Bitcoinica: How it works

[Isosceles]

Zhoutong, if your reserves are short of USD or BTC, have you considered offering interest on balances held at Bitcoinica?
Although I think offering interest on fiat deposits is a regulated activity, that might cause problems

[sgbett]

this 'short of USD' thing is worrying considering my entire Currency Account on there is in USD! (not sure why you would keep it in BTC - surely if the usd/btc price drops, the last thing you want is for your trading margin to disappear too! or maybe I'm not 'risk on' enough, heheh)

For all the reassurances in this thread, something doesn't feel right to me. The very fact that my withdrawal to gox voucher goes to 'pending approval' instead of simply issuing a voucher makes me feel a bit uncomfortable. Feels a bit like the distinction between 'client money' and 'bank deposits'. I like my brokerage to hold my funds as client money.

Think I'll withdraw my capital and just play with my winnings in bitcoinica from now on there. Good luck to zhou and the boys, its a pretty neat site - nice idea and nicer ui than gox v2.0 imho! I'd rather lose a few hundred if it goes tits up though that a few thousand!

Mind you , if you were to get options up and running I might reconsider....

edit:

http://help.bitcoinica.com/discussions/questions/56-withdrawal-of-usd-as-mt-gox-coupon-displays-pending-approval

OK, fair explanation about why i have to wait, still I don't have to like it !

[sunnankar]

Feels a bit like the distinction between 'client money' and 'bank deposits'. I like my brokerage to hold my funds as client money.

Exactly. Don't get MFed Global.

[cypherdoc]

what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.

you better hope not b/c that would be a total ass rape for customers.  not being able to buy in a Bullseye situation with your own money?

why do you tolerate this?  you're losing money by not being allowed to participate in an uptrend.  thats just as bad as the shorts not being able to cover.  you need to be able to make those gains now so as to cushion the downswings which will inevitably come.  

Since i can't get an answer to this question, i might as well ask an even more difficult question assuming ineedausernames answer above is correct:

why is Zhou giving preferential treatment to the shorts?  as in giving them USD's before longs who may in fact have gotten their long bid orders in first and who missed out on this last ramp?

since when should Bitcoinica be choosing the winners vs. the losers?  its just as much of a loss for a long to not have been able to climb on board this train a few days ago as it is for the short who wasn't able to cover.

Summary:  any trading platform that prevents its customers from trading when (4 sec or more after they initiate an order which may or may not execute at the displayed price as well as forcing Bullseye situations) and how they want (forcing limit vs market orders) is no trading platform at all; its a rigged game.

[RaggedMonk]

Great writeup OP.

[sgbett]

in the interests of fairness i should confirm my USD gox code came through about 7 hours ago, so i didn't have to wait long.

the irony of course was that I then couldn't get on to gox to cash it. hah. still its all sorted now just need a retrace to load back up

[zhoutong]

what happens if i as a new customer of Bitcoinica deposit $50K right now?  does it just sit there until i decide to do something with those USD's or will they be siphoned off to allow shorts to cover or other longs to buy?

I think they will be siphoned off.

you better hope not b/c that would be a total ass rape for customers.  not being able to buy in a Bullseye situation with your own money?

why do you tolerate this?  you're losing money by not being allowed to participate in an uptrend.  thats just as bad as the shorts not being able to cover.  you need to be able to make those gains now so as to cushion the downswings which will inevitably come.  

Since i can't get an answer to this question, i might as well ask an even more difficult question assuming ineedausernames answer above is correct:

why is Zhou giving preferential treatment to the shorts?  as in giving them USD's before longs who may in fact have gotten their long bid orders in first and who missed out on this last ramp?

since when should Bitcoinica be choosing the winners vs. the losers?  its just as much of a loss for a long to not have been able to climb on board this train a few days ago as it is for the short who wasn't able to cover.

Summary:  any trading platform that prevents its customers from trading when (4 sec or more after they initiate an order which may or may not execute at the displayed price as well as forcing Bullseye situations) and how they want (forcing limit vs market orders) is no trading platform at all; its a rigged game.

Bitcoinica is a pool of shared resources. If you deposit USD, you can short if you want. This is a quid pro quo thing, some people with USD want to go short and some people with BTC want to go long, and without Bitcoinica, they can't do that elsewhere.

We can now guarantee this:

If you can open your position or enlarge it, you can close it or reduce it any time.


This is not a different treatment to shorts. When the market is downtrending and we used up all our BTC reserves, same "treatment" will be given to the longs who lost.

It's not a winner or loser thing. You can buy at Mt. Gox if you have money, but you can't close your Bitcoinica short position elsewhere. I think this makes sense. It's more of a matter of freedom and choice.

Anyway,

Bitcoinica never runs out of reserves - They're a bucketshop! It's crime in US!
Bitcoinica runs out of reserves - They're broke! Get away from them!

In conclusion,

Bitcoinica is doomed, to people who don't appreciate it.

I listen to all your constructive suggestions and comments, but seriously, I don't care about the FUD(s).

[cypherdoc]

those are not all my quotes and i'll agree to stop saying you're doomed b/c its quite possible for you to stay quite profitable at your customers expense.

anyways, please answer my specific questions above since you last posted.

edit:

1. does this mean Bitcoinica is going to take more risk by reducing margin capabilities or are you just going to flat out assume more risk?  by taking more risk (aka buying the btc that the shorts need to cover out of your own funds) isn't this what you mean when you say "trading against your customers"?

2. its still possible to get a Bullseye event.

3. if i as a new customer deposits $50K and doesn't open a position, will those USD's get added to the shared pool and get lent out to longs to buy or shorts to cover?  as a result, is it possible for a new customer to be prevented from opening a position at all in the case of a Bullseye event?

4. i'm still not clear on a buyer who hits a displayed ask @$4.  is he guaranteed to get that price but just after 4 sec or can you refuse to honor it if we get a spike on mtgox?

[RaggedMonk]

No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread

All hail cypherdoc, king of FUD!

[cypherdoc]

No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.

[smickles]

No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.

To prove you are spreading FUD RaggedMonk would only have to prove that you caused fear, uncertainty, or doubt. It has nothing to do with the answers to your questions.

[cypherdoc]

No wonder cypherdoc has almost 3k posts, he accounts for almost half the posts in this thread

All hail cypherdoc, king of FUD!

if i'm spreading FUD, why don't you step up and answer some of my questions in detail and prove it.  

i'm just trying to sort out whats going on here so everyone understands what's happening.

To prove you are spreading FUD RaggedMonk would only have to prove that you caused fear, uncertainty, or doubt. It has nothing to do with the answers to your questions.

instead of just accusing me of FUD perhaps he should step forward and answer what i think are legitimate questions.  maybe he'll realize they are good questions?  they can only lead to increased transparency and knowledge for all.

perhaps you should answer my questions since i can't seem to get exact answers from Zhou.  and that by itself should tell you something.

[RyNinDaCleM]

I see cyphers' inquiring (or "FUD" as many seem to believe) as investigative questioning. He is asking the questions that apparently no one else has the balls to ask, or maybe don't understand enough to ask. That or the users of bitcoinica are along the same lines as a nVidia fan boi, and dismiss the possibility that Zhou could do any wrong. I think he is doing a public service by trying to get the facts out in the open.

I don't use bitcoinica. But if I did, I would be glad to have someone trying to expose the truth when it's an issue pertaining to MY money.
  

[cypherdoc]

but how can good questions lead to FUD?  they can only lead to increased transparency and knowledge for all.

Preconceived notions. I agree with a lot of what you are saying. At the same time, I'm rooting for any Bitcoin business that manages to stick through the rough times and succeed.

so am i.  there are not many more than i who have supported Bitcoin in terms of time spent, posts made, and money invested.  i want Bitcoin to succeed and feel an obligation to make sure good businesses serve the community.

Is Zhou out to ruin us all or is he just trying to provide a service that wasn't available before?

i don't know what his intentions are.  he seems legit and interested in making his business run.  but i see it coming at the expense of others who are being liquidated.  short sellers being liquidated in a red flag event b/c they couldn't cover even if they wanted wasn't serving the community was it?  he only just now addressed that.

He might fuck up. Gox did, right? As long as he doesn't run off with the customers deposits, good.

Maybe his service promotes a lower Bitcoin price? Bet against it if you don't believe it.

i think short selling has hurt the community as a whole.  just my opinion.

Isn't Bitcoinica just matching longs with shorts and vice versa? If there are no opposing positions, you can't take the position you desire.

no. he's already said they don't always hedge and it sounds to me that now that they're guaranteeing short covering even in red flag events Zhou is going to be the one taking opposing positions to customers.

In the forex, this doesn't happen, because it's so massive there is always someone else to take the opposing position.

TL;DR

If you don't like the service, don't use it.

i don't and i won't.  doesn't mean i can't ask tough questions to help others does it?

P.S. Doc, I enjoy reading your posts. But lets stick to the positive. If Bitcoinica is going to fail, give a warning and move on. Let's focus on the positive.

i have no idea whether if and when they will fail but if enough ppl get discouraged by skewed rules he most certainly can.

asking tough but good questions isn't negative; in fact its positive.  poking holes in his model is helpful information.  he should be thanking me for putting him through the ringer now before some coalition or large player comes thru and starts really playing rough.  i am part of the market speaking to him and trying to teach him something useful. 

in fact why don't you want to know the answers to the questions i've posed?  they would help you trade better and thats what we want.

[notme]

but how can good questions lead to FUD?  they can only lead to increased transparency and knowledge for all.

Preconceived notions. I agree with a lot of what you are saying. At the same time, I'm rooting for any Bitcoin business that manages to stick through the rough times and succeed.

so am i.  there are not many more than i who have supported Bitcoin in terms of time spent, posts made, and money invested.  i want Bitcoin to succeed and feel an obligation to make sure good businesses serve the community.

Is Zhou out to ruin us all or is he just trying to provide a service that wasn't available before?

i don't know what his intentions are.  he seems legit and interested in making his business run.  but i see it coming at the expense of others who are being liquidated.  short sellers being liquidated in a red flag event b/c they couldn't cover even if they wanted wasn't serving the community was it?  he only just now addressed that.

He might fuck up. Gox did, right? As long as he doesn't run off with the customers deposits, good.

Maybe his service promotes a lower Bitcoin price? Bet against it if you don't believe it.

i think short selling has hurt the community as a whole.  just my opinion.

Isn't Bitcoinica just matching longs with shorts and vice versa? If there are no opposing positions, you can't take the position you desire.

no. he's already said they don't always hedge and it sounds to me that now that they're guaranteeing short covering even in red flag events Zhou is going to be the one taking opposing positions to customers.

In the forex, this doesn't happen, because it's so massive there is always someone else to take the opposing position.

TL;DR

If you don't like the service, don't use it.

i don't and i won't.  doesn't mean i can't ask tough questions to help others does it?

P.S. Doc, I enjoy reading your posts. But lets stick to the positive. If Bitcoinica is going to fail, give a warning and move on. Let's focus on the positive.

i have no idea whether if and when they will fail but if enough ppl get discouraged by skewed rules he most certainly can.

asking tough but good questions isn't negative; in fact its positive.  poking holes in his model is helpful information.  he should be thanking me for putting him through the ringer now before some coalition or large player comes thru and starts really playing rough.  i am part of the market speaking to him and trying to teach him something useful. 

in fact why don't you want to know the answers to the questions i've posed?  they would help you trade better and thats what we want.

+1

Cypherdoc's inquiries have inspired my own (a Bitcoinica user), as well as being informative in their own right.  I have learned a lot in the process, and even Zhoutong has to admit he has vastly improved his algorithm as a result of addressing our (more than just me and Cyperdoc) concerns.  As a result, I have resumed trading with him and use my knowledge of the redflag status to determine overspeculation.  So far, it's been a pretty accurate indicator, but that will probably fade as more people step up to keep the speculators in line.

[BadBear]

Most of the longs will get liquidated soon, if this keeps up.  Down to 5.02, from 5.50 24 hours ago. 

[zhoutong]

I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)

So we have been running the service for over 3 months and we get over 1,800 customers.

The redflag issue has proven to everyone that Bitcoinica is not a bucket shop.

I wonder how a guy with completely no understanding of this thread can charge 10,000 BTC for consultation.

[Mushoz]

I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)

They hedge every imbalance. If they don't have enough funds to hedge more, they stop accepting new positions that would cause a further imbalance (The asterisk already discussed in this thread). Bitcoinica does _not_ bet against its customers. If your consulting is as good as your thread reading skills, that would be the ripoff of the century :p

[cypherdoc]

I would be surprised if anybody who actually understood Bitcoinica would use them.

The basic problem is that he doesn't have the capital to hedge a significantly imbalanced customer position, at which time Bitcoinica becomes a bucket shop where he is your counter party... add a large move to that and he goes bankrupt (and you with him).

A significantly imbalanced unhedged position can be entered directly: by people opening too many new positions, or indirectly: by people closing existing positions, or by people withdrawing funds.  That this doesn't happen and wipe you out is left entirely to chance.

Here's my proposition zhoutong: for a 10,000 BTC consulting fee, I will tell you the solution to this that will reduce the chance of Bitcoinica's collapse to 0.  (Payable in advance... and that's at a discount because it makes me smile that a 17 y/o is parting these fools of their money.)

So we have been running the service for over 3 months and we get over 1,800 customers.

The redflag issue has proven to everyone that Bitcoinica is not a bucket shop.

I wonder how a guy with completely no understanding of this thread can charge 10,000 BTC for consultation.

i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

[BadBear]

i'm glad you turned off  the ignore button.  now would you please answer my legitimate questions?

I think he's figured out you won't be happy with any answer to any question.