Image Source
More tips from the world of crypto today.
There seems to be some confusion in the sources I found online about shorting BitShares on the BitShares decentralized exchange.
Let me repeat upfront what I stated in the title. It is not possible. I'll explain why.
Basically, you can't borrow BTS. Only BitUSD (or another Bit Asset).
BitUSD is an asset, but it is one that is pegged to the US dollar. That means that no matter what BTS (BitShares) does on the market, 1 BitUSD will be worth 1 US dollar.
Edited: You can't short BTS by borrowing and opening a margin position. You can buy BitUSD when BTS is high and sell it for more BTS after it drops.
But If BTS Goes Down & The Dollar Stays The Same, Isn't That BitUSD Worth More BTS?
If you borrow BitUSD, you can use it to buy more BTS (or any other asset).
But don't think of BitUSD as an actual fiat dollar. The amount of BTS it takes to make 1 BitUSD is in constant fluctuation. It is part of the formula that keeps BitUSD pegged at one dollar.
I Borrowed BitUSD Hoping To Short BTS
To borrow BitUSD, I had to use my own BTS as collateral. Lucky I backed the loan by 3.4 times the amount I borrowed. I'm also lucky BTS didn't freefall in the time I took to figure it out. You see, the amount of BTS you use to back a loan decides the call margin. The more BTS you use as collateral, the lower your call margin. It is also possible to add BTS collateral to a loan if it is approaching the call margin. This will lock up more of your BTS, but it will lower your call margin even more. If the price of BTS falls and hits your call margin, it will force sell your collateral into BitUSD and repay the loan. You can lose big.Either Close The Loan Or Buy BTS!
Understanding that my BitUSD wasn't going to turn into more BTS, I had a few decisions to make. I could have guessed that the correction was over and used the BitUSD to buy BTS or another asset. This is shorting BitUSD. If I bought BTS with borrowed BitUSD and BTS went up in price, I could use the BTS to buy back BitUSD and repay the loan. And if BTS went up, I didn't have to use as much to repay the loan. I bought BitUSD with the inflated BTS to repay the loan, and there would be BTS left over. That would be my profit. Another option I could have pursued would be to buy an asset other than BTS with the borrowed BitUSD. Whatever the asset is, if it goes up in comparison to BitUSD, it can be shorted. You just let it go up in price after you buy it, then use its inflated value to pay back your loan. Keeping what is left over, of course.
Image Source
But I Don't Think The Correction Is Over
Uh oh. If I believe that all the assets will fall along with the Bitcoin correction, am I in trouble? Only if BTS drops to that call margin. I can always create a new loan later, so I decided to close my position. Because I never used any of the BitUSD I borrowed, I just payed back the loan. Interest free to boot! I lost nothing! If I had used some of the borrowed BitUSD, I could still pay back the loan. I would have had to buy more BitUSD to make up the difference.Hope This Clear Things Up
The only place I really see it confirm that BTS cannot be shorted, is on the BitShares Forum.
There is also a sub-Reddit thread where someone posed the question. One answer seemed to suggest you could short BTS, but was deleted.
I Will Be Shorting BitUSD After The Correction
There is always some risk, but after a deep correction is a good time to short sell.
Uncited Images Courtesy Of Pixabay.com
Short trades are initiated by selling first, with the expectation of buying back at a lower price. Instead of borrowing bitUSD (by using your BTS as collateral), you simply buy bitUSD by selling your BTS.
Now you can hold the bitUSD and wait for BTS to drop so you can buy it back at a discount.
I think what you mean is that you can't short BitShares by opening a margin position. You can only margin the MPA's aka smartcoins, and you can only do it by using your BTS as collateral:
Thanks for clearing that up. It's funny how easy the answer is, but everywhere I looked, it was nowhere to be found.
That's a big part of why I wrote this post. Hopefully it will offer some insight. I put an edit in the first paragraph explaining this. Thanks again. :)
informative! On a different note it looks like bitshares and EOS are going to co-exist and not compete right ?
EOS is a platform for decentralized applications, BitShares is a decentralized application.
BitShares will compete with other decentralized applications, not with EOS itself. Hopefully BitShares will adopt the features EOS offers before another DEX does :)
This post introduced me to bitshares, I will be looking into that using the little SBDs I have. Thank you
Awesome! And thanks for stopping by and saying so. :)
You dont need to borrow to short. Just sell it. Done. Effectively short in bts.
Thanks. Edited at the beginning to clear any confusion.
thanks for detailed analysis @inalittlewhile
Sure thang. :)
BitShares has recently started to announce its name very often.
BitShares has? Or is it from people who love and use BitShares?
I mean people who love and use BitShares.
Well, popularity isn't always indicative of value. I do encourage people to do their due research. :)
Earning some Steem, checking it out. 😌
WooHoo. It looks like a steep cliff from the bottom. Once you start being social and sharing your talent, steem starts adding up nicely. :)
I'll stop by and catch another song. :)
Well i got lucky with a few whales dropping by, but its a start. Future looks bright. hehe
If you start at the top there is only down to go. :D
This way is better.
"Future looks bright. I gotta wear shades."
Still did not understood anything...BitShares is synonym for complicated :) But at least title said it all :D Thanks.
Lol. I know what you mean.
It turns out you can short BTS, but not by borrowing. Just use BTS to buy BitUSD if you think the value of BTS will fall. The BitUSD stays at a dollar value.
When you assume the dip in BTS is over, you use the BitUSD and buy back BTS. But more of it.
This works, of course, only if you are correct about the direction of the value of BTS. :)