than later.

Since direct naked shorting is impossible with Bitcoin and would eventually bankrupt the operator offering it, BTC must first be purchased with that newly-deposited USD capital. With some BTC now in the account, it is then possible to open a short BTC/USD position and gain that significant interest spread.

No matter what, some capital will flow into Bitcoin for every USD deposit. This can result in an initial dip, but long-term residual flows will accrue and bolster the exchange rate in Bitcoin's favor. Even if there were a stampede to the exits from Bitcoin, there will be some who can't get out and end up taking sizeable losses, that wealth then remaining within the Bitcoin system.

Most new participants don't take the time to study a market, so it's likely they will lose in the price movements. It's also very possible that some may be drawn into the trading and stay, creating a building momentum for general Bitcoin exposure.

Bitcoinica can only pay interest on balances so long as it can be maintained without bankrupting the outfit, so the high USD payment rate will decline as the exchange rate falls. That's good, because I've been waiting for the $3-4 region to be entered again so I can load up.

Clever work - thanks, Zhou!

Note: the problem is that any KYC compliance negates much of the very purpose for Bitcoin, partially because of relative anonymity and mostly because of American abuse of power (https://bitcointalk.org/index.php?topic=63790.msg747666#msg747666).

Also, regardless of whether it will turn out to be good for customers (I have a worry that it's not possible to do withdraw-on-demand as well as margin trading); this change by bitcoinica is going to be quite good for stabilising the market.

The reason is that it adds the feedback-to-market that was missing for internal trades.

If lots of people go long then there is a demand for dollars; that pushes the interest paid on dollar deposits higher.  That means people with bitcoins on deposit might feel that there is profit to be made by converting their bitcoins to dollars.  i.e. going long results in sells -- negative feedback.  Negative feedback is a stabilising force.

And vice versa for shorts of course.

There are a few steps in between and the feedback is only partial, so we can expect latency and oscillation; but it's a beginning and can only help.

I'm really excited about making interest on my bitcoin, but I don't think I understand the system.

I put 4.991 BTC on my Bitcoinica account as a tester to see if I get any 'daily' interest.  This week I have not seen a single satoshi.  How do I get this interest?  Do I need a buy/sell position?  Because I don't want to sell any Bitcoin, I figured they would just add it to my BTC balance.

You get it once you made at least 0.01BTC

AWESOME thank you that makes perfect sense. 

I was wondering, whats the difference between a USD buy and a USD sell position in bitcoinica from an interest point of view, would a USD sell position be akin to leaving a USD balance untouched in bitcoinica?