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Title: Bitcoin vulnerability Post by: DAN444 on March 21, 2013, 03:13:17 AM Hi
I m trying to figure out how safe bitcoin is as an investment. I found out that there are approx 11 million bitcoins in circulation. Couldnt a central bank just purchase most of them and simply destroy them? Title: Re: Bitcoin vulnerability Post by: DAN444 on March 21, 2013, 03:16:06 AM That would be awesome. But wouldnt the liquidity suffer tremendously? Title: Re: Bitcoin vulnerability Post by: Gator-hex on March 21, 2013, 03:21:21 AM 21,000,000 x 8 decimal places. ::)
It's a deflationary fractional currency. 21,000,000.00000001 BTC The best way to destroy them is to crush the exchange rate with the Exchange Stabilization Fund. Which I expect them to do as soon as Wall Street gets hooked into it and creates a short derivative. Title: Re: Bitcoin vulnerability Post by: MoonShadow on March 21, 2013, 03:24:36 AM That would be awesome. Yes, Ben Bernanke, be our guest. Title: Re: Bitcoin vulnerability Post by: DAN444 on March 21, 2013, 03:27:05 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Title: Re: Bitcoin vulnerability Post by: MoonShadow on March 21, 2013, 03:41:17 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Title: Re: Bitcoin vulnerability Post by: DAN444 on March 21, 2013, 03:43:28 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Title: Re: Bitcoin vulnerability Post by: MrClub on March 21, 2013, 03:59:41 AM Hey, a central bank's not getting mine!
Title: Re: Bitcoin vulnerability Post by: DAN444 on March 21, 2013, 04:04:56 AM Hey, a central bank's not getting mine! Right. Since BTC is deflationary fractional, reducing BTC in circulation is not really an issue.And if volatility is intentionally increased, it could be exploited by buying the dips I suppose Title: Re: Bitcoin vulnerability Post by: mzz on March 21, 2013, 04:16:32 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Your awesome quote just introduced me to a book I had never read. Thanks! Title: Re: Bitcoin vulnerability Post by: MoonShadow on March 21, 2013, 04:37:06 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Your awesome quote just introduced me to a book I had never read. Thanks! Title: Re: Bitcoin vulnerability Post by: 🏰 TradeFortress 🏰 on March 21, 2013, 04:48:03 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Title: Re: Bitcoin vulnerability Post by: 🏰 TradeFortress 🏰 on March 21, 2013, 04:48:33 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Your awesome quote just introduced me to a book I had never read. Thanks! Title: Re: Bitcoin vulnerability Post by: MoonShadow on March 21, 2013, 04:50:19 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Depends upon how much money that they were willing to lose. Your awesome quote just introduced me to a book I had never read. Thanks! Oh, that one. Sure. Want to see something disturbing? enter "Depends upon how much money that they were willing to lose" into the google search box. Title: Re: Bitcoin vulnerability Post by: MoonShadow on March 21, 2013, 04:52:23 AM 21,000,000 x 8 decimal places. ::) I see.It's a deflationary fractional currency. 21,000,000.00000001 BTC Could a large financial institution discourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) MtGox will never permit naked shorts, as that puts them as the naked long. That's a real quick way to go bankrupt in this market. Title: Re: Bitcoin vulnerability Post by: bubblesort on March 21, 2013, 06:20:25 AM If you have bitcoin loans then you de facto have bitcoin short positions. Investment sites that allow you to short by checking the box for 'short sell' rather than 'buy' is just a convenience.
The mechanism for short selling is to get a loan for say, 10 BTC, then use that to buy cash (say, $650 USD today), then when it's time to pay back the loan you buy 10 BTC at current market rates to pay back the loan. If you pay the loan back a month from now and the price has dropped by $10 per BTC, then it would cost $550 to buy 10 BTC to pay back the loan, earning you $100 USD. Of course, you have an interest rate on a loan, so if your interest rate on the 10 BTC is, say, 1% then you have to pay back 10.01 BTC, which would eat into your profits from a short position. You want to take this into account when timing your purchase of BTC to cover your short position. If a lot of people start to think that BTC is going to go down in value then demand for short positions will increase, which will increase the demand for BTC loans, which will increase the short term loan interest rate. How many services are there for BTC loans? In aggregate, how much BTC credit is really out there? If there isn't much BTC credit out there and short selling picks up then it would be very profitable to be a seller of BTC credit, because as demand increases so do interest rates. Title: Re: Bitcoin vulnerability Post by: Dreadful on March 21, 2013, 06:39:06 AM Wouldn't that be a major waste of money? I mean buying something to destroy it when it will never be on their level.. seems counterproductive to me. ???
Title: Re: Bitcoin vulnerability Post by: odolvlobo on March 21, 2013, 07:13:12 AM Wouldn't that be a major waste of money? I mean buying something to destroy it when it will never be on their level.. seems counterproductive to me. ??? We are talking about the U.S. Government. "Counterproductive" and "waste of money" are its primary characteristics. Seriously, destroying BTC only makes it more valuable because it is more scarce. If you want to kill bitcoin, just constantly create bubbles and pop them. Nobody will trust it to retain any value. Title: Re: Bitcoin vulnerability Post by: bubblesort on March 21, 2013, 08:14:35 AM This has nothing to do with the US Government and nothing is destroyed. If anything, it makes bitcoins circulate more, which is a good thing.
This also allows people to make money off of market movements whether the market goes up or down. The lending institution makes money in the form of interest, the short seller makes money if the BTC value decreases. If it doesn't then the short seller looses money, but the lender still gets their original investment plus interest. On top of that, you can use the interest charged on short contracts as an indicator of optimism about BTC, which is pretty useful. I don't see a downside to this at all. Do you really think there are any investors out there who can build up the value of BTC, then short the market, then crash it and then cover their shorts when the market tanks? If people like this do exist then bitcoins are insecure and should not be used. Edit: Oh, you were responding to the OP, not to me. Sorry about that. Some people have accused short sellers of 'destroying value' before, so I misread the two posts above this one, LOL. Title: Re: Bitcoin vulnerability Post by: GambitBTC on March 21, 2013, 12:18:50 PM Hi I m trying to figure out how safe bitcoin is as an investment. I found out that there are approx 11 million bitcoins in circulation. Couldnt a central bank just purchase most of them and simply destroy them? I wont sell mine. As i am sure others wouldn't sell theirs, monopoly will NOT happen in the Bitcoin economy. If BTC were to ever become centralized im buying pieces of sting and using them as currency instead. Title: Re: Bitcoin vulnerability Post by: Gator-hex on March 21, 2013, 12:21:02 PM Quote Quote Wouldn't that be a major waste of money? I mean buying something to destroy it when it will never be on their level.. seems counterproductive to me. Huh We are talking about the U.S. Government. "Counterproductive" and "waste of money" are its primary characteristics.The US government does have a way to manipulate currencies, it's called the Exchange Stabilization Fund. ESF $550bn vs. Bitcoin $0.5bn "may deal in gold, foreign exchange, and other instruments of credit and securities." http://www.treasury.gov/resource-center/international/ESF/Pages/esf-index.aspx Title: Re: Bitcoin vulnerability Post by: DAN444 on March 23, 2013, 02:09:23 AM If you have bitcoin loans then you de facto have bitcoin short positions. Investment sites that allow you to short by checking the box for 'short sell' rather than 'buy' is just a convenience. Great response.The mechanism for short selling is to get a loan for say, 10 BTC, then use that to buy cash (say, $650 USD today), then when it's time to pay back the loan you buy 10 BTC at current market rates to pay back the loan. If you pay the loan back a month from now and the price has dropped by $10 per BTC, then it would cost $550 to buy 10 BTC to pay back the loan, earning you $100 USD. Of course, you have an interest rate on a loan, so if your interest rate on the 10 BTC is, say, 1% then you have to pay back 10.01 BTC, which would eat into your profits from a short position. You want to take this into account when timing your purchase of BTC to cover your short position. If a lot of people start to think that BTC is going to go down in value then demand for short positions will increase, which will increase the demand for BTC loans, which will increase the short term loan interest rate. How many services are there for BTC loans? In aggregate, how much BTC credit is really out there? If there isn't much BTC credit out there and short selling picks up then it would be very profitable to be a seller of BTC credit, because as demand increases so do interest rates. Thanks Title: Re: Bitcoin vulnerability Post by: botsofbitcoin on March 23, 2013, 02:15:50 AM If BTC were to ever become centralized im buying pieces of sting and using them as currency instead. I'll pitch in 1 BTC for his annoying face. Title: Re: Bitcoin vulnerability Post by: DAN444 on March 23, 2013, 02:22:24 AM Some people have accused short sellers of 'destroying value' before, so I misread the two posts above this one, LOL. Are you referring to manipulation of the silver and gold "paper" market by the big bullion banks?That's what makes me think that if shorting bitcoins is made possible, manipulation could be possible.. Title: Re: Bitcoin vulnerability Post by: bubblesort on March 23, 2013, 06:14:43 PM Some people have accused short sellers of 'destroying value' before, so I misread the two posts above this one, LOL. Are you referring to manipulation of the silver and gold "paper" market by the big bullion banks?That's what makes me think that if shorting bitcoins is made possible, manipulation could be possible.. Manipulation is always possible, with or without short selling. You will always have things like pump and dump type scams, no matter what kinds of regulations you create for markets. In fact, it's probably a good idea to evaluate posts in this forum against the question of whether the poster is pumping a position in order to manipulate markets. Title: Re: Bitcoin vulnerability Post by: DAN444 on April 04, 2013, 12:42:53 PM I see. Could a large financial institutiondiscourage owning BTC simply by making it insanely volatile? (Purchasing huge amounts then dumping them all etc..) Like I suspected above, seems like I was right and the answer is YES: "Attackers wait until the price of bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit," Mt.Gox said. http://finance.yahoo.com/news/bitcoin-hacked-price-stumbles-buying-103848677.html;_ylt=Aj6xABvB5n5SPsC4lmSkiN6iuYdG;_ylu=X3oDMTQ4ajlmdW5jBG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwNiZDIwYjZiNi1hZjgxLTNiMmQtYjUxYi1iYjViNjg2MTcwNWEEcG9zAzEEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgM1NDkxYmM0MS05ZDE0LTExZTItYjlmYi0zZTA4ZmIxMDkzODA-;_ylg=X3oDMTFkcW51ZGliBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3BtaA--;_ylv=3 |