Topic: Is shorting BTC possible? - page 2. (Read 3842 times)

theres also the problem with the owners of the exchange being tempted to allow naked shorting by their customers.  in other words, they pretend to give you (generic) shares to short which they don't own simply for the fee involved in making that sale.  this can create all sorts of problems as Overstock.com and Tazer experienced with thousands of shares sold (shorted) on the mkt way greater than the actual number of shares issued.  at this stage of the game where BTC is such a nascent concept, i would avoid this complexity which could cause alot of harm.

as someone who has lots of experience shorting i can say you're only presenting half the story.  shorters also can contribute to downside pressure prrecipitating a selling panic.  you have to remember that  mtgox is only a currency exchanger at this point.  as a user of mtgox i can say they can barely handle this fx much to my chagrin.  theres all sorts of bugs in their protocol as far as i'm concerned and introducing this further complexity would be impossible with their current staffing.

Of course you can short bitcoins:

1.   Borrow some bitcoins.
2.   Sell them on the market.
3.   Wait until the price of bitcoin has lowered enough
4.   Buy some bitcoins back.
5.   Pay back your debt.
6.   Profit and go back to step 1.

I helped someone short. We agreed to swap my coins for his dollars and swap back after a month.

Thank you.

This really doesn't provide the protection against a panic though. If I have borrowed some money and a panic ensues, the most likely scenario is that I just say screw the debt and cash in on whatever value I have left. It's the forced future buying that is the important part.

The way this would work more or less is like this. Say mt gox would like to implent this and that I (the generic I) would like to short the market through them. There are two requirements. First mt gox needs a buffer of saved BTCs to allow shorting, and second I need to deposit some USD to mt gox. So I deposit 100 USD to my mt gox account and say I want to short the market for 50 USD. What happens then is that mt gox sells 25 BTC at the current market price ($50 for simplicity's sake), credits the money to my account and notes that I owe them 25 BTC. If I'm right on my bet and the BTC does indeed go down I will buy back 25 BTC at a lower price and keep the difference while returning my BTC debt to mt gox. If I am wrong however I will buy them back at a higher price and be netted a loss to my account.

It is also neccesary with a stop limit where mt gox steps in and buys back their BTC with my money automatically since if those 25 BTC would increase above $150 it would become impossible. Obviously I will still stand for the loss. The stop limit in the above example should be somewhere below $150 (my $100 deposit + $50 from the BTC sale). Users should idealy also be able to set their own lower limits so that they can regulate the amount they stand to lose without monitoring the market 24/7.

The important part here is really the forced buying back that will be monitored by the mt gox software. Since any shorter is a guaranteed future buyer, they will be stepping in if/when the value of the currency drops and provide liquidity in an unsafe market which would work kind of like a "safety net" for any hypotethical panic.

I thought I saw a thread around here recently where somebody was trying to establish some sort of lending contract that sounded an awful lot like shorting.

This is a really neat idea, I have been thinking a lot about how to counter a potential bubble in bitcoin, this seems to be a good step.

An important challenge is that most people who care about bitcoins believe it will take over the world...

Welcome to Bitcoin. I don't think any of the exchanges currently offer such an option, but you can always simply find someone to lend you bitcoins in Forum/Marketplace or bitcoin-otc. You'll probably need either some reputation or collateral. (The generic you, I gather the personal you isn't interested in this.)

Mt Gox say on their site they'll allow options soon, which in my understanding satisfy the same need.

Hi.

First off, I just want to say that I love this project and find it quite fascinating. I'm currently waiting for my first bank wire to mtgox so I can investe in som BTC. This is quite some entrepreneurial work by everyone involved.

Anyway, to my question which is actually more concerning than at first glance. I have been looking around a bit and haven't really found out if any of the current exchanges allow shorting of bitcoins right now. For those not familiar with the concept, 'shorting' basically means betting that the currency will go down in value, by "selling" borrowed Bitcoins today but with a contractual obligation (forced by whoever provides the service) to buy back the same amount at a future date. Thus, if you are correct on your bet that BTC will go down in value, you make money since you buy them back at a cheaper price. If you are wrong you will be forced to buy them back at a higher price.

The reason I ask and find the lack of this so concerning is that shorting actually serves a very important role in a functioning market. One thing that I believe could bring this whole thing down is a panic of some sort. Shorting helps to prevent this. If a selling panic would ensue, the shorters would become the buyers as they decide it's time to reap their profit, and thus the market would stabilize sooner rather than later. Without shorters a rapidly decreasing market would very soon be without buyers and make the situation even worse. So, in order to decrease the chance of a panic that destroys the entire ecosystem of bitcoins, I really think that someone with the ability should look at providing the service to short the market.

Also, shorting would make it possible to tell the doubters to put their money where their mouth is.