Do you think shorting of Bitcoins should be allowed?

[TonyT]

First, some background.  Shorting a stock makes for less violent swings in price.  This is academic theory.  One reason Bitcoin prices fluctuate so much is due to the inability for most people to short Bitcoins.  So shorting is good for the community.

Now some interesting news.  Recently there was a theft of some Bitcoins from an online storage of private keys wallet, of over $1 million USD.  The owner of the wallet, who some have accused stealing through an inside job, made an interesting promise: that he would pay back the Bitcoins to all victims.  Now some speculation with a twist:  Bitcoins are at all time high prices now.  If the owner is dishonest, he would do the following and still fulfill his promise:  he would sell the Bitcoins he stole from his customers now, and get cash.  Then, later, when the price of Bitcoins falls (even perhaps in response to the shock of the theft, affecting other Bitcoin owners who feel Bitcoin is not stable), this dishonest owner in my hypothetical would buy back all the Bitcoins he stole at a lower price.  Then he would give these Bitcoins back to their rightful owners, and "everybody would be happy" (to get their Bitcoins back), but the dishonest owner would have made money, in the amount of the difference from the price he sold the stolen Bitcoins to the price he bought them back.  This is, btw, essentially how shorting a stock works:  you make money from a fall in price.

Now for the twist in the above tale (which is hypothetical):  this activity by the dishonest owner is actually beneficial to Bitcoin owners everywhere! (except the ones ripped off by the owner).  This is because academic theory predicts 'shorting' Bitcoin makes for a more stable price in the long run, and most people like stable prices.  Whether shorting such a small amount of Bitcoins (> $1 million) makes a real difference in price fluctuations of all Bitcoins, whose value is much more than a mere million dollars, is of course debatable.

Finally, I believe Bitcoins have the ability to become like art:  finite in supply, trendy, hence valuable in the future, with a real economic value, namely anonymous payments, which btw criminals favor.  Hence when the price comes down I will be buying Bitcoins.

Thanks for reading.  My first post here so be nice. :-)

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[BurtW]

Allowed?  WTF?  How would you stop it?  You can do it on Bitfinex and other places.

After reading the post again I am even more baffled:  are you proposing that we should not be allowed to sell Bitcoins (go short)?  People should only be allowed to buy them?

...Bitcoins are at all time high prices now ... he would sell the Bitcoins ... and get cash.  Then, later, when the price of Bitcoins falls ... would buy back all the Bitcoins ... the dishonest owner would have made money

I sell high and buy back low all the time.  You don't want to allow that?

Sorry to not be nice.  This post is really, really bad.

Please add the choice  "One of the stupidest polls ever" so I can have a way to vote.

[BurtW]

Short selling is different from just selling your asset, since with short selling you sell an asset which you do not own, either by borrowing the asset or by going naked.

This will lead to better price discovery, since investors not owning the asset can participate in the price discovery.

Of course and that was what I thought he was discussing at first (based on the title of the thread) but a more careful reading revealed that he was concerned about simple selling and buying back - unless you consider the theft of the coins to be the "borrowing" of the coins.  Then I guess he is saying that the owner of inputs.io "borrowed" the coins and went short with the borrowed coins.

At any rate, the idea trying to prevent actual short sales of borrowed BTC is impossible.  How do you prevent people from lending and borrowing BTC?  How do you prevent people from selling the BTC they borrow?  You can't.

[Wipeout2097]

Allowed?  WTF?  How would you stop it?  You can do it on Bitfinex and other places.

After reading the post again I am even more baffled:  are you proposing that we should not be allowed to sell Bitcoins (go short)?  People should only be allowed to buy them?

...Bitcoins are at all time high prices now ... he would sell the Bitcoins ... and get cash.  Then, later, when the price of Bitcoins falls ... would buy back all the Bitcoins ... the dishonest owner would have made money

I sell high and buy back low all the time.  You don't want to allow that?

Sorry to not be nice.  This post is really, really bad.

Please add the choice  "One of the stupidest polls ever" so I can have a way to vote.

It is ok to be ignorant. What is not is insulting someone based on your ignorance.

Sell bitcoins = go short, when you OWN the damn coins. TradeFortress would "borrow" those coins from inputs.io. Can you grasp the subtle difference that makes you an ass for bashing the OP?

[Gator-hex]

Naked short selling should be illegal in most instances as it's fraud,

but borrowing coins (for a daily fee) to sell them, then buy then back later, is fine as it helps create a market.

But yeah, you need a regulated market, to make sure the borrower returns the coins.

Contracts for Difference (CFDs) are the best way for doing this, as you can get a court to uphold a contract.

I believe the Winklevoss Twins were trying to set up a Bitcoin derivative, but I've not heard a lot about it recently.

[Gator-hex]

Really the naked short market is best used by Farmers and Miners who can sell forward their own future production to guarantee todays price for their commodities.

When people say, "oh it's manipulation because more than a years supply of gold/silver is sold short into the market", I have to explain to them how futures markets work and you can sell forward 10 years! 

[BurtW]

At the moment there is no 'official' tool to short sell a bitcoin.
This is actually a good thing in my opinion, since short selling will attract 'shrewd' short term investors.
And since the bitcoin market is still relatively small and easily manipulated without much regulations, a few shrewd traders could induce a substantial price crash with short selling, not related to any fundamental factors.

Once the bitcoin market becomes more mature' and larger in volume, I would say there is nothing wrong with being able to short sell.

You can borrow BTC and short sell them to your heart's (and pocketbook's) content on BitFinEx.  Not sure why you say there is no tool to do this.  I guess you are saying it is not 'official' since it is not run by a big wall steet firm?  It is not 'official' because it is not regulated by the government?

However, there currently does exist places where 'shrewd' investors can short the BTC market for as many BTC as they can borrow.  I have lent many BTC for this purpose and it works great.  If the trade goes well for the short seller I get all my BTC back plus interest.  If the trade goes against the short seller their position is automatically closed out and I get all my BTC back plus interest.  I win either way - it is a great way to make money.

My beef with the OP is the entire "forbid it" or "should be allowed" mindset.  Who is going to do the forbidding or allowing?  How is this forbidding or allowing going to be implemented?  The entire question/poll is flawed from the opening title.

[BurtW]

At the moment there is no 'official' tool to short sell a bitcoin.
This is actually a good thing in my opinion, since short selling will attract 'shrewd' short term investors.
And since the bitcoin market is still relatively small and easily manipulated without much regulations, a few shrewd traders could induce a substantial price crash with short selling, not related to any fundamental factors.

Once the bitcoin market becomes more mature' and larger in volume, I would say there is nothing wrong with being able to short sell.

You can borrow BTC and short sell them to your heart's (and pocketbook's) content on BitFinEx.  Not sure why you say there is no tool to do this.  I guess you are saying it is not 'official' since it is not run by a big wall steet firm?  It is not 'official' because it is not regulated by the government?

However, there currently does exist places where 'shrewd' investors can short the BTC market for as many BTC as they can borrow.  I have lent many BTC for this purpose and it works great.  If the trade goes well for the short seller I get all my BTC back plus interest.  If the trade goes against the short seller their position is automatically closed out and I get all my BTC back plus interest.  I win either way - it is a great way to make money.

My beef with the OP is the entire "forbid it" or "should be allowed" mindset.  Who is going to do the forbidding or allowing?  How is this forbidding or allowing going to be implemented?  The entire question/poll is flawed from the opening title.

Interesting, I wasn't aware of this BitFinEx.

Check it out.  You can also lend out USD to traders who want to borrow USD to buy BTC for a long position.  Same deal - if they are right I get back my USD plus interest, if they are wrong I also get back my USD plus interest.  Always win-win for the lender.

[smeagol]

Shorting bitcoins is "allowed" and you can do it on any exchange.

[pand70]

Shorting bitcoins is "allowed" and you can do it on any exchange.

To short you have to borrow. Last time i checked gox doesn't lend bitcoins to anyone...

[Mike Christ]

I don't see how this could work without entrusting your coins with someone else.  If you're doing that, you should expect the worst; anyway, shorting is not something you can simply "ban", just avoid by disallowing people from borrowing your coin.

[BurtW]

I don't see how this could work without entrusting your coins with someone else.  If you're doing that, you should expect the worst; anyway, shorting is not something you can simply "ban", just avoid by disallowing people from borrowing your coin.

You can vote with your coins by not loaning them.  I will continue to loan them out at a great daily rate to those traders that want to short the market.

[InwardContour]

you can short on bitfinex. i see no reason why not. leverage in theory does mitigate volatility, BUT in an illiquid market like bitcoin there is the fear of margin call. regardless of anything, yes, it should be allowed.

[DeathAndTaxes]

There is no "allowed" in Bitcoin.

People do short Bitcoins, people will continue to short Bitcoins.   There is absolutely nothing you could to prevent people from shorting Bitcoins.

Welcome to the decentralized future.

[Mike Christ]

You can vote with your coins by not loaning them.  I will continue to loan them out at a great daily rate to those traders that want to short the market.

Sounds like a win-win situation to me

[DeathAndTaxes]

I don't see how this could work without entrusting your coins with someone else.  If you're doing that, you should expect the worst; anyway, shorting is not something you can simply "ban", just avoid by disallowing people from borrowing your coin.

No different than shorting anything else.  You can't short a stock without someone lending shares.  Usually (not always but usually) you don't lend your shares (or Bitcoins) to the counterparty you lend them to the broker or exchange who lends them to the person going short.  Granted this doesn't eliminate the counterparty risk but it does allow shorting to exist if both parties trust the broker or exchange even if they don't trust each other.

[BarkinTree]

i have shorted on bitfinex. got out with some profit never doing that again. almost had a heart attack when the market moved against me for a bit, couldnt wait to exit. i will stick to holding btc and selling if i get a whiff of a correction. no leverage for me!

[Gator-hex]

For the trading newbies..

this is how a short stock market really works (0:00-1:33)

https://www.youtube.com/watch?v=AQ8HjDRrHt0

Funny but true!

[TonyT]

There is no "allowed" in Bitcoin.

People do short Bitcoins, people will continue to short Bitcoins.   There is absolutely nothing you could to prevent people from shorting Bitcoins.

Welcome to the decentralized future.

Thanks for your and the others replies.  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."

So if Bitfinex goes under, who are you gonna sue?  You will not get sympathy for collecting on a short trade in bitcoins from a communist country court (Hong Kong). See here for what can happen if a cybercoin site shuts down:  http://www.coindesk.com/phenixcoin-ashes-developer-goes-awol/  And one word: "TradeFortress" anyone?

I work in a developing country as a programmer, but have experience with the politicians of a developed country; I used to work for them.  This country will soon be having hearings on whether or not to regulate bitcoin.  When and if bitcoin goes mainstream, you can be assured that bitcoins will be regulated.  That's the "should" in my title.  Bet on it.  Actually I think it would be a plus, not a minus, for the bitcoin community as it would attract the suburbanites and family people out there, who own the bulk of the money anyway.

Cheers

TonyT

[Gator-hex]

For the trading newbies..

this is how a short stock market really works (0:00-1:33)

https://www.youtube.com/watch?v=AQ8HjDRrHt0

Funny but true!

Funny, but not true!
Who is borrowing here?

It demonstrates the mechanism of pushing the price down, so newbies sell, and then buying back the stock ,below cost, to close the position at profit. If you cannot see the similarity with what happened this weekend you have no sense of humor.