Short Seller Says Naive Bitcoin Traders Open a Pathway to Profit | Hacker News Reader

Short Seller Says Naive Bitcoin Traders Open a Pathway to Profit

bloomberg.com

36 pointshamstercat26 comments

This is not a good trade and here I’ll outline the reason.

1- You need to borrow GBTC to be able to short it. The borrowing comes at a cost “interest rate”

2- Futures themsleves comes with a premium and require rolling over. It is 100% stupid to use futures instead of the real thing: just buy bitcoin.

3- You won’t be able to cash out until the GBTC premium dissapears. If you are small this might never happens. 4- You might also find yourself in a bad situation: Bitcoin price goes up. You’ll need to supplement capital to your short. That can be an arbitrairly high amount of USD. 5- 4 can be fixed with futures as they allow you to withdraw non realized gains. But it comes at the price of paying for rollover premium. 6- GBTC high price might be due to illiquidity. Not interest.

Tldr: don’t follow this guy. Very sophisticated trade and not clear if it can be profitable.

>> You won’t be able to cash out until the GBTC premium dissapears.

Hence the reason for this PR article :).

Using futures is not 100% stupid when it makes issue (4) a non-issue.

Futures comes at a cost, however: premium and rollover costs. Premium costs is not fix if you need to rollover. You’ll need to pay both premium and interest on gbtc.

Also futures on CME are not easily tradable. The contract value is $100k and liquidity is not impressive so far.

CFE futures are for 1 bitcoin and seemed reasonably liquid for small trades.

Citron's entire business is shorting investments and then trying to cause a panic with negative PR to move the market in their favor. It is shocking that what they do is legal.

This doesn't mean they are wrong here, but I wouldn't describe them as a trusted source either.

> It is shocking that what they do is legal.

What is legal about it? Buying a stock and releasing positive PR sounds a lot like pump and dump which is illegal. Is it just the fact that they are shorting the stock that makes what they're doing legal?

He's not shorting it, he's just arbitraging GBTC vs. the bitcoin futures.

The Bitcoin Investment Trust, a publicly traded vehicle whose bitcoin holdings are worth $1,601 a share, nonetheless trades at a price more than double that amount, according to data compiled by Bloomberg.

A savvy trader could in theory mint money by betting that gap will shrink. Futures contracts introduced over the past week by Cboe Global Markets Inc. and CME Group Inc. provides a way to do that: Buy the futures, short sell the Bitcoin Investment Trust.

Why should it be illegal? Muddy Waters regularly exposes fraudulent companies by finding fraud, taking a position, exposing said fraud, then profiting from the correction. I understand that spreading lies should be illegal, but I struggle to understand why disseminating factually accurate information should considered a negative thing.

It really is the Wild West of crypto currency right now. Greed is going to fuel a lot more arbitrage opportunities like these as people invest in crypto "derivatives" without fully understanding what they are buying.

> Citron would not be pounding table if not appropriate,” he wrote. “Thank you for the 70 percent profit.”

So Bitcoin is up several 1000%s on the year and he is beating his chest from a 70% profit on the short side?

He's not "on the short side". If you read the article, he's talking about an arbitrage opportunity, which if executed properly, should not be net long nor net short.

Citron is on the short side. Their entire investment strategy of the company is to short assets, in this scenario the future is used as an arbitrage hedge, but overall yes citron is short biased on bitcoin.

It’s bitcoin-neutral, that’s the whole point of the hedge.

Citron is not bitcoin neutral. They are short biased bitcoin as their website and twitter account reiterate. And a hedge doesn't mean "neutral." It simply protects you in the event that an investment doesn't go as expected.

The bloomberg piece says: “Left recommends shorting the trust, buying bitcoin futures”. He says in the video: “I don’t even care what happens to bitcoin”. Where is the short bias?

No, he's beating his chest because he's making a 70% profit and he's covered so can't take a loss.

There's a difference between making 1000%s on speculation vs 70% on arbitrage in terms of risk -- not to be rude but when he talks about naive investors I think this is what he's talking about.

A year ago, no one knew the price was going to go up 1000%, so some amount of luck is involved. Price could have just as easily stayed the same or even gone down 90%. If you bought in there is some amount of risk involved.

The 70% profit made by an arbitrage opportunity doesn't require you to guess where the price will go in the next 12 months. You know for a fact that as long as neither of these companies go bankrupt, you'll be making 70% on your investment.

> The futures are already showing signs of efficiency. When they debuted a week ago, Cboe’s traded for a price as much as 13 percent higher than the price of bitcoin -- a wide gap indicating an immature market

Can someone explain this to me? If the market expects the price to go up a lot, why wouldn't the futures trade at a large premium?

Cant determine whether this is a PR piece or actually sound “investment advice”

Assume PR. The investor has already locked this position and by others doing so, the spread will become tighter and he will profit.

Just because it's PR doesn't make it wrong.

Yes, he profits if you do what he says. But... so do you!

I am always cautious when people share "their secrets" with the rest of the market.

I am not saying it's wrong but I have been in cryptocurrencies long enough to know it's not as simple as it might look.

I would be skeptical of the ability to short this market substantially since those who came in very early and at very low prices hold quite a lot and can afford it to go way down yet and thus will be long on this if need to.

That's also just another theory we have no way of knowing whether is true or not.

So only time will tell.

PR but it's no more PR than any other pro-bitcoin article that's been on the front page.

Well, so far the pro's have been fairly correct.

That doesn't mean there won't be a major correction but again it just sounded disingenuous to me.

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