Topic: Bitcoin Not Being Inflationary will Cause its Price to Go Down (Read 1197 times)

In fact that's what I think too. Will hold.

Ok let me get this straight: I think its perfectly fine to sell, just not to SHORT sell. But TBH, the current prices are pretty insane on gox, I wouldn't recommend selling unless you think that Gox's fiat withdraws are going to work for a really long time, while their BTC withdraws won't. Since the reverse has been true for the majority of 2013, I think selling right now is a pretty bad idea since you'll have to buy back in higher when/if BTC withdraws are re-enabled, and even if they aren't, its highly unlikely you'll get your fiat out anyway.

The only reason you'd sell right now is if you think the price is going even lower before Gox re-enables withdraws, AND you also think that they will in fact re-enable withdraws, which puts your buy-back-in window potentially very small. If you're glued to your computer, it might be worth it, else I think its probably not worth the risk you'll be stuck with fiat in a failing gox with an absurdly high BTC price when BTC is the only way out.

Thanks for your comment. My old plan on Monday is to short sell and buy back at limit-order 400USD, with a buy-back stop-order at the exact price I sold - around 600USD. MtGox doesn't support stop order, but my bot do. However I observed strange behaviour from MtGox API and assume it would remain unstable until the dust sets, and for that reason I cannot trust my bot linked with such an API (what if it was HTTP-Error-500 when bitcoin resume withdraw?). A bug in the softare triggered the stop-lose order and bought back all coins by mistake, I reversed my position with a moderate lose. I decied for no more action. If I sticked my old plan, by now I would have gained 60% more coins than before, but exposed to the risk that stop-lose order doesn't work when it is really needed.

So now on MtGox I am full in (like my old position before the withdraw-problem: all coins, no fiat). Judging the current situation, what recommendation do you have to me?

For me, fractional reserve is whenever you trust somebody with your money, and they do something with that money other than storing it in a "vault" somewhere, instead opting to do so for only a fraction of the deposited money, rendering the institution vulnerable to bank runs. Sorry about any confusion there.

Also, I think your analysis is rather spot-on in many regards, but its mind boggling to me how you draw from that its a good time to short sell. Right now its pretty bad to be on margin of any sort unless you're absolutely SURE that gox is going to re-instate withdraws, and if so, you should be leveraged long not leveraged short, and even then its really goddamn risky. If you short and Gox opens withdraws, you could be totally screwed.

There is no fractional-reserve happening here, because nobody is borrowing bitcoin form MtGox, and even if they do, MtGox has no reason to issue promise-to-pay-bitcoin in place of real coins, since real coins are equally trasnferrable and easily-validated. (Or maybe you meant something else with 'fractional-reserve', will you kindly explaind that?)

MtGox is an exchange. For every coin someone withdraw, some other one deposited the exactly same amount of coins into MtGox. At least this is what an exchange supposed to do. There could be no shortage of coins for MtGox for customer withdraw if they sticked to the game rule. If they are short of operational cost, they may sell some of the coins that they took as trading fee, but that happens on the Asset side, not on the Debt side, user withdraw should not be affected.

Following is my reading of the current event:

The most likely cause, if a shortage of bitcoins really happened, is that they have lost coins to other means (larceny), and can't compensate with their profit. But current evidence doesn't support that fully, because it can be reasoned that having detected larceny is a event strong enough to force close withdraw until the hole is fixed, even if you have more than enough to cover the stolen coins. On the other hand, the second announcement following weekend crash evinces larceny, almost fully.

The theft took away coins, and (in the spirite of western law) MtGox need to compensate with their profit. Since it is necessary to stop withdraw until the holes are fixed, they suddenly face an opportunity to short-buy coins and make a huge profit - an insider trade, and they probably seized this opportunity (not necessarily "if they don't do the insider deal they would be insolvent"). Since they irreversibly damaged their reputation and their position will be lost, their future profit will be short-lived, and they are more motivated to make a profit with insider-trade, once for all, even if they are far from insolvent. They could have missed the insider trade opportunity as well, amist the mess shit happening.

I am afraid that this game can't be explained with inflation / deflation and fraction-reserve concepts. It is a business story, not an economical one.

And this is my speculation advice:

For the worried and for the brave soul, now is the time to short-sell. The Friday announcement resulted a 2-day crash that eventually dropped 30% of the price, the current job is not that much yet, there is space to short. I did so yesterday when the price was 600USD in MtGox, but a bug in my home-made bot made me bought all these back at 620USD a few minutes later. When I realized this in GMT 0:00 11th Feb 2014, it was too late for a bolder move to short sell it again, worrying a sudden return of bitcoin withdraw would trap me there.

Since everyone wish to hold fiat in MtGox for now, and many did so, when bitcoin withdraw recovers, people rush to buy bitcoins for a quick exit away from the buggy market, causing a spike, and bringing other exchanges up too. If you bet that, you should have your hands full in coins now.  If your hands are tied in MtGox, you should worry about the half-year long cash-withdraw of MtGox, so you would buy coins back later when the spike is over, and quit gracefully. This of course carries the risk if MtGox go insolvent.

Bitcoin is neither inflationary or deflationary

http://beforeitsnews.com/financial-markets/2014/02/is-bitcoin-deflationary-inflationary-2672256.html

More inflationary than deflationary if you really have no choice but to pick a side

yes, I know what I said. And its true in the short term for an extremely odd reason: Gox.

The fact of the matter is that Gox can't pay back all its BTC & USD. I suspect they have the potential to pay back one OR the other, but not both. So, until now they've been splitting their ability straight down the middle, to prevent a huge bank run from either side. However, people were still inflating the hell out of GoxUSD because BTC withdraws were fast, and running to BTC. This was draining their BTC, raising its price, and really didn't show any signs of stopping soon. It eventually got to the point where BTC on gox was going up even where BTC on Bitstamp was going down. Since gox split its fractional-reserve right down the center, it probably didn't have the money to obtain all the BTC to pay that side back, or doing so would be ridiculously expensive, considering slippage & the fact that GoxUSD holders would probably respond to a gox-only increase with a panic buy.

So gox was forced to shut down the BTC withdraws, putting it on even footing with regard to speed as USD. Since BTC's real advantage over USD is its lack of credit risk and speed, and having your BTC stuck on gox kills both of these advantages, naturally the price of BTC will plummet, which gox NEEDS it to in order for them to be able to pay it back, specifically because there is a limited supply of BTC. They can't print more, so they only way they can survive a bank run is by crashing its price, i.e, artificially creating the SYMPTOMS of inflation, without inflation occurring itself.

The question now is, which withdraw option will be re-enabled first: Fiat or BTC. If Fiat is enabled first, BTC will crash on Gox. If BTC is re-enabled first, BTC will skyrocket. And since BTC is in limited quantity, I don't think its unlikely that Gox will choose to allow Fiat withdraws ONLY for some months, which may spell the end of Gox's own existence. That being the case, other exchanges will take Gox's lead in this scenario, with a similar plunge, at least until Gox completely dies out and has some chance to recover. In the long run, it shouldn't affect Bitcoin's true value, since its purely psychological (real exchanges following the lead of an insolvent exchange) but in the short term, that will be the results.

That's why in the world of semi-centralized non-inflationary currencies, bank runs no longer trigger the symptoms of deflation, they trigger the symptoms of inflation, because that's what the bank needs to happen in order for them to stay solvent. As such BTC's short-term future relies upon Gox's own ability to buy back the BTC they're effectively short at low prices, so they'll re-enable BTC withdraws before USD. If Gox can't, there could be a very bumpy road ahead.