5 ms·

You’ve been able to short bitcoin on okcoin, bitfinex, bitmex either via margin or through futures products for years. Secondly, newly launched futures product

by verroq 9y ago

You’ve been able to short bitcoin on okcoin, bitfinex, bitmex either via margin or through futures products for years. Secondly, newly launched futures products will have very thin liquidity due to the lack of market makers. There is no way a short/long position on CME will move the market in a meaningful way for a while. I wish Bloomberg et al will stop repeating this “you can’t short” meme because it you can and you could for years.

JumpCrisscross 9y ago
Counterparty risk makes those venues practically useless for shorting. If Bitcoin goes up, you lose on the short. If Bitcoin crashes, the exchanges likely get compromised and you lose on counterparty risk. The only time you "win" is if Bitcoin goes down a little. Those aren't savvy trading parameters.
- verroq 9y ago
  If you are short and bitcoin goes up, then you should lose money. That is expected. If bitcoin price crashes, how does it imply exchanges will become compromised??? Counterparty risk also exists for established exchanges. Secondly I’d venture to say for retail traders, their offerings are vastly inferior to bitfinex/bitmex/okcoin. You get much higher leverage and lower margin requirements. You also don’t pay for quotes or any “access” fees which eat into your margins.
  - JumpCrisscross 9y ago
    > If bitcoin price crashes, how does it imply exchanges will become compromised??? The same way every market before central counterparties (CCPs) failed: exchange participants default and leave the exchange holding the bag [1]. If an exchange permits shorting, then it permits margin accounts. When prices drop, margin borrowers have a habit of defaulting. This is in addition to the risk of lightly-regulated exchanges having fewer Bitcoins than they claim to have [2][3]. > Counterparty risk also exists for established exchanges It's better managed. Goldman Sachs requires 100% margin on its Bitcoin trades [4]. This is only the first layer of protection. If you bust on a CME trade, your broker makes up the difference; if they bust, other CME members make up the difference; et cetera [5]. Central counterparties were created to solve this problem. [1] https://www.federalreserve.gov/econresdata/feds/2016/files/2016087pap.pdf https://www.federalreserve.gov/econresdata/feds/2016/files/2... [2] https://www.bloomberg.com/news/articles/2017-12-05/mystery-shrouds-tether-and-its-links-to-biggest-bitcoin-exchange https://www.bloomberg.com/news/articles/2017-12-05/mystery-s... [3] https://www.theguardian.com/technology/2017/jul/11/gox-bitcoin-exchange-mark-karpeles-on-trial-japan-embezzlement-loss-of-millions https://www.theguardian.com/technology/2017/jul/11/gox-bitco... [4] https://www.bloomberg.com/news/articles/2017-12-14/goldman-said-to-seek-100-margin-on-some-bitcoin-futures-trades https://www.bloomberg.com/news/articles/2017-12-14/goldman-s... [5] https://www.cmegroup.com/education/files/balancing-ccp-and-member-contributions-with-exposures.pdf https://www.cmegroup.com/education/files/balancing-ccp-and-m...
    - fineng123 9y ago
      Hopefully this doesn't get buried as it's 100% correct and thanks for that. Counterparty risk is why shorting tether isn't free money even though it should be (and cost to borrow but not trying to be too pedantic)
    - verroq 9y ago
      These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange. Okcoin uses socialised losses (clawback), bitmex uses ADL with their insurance fund. Bitfinex does some weird stuff. They hold up pretty well during large price crashes.
      - JumpCrisscross 9y ago
        > These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange In a crisis, prices move discontinuously. On one side of the discontinuity, you have adequate reserves. On the other side, you're broke. There is no moment in between when one gets to gently liquidate collateral. > They hold up pretty well during large price crashes Usually I'd say past performance does not guarantee future results, but in this case, we haven't had the past performance. Every Bitcoin has responded to even intraday crashes by pulling the plug [1]. [1] https://news.bitcoin.com/coinbase-customers-suffer-from-delays-as-withdrawal-period-ends/ https://news.bitcoin.com/coinbase-customers-suffer-from-dela...
        verroq 9y ago
        Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that longs may get liquidated substantially below their liquidation price, depending on the exchange, loss is either socialised or paid thru the insurance fund. At no point would the exchange be bankrupt. Coinbase/gdax is a joke of an exchange and handles nowhere near the volume of bitmex or bitfinex.
        JumpCrisscross 9y ago
sandworm101 9y ago
Shorting requires two parties. Someone has to loose the bet. If either that person doesn't hang around or the escrow fund disappears mtgox-style, your savvy short position also goes up in smoke. Or maybe, during the crash, the exchange decides to settle up with you by giving you bitcoins. That transfer should only take a few days/weeks during the panic of a real crash. Enjoy the ride. Wall Street is correct in saying that you cannot short bitcoin because the massive regulatory infrastructure that backs such transactions doesn't really exist. One of my favorite websites is running an add: "Buy bitcoins by credit card, before it's too late!" That too late thing is coming sooner than later.
- deleted 9y ago
  [deleted]
- cgmg 9y ago
  > That too late thing is coming sooner than later. Not saying it's not coming, but can you estimate the time frame? Otherwise, this statement basically contains zero information.
  - sandworm101 9y ago
    A month. Bitcoin has in the last few weeks become next to useless as a currency. 30+$ to get a trade executed within an hour is unacceptable. So it isn't currency anymore. It is now just an investment vehicle. Skyrocketing price + no underlying use/value means this looks more and more like a pyramid. When the pure investors start pulling out their profits (a monthly thing) only to find that more difficult than anticipated, the panic selling will start.
    - jug 9y ago
      Also I’m afraid it will be hit harder than before this even begun, because now we know Bitcoin doesn’t scale.
readhn 9y ago
Theoretically. In reality - real traders couldn't even trade this thing as there was no infrastructure and too much system risk. If I fund my speculative 100-500k trading account who guarantees I'll be able to close out and cash out when I want? Noone could so far. Futures market will add much needed liquidity and confidence that one could actually trade this thing actively and with apropreate position sizes. So far all BTC trading was done mostly by hobbyists who have no clue how markets function.
- verroq 9y ago
  Market makers will have to trade on these unregulated exchanges so that they can hedge. So all you have done is unload the risk to the MMs. Which means if the MMs operate on the same risk model as you. Then you can expect the futures products to be highly illiquid.
- zone411 9y ago
  100% correct. It's painful to see how little otherwise intelligent tech people know about investing...
  - deleted 9y ago
    [deleted]
cassetti 9y ago
Personal investors/prop traders have been able to short for years. Investors who aren't allowed/don't want to have direct custody of assets haven't been able to short until now.

by verroq 9y ago

JumpCrisscross 9y ago

Counterparty risk makes those venues practically useless for shorting. If Bitcoin goes up, you lose on the short. If Bitcoin crashes, the exchanges likely get compromised and you lose on counterparty risk. The only time you "win" is if Bitcoin goes down a little. Those aren't savvy trading parameters.

verroq 9y ago
If you are short and bitcoin goes up, then you should lose money. That is expected. If bitcoin price crashes, how does it imply exchanges will become compromised??? Counterparty risk also exists for established exchanges. Secondly I’d venture to say for retail traders, their offerings are vastly inferior to bitfinex/bitmex/okcoin. You get much higher leverage and lower margin requirements. You also don’t pay for quotes or any “access” fees which eat into your margins.
- JumpCrisscross 9y ago
  > If bitcoin price crashes, how does it imply exchanges will become compromised??? The same way every market before central counterparties (CCPs) failed: exchange participants default and leave the exchange holding the bag [1]. If an exchange permits shorting, then it permits margin accounts. When prices drop, margin borrowers have a habit of defaulting. This is in addition to the risk of lightly-regulated exchanges having fewer Bitcoins than they claim to have [2][3]. > Counterparty risk also exists for established exchanges It's better managed. Goldman Sachs requires 100% margin on its Bitcoin trades [4]. This is only the first layer of protection. If you bust on a CME trade, your broker makes up the difference; if they bust, other CME members make up the difference; et cetera [5]. Central counterparties were created to solve this problem. [1] https://www.federalreserve.gov/econresdata/feds/2016/files/2016087pap.pdf https://www.federalreserve.gov/econresdata/feds/2016/files/2... [2] https://www.bloomberg.com/news/articles/2017-12-05/mystery-shrouds-tether-and-its-links-to-biggest-bitcoin-exchange https://www.bloomberg.com/news/articles/2017-12-05/mystery-s... [3] https://www.theguardian.com/technology/2017/jul/11/gox-bitcoin-exchange-mark-karpeles-on-trial-japan-embezzlement-loss-of-millions https://www.theguardian.com/technology/2017/jul/11/gox-bitco... [4] https://www.bloomberg.com/news/articles/2017-12-14/goldman-said-to-seek-100-margin-on-some-bitcoin-futures-trades https://www.bloomberg.com/news/articles/2017-12-14/goldman-s... [5] https://www.cmegroup.com/education/files/balancing-ccp-and-member-contributions-with-exposures.pdf https://www.cmegroup.com/education/files/balancing-ccp-and-m...
  - fineng123 9y ago
    Hopefully this doesn't get buried as it's 100% correct and thanks for that. Counterparty risk is why shorting tether isn't free money even though it should be (and cost to borrow but not trying to be too pedantic)
  - verroq 9y ago
    These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange. Okcoin uses socialised losses (clawback), bitmex uses ADL with their insurance fund. Bitfinex does some weird stuff. They hold up pretty well during large price crashes.
    - JumpCrisscross 9y ago
      > These exchanges will automatically liquidate your position in order to avoid causing a loss to the exchange In a crisis, prices move discontinuously. On one side of the discontinuity, you have adequate reserves. On the other side, you're broke. There is no moment in between when one gets to gently liquidate collateral. > They hold up pretty well during large price crashes Usually I'd say past performance does not guarantee future results, but in this case, we haven't had the past performance. Every Bitcoin has responded to even intraday crashes by pulling the plug [1]. [1] https://news.bitcoin.com/coinbase-customers-suffer-from-delays-as-withdrawal-period-ends/ https://news.bitcoin.com/coinbase-customers-suffer-from-dela...
      - verroq 9y ago
        Prices only move because of successfully filled orders. It is extremely unlikely that the bid side of the orderbook is completely empty. The worse case is that longs may get liquidated substantially below their liquidation price, depending on the exchange, loss is either socialised or paid thru the insurance fund. At no point would the exchange be bankrupt. Coinbase/gdax is a joke of an exchange and handles nowhere near the volume of bitmex or bitfinex.
        JumpCrisscross 9y ago

sandworm101 9y ago

Shorting requires two parties. Someone has to loose the bet. If either that person doesn't hang around or the escrow fund disappears mtgox-style, your savvy short position also goes up in smoke. Or maybe, during the crash, the exchange decides to settle up with you by giving you bitcoins. That transfer should only take a few days/weeks during the panic of a real crash. Enjoy the ride. Wall Street is correct in saying that you cannot short bitcoin because the massive regulatory infrastructure that backs such transactions doesn't really exist. One of my favorite websites is running an add: "Buy bitcoins by credit card, before it's too late!" That too late thing is coming sooner than later.

deleted 9y ago
[deleted]
cgmg 9y ago
> That too late thing is coming sooner than later. Not saying it's not coming, but can you estimate the time frame? Otherwise, this statement basically contains zero information.
- sandworm101 9y ago
  A month. Bitcoin has in the last few weeks become next to useless as a currency. 30+$ to get a trade executed within an hour is unacceptable. So it isn't currency anymore. It is now just an investment vehicle. Skyrocketing price + no underlying use/value means this looks more and more like a pyramid. When the pure investors start pulling out their profits (a monthly thing) only to find that more difficult than anticipated, the panic selling will start.
  - jug 9y ago
    Also I’m afraid it will be hit harder than before this even begun, because now we know Bitcoin doesn’t scale.

readhn 9y ago

Theoretically. In reality - real traders couldn't even trade this thing as there was no infrastructure and too much system risk. If I fund my speculative 100-500k trading account who guarantees I'll be able to close out and cash out when I want? Noone could so far. Futures market will add much needed liquidity and confidence that one could actually trade this thing actively and with apropreate position sizes. So far all BTC trading was done mostly by hobbyists who have no clue how markets function.

verroq 9y ago
Market makers will have to trade on these unregulated exchanges so that they can hedge. So all you have done is unload the risk to the MMs. Which means if the MMs operate on the same risk model as you. Then you can expect the futures products to be highly illiquid.
zone411 9y ago
100% correct. It's painful to see how little otherwise intelligent tech people know about investing...
- deleted 9y ago
  [deleted]

cassetti 9y ago

Personal investors/prop traders have been able to short for years. Investors who aren't allowed/don't want to have direct custody of assets haven't been able to short until now.