Now just look how some big party desire to have the price to return to 5$ to avoid legal problems will effectively ensure that we will Bitcoin will never ever see 5$ handle again.
Damn markets have this ugly habit of inflicting maximum possible damage. It will now probably rally just to make the matters even worse.
I agree with your second sentence, but I am not totally sure I am in agreement in the first one. If the majority were long, which I am assuming (what is your opinion?), I don't anticipate this being a problem.
We also absolutely have no idea when our coins were really, if ever, liquidated.
EDIT: If you are longterm (I am) this really isn't like the worst thing in the world either. IMO, bitcoin is going up. This is just a small speedbump on the way. While currently it is a rather large percentage gain, I really believe there could be a major movement higher within the next 6 months that will dwarf this. Hopefully a run to test 8.00++ shortly.
EDIT2: I was 90 coins long, but it's one of those things where at this point it's "whatever." I am sure people with huge positions though might have a diff. opinion.
Long and short positions are roughly equal. But regardless, all positions are exactly hedged. This means that theoretically Bitcoinica's liquidated net assets in USD should not change regardless of market movement. However, in reality, short sellers may have been forced liquidated and there's no way to cover the losses.
Anyway it's a terrible thing to happen. Bitcoinica once had similar issues under management in January when the price booms and our position remains under-hedged (because of a bug in the hedging bot). Bitcoinica was in the edge of insolvency but fortunately I managed to handle that well and got positive returns for the company in that month.
But it's sad because Bitcoinica can't continue operation in the short term so it's really hard to solve problems caused by market movement.
Well yes, this could be avoided.
