Over 200,000 borrowed bitcoins. That is why the more he tries to manipulate the market with the borrowed BTC, the higher the risk of a pirate in a short squeeze.

Of course because assuming all of the top 0.122% have the same number of BTC is completely wrong.

Fair enough. But if you hang on to your 2.45997863 BTC and Bitcoin gains any significant part of the world payments market, you will not be out side of the top 1% for long.

This assumes this person can actually buy back at $7. If this person is actually short and needs to cover, this can get real interesting real fast, if for example some other player decides to "buy at market".

All I can say is that person better not be short that amount.

No you are not. It is mathematically impossible. If you divide 21000000 by 2.45997863 one gets 8536659. That means that there can be at most 8536658 people in the world with more BTC than you. With a world population of 7,027,534,360 that places you in the top 0.122%.

A good analogy here is suppressing forest fires and letting the fuel in the forest build up. For a while this can work very well. No forest fires, but sooner or later there will be an out of control mega blaze far larger and hotter than any of the fires that were suppressed.

Or option C 156.34771732 @$31.89 This = $3908.69 @$25 per coin Turning 17k trades into $3.9k trades with a $1.1k loss is for even bigger losers. I do agree with the commission part and why quite rightly many would consider this a scam in the stock market. The answer there of course is to buy an index fund with minimal fees through a discount brokerage and forgo expensive fees and commissions on heavily marketed financial "products". A good rough rule of thumb here is the more money that is spent in marketing and promoting the "investment" the poorer the return.

I am currently at my local Starbucks enjoying a cup of coffee and completing my post on dollar cost averaging as a method of Bitcoin acquisition. By the way great work on your service. As for shorting SBUX vs buying more BTC, I will take the BTC. I do like their coffee.

Dollar cost averaging (or cost averaging with say EUR, CHF, JPY etc) is an excellent strategy for an asset that has the following characteristics:
1) Has a positive or neutral long term outlook
2) Is highly volatile in the short to medium term. The more volatile the better!
3) Is fungible and highly divisible
4) Has low or no commission fees for small purchases
 
It is ideal for investors that have a regular source of income and wish to combine acquisition of the asset with a long time savings plan. The fact that the investor also has debt should not be considered a deterrent to a long term savings plan. In fact combining debt repayment with a dollar cost averaging savings plan can be a very effective from of financial planning.

It has been used very effectively with stock mutual funds (provided they are very well diversified or an index fund). It is not a particularly good strategy for individual stocks particularly small cap stocks because they can fail (1) above. It can be used with Forex; however the trouble there is that there is not enough volatility. The key to understanding this strategy is that the object is to minimize the average cost of acquisition over the long term, rather than being concerned with each individual trade. The latter are typically made at market.

I must say that in my opinion Bitcoin at this point in its history is as ideal as an asset for dollar cost averaging as possible; however in order to take advantage of the market volatility of Bitcoin a purchase of more than twice a month should be considered. It can also be used very effectively in the smaller exchanges.

Now consider the following two scenarios I make 4 BTC purchases two weeks apart of 400 CAD each at market: The long term price is BTC/CAD 8.00. All trades are at market
1) A market that is not volatile.
Trade 1: price 400 CAD BTC/CAD 8.00 50 BTC
Trade 2: price 400 CAD BTC/CAD 8.00 50 BTC
Trade 3: price 400 CAD BTC/CAD 8.00 50 BTC
Trade 4: price 400 CAD BTC/CAD 8.00 50 BTC
Total CAD 1600 Total BTC 200 Average cost BTC/CAD 8.00

2) A market is that very volatile. For example a large player with a large short position sends the market on a wild ride in a market manipulation
Trade 1: price 400 CAD BTC/CAD 8.00 50 BTC
Trade 2: price 400 CAD BTC/CAD 1.80 222.22222222 BTC (I will leave it to the reader to determine where I got that figure)
Trade 3: price 400 CAD BTC/CAD 14.20 28.16901408 BTC (To every action there is always an equal and opposite reaction)
Trade 4: price 400 CAD BTC/CAD 8.00 50 BTC (The market is now back to normal)
Total CAD 1600 Total BTC 350.3912363 Average cost BTC/CAD 4.57 Unrealized Profit 150.3912363 BTC or 1203.03 CAD in market that over the long term did not move at all.

Two critical points here:
1) The trade at 1.80 is where the profit was made. Stick with the system. If it goes lower the next time this is more opportunity for profit.
2) The trade at 14.20 is also critical. At that point one does not know where the market will go. Our market manipulator for example may be caught in a short squeeze and send the market sky high.

Standard disclaimer applies here: Please use your own due diligence and consult a properly qualified financial adviser, in your jurisdiction,  before investing any funds. This must not be construed as investment advice to any person or persons.

Or in other words in the event of a short squeeze default? I suppose that is something for his lenders to consider. The more relevant question for the rest of us is: What would be the impact on the overall market of a pirate default?

It just shows that there are many opportunities in the small exchanges.

Some will. some wont.

A sharp rise in the BTC / USD price particularly if his ask walls are bought out and the price rise is driven by well capitalized long term investors as opposed to short term high risk speculators. This can set up pirateat40 for a brutal Bitcoin short squeeze.

This ignores one very big player who under the right set of circumstances can get caught in a nasty Bitcoin short squeeze. Hint take a look at the trading activity on July 17, 2012.

IANAL

Forex is a better analogy to Bitcoin than the stock market when considering issues such as insider trading as it is both unregulated and it involves currency (money) rather than securities. http://www.investopedia.com/articles/forex/06/SevenFXFAQs.asp#axzz215ONurFg. Having said this general provisions regarding fraud will still apply. This is after all the origin of securities laws in the first place.

It won't happen. The World Bank is far to big and bureaucratic to do anything that innovative and disruptive. History for centuries has repeatedly proven that the existing big players are never at the forefront of new and highly disruptive technologies.

This is very true, but only for the last 7 months. Why? What changed in the market?

Let me explain: pirateat40 is fundamentally a bear. He has however built a business that involves selling BTC to his clients who are bulls. In order to run his business he needs an inventory of BTC estimated from more than one source to be say 250000 BTC. Now like any business he needs to finance his inventory. He has two choices:
1) Borrow USD
2) Borrow BTC
(1) is cheap; however he runs the risk of a sudden drop in the BTC price leaving him with a warehouse full of worthless BTC and 2.5 million USD in debt. Let us remember we are dealing with a bear here. So instead he chooses option (2) and pays a premium rate of 7% a week to borrow BTC. He has now effectively hedged his downward risk. If the price of BTC were to drop to zero tomorrow he can repay his lenders in the now worthless BTC together with the 7% per week interest also denominated in BTC.

Now when a buyer comes along he sells the buyer BTC from his inventory and then goes into the market buys back the sold BTC. He needs to generate say 10% a week in commissions in a flat market in order to pay his lenders and make a profit. This is actually not that hard to do. In a bear market July 2011 - December 2011 he makes an additional profit because he is effectively short the market between selling his BTC from inventory and buying them back in the market in order to replenish his inventory. Now in a bull market is where the situation starts to get interesting. I suspect he can tolerate a small rise in the market, but not a sharp sudden rise so he has to use ask walls in order to moderate a rise in the market and apparently has been doing this quite well for the last 7 months. There is a serious risk here. A long term well capitalized investor who does not mind paying a small premium say 10% - 15% over market comes is out of the blue and buys out his ask wall. Now he is effectively short not only the BTC sold to the client but also the BTC from the now sold ask wall in a rising market. This is when the fun and the real risk of a short squeeze starts.

There is no need here for a ponzi or any kind of money laundering to explain this theory.

By the way I have deduced all of this from pirateat40's own comments, the comments of both his supporters and detractors and correlating these comments with the historical market behavior, as part of my own due diligence on Bitcoin.

Is not 7% per week that pirateat40 is paying? As for the 250000 BTC that is approximately what it would take to drive the price down on MtGox to 1.80 USD to 1 BTC.

But why borrow 250000 BTC at 7% per week in order to do this?