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Author Topic: Major correction to rally coming...  (Read 10167 times)
cypherdoc
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December 30, 2011, 06:03:36 PM
 #161

I wouldn't be surprised at a correction down to $3 or even below in the next couple weeks, though I don't think it's likely.

Zhoutong has said that most of his users are long right now, and I presume this is on the order of tens of thousands of coins.

If there were a 30k btc dump down to $3.80, liquidation of 10-to-1 leveraged longs would start, which might drop the price to $3.50 - $3.60 range. There's very little support under $3.50, with only 5k btc between $3.21 and $3.49.  If the price does managed to break $3.60 or so, the spread would start liquidating 5-to-1 leveraged longs taken at $4.20, and would certainly drive the price to $3.00-$3.10 given the shallow support below $3.50.

There's another 70k btc in bids between $3 and $2.  If $2.50 is breached from panic selling, recently taken 2.5-to-1 long leveraged positions would start being liquidated, and would push the price close to $2.  It would be an epic mess.

For whatever it's worth, I'm mostly in USD right now, and have bids in the $2-$3 range to catch the dagger on the offchance it falls.  I hope it doesn't, but I really have no idea what's going to happen next.

I should add that if there were a 30k btc buy instead of a 30k btc sell, a short squeeze would drive the price straight to $5.  Basically, any big move is amplified due to rampant leveraging combined with irrational exuberance and irrational bearishness (Nagleism?).  I think it's worth keeping this fundamental in mind when placing your bet.

How would you have a short squeeze when zhoutong's out of money? Wink

not a short squeeze per se but it would wipe out their accts by being Zhoutonged.
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December 30, 2011, 06:15:38 PM
 #162

That his customers were long was disclosed by Zhoutong last night after bitcoinica ran out of USD.  I for one am boycotting Bitcoinica until they move away from fractional reserve and hold assets to back every position.  Regarding disclosure, I would prefer the long vs. short balance updated in real time on the site, but I will not boycott for that if they solve the backing issue.  With realtime long/short balance users would know if they were taking a position that had a large risk of being squeezed.

Why do you think they do fractional reserve?  Zhoutong has denied this many times - is he lying?  As to the USD shortage - this is easily explained without any conspiracy - when people want to go long on Bitcoinica, Bitcoinica needs to buy BTC on MtGox with their USD funds and those funds are not unlimited - so when they are drained they refuse to let people go long.  This is a result of them not wanting to have uncovered positions - quite the opposite of what you are suggesting.

By they way I hate Bitcoinica for the volatility it produces.

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).

The problem is there were short positions that were uncovered because their USD was used to buy BTC for the longs.

https://www.bitcoin.org/bitcoin.pdf
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smickles
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December 30, 2011, 06:20:47 PM
 #163

That his customers were long was disclosed by Zhoutong last night after bitcoinica ran out of USD.  I for one am boycotting Bitcoinica until they move away from fractional reserve and hold assets to back every position.  Regarding disclosure, I would prefer the long vs. short balance updated in real time on the site, but I will not boycott for that if they solve the backing issue.  With realtime long/short balance users would know if they were taking a position that had a large risk of being squeezed.

Why do you think they do fractional reserve?  Zhoutong has denied this many times - is he lying?  As to the USD shortage - this is easily explained without any conspiracy - when people want to go long on Bitcoinica, Bitcoinica needs to buy BTC on MtGox with their USD funds and those funds are not unlimited - so when they are drained they refuse to let people go long.  This is a result of them not wanting to have uncovered positions - quite the opposite of what you are suggesting.

By they way I hate Bitcoinica for the volatility it produces.

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).

The problem is there were short positions that were uncovered because their USD was used to buy BTC for the longs.
I don't think Zhou used the term "fractional reserve" properly here. He had full reserve of his users accounts, just not in USD. It would be fractional reserve if the value of the bitcoin he held + the value of USD he held were less than the stated amount of the sum of his users accounts.

cypherdoc
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December 30, 2011, 06:48:08 PM
 #164

That his customers were long was disclosed by Zhoutong last night after bitcoinica ran out of USD.  I for one am boycotting Bitcoinica until they move away from fractional reserve and hold assets to back every position.  Regarding disclosure, I would prefer the long vs. short balance updated in real time on the site, but I will not boycott for that if they solve the backing issue.  With realtime long/short balance users would know if they were taking a position that had a large risk of being squeezed.

Why do you think they do fractional reserve?  Zhoutong has denied this many times - is he lying?  As to the USD shortage - this is easily explained without any conspiracy - when people want to go long on Bitcoinica, Bitcoinica needs to buy BTC on MtGox with their USD funds and those funds are not unlimited - so when they are drained they refuse to let people go long.  This is a result of them not wanting to have uncovered positions - quite the opposite of what you are suggesting.

By they way I hate Bitcoinica for the volatility it produces.

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).

The problem is there were short positions that were uncovered because their USD was used to buy BTC for the longs.
I don't think Zhou used the term "fractional reserve" properly here. He had full reserve of his users accounts, just not in USD. It would be fractional reserve if the value of the bitcoin he held + the value of USD he held were less than the stated amount of the sum of his users accounts.

i think you're right.  his English has caused alot of confusion.
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December 30, 2011, 07:55:17 PM
 #165

What if the price moved down but not enough to force any liquidations and the longs stood firm.  At that point, he would not have enough reserves.

https://www.bitcoin.org/bitcoin.pdf
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smickles
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December 30, 2011, 08:49:23 PM
 #166

What if the price moved down but not enough to force any liquidations and the longs stood firm.  At that point, he would not have enough reserves.
there would too be reserves. they would be BTC reserves waiting for people to sell.

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December 30, 2011, 08:52:52 PM
 #167

What if the price moved down but not enough to force any liquidations and the longs stood firm.  At that point, he would not have enough reserves.

wouldn't this just be a "paper loss" since the shorts couldn't cover their positions despite being in a profitable position? 
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December 31, 2011, 01:13:00 AM
 #168

I'm glad to hear that some people cashing out and holding USD right now.  We'll have these conservative, impatient traders to thank for pushing this thing past $5 as they're chasing the rally (if we rally, that is).

Conservative, impatient traders? Isn't that a bit of an oxymoron?

Yea, I suppose.  A patient trader ought to be equally patient to buy as to sell.  But a conservative trader will be quicker on the sell.  That'll protect him from a bear market, but in a bull market he'll tend to lose potential gains.  During the infamous bubble of April-June, my risk profile was upside-down (lost gains during the bull, then was unprotected for the bear), which only helped to inflate the bubble.

Being conservative is smart, but that's easy to forget when you're chasing a rally.  If you have an appetite for risk, better to let it taper off as your gains increase, rather than build up as they pass on by.

To me, it seems just as likely that those who are holding btc will end up pushing the price down further when they sell into a falling market.

I guess I'll agree here.  Whether you buy into a rising market or sell into a falling one, you're equally guilty of pushing the market further from equilibrium. 

Oh and if we rally? What do you think has been happening for the past 30+ days?

Retracing the early October drop from $5?


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notme
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December 31, 2011, 01:14:11 AM
 #169

What if the price moved down but not enough to force any liquidations and the longs stood firm.  At that point, he would not have enough reserves.

wouldn't this just be a "paper loss" since the shorts couldn't cover their positions despite being in a profitable position? 

Exactly... Screen says I'm winning, and my call was correct but I can't take my profits.  Worse yet, I can't get those profits until a long takes a loss or it moves far enough to force such.

*no I wasn't really short*

https://www.bitcoin.org/bitcoin.pdf
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cypherdoc
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December 31, 2011, 01:16:31 AM
 #170

What if the price moved down but not enough to force any liquidations and the longs stood firm.  At that point, he would not have enough reserves.

wouldn't this just be a "paper loss" since the shorts couldn't cover their positions despite being in a profitable position? 

Exactly... Screen says I'm winning, and my call was correct but I can't take my profits.  Worse yet, I can't get those profits until a long takes a loss or it moves far enough to force such.

*no I wasn't really short*

you were smart to vacate Bitcoinica...
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December 31, 2011, 01:43:04 AM
 #171

That his customers were long was disclosed by Zhoutong last night after bitcoinica ran out of USD.  I for one am boycotting Bitcoinica until they move away from fractional reserve and hold assets to back every position.  Regarding disclosure, I would prefer the long vs. short balance updated in real time on the site, but I will not boycott for that if they solve the backing issue.  With realtime long/short balance users would know if they were taking a position that had a large risk of being squeezed.

Why do you think they do fractional reserve?  Zhoutong has denied this many times - is he lying?  As to the USD shortage - this is easily explained without any conspiracy - when people want to go long on Bitcoinica, Bitcoinica needs to buy BTC on MtGox with their USD funds and those funds are not unlimited - so when they are drained they refuse to let people go long.  This is a result of them not wanting to have uncovered positions - quite the opposite of what you are suggesting.

By they way I hate Bitcoinica for the volatility it produces.

Obviously the money has been used up to purchase Bitcoins for the longs.

You have money in Bitcoinica account doesn't mean it's 100% in reserves, it can be borrowed by someone else to buy/sell Bitcoins. At any point, Bitcoinica is a:

- Full reserve in BTC and fractional reserve in USD, or
- Full reserve in USD and fractional reserve in BTC.

(Yesterday, we had a full reserve in BTC, and a depleted reserve in USD. Users couldn't withdraw USD until the situation was resolved.)

This is how hedging exactly works to ensure that we ourselves and our customers are always having almost the same profits (or we call it internally, rate of change of asset value with respect to market price).

The problem is there were short positions that were uncovered because their USD was used to buy BTC for the longs.
I don't think Zhou used the term "fractional reserve" properly here. He had full reserve of his users accounts, just not in USD. It would be fractional reserve if the value of the bitcoin he held + the value of USD he held were less than the stated amount of the sum of his users accounts.

Exactly! Nothing to add to this post. This is exactly what happened. Smiley

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December 31, 2011, 01:45:05 AM
 #172

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

https://www.bitcoin.org/bitcoin.pdf
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Mushoz
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December 31, 2011, 01:51:35 AM
 #173

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

Wrong. If your holding the wrong asset the customer that took that position loses, and the loss is deducted from the customer's balance, so that Bitcoinica's balance stays equal. Please read the topic that explains how hedging on Bitcoinica works. Bitcoinica has a certain BTC and USD balance, and not accounting for spreads, those balances would stay exactly the same if everyone liquidates. Those imbalances only exist temporarily as long as people have open positions.

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December 31, 2011, 02:25:21 AM
 #174

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

Wrong. If your holding the wrong asset the customer that took that position loses, and the loss is deducted from the customer's balance, so that Bitcoinica's balance stays equal. Please read the topic that explains how hedging on Bitcoinica works. Bitcoinica has a certain BTC and USD balance, and not accounting for spreads, those balances would stay exactly the same if everyone liquidates. Those imbalances only exist temporarily as long as people have open positions.

But what if the longs buy the dips or add to their margin with a BTC deposit?  If they stand firm, bitcoinica can't pay out the short's profits.  If you can't see the problem with this I give up.  If I ever get the capital, I'll fuck all the shorts by depositing 100k BTC and buying everything I can long without leverage.  I'll buy up any sells and no shorts will be able to take their profits when the price recovers from the spike I caused.  The only thing preventing this is the fact that if a single entity did it, Zhoutong could fuck them to save his ass.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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smickles
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December 31, 2011, 02:30:06 AM
 #175

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

Wrong. If your holding the wrong asset the customer that took that position loses, and the loss is deducted from the customer's balance, so that Bitcoinica's balance stays equal. Please read the topic that explains how hedging on Bitcoinica works. Bitcoinica has a certain BTC and USD balance, and not accounting for spreads, those balances would stay exactly the same if everyone liquidates. Those imbalances only exist temporarily as long as people have open positions.

But what if the longs buy the dips or add to their margin with a BTC deposit?  If they stand firm, bitcoinica can't pay out the short's profits.  If you can't see the problem with this I give up.  If I ever get the capital, I'll fuck all the shorts by depositing 100k BTC and buying everything I can long without leverage.  I'll buy up any sells and no shorts will be able to take their profits when the price recovers from the spike I caused.  The only thing preventing this is the fact that if a single entity did it, Zhoutong could fuck them to save his ass.
wouldn't people sell after seeing the price spike that would cause? I'm not saying that things can't go horribly bad for bitcoinica customers, but some of the shorts would would be able to cover from people selling to reap gains.

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December 31, 2011, 02:36:39 AM
 #176

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

Wrong. If your holding the wrong asset the customer that took that position loses, and the loss is deducted from the customer's balance, so that Bitcoinica's balance stays equal. Please read the topic that explains how hedging on Bitcoinica works. Bitcoinica has a certain BTC and USD balance, and not accounting for spreads, those balances would stay exactly the same if everyone liquidates. Those imbalances only exist temporarily as long as people have open positions.

But what if the longs buy the dips or add to their margin with a BTC deposit?  If they stand firm, bitcoinica can't pay out the short's profits.  If you can't see the problem with this I give up.  If I ever get the capital, I'll fuck all the shorts by depositing 100k BTC and buying everything I can long without leverage.  I'll buy up any sells and no shorts will be able to take their profits when the price recovers from the spike I caused.  The only thing preventing this is the fact that if a single entity did it, Zhoutong could fuck them to save his ass.

+1
I wish I had more capital too! Cheesy

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December 31, 2011, 02:40:48 AM
 #177

I already pointed out the problem with this.  The price can change, and if you're holding the wrong asset you lose.  Period.  No USD + downswing = reserves are now fractional.

Wrong. If your holding the wrong asset the customer that took that position loses, and the loss is deducted from the customer's balance, so that Bitcoinica's balance stays equal. Please read the topic that explains how hedging on Bitcoinica works. Bitcoinica has a certain BTC and USD balance, and not accounting for spreads, those balances would stay exactly the same if everyone liquidates. Those imbalances only exist temporarily as long as people have open positions.

But what if the longs buy the dips or add to their margin with a BTC deposit?  If they stand firm, bitcoinica can't pay out the short's profits.  If you can't see the problem with this I give up.  If I ever get the capital, I'll fuck all the shorts by depositing 100k BTC and buying everything I can long without leverage.  I'll buy up any sells and no shorts will be able to take their profits when the price recovers from the spike I caused.  The only thing preventing this is the fact that if a single entity did it, Zhoutong could fuck them to save his ass.
wouldn't people sell after seeing the price spike that would cause? I'm not saying that things can't go horribly bad for bitcoinica customers, but some of the shorts would would be able to cover from people selling to reap gains.

99% of the time, yes.  But maybe they get greedy.  I'm not saying it will happen, just that the possibility exists.  The only solution to this is set aside funds for all positions, but then Bitcoinica wouldn't be able to offer nearly as much total leverage as they do now.

https://www.bitcoin.org/bitcoin.pdf
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January 04, 2012, 05:37:38 PM
 #178

Are we correcting yet?

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January 04, 2012, 05:43:11 PM
 #179

Are we correcting yet?

shame on you, dear. Cheesy
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January 04, 2012, 05:53:49 PM
 #180

Are we correcting yet?

Yes, and we have been for about a month now, it may bot be the direction some want but that does not mean it is not a correction.
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