Topic: Another good indicator of market activity (Read 4148 times)

Do they have information pertaining to the quality of the items, their relative scarcity, the availability of the resources to produce the bread, the chicken population, the dietary needs of others, etc.

Hey guys, my resolution is simple - Bitcoinica will publicize information that helps people to trust us, and continue protecting our customers and ourselves from financial attacks.

List of data that's okay to be shared:

- Hedge vs P2P ratio
- Trading volume (already available)
- Average spread (already available)
- Unbalanced portfolio percentage (in absolute value - regardless of long or short)

List of data that's definitely NOT okay to be shared:

- Stop orders (to prevent short squeeze)
- Limit orders (as the only publicly available dark pool)
- Forced liquidation status (to prevent short squeeze)
- Customer deposits (to minimize the data available for competitors)
- Absolute reserve amounts (to minimize the data available for competitors)

List of data that requires further discussion to decide:

- Reserve percentage (targeted financial attacks?)
- Delayed order book (it's technically complicated)
- Percentage change in customer deposits (targeted financial attacks?)

If we make our financial data available, it will be much easier to trigger our circuit breaker, which means that our customers will not be able to buy or sell for a brief period. This can generate market opportunities for manipulators.

However, I'm aware that hiding is not a solution. I will figure out a systematic solution to prevent us from having the ability to trade against our customers at all, even when the algorithm fails to balance the portfolio properly.

I hope this debate can end peacefully. Thank you for all the trust!

Actually you both confirmed the assertion. Private property is integral to a monetary system, allowing for and encouraging excess and greed. And how do we know what a business's margin is unless they are totally transparent?

Am I understanding correctly that you make an assertion and you expect others to disprove it?  I always thought that if one made an assertion then they took on the burden of proving that assertion.  Or is it guilty until proven innocent in your world?

Doesn't disprove the assertion.

Almost completely disagree... What 'they' are afraid of is you finding out the Mark-Up.  You expect them to make a profit cause you understand the need for it. Retail can be as high as 300% but if you found out they are making 1500% or more... then you might say: Hey, I am getting scammed.

A truly transparent currency would minimize Mark-Ups to reasonable rates when taking Taxes, Expenses, and Labor Costs into affect.

Some Mark-Ups are really low but that is because of a huge volume of business.

A monetary system requires ignorance, hidden information and secrecy in order to function. If we had perfect transparency in all market place dealings, then no one would be able to profit, and then there would be no need for money.

We could go and create a bitcoinica competitor, as was mentioned already a few posts back, but the reasonable thing to do first is to try and persuade zhou. And that is what I am doing right now. Failing that, other options can be considered.

I trust Zhou too, and think he has done an absolutely fantastic job on bitcoinica and have told him as much in private (and in public). Some people here seem to think that I have a vendetta against him and this is totally false. I have a lot of respect for Zhou. But the point that I am trying to get across is that trust, and personal guarantees, are just not enough to put my mind at ease with regards to the moral hazard issue, even from a guy as upstanding as Zhoutong. Because after all, when it comes to moral hazard, even the most respectable and trustworthy people sometimes fall victim.

Nobody was held in higher regard on Wall Street than Bernard Madoff and Richard Fuld, and look how that turned out.

What is to say that in the future, Zhou is not forced between a rock and a hard place from which he has no alternative but to do the thing that he gave such ardent assurances that he wouldn't? His guarantees and assurances that this will never happen are just too tentative. When it comes to other people's money, something more than simple promises is required.

You might be right in believing that at least part of the reason why I am speaking so loudly on this topic is due to my own self interest. I want to be able to use bitcoinica, but I have no interest whatsoever in using the platform in it's current form. It's just too risky. And I am not just talking about the risks associated with margin trading.

The onus is squarely on the shoulders of Zhoutong to come up with SOMETHING to ease the minds of those who invest money with him. I am simply applying the required pressure to motivate him to do so. Thankfully, Zhou has already promised to publish some numbers. I am not trying to say that I know what it is that is required. I requested transparency from bitcoinica, but was told that this is impossible for the most important data, the data we need to ensure the financial health of the platform. So if this is not possible, Zhou is going to have to innovate and come up with some other means of letting us all know in quantitative terms that it is safe to invest with bitcoinica. I have full confidence that he will be able to do this.

I want the bitcoin economy to be developed properly, safely and as openly and transparently as is possible. Since this new financial system we are building is in it's early days and the economy itself is basically free from any regulation whatsoever, we have to do the job of the regulators ourselves and be extremely cautious when it comes to issues like this. It is of vital importance that that we use as much forethought as possible to prevent any future problems that may shake the trust we are collectively building in this infrastructure. I don't want to see the efforts of so many people in this community dashed on the rocks by those who refuse to listen to reason.

I'm not saying we should tax bitcoinica. I was pointing out that the definition you posted from wikipedia does not support your argument. Of course, a particular nation does not collect tax from corporations operating outside the state. However, they would have to declare this information to the relevant authority in their respective location.

What do you mean any other reason to open their books? Have you even read my posts, or are you simply arguing for the sake of argument?
I won't be baited by your diversionary tactics. Go back and read the thread more thoroughly.


I see. It's difficult, so I guess we should just forget about trying to do anything about it then.

Thankfully this 'pragmatic' view of yours was not shared by people like Satoshi Nakamoto, Rick Falkvinge, Julian Assange and the folks involved with the Global Occupy Movement, to name but a few people who were determined not to accept the status quo because it was too hard to do anything about it.


You don't seem to understand. Yes they are free to release as little as they want, but only if we let them get away with it!

You are right, they are currently a monopoly, and the only way to deal with a monopoly is to stop using their services until they are willing to cooperate with the wishes of the market participants. They are not providing such a 'vital' service to the community that ceasing giving them your coin will negatively affect the bitcoin economy.

I realize that I seem to be the only voice actively calling for transparency, but surely there must be a majority of people who understand the risk posed by bitcoinica in it's current form. I hope I am not wasting my breath and have gotten through to at least a few of the more savvy traders.

Or more simply, the state doesn't collect tax on corporations operating outside the state, like for example, Singapore where Bitcoinca is incorporated. So taxation is obviously out.

Any other reason why they have to open their books?





I agree that regulation is necessary, both IRL and in the bitcoin world. Except I'm more pragmatic. There's simply no way to enforce regulation on anonymous corporations without a physical presence and operating with a nearly untraceable currency.

"Voting with their feet and their bitcoins" won't work because like Zhou repeatedly pointed out, Bitcoinica is currently a monopoly. If you open up a Bitcoinica clone with transparency then I would love to use your service, but until then Bitcoinica is free to release as little information as they want.

I do know how to use wikipedia. But thanks for being so kind in providing those paragraphs for my benefit. Have you somehow gleaned from my posts that I am a proponent of economic intervention by the regulators? Your copy-pasted wikipedia and merriam-webster definitions do not contradict my argument one iota.

Even when regulation is limited to tax collection and enforcement of private contracts, how do you think that the authorities know how much tax to collect? Because the businesses they collect from are required to disclose their accounts and other financial activities.

The only thing that truly defines a free market is the former (unbolded) part of your wikipedia definition, where prices are determined by supply and demand in a competitive market only and not by economic intervention by states or other financial institutions.

Again, as I already said, we as a community don't need to have the ability to impose sanctions on bitcoinica or otherwise intervene in the market to prevent them from operating, HOWEVER (I am copy and pasting my own statements now) we should at least have the ability to raise awareness of potential problems in the market that would be otherwise hidden, so that the market participants themselves are made aware and can correct the issues themselves by voting with their feet, or more appropriately, their bitcoin.

In order for this to work, then we need transparency on at least some of the data. If a business is unwilling to provide this data, then the logical reason for not wanting to do this is that they are trying to hide something that they do not want their clients to know about.

From wikipedia:
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts.

From Merriam-Webster:
An economic market operating by free competition

Even a completely 'free' market requires some amount of oversight. The fair and efficient operation of markets requires that monopolies such as bitcoinica are not allowed to abuse their dominance, and that competitors participate in the market in ways which do not restrict, prevent or distort competition.

Regulators do not have to be given any actual powers, but should at least have the ability to raise awareness of potential problems in the market that would be otherwise hidden, so that the market participants themselves are made aware and can correct the issues themselves by voting with their feet, or more appropriately, their bitcoin.

You should look up what "free market" means. There are no financial regulators in a free market.  I don't disagree with your position, but if you're claiming we need bitcoin regulators and you want a free market then I need to point out that hypocrisy.

I don't like boiling anything down to simplistic statements. But I digress. Yes, bitcoinica might commit fraud and take your money, and you probably wouldn't even realize it had happened. Therefore we need to make sure that it can't happen. Very 'nice' argument indeed. Also, how am I to produce any evidence when no data is published and none can be obtained? All I can do is point to lessons that were HARD learned in the real financial sector. We ignore these lessons at our peril.

It's absolutely hilarious that you are trying to typecast ME as the thug, when I have literally ZERO power to do anything but try and convince others that there is a significant potential issue here. I'm not saying bitcoinica IS a scam or that zhoutong is not an honest guy, but there is significant potential moral hazard as I already explained.

There ARE 'thugs' who 'kidnap' you in the free market if you refuse to show them your books. They are called financial regulators. All financial institutions have to document for them exactly what they are doing with their depositors money. Pesky, aren't they? Since we don't have their help here, we need to do the job they normally do ourselves.

If you do not want to heed caution, then throw it to the wind for all I care, and deposit all of your coin with bitcoinica. I have no vendetta against bitcoinica, I do not use their services, and have no reason otherwise to continue this line of argument other than for the good of the bitcoin economy. You are entitled to disagree with me, but I have no obligation to save you from your own stupidity.

So your argument boils down to "Bitcoinica could commit fraud so we need to check their books". It's a very nice argument because A. You don't need to show a shred of evidence, and B. You can profit from Bitcoinica's proprietary data without doing any work.

I'm only getting on your case because you mentioned "free market". In a free market there are no thugs who threaten to kidnap you if you don't show your books to them.

1) No  2) No and 3) No, they owe me nothing.

If you want a more thorough explanation of why I think an overview of this data is necessary, then maybe you should actually read my previous posts. Just because they have not defrauded anyone to date, does not mean that they might not in the future. The only way to monitor the platform is with this information. I'm not saying bitcoinica is a scam or that zhoutong is not an honest guy, but there is significant potential moral hazard as I already explained.

If bitcoinica were operating in the financial system proper, do you think they would be able to evade these questions the way they are able to currently? And do you think people would be jumping to their defense on the issue? Would you deposit your money with a bank who would give two fingers up to the financial services regulators?

Please answer a few simple questions for me, mjcmurfy.

Has Bitcoinica ever coerced anyone into using their services?
Has Bitcoinica ever committed fraud against its users or its counter-parties?
If the answers to the first two questions are negative, then why do you feel entitled to Bitcoinica's proprietary data? Do they owe you anything?

Despite the deliberately opaque and complicated way this system is operating, I'll try and explain my concerns as clearly as I can, without knowing more about the inner workings of bitcoinica, it's financial status, how it's trading bot works and how it hedges.

Basically, it all comes down to the fact that it can become very expensive to hedge a leveraged position (i.e. more than the initial deposits), on an exchange that does not allow you to also leverage the hedge position. This is the case we find ourselves in with Bitcoinica and MtGox. One offers leveraged positions but the other does not.

On bitcoinica, you make nominal profits in usd for your trades, not bitcoin. Let's say that I decide to leverage a large bitcoin holding at 2.5:1 on bitcoinica.  If I decide that the market is going to move up, and it does, I am entitled to 2.5 times the profit in usd than I would if I were trading directly on the exchange. Where exactly does this cash come from?

Some of it will come from investors who have taken losing opposing positions at bitcoinica, but it is easy to conceive of a huge leveraged position being held for a long time which has accumulated a lot of profit. It is possible that bitcoinica would not have the volume on its own orderbooks alone to pay the winnings. So once the trader closes out his position, bitcoinica may have a significantly acute deficit to meet which may make them insolvent.

When bitcoinica's orderbook becomes internally out of balance, the overspill from any huge positions closing out will require bitcoinica to foot the bill which is denominated in USD. Because bitcoinica does not pay this bill from it's own funds, the money necessarily has to come from the btc deposits on its books. Bitcoinica can 'hedge' the position, but since they can not leverage it, they would have no option but to try and use the bitcoinica depositors bitcoin on mtgox to speculate on the market proper for a profit. Considering the fickle nature of the market, this is very risky and could potentially be a double edged sword for bitcoinica traders.

So bitcoinica now has a strong incentive (almost a requirement) to profit on the MtGox platform. And since they are privy to a hell of a lot of market position data and other market information, they have an unfair level of insight into the market - even if this insight is only coming from a derivative platform as long as there is enough people making predictions it is extremely representative of what is going on in the market proper as everyone is speculating on the primary market itself. So what I am saying is that there is a strong likelihood that zhoutong would be forced to use this data to manipulate traders on the exchanges. Another potential scenario is that he would attempt to minimize the amount to be 'hedged' or put at risk, by actively trading against his clients directly on the bitcoinica platform. Neither scenarios are pretty.

When you consider that a lot of high volume traders are starting to take leveraged positions, you have to wonder how bitcoinica is supposed to foot the bill if a net majority of them happened to wind up significantly in the green at some point in the future.

Also, consider that someone with a lot of capital could take up a large position on bitcoinica using lots of leverage then pop over to MtGox, take a huge bite out of the market, maybe even at a loss, and still wind up hugely in profit because of his bitcoinica position.


Why should zhoutong protect his clients who are taking extremely risky positions at the expense of the market proper? Doesn't sheltering a section of the market participants go against everything the free market is supposed to achieve? People who take risky positions and lose deserve to have their money taken away as they would have been perfectly entitled to the profit had the trade gone the other direction. They should not be trading with more than they can afford to lose.

Why does MtGox or TradeHill not feel the need to do this? Zhou must just value his clients so much more than everyone else. It of course motivated out of self interest. Work your own way through to the logical conclusion of that one.

MjcMurfy,

Would you mind explaining how Bitcoinica is displacing risk to MtGox?  Because I don't see how they possibly could. I don't think you understand the risks of margin trading.

If I make a stupid trading decision, say buying at $10 right now, I only end up putting my money into another person's pocket.  If Bitcoinica hedges, it goes into a Gox user's pocket, if they don't it goes into a Bitcoinica user's pocket. Margin trading would only multiply the amount of money leaving my pocket and going into someone else's. If I take on bad risk, it creates a good opportunity to others.  If the value of my account goes to zero, I get liquidated. My risk does not transfer to others.

If Bitcoinica hedges well, they can avoid risk.  If they don't, they are assuming risk opposite to mine.

Newbies losing money margin trading are putting money into other people's pockets.  They aren't hurting anyone but themselves.

The only way Bitcoinica users can take money out of Gox users' pockets is if they are taking smarter positions.  The smartest traders should be able to capitalize on the poor predictions of others: this is the purpose of a market.  Zhou should absolutely NOT publicize the net balance of the order book, because this would allow market manipulators short squeeze his customers much more easily. 

What makes you think newbies with risky positions on Bitcoinica are somehow transferring this risk to MtGox users?

Why are you making attacks on the character of those who disagree with you?

PS: I love bitcointorrentz, thanks for providing us with that great site.