&l;p&g;&l;img class=&q;dam-image shutterstock size-large wp-image-1082817002&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1082817002/960×0.jpg?fit=scale&q; data-height=&q;540&q; data-width=&q;960&q;&g; Can Bill Gates Short Bitcoin (Shutterstock)
It all started last Monday when Bill Gates was quoted as saying he would short bitcoin if he could on &l;a href=&q;https://www.cnbc.com/2018/05/07/bill-gates-i-would-short-bitcoin-if-i-could.html&q; target=&q;_blank&q;&g;CNBC&l;/a&g;.
The reaction on social media, particularly twitter was fast and furious.
Tyler Winklevoss responded with this &l;a href=&q;https://twitter.com/hashtag/XBT?src=hash&q; target=&q;_blank&q;&g;tweet&a;nbsp;&l;/a&g;that pointed out that @BillGates could short bitcoin using the CBOE futures contract. The CBOE&s;s contract &l;a href=&q;http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures/contract-specifications&q; target=&q;_blank&q;&g;specifications &l;/a&g;clearly state that you could be net short or long up to 5,000 contracts.&a;nbsp; There don&s;t seem to be any restrictions on who can be short (I have to check my notes, I thought at one time there were limitations on who could short – though that may have been at the clearing level – or before bitcoin dropped from almost $20,000 to under $9,000 and hasn&s;t had a parabolic increase since late November and early December (not coincidentally, in my opinion, right as futures launched).
So my initial reaction was – sure you can Bill (I did meet him once when I was an intern in the 1980&s;s at Microsoft and I still think that was pretty cool to this day – but that&s;s another story).
But the more I have thought about this statement, which on the surface seems wrong, the more I think he is on to something.
First, at 5,000 contracts at $8,700 that total short would be $43.5 million.&a;nbsp; That is hardly going to move the needle for a man of his net worth.&a;nbsp; Even if he was right, he probably makes or loses more every few hours on his existing stock holdings.
&l;strong&g;So the first conclusion is that maybe Mr. Gates can short Bitcoin, but it isn&s;t worth it to him – but the rest of us mere mortals can.&l;/strong&g;
&l;!–nextpage–&g; But can we?
The current front contract has open interest of 3,115 contracts or a notional of $27.1 million.
The entire front contract short interest is $27.1 million.&a;nbsp; We can check out the CME contract, but for all I know, there is an arb where people are long one and short the other, but &l;strong&g;the total amount short bitcoin is minuscule relative to its size and relative to the amount of time and effort spent supporting it.&l;/strong&g;
If there ever was a market ripe for squeezing shorts – bitcoin futures has to be high on the list.
&l;strong&g;The real issue, contrary to what @tylerwinklevoss implies, is it is very hard to short bitcoin other than &s;as a trade&s;.&a;nbsp;&a;nbsp;&l;/strong&g;Yes I have seen that some exchanges offer ways to short bitcoin, but it is still small relative to the size of the market.&a;nbsp; I didn&s;t even consider GBTC, the Bitcoin Trust as a way to short, as the constantly seems like a disaster waiting to happen as shorts get squeezed, with period relief when the trust issues new &s;shares&s;.
Sure, we can take a stab that $8,700 is too high and short it, but it is hard to make the&a;nbsp;bet that both Mr. Gates and Warren Buffet seemed to make in the interview – that the market cap of bitcoin is absurd.
&l;strong&g;This is what is nagging at me.&l;/strong&g;
There is no way to short bitcoin in meaningful size.&a;nbsp; At the same time, there is a virtual machine to support the bitcoin behemoth – at least in terms of trying to convert new users and shower praise on bitcoin and come up with eye-catching targets for bitcoin in 6 months, 1 year, or whatever time frame seems most appealing at the moment.
&l;!–nextpage–&g; I am no more fond of those who relentlessly bash bitcoin without taking any time to understand what it does (and yes, I understand that by posting this negative piece on bitcoin, I will be lumped into that group).
So, my bottom line, and growing concern is that bitcoin isn&s;t rallying more despite the inability for real short interest to develop when the &l;a href=&q;https://www.forbes.com/sites/petertchir/2017/09/13/three-rules-of-bitcoin/#6a3b036718e8&q;&g;2nd rule of bitcoin&l;/a&g; plays so heavily in&a;nbsp;Bitcoin&s;s favor.
&l;strong&g;My medium term view is now more bearish than it has been since I became almost constructive &l;a href=&q;https://www.forbes.com/sites/petertchir/2018/04/15/is-the-bounce-in-crypto-for-real/#684dd867f223&q;&g;a month ago&l;/a&g;.&a;nbsp;&l;/strong&g; It took a week to sink in why – but I think what started as one billionaire&s;s off the cuff remark, that didn&s;t seem particularly true – has set me on a path where I think the bulls are failing and it won&s;t take much of a nudge to know the price down more.
&l;strong&g;From a short term trading standpoint, would I short some futures tomorrow?&a;nbsp; No, but that at least, I know I can do!&l;/strong&g;&l;/p&g;