Example:
with 1 BTC worth of BTS you can short 1 BTC. Any x% increase in the BTS price (in respect to BTC) results in profit from that short position. The amount of BTS profited is exactly x/100 in BTC terms.
So with 100 K BTS and BTS price at 100,000 BTS/BTC and we short 1 BTC.(we get 100K bts from this sell.)
Your initial outlay will be 200k bts at 2x collateral, all of which is at risk... so if price goes to 200,000 BTS/BTC, you loose 100% of all 200,000 bts
The price doubles (aka 100% price increase) to 50,000 BTS/BTC. We buy the one bitBTC back paying 50K from the 100K BTS we got from selling it => profit of 50K BTS... which are worth exactly 1 BTC. and we have exactly 100% profit on 100% price increase.
This btw continues on - at 120% increase one will have 120% profit and so on... and the potential lost is never .well more than 100% or 1BTC worth of BTS.
If price goes to 50,000 BTS/BTC, then we use 50,000 bts to buy back the 1 BTC, giving us a 25% profit on initial capital put at risk. 50,000 of 200,000 is 25%
If price goes to 0 BTS/BTC (max), then we we gain 100,000 bts, which is 50% of the 200,000 bts put at risk, capping our gains at 50% of initial capital put at risk. I suppose you could say your gain in BTC is infinite but if the price of bitcoin is 0 at the time of redemtion, have you really gained anything in terms of purchasing power when priced in bitcoin.
Its kind of like putting $200,000 down to buy a $100,000 house and selling the house for $100,000, netting you $300,000 with debt of the house. Then the house burns to the ground and is worth $0. You reacquire the house for $0 and return it to repay the loan and you end up with $300,000. Realistically, did you gain infinite purchasing power because the house burned to the ground, or did you gain $100,000 of purchasing power because the house burned to the ground? You gained $100,000 of purchasing power on a $200,000 outlay so your gain is 50%. If the price of the house would have gone to $200,000, your loss would be 100%.
I know it sounds really bass-ackwards, but that is how most people are looking at it around here. We need to start looking at bts as the native reserve currency of the system, which will be tough as far as adoption is concerned, but is doable and necessary for the system to thrive. Who knows, eventually it could become a viable international currency and perhaps the world's reserve currency.
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