Do you think shorting of Bitcoins should be allowed?

[BurtW]

It seems one of the posters discovered Bitfinex, which is still beta after thinking a bit more about the OP (I am skeptical of this member's claim that they use Bitfinex, but that's just my intuition), but keep in mind Bitfinex is beta and "The Bitfinex Exchange and Trading platform is currently in a beta phase (testing phase). The company is incorporated in Hong Kong with limited liability and once the beta phase is completed the system will go live under the company name."

I don't appreciate being called a liar by a noob but it does not really matter if you believe me or not.  I know I have lent thousands of USD and thousands of BTC on BitFinEx.  In fact, I was one of the first to do it and those were the days!  Because there were only a few of us lending the interest rates were much higher than they are today.

WARNING, WARNING TonyT:  Take a good look at the about screen on your Bitcoin-QT wallet, it says "Bitcoin version v0.8.5-beta".  And, worse yet it goes on to say "This is experimental software"!!!

OMG it is still beta!  You should stop using it until such a time as it is out of beta because according to your statement above you believe that beta is just Greek for "bad".

EDIT:  With respect to unclescrooge/Raphael, he has always done the right thing.  Every single time there was a glitch in the system he has refunded losses due to the glitch.  If you cannot trust unclescroodge/Raphael then you really cannot trust anyone here - which is great advice for the risk adverse.

[btceic]

Yes, as long as naked shorting is not allowed

[TonyT]

In any case, the question, if anything, should be "Do you think shorting of Bitcoins should be banned?" (And the answer is a resounding "Of course not!") Under the laws of any sane jurisdiction, you don't need anyone's permission to "short Bitcoins".

Thanks anth0ny.  But surely you confuse "can" with "should"?  I *can* enter into an illegal gambling agreement with a bookie--but unless the agreement is enforceable, *should* I?  The bookie can honor the bets I make most of the time, let's say 99% of the time, and pay out.  But one day I make a really big bet, and the bookie decides they don't want to pay me.  Instead the bookie takes my money and shorts some stock called TradeFortress (TF), pun intended, and promises to pay me 'someday', while I end up on this forum, with Stockholm Syndrome written all over my face and keyboard, hoping and praying the price of TF does indeed drop so the bookie can make tons of money off the short and then pay me back (sorry for the hijack thread but I had to get that in, LOL).  So I sue the bookie in Hong Kong and ask the communist judge about making me whole, about enforcing the illegal contract I had with the bookie.  The judge mutters something about 'unclean hands' or something legal like that (yes I Googled that phrase), and refuses to honor my contract with the bookie.  That's what might happen with an unregulated market.  Against that, a magistrate in Brooklyn last month I believe did say bitcoins are 'money' and, for money laundering purposes (they were trying to convict some guy laundering money, that's why the government bent over backwards to say bitcoins were money), bitcoins are money and presumably therefore a contract in bitcoins is enforceable in court (whether short or long).

The counterargument to the above is that a lot of diamond dealers in Belgium and elsewhere never have any kind of formal contract, but it's understood that they will not be dishonest with one another.  But that only works in a small, close-knit community, of which the bitcoin community is increasingly not.

[TonyT]

I don't appreciate being called a liar by a noob but it does not really matter if you believe me or not.  I know I have lent thousands of USD and thousands of BTC on BitFinEx.  In fact, I was one of the first to do it and those were the days!  Because there were only a few of us lending the interest rates were much higher than they are today.

You're right BurtW. If you really are like the Vandervoss Twins then whatever I say means nothing.  

As for beta software, I think bitcoin stuff is really alpha software.  It's basically some quant PhD thesis put into practice, and it might end up failing badly.  But, like modern art, it might be insanely profitable--for the hoarders.  The scarcity value of bitcoins and their cache in the popular imagination makes for an interesting investment proposition.  Not unlike perhaps the fable of the Emperor's New Clothes, hopefully without the embarrassing ending for us Bitcoin longs.  As for the shorts?  TradeFortress is putting my theory in the OP into practice IMO.  He/She is basically shorting the market--with other people's money.  A king-sized (emperor-sized?) naked short, pun intended. Which perhaps explains the huge trade of exactly the amount that was supposedly stolen, a few days after the alleged theft, as well as the huge drop in bitcoin prices recently.  See the other thread for details on this caper (and while you're at it, note the amusing Stockholm Syndrome replies by the Inputs.io victims, which cracked me up but if I was in their shoes I'd be saying the same thing).

Happy trading.

[TonyT]

As for beta software, I think bitcoin stuff is really alpha software.  It's basically some quant PhD thesis put into practice, and it might end up failing badly.  But, like modern art, it might be insanely profitable--for the hoarders.  The scarcity value of bitcoins and their cache in the popular imagination makes for an interesting investment proposition.  Not unlike perhaps the fable of the Emperor's New Clothes, hopefully without the embarrassing ending for us Bitcoin longs.  As for the shorts?  TradeFortress is putting my theory in the OP into practice IMO.  He/She is basically shorting the market--with other people's money.  A king-sized (emperor-sized?) naked short, pun intended. Which perhaps explains the huge trade of exactly the amount that was supposedly stolen, a few days after the alleged theft, as well as the huge drop in bitcoin prices recently.  See the other thread for details on this caper (and while you're at it, note the amusing Stockholm Syndrome replies by the Inputs.io victims, which cracked me up but if I was in their shoes I'd be saying the same thing).

Happy trading.

By now if you've read this thread with a sharp eye you can see the point I was making in the OP.  Let me make it more clear for you speed readers.

Suppose TradeFortress (TF) is indeed shorting the bitcoin market with other people's money--what's the problem with that?  Actually, nothing, for the community as a whole.  As I said in the OP, finance theory says shorting a stock leads to better 'price discovery' and a more stable bitcoin price.  So TradeFortress is doing everybody but his customers (let's assume he's a guy) that he stole from a favor--bitcoin prices will drop, TF will buy back what he sold at a lower price, and the price will rebound, which makes for a stable price (ups and downs is stable, while exponential growth or 'rocket ship to moon' growth is unstable).  But what about those Inputs.io customers?  Well chances are, since TF probably had a standard agreement saying he's not liable for anything, at any time--and these customers presumably read the fine print-- and since he did not report any crime to the Australian police (a nice excuse was that the crime cannot be solved, but a better reason is that if he were to report a crime to the police, that report itself would technically be a crime, the crime of false reporting of a crime), then since bitcoin contracts are not regulated, then Inputs.io customers really have no cause of action against TF.  The perfect crime (or un-crime if you will).  If you're OK with no regulation, then you should be OK with the above.  If you don't like the way TF treats his customers, then move on to another online bitcoin wallet service.  No crying for you crypto-anarchists! :-P

[TonyT]

I don't think so. Asking "Do you think shorting of Bitcoins should be allowed?" is like asking "Do you think the trading of baseball cards should be allowed?"

It already is allowed.

I *can* enter into an illegal gambling agreement with a bookie--but unless the agreement is enforceable, *should* I?

I don't see the relevance. What's the illegal part of shorting bitmoney? Is it illegal to sell bitmoney? Is it illegal to borrow bitmoney? Is it illegal to borrow bitmoney and then sell it?

If so, under what law?

It's certainly legal to borrow dollar bills and then trade those dollar bills for bitcoins. Why would it be illegal to borrow bitcoins and then trade those bitcoins for dollar bills?

Maybe at this point we need to be explicit about what jurisdiction we're talking about.

Thanks for the reply.  We're talking about pretty much any court in the world.  That which has no precedent is hard to decide, and will be decided badly.  It all depends on the judge.  That's why religious disputes taken to court are usually thrown out by a judge in the USA, and elsewhere.  It's not so much the First Amendment as it is the courts don't want to get into something that really has no precedent--how do you decide if plaintiff 'sinned' against defendant and deserved to be thrown out of the temple, or not?  See also my "TradeFortress" post, just after you posted, where I try and make things more clear.  What I am saying is this:  if somebody took your bitcoins for a year, sold them, bought them back a year later at a lower price, gave you back your coins but kept the profits from this short sale, and the fine print says he is not liable if he does that, then you're OK with this?  Because that's the state of bitcoins now, with online or even offline storage.  No regulations means anything goes, including what most people consider unethical behavior (but again, see my TF post--actually TF is doing the community a favor by 'screwing over' his customers, so you could say that for the greater good what TF did in my hypothetical is net good, not net bad).

[TonyT]

I had a better, longer reply, but I lost it.

What I am saying is this:  if somebody took your bitcoins for a year, sold them, bought them back a year later at a lower price, gave you back your coins but kept the profits from this short sale, and the fine print says he is not liable if he does that, then you're OK with this?

As long as the "fine print" was just as readable as the rest of the contract, and I indicated my agreement with it, it seems like I'd have to be fine with it. The alternative would be to tell the world that I'm not a man of his word.

I probably wouldn't agree to such a contract if I wasn't paid interest for the loan, though. And I certainly wouldn't do it if I had thought the value of bitcoin was going to go down over that year, and the interest weren't enough to compensate me for that.

(By the way, this is what banks do all the time. You've basically described fractional reserve banking.)

But you are exceptional anth0ny.  Most people would be pissed, and on top of that claim they did not read the fine print or anything before they signed up.

Because that's the state of bitcoins now, with online or even offline storage.  No regulations means anything goes

If no regulations means anything goes, then that's most certainly not the state of bitcoins now. Embezzlement of bitmoney is just as illegal as embezzlement of anything else.

but again, see my TF post--actually TF is doing the community a favor by 'screwing over' his customers, so you could say that for the greater good what TF did in my hypothetical is net good, not net bad

That TF post seems to rely on the premise that bitcoin contracts are illegal. But they aren't. Not in the jurisdiction that I live in, anyway.

Furthermore, the idea that screwing over your customers is "for the greater good" is absurd, and it highlights the problem with trying to determine "the greater good" rather than trying to determine what respects the individual rights of everyone.

Hopefully I won't accidentally delete this response like I did the last one.

The TF post does not rely on the premise that bitcoin contracts are illegal.  To the contrary, it relies on the premise that the contract between TradeFortress and his customers is the ONLY thing that matters, and if you read such online "bailor/bailee" (that's the legal term) contracts, they always say that the bailor (TradeFortress) has no legal obligations whatsoever (unlike in the real world).  Anything goes.  So if TF shorts your bitcoins, makes money, and a year later gives you back your coins that he "stole", he's not liable to you, even for the lost interest, and certainly not for the profits he made shorting, in any court, based on what the contract says.  Of course you are free to flame TF online, and seek another online wallet company for your bitcoins.

That's the downside of bitcoins not being regulated.  That lack of regulation is the genesis for my headline, which I admit is a bit confusing, "Do you think shorting of Bitcoins should be allowed?".  What spurred me to write this post was the realization that what TradeFortress did was not only not against the law, but actually it's completely defensible, even heroic, under the academic theory of greater "price discovery" by shorting (Google this).  Now whether or not you believe in better price discovery being a worthy goal or not, that is, whether volatility or not is a good thing for bitcoin, regardless it remains that the unregulated nature of bitcoin means what TradeFortress did could become, unless bitcoin is regulated, the "norm" in the future.  Only the threat of losing future business would prevent people like TradeFortress from doing the same thing as TF did, in the future.  And as for future business, if you make a huge profit from a 1M short of bitcoin, using other people's money, who cares about future business?  You can always open another online wallet company under a different assumed name, and you're way ahead financially from the unethical (but not technically illegal) short.  And if you believe shorting helps the bitcoin community, what TF did is not even unethical--he's in fact a hero.

TonyT

[TonyT]

 
Is this a hypothetical, or can you show me an actual contract?

Also, what do you mean "unlike in the real world". What world did TF and his customers live in?

In any case, if the contract really says what you claim it says, it's highly likely that the part that allows TF to steal from his customers will be found unconscionable.

That's the downside of bitcoins not being regulated.

Please explain what you mean by "bitcoins not being regulated".
 
My response to this is really dependent on my other questions. Is this supposed to be a hypothetical or is this what actually happened? In what way is bitcoin "not regulated"?

Or to put it another way, say instead of bitcoin that TF did this with dollar bills. Would the situation be any different?

If you read the fine print of any internet bailee, they'll have language that makes them not liable for anything.  This is standard practice on internet.  In fact, no online wallet that will say they guarantee your money.  As for theft, while it's true if TradeFortress admitted to his theft, he would be prosecuted, but keep in mind what he's doing is not really 'theft' in the classic sense but misappropriation--he intends to return the coins after he's made money shorting.  In fact, I bet he sold all the coins a few days after the theft (since Mt. Gox had a big sale of exactly the amount 'stolen' at Inputs.io), and now is, as the price of BTC drops, buying these coins back with the sale proceeds, and again he intends to make money off the short sale price as explained before.  Eventually most, if not all, of his customers will get their bitcoins back, but at a lower price.  If he did this with dollar bills, as you say, it would be a different story since dollars and traditional banks are highly regulated.  You cannot just take depositors money for a while and return it a year later...you'd have government agents swarming your bank.

TonyT

[PrintMule]

If someone want's to short sell, it's his problem, let him do it. It's not like someone can conjure large sums of BTC out of thin air. And even if - how would you regulate that?

While I would act in a manner akin to described in OP. 'Lose money' when it's at it's highest and 'find it' later when it's at it's lowest I doubt that TF had this planned, because his reputation suffers even if he repays everything, and it's kinda pointless.

[TonyT]

So what are the regulations which need to be put in place?

Same regulations as at a bank or exchange.  Shorting allowed but not naked shorting, so you must show you borrowed bitcoins before you can short.   Online wallet vendors have to post a bond with US regulators if they are based in the USA.  One reason I'm going with Kraken for my trading and thin client wallet is that they are based in the USA so more regulation than say Australia.  Regulation for banking type institutions is good.  Who needs a 'wildcatter' in this day and age?  In cyberspace anybody can pretend to be a banker.  I'm also not in favor of anonymity, but at the same time I realize the only people not hoarding BTC and actually using BTC in transactions, which keeps the price stable, are probably drug dealers, who require anonymity.  So I'm somewhat leary of making BTC less anonymous, though if you check out the Youtube video below you'll see that with a bit of effort the authorities can figure out who traded what.

TonyT

Must see Finextra Youtube video interview with Richard G. Brown, a CompSci expert who works for IBM, who is bullish on bitcoin but around 3:30 states it is not anonymous, and eventually Big Brother is going to use it to tax people under an 'asset register' scheme.

But Brown's bullish on bitcoin, even though bitcoin is not anonymous.  At 9:00 he discusses how machines can trade bitcoin amongst themselves! @10:20 "On the blockchain, nobody knows that you're a fridge"!  

@10:45 bitcoin will not be the only cryptocurrency.  Litecoin is a 'psychological' play, and others.  

TonyT

https://www.youtube.com/watch?v=gERNbqUNMm4

Finextra interview with IBM architect Richard G Brown about Bitcoin and Litecoin

[TonyT]

If someone want's to short sell, it's his problem, let him do it. It's not like someone can conjure large sums of BTC out of thin air. And even if - how would you regulate that?

While I would act in a manner akin to described in OP. 'Lose money' when it's at it's highest and 'find it' later when it's at it's lowest I doubt that TF had this planned, because his reputation suffers even if he repays everything, and it's kinda pointless.

You regulate it like in the NYSE in the USA.  All BTC exchanges need to go through the SEC.

I don't know if TF had it planned, but the way I described it in this thread, it's the perfect non-crime.  It's not pointless at all: he makes money, probably half the 1.5M being 750k USD, and it's fool-proof:  nobody can sue you, nobody can go to the police, and in the end TF even gets sympathy for being ripped off, and then gets more sympathy a year from now when he pays back everybody with lower valued bitcoins  supposedly 'out of his own pocket'.  TF however becomes a villain if the price of BTC continues to go up from the date of the theft, and, today I see that the price of BTC has recovered to near all-time highs, which, if my hypothetical is correct, is probably giving TF heartburn and spoiling his plans to be a Good Samaritan and refund everybody's money.

TonyT

[TonyT]

 Just as I said in this thread: a contract to short Bitcoins cannot be legally enforced, even outside of China.  So until regulation comes along, you invest in Bitcoin at your own risk.  

Having said that, it is theoretically possible to enforce Bitcoins (except in China where they are banned) if you get the counterparty to sign an agreement.  But it has to be a signed document, possibly notarized with a lawyer (in certain countries) and in practice nobody goes through the trouble of doing this.  So bitcoins are effectively "illegal" (or rather, outside the law) in most jurisdictions.

So the original question was right on point and topical too, in view of the events of the last few days in China.

TT

PS--for those of you that might argue that an exchange will make you whole if something bad happens, I urge you to read their "fine print" that you agree to when you sign up.  All of these exchanges have "fine print" that promise NOT to make you whole if something bad happens.  That's standard business practice.

http://www.theregister.co.uk/2013/12/18/buying_virtual_currencies_risky_warns_european_banking_authority/

By OUT-LAW.COM, 18th December 2013

Buying virtual currencies, such as Bitcoin, presents a number of risks that consumers should be aware of before purchasing such assets, the European Banking Authority (EBA) has warned.

The regulator said that because virtual currency is not regulated, consumers risk losing their money by "buying, holding or trading" them.

"Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business," the EBA said in a statement.

Consumers do not have refund rights when they use virtual currencies in transactions, and they may also have to pay tax on the assets, the EBA said

[TonyT]

 http://news.ph.msn.com/regional/top-india-bitcoin-operator-halts-trade-after-bank-warning-2

More on how the lack of law is hurting Bitcoin.

TonyT

[BurtW]

http://news.ph.msn.com/regional/top-india-bitcoin-operator-halts-trade-after-bank-warning-2

More on how the lack of law is hurting Bitcoin.

TonyT

Hurting?  Nope.  News from India is all good for Bitcoin.

[TonyT]

 More evidence that Bitcoin is at a cross-roads:  if it is not regulated it will not prosper.  But if it is regulated, it will become like any other payment service, like for example PayPal, and have costs that will make it less competitive.

This is one theme in this thread and it's recognized below by Jamie Dimon.

TonyT

Bitcoin “will eventually be made as a payment system, I think, to follow the same standards as the other payment systems, and that will probably be the end of them,” Dimon said Jan. 23 in an interview on CNBC.

http://www.bloomberg.com/news/2014-01-27/new-york-duels-california-to-write-bitcoin-rules.html

[BurtW]

More evidence that Bitcoin is at a cross-roads:  if it is not regulated it will not prosper.  But if it is regulated, it will become like any other payment service, like for example PayPal, and have costs that will make it less competitive.

This is one theme in this thread and it's recognized below by Jamie Dimon.

TonyT

Bitcoin “will eventually be made as a payment system, I think, to follow the same standards as the other payment systems, and that will probably be the end of them,” Dimon said Jan. 23 in an interview on CNBC.

http://www.bloomberg.com/news/2014-01-27/new-york-duels-california-to-write-bitcoin-rules.html

And we should trust the opinion of this known criminal why?

[empoweoqwj]

Of course shorting should be allowed. People should be able to bet on prices going down, not just up.

[TonyT]

Of course shorting should be allowed. People should be able to bet on prices going down, not just up.

You wish comes true.  Bitcoin will be regulated, and captured by authorities.  That may even make it more stable and likely to be adopted by the masses...or it may kill it.

TonyT


http://dealbook.nytimes.com/2014/02/26/japan-studies-regulation-of-bitcoin-after-mt-gox-goes-dark/?_php=true&_type=blogs&_r=0

February 26, 2014, 8:40 am
Now, Nations Mull the Ways to Regulate Bitcoin

[TonyT]

The Empire (governments, collectively) strikes back!

One is attempting to tax bitcoin (Japan), while the other to regulate it (with an eye towards tax or 100% transparency).

TonyT

http://www.bbc.com/news/technology-26538378

 11 March 2014 Last updated at 21:39

New York regulator plans 'regulated' Bitcoin exchanges



http://www.bbc.com/news/business-26478059

 7 March 2014 Last updated at 02:15

Bitcoin not a currency says Japan government

Japan's government said Bitcoin is not a currency but that some transactions using the virtual unit should be taxed.

[tkbx]

"Allowed" by whom? Bitcoin is not a monarchy.