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Author Topic: "No Reserve" explanation  (Read 7967 times)
zhoutong
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December 29, 2011, 06:38:32 AM
 #101

if i were to have designed Bitcoinica from the beginning, i probably would have only allowed funding in USD's upon which you could then buy, sell, or short bitcoin just like regular brokerages do with their paper assets.

by allowing btc to leverage up more btc, its almost like building a derivatives tower on paper.  the volatility kills you and the demand for USD is just too great.

Any broker allows you to short EUR/USD with USD.

EDIT: Remember, everything is relative, including volatility. If BTC/USD is volatile, both BTC and USD are volatile. Longing BTC with BTC (or shorting USD with BTC) and shorting BTC with USD (or longing USD with USD) are essentially the same in terms of financial risk and volatility.

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by allowing btc to leverage up more btc, its almost like building a derivatives tower on paper.

I can't believe that you have any financial experience. This is exactly how leverage works. In security trading, you use purchased securities as collateral to borrow more capital to purchase more.

Or maybe you're saying that Bitcoin is paper.

Anyway, we have been running for more than 3 months, and actual risk is minimal. The out-of-reserve redflag has been implemented long ago, and today is the first time that it's triggered in a large scale. Even 9/11 was completely fine for Bitcoinica.

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zhoutong
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December 29, 2011, 06:40:27 AM
 #102

We are talking about running out of USD reserves.

that means you're broke.

Nah, it just means existing shorts are screwed unless they get out (which they probably can't all do) and no one with half a brain will go short until this is fixed.  We'll be back to no shorting and we'll bubble again unless they can come up with the USD reserves to cover all shorts.  I have removed all my funds from Bitcoinica until this is sorted out.

This is a temporary issue and we have already resolved this.

As I understand it, you will not use the BTC belonging to long positions to allow shorts to cover themselves but you will allow the USD belonging to the short positions to allow longs to cover themselves.  If this is incorrect, please explain where I went wrong.  If it is correct, it is an unresolved issue.

Longs will need BTC reserves to cover themselves because they are essentially selling to cover.

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December 29, 2011, 06:50:43 AM
 #103

It's also correct if you explain like this. All the coins belong to customers, not me.

I don't think Jon Corzine sees it that way.

The printing press heralded the end of the Dark Ages and made the Enlightenment possible, but it took another three centuries before any country managed to put freedom of the press beyond the reach of legislators.  So it may take a while before cryptocurrencies are free of the AML-NSA-KYC surveillance plague.
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December 29, 2011, 07:04:28 AM
 #104

As I understand it, you will not use the BTC belonging to long positions to allow shorts to cover themselves but you will allow the USD belonging to the short positions to allow longs to cover themselves.  If this is incorrect, please explain where I went wrong.  If it is correct, it is an unresolved issue.

Longs will need BTC reserves to cover themselves because they are essentially selling to cover.

Ok, so if I have a long position, and most others go short, I can get stuck in my position like the shorts got stuck today.  At least you offer an equal opportunity screw job.

https://www.bitcoin.org/bitcoin.pdf
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zhoutong
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December 29, 2011, 07:27:47 AM
 #105

As I understand it, you will not use the BTC belonging to long positions to allow shorts to cover themselves but you will allow the USD belonging to the short positions to allow longs to cover themselves.  If this is incorrect, please explain where I went wrong.  If it is correct, it is an unresolved issue.

Longs will need BTC reserves to cover themselves because they are essentially selling to cover.

Ok, so if I have a long position, and most others go short, I can get stuck in my position like the shorts got stuck today.  At least you offer an equal opportunity screw job.

Yes, the opportunity of screwing up is programmed to be equal.

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December 29, 2011, 07:28:50 AM
 #106

As I understand it, you will not use the BTC belonging to long positions to allow shorts to cover themselves but you will allow the USD belonging to the short positions to allow longs to cover themselves.  If this is incorrect, please explain where I went wrong.  If it is correct, it is an unresolved issue.

Longs will need BTC reserves to cover themselves because they are essentially selling to cover.

Ok, so if I have a long position, and most others go short, I can get stuck in my position like the shorts got stuck today.  At least you offer an equal opportunity screw job.
unless he get's access to quick money (really short term loans at rates that he doesn't lose money on) this is, of course, a possibility.

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December 29, 2011, 08:15:56 AM
 #107

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink
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December 29, 2011, 08:42:01 AM
 #108

I'm pretty sure that real world brokerages have access to really quick short term loans.

Yup.  Real brokerages have capital which is loaned to customers, so they can buy on margin.  If that starts running out because the customers are net long, they'll raise more by increasing the margin requirements.  

That's what COMEX did at least twice over the past year (2011), probably because traders' net positions on silver and gold were too long for them.

Each time COMEX raised margins it triggered corrections in gold and silver (some quite severe), but that's because COMEX was the market.  I wouldn't expect this Bitcoinica issue to trigger a correction in bitcoin, because bitcoinica isn't the market (MtGox is).

what was the magic solution, BTW?

More people opened short positions because Zhou alerted that so many folks were long, and they wanted to be contrarians.  

Also, some folks who were long on bitcoinica probably closed their positions because of the hiccup.  Even if they withdrew their funds, less people long at 1:5 margin, is more margin available.


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zhoutong
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December 29, 2011, 09:13:51 AM
 #109

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

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December 29, 2011, 09:27:02 AM
 #110

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

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December 29, 2011, 09:32:44 AM
 #111

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

Yes, if we can move partial P/L$ balance to USD$ balance then we can do whatever we want to it like converting to BTC or withdraw it
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December 29, 2011, 09:35:42 AM
 #112

Interesting~~

zhoutong
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December 29, 2011, 09:38:40 AM
 #113

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

Sorry for my misunderstanding.

If you have profits to support your position, technically you can already use the Exchange or withdraw feature to do whatever you want, just like the real USD balance. However, the limit is your actual USD balance, as it can't be negative.

Unfortunately but we don't offer the service to let you withdraw more USD than what you have.

Founder of NameTerrific (https://www.nameterrific.com/). Co-founder of CoinJar (https://coinjar.io/)

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December 29, 2011, 09:48:12 AM
 #114

Hi Zhoutong, could you let us partially cash out profit from our position? Currently, we have to liquidate our position to make the profit move into USD balance, I would like to buy real BTCs using my profit balance. Wink

All your unrealized profits are automatically leveraged again for trading.

Your tradable balance should already include the profits.

Maybe he wants to withdraw some of the profit to his wallet outside Bitcoinica.

Sorry for my misunderstanding.

If you have profits to support your position, technically you can already use the Exchange or withdraw feature to do whatever you want, just like the real USD balance. However, the limit is your actual USD balance, as it can't be negative.

Unfortunately but we don't offer the service to let you withdraw more USD than what you have.

Ok, so I have to liquidate my position completely in order to make use of my profit. Another small suggestion, could you make the exchange system deduce USD$ from positive profit balance?
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December 29, 2011, 09:50:59 AM
 #115

ohhhhhhhhhhhhhhhhhhhhhhhh shit  Shocked
edit: Do you have a plan for what happens if the market keeps going up like I think it will?

There are limit orders from the positions of long people. So there will be more selling soon.

Also, forced liquidations will still happen (but never at insane prices), but we will eat all the risk. :-(

Oh dear.... :O
SELLL!

Sorry to disappoint you. *removes sell stop order*

just joking, I'm all long on bitcoinica.

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December 29, 2011, 03:18:15 PM
 #116

As I understand it, you will not use the BTC belonging to long positions to allow shorts to cover themselves but you will allow the USD belonging to the short positions to allow longs to cover themselves.  If this is incorrect, please explain where I went wrong.  If it is correct, it is an unresolved issue.

Longs will need BTC reserves to cover themselves because they are essentially selling to cover.

Ok, so if I have a long position, and most others go short, I can get stuck in my position like the shorts got stuck today.  At least you offer an equal opportunity screw job.
unless he get's access to quick money (really short term loans at rates that he doesn't lose money on) this is, of course, a possibility.

And here I was with the impression he had full reserves, but if that were the case we would see either deposit limits (you can only deposit x if we have 2.5x spare reserves) or changing margins.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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December 29, 2011, 04:36:11 PM
 #117

if i were to have designed Bitcoinica from the beginning, i probably would have only allowed funding in USD's upon which you could then buy, sell, or short bitcoin just like regular brokerages do with their paper assets.

by allowing btc to leverage up more btc, its almost like building a derivatives tower on paper.  the volatility kills you and the demand for USD is just too great.

Any broker allows you to short EUR/USD with USD.

EDIT: Remember, everything is relative, including volatility. If BTC/USD is volatile, both BTC and USD are volatile. Longing BTC with BTC (or shorting USD with BTC) and shorting BTC with USD (or longing USD with USD) are essentially the same in terms of financial risk and volatility.

Quote
by allowing btc to leverage up more btc, its almost like building a derivatives tower on paper.

I can't believe that you have any financial experience. This is exactly how leverage works. In security trading, you use purchased securities as collateral to borrow more capital to purchase more.

Or maybe you're saying that Bitcoin is paper.

Anyway, we have been running for more than 3 months, and actual risk is minimal. The out-of-reserve redflag has been implemented long ago, and today is the first time that it's triggered in a large scale. Even 9/11 was completely fine for Bitcoinica.

as much as some of us wish Bitcoin to be money, at this point, it is still a speculative asset.  so allowing investors to use Bitcoin as collateral to leverage up 10:1 is irresponsible given the volatility and reeks of what the primary dealers did at the peak of 2007.

at the time, they were using bonds of all sorts, junk, subprime, FNM bonds, mortgage bonds, UST's, as "money" to provide collateral for their overnite trades.  how'd that turn out?
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December 31, 2011, 08:49:40 AM
 #118

We are talking about running out of USD reserves.

that means you're broke.
With proper margin requirements this should never happen.
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December 31, 2011, 03:15:37 PM
 #119

"No reserve" again Sad

Check out gocoin - my original project of a bitcoin client written in Go, with some unique features.
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December 31, 2011, 03:18:51 PM
 #120

hey Zhou, how's that recommendation to sell working out for your clients?
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