Topic: Bitcoin vulnerability (Read 1331 times)

Like I suspected above, seems like I was right and the answer is YES:
"Attackers wait until the price of bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit," Mt.Gox said.
http://finance.yahoo.com/news/bitcoin-hacked-price-stumbles-buying-103848677.html;_ylt=Aj6xABvB5n5SPsC4lmSkiN6iuYdG;_ylu=X3oDMTQ4ajlmdW5jBG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwNiZDIwYjZiNi1hZjgxLTNiMmQtYjUxYi1iYjViNjg2MTcwNWEEcG9zAzEEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgM1NDkxYmM0MS05ZDE0LTExZTItYjlmYi0zZTA4ZmIxMDkzODA-;_ylg=X3oDMTFkcW51ZGliBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3BtaA--;_ylv=3

Manipulation is always possible, with or without short selling.  You will always have things like pump and dump type scams, no matter what kinds of regulations you create for markets.  In fact, it's probably a good idea to evaluate posts in this forum against the question of whether the poster is pumping a position in order to manipulate markets.

Are you referring to manipulation of the silver and gold "paper" market by the big bullion banks?
That's what makes me think that if shorting bitcoins is made possible, manipulation could be possible..

I'll pitch in 1 BTC for his annoying face.

Great response.
Thanks

The US government does have a way to manipulate currencies, it's called the Exchange Stabilization Fund.

ESF $550bn vs. Bitcoin $0.5bn

"may deal in gold, foreign exchange, and other instruments of credit and securities."
http://www.treasury.gov/resource-center/international/ESF/Pages/esf-index.aspx

I wont sell mine.

As i am sure others wouldn't sell theirs, monopoly will NOT happen in the Bitcoin economy.

If BTC were to ever become centralized im buying pieces of sting and using them as currency instead.

This has nothing to do with the US Government and nothing is destroyed.  If anything, it makes bitcoins circulate more, which is a good thing.

This also allows people to make money off of market movements whether the market goes up or down.  The lending institution makes money in the form of interest, the short seller makes money if the BTC value decreases.  If it doesn't then the short seller looses money, but the lender still gets their original investment plus interest.  On top of that, you can use the interest charged on short contracts as an indicator of optimism about BTC, which is pretty useful.

I don't see a downside to this at all.

Do you really think there are any investors out there who can build up the value of BTC, then short the market, then crash it and then cover their shorts when the market tanks?  If people like this do exist then bitcoins are insecure and should not be used.

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Edit:  Oh, you were responding to the OP, not to me.  Sorry about that.  Some people have accused short sellers of 'destroying value' before, so I misread the two posts above this one, LOL.

We are talking about the U.S. Government. "Counterproductive" and "waste of money" are its primary characteristics.

Seriously, destroying BTC only makes it more valuable because it is more scarce. If you want to kill bitcoin, just constantly create bubbles and pop them. Nobody will trust it to retain any value.

Wouldn't that be a major waste of money? I mean buying something to destroy it when it will never be on their level.. seems counterproductive to me. 

If you have bitcoin loans then you de facto have bitcoin short positions.  Investment sites that allow you to short by checking the box for 'short sell' rather than 'buy' is just a convenience.

The mechanism for short selling is to get a loan for say, 10 BTC, then use that to buy cash (say, $650 USD today), then when it's time to pay back the loan you buy 10 BTC at current market rates to pay back the loan.  If you pay the loan back a month from now and the price has dropped by $10 per BTC, then it would cost $550 to buy 10 BTC to pay back the loan, earning you $100 USD.

Of course, you have an interest rate on a loan, so if your interest rate on the 10 BTC is, say, 1% then you have to pay back 10.01 BTC, which would eat into your profits from a short position.  You want to take this into account when timing your purchase of BTC to cover your short position.  If a lot of people start to think that BTC is going to go down in value then demand for short positions will increase, which will increase the demand for BTC loans, which will increase the short term loan interest rate.

How many services are there for BTC loans?  In aggregate, how much BTC credit is really out there?  If there isn't much BTC credit out there and short selling picks up then it would be very profitable to be a seller of BTC credit, because as demand increases so do interest rates.

MtGox will never permit naked shorts, as that puts them as the naked long.  That's a real quick way to go bankrupt in this market.

Oh, that one. Sure.

Want to see something disturbing?

enter "Depends upon how much money that they were willing to lose" into the google search box.

Probably about your sig?

Sure, but they'd have to purchase the huge amounts  first unless they start naked short selling on gox (in which case we stop using mtgox).

Care to share? Cuz I wasn't quoting anyone on purpose.

Your awesome quote just introduced me to a book I had never read. Thanks!

Right. Since BTC is deflationary fractional, reducing BTC in circulation is not really an issue.
And if volatility is intentionally increased, it could be exploited by buying the dips I suppose

Hey, a central bank's not getting mine!

People would be buying the dips?