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RE: A Simple Example of Shorting the U.S. Dollar With BitShares

in #trading3 years ago (edited)

I'm not sure I understand. You short the dollar by going against it via buying another currency with dollars.

Sounds like you did something completely different here.

It sounds like you just went long bitshares and you're saying this means you shorted the dollar. Which is wrong.

Please explain :)

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You're correct in that you buy another currency (in this example BitShares, a cryptocurrency) using a pegged asset to the US Dollar (bitUSD). Since bitUSD trades consistently for $1 USD worth of value, it's essentially the same thing as $1 USD. The difference here is you create the bitUSD from a smart contract loan using your BitShares as collateral. When BitShares goes up in value, you sell some of it back to get your original bitUSD (in this example, I got a little bit more than I put an order for). I didn't show this in the example, but you can then close out your margin position by returning the $1,000 you borrowed while keeping the left over bitUSD and BitShares obtained via the difference in price from when you bought to when you sold again. As long as bitUSD is going down in value against whatever currency you buy, you're essentially betting against the USD and thus shorting it. You're also doing it without ever actually purchasing real USD, you're just benefitting from the movement against it. Make sense?

So you used bitshares as collateral to buy bitshares with a tokenised version of the USD.

I guess you could twist that to be shorting the USD, but really shorting the USD is very different prospect. You'd need a basket of assets against it as it's a currency. Other currencies are the best approximation at this. A basket of currencies such as the dollar index is probably closer .. along with a highly traded commodity traded in dollars like oil.

Regardless, I'm sure it was fun to think outside the box :)

Maybe I am over-simplifying the process, but if I bet against USD by borrowing some amount of USD value and use that value to buy other currencies then later sell those currencies for USD value to pay back my loan, is that still a short? I'm essentially betting the value of USD will go down against whatever other thing I buy with that USD value.

The BitShares DEX (distributed exchange) certainly doesn't have high volume (yet) and anything done there isn't going to impact the real USD in any real way, but if there was massive volume there, along with massive volume in the cryptocurrencies which we're trading against the USD value, then would it be similar to betting on a commodity traded in dollars like you described?

To your point, yes, this is a fun way to think outside the box and bet for cryptocurrencies against the value of the dollar. As far as I understand, if the volume was higher, moves like this could have a bigger impact as more people move out of fiat USD and into cryptocurrencies.

I see what you mean. Let's simplify it further though.

If I use USD to buy some cigarettes cheaply and then sell them for a higher price, am I shorting the USD?

I would answer yes. You decided to hold an asset (cigarettes) that you felt would appreciate relative to USD.

No, but the USD wouldn't be on loan, right? If so, then... yes, maybe that would be a short?

Here's how I understand what a short is:

Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.

bitUSD's in my example are created via borrowing.

I think the whole borrowing angle comes from stocks. As unlike futures markets you need to borrow stocks from long term holders in order to short.

Taking a currency on margin, is different to borrowing a stock.

In my head there's something very different to a security and a currency.

If you buy something with dollars, even margined, borrowed dollars .. I don't think it's shorting dollars unless what you're buying is another currency or something 'big' rather than just a small asset.

Can you see that perspective?

unless what you're buying is another currency

Which is the case here, yes? Unless cryptocurrencies are not currencies?

I see that perspective, but what I'm describing seems much like what I find when I Google what it means to short a currency. Either way, thanks for clarifying your perspective.