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Author Topic: "No Reserve" explanation  (Read 7971 times)
cypherdoc
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December 29, 2011, 04:43:41 AM
 #81


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.

and thats a problem in the sense that the shorts can't get out if the price keeps rising.
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December 29, 2011, 04:44:17 AM
 #82

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.

This is the real issue, and has unfortunately been drowned out by cypherdoc.  I believe it solution is to treat a short position like you are treating a long position.... You won't sell the bitcoins out from under the longs, don't sell the USD out from under the shorts.  They are effectively holding dollars, and you sold their dollars.

https://www.bitcoin.org/bitcoin.pdf
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smickles
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December 29, 2011, 04:46:27 AM
 #83


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

cypherdoc
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December 29, 2011, 04:47:27 AM
 #84

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.

This is the real issue, and has unfortunately been drowned out by cypherdoc.  I believe it solution is to treat a short position like you are treating a long position.... You won't sell the bitcoins out from under the longs, don't sell the USD out from under the shorts.  They are effectively holding dollars, and you sold their dollars.

he will have to if the price keeps rising.
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December 29, 2011, 05:04:22 AM
 #85

We are talking about running out of USD reserves.

that means you're broke.
smickles
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December 29, 2011, 05:05:18 AM
 #86

We are talking about running out of USD reserves.

that means you're broke.
Unless your consider BTC valuable  Huh

notme
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December 29, 2011, 05:13:25 AM
 #87

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.

https://www.bitcoin.org/bitcoin.pdf
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zhoutong
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December 29, 2011, 05:19:57 AM
 #88

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.

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December 29, 2011, 05:21:17 AM
 #89

let the coins flood
cypherdoc
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December 29, 2011, 05:26:11 AM
 #90

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.

Zhou claims that when ppl buy or sell btc on bitcoinica he just buys or sells for them on mtgox and collects the fees on the pass through.

what did he do when all the shorts shorted btc on bitcoinica since mtgox doesn't allow shorting?  sounds to me he exposed himself by actually buying the shorted btc with his USD reserves?
zhoutong
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December 29, 2011, 05:41:37 AM
 #91

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.

Zhou claims that when ppl buy or sell btc on bitcoinica he just buys or sells for them on mtgox and collects the fees on the pass through.

what did he do when all the shorts shorted btc on bitcoinica since mtgox doesn't allow shorting?  sounds to me he exposed himself by actually buying the shorted btc with his USD reserves?

Alright, your words proved to me that you didn't understand Bitcoinica since day seven (not day one).

Users can deposit both USD and BTC into their Bitcoinica accounts. You can short BTC with USD, and you can also long BTC with BTC (or short USD with BTC).

There's never a net short on Bitcoinica. If no one is holding any Bitcoins, you simply can't short sell. Short selling is a feature of Bitcoinica as a result of margin trading.

cypherdoc has wasted so much of his time debating a possibility that can't exist.

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chunglam
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December 29, 2011, 05:49:17 AM
 #92

Normally, sell orders and buy orders will be cancelled each other but if the market go pure bearish or bullish and everyone fully utilized leverage Bitcoinica will definitely run out of fund because essentially you are lending fund out with 0% interest rate.
cypherdoc
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December 29, 2011, 05:57:38 AM
 #93


Alright, your words proved to me that you didn't understand Bitcoinica since day seven (not day one).


well, that certainly may be so since its so hard to tell exactly what you're doing behind the curtains.  but nevermind me.

i'm not so sure you know what you're doing; otherwise why are there so many problems (revisions to the code and reversing of trades) and why no USD reserves?

what was the magic solution, BTW?
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December 29, 2011, 06:00:28 AM
 #94


Alright, your words proved to me that you didn't understand Bitcoinica since day seven (not day one).


well, that certainly may be so since its so hard to tell exactly what you're doing behind the curtains.  but nevermind me.

i'm not so sure you know what you're doing; otherwise why are there so many problems (revisions to the code and reversing of trades) and why no USD reserves?

what was the magic solution, BTW?
It's not some big mystery.
I'm pretty sure I could set up a competing operation. (I just don't have the startup capital), but that's not the point.

Stop it with your fud already.

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December 29, 2011, 06:02:07 AM
 #95

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.

https://www.bitcoin.org/bitcoin.pdf
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Keefe
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December 29, 2011, 06:02:43 AM
 #96

As I understand it, when a Bitcoinica customer goes long more than that customer has USD balance for, or goes short more than he has BTC balance for, he is effectively borrowing from the balances of other Bitcoinica customers to do so. That's what Bitcoinica is all about: pooling resources of varied customers to facilitate trading beyond their means. Of course this requires that either some customer balances aren't being fully used, or some of their positions are in the opposite direction of others'.

This means when Bitcoinica customers are predominately long, you may not be able to withdraw USD or go long or cover shorts because others have borrowed your USD. Vice versa for withdrawing BTC, going short, covering longs, when most are short.

Am I on track zhoutong?

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December 29, 2011, 06:05:52 AM
 #97

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.

lets clarify terms.  "cover" means "buy to cover" and is a term reserved for short positions, not longs.  longs don't get "squeezed" per say but shorts do.
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December 29, 2011, 06:21:34 AM
 #98

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.

lets clarify terms.  "cover" means "buy to cover" and is a term reserved for short positions, not longs.  longs don't get "squeezed" per say but shorts do.

Meh... long Bitcoin is just short USD.  A stupid semantics argument only detracts from the goal of getting a straight answer from Zhoutong.  But to be clear, when I say cover, I mean whatever is necessary to close the position.

https://www.bitcoin.org/bitcoin.pdf
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netrin
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December 29, 2011, 06:28:14 AM
 #99

This means when Bitcoinica customers are predominately long, you may not be able to withdraw USD or go long or cover shorts because others have borrowed your USD. Vice versa for withdrawing BTC, going short, covering longs, when most are short.

AKA a bank run

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cypherdoc
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December 29, 2011, 06:34:39 AM
 #100

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.
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