
After Bitcoin Futures, Watch Out for Crypto Repos - thisisit
https://www.wsj.com/articles/after-bitcoin-futures-watch-out-for-repos-1516699108
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chollida1
> 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.

~~~
sokoloff
> 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.

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KasianFranks
Non-paywall source [http://archive.is/pwC2S](http://archive.is/pwC2S)

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](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](https://www.investopedia.com/terms/d/deathspiral.asp)
by creating artificial over-supply
[https://www.investopedia.com/terms/a/ax.asp](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
Maybe you can explain this for me a bit more.

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?

~~~
KasianFranks
A "note" by a partner investment house or broker that will back you, because
of your rep with them or because you've got an inside track, saying that you
do "own" the required amount. This is how it works on the traditional Street.
And it won't just be Bitcoin, but now most crypto according to what the
article is describing.

~~~
JumpCrisscross
> _This is how it works on the traditional Street_

No, it isn’t. Brokers certify ownership through official channels. Lying about
a customer’s account is fraud. In the repo market, that is investigated
directly by the Federal Reserve. Naked repos aren’t a thing.

~~~
KasianFranks
Fraud does not exist on Wall Street? Try again. This is another reason the
blockchain and crypto do exist.

~~~
skybrian
The relevant comparison would be between stock brokers and crypto exchanges.
Crypto exchanges get hacked all the time.

------
hxn
I would like to bet on the performance of Bitcoin Cash versus Bitcoin. But I
cannot think of any way to do so. Any ideas?

~~~
bradleyjg
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.

