Loaned BTC during the Bitcoin Cash chain split
Kraken has announced some of the strongest support for Bitcoin Cash (BCH) among exchanges.
http://blog.kraken.com/post/1150/bitcoin-cash-and-a-critical-alert-for-bitcoin-margin-traders/
Someone had an interesting question on lending and margin trading across the split:
https://twitter.com/coinasaurus/status/891650960711221251
Alice has 1 bitcoin that she loans to Bob. Bob sells this bitcoin for $2,700 to Charlie - all before the split. The chains split and Charlie has 1 BTC and 1 BCH. The question is: does Bob owe 1 BCH to Alice?
If Bob owes Alice the BCH, he needs to buy 1 BTC and 1 BCH back from {Charlie}.
Does it make sense the way Kraken explained it? I think so. I think it could go either way.
Scenario 1: Bob owes Alice 1 BTC and 1 BCH
Charlie is buying knowing that he will get the split. If Bob knows that he will owe both, he is betting that the combined value will go down. Alice is lending knowing that she will get both coins back. Advantage to the lender.
Scenario 2: Bob owes Alice only 1 BTC
Charlie is buying knowing that he will get the split. If Bob knows that he will not have to pay back both BCH and BTC, he is borrowing betting that the value of BTC-only will be going down. If BCH goes to the moon and the combined value goes to the moon, Bob may still win if the value of Segwit BTC goes down. Alice is lending the BTC not caring about the BCH. Advantage to the short-seller.
I think either way is acceptable for Kraken to implement. Scenario 1 may be much more dangerous to short BTC. Bob is betting that the combined value of the two coins will be less than the value of BTC right now. In scenario 2, the price of BCH can not hurt Bob.
Given that Kraken has stated support for scenario 1, shorters may feel a little pinch after the fork. Maybe not.
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Interesting that "Alice" is Kraken in this case:
https://support.kraken.com/hc/en-us/articles/202967026-Users-borrow-funds-for-leverage-trading-on-margin-where-do-these-funds-come-from-and-how-are-they-protected-against-default-