And this is the true manipulation. Everyone shorting on bitcoinica is going to be in for a bit of a surprise once their positions are closed and margin calls come rolling in. i strongly disagree
Having bitcoinica around inherently results in instability in the bitcoin market. How many people are going to lose their bitcoin investments before they learn this? It is precisely these sort of financial instruments that are causing the problems in our existing monetary system.
The best way to deal with the short term instability of bitcoin, and to best protect your investment, is to stop using bitcoinica. The fewer users leveraging themselves at will with ease the better. Just buy and sell on mtgox directly or invest in bitcoin businesses. You will do better in the long run than by gambling with money that isn't yours.
it is not the financial instruments that make it fail, but rather lack of rationality (if you leverage all your coins on a risky position WIHTOUT a stop-loss, you are acting pretty crazy) and greed. you can't blame the instruments, as long as there are people using them. sure, this are mighty and dangerous instruments, and playing around can fuck up alot, but don't mix this up with information asymetry - cause this is what makes the real difference: if everybody knows that there is the possibility of beeing knocked out (aka receiving a margin call) cause of a manipulation, hardly anyone will allow this happening to him.
what i think is important for now: there are certain factors crippling the free financial bitcoin market:
A) bitcoinica has a monopol on shorting
B) bitcoinica is only linked/hedged to mtgox
C) volumes are still to low to rule out manipulation with 10.000+ BTC
wait for another bucket shop to come up, wait for bitcoinica diversifying there hedging, wait for higher volumes: no problem with advanced trading instruments at all. not making use of leverage is irrational. why shoul'nd you borrow bitcoins to sell them higher, if you have the information, that they will fall? and because it is so important: IF you have that information!
the market should coordinate time and interest.
it happens often, that INFORMATION is INTEREST at a given TIME ..