Hacker News Reader

Comment by jaggederest | Hacker News Reader

That's neat, but where is the hedge against bitcoins? This is a long hedge, you'll need short hedges too, no?

One way you can hedge against bitcoins is by making a bet on betsofbitco.in. I could, for example, register a bet that bitcoin will have a value of under $10 USD by the end of May 2013.

However, you are limited by your ability to find a counterparty. Of course, willingness to find a counterparty is a limit in most forms of short or put. Judging by some of the current odds on other bets, finding counterparties to small bets of large swings downward might not be that hard. That particular forum seems to think that bitcoin will go up. Of course getting paid in bitcoin for your bet that bitcoin will drop might be a problem...

AFAIK short selling originated as a flaw in manually settled stock exchanges. ( You only needed to have the stocks when the accounts were settled, so you could sell first and then buy later.) But you can get the same effect by borrowing bitcoins and selling them. Then you need to buy them back later.

That's exactly what short selling stock is: you borrow it from someone and sell it, and return it to them later by buying it for (hopefully) cheaper. To sell short without borrowing is called 'naked' short selling, and it's not allowed on US equity exchanges.

Assuming there is an active trading of this fund you could look to buy a put option on this fund.

Due to the volatile nature of bitcoins in general, I imagine the premium on those options would be very high (if anyone was willing to offer them in the first place).

Reply on news.ycombinator.com