How many of you have been Zhoutonged?

[BadBear]

Maybe, I haven't used bitcoinica since it hit 2, cashed out and now I do a little bit of day trading, but not much.  Mostly I'm just holding, waiting to see what's gonna happen. 

[netrin]

Bitcoinica spreads are a moving target. Stops are unreliable. Trading month to month on leverage is incredibly profitable. Anything else is gambling with a house who's making the rules up as you play.

I'm considering opening separate accounts for each trade. I suspect forced liquidation is more reliable than stops (though I've not yet been liquidated).

I make no critique of Zhou personally. I think he's a brilliant kid with a well designed site and great support. My comments are to be taken purely at face value from experience. I've made some outstanding calls, profited on Mt. Gox, but have rarely pulled it off on Bitcoinica.

[zhoutong]

actually i'm not trying to discourage Zhoutong.  i'm trying to warn him about what i feel is a flawed business model which i agree is debatable.

but if mtgox does offer options he WILL be at a significant disadvantage.  there is no question about that.

maybe he can adjust but i'm not sure how.

also i feel that by offering shorting in an immature market such as Bitcoin, he has contributed to an artificially suppressed price over the last several months since he's been in biz.  its too late to help that but now we're seeing the market compensate in the other direction; UP.

I'm sure I have been more profitable than Mt. Gox with this "flawed" business model.

If there's a real threat, I'll shut down the service and do something new. It's that simple. You don't have to warn me when I have future plans beyond your imagination.

I'm not afraid of Mt. Gox at all. If they launch a good service, then it's good for the community. If they do something dirty, everyone will know and Bitcoinica will switch to another exchange and divert 25% market share away.

Also, shorting is natural to a free market. If you can mortgage USD asset and borrow ฿, you can short technically. Bitcoinica just made the process easier, which will help the market find the right price.

I have a lot of Bitcoin savings, I have more incentive than you to make the price rise. A lot of friends are telling me that Bitcoinica has left a good impression in terms of technical professionalism and web design, and this improves their impression on the whole industry. They don't have to use Bitcoinica to trust Bitcoin more.

You're commenting based on your numbers without considering others' hearts. Customer perception is the utmost importance to me for an obvious reason - I want to change Bitcoin community in every way I can. If your target is $10, then continue suppressing shorting services. If your target is $1,000, you should respect and encourage every new service that makes the community better.

[notme]

He actually gave some good advice on the stock market rally last week, so I do have some respect for him.  Too bad for him, but he chickened out on his positions a few days before.  I'm too small of a player to be wasting trade fees, plus I didn't see how anything had changed, so I hung in there and made a nice profit.

if you read my blog carefully, i replaced my stock positions with additions to my TBT  which did even better.  I had caught the majority of the stock rally since the 10/4 bottom if you recall.  and it won't be too late to add to stock positions.

I do ready your blog carefully and was well aware of where you moved your funds.  I'm sorry if I offended you, I didn't mean to call you a chicken.   I just get frustrated every now and then with all the "this is not perfect so let's throw it out" talk on these forums.

[cypherdoc]

He actually gave some good advice on the stock market rally last week, so I do have some respect for him.  Too bad for him, but he chickened out on his positions a few days before.  I'm too small of a player to be wasting trade fees, plus I didn't see how anything had changed, so I hung in there and made a nice profit.

if you read my blog carefully, i replaced my stock positions with additions to my TBT  which did even better.  I had caught the majority of the stock rally since the 10/4 bottom if you recall.  and it won't be too late to add to stock positions.

I do ready your blog carefully and was well aware of where you moved your funds.  I'm sorry if I offended you, I didn't mean to call you a chicken.   I just get frustrated every now and then with all the "this is not perfect so let's throw it out" talk on these forums.

well thanks for reading.  its hard putting oneself out on the line day after day esp. when i and everyone around here reads the same stuff like Zerohedge, Mish, etc all of whom are doom and gloomers.  one day i'm sure i'll make a complete fool of myself with one of my calls.  i actually miss the back and forth dissertation with miscreanity back on the Gold thread i started back in August.  at least he kept me on my toes and continuously made me question myself.  it was hard work though and i'm a very busy person.  we'll see how long i can keep it up.

Merry Christmas!

[notme]

well thanks for reading.  its hard putting oneself out on the line day after day esp. when i and everyone around here reads the same stuff like Zerohedge, Mish, etc all of whom are doom and gloomers.  one day i'm sure i'll make a complete fool of myself with one of my calls.  i actually miss the back and forth dissertation with miscreanity back on the Gold thread i started back in August.  at least he kept me on my toes and continuously made me question myself.  it was hard work though and i'm a very busy person.  we'll see how long i can keep it up.

Merry Christmas!

Thanks for putting yourself out there.  I'm still a noob (25 years old, barely any spare funds to invest), so there is very little I can offer.  I miss the old Gold thread discussion as well, but I completely understand how much of a time commitment it can take.  Your perspective is a very refreshing contrast to the doom and gloomers.  Of course, overoptimism can kill you too, but at least you have something to offer beyond "OMG It's all crashing down, buy gold".

[cypherdoc]

its hard putting oneself out on the line day after day esp.

Doc, do you think this is all fun and games for Zhou? Don't you think he's put himself on the line as well?

What do you think? Net gain for Bitcoin because of Bitcoinica? Or net loss because of Bitcoinica?

yes, Zhou is taking a big risk starting Bitcoinica and i do give him credit for that.  and despite my concerns about his biz model he probably is smart enough to adjust with changing conditions.  plus he does seem honest and committed to making it work.  my only concern is that the market may force him out.  we'll see.

as an experienced short seller, i must say i've been against the concept of shorting Bitcoin so early in its career.  i know how destructive it can be.  its too vulnerable at this point and i think shorting has contributed to the excessive downside we've seen.  and my concern is not so much from normal short sellers but from the Fed. 

imagine a scenario where the Fed sets up an acct in the name of JoeBlow1000 and feeds a continuous unending supply of USD's into its acct to fund short positions.  they could throw a trilion USD's or more at this if they wanted to stuff Bitcoin just like they've done with gold and silver via JPM and Goldman.  and they have no accountability.  how would Zhou or any of us know who was behind this?

at any rate, i'm pleased to see that Bitcoin has not failed and appears to be turning the corner upwards.  so maybe Zhou's leverage will work on the way up just like it did on the way down.

[phantomcircuit]

tl;dr bitcoinicas quote algo screws leveraged users

I'll start off this post with some full disclosure.  I am Patrick from Intersango so take what I have with whatever size grain of salt you would like.

I have been warning people against trading on margin in general for a long time now, because the market is really very thin (yes even on MtGox).

This post is specifically about the quoted prices on bitcoinica. While they are reasonably close to market rate most of the time they remain in the complete control of bitcoinica. (I'm sure most of you already understand this)

They employ an algorithm which is clearly taking into account market velocity to protect themselves from falling behind the market, I can understand why they do this, really it makes perfect sense from their perspective; however this results in spikes which force liquidations which are really not necessary.

I only have detailed information for about 15 days, but if the relatively small amount of data I have shows this behaviour I can only imagine it would be even more clear in a longer data series.

Edit: I would like to add that this data is *not* readily available to normal users, thus the limited data series.

[RandyFolds]

tl;dr bitcoinicas quote algo screws leveraged users

I'll start off this post with some full disclosure.  I am Patrick from Intersango so take what I have with whatever size grain of salt you would like.

I have been warning people against trading on margin in general for a long time now, because the market is really very thin (yes even on MtGox).

This post is specifically about the quoted prices on bitcoinica. While they are reasonably close to market rate most of the time they remain in the complete control of bitcoinica. (I'm sure most of you already understand this)

They employ an algorithm which is clearly taking into account market velocity to protect themselves from falling behind the market, I can understand why they do this, really it makes perfect sense from their perspective; however this results in spikes which force liquidations which are really not necessary.

I only have detailed information for about 15 days, but if the relatively small amount of data I have shows this behaviour I can only imagine it would be even more clear in a longer data series.

So...make a better algorithm. This is obviously the best that's available right now.

[cypherdoc]

tl;dr bitcoinicas quote algo screws leveraged users

I'll start off this post with some full disclosure.  I am Patrick from Intersango so take what I have with whatever size grain of salt you would like.

I have been warning people against trading on margin in general for a long time now, because the market is really very thin (yes even on MtGox).

This post is specifically about the quoted prices on bitcoinica. While they are reasonably close to market rate most of the time they remain in the complete control of bitcoinica. (I'm sure most of you already understand this)

They employ an algorithm which is clearly taking into account market velocity  VOLATILITY to protect themselves from falling behind the market, I can understand why they do this, really it makes perfect sense from their perspective; however this results in spikes which force liquidations which are really not necessary.

I only have detailed information for about 15 days, but if the relatively small amount of data I have shows this behaviour I can only imagine it would be even more clear in a longer data series.

FIXED

[phantomcircuit]

So...make a better algorithm. This is obviously the best that's available right now.

I would settle for a graph such as this one being presented to bitcoinica users.

[RandyFolds]

They did drop the leveraging from 5:1 to 2:1, IIRC. There is always uncertainty in predicting the future, and businesses exist to make themselves money, not to make you money.

[phantomcircuit]

They did drop the leveraging from 5:1 to 2:1, IIRC. There is always uncertainty in predicting the future, and businesses exist to make themselves money, not to make you money.

They actually increased leverage to 10:1.

The real issue here is that their previous quote history is not public.

The reason my data isn't complete is that there is no way to get the full quote history.

Someone simply checking the charts provided would not see the spikes as these show averages.

[RandyFolds]

They did drop the leveraging from 5:1 to 2:1, IIRC. There is always uncertainty in predicting the future, and businesses exist to make themselves money, not to make you money.

They actually increased leverage to 10:1.

The real issue here is that their previous quote history is not public.

The reason my data isn't complete is that there is no way to get the full quote history.

Someone simply checking the charts provided would not see the spikes as these show averages.

Wow...that's sort of crazy leverage. I thought they scaled it back.

I get what you are saying now. I have never tried to look at their charts, but I assumed it would be somewhat transparent.

[old_engineer]

tl;dr bitcoinicas quote algo screws leveraged users

I'll start off this post with some full disclosure.  I am Patrick from Intersango so take what I have with whatever size grain of salt you would like.

I have been warning people against trading on margin in general for a long time now, because the market is really very thin (yes even on MtGox).

This post is specifically about the quoted prices on bitcoinica. While they are reasonably close to market rate most of the time they remain in the complete control of bitcoinica. (I'm sure most of you already understand this)

They employ an algorithm which is clearly taking into account market velocity to protect themselves from falling behind the market, I can understand why they do this, really it makes perfect sense from their perspective; however this results in spikes which force liquidations which are really not necessary.

I only have detailed information for about 15 days, but if the relatively small amount of data I have shows this behaviour I can only imagine it would be even more clear in a longer data series.

Edit: I would like to add that this data is *not* readily available to normal users, thus the limited data series.

I'd recommend that you add in the actual Mt. Gox price to your graph, and then generate this file as an SVG so that people can zoom into the image without loss of resolution, and see how wide the spread becomes.  At least one person posted saying they'd been liquidated at $4.93, even though the price never went $0.40 near that.  The algorithm makes sense for bitcoinica, but not for users.

I find it's far easier to make money on the price spikes or dips when idiots (er, non-price sensitive individuals) buy or sell 10-20k+ coins at once, rather than slowly buying or selling over time.  Catching big coin dumps with pre-placed orders is more profitable then attempting to short the market, as the market clearly jumps right back up within minutes of a sell-off.  Also, catching these spikes reduces the magnitude of the spike, helping bitcoin stability and increasing liquidity, whereas a liquidated short will spike the market again (short squeeze), which isn't good for bitcoin.  So not only is it safer and more reliable money to actually buy & sell bitcoins on mtgox, rather than betting on the price through the (mostly) bucket shop that is bitcoinica, it's also better for bitcoin (the hedged percent on bitcoinica's front page is the percent that they are a bucket shop that day).

[phantomcircuit]

I'd recommend that you add in the actual Mt. Gox price to your graph, and then generate this file as an SVG so that people can zoom into the image without loss of resolution, and see how wide the spread becomes.  At least one person posted saying they'd been liquidated at $4.93, even though the price never went $0.40 near that.  The algorithm makes sense for bitcoinica, but not for users.

I find it's far easier to make money on the price spikes or dips when idiots (er, non-price sensitive individuals) buy or sell 10-20k+ coins at once, rather than slowly buying or selling over time.  Catching big coin dumps with pre-placed orders is more profitable then attempting to short the market, as the market clearly jumps right back up within minutes of a sell-off.  Also, catching these spikes reduces the magnitude of the spike, helping bitcoin stability and increasing liquidity, whereas a liquidated short will spike the market again (short squeeze), which isn't good for bitcoin.  So not only is it safer and more reliable money to actually buy & sell bitcoins on mtgox, rather than betting on the price through the (mostly) bucket shop that is bitcoinica, it's also better for bitcoin (the hedged percent on bitcoinica's front page is the percent that they are a bucket shop that day).

The MtGox prices are shifted (i think i have a tiemzone issue).
http://beast.intersango.com/bitcoinica.svg

[phantomcircuit]

I have fixed the timezone issue.

http://beast.intersango.com/bitcoinica.svg

You can clearly see the spikes on bitcoinica are significantly larger than the spikes seen on mtgox and are well outside the normal spread.

[zhoutong]

In response to phantomcircuit, and various other participants:

I'm aware of this issue and that's why I have reversed some of the forced liquidations that are deemed inaccurate. In the following days, I will do these two things:

1. Improve the pricing algorithm to prevent the unnecessary spikes.

2. Make charts for history quotes available, for every day since we launched. The chart will look similar to phantomcircuit's, showing both buying prices and selling prices.

I apologize for not doing enough to protect our customers' interest in terms of system engineering.

[netrin]

I'd recommend that you add in the actual Mt. Gox price to your graph

If only for casual browsing, the Mt. Gox price rarely goes outside of the bitcoinica spread. Bitcoinica spread just expands like bollinger bands.

At least one person posted saying they'd been liquidated at $4.93, even though the price never went $0.40 near that.  The algorithm makes sense for bitcoinica, but not for users.

It's not just the guys on the wrong side of the trade who get screwed. Those who bet correctly get screwed out of winnings as well. During volatile spikes, the ask sky rockets, while the bid moves not a satoshi. If the price does not stabilize at the higher price, the spike occurs for the losers but not for the winners. The only winner is Bitcoinica.

I find it's far easier to make money on the price spikes or dips

Surely you are referring to Mt. Gox and not Bitcoinica?

[RandyFolds]

In response to phantomcircuit, and various other participants:

I'm aware of this issue and that's why I have reversed some of the forced liquidations that are deemed inaccurate. In the following days, I will do these two things:

1. Improve the pricing algorithm to prevent the unnecessary spikes.

2. Make charts for history quotes available, for every day since we launched. The chart will look similar to phantomcircuit's, showing both buying prices and selling prices.

I apologize for not doing enough to protect our customers' interest in terms of system engineering.

commendable.