Bitcoin vulnerability

[Gator-hex]

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

[DAN444]

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.

Great response.
Thanks

[botsofbitcoin]

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.

[DAN444]

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..

[bubblesort]

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.

[DAN444]

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