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Long overdue. I've done some research on trying to short Bitcoins and could not come up with anything better than a naked short position or something with treme

Long overdue. I've done some research on trying to short Bitcoins and could not come up with anything better than a naked short position or something with tremendous counterparty risk. I'm more interested in Bitcoins as a legitimate means of exchange rather than as an investment, and a service like this would enable me to protect against volatility, the same way similar services in existing ForEx markets protect borrowers and lenders in foreign markets.

krichman 13y ago
How does the ability to short protect you? Genuinely curious, I don't know anything about markets beyond traditional buy and sell.
- conjecTech 13y ago
  Say I sell you a house and allow you to finance it with a mortgage denominated in Bitcoins. The house would normally sell for $250,000, so as of yesterday, I would have accepted 1,000 bitcoins for it. Let's then say that over the course of the next year the price tumbles to $5 per bitcoin. You can now go out and spend $5,000 to pay off the mortgage entirely. However, if I shorted bitcoins by buying put options(the right to sell them at a certain price at some point in the future) which enabled me to sell 1,000 bitcoins at $230, I would effectively insure that I will only ever lose a maximum amount of $20,000 because of the volatility as opposed to the $245,000 I would lose if I was not able to hedge my position. Similarly, if I had a price for something i wanted to sell truly denominated in bitcoins, (i.e. not dynamically changing to always reflect a constant price in USD or some other currency), there would be a similar risk, particularly if I'm keeping my earnings in the form of bitcoins instead of immediately selling them. You can start to see why options are a very important step in something becoming a true currency. It allows you to safely deal with it somewhat more independently of volatility.
  - krichman 13y ago
    Yes that acts just like purchasing an insurance policy! I guess I was imagining the case where you short and then the price doubles when you need to buy, and not considering that you could buy an option and only use it if the price falls. Thank you for taking the time to explain it.

krichman 13y ago

How does the ability to short protect you? Genuinely curious, I don't know anything about markets beyond traditional buy and sell.

conjecTech 13y ago
Say I sell you a house and allow you to finance it with a mortgage denominated in Bitcoins. The house would normally sell for $250,000, so as of yesterday, I would have accepted 1,000 bitcoins for it. Let's then say that over the course of the next year the price tumbles to $5 per bitcoin. You can now go out and spend $5,000 to pay off the mortgage entirely. However, if I shorted bitcoins by buying put options(the right to sell them at a certain price at some point in the future) which enabled me to sell 1,000 bitcoins at $230, I would effectively insure that I will only ever lose a maximum amount of $20,000 because of the volatility as opposed to the $245,000 I would lose if I was not able to hedge my position. Similarly, if I had a price for something i wanted to sell truly denominated in bitcoins, (i.e. not dynamically changing to always reflect a constant price in USD or some other currency), there would be a similar risk, particularly if I'm keeping my earnings in the form of bitcoins instead of immediately selling them. You can start to see why options are a very important step in something becoming a true currency. It allows you to safely deal with it somewhat more independently of volatility.
- krichman 13y ago
  Yes that acts just like purchasing an insurance policy! I guess I was imagining the case where you short and then the price doubles when you need to buy, and not considering that you could buy an option and only use it if the price falls. Thank you for taking the time to explain it.