Silk Road forums
Support => Customer support => Topic started by: bullmarkets4ever on April 22, 2013, 01:29 am
-
Hello All!
This is a follow up to an earlier Post:
"PLEASE HELP! How/Why No Hedge for buyers? Seems Like I'm Losing Big Time."
In that post, if you care to see it, I was concerned that a transaction that cost (example) $1000, that was hedged by the vendor, would end up costing me $1500 due to fluctuation/increase of the BTC. But was answered that on hedged orders that the USD amount is what is ultimately paid when I finalize not the (example 10BTC) amount of BTC used to get to that amount initially. When I view that transaction I see the USD amount for the purchase, opposed to BTC amount for other unhedged purchases I've made.
So since the BTC rate has gone up since I placed the order, and I finalized our hedged order, and we're both hedged... when will the adjusted amount of BTC return to my account balance?
Thank you all very much!!!
-
You won't be getting anything back. Think of hedging as insurance. The vendor is insured that if the price of BTC drops before the order is finalized they will always get paid what the BTC was worth in US$ at the time the order was placed.
The buyer is insured against the same thing in the event that the order is cancelled. If it's cancelled they will get back BTC valued at the US$ at the time of the order using the current BTC to US$ rate, less the hedging fee. (The vendor pays the hedging fee if the order goes through.)
If the BTC drops the loss is taken by SR, if BTC jumps, SR takes the winfall, since they are taking the risk.
Buyers need to remember that orders are in fact valued in dollars, not BTC. The BTC value you see when you place the order is the amount of BTC coins equal to the US$ value at the time of the order. The BTC amount goes up and down all day. You are in fact paying in US$, only you are using BTC equal to the value of US$ at the time of the order since US$ are traceable and there is no safe way to do a transaction electronically in US$.
So, no, you are not going to get anything back, certainly not from the vendor who has only received BTC equal to the original order in US$ based on the rate when the order is finalized.
If the order was $100usd and BTC was valued at $100 per coin at the time of the order, you would need 1 BTC to order the product. When the order is finalized, if the value of BTC is now $75 per coin the vendor would receive 1.3 BTC to equal $100 US$. If the order was cancelled you would get back 1.3 BTC. SR would take the loss of $25.
-
captainjojo is absolutely correct. You will not be receiving any btc back.
-
This must've come up before.
I have a thought on this... what do you all think?
I see an issue here. A fallacy.
If the vendor hedges he is protected from the BTC value going down, but there is no protection to the buyer for the value of BTC going up.
I contend this should not be the case.
The reality of how the system sits now provides no shelter whatsoever to buyers. A price is agreed to when an order is placed... yet a buyer can end up paying two, three, four,.. ten, times more when when they complete the transaction. The seller gets paid in USD, but the buyer is stuck paying in BTC -- that absolutely should not be the case on "Hedged Orders."
A true hedge would protect the seller if the value decreases, and they buyer if the value increases. After all, as was pointed out, the transaction takes place in US currency. To say "SR takes a loss" is not accurate in practice or in theory: the business would not operate, or take the risk of operating at a loss, hence the 4% fee charged the vendor. The hedge tool is a money maker for SR (read:fact). Them hedging orders, especially in cases like this, is the biggest money maker on the road:
- their transaction Fee,
- the 4% Hedge Fee,
- and the incremental 100% increase (in USD) they assumed on this unprotected buyer's (unhedged) BTC.
I maintain a hedge should protect both ends.
And the net-net of the transaction should be:
1) the USD amount agreed upon, paid to the seller at Finalization
2) the USD amount agreed to be paid, withdrawn from the buyer's escrow at Finalization, the delta returned to the buyer.
Anything other is not a hedge at all.
Otherwise buyers could work side deals on hedged orders by having the vendor cancel when the BTC has gone up, and then they split the profit by rebooking the order at the current price, at the now inflated BTC rate.
A Buyer's Hedge should be introduced.
This way SR can still make money on us all at 4% flat fee, but a psuedu-hedged order (in point of fact -- half-hedged) wouldn't go right into their profits pile, and buyer's as well as sellers have protection. One other option would be to have the buyer and seller both pay half of the hedge fee, and both get equal (yet opposite) protection... seller protection from losses due to deflation, buyer protection from losses due to inflation.
My logic is sound.
And the end result I'm suggesting (not the workaround rebook to equally split the USD value associated to a BTC increase) is the only equitable way to transact on hedged deals.
Is it possible to improve SR by making this an option?
I doubt DPR / SR would object to flat rate 4% additional charge on a per-buyer-transaction-basis; they'd make more than they do from appropriating the buyer's vulnerable, unprotected BTC.
Please advise.
Thanks!!
-
Otherwise buyers could work side deals on hedged orders by having the vendor cancel when the BTC has gone up, and then they split the profit by rebooking the order at the current price, at the now inflated BTC rate.
This is totally incorrect. Neither the buyer nor the vendor see any of the difference in BTC, whether it goes up or down.
If a buyer places an order for $100 when BTC are worth $100, using 1 BTC and the vendor cancels the order when BTC rises to $200 the buyer will only get back .5 BTC, not 1 BTC as you seem to believe.
The other .5 BTC goes to SR for taking the risk.
The only time the buyer would get back 1 BTC is if the order was unhedged. But they could have gotten exactly the same outcome by simply buying BTC and waiting for the BTC to go up and selling when it does. Of course they also take the risk that BTC will go down and they will lose instead of make money.
What if the value of BTC were to drop from $150 to $100 between the time you placed your order and you finalized it? Are you willing to pay the vendor the extra $50 to cover the drop in value of your unhedged order? And how exactly would it be enforced, since by the time you finalize you already have the product?
The only reason this subject even comes up is because of escrow. If you had to finalize every order when you placed it the value of the BTC would never have chance to go up or down. It would be no different than buying something in another country in US$, your money would buy you product valued in US$ * the exchange rate for that country at the time of purchase. You couldn't go back to the retailer a week later when the exchange rate has risen and ask them to give you more money because the value of the US$ you gave them has gone up.
SR is a place to buy and sell product, it is not a FOREX exchange where you make money buying and selling currency. If you want to make money off BTC go to an exchange, where the risk of making or losing money is entirely your own.
SR's system may not be perfect, and I agree they could quite likely be making money off the hedging, but it's the best game in town for now, and as far as I can tell the system isn't favoring buyers over vendors or vice-versa, the risks are the same for both.
-
Thanks for your reply. Much appreciated.
My premise is really just a way to hedge for buyers: to ensure the dollar amount agreed to is mandated through the process, just like it is for hedged sellers on SR.
When you say,
"What if the value of BTC were to drop from $150 to $100 between the time you placed your order and you finalized it? Are you willing to pay the vendor the extra $50 to cover the drop in value of your unhedged order? And how exactly would it be enforced, since by the time you finalize you already have the product?"
That really doesn't apply.
That price change would'nt affect the buyer because the seller is hedged.
I'm speaking specifically to the inverse: when BTC rates go up.
As a buyer I'd prefer to be able to hedge just like a seller.... I'd pay my 4% to protect against the opposite loss the seller is hedging/protecting against.
Just kicking around some ideas here.
To your point, ideally BTC wouldn't fluctuate to the degree they do, and this would all be moot.
And secondly to your point, agreed this is the best option around!
And lastly, agree, this surely isn't the venue to exchange BTC "currency" for monetary gain.
No harm in discussing potential to improve it, eh?
Thanks again for your input!
-
I agree, there is certainly no harm discussing ways to improve the current system. The biggest impediment to change is that there is no compelling reason for SR to change the system. I recall reading somewhere that SR said they do not really make any money on the hedging, that they basically break even, which up until the current meteoric rise in the BTC price I believe was probably true.
Prior to the current rise it was more likely for the BTC to go down a few dollars than go up. When I first started buying from SR about 2 years ago the price for BTC was somewhere in the $30-$50 dollar range and the only direction it was going was down. I do not recall any ups or downs as dramatic as those we have experienced in the past month, although there was one period, before hedging was introduced, where the price dropped in half and many vendors lost large sums of money. But after that, and after hedging was introduced, the price stayed pretty stable, going up or down a couple dollars at a time. So overall the 4% fee probably just covered the loss taken when the price dropped.
How much money SR made on hedged orders when BTC jumped from $50 to over $200 is anyone's guess. It is quite possible it balanced out with the loss they may have taken on orders placed when it was high and the price dropped back to $100.
When you say 'That doesn't really apply', 'That the price change wouldn't affect the buyer because the seller is hedged' is true only if the order goes through. If the order is cancelled the buyer is also hedged against a loss in value of the BTC used to place the order, they get back BTC valued in US$ at the time of the order instead of getting back their original BTC amount and taking a loss.
What it seems you are asking for is the ability to pay a 4% fee to hedge the BTC against a price rise, so that if it does rise you will get back, in BTC, the difference between what the BTC are worth now and what they were worth when you placed the order. In effect you wish to gamble on the price of BTC going up. One problem I see with that is how that would affect the total return SR gets on hedging orders. What you are asking is for SR to take the loss on hedged orders while the buyers and sellers make money when the price rises instead. If in fact SR is just breaking even on the wins, losses and fees of hedging, asking them to give up the amount they would make when it rises could leave them in the hole, unwilling to continue with hedging of orders or they might bump the fee % to cover the additional losses. Remember, up until recently, a drop in BTC was more likely than an increase.
While I would love to make money on the BTC sitting in escrow while the order is in transit I just don't see any easy way of making it fair for everyone.