Yea @hazek. Look at the quote inception, and it still makes no sense. Occam's Razor is on a killing spree.
Serge, try to take Pirateat's place. You're making this excessively complicated by trying to look from the outside. If he ever needs investors for such operations, then only for a short time. The actual BS&T wants exponentially more investors, even though its own assets should grow exponentially!
Once you're done with a 5-page explanation as to why it could work in theory, I'll just say it again: hedging against risk is much cheaper than 7% a week. And the whole card-house comes tumbling down, no matter how neat its theories.
Ok, I've thought a little about presented dilemma. I think for anyone to understand it better why borrowing at these rates in order to sell at high premium rates works better than do it on your own we must go back in time when pirate started offering his selling service to his clients and to remember what was happening on exchanges at that time. I don't know exactly when pirate introduced his service, I think it will be safe to assume it all started somewhere last year. Market volatility was insanely wild at the time, there were huge fluctuations within single days, no one knew to which price one would wake up the next morning.
Supposedly pirate closes a deal, back in 2011, and by the time he's ready to re-buy market moved so much leaving him little to no profits even with his high premium rates. That's where his initial client rates came from - comfortable for his clients and leaving him enough margin to get few percentages out of a deal himself. We can be sure he had some good and some bad trades all due to market fluctuation (unless he already had enough reserves to allow him some time to catch as many dips as possible more or less safely). As business started picking up with increasing volume this was hard and tedious work always monitoring exchanges and doing trades like a bot in order to stay on profitable levels while selling at premium rates to his clients; market manipulation was much riskier too even if it was accessible to him at that time. Until one day pirate realized "Hey, I can borrow bitcoins at significantly lower rates than what I'm paying on exchanges to re-buy them fueling swings and causing small panic disturbances! While this gives me an opportunity to re-buy on my own at slower pace without much of market disturbance! ARHH Brilliant!!" he exclaimed =) BTCST concept was born.
Before BTCST, although he had access to liquid Bitcoins, the rates were unpredictable. After BTCST he pretty much has predictable and controlled stream of BTC available at his disposal at predictable rates (not guaranteed but more or less stable). Volatility became manageable, his competition which drove him mad at times on exchanges with unpredictable fluctuations now is on his side being his BTC suppliers/lenders. He can slowly move market up or down 20% for time being and is making lots of money for many others who lend to him at the same time. Life became less stressful and the endeavor less risky.
I maybe wrong though
but people are unlikely to bet anyway.
