This Is Not Investment Advice

Rough Trades: Digital Derivatives Hit the Bitcoin Markets as Wall Street Bankers Take Interest

Bitoption, an exchange exclusively for derivatives, appeared briefly last week before its developers took it down to work out bugs. But CampBX founder Keyur Mithawala, whose background is in information security, is confident that within two months his exchange will become the first to offer short selling. The three-week-old exchange enabled margin trading and short selling during its trial period, he said, but disabled it after launch because there weren’t enough deposits. “This is not a brag, but we’ve been able to make it so all you need to do is enter price, enter quantity and that’s it,” he said.

Derivatives trading could go a long way in boosting the adoption rate among merchants, who would be more likely to use the jumpy currency if they could lock in prices with forward contracts. But adding complex financial instruments to a completely unregulated economy seems questionable, especially considering the fate of Bitomat.pl, which accidentally destroyed $222,700 worth of Bitcoins over the weekend. “Holy crap, that is crazy,” Boston-based software developer and Bitcoin enthusiast Alex Spitzer said when Betabeat asked him what had happened. “It’s like if I set up the Bank of America site on my home computer and forgot to back it up, and then rebuilt my machine,” he explained. “The problem with the Internet is that it is easy to make something look legitimate even if it is running with duct tape and twine.”

Buyers, beware. Bitcoin seems to be attracting traders with just enough knowledge to be dangerous. Betabeat’s office happens to be 10 blocks south of Meze Grill, a Mediterranean lunch spot on Eighth Avenue that recently started selling Bitcoins in addition to tasty salads and nutritious smoothies. So on Thursday we pooled $90 from coworkers and schlepped uptown in the heat to purchase a modest six BTC for research purposes. As advised, we used MyBitcoin.com, a popular Bitcoin “wallet” based in St. Kitts and Nevis, to transact the deal.

On Friday, MyBitcoin disappeared from the Internet with no explanation, taking our investment with it.

We sought answers in the #bitcoin-otc web chat. “I think they ran away with the Bitcoins,” someone known as Nanotube replied, softening the blow with a smiley face. Nanotube administers the IRC channel as well as bitcoin-otc.com, the most well-known forum for person-to-person Bitcoin trades; he’s working on a Ph.D in finance, he told Betabeat. “Maybe the owner is just on vacation, and the site went down … But if I had to bet, I’d bet you’ll never see your coins again.”

Follow Adrianne Jeffries on Twitter or via RSS. ajeffries@observer.com

Comments

  1. Anonymous says:

    There are a lot of security issues to work out, but I believe that bitcoins are going to change the world. Bitcoin derivatives are just the start – just wait until bitcoin variants come out which are pegged to various commodities like oil and gold. This stuff is going to get INSANE.

    I recommend that everyone read up about bitcoins. If you are interested in buying/selling bitcoins, I personally use and recommend http://www.tradehill.com (mentioned in this article) – they have lower fees than the main exchange (mtgox), and their website seems more professional IMHO.

    Also, I have a code that will get you 10% off trading fees there for life: TH-R1168

    Enjoy!

    1. Dennis Peterson says:

      It’s hard to imagine how bitcoins could be pegged to commodities. There are a certain number of coins, slowly increasing at a defined rate. They trade for whatever people are willing to pay for them.

    2. Guest. says:

       You spam every single article with your tradehill crap.

      1. Anonymous says:

        I really try. Thanks for noticing!

  2. SteveO says:

    I think http://www.CampBX.com is the most professional one.  They have navigated choppy waters of Bitcoin with calm and confidence so far.  TradeHill is joke – I don’t know why people use them – go with Mtgox instead.

  3. Francois Harris says:

    The only people who recommend TradeHill are people wanting to get affiliate comission off your account for life. 
    I use the big sites for keeping track of markets, but trade everything via #bitcoin-otc 

  4. Bit Vapes says:

    Great article.  Interesting to know that some Wall Street players are into bitcoin trading.   I am sorry to hear you guys got screwed by mybitcoin[.]com.   There is work being done to create open-source bitcoin ATM machines/kiosks, that will directly sell you bitcoins for cash via QR code or transfer to existing wallets.   Hopefully these type of local cash exchangers will be popping up all over the place. A centralized wallet like mybitcoin was never a good idea in the first place.

    1. Anonymous says:

      I blame only myself. Fortunately we went into it with a bemused attitude, like, if we lose the money, whatever. It was about as much as I spend on drinking in a weekend, and I just piss that out.

  5. Mike Moceri says:

    Great article. BTC needs more good news like this.