Izabella Kaminska: The Bitcoin short squeeze

[Rajiv]

The Bitcoin short squeeze

this isn’t a Bitcoin bubble, this is a Bitcoin short squeeze — started by the seizure of the Silk Road bitcoin hoard. The squeeze is now exposing the fractional practices of totally unregulated exchanges all around the world.

Since these exchanges/operators are tech savvy and fighting for their livelihoods, it’s pretty clear they will resort to any means to get the Bitcoins they need to keep operating, so as to keep the propaganda myth that this is somehow a sign of Bitcoin’s strength in play. The weaker ones, meanwhile, will be sitting ducks for those on the hunt for the supply they desperately need to satisfy customers.

[don]

Re: Izabella Kaminska: The Bitcoin short squeeze

The Bitcoin short squeeze

Raj, is this part of the squeeze?

Is there a place for bitcoin in the U.S. economy? Treasury says maybe

Silicon Valley Business Journal

The federal government may be open to considering a role for bitcoin, the spectacularly volatile virtual currency, in financial markets.

“The decision to bring virtual currency within the scope of our regulatory framework should be viewed by those who respect and obey the basic rule of law as a positive development for this sector,” Jennifer Shasky Calvery, the director of the Treasury Department’s Financial Crimes Enforcement Network, said at a Senate hearing. “It recognizes the innovation virtual currencies provide, and the benefits they might offer.”

The Senate heard from federal officials about the benefits — and risks — of the virtual currency at a hearing entitled "Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies,” which started yesterday afternoon in the Senate Committee on Homeland Security and Government Affairs.

According to the bitcoin website, the currency uses peer-to-peer technology to operate with no central authority or banks. Managing transactions and issuing of new bitcoin is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls bitcoin and everyone can take part.

For businesses, bitcoin claims it allows lower transaction fees, protection against fraud and fast international payments.
However, federal authorities also worry about bitcoin being used for nefarious purposes, such as money laundering and illegal transactions, precisely because of its anonymity.

Yesterday, the price of Bitcoins rose 62 percent, up to $750 on the Mt. Gox currency exchange. That’s an increase of 107 percent in a week.

Several digital currency experts also spoke at the Senate hearing. “I am here to testify because I believe that global digital currency represents one of the most important technical and economic innovations of our time,” said Jeremy Allaire, the chief executive of Circle Internet Financial, which is seeking to promote more widespread use of the currency.

Another hearing starts today when the Senate Committee on Banking, Housing and Urban Affairs talks about bitcoin.

[Rajiv]

Re: Izabella Kaminska: The Bitcoin short squeeze

Raj, is this part of the squeeze?

Possibly. But I do not think so. The main reason from the Federal Government's point of view would be to control the illegal uses of the virtual currency - it having become a currency of choice for illegal transactions.

But the problem for bitcoin, or for any other currency, that is designed to be limited in the amounts that can be created is the volatility that can be engendered from hoarding, or from limiting its circulation. From the point of view of using a currency for its exchange value (for using it to buy and sell goods and services,) a volatile currency is very problematic. A currency that is stable is much more to be desired for that purpose. Money, or legal tender, IMO should have no speculative value.

So from that point of view, I have not been in favor of using bitcoins, or for that matter gold or silver as a currency. Let them be there in the economy as speculative vehicles for those of value them for whatever purposes. Over the last few years, I have seen the great value in looking at the world from the perspective of "Modern Monetary Theory"

[Fox]

Re: Izabella Kaminska: The Bitcoin short squeeze

Interesting thought on it all. Bitcoins are new and as Currencies go it is a VERY shallow pool. It doesn't take much to move this thing on either the supply or the demand side.

I've just started playing around with bitcoins to se what it was about ever since I found out any one can be a producer. I figured I'm running BOINC, why don't I run a Bitcoin miner. So right now I have an idle computer generating 17KH/s (Kilo Hashes per second, it's meaning is irrelevent other than it's a unit of measure for Bitcoin production). For the hell of it, I just bought a 330MH/s "ASIC" miner for $30cnd. (consumes 2.5W so whatever). Now note the measurements involved. A $30 half credit card sized USB device is 20,000 times more powerful than a PC.

And this is peanuts compared to the systems that are coming online. There are current machines that are 1000X more powerful still, at only 100X the cost. There are also "Due to ship soon" machines significantly more powerful for similar high end prices. The upshot is that the bitcoin market will soon be saturated with massive new mining production. This will make people's new $6K, $7K, $20K setups totally not worth the power they consume let alone initial investment, time and headaches.

There are other flaws as well. I'll save them for an actual Bitcoin thread though. The upshot is that I fully expect Bitcoins to go through a SPECTACULAR crash soon wiping out this new cottage industry entirely and setting Bitcoin adoption back many years.

Just my thoughts. We'll see how it all goes. If anything interesting pops out of my dabbling, I'll let you know.

[FrankL]

Re: Izabella Kaminska: The Bitcoin short squeeze

Interesting thought on it all. Bitcoins are new and as Currencies go it is a VERY shallow pool. It doesn't take much to move this thing on either the supply or the demand side.

I've just started playing around with bitcoins to se what it was about ever since I found out any one can be a producer. I figured I'm running BOINC, why don't I run a Bitcoin miner. So right now I have an idle computer generating 17KH/s (Kilo Hashes per second, it's meaning is irrelevent other than it's a unit of measure for Bitcoin production). For the hell of it, I just bought a 330MH/s "ASIC" miner for $30cnd. (consumes 2.5W so whatever). Now note the measurements involved. A $30 half credit card sized USB device is 20,000 times more powerful than a PC.

And this is peanuts compared to the systems that are coming online. There are current machines that are 1000X more powerful still, at only 100X the cost. There are also "Due to ship soon" machines significantly more powerful for similar high end prices. The upshot is that the bitcoin market will soon be saturated with massive new mining production. This will make people's new $6K, $7K, $20K setups totally not worth the power they consume let alone initial investment, time and headaches.

There are other flaws as well. I'll save them for an actual Bitcoin thread though. The upshot is that I fully expect Bitcoins to go through a SPECTACULAR crash soon wiping out this new cottage industry entirely and setting Bitcoin adoption back many years.

Just my thoughts. We'll see how it all goes. If anything interesting pops out of my dabbling, I'll let you know.

One technical question: I've understood that bitcoin uses SHA-256 algorithm for generating hashes. I'm assuming that these ASICs implement a very fast implementation of this hashing algorithm.

Are the latest ASIC bitcoin miners already at a speed where a reasonably large cluster of them could be used to obtain SHA-256 collisions, as used for example for certificate signatures?

edit: to answer my own question: very unlikely, due to the very particular and limited implementation of double-SHA256 hashing peformed by bitcoin miners.

[vinoveri]

Re: Izabella Kaminska: The Bitcoin short squeeze

Is there a place for bitcoin in the U.S. economy? Treasury says maybe

Silicon Valley Business Journal

The federal government may be open to considering a role for bitcoin, the spectacularly volatile virtual currency, in financial markets.

“The decision to bring virtual currency within the scope of our regulatory framework should be viewed by those who respect and obey the basic rule of law as a positive development for this sector,” Jennifer Shasky Calvery, the director of the Treasury Department’s Financial Crimes Enforcement Network, said at a Senate hearing. “It recognizes the innovation virtual currencies provide, and the benefits they might offer.”

The benefits they may offer indeed; benefits to whom? A virtual traceable currency would be very useful to governments, intelligence agencies and taxing authorities as there will be nowhere to hide from the "authorities". But virtual currencies will be worthless from this point of view unless they are mandated as exclusive, e.g., via legal tender laws which will certainly accompany any governmental implementation of electronic money.

[lektrode]

Re: Izabella Kaminska: The Bitcoin short squeeze

The benefits they may offer indeed; benefits to whom? A virtual traceable currency would be very useful to governments, intelligence agencies and taxing authorities as there will be nowhere to hide from the "authorities". But virtual currencies will be worthless from this point of view unless they are mandated as exclusive, e.g., via legal tender laws which will certainly accompany any governmental implementation of electronic money.

kinda like - or rather - PRECISELY like - what the banks/creditcard cos have done with 'plastic' money....

[Fox]

Re: Izabella Kaminska: The Bitcoin short squeeze

well I'm not the one to ask about the technical side of it all.

However you have clued me in to the fact that there are two different types of coins SHA-256 and newer (easier to mine) Scrypt coins. The ASIC I just bought only works for SHA-256, and because of that, Scrypt coins are easier to mine. There are currently no Scrypt ASICs and so the difficulty to mine them is low. Can anybody say "Standards war"

In anycase, I have a new miner now that uses my GPU (video card) to mine and my mining is now 20MH/s. So with the coins being 1/10th as difficult to find, that means my idle computer is now almost as "productive" as the USB ASIC will be when it arrives (in theory).

I have a better video card at home, I'm wondering how it will do. Although I won't run that card 24/7 as it will never generate more than it's power consumption. If any actual money can be generated. Bitcoin price took a hit with Fed minutes release along with everything else

Oh and looking at the different exchanges, there is an $80usd arbitrage between price of the highest and lowest exchange. For a border-less fungible "commodity", this is a huge hole in the system.

Bitcoins have a long way to go before becoming mainstream

[Fox]

Re: Izabella Kaminska: The Bitcoin short squeeze

Oh and looking at the different exchanges, there is an $80usd arbitrage between price of the highest and lowest exchange. For a border-less fungible "commodity", this is a huge hole in the system.

hmm, is it bad karma to quite your own post? ;P

Apparently the Arbitrage reflects the inability to sell your coins for cash out of the most expensive, and largest, trading platform (mtgox). Currently cash withdrawals are discouraged with a 15% withdrawal fee. Hmm, first the exchange is short coins, and now it's short cash?

Get some popcorn, this will be one hell of a show to watch.

[photon555]

Re: Izabella Kaminska: The Bitcoin short squeeze

Seems like we may discover the answer to the question: what price anonymity?

[Rajiv]

Re: Izabella Kaminska: The Bitcoin short squeeze

Another relevant article - "The Fair Price of a Bitcoin is Zero"

The virtual currency craze is on a tear, with new virtual currencies emerging every day. The New York Times just ran a series of articles about them last week. “Charles Ponzi would be so proud!” one person appropriately commented at the bottom of this article.

Before going any further, let’s learn a bit more about the bitcoin system (also here and here). There are three components to this system: