SlipperySlope's Bubble Collapse Journal

[rpietila]

If you realistically think it could go to zero, $30, $50 or even $100 ever any more, I am glad to write puts.

No need for puts, thank you! I am foolish enough already.

What sort of bear is not buying almost free puts at $30-$50   

Don't you realize it's the only way you ever get your money out of bitcoins when they inevitably collapse!?

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[SlipperySlope]

almost free puts at $30-$50

Now you have me curious, not really interested yet - just curious.

What are the terms of these puts? Are you writing them or connected with MPOe?  I know that option writers expect to make money and that option pricing factors in the strike price and the volatility of the underlying security and the duration of the option. I imagine the premium on a six month put @ $60 would be considerable.

[rpietila]

almost free puts at $30-$50

Now you have me curious, not really interested yet - just curious.

What are the terms of these puts? Are you writing them or connected with MPOe?  I know that option writers expect to make money and that option pricing factors in the strike price and the volatility of the underlying security and the duration of the option. I imagine the premium on a six month put @ $60 would be considerable.

I have a steady flow of bitcoins going out daily since I sell them. If it hits $50, people will be lining to buy them. So I am not risking too much if I write such puts, I just get cheap bitcoins effortlessly. Of course in the event it goes to $20, I may have to sell them at a slight loss to my buy price of $50, but you would be surprised to know that I can charge 25% premium OTC if the market is "crazy" (which I decide).

Any hit to $20 is extremely improbable short-term event, you need to be lucky if you want to sell unto such a slim chance...

So this is a legit hedge, I include all such diligently into my position spreadsheet, and I have 16 years of stock etc. trading experience. I can hedge if I want (this one can be hedged eg. against the markup of future sales). So by betting against me, you will be either insignificant or hedged. I will keep my 75-110% net long position anyway, just rake in +EV (free money) from my counterparties.

It's called market making. Some day I make $1k, another $10k, as I posted in my thread.

I think MPOE is playing a dangerous game (if they don't have the weekly fluctuation on their grips, I mean). It may still fold this month if too much underwater from insider swing trades. Dunno, at least they do reporting.

[SlipperySlope]

I think MPOE is playing a dangerous game (if they don't have the weekly fluctuation on their grips, I mean). It may still fold this month if too much underwater from insider swing trades. Dunno, at least they do reporting.

Just to show how ignorant I am sometimes, I bought MPOe pass-through bonds at the Bitfunder exchange for March. I took an 8% loss instead of the gain I expected. I likewise have a position in the April MPOe bonds that I will liquidate this week at settlement. I did not realize that MPOe bonds are not conventional bonds, but rather a way to share in the profits and losses from MPOe's option writing bot - whose pricing algorithm is not disclosed. I can only hope the the March volatility got fully priced into the April option premiums. From what I recall from IRC or a post here by MPOE-PR, that MPOe will reconfigure their financing arrangements, probably to make it less likely for the owner to suffer another big loss.

Thanks for the put option information. You might present your terms in the Securities forum, or additionally in your own thread.

[RationalSpeculator]

My principal comments regarding the short term bear case, and its potential for literally multiplying the number of bitcoins you sold to raise cash.

• Day 4 post peak - Compare two bitcoin bubbles.
• Day 5 post peak - Price dropping 10 times faster than back in 2011 bubble.
• Day 7 post peak - How many more seller capitulations before the bottom?
• Day 11 post peak - Does the recent dramatic recovery from 50 to 136 USD/BTC negate the case for a short term bear market?
• Day 12 post peak - Long term chart is awesome

Here was the short term bear case in a nutshell ...

• there will be no more enticing and greed-inducing news stories from the media. Now the benchmark is the crash and how speculators lost so much.
• investor sentiment, especially new investor sentiment has reversed. Impatience to buy has been replaced by caution
• what is the correct valuation of fiat/bitcoin given what we know now? Certainly while the price doubled four times from January, the bitcoin economy did not do as well in percentage growth. Correct valuation depends then mostly on just how much of the run up since January is emotion, e.g. greed.
• If the downtrend continues, then coin holders are  tempted to sell coin expecting to buy back for less fiat.

Great analyses. Thank you so much for sharing Slipperyslope. I read all your posts and admire your rational and kind state of mind. I share your opinion that chances are much higher for serious correction taking months. As to deal with your fear of missing the bottom, I think your system of gradually moving in is a very good way, though you do have a small risk to be left behind if the price would not go below $50 or even $100. It's a small risk, but a risk. You can solve that by having a small exposure nonetheless, and raising that exposure as the price goes down. It's a small loss if the price goes down, but you don't have to worry to be left behind.

[rpietila]

you do have a small risk to be left behind if the price would not go below $50 or even $100. It's a small risk, but a risk.

I regard this "risk" of never going down as so large - I am willing to write you $115 puts for surprisingly cheap!

This would allow you to buy in to bitcoins with much larger percentage of your fiat stash now, since you would only lose the premium if the price goes up. (In your scenario, you are fully exposed if sudden upward moves happen.)

If it goes down to $50, you get to sell your bitcoins to me for $115, and buy back a much larger number at $50.

All you will lose if anything happens, is the premium. If you are willing to "go short" with bitcoin (i.e. being long-term bullish but willing to invest less than 100% of the position at any particular time), would this not be a great improvement?

[SlipperySlope]

I regard this "risk" of never going down as so large

I assume that $13.50 back in January was a fair price at the time, and that the underlying price growth trend is on the order of 4-5x per year yields an expected 2013 year end value of $50-60 - without the bubble.

On the wall thread you said ...

I have charted the spot_price/ATH price over Jan-Mar, and I think the rally has already resumed. You can offer to bet with quite good odds that we will never cross 0.95*previous_ATH. And you win the bet with a surprisingly good probability. Chart it yourself, lol. I almost always bought at ATH during those months, since it was the least risky entry point.

The supply of people that think that we are in a bubble/denial/bear market/correction/consolidation/younameit is dwindling, and it's dwindling fast. Especially their economic share of the market is about to be crushed if they do not buy back soon.

What you say about demand is still consistent with speculative financial bubble theory to the extent that it takes a decline of approximately the same duration as the run-up to completely unwind the bullish enthusiasm that created the bubble.

In terms of logical argumentation, my falsifiable hypothesis, derived from theory, is that a price retracement to the underlying trend will occur before a new all time high.

[RationalSpeculator]

you do have a small risk to be left behind if the price would not go below $50 or even $100. It's a small risk, but a risk.

I regard this "risk" of never going down as so large - I am willing to write you $115 puts for surprisingly cheap!

This would allow you to buy in to bitcoins with much larger percentage of your fiat stash now, since you would only lose the premium if the price goes up. (In your scenario, you are fully exposed if sudden upward moves happen.)

If it goes down to $50, you get to sell your bitcoins to me for $115, and buy back a much larger number at $50.

All you will lose if anything happens, is the premium. If you are willing to "go short" with bitcoin (i.e. being long-term bullish but willing to invest less than 100% of the position at any particular time), would this not be a great improvement?

Interesting.

How do I know you are good for your money?

[gizmoh]

@slipperyslope:

Did you factor in the fact that a large proportion of fiat have been accumulated (on sold btc) in accounts at mtgox, expecting a crash and waiting to buy back 'cheaper', hence creating pressure on the bid sums and eventually reducing possible crash to corrections.

[SlipperySlope]

@slipperyslope:

Did you factor in the fact that a large proportion of fiat have been accumulated (on sold btc) in accounts at mtgox, expecting a crash and waiting to buy back 'cheaper', hence creating pressure on the bid sums and eventually reducing possible crash to corrections.

Ah yes! Indeed back in 2011 lots of cash I believe remained at Mt.Gox even after it was hacked. It took all the way from June 8, 2011 to November 14 that year, to wring the last fiat out of the most reluctant buyer. That is a bubble collapse and that is the sort of thing that I expect to happen this time - based upon speculative financial bubble theory and what we learned from Bitcoin Bubble 1.

Regarding corrections, I am preparing a post addressing that timely point.

[jmw74]

you do have a small risk to be left behind if the price would not go below $50 or even $100. It's a small risk, but a risk.

I regard this "risk" of never going down as so large - I am willing to write you $115 puts for surprisingly cheap!

This would allow you to buy in to bitcoins with much larger percentage of your fiat stash now, since you would only lose the premium if the price goes up. (In your scenario, you are fully exposed if sudden upward moves happen.)

If it goes down to $50, you get to sell your bitcoins to me for $115, and buy back a much larger number at $50.

All you will lose if anything happens, is the premium. If you are willing to "go short" with bitcoin (i.e. being long-term bullish but willing to invest less than 100% of the position at any particular time), would this not be a great improvement?

I think all RationalSpeculator wanted is a limit order on the exchange for $50.  Your put offer is totally different.  To win a bet against you, the price would have to be low in 6 months.  But all it takes is a momentary dip (that have happened many times) to be able to buy in cheap.

[SlipperySlope]

13 days after the April 10 peak

I now believe that the current situation, with due regard to speculative financial bubble theory, is within the zone of resistance named the Sucker's Rally. We did not have one in Bitcoin Bubble 1 so previously I did not even think to consider it.
.

.
Revisiting various famous bubble charts, we see strong corrections back upwards the previous peak, e.g. US Stock Market Bubble of 1929. Because this happens so frequently, the pattern has been given a name by experienced traders - the Suckers Rally. Note that the technical indicator shown is the Accumulation / Distribution ratio, which shows more relatively more buying volume than selling volume, almost two weeks after the crash. From this, I draw the conclusion that trader sentiment is still high - again fitting bubble theory.

I offer no guidance on timing the top of this rally beyond the historical support/resistance points on the way up and down. This is a scary time for a bear who fears being left behind as prices soar. But bubble traders must be patient and wait months for the bottom, or be skilled enough to swing trade.

[nkspace]

+1

[rpietila]

There is now a short-term bear case going on. Selling at this dcb to $144-145 and buying back after one hour at anything between $130-$136 is an option.

See, on topic 

[ElectricMucus]

There is now a short-term bear case going on. Selling at this dcb to $144-145 and buying back after one hour at anything between $130-$136 is an option.

See, on topic 

you are too kind

[smoothie]

@slipperyslope:

Did you factor in the fact that a large proportion of fiat have been accumulated (on sold btc) in accounts at mtgox, expecting a crash and waiting to buy back 'cheaper', hence creating pressure on the bid sums and eventually reducing possible crash to corrections.

Ah yes! Indeed back in 2011 lots of cash I believe remained at Mt.Gox even after it was hacked. It took all the way from June 8, 2011 to November 14 that year, to wring the last fiat out of the most reluctant buyer. That is a bubble collapse and that is the sort of thing that I expect to happen this time - based upon speculative financial bubble theory and what we learned from Bitcoin Bubble 1.

Regarding corrections, I am preparing a post addressing that timely point.

Back then "lots of cash" was like $500,000.

Current visible bid cash total is upwards of $22,000,000.

Big difference.

[smoothie]

+1

-2 

[mp420]

A brilliant thread.

I've revised my short term opinion about the price. We'll probably touch at least $200, maybe even a new ATH before the bubble crashes for good. I'm almost 100% cash on MtGox and I stand to lose (in BTC terms) if I buy back above $190 or so.

Regardless, I'm not comfortable buying. Things are happening too quickly, this is bubble all over again, and I'm not willing to spend all my time watching the charts and keeping my finger on the Sell button. I reckon the worst that can happen is a new bubble up to $500 or $1000 and then a huge crash. Although, at $1000 I'd be tempted to take some coins out of my longer term storage.

The thing is, Bitcoin demand is all about speculation. Bitcoin has some limited utility beyond speculation at the moment but over 90% of the price is about people betting that the price will be higher in the future. And there are too many layman traders and too few professionals buying and selling, which exacerbates the volatility in a small, thinly traded market.

[SlipperySlope]

A brilliant thread.

Thanks so very much!

I've revised my short term opinion about the price. We'll probably touch at least $200, maybe even a new ATH before the bubble crashes for good. I'm almost 100% cash on MtGox and I stand to lose (in BTC terms) if I buy back above $190 or so.

Regardless, I'm not comfortable buying. Things are happening too quickly, this is bubble all over again, and I'm not willing to spend all my time watching the charts and keeping my finger on the Sell button.

"this is bubble all over again"

Technical patterns in price, e.g. a bubble, are typically fractal with respect to the time domain - right? So it's turtles all the way down.

[rpietila]

There is now a short-term bear case going on. Selling at this dcb to $144-145 and buying back after one hour at anything between $130-$136 is an option.

Hmm..  If I cannot contain the rise of bitcoin.. I wonder who can  If indeed nobody can do it, it will soon become very valuable.