The lack of shorting is a significant barrier

[fergalish]

...the only way they could do this is to convince one of us to play in their sandbox by setting up an exchange allowing short selling denominated in USD.  look how they've capped gold and silver.

What do you mean by "how they've capped gold and silver"?

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[AntiVigilante]

...the only way they could do this is to convince one of us to play in their sandbox by setting up an exchange allowing short selling denominated in USD.  look how they've capped gold and silver.

What do you mean by "how they've capped gold and silver"?

They have and will trade gold certificates against themselves to bring the prices down. These people we're breastfed by the Microsoft Excel Clippy.

[iya]

mtgox should never allow shorting of BTC denominated in USD terms b/c a JPM could respond to unlimited margin calls on shorting losses with unlimited USD's handed over to them by FerBanke.  this permanent BTC short would hang over the BTC market like a dark cloud preventing any further BTC price rise or even worse, crashing it.

OTOH, if mtgox demands margin calls to be reserved with BTC, thats a different story and could be an opportunity to crush any short seller, JPM included.

MtGox or any other exchange cannot offer shorting more than their own BTC supply allows. As this is limited, there can be no unlimited shorting, and once the short is placed, the price pressure is over.

That doesn't mean it couldn't be significant in the short term. It's not too far fetched that somebody with enough USD finds a way to short 100000 BTC, which would bring the price way down.

[m0ep]

Hi,
I'm new to bitcoin but have done a lot of reading in this forum and on other sites. I have to say that I totally agree with the ones that complain about the lack of shorting. One of the main points why there are bubbles on this world are the short-sale constraints that obviously exist. And although politicians sometimes like to make us think that all the short-sellers are bad and should be forbidden, the opposite is the case. If the price of bitcoin would be overvalued, there is no good way of driving the value back to its fundamental value without the option to short. Just think of the American housing bubble: prices kept rising and rising. Although some people felt something is wrong, they couldn't do much because there was (almost) no way to short mortgages/MBS/ABS! 

Let's see what the future brings and whether any exchange will offer a shorting option.

[bitoption]

You can short right now on bitoption.org; just buy calls in the 0.2 - 0.5 strike price.

For more explanation, here's the long version:

@nrd52, shorting BTC -- the simplest way right now would be to buy a call for say (if you're super-short) 0.5 strike in (say) 6 months.

Let's say you bid on 1,000 of the calls at 0.5 BTC strike. Then, any time in the next 6 months, if you like, you may exercise the calls: you'll deliver 500 BTC, and receive 1,000 USD.  (.5 BTC for 1 contract of USD).

Right now, this is a terrible deal. But, if Bitcoins fall to being worth 5 cents, then you can go buy $25 worth of them, and exchange those BTC for $1,000. Sweet.

The opposite side of this has to want to leave their 1,000 USD out there for six months (for now, soon they'll be able to resell their obligation). Thus they must get enough cash out of the deal that they're comfortable.

Let's say you want to offer them roughly 20% annual return on their dollar to get them to make this (you hope) totally stupid trade. Then you would offer roughly 10% to them, or, today, $100 / 6 BTC. Since you are buying 1,000 contracts, you're going to offer 6 / 1000 = .006 per contract.

So, this adds up to .5 strike, 12-9-2011 expire, bid .006 .

This is a short trade, and I would expect that there will be longs who would like this trade very much, especially with a $2USD/BTC exchange rate. As soon as USD/BTC goes a little under $2, you will be able to make your money back, then some.

You could widen your ability to make money by offering at say .2 strike (US $5/BTC) and keeping the rest the same.

Hope this helps!

[bitoption]

Update, the market has flipped currencies to make everything easier to understand.

You now pay in USD for a BTC option.

So, you are super-short: buy a naked put.

You buy a $2 put for $.02. If BTC drops to $1, then you will make (net) about $.98 per option.

You are super long: buy a naked call.

You buy a $100 call for $.02 if BTC goes to 125, you made $24.98 per call.

[nazgulnarsil]

naked shorts...why would I participate in fraud?

[bitoption]

We're starting to see a little volume for end of 2011 trades right now. Mostly longs are placing bets, looks like, or low-volatility types.

https://bitoption.org/?closedate=2011-12-29

[m0ep]

thanks for the update regarding shorts, bitoption. will take a look at it the next days..

[FreeMoney]

naked shorts...why would I participate in fraud?

A put is the right to sell something. You can bet against a thing by buying that right, but waiting to buy the thing. You never have to deliver, you never promised to deliver.