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Author Topic: Why you technically can't "short sell" Litecoin.  (Read 1227 times)
jaywaka2713
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March 23, 2013, 10:07:59 PM
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The concept of this idea goes against the economical definition of a short sell. Currently, LTC fluctuates proportionally with BTC because LTC isn't "strong enough" to determine its own value. BTC goes up, LTC goes down. BTC goes down, LTC goes up. Also if you are talking about short selling using the LTC/USD rate, you would also be trading AGAINST the realistic "idea" of what a short sell is. The LTC/USD value always fluctuates with people's emotions and faith toward LTC. When the LTC/BTC rate goes down because Bitcoin goes up, you typically have people who don't have an economic value, and all they see is the "dropping" value. Therefore, they lose faith in LTC, and sell, driving the value down. Now back to the idea of short selling LTC. For those who don't know what a short sell is, it is where you receive a credit for X amount of whatever you are short selling, with the expectation of the value of that item falling. Once it falls the expected amount, you then buy it back at the lower price, and it goes back to the broker you short sold it from. In this situation, you aren't short selling thinking LTC is going to go down. You in fact are predicting that Bitcoin is going to go UP! Therefore, such a method is theoretically flawed because plenty of people think BTC will continue to rise. You would be able to make profit, but you technically aren't short selling LTC. You are basically buying a call option for BTC.

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March 23, 2013, 10:20:44 PM
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The concept of this idea goes against the economical definition of a short sell. Currently, LTC fluctuates proportionally with BTC because LTC isn't "strong enough" to determine its own value. BTC goes up, LTC goes down. BTC goes down, LTC goes up. Also if you are talking about short selling using the LTC/USD rate, you would also be trading AGAINST the realistic "idea" of what a short sell is. The LTC/USD value always fluctuates with people's emotions and faith toward LTC. When the LTC/BTC rate goes down because Bitcoin goes up, you typically have people who don't have an economic value, and all they see is the "dropping" value. Therefore, they lose faith in LTC, and sell, driving the value down. Now back to the idea of short selling LTC. For those who don't know what a short sell is, it is where you receive a credit for X amount of whatever you are short selling, with the expectation of the value of that item falling. Once it falls the expected amount, you then buy it back at the lower price, and it goes back to the broker you short sold it from. In this situation, you aren't short selling thinking LTC is going to go down. You in fact are predicting that Bitcoin is going to go UP! Therefore, such a method is theoretically flawed because plenty of people think BTC will continue to rise. You would be able to make profit, but you technically aren't short selling LTC. You are basically buying a call option for BTC.

Sounds like a good theory but is horribly flawed in the detail.

BTC/LTC, BTC/USD and LTC/USD are all linked - if one changes then the other two will be arbitraged to reflect that change.  So the argument that LTC falls when BTC rises (vs USD) is not consistent with arguing that LTC varies vs USD based on emotions/faith.  LTC/USD CAN'T change without at least one of the other two changing - and it's the most illiquid of the three pairs.

It's also not strictly true to say that LTC falls when BTC rises.  When BTC rises it puts downwards pressure on LTC - but a fall isn't actually inevitable: as we saw recently when LTC rose vs BTC whilst BTC was rising against USD.

And your argument that LTC can't determine its own value is silly.  Make a reasonable definition of how to measure LTC's value.  Now compare it to that measurement a few weeks back.  Is it the same?  No - it's not.  Has it changed in a way consistent with it being pushed around by BTC?  No it hasn't.

Short-term, lo-volume intra-day movements ARE usually caused by arbitrage vs a move in BTC/USD - but right now LTC is doing its own thing and has been pretty much ignoring the pressure from that arbitrage for the last week or two.  And it's not the first time that's happened.
jaywaka2713
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March 23, 2013, 10:35:56 PM
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I was not aware of this. Thank you for correcting my statement. You clarified and corrected what I said very clearly.

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