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Comment by tlb | Hacker News Reader

Tether shows the problem with non-shortable securities. If even 1% of traders believe it's valuable and 99% don't, the 1% can happily trade amongst themselves at full value. If there were a short market, the majority non-believers would drive the price down.

I think you could find 1% of cryptocurrency traders that believe any theory you care to name.

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You can short Tether on Kraken.

Shorting Tether is pretty strange, since if it works as designed it will essentially never increase in value, there's no risk on that end. And if it's a fraud that collapses, the short pays off big.

Can somebody explain how that effect would get priced into the market? I can't think of another commodity like that.

The price is the interest you pay on the borrowed short shares

Interesting point :)

Futures coming soon. Look what happened to subprime when it became possible to go short.

it wasn't possible to short subprime in the past?

You can't short real estate easily because it's a physical thing. Subprime was bonds that were secured by mortgage loans on real estate. You can short bonds but it's not easy because you have to find some to borrow. But then someone invented credit default swaps for subprime bonds. CDS are derivatives insuring bonds from default. They are similar to futures by being a 2 sided contract where cash flows between the two parties and the winner pays the loser the difference. One side is long and the other short. In subprime they took it a step further and made packages of these CDS contracts so you could go short a ton of subprime all at once. These instruments coming out coincided with the top of the real estate market in 2005 and their peak popularity was at the peak of the subprime boom in 2007.

Nobody did it until someone did. Then it went big! For reference watch the movie: The big short.

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