[andy_wrote]

I'm not knowledgeable about BTC; this is the part that confused me. If you short a stock, and it distributes dividends or stock or ponies, as Levine says, you have to return that to the borrower. I'm not sure if this is law or just the overwhelming common practice of the markets, but either way we agree on this. You _could_ devise a short agreement where you say "no distributions are owed," but that's not the standard that the big securities-lending market has settled on and I'm not sure why people would demand that instead.

If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that. This is, I guess, like what happened with Dole, except that there the third party was a judge, who has the force of law at his back. And this strikes me as similar to what happened to BTC/BCH, except without said force of law. Wherein lies the ability of someone to compel a BTC short to now owe BCH too? What exactly is it that shorts have agreed upon to return to the longs that they borrowed from, and if it's just BTC, isn't returning a BTC enough? If not, what stops someone else from making their own fork and compelling shorts to come up with that too?

[thisisit]

I would check the notes to see what happened with Dole before drawing a conclusion. There is more at stake here than a judge with backing. One of the problems with Dole was tracking shares with DTC - It takes, I think, T+2 for settlement ie I sell you something today it gets updated two days later in DTC. This coupled with day trading and shorts (where btw "borrowing a share" is hypothetical) can cause a lot of headaches. So the solution is? A blockchain which tracks the share count and movement. That is the point being made in the article.

As for the other part. The whole BTC/BCH thing is like a spinoff. And yes the short sellers are on the hook if Stock A tomorrow becomes Stock A + Stock B. Can they say no, well Stock B is more than I paid for A+B combined so I am not paying? Not really because if that was the case it leaves open the door for someone saying - well stock A has appreciated more than I expected so no payout.

Now in case of forks and whether people can be on the hook for the other fork? Well, depends on how famous the fork is really. If it is as famous as BTC cash, well then that is a risk you have to take as a speculator. If not, then why was someone betting on bitcoin going down the drain after the fork? Were they not clear of the implication of the fork taking off? If not, then that's a lesson learned.

To paraphrase Matt Levine - "The basic appeal of the cryptocurrency revolution, to people like me who are not making any money off of it, is that it is fun to watch people rediscover all of the lessons of financial economics, one at a time, in public. "

https://www.bloomberg.com/view/articles/2017-06-23/buffett-d...

[andy_wrote]

It seems like it can be construed as a cash handout to owners of BTC, not a spinoff. At least there seems to be disagreement elsewhere on this thread, and from Levine's article.

I don't think refusing to require shorts to deliver BCH opens the door to any other complications. In fact, I think it's the simplest interpretation. You borrowed one BTC, or share, or pony, or whatever, and later you have to return one BTC. If someone else starts a new currency, fine, but that's nothing to do with your borrowing agreement. There's no mention of the price of anything; for all this simple agreement knows, BTC is the only asset in the world. (Though in practice I'm sure you'd have to post margin. Maybe some ponies?)

For shorting stock, the return of dividends and spinoffs is, I believe, a consensus agreed upon by the market as more closely reflecting what people would want - you can start a different stock-lending market that doesn't do this, but there doesn't seem to be much demand for it. To draw a clean analogy between BTC and an equity spinoff, you have to suppose this kind of agreement exists and the contracts signed. I'm not sure what it is that BTC shorts agreed upon, and it seems there isn't widespread agreement, but to me, the simplest and narrowest interpretation of a short, in case of any confusion, is "I borrow 1 BTC, I must return 1 BTC."

(Again, I have no BTC experience, just finance experience, so if someone out there really is short BTC and has wrangled with this stuff, I'd be happy to hear from them.)

[thisisit]

I had to re-read your post again to understand what you are getting at. It is not about what BTC shorts agreed upon rather what does Bitfinex agreement say about people shorting BTC on their platform. As jackgavigan pointed out - 2010 Global Master Securities Lending Agreement is clear on what the obligations should ideally be.

So did Bitfinex create an agreement along those lines for their short sellers? This requires looking into their T&C. A wild guess is they did not and never included a condition about such situations. That means asking BTC shorts to cover BTC cash had no legal legs at all. The best they could do is to pay the long BTC holders and exempt shorts.

You can bet they must have learned their lesson after this fiasco and updated their terms accordingly.

[smogcutter]

This is less like an arbitrary handout from a third party and more like a stock split. If you hold a security, you generally have no idea whether its been lent to a short. The idea of "your" stock being lent doesn't even really mean anything - the shares are fungible. So when the stock splits (or a company is spun off as in the paypal example, etc), you'd be awfully surprised to find the value of your stake halve because the new stock went to the short.

[repomies691]

It is most definitely not a stock split, but a free handout. Anyone can create a shitcoin at any time that gives "free shitcoins" to all bitcoin, ethereum etc holders. In fact, that is clever marketing for the altcoins because then the shitcoin gets attention, possible support from exchanges etc.

[smogcutter]

Is it possible to fork bitcoin in such a way that BTC holders can't get the new coins? If not, then it's not just a handout. The fact that anyone can fork it is an unfortunate property for your money to have that doesn't change what's happening here.

[an_account]

BCH _feels_ like a stock split. Where it's not like a stock split is that literally anybody can create a new blockchain just like BCH and give everyone who owns BTC a coin on this new blockchain. In that regard, it _feels_ more like a handout.

[dx034]

It's not really a stock split (where you get multiple shares for the same company) but a company split. If a company splits itself into two parts (e.g. Amazon to be split into retail and AWS) they can distribute shares of both new companies to the shareholders of the old company. In that situation you have the same problem. If the new AWS shares are not traded and you were short Amazon, you would have to cover AWS shares and therefore buy them.

In reality it's not an issue with large companies because it happens rarely and there are so many shareholders that a market would appear quickly.

[clarky07]

It's not that either though. if AWS left amazon that would be value leaving amazon stock and going to the new aws stock. in this case there is no value leaving bitcoin. bitcoin is still the same. someone just decided to start a new coin, and instead of starting from scratch, they are copying the bitcoin blockchain up to this point and giving everyone who has a coin now a new coin that has no real value to speak of yet. it doesn't do anything, isn't accepted anywhere, and currently functions worse in every way (these could all change in time, but for now they are true)

Anyone, anywhere, anytime can fork bitcoin and give away new worthless coins. Forcing shorts to go an buy all the worthless coins is simply unreasonable.

[smogcutter]

Fair, and Levine points this out in the article. He also observes that part of what makes bitcoin tricky and non intuitive is that if it worked like a company spinoff, not much new value should be created. Post split the price of BTC plus BCC should more or less equal the old BTC price, but that hasn't happened, because these are tulip bulbs.

[filmackay]

It's not a stock split (which would issue you more BTC), but a demerger - or a spin-off. This is where a company gives out shares in proportion to existing shareholding. It's like BTC has "spin off" BCH which was part of BTC - but now trades independently. I'd say a LOT of people do not understand this, because the price of BTC should have fallen, which I guess makes sense since this BTC has no entitlements and therefore is driven, a little like gold, on future expectations or speculation.

https://en.wikipedia.org/wiki/Demerger

[nullc]

Except that many people believe these new shares are worthless, so the price drop should be ~$0. Don't assume the market doesn't know this and isn't telling you this already.

(And before you say something about the bcash price not being zero: right now there are no functioning markets where you can deposit any to sell it.)

[clarky07]

it's not a spin off though. nothing is leaving btc. no value is going away. someone else just created something out of thin air. also, bch was never a part of btc. it's simply something new that is using the past history of btc as a starting point, which creates new coins out of thin air, and distributes them to all the holders of btc.

No part of this makes sense for a short to have to go and buy bch.

[lmm]

There's no charter of incorporation for bitcoin. To a large extent it is what everyone agrees it is. I think people recognize that BCH is as genuine a "coin" as BTC whereas BCM wouldn't be.

[jackgavigan]

> If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that.

With stocks, the question of what the borrower is expected to cover will be addressed in the loan agreement. For example, here is a relevant paragraph from the 2010 Global Master Securities Lending Agreement:

Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date.

Here are some relevant definitions of terms used in the paragraph above:

Income Record Date, with respect to any Securities or Collateral, means the date by reference to which holders of such Securities or Collateral are identified as being entitled to payment of Income;

Income means any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral;