> It also allows them to short—bet on a falling price—the cryptocurrency they borrow against the one they lend, mimicking a common tactic among hedge funds. The investor can sell the cryptocurrency they borrow on the open market and hope to buy it back at a lower price, pocket the difference and return the currency to the lender. Meanwhile, they are betting the currency they handed over as collateral doesn’t fall by as much as the one they borrow.
I mean it makes sense that someone would come along and try and build a business around this as many hedge funds are already doing this sort of stat arb already. Locking down borrow is a real pain at the moment for a few reasons:
- no standardized terms for collateral, terms, and borrow prices
- no api to ping people for borrow
- no way to get borrow quickly, ie if you see a short term trend you can't get borrow quick enough to do the trade before the market "arbs" out your anomaly.
I don't however think this will be what makes people start to short bitcoin as I don't know who wants to make a pure directional bet on bitcoin going down at the moment. Like the commodity guys, CTA's, learned many years ago, you don't fight the trend, you latch onto it and ride it.
Shorting bitcoin seems like trying to short China a few years ago. You can know that something is wrong and the numbers are all made up but being right doesn't matter when the market ignores fundamentals.
Or put another way, in a trending market you can be right and get your face ripped off, or accept it and make money on the trend.
> I don't know who wants to make a pure directional bet on bitcoin going down at the moment
There's a line of reasoning that if no one thinks a security or asset will fall in price that's the best setup for it to do so. (If everyone thinks it's going up, from where would new buying money come?)
I don't have a position in BTC (or any other coin), but I think it's likely that BTC hits $5K before it hits $20K.
Getting liquidity to short or long on margin is as easy as clicking a button and getting liquidated.
Poloniex, Bitfinex and BitMex are some of the places you can play that game. You can even become a BTC lender on some of those exchanges and get around 20% APR since loans can be compounded every 1-2 days or even shorter depending on the duration of positions people open.
> You can know that something is wrong and the numbers are all made up but being right doesn't matter when the market ignores fundamentals.
You can participate in the market simply by not buying. If nobody offers the short, it is not possible to accept it.
In the case of BTC, one could arrange a private short (you loan me your BTC, for which I will pay you interest and return your BTC in two years) and short it that way. Caveat trader.
This is when the real fun begins for cryptos with oversized floats. Look to see a lot of naked shorting https://www.investopedia.com/terms/n/nakedshorting.asp as it will be the primary means of enabling WallSt sharks to create "death spirals" https://www.investopedia.com/terms/d/deathspiral.asp by creating artificial over-supply https://www.investopedia.com/terms/a/ax.asp driving a cryptos price down so they can scoop it up at rock bottom prices. There will be other cryptos with smaller floats that will burn shorts via the classic "short squeeze" driving the price up for these cryptos at the same time.
In the cash equities markets you can naked short because the exchange doesn't hold your shares. In bitcoin the exchange itself holds your bitcoin so they can only allow you to short what you own.
How do you propose a user naked shorts something on a bitcoin exchange where the exchange can simply not let you enter the sell without the required bitcoin?
In a mature liquid market, like exist for major US equities for example, you'd go long bitcoin and short bitcoin cash. Your broker would calculate the margin ratio on the total position and so you wouldn't get a margin call just because the bitcoin cash part went up, so long as bitcoin went up even more. There'd likely be some sort of carry cost.
But bitcoin, and especially bitcoin cash, doesn't have a mature liquid market, so this really isn't possible in any sort of off the shelf way. If you wanted to put at least a few hundred million into the position maybe you could get an investment bank interested. But even then they might not want to touch bitcoin cash.
[+] [-] chollida1|8 years ago|reply
I mean it makes sense that someone would come along and try and build a business around this as many hedge funds are already doing this sort of stat arb already. Locking down borrow is a real pain at the moment for a few reasons:
- no standardized terms for collateral, terms, and borrow prices
- no api to ping people for borrow
- no way to get borrow quickly, ie if you see a short term trend you can't get borrow quick enough to do the trade before the market "arbs" out your anomaly.
I don't however think this will be what makes people start to short bitcoin as I don't know who wants to make a pure directional bet on bitcoin going down at the moment. Like the commodity guys, CTA's, learned many years ago, you don't fight the trend, you latch onto it and ride it.
Shorting bitcoin seems like trying to short China a few years ago. You can know that something is wrong and the numbers are all made up but being right doesn't matter when the market ignores fundamentals.
Or put another way, in a trending market you can be right and get your face ripped off, or accept it and make money on the trend.
[+] [-] bradleyjg|8 years ago|reply
The market can remain irrational longer than you can remain solvent.
[1] https://quoteinvestigator.com/2011/08/09/remain-solvent/
[+] [-] sokoloff|8 years ago|reply
There's a line of reasoning that if no one thinks a security or asset will fall in price that's the best setup for it to do so. (If everyone thinks it's going up, from where would new buying money come?)
I don't have a position in BTC (or any other coin), but I think it's likely that BTC hits $5K before it hits $20K.
[+] [-] clayrichardson|8 years ago|reply
Poloniex, Bitfinex and BitMex are some of the places you can play that game. You can even become a BTC lender on some of those exchanges and get around 20% APR since loans can be compounded every 1-2 days or even shorter depending on the duration of positions people open.
[+] [-] ISL|8 years ago|reply
You can participate in the market simply by not buying. If nobody offers the short, it is not possible to accept it.
In the case of BTC, one could arrange a private short (you loan me your BTC, for which I will pay you interest and return your BTC in two years) and short it that way. Caveat trader.
[+] [-] KasianFranks|8 years ago|reply
This is when the real fun begins for cryptos with oversized floats. Look to see a lot of naked shorting https://www.investopedia.com/terms/n/nakedshorting.asp as it will be the primary means of enabling WallSt sharks to create "death spirals" https://www.investopedia.com/terms/d/deathspiral.asp by creating artificial over-supply https://www.investopedia.com/terms/a/ax.asp driving a cryptos price down so they can scoop it up at rock bottom prices. There will be other cryptos with smaller floats that will burn shorts via the classic "short squeeze" driving the price up for these cryptos at the same time.
[+] [-] chollida1|8 years ago|reply
In the cash equities markets you can naked short because the exchange doesn't hold your shares. In bitcoin the exchange itself holds your bitcoin so they can only allow you to short what you own.
How do you propose a user naked shorts something on a bitcoin exchange where the exchange can simply not let you enter the sell without the required bitcoin?
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] airza|8 years ago|reply
[+] [-] hxn|8 years ago|reply
[+] [-] bradleyjg|8 years ago|reply
But bitcoin, and especially bitcoin cash, doesn't have a mature liquid market, so this really isn't possible in any sort of off the shelf way. If you wanted to put at least a few hundred million into the position maybe you could get an investment bank interested. But even then they might not want to touch bitcoin cash.
[+] [-] naturalgradient|8 years ago|reply
[+] [-] androng|8 years ago|reply
[+] [-] clayrichardson|8 years ago|reply