

Coinsetter raises $500k to bring leverage, shorting to Bitcoins - changdizzle
http://techcrunch.com/2013/04/09/coinsetter-lands-500k-from-secondmarket-founder-others-to-help-bring-leverage-shorting-to-bitcoin-trade/

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trotsky
An unregulated leveraged options platform with essentially no assets and what
will undoubtedly be super senior debt deals with their prime broker writing
naked contracts on something that moves 30% based on one website lagging out
for a hour or two?

what could go wrong

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gfodor
bitcoins was babby's first forex trading platform. I guess it's time for nerds
everywhere to get a crash course in options (emphasis on the word crash.)

~~~
angersock
god this is going to be good

Edit: Is anyone actually recording the market movements? It'd be really neat
to see minute-by-minute how this goes down.

~~~
bwood
Bitcoin Charts [1] keeps history for dozens of exchanges (which all float at
slightly different values) and has a free API to let you request any period of
interest. Beyond just market price, I think you can get records of every
individual trade. If nothing else, this whole bitcoin thing is a fascinating
experiment!

[1] <http://bitcoincharts.com/charts/>

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minimax
The people here talking about shorting bitcoin to moderate the bubble have no
idea what they're talking about. Shorting a bubble is about the stupidest
thing you can do. Here's how that math works:

1) You open a margin account with $10,000.

2) You borrow 25 BTC from your broker and sell them on the market at $200. You
hope that the price crashes to $0 and your net profit will be $5,000.

3) What actually happens is that the price doubles to $400. It would now cost
you $10,000 to close your position (buy the 25 BTC back at market prices).

4) Your broker realizes this and decides -- without asking -- that it doesn't
like this state of affairs and closes the position for you, wiping out your
margin.

5) You are now $10,000 poorer.

~~~
kevinpet
I talked about shorting bitcoin to moderate the bubble, and I have some idea
what I'm talking about. Don't confuse "shorting will stabilize the price" with
"it's a good idea to short bitcoin".

A shorting mechanism makes it possible for people who are not bullish to
participate in the price discovery process. Without a way to short, there are
only two participants in the price discovery mechanism -- those who previously
acquired bitcoin and now think that they're overvalued and those who think
they will continue to appreciate and want to buy more. There is no way for
someone who bought at $20 and got out at $100 to express an opinion that $200
is an unsustainable bubble.

Kid Dynamite wrote a good post about how an inability to borrow can keep a
market irrational for a long time here: [http://kiddynamitesworld.com/on-
misinterpreting-pslvs-premiu...](http://kiddynamitesworld.com/on-
misinterpreting-pslvs-premium/)

It's irrelevant whether shorting bitcoin is going to make anyone money, or
when shorting will make people money vs. when it will wipe you out on a margin
call. I'm only talking about how the ability to short will make the market
more efficient.

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wamatt
The implicit assumption that there is a bitcoin bubble, is not a fact.

Was the .com speculation the last two decades a bubble? Is Facebook stock
circa 2007 a bubble? etc

Rational arguments can be both ways and I'd be wary of anyone selling
certitude on either side the fence.

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fixxer
As a former trader (FI arb), I absolutely love this... for all the wrong
reasons. I always wanted to DDOS my way to higher profits.

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ChuckMcM
And who says there isn't any innovation in online gambling?

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jeremyjh
Are there some 0s missing? $500K doesn't sound like any amount of money to
open a "mature" trading platform.

~~~
patio11
On the Bitcoin Software Maturity Scale, where hundreds of thousands of dollars
routinely gets entrusted to 17 year olds coding bucket shops in Ruby on Rails
and 80% of the global transaction volume is run through a company in Tokyo set
up to trade Magic: The Gathering cards, a guy with financial industry and
experience and enough money to pay for a single professional security audit is
practically IBM.

~~~
gwern
> and 80% of the global transaction volume is run through a company in Tokyo
> set up to trade Magic: The Gathering cards

 _Gasp_! You're right! What other companies have I foolishly entrusted parts
of my life to?

/looks at his video game console, run by a company in Kyoto set up to sell
handmade hanafuda cards

Not you too, Nintendo! ;_;

I don't know _what_ to believe in now.

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tnorthcutt
Video game console != currency exchange company.

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gwern
That was not my point at all. My point was that patio11 is, shamefully,
engaged in well-poisoning by bringing up the distant origins of MtGox, which
have zero relevance to any consideration of MtGox's current professionalism,
security, regulatory compliance, risks to users etc. (A point that you would
think would be obvious to anyone on Hacker News, who is aware of how companies
'pivot' all the time.) It has changed too much, isn't even owned or run by the
same people, and has a long enough and spotty enough track record to judge on
its own.

I illustrate the irrelevance and fallacy by applying the same well-poisoning
to a pleasingly symmetrical example: another Japanese company which was also
set up to deal with playing cards - Nintendo. No one would dream of judging
Nintendo by its playing cards origin, because that was a long time ago,
different people are involved now, and it has ample room to judge it since.
Just like MtGox.

~~~
gwern
For example, MtGox shutting down trading is a great argument against its
competence! But it shutting down trading has _nothing to do with its origins
as a card trading site_. Bringing that up is pure rhetoric.

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

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conjecTech
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.

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krichman
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.

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michaelochurch
This is a big deal. With leverage and shorting, the only people who will have
use for BitCoins (as opposed to a long position in a margin account) will be
the small set who need the specific type of liquidity that BitCoin offers...
and that will prove to be a small set. (People who need regular anonymous
liquidity have other means.)

I will also remark that, even when a bubble is underway, shorting is
dangerous. If you don't know what margin calls are (and how much it sucks to
get hit by one) then stay out.

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andrewljohnson
You miss the big picture. Digital currencies will exist as an instrument to
hedge against currency fluctuations, commodity manipulation, and to let you
deploy liquid money into assets with calculable appreciation/depreciation
rates.

It won't take much more than a large industry coalition to settle the price
fluctuation around bitcoins, which will follow the basic organic market
coalition... i.e. vendors accepting bitcoins.

In the future, we may not be using bitcoins, but you can bet we're going to be
using coins made of bits. I don't know if my bitcoins will be worth anything
eventually, but they will be an artifact of great change at least.

~~~
michaelochurch
_Digital currencies will exist as an instrument to hedge against currency
fluctuations, commodity manipulation, and to let you deploy liquid money into
assets with calculable appreciation/depreciation rates._

National currencies are much less volatile than Bitcoins have shown themselves
to be.

 _In the future, we may not be using bitcoins, but you can bet we're going to
be using coins made of bits._

I think we can agree there. "Bits" have nothing to do with it. It's this:

Money pre-1800: metal (usually gold or silver) that can be used to pay taxes
and hire killers to defend land.

Money 1800-2075[?]: debt of large institutions, with equity a small player.

Money post-2075: access to talent (the _new_ limiting factor on getting ideas
into implementation). We're starting to see that. I put that at 2075 because
people are very conservative when it comes to money, so even though that will
be the definition of wealth decades before that, I think it will take a long
time before we can come up with a reasonable talent-based currency. What would
the proof-of-work model be? It's hard to say.

~~~
mattm
> National currencies are much less volatile than Bitcoins have shown
> themselves to be.

I think Zimbabweans, Argentinians, Russians, Mexicans, Romanians and a handful
of other nationalities would disagree with you.

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kevinpet
This is great news if it works out. The ability to short is an important part
of moderating a bubble.

~~~
jnbiche
You can short now: icbit.se is a well-run exchange and derivatives market.

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everettForth
Congrats to Coinsetter! Hopefully this should lead to longer term price
stability of bitcoins.

~~~
ChuckMcM
Under what scenario would this increase stability in bitcoins?

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nevster
With the price soaring to new heights, how do you pay for things in bitcoins
when a single bitcoin is worth so much? Can you pay in fractions of a bitcoin?

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wmf
Yes, just like you can pay in fractions of a dollar or Euro.

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nevster
Thanks - should have checked wikipedia first - "In trade, one bitcoin is
subdivided into 100 million smaller units called satoshis, defined by eight
decimal places."

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mtgx
Wouldn't this, ironically, stabilize Bitcoin, if others try to take advantage
of its growth and try to bring it down again?

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fennecfoxen
It would indeed stabilize Bitcoin, but I don't see what's so ironic about it.
Short-selling and other derivatives substantially stabilize a lot of markets,
popular delusion to the contrary notwithstanding.

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runT1ME
But now there is double the incentive to artificially drop the value of
BitCoin as much as possible, no?

I don't know how trading bitcoins work, but won't this increase volatility
both ways in addition to overal stability (taken as an average).

~~~
derefr
Yes--basically, short-selling just creates the same kind of "flight to
quality" gravity that kills markets when people start to feel pessimistic
about them, but pulls in the opposite direction: so now, on average,
everything will "draw a straight[er] line", but moment-to-moment you'll just
have price spikes that kill the short positions in the same way price-plummets
kill the long positions.

What Bitcoin really needs to smooth out its volatility, as far as I can tell,
is HFT market-makers trading tiny amounts of BTC by the millisecond. Which
should theoretically be _easier_ with an all-digital currency--but, if done in
"real" BTC, requires probably at least a million times the block-chain growth
velocity Bitcoin currently has. It could still probably be done with "BTC
liabilities" on a private exchange, though.

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lwat
I just found out that IG Markets have added Bitcoin binaries to their trading
platform. You can bet on the Bitcoin price being above / below $100, $150,
$200 etc on MtGox at some point in the future.

