Author [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] Topic: Does buying/selling bitUSD put any pressure on the BTSX price?  (Read 423 times)

0 Members and 1 Guest are viewing this topic.

Offline Ander

  • Hero Member
  • *****
  • Posts: 3507
    • View Profile
  • BTS: Ander
Does buying/selling bitUSD put any pressure on the BTSX price?
« on: October 23, 2014, 05:34:51 PM »

So during this downturn in BTSX prices, some of us have been buying bitUSD, instead of selling BTSX, in order to hedge.

This puts less downward pressure on the BTSX price than full out selling BTSX would.  But does it put any downward pressure on?  If the effect just delayed?

When people later on want to sell their bitUSD and be fully back into BTSX, does that put any upward pressure on the price?


Thanks for your thoughts!
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline bytemaster

Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #1 on: October 23, 2014, 06:24:45 PM »
Buying BitUSD puts upward pressure on BTSX price...
Selling BitUSD removes prior upward pressure and thus puts downward pressure on price.
Shorting BitUSD puts upward pressure on BTSX price
Covering BitUSD puts downward pressure on BTSX price.

As a whole, hedging inside the system is a far better place for long-term bulls to hedge because it allows you to minimize losses while supporting the system and reducing overall BTSX volatility.   
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline tonyk

  • Hero Member
  • *****
  • Posts: 3309
    • View Profile
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #2 on: October 23, 2014, 06:45:33 PM »
So during this downturn in BTSX prices, some of us have been buying bitUSD, instead of selling BTSX, in order to hedge.

This puts less downward pressure on the BTSX price than full out selling BTSX would.  But does it put any downward pressure on?  If the effect just delayed?

When people later on want to sell their bitUSD and be fully back into BTSX, does that put any upward pressure on the price?


Thanks for your thoughts!
I will not put too much argument if somebody claims that buying bitAssets on the BTSX exchange does not put any downward pressure on BTSX... but IMHO it does. That said I agree with the following:
As a whole, hedging inside the system is a far better place for long-term bulls to hedge because it allows you to minimize losses while supporting the system and reducing overall BTSX volatility. 
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline xeroc

  • Board Moderator
  • Hero Member
  • *****
  • Posts: 12175
  • ChainSquad GmbH
    • View Profile
    • ChainSquad GmbH
  • BTS: xeroc
  • GitHub: xeroc
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #3 on: October 23, 2014, 06:47:22 PM »
... also paying the fees for ALL asset holders .. not just the CEO of some centralized exchange :)
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

Offline bytemaster

Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #4 on: October 23, 2014, 06:50:46 PM »
So during this downturn in BTSX prices, some of us have been buying bitUSD, instead of selling BTSX, in order to hedge.

This puts less downward pressure on the BTSX price than full out selling BTSX would.  But does it put any downward pressure on?  If the effect just delayed?

When people later on want to sell their bitUSD and be fully back into BTSX, does that put any upward pressure on the price?


Thanks for your thoughts!

I will not put too much argument if somebody claims that buying bitAssets on the BTSX exchange does not put any downward pressure on BTSX... but IMHO it does. That said I agree with the following:
As a whole, hedging inside the system is a far better place for long-term bulls to hedge because it allows you to minimize losses while supporting the system and reducing overall BTSX volatility. 


Remember.. every bitasset is backed by a "super bull" willing to pay interest and lock up 3x its value... so if every 1x bear is paired with a 3x super bull then you are net 2x bull.   Hedging inside certainly helps support the price.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline arhag

  • Hero Member
  • *****
  • Posts: 1213
    • View Profile
    • My posts on Steem
  • BTS: arhag
  • GitHub: arhag
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #5 on: October 23, 2014, 07:09:59 PM »
Remember.. every bitasset is backed by a "super bull" willing to pay interest and lock up 3x its value... so if every 1x bear is paired with a 3x super bull then you are net 2x bull.   Hedging inside certainly helps support the price.

But aren't you assuming that the BTSX demand from the shorting super bulls outweighs the BitUSD demand from the bears + the BitUSD covering demand from existing shorts (perhaps forced into it by the 30 day covering rule). If new information causes market participants to expect a lower value in BTSX (or smaller growth), the overall shorting demand should decrease which would cause the excess BitUSD demand to reduce the value of BTSX relative to BitUSD. Assuming the BitUSD = USD peg continues to work, arbitrage should cause the price of BTSX in terms of USD to also drop appropriately in outside exchanges. These changes will then be eventually reflected in updated price feeds, which may even cause margin calls creating even more BitUSD buy demand.

So, I don't think it is completely fair to say buying BitUSD (using BTSX) puts upward pressure on BTSX price. I think that is only true if there remain plenty of shorts pushed up against the price feed just waiting to be matched. Do you see something wrong with this argument?
« Last Edit: October 23, 2014, 07:11:34 PM by arhag »

Offline Rune

  • Hero Member
  • *****
  • Posts: 1120
    • View Profile
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #6 on: October 23, 2014, 07:12:48 PM »
I think this capability means that once the internal market has matured, we will not really see bubbles, but rather "jumps" to a higher plateau because traders will prefer hedging internally as it is more secure than a centralized exchange.

Offline bytemaster

Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #7 on: October 23, 2014, 07:17:05 PM »
Remember.. every bitasset is backed by a "super bull" willing to pay interest and lock up 3x its value... so if every 1x bear is paired with a 3x super bull then you are net 2x bull.   Hedging inside certainly helps support the price.

But aren't you assuming that the BTSX demand from the shorting super bulls outweighs the BitUSD demand from the bears + the BitUSD covering demand from existing shorts (perhaps forced into it by the 30 day covering rule). If new information causes market participants to expect a lower value in BTSX (or smaller growth), the overall shorting demand should decrease which would cause the excess BitUSD demand to reduce the value of BTSX relative to BitUSD. Assuming the BitUSD = USD peg continues to work, arbitrage should cause the price of BTSX in terms of USD to also drop appropriately in outside exchanges. These changes will then be eventually reflected in updated price feeds, which may even cause margin calls creating even more BitUSD buy demand.

So, I don't think it is completely fair to say buying BitUSD (using BTSX) puts upward pressure on BTSX price. I think that is only true if there remain plenty of shorts pushed up against the price feed just waiting to be matched. Do you see something wrong with this argument?

All BitUSD that exists is backed by a supper bull... if all shorts run away then BitUSD will sell at a premium.. but only "covering" puts downward pressure...
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Ander

  • Hero Member
  • *****
  • Posts: 3507
    • View Profile
  • BTS: Ander
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #8 on: October 23, 2014, 08:50:22 PM »
Alright I think I have figured this all out.


In order for the actual BTSX price to change, BTSX must be bought or sold on an exchange. 
So how does trade in bitUSD influence that?



Imagine that someone wants to buy a LOT of bitUSD.  Enough that they move the price up to $1.02, lets say.

Now there is an economic incentive to do the following:
* Buy BTSX on an exchange.
* Use the BTSX as collateral to short bitUSD, selling it to the person willing to pay $1.01.

You profit from this provided that you are later able to exit the short at a fair value.

Therefore:  Buy bitUSD => BTSX increases in price




On the flip side, lets say someone wants to sell a lot of bitUSD.  They are willing to sell it at .99.

This creates an incentive for shorts to cover.  The short, who previously had tied up their BTSX as collateral, now is free to do whatever they want with it, including sell it on an exchange.

Therefore: Sell bitUSD => BTSX decreases in price.


These effects are muted relative to simply buying or selling on an exchange, of course.




The takeaway:

Any time that longs are panicking and wanting to hedge, they can buy bitUSD.  This not only effectively hedges their position, it also SUPPORTS the price of BTSX, instead of hurting it (as would occur if they hedged by selling BTSX on the exchange).

Therefore, hedging in bitUSD acts as a stabilizing force, reducing volatility to both the upside and downside. 

The more that people use bitUSD, the more than the BTSX price will move more smoothly, going up or down in value in relatively smooth lines over time, not in bubbles/spikes!

That is an awesome feature!  It reduces the chance of black swan events!
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline mf-tzo

  • Hero Member
  • *****
  • Posts: 1665
    • View Profile
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #9 on: October 23, 2014, 09:35:47 PM »
and to add to your post the nice cherry... since short selling is backed by BTSX as collateral x2, x3 with promise of interest, not only decreases the black swan events, not only increase the bitusd liquidity since covering will take within 1 month but eventually the more people buy bitusd proportionally BTSX price increases much more since it's backed by the x2 collateral..

Now imagine how much money are traded on fiat FOREX, commodities every day. Trillions...Once we attract a fair portion of these active traders who will buy into bitassets can you imagine how much your BTSX will be worth?? 

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #10 on: October 23, 2014, 10:17:35 PM »
Remember.. every bitasset is backed by a "super bull" willing to pay interest and lock up 3x its value... so if every 1x bear is paired with a 3x super bull then you are net 2x bull.   Hedging inside certainly helps support the price.

But aren't you assuming that the BTSX demand from the shorting super bulls outweighs the BitUSD demand from the bears + the BitUSD covering demand from existing shorts (perhaps forced into it by the 30 day covering rule). If new information causes market participants to expect a lower value in BTSX (or smaller growth), the overall shorting demand should decrease which would cause the excess BitUSD demand to reduce the value of BTSX relative to BitUSD. Assuming the BitUSD = USD peg continues to work, arbitrage should cause the price of BTSX in terms of USD to also drop appropriately in outside exchanges. These changes will then be eventually reflected in updated price feeds, which may even cause margin calls creating even more BitUSD buy demand.

So, I don't think it is completely fair to say buying BitUSD (using BTSX) puts upward pressure on BTSX price. I think that is only true if there remain plenty of shorts pushed up against the price feed just waiting to be matched. Do you see something wrong with this argument?

All BitUSD that exists is backed by a supper bull... if all shorts run away then BitUSD will sell at a premium.. but only "covering" puts downward pressure...
Each BitUSD is backed by a super-bull, but that is demand for BTSX already expressed in the market. The new marginal BitUSD buyer is selling his BTSX, so I would think that applies negative pressure on BTSX because it requires more BitUSD shorts or sellers (buyers of BTSX) to absorb it to maintain the price. Take it to an extreme, say enough people wanted to buy BitUSD that their orders overran the sellers and shorts and forced the BitUSD price up above the peg. To take advantage of the arbitrage, yet maintain overall position on BTSX, arbitragers would short or sell BitUSD (buy BTSX relatively cheap) and sell on the exchanges, thus transferring the price pressure to the exchanges. That's the way I see it, not right?

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #11 on: October 23, 2014, 10:22:12 PM »

Imagine that someone wants to buy a LOT of bitUSD.  Enough that they move the price up to $1.02, lets say.

Now there is an economic incentive to do the following:
* Buy BTSX on an exchange.
* Use the BTSX as collateral to short bitUSD, selling it to the person willing to pay $1.01.

You profit from this provided that you are later able to exit the short at a fair value.

Therefore:  Buy bitUSD => BTSX increases in price



The problem with this analysis I think is that this is not a risk-free arbitrage. In your case, the person trying to take advantage of the premium to the peg in BitUSD is forced to take a more bullish position on BTSX. But they are not automatically more bullish on BTSX because somebody bought BitUSD! An arbitrager would instead sell BTSX on the exchanges and sell BitUSD, maintain their overall inventory exposure of BTSX.

Offline Ander

  • Hero Member
  • *****
  • Posts: 3507
    • View Profile
  • BTS: Ander
Re: Does buying/selling bitUSD put any pressure on the BTSX price?
« Reply #12 on: October 23, 2014, 11:05:56 PM »
Good point.  I need to think more about the actions of the arbitrageur, since they are the one who causes someone else's bitUSD purchase or sale to result in a BTSX price change.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

 

Google+