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Author Topic: Is shorting BTC possible?  (Read 3328 times)
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April 27, 2011, 07:04:23 PM
 #1

Hi.

First off, I just want to say that I love this project and find it quite fascinating. I'm currently waiting for my first bank wire to mtgox so I can investe in som BTC. This is quite some entrepreneurial work by everyone involved.

Anyway, to my question which is actually more concerning than at first glance. I have been looking around a bit and haven't really found out if any of the current exchanges allow shorting of bitcoins right now. For those not familiar with the concept, 'shorting' basically means betting that the currency will go down in value, by "selling" borrowed Bitcoins today but with a contractual obligation (forced by whoever provides the service) to buy back the same amount at a future date. Thus, if you are correct on your bet that BTC will go down in value, you make money since you buy them back at a cheaper price. If you are wrong you will be forced to buy them back at a higher price.

The reason I ask and find the lack of this so concerning is that shorting actually serves a very important role in a functioning market. One thing that I believe could bring this whole thing down is a panic of some sort. Shorting helps to prevent this. If a selling panic would ensue, the shorters would become the buyers as they decide it's time to reap their profit, and thus the market would stabilize sooner rather than later. Without shorters a rapidly decreasing market would very soon be without buyers and make the situation even worse. So, in order to decrease the chance of a panic that destroys the entire ecosystem of bitcoins, I really think that someone with the ability should look at providing the service to short the market.

Also, shorting would make it possible to tell the doubters to put their money where their mouth is.  Wink
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Meni Rosenfeld
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April 27, 2011, 07:22:42 PM
 #2

Welcome to Bitcoin. I don't think any of the exchanges currently offer such an option, but you can always simply find someone to lend you bitcoins in Forum/Marketplace or bitcoin-otc. You'll probably need either some reputation or collateral. (The generic you, I gather the personal you isn't interested in this.)

Mt Gox say on their site they'll allow options soon, which in my understanding satisfy the same need.

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April 27, 2011, 07:24:46 PM
 #3

This is a really neat idea, I have been thinking a lot about how to counter a potential bubble in bitcoin, this seems to be a good step.

An important challenge is that most people who care about bitcoins believe it will take over the world...
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April 27, 2011, 07:28:11 PM
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Welcome to Bitcoin. I don't think any of the exchanges currently offer such an option, but you can always simply find someone to lend you bitcoins in Forum/Marketplace or bitcoin-otc. You'll probably need either some reputation or collateral. (The generic you, I gather the personal you isn't interested in this.)

Mt Gox say on their site they'll allow options soon, which in my understanding satisfy the same need.

I thought I saw a thread around here recently where somebody was trying to establish some sort of lending contract that sounded an awful lot like shorting.
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April 27, 2011, 09:48:46 PM
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Welcome to Bitcoin. I don't think any of the exchanges currently offer such an option, but you can always simply find someone to lend you bitcoins in Forum/Marketplace or bitcoin-otc. You'll probably need either some reputation or collateral. (The generic you, I gather the personal you isn't interested in this.
Thank you.

This really doesn't provide the protection against a panic though. If I have borrowed some money and a panic ensues, the most likely scenario is that I just say screw the debt and cash in on whatever value I have left. It's the forced future buying that is the important part.

The way this would work more or less is like this. Say mt gox would like to implent this and that I (the generic I) would like to short the market through them. There are two requirements. First mt gox needs a buffer of saved BTCs to allow shorting, and second I need to deposit some USD to mt gox. So I deposit 100 USD to my mt gox account and say I want to short the market for 50 USD. What happens then is that mt gox sells 25 BTC at the current market price ($50 for simplicity's sake), credits the money to my account and notes that I owe them 25 BTC. If I'm right on my bet and the BTC does indeed go down I will buy back 25 BTC at a lower price and keep the difference while returning my BTC debt to mt gox. If I am wrong however I will buy them back at a higher price and be netted a loss to my account.

It is also neccesary with a stop limit where mt gox steps in and buys back their BTC with my money automatically since if those 25 BTC would increase above $150 it would become impossible. Obviously I will still stand for the loss. The stop limit in the above example should be somewhere below $150 (my $100 deposit + $50 from the BTC sale). Users should idealy also be able to set their own lower limits so that they can regulate the amount they stand to lose without monitoring the market 24/7.

The important part here is really the forced buying back that will be monitored by the mt gox software. Since any shorter is a guaranteed future buyer, they will be stepping in if/when the value of the currency drops and provide liquidity in an unsafe market which would work kind of like a "safety net" for any hypotethical panic.
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April 27, 2011, 11:06:17 PM
 #6

I helped someone short. We agreed to swap my coins for his dollars and swap back after a month.

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April 28, 2011, 01:41:15 AM
 #7

Of course you can short bitcoins:

1.   Borrow some bitcoins.
2.   Sell them on the market.
3.   Wait until the price of bitcoin has lowered enough
4.   Buy some bitcoins back.
5.   Pay back your debt.
6.   Profit and go back to step 1.
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April 28, 2011, 05:03:03 AM
 #8

Welcome to Bitcoin. I don't think any of the exchanges currently offer such an option, but you can always simply find someone to lend you bitcoins in Forum/Marketplace or bitcoin-otc. You'll probably need either some reputation or collateral. (The generic you, I gather the personal you isn't interested in this.
Thank you.

This really doesn't provide the protection against a panic though. If I have borrowed some money and a panic ensues, the most likely scenario is that I just say screw the debt and cash in on whatever value I have left. It's the forced future buying that is the important part.

The way this would work more or less is like this. Say mt gox would like to implent this and that I (the generic I) would like to short the market through them. There are two requirements. First mt gox needs a buffer of saved BTCs to allow shorting, and second I need to deposit some USD to mt gox. So I deposit 100 USD to my mt gox account and say I want to short the market for 50 USD. What happens then is that mt gox sells 25 BTC at the current market price ($50 for simplicity's sake), credits the money to my account and notes that I owe them 25 BTC. If I'm right on my bet and the BTC does indeed go down I will buy back 25 BTC at a lower price and keep the difference while returning my BTC debt to mt gox. If I am wrong however I will buy them back at a higher price and be netted a loss to my account.

It is also neccesary with a stop limit where mt gox steps in and buys back their BTC with my money automatically since if those 25 BTC would increase above $150 it would become impossible. Obviously I will still stand for the loss. The stop limit in the above example should be somewhere below $150 (my $100 deposit + $50 from the BTC sale). Users should idealy also be able to set their own lower limits so that they can regulate the amount they stand to lose without monitoring the market 24/7.

The important part here is really the forced buying back that will be monitored by the mt gox software. Since any shorter is a guaranteed future buyer, they will be stepping in if/when the value of the currency drops and provide liquidity in an unsafe market which would work kind of like a "safety net" for any hypotethical panic.

as someone who has lots of experience shorting i can say you're only presenting half the story.  shorters also can contribute to downside pressure prrecipitating a selling panic.  you have to remember that  mtgox is only a currency exchanger at this point.  as a user of mtgox i can say they can barely handle this fx much to my chagrin.  theres all sorts of bugs in their protocol as far as i'm concerned and introducing this further complexity would be impossible with their current staffing.
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April 28, 2011, 05:08:42 AM
 #9

theres also the problem with the owners of the exchange being tempted to allow naked shorting by their customers.  in other words, they pretend to give you (generic) shares to short which they don't own simply for the fee involved in making that sale.  this can create all sorts of problems as Overstock.com and Tazer experienced with thousands of shares sold (shorted) on the mkt way greater than the actual number of shares issued.  at this stage of the game where BTC is such a nascent concept, i would avoid this complexity which could cause alot of harm.
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April 28, 2011, 05:11:30 AM
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as a user of mtgox i can say they can barely handle this fx much to my chagrin.  theres all sorts of bugs in their protocol as far as i'm concerned

Specific technical details, please.

Otherwise, this is just FUD.

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April 28, 2011, 05:30:42 AM
 #11

as a user of mtgox i can say they can barely handle this fx much to my chagrin.  theres all sorts of bugs in their protocol as far as i'm concerned

Specific technical details, please.

Otherwise, this is just FUD.



today my wire hit their acct at 10:39 am and  6 separate buys were executed simultaneously at this time w/o me even entering in the order.  i have an email out to the owner of the site asking for an explanation and no response and it is 12 h later.  another thing is if you enter an order which is not completely filled you are stuck with that order.  you can't take it down.  i have alot of experience with stock trading on commercial programs and this mtgox is rudimentary in comparison.  communication with the owners is difficult at best.  i think they're trying their best but it seems to be run by just Magical Tux and he is a busy guy (i hear he's travelling in Japan and i wouldn't be so available either if i was doing that) and can't/won't answer all my questions or concerns.  considering the amount of money and the volume of trades going on now he needs to consider some help to keep customers happy some of whom are trading big money.
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April 28, 2011, 05:43:04 AM
 #12

another example today is i put in a buy limit order at a specific price for a certain #btc.  somehow my order got filled at a higher price than the limit price. 
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April 28, 2011, 07:04:33 AM
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cypherdoc, it sounds like you are unable to see the table of open orders on the Trade page.  From there you can cancel open orders.  If you have an open order without enough funds and funds later become available, the order becomes active and can execute unexpectedly if you weren't aware of it.

There used to be a bug in the site layout where the table was placed below a very large empty space if the browser window was too narrow.  I didn't see the table and thus had similar problems to the ones you describe.  The layout bug has been fixed for me for a long time, but perhaps your browser is still affected.
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April 28, 2011, 11:52:32 AM
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i assume you're referring to the Depth Table?  i can see that but there are no links or buttons that allow or even imply an ability to cancel an order.  i'm using Mac OSX Snow Leopard.  anyone else with same problem?
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April 28, 2011, 12:00:58 PM
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i assume you're referring to the Depth Table?  i can see that but there are no links or buttons that allow or even imply an ability to cancel an order.  i'm using Mac OSX Snow Leopard.  anyone else with same problem?

It's at the bottom of the trade page, below the forms for buying and selling there is a table of your open orders with an option to cancel.

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April 28, 2011, 12:05:26 PM
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i assume you're referring to the Depth Table?  i can see that but there are no links or buttons that allow or even imply an ability to cancel an order.  i'm using Mac OSX Snow Leopard.  anyone else with same problem?

The only browser that is stable with MTGox is Firefox.

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April 28, 2011, 01:00:20 PM
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i assume you're referring to the Depth Table?  i can see that but there are no links or buttons that allow or even imply an ability to cancel an order.  i'm using Mac OSX Snow Leopard.  anyone else with same problem?

The only browser that is stable with MTGox is Firefox.

i am using Firefox.  heres some of the problems as i see it.  u enter your order and click Buy.  beneath the Buy Bitcoin button u see a line popup saying Buying Bitcoins.  this lasts a second or two but then ur left with the same window with your order numbers still in place.  in a professional trading program a separate window pops up listing out ur order and indicating clearly that the order went thru and is complete.  in mtgox, ur left wondering what happened, so in my case i pushed it again and again and again.  with the list of orders so far down the page on my laptop i didn't realize i was initiating multiple orders when i only wanted one.  so then after multiple pushes i go over to the acct history button and i can see that i've purchased multiple times even tho i could have just scrolled down the page.  in one order i set a limit price in USD and for some reason it bought me those btc at a slightly higher price.  emailed Mag Tux for explanation but no reply.  of course now i know to scroll down the Trade page after hitting the Buy button but a newbie, like i was, wouldn't know that necessarily.  i can't believe i'm the only one this happened to.  expensive lesson.  on one of these inadvertent multiple orders it took my balance to zero.  at that pt i didn't realize i had left a trail of limit bid orders on the Depth page.  a few days later i wired more money and the instant it was posted to my acct the program initiated all those buys b/c the market price was below those limit orders.  nasty surprise.  the program should eliminate all those orders if ur balance has been zeroed out.  this also creates a false impression of the depth of the market for all market participants b/c those bids would still be up if i hadn't sent more money.
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April 28, 2011, 01:01:44 PM
 #18

Yes on firefox I've been able to cancel orders to adjust rates with no issues, i've actually mostly used my iphone to do this and it hasn't been an issue at all.  Also Mark has been really quick to answer my couple of emails and each time he's been really helpful.
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April 28, 2011, 01:03:36 PM
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as far as mtgox is concerned, i can only say Thank God for all u guys who have explained the problems and the solutions more clearly and responsively than the owners of the site.
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April 28, 2011, 01:11:11 PM
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Yes on firefox I've been able to cancel orders to adjust rates with no issues, i've actually mostly used my iphone to do this and it hasn't been an issue at all.  Also Mark has been really quick to answer my couple of emails and each time he's been really helpful.

Mark responsiveness has been spotty for me.  as a newbie, i don't know if i just caught him at a bad time with his Japan travels or what.  one of his excuses was that he was asleep when i emailed him. well it took him 12 hrs to get back to me.  if ur trading pennies or small dollars u might say this isn't a big deal.  but in the instance i describe above, it involved thousands of dollars. i understand that this technology is early and that he doesn't have a support staff.  my counter to that tho is look at all the money being traded daily.  i refuse to believe that i am the only one experiencing these issues.  if he wants his business to grow someone has to be immediately available for support.  mtgox is the current std for pricing this mkt so its role is critical.  professionals have or will enter this mkt and he has to be ready.  they, we, or i are compulsive ppl unlike he might be used to dealing with.  i have to give him credit tho in one instance he did exactly what i wanted but only after i brought my issue up here on the forum.
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