Of course it could. That’s why I don’t want to short it or write naked calls. The unbounded downside in a bubble is scary.
Anywhere, where do I get some of these puts you speak of?
It is very unlikely that you’re going to be able to effectively buy puts on Bitcoin without taking on lots of risk.
The problem is counterparty risk. You need to find someone willing to take a small fee and carry all the risk that Bitcoin will crash and they’ll have to pay you a ton of money. Not a lot of institutions with a lot of stable capital are lining up to bet that super-volatile Bitcoin is not going to crash.
So far, most institutions that offer any kind of Bitcoin-related options are themselves major players in the Bitcoin market, and will likely be wiped out themselves in a crash.
Bolding added.
This makes sense. When I started looking, I thought it possible that what I’d find would be that, because of the volatility of bitcoin, the fee required for the puts would be high enough that it would throw the risk/reward equation out of the black for me. I’m moderately surprised to find that there just is no market at all.
The only way you can bet on the collapse of Bitcoin right now is that if you have any Bitcoins to sell them now.
The thing about short selling is that you have to predict a time frame in which you think the asset’s value is going to decrease. Yeah, it’s easy to say that Bitcoin is in a bubble which will collapse, but how long is that going to take? A month? A year? You have to put your money down on a specific time, which is just as much of a crazy gamble as buying Bitcoins. Since the build up of the market is irrational, the inevitable return to rationality of the market also can’t be rationally predicted.
Bitcoin is never never never going to become a currency that people use as a medium of exchange, like dollars or yen or euros. Never going to happen. Nobody is using it for that now, right? They’re all buying Bitcoin because it’s going up, they’re not exchanging Bitcoins for pizza and beer or heroin or prostitutes.
If you want to buy shit on the internet there are quick, easy, and transparent ways of doing that. There is absolutely nothing for which it is easier to use Bitcoin, except for paying ransomware. And even then the ransomware hackers have to hire customer service reps who walk their victims through the convoluted and confusing method of buying and transfering Bitcoins to the hackers.
Maybe in the future we’re going to be using currencies that incorporate features of Bitcoin, but we’re not going to be using Bitcoin.
This isn’t quite right. With shorting, you just have to make sure you have enough capital to cover buying back the coins. If you short at $20,000 per coin, and it stays at $20,000 for the next five years and then crashes, you’re basically ok (there are costs with holding negative coins that would accumulate with time, but they’re typically minor. Maybe less so in the bitcoin-specific case. With stocks you’d have to make any dividend payments to the person you borrowed the shares from.) But your real risk there comes not from timeline, but from bitcoins reaching a peak price that exceeds your ability to rebuy them, and having your short called.
However, with puts, you have to commit to a timeframe, since it’s a contract with an expiration date. But you can layer these out: buy some puts with Jan 2018 expiration, some April 2018, some July 2018, etc. If contracts don’t exist yet for July 2018, you wait until your January contracts have expired and then buy them. You just have to manage your capital so that you don’t run out before the crash, and you don’t know when that’s going to be. So it’s not riskless, but it’s mitigatable.
No one’s exchanging Bitcoin for heroin? Sorry to break this to you, mate, but the drug trade and Bitcoin have been intimately linked for some time now.
I’m not Lemur866, but I think what he’s saying is that while some people are buying drugs, etc with bitcoin, that isn’t the driver of its recent rise. Speculation is.
So this “bitcoin” is a long stream of numbers that gets stored in an electronic “wallet” which can be accessed via password?
How do I get to my money if I forget the password, the info in the “wallet” is corrupted, or the “wallet” is broken, lost or stolen?
You don’t.
Just to add an opinion to this debate, I would wager that when the bubble bursts then the value of those Bitcoins won’t be worth anything near $100 dollars. They are just numbers, they have no intrinsic value and there are already any number of copies/variations available to whoever wants one, so their value after the crash will be effectively zero.
Yes, just like if you have a wallet full of paper money and you lose the wallet. If you lose your password or the wallet on your computer gets corrupted, you’re hosed.
This is why Bitcoin is inherently and inescapably deflationary, which makes it a poor medium of exchange. The supply of Bitcoin is mathematically limited, which means that over time as Bitcoins are lost and as the economy grows each Bitcoin will have to represent a larger and larger fraction of the economy.
Bitcoin’s value isn’t increasing because more and more people want to use it to buy fentanyl. It’s increasing because people see it’s increasing, and so they want to buy it because the value is increasing.
Tulips.
This snip is really, really key.
A lot of the hype is that Bitcoin is the inevitable future. Nope. Cyrptocurrencies may well be the future. But not Bitcoin. The cheerleaders are deliberately hiding this distinction to draw in the rubes.
Back in the late 90s internet boom the same mistake got made. A Lot. The internet is the Future. Therefore any/every internet company will be the undisputed leader of their e-niche. Bzzzt! Wrong. Most blew up with share prices going to zero only to be replaced by people who had learned a thing or three along the way forming replacement businesses.
There is a cost to mine bitcoins due to the energy involved, so that can help to establish a value. Calculations I’ve read put the cost of electricity for mining to be around $1,500 per bitcoin.
Ask me how I know this.
:: sob ::
I bought half a bitcoin in 2011 for $10 as a lark. It is now worth around $11000. (All values Canadian.) There’s only one little problem… it’s in an encrypted disk image to which I have forgotten the password.
It sits here on my computer. Taunting me.
If I had bitcoin(s) I think I’d do a screengrab of the long stream of numbers. I’d print out multiple copies and hide them in several places so that even absent-minded me might eventually stumble upon a copy, even if the ever-tidy Mrs. Septimus were trashing or burning the stupid screengrabs as fast as I could print them.
Hmmm. Maybe this is a new way to do “bitcoin mining.” Mine through dumpsters and garbage piles; long streams of random digits might be cryptocurrency! 
If you use a hardware wallet you only lose the bitcoins if you forget your password.
If the wallet is lost or stolen you can buy a new one and recover the coins with your password.
I’ve wondered about that. So if someone can guess your password they can steal your bitcoins? At what point in time does computing power get fast enough to break bitcoin by making password cracking a viable attack?
I use a Ledger hardware wallet. The ‘password’ is actually 24 words that must be entered in the correct order.
So basically impossible to crack. Your only concern is making sure not to lose those words.
“Impossible to crack” if you treat the password as a black box and do the standard attack on it. Yeah, they’re not going to brute force your password.
Except passwords are vulnerable to all sorts of other failures, which are well known. Which is why more and more services are requiring two factor authentication.
It is absolutely true that if someone knows your password they own your bitcoins. A bitcoin doesn’t know anything about “ownership”, all it knows is whether it gets the correct key or not. If you can give the correct key, you can control the bitcoin. Lots and lots of bitcoins have been “stolen” in various ways, see Mt. Gox - Wikipedia and Bitfinex - Wikipedia.
Various type of commodities have various features that make them more or less secure in various ways. A bar of gold hidden under your floorboards is secure against fire, it’s secure against Russian hackers, it’s secure against currency shenanigans. It’s vulnerable to the neighbor kids breaking into your house and stealing it, it’s vulnerable to price fluctuations, it’s vulnerable because it’s not liquid, it’s vulnerable to you keeling over and the bar being lost until some future archaeologist discovers it. A pile of $100 bills under your mattress has different vulnerabilities, a stock certificate has others, money in a bank account has others.
And Bitcoin has plenty of vulnerabilities and features that make it a terrible form of money. Yeah, it’s secure against certain types of hacking. But it’s vulnerable in many other ways. Like, you know, losing the password to your wallet. If you forget your PIN for your bank account, you go to the bank and fill out some forms or whatever and after sitting with customer service for some amount of time they solve the problem. That can’t work with Bitcoin. The only way to control a bitcoin is to have the password. So you are your own bank and have to manage the risks yourself.