Imminent Long Squeeze?

There has been an interesting development over at Bitcoinica, everyone's favourite broker for leveraged trading in Bitcoin land.

Several users reported errors when trying to cover their short positions or establish long positions. Zhou Tong, Bitcoinica's founder and lead developer, responded to the unusual occurrence with the explanation that the brokerage had run out of funds in their Mt.Gox account, thus preventing any further purchases of Bitcoins:

We seriously apologize for any inconvenience.

When Bitcoinica was first built, we included a circuit breaker feature to stop trading at one direction when we are out of USD or BTC. However, it has almost never been triggered until today.

Unfortunately, we have a lot of long positions are we're currently unable to fulfill everyone's request to buy. Even though we do not want to interrupt regular market trading activity, we have no case because we don't want to be trading against our customers in this extreme situation.

Liquidation of short positions is also affected but we had no choice. Withdrawal in USD is obviously, also affected. When some more people decided to liquidate their long positions or go short, or more USD funds are deposited, we will adjust the redflag accordingly to allow buying trades.

TL;DR: Bitcoinica can only sell for you at the moment.

Zhou Tong also suggested that a long squeeze was imminent, due to the large number of long positions which would be liquidated in the event of a large sell order hitting the market. Whether there is actually anyone out there with enough Bitcoins to test that theory, remains to be seen, as there is currently $250,000 ready to gobble up 65,000 Bitcoins on Mt.Gox between $3.80 and $4.20.

In a nutshell, leveraged or not, no one appears willing to let go of their Bitcoins.

Posted in: bitcoinica,trading