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Author Topic: Why Bitcoinica is Good For Bitcoin, You Can Be Short BTC  (Read 1396 times)
EuSouBitcoin
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March 23, 2012, 04:05:39 PM
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Bitcoinica is good for Bitcoin because since they opened you have a way to be effectively short BTC. Are there any other ways to be effectively short BTC? Any ones with a relatively liquid market like Bitcoinica or Mt Gox BTC/USD trading? Any reliable BTC forward or futures markets out there?
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March 23, 2012, 05:39:23 PM
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In a foreign exchange market, you always have a position.

By holding only fiat, you are implicitly short BTC. As BTC goes down, the purchasing power of your fiat, relative to BTC goes up. That is, you can buy more BTC with the same fiat at the lower BTC price.

"Short," in the Bitcoinica sense, treats BTC like a commodity, loaning coins to you to sell now and allowing you to buy them back later.

So, the bottom line is this: do you view BTC as a currency or as a commodity?

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March 23, 2012, 05:43:42 PM
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In a foreign exchange market, you always have a position.

By holding only fiat, you are implicitly short BTC. As BTC goes down, the purchasing power of your fiat, relative to BTC goes up. That is, you can buy more BTC with the same fiat at the lower BTC price.

"Short," in the Bitcoinica sense, treats BTC like a commodity, loaning coins to you to sell now and allowing you to buy them back later.

So, the bottom line is this: do you view BTC as a currency or as a commodity?


That's definitely a good point Clark. I do concur though that Bitcoinica is good for bitcoins in the sense that if there is a huge sell off (or a good buy off), Bitcoinica does allow a lot of people to be leveraged on the reverse side, thus balancing the wild price fluctuations we use to see with Bitcoins. I feel Bitcoinica has a lot to do with a trade volume of 200K bitcoin a day not been "the end of the world" or a 400% in value sell off like we used to see.

I don't know. I am not really an expert in trading per se, just my opinion.
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March 23, 2012, 06:13:13 PM
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The way we do ForEx is in pairs, such that you are in fact long or short the pair. We certainly trade commodities like gold & silver in the same way (i.e. XAU/USD)

While you are implicitly short one currency and long the other in your currency account. We don't treat currency accounts as pairs. You have one USD account, and one BTC account. If you keep funds in both USD and BTC, you are hedged, and have locked in downside, as well as upside.

You will also protect your leveraged position more by hedging your currency accounts like this. The fluctuation in BTC/USD dramatically affects your equity and free margin if you're "short" USD (only have BTC in your accounts)

You are  explicitly long or short on your (leveraged) position.

Since we usually only designate the currency pair in one direction, it leads us to use the long & short nomenclature. (i.e. we talk about EUR/USD, but not USD/EUR)

It would be more clear (IMO) if hedging was allowed at bitcoinica. However, since this is not allowed in regular ForEx markets for US customers, they are probably wise to not allow it. (this is also likely a reason for the max 10:1 leverage!)

And, yes, being able to short BTC/USD is very important to the general trade. This does in effect allow you to hedge a long BTC currency account "position" with a short leveraged position. I do think some fail to realize they can get a margin call this way, even while running a significant profit.

Trading BTC normally as a currency helps to ensure its place and use as one over time.

I though CampBX was going to allow leveraged trading, but I don't have an account, or know if that's happened yet.

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March 23, 2012, 07:08:50 PM
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Are there any other ways to be effectively short BTC?

You can sell call options.

There is #bitcoin-otc marketplace in which you might find a counterparty:
 - http://wiki.bitcoin-otc.com/wiki/Option_orders

And there is MPOE:
 - http://bitcointalk.org/index.php?topic=67302.0

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March 23, 2012, 08:45:51 PM
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sgornick beat me to it, but yes, options work that way.

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March 23, 2012, 09:44:01 PM
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If I would see more activity on the MPOE it would be an option Wink for me. Not only do I want to be able to write options, but I'd like to be able to trade them daily.

It would especially be an opportunity if I were to have leverage to offer uncovered options. This is highly risky in the first place (for customer and broker/dealer) but would greatly increase demand for the service at the same time.

It's double-extra risky in a pseudonomous environment like bitcoin. Very likely to introduce scammers unless it's very well protected. The quote from one guy yesterday about "I've left several bitcoinica accounts with negative balances...." tells the story.


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March 23, 2012, 10:11:19 PM
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Quote
If I would see more activity on the MPOE it would be an option  for me.

There's significant volume available for the quoted asks/bids. Have you had a transaction refused or how exactly does a perceived lack of activity impact you?

Quote
It would especially be an opportunity if I were to have leverage to offer uncovered options. This is highly risky in the first place (for customer and broker/dealer) but would greatly increase demand for the service at the same time.

It's unlikely that MPOE will ever offer naked options.

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March 23, 2012, 11:22:15 PM
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No naked?  Cry

The effect is partially perceived. I go to the site, interest looks light. I have not attempted to use it. I have wanted to quite a bit.

It's like the empty store vs. the full store - no one buys from the empty one, even if it is better by far.

But then, looking right now, there's only open interest in a very tight range - not much difference from trading the actual instruments. If I'd see possible options that are out of the money now, and meet potential projections to work with other positions, I'd make use of it.

I suspect, that once we see more brokers come online, they will be the ones to make the major use of the MPOE.


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March 24, 2012, 01:04:26 AM
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In a foreign exchange market, you always have a position.

By holding only fiat, you are implicitly short BTC. As BTC goes down, the purchasing power of your fiat, relative to BTC goes up. That is, you can buy more BTC with the same fiat at the lower BTC price.

"Short," in the Bitcoinica sense, treats BTC like a commodity, loaning coins to you to sell now and allowing you to buy them back later.

So, the bottom line is this: do you view BTC as a currency or as a commodity?


Forex brokers don't understand like this. You can short EUR/CHF with USD with your broker. There's no implicit shorting or whatever.

Bitcoinica uses the same understanding - your currency account is used to back your leveraged position, and the position itself is an entirely different thing.

If other markets are liquid enough, maybe one day you can short NMC/LTC with a mix of BTC and USD.

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March 24, 2012, 01:18:01 AM
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guruvan, I think you are missing a key aspect of how MPOE works. If you were to go there right now, click on the ASK of say CALL @5.0, it'd spit out a page asking you how many contracts would you like to buy. If you type in say 1000 it'd say

Quote
In order to buy 1000 CALL @5.0 contracts expiring this month at $0.35785396 each please send exactly:
76.30148110BTC

You send your email, then send over the 76.30148110BTC and that's it, you now have 1k CALL @5.0 contracts.
Again, what's the open interest interest you for?

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EuSouBitcoin
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March 24, 2012, 03:08:02 AM
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In a foreign exchange market, you always have a position.

By holding only fiat, you are implicitly short BTC. As BTC goes down, the purchasing power of your fiat, relative to BTC goes up. That is, you can buy more BTC with the same fiat at the lower BTC price.

"Short," in the Bitcoinica sense, treats BTC like a commodity, loaning coins to you to sell now and allowing you to buy them back later.

So, the bottom line is this: do you view BTC as a currency or as a commodity?


I understand what you are saying. But I was thinking more like this. If I short BTC at $5 on Bitconica and flatten the position at $4. I've made some profit in USD. Before Bitcoinica, if I were flat BTC when the price was $5 at Mt Gox and then I'm still flat BTC if the price goes down to $4 I didn't make any profit in USD. I think Bitcoin has some qualities of both a currency and a commodity which makes it hard to categorize and makes it really in a category of its own.

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March 24, 2012, 06:21:45 AM
 #13

Are there any other ways to be effectively short BTC?

You can sell call options.

There is #bitcoin-otc marketplace in which you might find a counterparty:
 - http://wiki.bitcoin-otc.com/wiki/Option_orders

And there is MPOE:
 - http://bitcointalk.org/index.php?topic=67302.0

You can also buy puts. If you want them to behave roughly like regular short positions, you can buy some in-the-money puts and sell them back to micrea once the price goes down (or exercise them if that's more profitable, but it probably won't be).
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March 25, 2012, 01:09:31 AM
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guruvan, I think you are missing a key aspect of how MPOE works. If you were to go there right now, click on the ASK of say CALL @5.0, it'd spit out a page asking you how many contracts would you like to buy. If you type in say 1000 it'd say


I must have misunderstood the page. It initially appeared that the only available options were those with numbers in the open columns. If I now understand, MPOE will cover any options listed on the page if I would like to buy (and if I'd like to sell, I will be selling with those strike prices)
(but this is getting a little off this topic)

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March 25, 2012, 12:34:40 PM
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Not exactly "any", as in, eleventy trillion, but at any rate a good approximation of "any".

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