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Author Topic: Wall Street Journal : VC money pouring into new comptitors to MtGox  (Read 2502 times)
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April 09, 2013, 08:12:15 PM
 #1

A new platform called Coinsetter is launching late in the second quarter that will be first to allow participants to trade bitcoin using borrowed money, knowing as trading on "margin," or to make bets against its value.

Coinsetter last week raised $500,000 from a host of enterprenuers, said its founder Jaron Lukasiewicz, who most recently was an associate at Houston private equity firm The CapStreet Group and previously worked at J.P. Morgan Chase & Co.

http://online.wsj.com/article/SB10001424127887324050304578412502223017208.html?mod=googlenews_wsj

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April 09, 2013, 08:16:52 PM
 #2

How is this news?

There have been so many others before them, boooringgg
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April 09, 2013, 08:18:47 PM
 #3

Non-paywall version?
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April 09, 2013, 08:21:29 PM
 #4

Yeah I'm surprised there isn't a thousand MtGox clones with multi millions in VC bootstrapping them. All it would take is a major player in the forex industry coming along with their C++ high speed trading engines to set up a worldwide exchange that does instant bank deposits everywhere on earth, with enough VC funds to cover fraud, and Gox is done. This assuming they know about multisig cold wallets and don't get hacked out of existence first week of operation

I still will mainly use localbitcoins anyways regardless of what megacorps start trading bitcoin
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April 09, 2013, 08:22:58 PM
 #5

Non-paywall version?

http://techcrunch.com/2013/04/09/coinsetter-lands-500k-from-secondmarket-founder-others-to-help-bring-leverage-shorting-to-bitcoin-trade/
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April 09, 2013, 09:39:09 PM
 #6

I look forward to hacking those newbs.  Grin
 

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April 09, 2013, 09:50:17 PM
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Can someone explain to me how you can short BTC with "leverage"?   You can do this in financial markets (but not in physical markets).   For equities, you need a locate in order to short to satisfy deliver but in bitcoin the buy side of your short sale MUST get the physical immediately so it is not possible to short more than 11MM BTC right now and that is if everyone would lend theirs to be shorted.
What am I missing?


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April 09, 2013, 10:01:05 PM
 #8

Can someone explain to me how you can short BTC with "leverage"?   You can do this in financial markets (but not in physical markets).   For equities, you need a locate in order to short to satisfy deliver but in bitcoin the buy side of your short sale MUST get the physical immediately so it is not possible to short more than 11MM BTC right now and that is if everyone would lend theirs to be shorted.
What am I missing?

Since the site will charge shorters margin they can offer interest the those who have BTC.  i.e. someone who wants to remain long could deposit BTC and collect interest on them.  Those who want to short could borrow those BTC.  The site collects a spread on interest plus any trading fees.  If more people want to short then go long then margin rates for going short will be higher.  If more people want to collect "risk free" interest then short then interest for margin will be lower.  

Note I have no knowledge of the site in the OP just describing in general terms how it works in every other asset market.
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April 09, 2013, 11:00:19 PM
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Can someone explain to me how you can short BTC with "leverage"?   You can do this in financial markets (but not in physical markets).   For equities, you need a locate in order to short to satisfy deliver but in bitcoin the buy side of your short sale MUST get the physical immediately so it is not possible to short more than 11MM BTC right now and that is if everyone would lend theirs to be shorted.
What am I missing?

Since the site will charge shorters margin they can offer interest the those who have BTC.  i.e. someone who wants to remain long could deposit BTC and collect interest on them.  Those who want to short could borrow those BTC.  The site collects a spread on interest plus any trading fees.  If more people want to short then go long then margin rates for going short will be higher.  If more people want to collect "risk free" interest then short then interest for margin will be lower.  

Note I have no knowledge of the site in the OP just describing in general terms how it works in every other asset market.
Thank you, I worked in trading for a long time and am very familiar with shorting commodities and equities.   Equities you need a locate and pay for the locate.   Commodities are different, there is physical trades and financial.   IMO, you cannot "get a locate" on a bitcoin.  You would have to borrow the actual bitcoin from someone and deliver it to the buyer.   So, you would have to have MASSIVE faith in the backing of these people to lend bitcoins to them.   As, you could NEVER short more than the float of bitcoin, there would be HUGE implications of a squeeze.   I would think you would have to be getting a VERY high interest rate to lend your coins to these people.   The risk adjusted return on lending your bitcoins knowing they are shorting them to people (ie. you are taking all the risk, not the shorter) could not be high enough.


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April 09, 2013, 11:04:01 PM
 #10

My buddy is getting 1500% return loaning money on Bitfinex for margin trading.

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April 09, 2013, 11:08:45 PM
 #11

My buddy is getting 1500% return loaning money on Bitfinex for margin trading.
loaning BTC?


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April 09, 2013, 11:28:43 PM
 #12

My buddy is getting 1500% return loaning money on Bitfinex for margin trading.
loaning BTC?

Loaning dollars. He is still a bit timid on buying BTC since he was all ready to do so at $93 and Coinbase only allowed him to buy 1 BTC when he wanted to buy 10.

http://www.bitpools.com
Pool your bitcoins with others. Vote on solutions using the Bitcoin blockchain. Keep your bitcoins in your cold storage until you find a solution you like.
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April 09, 2013, 11:30:46 PM
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They could sell options on future mining supply I suppose, forwards contracts.

But any company who allows shorting of bitcoin would have to treated with the highest degree of caution. (Bitcoinica?) Do not leave/deposit your bitcoins with any type of company or operation that allows bitcoin shorting unless you are highly aware of what you are doing.

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April 09, 2013, 11:32:41 PM
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They could sell options on future mining supply I suppose, forwards contracts.

But any company who allows shorting of bitcoin would have to treated with the highest degree of caution. (Bitcoinica?) Do not leave/deposit your bitcoins with any type of company or operation that allows bitcoin shorting unless you are highly aware of what you are doing.
sound advice, Madoff made people a cool 15% per year every year UNTIL the year he didn't.


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April 10, 2013, 03:30:39 AM
 #15

You would have to borrow the actual bitcoin from someone and deliver it to the buyer.   So, you would have to have MASSIVE faith in the backing of these people to lend bitcoins to them.   As, you could NEVER short more than the float of bitcoin, there would be HUGE implications of a squeeze.   I would think you would have to be getting a VERY high interest rate to lend your coins to these people.   The risk adjusted return on lending your bitcoins knowing they are shorting them to people (ie. you are taking all the risk, not the shorter) could not be high enough.

No you wouldn't.  You could borrow the BTC from a depositor (paying them interest) and then credit them to the shorters account.  The person shorting them couldn't take physical possession.  The lender has absolutely no counterparty risk beyond the exchange.  If you trusted the exchange you could lend at a relatively low rate.  Even the tiny undercapitalize and of quasi legal status platform bitfinex has BTC available for borrowing at a token interest rate.  I would imagine the rate would be much lower for a massive highly capitalized company.

Bitcoin is deflationary.  The gold margin costs are pretty low as well.  Assets holders generally don't mind collecting a small premium on their asset which is also going up in value.

"Lend BTC for a year ... BTC doubles in value AND you get a bonus 10% ... the horrors".
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April 10, 2013, 03:53:33 AM
 #16

You would have to borrow the actual bitcoin from someone and deliver it to the buyer.   So, you would have to have MASSIVE faith in the backing of these people to lend bitcoins to them.   As, you could NEVER short more than the float of bitcoin, there would be HUGE implications of a squeeze.   I would think you would have to be getting a VERY high interest rate to lend your coins to these people.   The risk adjusted return on lending your bitcoins knowing they are shorting them to people (ie. you are taking all the risk, not the shorter) could not be high enough.

No you wouldn't.  You could borrow the BTC from a depositor (paying them interest) and then credit them to the shorters account.  The person shorting them couldn't take physical possession.  The lender has absolutely no counterparty risk beyond the exchange.  If you trusted the exchange you could lend at a relatively low rate.  Even the tiny undercapitalize and of quasi legal status platform bitfinex has BTC available for borrowing at a token interest rate.  I would imagine the rate would be much lower for a massive highly capitalized company.

Bitcoin is deflationary.  The gold margin costs are pretty low as well.  Assets holders generally don't mind collecting a small premium on their asset which is also going up in value.

"Lend BTC for a year ... BTC doubles in value AND you get a bonus 10% ... the horrors".
 
Walk me through the trade.   Party 1 borrows the bitcoin from party 2 but MUST deliver to party 3's wallet the one bit coin.   Party 1 is now short a physical bitcoin (he has "borrowed" it from party 2 but the bitcoin now has been transferred to party 3).   That means Party 1 is hedging his bitcoin borrows with fiat only and could be in for a huge squeeze as there is a VERY limited float and only one way to cover and repay the borrower (with physical bitcoin)


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BTCisthefuture
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April 10, 2013, 04:08:51 AM
 #17

Competition and having more options is always good for the consumer.

I've been seeing stories of more and more VC's start looking into bitcoin startups. With the recent price surges in BTC it's going to be interesting to see what new and innovaitive startups start popping up to make the overal bitcoin experience much easier for the average person.

Hourly bitcoin faucet with a gambling twist !  http://freebitco.in/?r=106463
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April 10, 2013, 04:24:17 AM
 #18

There is no theoretical reason someone (or multiple people) couldn't short more than the free float .

1. Person A loans bitcoin to person B     
2. Person B sells bitcoin to person C (covered short )
3. Person C loans bitcoin to person D
4. Person D sells bitcoin to person E (covered short)

The potential short squeeze would be incredible.      As it  should be - naked shorting is fraud IMO.

Beware the weak hands!
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April 10, 2013, 05:50:56 AM
 #19

This is great news. Gox is pretty terrible when it comes down to it, and this looks much more mature

My attempt at adding to the bitcoin-using marketplace: https://bitcointalk.org/index.php?topic=171843.0
Like online video games? Check it out! I'm selling at a big discount
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April 10, 2013, 06:20:54 AM
 #20

I look forward to hacking those newbs.  Grin
 
MtGox and others have already learned some hard lessons about cybersecurity; no doubt any competitors who make it to market once BTC is popular will have to be prepared.

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