"No Reserve" explanation

[chunglam]

Yes, I have 3k+ long posion

[1714755445]

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[1714755445]

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[notme]

sure.  you have thousands of bitcoins on hand but you won't sell them or allow ppl to cover b/c you THINK there are too many long positions?  LOL.

Z, please correct me if I'm wrong, but I'm pretty sure the issue WAS (it's fixed now) that all the BTC were held in long positions.  He can't sell BTC that belong to his users.

[zhoutong]

sure.  you have thousands of bitcoins on hand but you won't sell them or allow ppl to cover b/c you THINK there are too many long positions?  LOL.

There are thousands of accounts on Bitcoinica, and there's one Mt. Gox account called Bitcoinica.

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.

If we have too many Bitcoins and no USD, they can't buy more Bitcoins simply because we don't have.

Bitcoinica is a brokerage, not a bucket shop. We don't sell Bitcoins to people who want to buy it. We just buy on behalf of people who want to buy. It seems that you had misunderstanding since day one.

[mjcmurfy]

I agree with cypherdoc that bitcoinica is a basket case. I have been pleading with zhou for transparency for weeks, and trying to warn people about the dangers of margin trading in an anonymous marketplace. Just have a look through my posts in this thread a few weeks back. But I don't subscribe to his permabull outlook. I'm a long term bull, but a market correction is long overdue.

[zhoutong]

sure.  you have thousands of bitcoins on hand but you won't sell them or allow ppl to cover b/c you THINK there are too many long positions?  LOL.

Z, please correct me if I'm wrong, but I'm pretty sure the issue WAS (it's fixed now) that all the BTC were held in long positions.  He can't sell BTC that belong to his users.

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

[cypherdoc]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy from you and when you hedge on mtgox puts you into a losing position.

[zhoutong]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

[trogdorjw73]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

Which is why there's that thing called spread... so anyone who thinks Bitcoinica is losing a lot of money by the price going up, I don't think that's the case. They're probably making a ton of money is all, as they take about 1-2% out of every transaction.

[cypherdoc]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're NOT telling us.

[cypherdoc]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

Which is why there's that thing called spread... so anyone who thinks Bitcoinica is losing a lot of money by the price going up, I don't think that's the case. They're probably making a ton of money is all, as they take about 1-2% out of every transaction.

if he were, he wouldn't have halted trading.

[notme]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

He never had BTC reserve problems.  He ran out of USD.

[cypherdoc]

ok Zhoutong, prove it to me.

OPEN UP ALL BUYING AND SHORT COVERING RIGHT NOW.

[zhoutong]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're NOT telling us.

Our customers have leverage, and we don't have. When they buy a lot on margin, we are practically on fractional reserve on USD. When our USD reserve is depleted, we can't fulfill any more requests.

It's the same if we don't have any Bitcoins for people to short sell, we will have to halt selling.

[zhoutong]

ok Zhoutong, prove it to me.

OPEN UP ALL BUYING AND SHORT COVERING RIGHT NOW.

It has been opened for a few hours. Over 13,000 BTC sell orders processed.

[trogdorjw73]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

If someone put in a long position for 10K BTC at $3.50 and Bitcoinica bought 10K BTC at $3.50, as long as no one is putting in a short position to counter that they will not sell the 10K BTC that they purchased. The reason they were liquid before is because lots of people were taking up contrary positions, but if everyone starts going the other way then they would stop allowing people to go long until/unless they get more actual USD with which to buy additional BTC.

Now, that doesn't explain why someone who took a short couldn't liquidate at a loss, which is the more confusing/problematic issue at hand. If Bitcoinica is out of USD because everyone goes long and I come along and put in a short at $4.30 or whatever, then if I chose to liquidate that short at a loss right after taking the position there's no reason to not allow that.

[cypherdoc]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

which is precisely why he can't buy any btc on mtgox to hedge sales to you.  if you're trying to cover a short position but can't and the market goes to $8 tomorrow, you'll be liquidated.

[zhoutong]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

If someone put in a long position for 10K BTC at $3.50 and Bitcoinica bought 10K BTC at $3.50, as long as no one is putting in a short position to counter that they will not sell the 10K BTC that they purchased. The reason they were liquid before is because lots of people were taking up contrary positions, but if everyone starts going the other way then they would stop allowing people to go long until/unless they get more actual USD with which to buy additional BTC.

Now, that doesn't explain why someone who took a short couldn't liquidate at a loss, which is the more confusing/problematic issue at hand. If Bitcoinica is out of USD because everyone goes long and I come along and put in a short at $4.30 or whatever, then if I chose to liquidate that short at a loss right after taking the position there's no reason to not allow that.

If you liquidate your short position, you are still buying. It's the same as opening a long position.

Practically, this is a problem, and I don't really know how real world brokerages resolve this problem. I only know that some forex brokers actually trade against their clients.

[notme]

but i am observant.  and i see problem after problem after problem.

Emphasis mine.

sure.  you have thousands of bitcoins on hand but you won't sell them or allow ppl to cover b/c you THINK there are too many long positions?  LOL.

Z, please correct me if I'm wrong, but I'm pretty sure the issue WAS (it's fixed now) that all the BTC were held in long positions.  He can't sell BTC that belong to his users.

Emphasis added.

ok Zhoutong, prove it to me.

OPEN UP ALL BUYING AND SHORT COVERING RIGHT NOW.

Just sayin...

[cypherdoc]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

If someone put in a long position for 10K BTC at $3.50 and Bitcoinica bought 10K BTC at $3.50, as long as no one is putting in a short position to counter that they will not sell the 10K BTC that they purchased. The reason they were liquid before is because lots of people were taking up contrary positions, but if everyone starts going the other way then they would stop allowing people to go long until/unless they get more actual USD with which to buy additional BTC.

Now, that doesn't explain why someone who took a short couldn't liquidate at a loss, which is the more confusing/problematic issue at hand. If Bitcoinica is out of USD because everyone goes long and I come along and put in a short at $4.30 or whatever, then if I chose to liquidate that short at a loss right after taking the position there's no reason to not allow that.

If you liquidate your short position, you are still buying. It's the same as opening a long position.

Practically, this is a problem, and I don't really know how real world brokerages resolve this problem. I only know that some forex brokers actually trade against their clients.

well at least you admit, Zhou. 

they co-locate onto the exchange to limit slippage.

[zhoutong]

When Bitcoinica customers buy Bitcoins, we will hedge on Mt. Gox to buy for them, and they will have positions.
 

i think this is where the problem lies.  when the market goes straight up, the delay btwn when your customers buy and when you hedge on mtgox puts you into a losing position.

We delay the execution of all orders by 1-2 seconds. When the orders are executed, we always have the latest price.

if this were the case, you wouldn't be having reserve problems with btc and you'd let those buys and short cover orders through.  if you had 10,000 in stock you'd always have 10,000 in stock with perfect execution and hedging.  but you don't so there is slippage somewhere that you're telling us.

If someone put in a long position for 10K BTC at $3.50 and Bitcoinica bought 10K BTC at $3.50, as long as no one is putting in a short position to counter that they will not sell the 10K BTC that they purchased. The reason they were liquid before is because lots of people were taking up contrary positions, but if everyone starts going the other way then they would stop allowing people to go long until/unless they get more actual USD with which to buy additional BTC.

Now, that doesn't explain why someone who took a short couldn't liquidate at a loss, which is the more confusing/problematic issue at hand. If Bitcoinica is out of USD because everyone goes long and I come along and put in a short at $4.30 or whatever, then if I chose to liquidate that short at a loss right after taking the position there's no reason to not allow that.

If you liquidate your short position, you are still buying. It's the same as opening a long position.

Practically, this is a problem, and I don't really know how real world brokerages resolve this problem. I only know that some forex brokers actually trade against their clients.

well at least you admit, Zhou. 

they co-locate onto the exchange to limit slippage.

This has nothing to do with slippage.

We are talking about running out of USD reserves.