Schaeffer's Trading Floor Blog

The Brave New World of Bitcoin

New York firm to allow margin trades, short selling of Bitcoin

by 4/11/2013 7:34 AM
Stocks quoted in this article:

Want to play Bitcoin but worried that you can't make the bet big enough? Or short enough? Well -- guess what, now you can. Per BGR:

If you thought the Bitcoin market was crazy before, just wait until traders get the ability to make leveraged bets on the virtual currency's future price. From the what-could-possibly-go-wrong department, TechCrunch reports that New York-based startup Coinsetter has received $500,000 in seed funding to set up a Bitcoin trading platform that will allow for high-risk margin trades and short selling of Bitcoins. Coinsetter co-founder Jaron Lukasiewicz tells TechCrunch that the ability to make leveraged trades is vital to every major financial market and that giving owners the ability to trade Bitcoins in this way will help the virtual currency establish itself as a legitimate alternative to government-issued money.

Margin trades, for those who aren't up on finance terminology, involve borrowing money from an outside source to buy an asset. The advantage of margin trades is that you can potentially reap larger rewards if an asset's value increases because you'll be able to buy more of the asset using someone else's money. The downside of margin trades, of course, is that if the value of the asset goes south then you won't only lose the money you invested but you'll still have to pay back the party you borrowed money from along with interest.

No, that's not from some financial version of The Onion. It's real, as best I can tell.

But hey, it gave me a brilliant idea. I'm going to list a whole line of Bitcoin ETFs. Margin is one of those things the "Wall Street Operators" want you to use so they can take all your money. (At least that's what savvy investor Lenny Dykstra once told us.) My ETFs will do the leverage for you, so you don't have to! Yes, leveraged Bitcoin ETFs, such as:

  • 2x Bitcoin: Symbol JETS

  • 3x Bitcoin: Symbol TEBOW

  • -2x Bitcoin: Symbol METS

  • -3x Bitcoin: Symbol TE'O

Now I know what you're thinking -- all leveraged tracking ETFs compound their way to zero. But I have a solution. Since Bitcoin itself is based on an algorithm, I'm only going to mandate that an algo has to be on exactly one side of every leveraged Bitcoin trade. Now, nothing can go wrong.

We will then of course list options on all the Leveraged Bitcoin ETFs. As Dykstra once pointed out, options let you use a little bit of money and control a lot of stock. If the stock itself is levered, you can probably control the entire float of Bitcoin for about $500 worth of TEBOW calls.

But that only lets you bet on the price and implied volatility of Bitcoin. What if want to really roll the dice and make an impossible-to-understand bet purely on Bitcoin volatility? I've got you covered. We'll calculate BITVIX every 12 seconds, and then list BITVIX futures every cycle out three years.

No futures account? No problem. Next up we have BITVXX, an ETN that will track a rolling 30-day BITVIX future. Unfortunately, it's not leveraged, so we'll throw in a 2x ETN, symbol TBITVXX.

Now I'd think that covers anyone's Bitcoin trading needs, but if you have anything else you'd like to see listed, let me know.

Oh just one minor detail. You open up your account with us using real money, but profits are paid out in either Bitcoins or tokens at Dave & Buster's.

Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.


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