Topic: To all those who hate speculators: (Read 2687 times)

[zhoutong writes]

But well, this is how we can hedge:

When the transaction has received without any confirmations, it's already very hard to reverse it. So it's safe to do a short sale on Bitcoinica. After 6 confirmations, liquidate the short position and sell the Bitcoins. The risk is limited to the market movement (only the difference) when the customer reverses it, which is negligible.
[..]

+1. 


Hedging makes it even better. That is, why wait 6 confirmations? Sell (say, at bitcoinica) as soon as you see a deposit coming through.

Ah, got you. Glad bitpay has it down.

Regarding Zhoutong's point about adverse selection, I'd guess here's how a transaction would work:

Say, the merchant wants 3k. You display an ever-updating (say, once a minute quote) in btc.  So far, your quote is good only for 1 minute, not 1 hour.

It's when the customer accepts and hits PAY on your quote that the 6-confirmation-guarantee of my quote kicks in.

Let's say the customer hits PAY, and sends btc.

The btc will reach you in 6 confirmations,  

Once they reach me in 6 confirmations, I owe the merchant 3k.

My risk is now that when they reach me, their value could be 2k or 4k.

Now, how could the customer misuse it? The only way would be for the customer to wait a few minutes, see which way the btc price goes, and try to reverse a previous send.

That is, hopefully, much harder than the simple 3-hour picture painted above.

By the time the customer has waited 10 minutes, there has even been a confirmation, making it even harder.

And, with all this hard work, the best the customer can do is cancel a car purchase unless it really cost him 2.5k (+/- what happens in another 50 minutes) instead of the quoted 3k. But, if a customer attempts that, even that could be detected, hopefully. - and the customer blacklisted.

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Regarding bitcoinica, I don't know.  Restricting what the customer can or cannot do **for the sake of customer's own good** sounds like the Govt. of UK telling me that vitamins are verboten and not good for me. I mean, may be they are not, but let me decide for myself.  

 




 

The Bitcoinica is part is irrelevant. We don't limit anything. It's just that big customers have to deposit more to enjoy the tradable balance.

But well, this is how we can hedge:

When the transaction has received without any confirmations, it's already very hard to reverse it. So it's safe to do a short sale on Bitcoinica. After 6 confirmations, liquidate the short position and sell the Bitcoins. The risk is limited to the market movement (only the difference) when the customer reverses it, which is negligible.

Such a thing already exists with Bit-Pay... They hedge every sale, so that they don't lose money on price fluctuations (That's why Bitcoinica is IMO a good thing, they allow hedging! Although they shouldn't allow such a high leverage to prevent shit like what happened today.). They allow merchants to quote their prices in USD and receive USD. Although it requires a 3% fee, it's still a much better than the fees associated with credit cards, and there's no risk of chargebacks!

Anyone can actually ask for a quote every 3 hours and take advantage of the market movement while giving up the rest.

This is called adverse selection. In the end people will try to get the best quote and abandon the ones that are profitable for you.

Exactly. As long as a merchant can limit the risk so that it is acceptable, there is no problem. The bigger the business is the more they worry about the numbers and looking at a price graph like we've had the last 24 hours, they won't even start to calculate the numbers because it's too ridiculous.

None of this is making me a bear because I wasn't expecting a big business to adopt Bitcoin anytime soon anyway. It's going to be a long road but I'm ready for it because I know the technology is going to be more and more usable in the long run.

I agree,   A mom and pop kinda store could take the risk maybe if its a small percentage of their business and maybe horde them for a while if the price drops to much too fast or put them away as investment. But if the BTC part of income is too big a percentage of the business , well... thats a problem

Don't worry too much. Those who had a great time were the ones who dampened the madness and ultimately make it expensive to those starting it. Unless you consider burning hundreds of thousands of dollars "having a great time".

The market learns by weighting its participants via profits and losses. Whoever causes absolutely insane spikes can only make losses through them. This means that these participants, unlike their dampening counterpart, have to push in fresh money frequently to keep things volatile. They won't be able to afford it, run out of money, and that's that.

The average exchange rate might drop because the chaos reduces mid-term value, but it will settle down eventually.

Bitcoin clearly isn't ready for any big business to start accepting Bitcoin yet. While they could have a system that ensures they don't have currency risk but what if what happened in the last 24 hours happens in their rush hour, it could be disastrous.

I find this rather insignificant though because I wasn't expecting a big business to start accepting coins yet anyway. It will start with small businesses and organizations and gradually grow and when the market is big enough and not as volatile as it is now, then we might start seeing some big merchants take notice.

Expecting too much too fast is unhealthy, that would also cause just another bubble as well. Bitcoin is growing and getting more significant all the time but it will take years until its really ready for big businesses.

Or they could just use PayPal or credit card facilities.  No wild gyrations of currencies to deal with.  Maybe 2% per day at most.

Bitcoin isn't exactly covering itself with glory these past 24 hours.  It's great fun for the speculators, but not so much for people who want to use the commodity and not immediately trade it in for another currency as soon as they get it.

Even with bit-pay and the such, no business will take the risk. crazy fluctuations like today will discourage them.

I have a store ( not in the US) , and I remember when we sold everything according to $ value. We had to check the dollar rate every hour( !) so not to lose. Today  currency is much more stable and strong, so although there is still business deals done in dollars ( like lots of places)  , most prices in stores and such are stable in local currency. I wouldnt want to go back to those days in the past.

No, I slept well and made over 100BTC in the process by setting orders in mtgox yesterday. I don't see how anybody would lose money since they are cleared immediately (via bit-pay).

So? If I were a merchant and I see there is a real possibility that I sell something when Bitcoin is at 6.50 and 50 minutes later when those coins arrive at MtGox they lost 40% of their value I'd walk away from this madhouse right away. I hope you guys had a great time staying up all night is this pathetic negative sum game.

If your projects would use USD, convert donations into USD right away, what is the problem again? The only potential problem is if someone donates right when the downspike happens. Chances of that are relatively low, and it would be easy to limit maximum deviation from the average weekly price at which the sale would still happen.

Even permanent downtrends like the July-December run down don't matter much, you would still get the same USD value in the end.

Volatility is a big problem for merchants.  Say I have a crowdfunding website where people contribute bitcoins to projects.  If a bitcoin has lost 25% of its value from the USD in one day then that is a problem for a project that just finished being funded.  Unless they only purchase all items and labor with bitcoins, they will have to go back and get more money. 

Margins are already small as it is and volatility makes it worse.  Silk Road hedges their risk so that the merchant will pull out more or less bitcoins based on the volatility of bitcoins.

Volatility is a problem because it adds an unneeded level of uncertainty and urgency to every transaction.  Just IMO.

AS for the rest, my signature is relevant. 

now we have bit-pay and either way, *real* btc businesses would be using bitcoins solely and not worry about the spikes.

There must be some delay between the customer accepting the quoted price and exchanging the coins. There probably aren't any merchants with sale volume high enough for it to matter right now though. I remember the silk road people complaining about it awhile back.

Merchants do not care what the exchange ratio of btcusd. This spikes mean nothing. You either take the profit in BTC (if you sell some non-USD based services etc), or you have it converted into eur/usd at guaranteed price to cover your expenses, either way you don't care about this fluctuations.

This is the most interesting and exciting thing about bitcoin right now. I have learned more about markets and trading (And some programming) from being invested in the coins than I ever would have just reading about it as a hobby. I'd be interested to learn if any merchants got put out of business by these wild gyrations though.