It seems pretty obvious to me that talking about Bitcoin as the “biggest short of all times” is only going to end up as one way – the biggest short squeeze ever known in the history of mankind before finally busting down on a slow journey to nearly zero.
I think the last time this happened was when the Hunt brothers were partially successful in cornering the silver futures market, before they lost control and it all collapsed underneath.
Another great example was when Porsche nailed short sellers of Volkswagen stock in 2008 by accumulating a hidden option to acquire 75% of the company, with the German state owning 20% – leaving precious little for short sellers to cover with.
The real issue here is marginability of Bitcoin futures – it doesn’t even matter if margin rates are 35% or 100%, if Bitcoins trade from $10k to $100k in a three-day period, we will start to see FXCM-type action in the brokerage sector and derivative clearing, just as the chairman of Interactive Brokers promised.
Once the short interest in bitcoin futures starts to rise, it is like adding gasoline to a six tonne pile of gunpowder and expecting everything to be all right while lighting up a cigarette next to it. Good luck.
This is starting to make gold look increasingly like a good bet.
Just for full disclosure, I’ve known about Bitcoin since it was under a dollar a coin, and clearly I was taken aback at how it has morphed into present day. I’ve been outright incorrect regarding pricing predictions.
Further disclosure: Have not owned, nor do I intend to take any positions on bitcoins, which is the closest thing one can get to legalized gambling.