Warning: How many of you Bears have ever been a victim of a Short Squeeze?

[BitMagic]

altho its possible what you say is true i suspect in a major short squeeze both Zhoutong and the shorts will be hurt.  but you're right; Zhoutong has the power to deflect the majority of the pain onto his clients.

Well either Zhoutong loses and short-sellers win, or vice versa. They're not going to lose at the same time.

[1714786793]

1714786793

[fivebells]

His claim is that bitcoinica always wins, because his customer's orders are decorrelated and he takes the spread on trades he can resolve internally.  He has made arguments in the past that his business is robust to the kind of correlated order book you would expect to see in a massive price swing, but they haven't been clear/convincing to me.

[BitMagic]

His claim is that bitcoinica always wins, because his customer's orders are decorrelated and he takes the spread on trades he can resolve internally.  He has made arguments in the past that his business is robust to the kind of correlated order book you would expect to see in a massive price swing, but they haven't been clear/convincing to me.

I know. I'm with you. And the more unidirectional customer positions get, the more trouble he will be in. This is why you assume you're playing with fire in Bitcoinica. This, and the fact that probably 10% of transactions happen on the actual exchanges, we can't be sure of anything that's happening behind the scenes.

Despite this, every business request I've had with Zhoutong has been extremely professional, resolved to 100% satisfaction. If all we have to go on is his personal reputation since beginning on the forums, he's in a great spot, from my opinion. I would like to trust him.

[miscreanity]

We maintain absolutely zero net position as a whole. Our prices reflect instantaneous liquidity, volatility and they always account the risk of Bitcoinica.

thats not what you've said before.  you said you take risk and that you are 90% hedged which means by definition you aren't fully net zero.  and noting the numerous complaints on your thread about illiquidity also make your claims disingenuous.

The amount hedged will vary based on the volume necessary to be drawn from Gox after internal matching has been done.

So x longs vs. y shorts are matched up through Bitcoinica's system and anything remaining that can't be directly correlated to cancel out is then covered by Bitcoinica tapping Gox.

If all of the shorts are liquidated in a squeeze, I assume the Bitcoinica system will then automatically become fully hedged using Gox.

This doesn't change the fact that over a 90% decline in USD/BTC valuation is extreme and the shorts are in dangerous waters. Bitcoin's value is not derived from other currencies. Short-term, there's just not much more downside. Longer-term, if Louisiana's effective ban on cash transactions is followed more widely, Bitcoin's utility will explode.

[BitMagic]

Longer-term, if Louisiana's effective ban on cash transactions is followed more widely, Bitcoin's utility will explode.

Lol. You've got to be kidding me. You really think they'll enforce that for anything but to increase charges for drug distribution? There is no way in hell they'll risk a massive court battle trying to shut down craigslist, or tell people they are not allowed to have a garage sale anymore. That has to be the dumbest support for projecting bitcoin demand I've ever seen around here.

[/derail]

[BC-Trader]

regardless of what bitcoinica says can he prove it?

Many forex brokers swear up and down that they are not bucketshops and have no interests against their clients while they really do, a few words on a message board changes absolutely nothing in my eyes.

Oh and the whois points to the operation being run inside the USA which is a massive red flag.


I hope the NFA,SEC come down on your ass for running an illegal unlicensed operation.


Oh and a simple google search reveals that the man representing to be behind bitcoinica is a 17 year old


his website:
http://www.zhoutong.me/about

twitter(with photo)
http://twitter.com/#!/zhoutong


I have no sympathy for anyone who loses all their money when the site suddenly goes down


 

[zhoutong]

I've experienced the 9/11, and several many spikes and crashes in prices. Bitcoinica can completely handle 50% change in price within 1-3 seconds. Mt. Gox's system is so slow that our servers can definitely react before the prices move to an unreasonable level.

Nobody is doubting that your system can handle it on your side... In a true short squeeze though, you'll be as helpless as everyone else to cover as major orders are processed at Mt. Gox.  The odds are pretty remote that a single order would be so huge it would wipe out Bitcoinica, and ultimately the danger falls on your clients as I doubt you're carrying any kind of insurance.  Still, if your operation holds up long enough to build a substantial cushion of funds, I think Bitcoinica could be a very useful and much needed tool for the bitcoin community.

I'm routing for you zhoutong and applaud you for bringing this service to the bitcoin community, but I think you're being a little dishonest when it comes to the potential risks involved.  You give more guarantees than my brokerage.

I understand your concern. By strict definition, perhaps I'm over-confident when it comes to counter-party risk. But Bitcoinica is very simple - I have been running a mathematical model to simulate what will happen to Bitcoinica and Bitcoinica's clients when the price suddenly increase/decrease 50%, 100%, 200%, 1000%, etc. Even if Mt. Gox is absolutely unable to process any orders from us, I'm going to say that Bitcoinica will still be fine.

I'm very clear that how many short positions are there, and who are the clients. I'm not disclosing any numbers but I can say that the situation is very comfortable for us and our clients. Unless someone hacks into Bitcoinica and takes our financial data, a short squeeze will most likely fail if it's targeting Bitcoinica.

Bitcoinica is extremely lean. We take profits in both USD and BTC. A short squeeze will increase the value of our BTC profits (since we pay for all the resources in USD), and we can completely cover our clients' loss with the extra profits. As I promised in the interview with BitTalk, 50% of the profits will be set aside to compensate any financial losses. And this 50% is not a "limited liability", but a promised "minimum liability" - we don't pay ourselves anything if we are unable to set aside the profits even if nothing bad happens.

Bitcoin is an experiment. It has proven itself to be a real challenge for central banks. So why can't a Bitcoin trading platform to be designed to stand on par with your brokerage as well?

[zhoutong]

i'm currently studying Zhoutong's model.  my conclusion so far is that he's very over exposed.  his accts are setup within mtgox AND he's complained about intermittent interruptions in his access to that same acct just like the rest of us.  he's also admitted that he's not 100% hedged.
...

Zhou will be fine in the event of coming up volatile short squeeeeze. Trust me, I know. lol. The shorts on the other hand may not find it being that nice to them. Being 5:1 leveraged short in a short squeeze is going to be quite a lesson for some.

Hi Vlad,

good to hear from you.

altho its possible what you say is true i suspect in a major short squeeze both Zhoutong and the shorts will be hurt.  but you're right; Zhoutong has the power to deflect the majority of the pain onto his clients.

Bitcoinica owns a lot of both USD and BTC, from the profits it generated. With respect of the other currency, whether it's short squeeze or long squeeze we don't really have to care. Since we are talking about Bitcoin's value in USD right now, we are going to be better-off if short squeeze truly happens.

Short sellers will be hurt, definitely. But that's it all. I respect everyone's trading direction and opinion, and I don't represent my company to comment about the future.

We are not going to "deflect the majority of the pain" to our clients because we have no pain. I'm going to explain in a separate reply about this.

[zhoutong]

We maintain absolutely zero net position as a whole. Our prices reflect instantaneous liquidity, volatility and they always account the risk of Bitcoinica.

thats not what you've said before.  you said you take risk and that you are 90% hedged which means by definition you aren't fully net zero.  and noting the numerous complaints on your thread about illiquidity also make your claims disingenuous.

We have profits left in our accounts and wallets. Even only 90% hedged is still zero net position. We're risking our own profits, not the clients' money.

[evolve]

I have no sympathy for anyone who loses all their money when the site suddenly goes down

in other words, you are a colossal douchebag that wishes ill on complete strangers for no reason. got it.

[zhoutong]

altho its possible what you say is true i suspect in a major short squeeze both Zhoutong and the shorts will be hurt.  but you're right; Zhoutong has the power to deflect the majority of the pain onto his clients.

Well either Zhoutong loses and short-sellers win, or vice versa. They're not going to lose at the same time.

Bitcoinica won't lose regardless of what happens. We're a brokerage, not a bucket shop. I build Bitcoinica with passion, so I won't under-utilize my financial knowledge and run for money.

It's either long positions win and short positions lose, or vice versa. They're not going to win/lose at the same time.

[zhoutong]

If all of the shorts are liquidated in a squeeze, I assume the Bitcoinica system will then automatically become fully hedged using Gox.

It's not. We have our own order book as well. There are people placing limit sell orders at 3, 3.1, 3.2, 3.3, etc. When there's a short squeeze they will sell at these prices. The buy orders will still be matched.

There will be large hedge, but not that large after all.

According to our historical hedging records, this kind of hedging size can be handled comfortably.

[BC-Trader]

I have no sympathy for anyone who loses all their money when the site suddenly goes down

in other words, you are a colossal douchebag that wishes ill on complete strangers for no reason. got it.

oh I am sorry for doing due diligence about anonymous internet bucketshops offering 5:1 leverage.


If my posts SAVE some money from being thrown into a black hole then good.



This bitcoinica operation is screaming red flags everywhere but by all means continue to trust a US illegally operated business run by a 17 year old  

If I had any money in there I would personally report them to the SEC and NFA but since I do not I will leave it to any members of these sites that wish to do so.




And I am being the douchbag? Those encouraging people to use this site are the douchbags.




And this zhoutong replies to comments about his shop are showing such extreme limited knowledge of how to run a broker that even if it was a licensed business I would run the fk away.

[zhoutong]

regardless of what bitcoinica says can he prove it?

Many forex brokers swear up and down that they are not bucketshops and have no interests against their clients while they really do, a few words on a message board changes absolutely nothing in my eyes.

Oh and the whois points to the operation being run inside the USA which is a massive red flag.


I hope the NFA,SEC come down on your ass for running an illegal unlicensed operation.


Oh and a simple google search reveals that the man representing to be behind bitcoinica is a 17 year old


his website:
http://www.zhoutong.me/about

twitter(with photo)
http://twitter.com/#!/zhoutong


I have no sympathy for anyone who loses all their money when the site suddenly goes down


 

You're right. But this brings no value to us.

I have been honest about these stuff all the time, since launch. My age is never a secret in this forum.

Legally, I would say Bitcoinica is operating in the graceful period of unregulated operation. My advisor has arranged consultations with two lawyers in Singapore and we're going to settle the legal stuff soon.

Bitcoinica has been up and running for about 45 days. If I really wanted to scam money, I wouldn't put in so much effort to innovate and try to be different. I know this may not prove anything so you definitely have to right to choose not to trust Bitcoinica, or basically anything in the world.

[BitMagic]

We're a brokerage, not a bucket shop.

You can say this as many times as you like, but unless we can actually see your exchange behavior, there is no way to tell if you're being honest.

I build Bitcoinica with passion, so I won't under-utilize my financial knowledge and run for money.

Oh, passion. I guess that's good enough for me. (It's not.)

Don't get me wrong, I've been impressed with your service, and I want to trust everything you're saying. But your words are not enough for many who have a lot invested. You provide zero transparency except for your word. My experience with bitcoinica has been exemplary. But nothing stops you from turning on a dime and run for the money.

If I were you, I would probably give up trying to defend Bitcoinica here. It's a waste of your time. Enjoy your current business, and if you feel like trust is a problem for attracting new business, become more transparent with your operations.

[BC-Trader]

The US authorities could shut your business down in 30 seconds for money laundering and seize your domain.


Settle the legal issues before you start offering services to the public if you are a serious company.

Being in business for 45 days means absolutely nothing, a good scam would wait months to extract maximum value before pulling a runner.

[evolve]

I have no sympathy for anyone who loses all their money when the site suddenly goes down

basically, you just said that if someone gets scammed, they deserve it.

If my posts SAVE some money from being thrown into a black hole then good.

and then you backpedaled....but yeah, keep pretending that you are posting to help people.



for the record, there are entire threads here warning of the dangers of margin and over-leveraging (and even the potential dangers of using bitcoinica), so cut the bs.  helping people make informed decisions is great....just do it without being a pompous disingenuous asshole

[miscreanity]

Lol. You've got to be kidding me. You really think they'll enforce that for anything but to increase charges for drug distribution? There is no way in hell they'll risk a massive court battle trying to shut down craigslist, or tell people they are not allowed to have a garage sale anymore. That has to be the dumbest support for projecting bitcoin demand I've ever seen around here.

[/derail]

There's no need to target garage sales, especially when that's a marginal impact. This is aimed at businesses that deal in cash transactions; relatively low-hanging fruit. Craigslist does not facilitate the actual transactions; it only provides a way of connecting two parties. Keeping that in mind, the contact information is valuable and could conceivably be used by law enforcement to then monitor for potentially large transactions (such as automobile trading... at first).

So no court battle is necessary because CL does not participate in the actual transaction, although US supreme courts cases have an overwhelming record of winning in favor of gov't against any opposition. Government can and will take more drastic action if it feels that revenue is escaping its purview. This has arisen during the decline of every empire for over 2,000 years and there is no reason to expect anything different this time. If the US gov't wants Craigslist data, it can exert pressure on the site operators in many ways.

This is exactly like the attempted, and nearly-attained, reporting requirement for any transaction over $600. Now that it's been pushed through at a state level, it won't be long before the floodgates open and this becomes a standard practice punishable by fines and/or jail time.

Denial won't stop these things from happening. Bitcoin-like systems provide a way to fly under the radar for both individuals and businesses. It doesn't matter how many times they're knocked down; the value they offer is immense, but currently unrecognized. It only takes time for this to change.

If I were you, I would probably give up trying to defend Bitcoinica here. It's a waste of your time. Enjoy your current business, and if you feel like trust is a problem for attracting new business, become more transparent with your operations.

Indeed, aside from technical clarifications. Less talk, more work!

[OgNasty]

The US authorities could shut your business down in 30 seconds for money laundering and seize your domain.

Perhaps he should look into registering Bitcoinica.bit...

[zhoutong]

This is pretty like a show. I'm surprised that many people in this thread changed the topic from short selling to Bitcoinica.

I respect the value of this thread if it's talking about the possible effects of short squeeze on short sellers (or even USD holders) in general. But Bitcoinica is a bit irrelevant here because we don't really have many short sellers.

Just now I had a quick lookup on the positions. I'm very clear about what will happen. Let me leave something here:

If BTC/USD suddenly spikes to 10,000. Most Bitcoinica clients will be happy (two ways: making profits and limiting losses through stop orders). Bitcoinica will be happy because its BTC profits will increase in value. Not all positions can be hedged but zero net position can still be maintained.

Bitcoinica won't be wiped out. Instead, it will prove its robustness.

It's completely fine to stereotype about Bitcoinica's future, and I actually appreciate that. The community effort is much more useful than the risk assessments. However, one thing remains clear, I will be the one paying for everything if I'm lying about my risk now.

I have no incentive to cheat. From the day that I disclosed my age, I knew I would lose at least 50% of customers. Many people don't trust Bitcoinica. But Bitcoinica is not a money making machine. It's just a product that sets a high standard for the Bitcoin community. I feel that existing solutions are not good enough, and hardly anyone can really design an economically-feasible, financially-proven, technically-robust with an innovative business model, and intuitive and elegant design all at the same time. But I believe that Bitcoinica has done it.

If I'm cheating myself, then I'm simply destroying my hard work, my reputation and my future. I'm interested in generating long-term value for everyone, and we all are, that's why we are here. From day one, Bitcoinica is never just another going-to-close exchange.

If you're still in doubt, just know that Bitcoinica is not having as many short positions as you think at this price and point of time. The recent fluctuations have already driven some short sellers (who use leverage excessively) away. The rest of the short sellers are mostly backed with large amounts of margin and long-term trading history at Bitcoinica.