By Vitali Mtsariashvili
April 11th, 2019

Philosophy of shorting

Did you know that bears can efficiently cooperate with bulls?

Philosophy of shorting

By Vitali Mtsariashvili
April 11th, 2019

Did you know that bears can efficiently cooperate with bulls?

Situation overview

Have you ever thought deeply about the value trading platforms should aim to bring? Especially for the cryptomarket with its specific volatility and speculations levels.

Let’s skip usual answers such as legal transparency, safety services and comfortable UX/UI. This is all important but rarely touches the core issues. Word “philosophy” in the header was not used by coincidence or for attracting more attention because philosophy is something striving to deal with things in long-term, if appropriate. That’s what we will try to explore in this article. We promise to be concise and straight-to-the-point as much as possible.

So let’s look at the cryptomarket today. Subtopics bellow should help us to structure observations and create fields for argumentation.

Cryptomarket is an academic example of a bear market which can be compared to the longest bear market in modern history: Japan Equities.

The market is down with a rare light turning in price increases. That’s not a surprise, sure. But there is too much attention paid to the prices of top-currencies and market capitalization. That’s especially funny when it comes to conservative publishing houses and information sources which are mostly talking about crypto topics due to fashion and “hype”. Yes, this is business and traffic, but it creates bias in understanding real blockchain projects’ value.

Market volatility is not something 100% unpredictable, but not in our case. Powers affecting crypto-volatility are still to be investigated.

One can argue posting comments with loads of links to technical analysis tools, correct predictions and controversial points of view from respectable sources. But that’s true – volatility on the cryptomarket cannot be analyzed with the same level of accuracy as for the traditional market. The reason for this is described in the next topic.

Fancy packaging and large communities dominate in building pricing trends

Faces and titles, promises and expectations, presales and airdrops, and our favorite – advisors. Meet the underlying assets for the current cryptomarket. Financial industry itself is an ephemeral market from dominating point of views and it’s mostly driven by expectations. But here we face the extremal way of utilization for the word “expectations”. Good projects set-up by talented founders can easily get lost in the jungle of “marketing black boxes” because they will not have enough funds and contacts to stay alive and reach to customers and investors who could be really interested in the project’s concept and “what is done” list.

Moving forward let’s try to understand what happens when too much attention (almost all) is paid to fancy projects:

· Those projects as mentioned sell mostly expectations;

· Most of them have huge communities and exposure to strong contacts both among so-called “crypto experts” and media sources (read: expectation forming mechanisms);

· Mentioned above easily converts to the token holders and traders (read: activity forming mechanisms)

Now, keeping in mind the three points above, we also understand that the accumulated power will be only used to assure the market in a positive future. Taking into account the fact that the market is now too cautious described appeals are directly transferred into a continuous bear market and beliefs in the power of using long positions for not trustworthy assets. That’s all creates a vicious circle.

Name of this subtopic describes the outcome of the thoughts mentioned above: information sources which mainly form the market’s sentiments and as a result actions, unfortunately, promote one-side mechanisms and lack of objectivity. Let’s be honest – cryptomarket market capitalization (not only in terms of money but also interest from respectable investors and public institutions trust) is driven by the wrong tools.

How can we change the current environment?

The answer is simple – get the trust of the market by balancing pricing mechanisms. If now dominating mechanisms are aiming to make token holders save their tokens even when projects are obviously stuck in bad times.

The solution should come first from the trading platforms, which have a neutral overall position and also do provide exposure to a diversified assets market and though have enough power to form balanced short- and long-term market circuit. The best and the most straight-forward tool for that is allowing short trading of altcoins.

Short as a mechanism allows testing asset in terms of its real value. There is always an area for speculations but now together with “info-boosting” mentioned in the first part of this article it will create a fair environment for each token pricing and as a result, will help to build a healthy market in the future, here is how:

· Transparency: Aggregated statistics on volumes of short positions will be open and available for the market and thus would directly affect pricing trends;

· Less BTC dominance: A cryptomarket will become less dependent on BTC due to transparent expectations’ statistics (both for price improvement and downfall) for each popular token unlike now when most of the judgments are based on bitcoin trends;

· All mentioned points combined will result in the ability to have a clear view of the market with a high granularity level;

· In the end, authorities and institutional investors will become less skeptical about the cryptomarket which will result in cash inflow and active and stable market growth.

SHORTEX is here to introduce this opportunity. You may ask why do most of the top-exchanges struggle with this obvious step and this is an absolutely fair point. The main reason is a huge risk-exposure for exchanges while providing marginal trading and especially allowing short positions for altcoins because as we said above the market volatility now is unpredictable and even on one short position can be lost impressive funds not mentioning leveraged trading.

SHORTEX is ready to face this obstacle and solved it by:

1. The multifactor scoring model which filters perspective projects. Only the projects which pass our due diligence are opened for short positions;

2. Payment obligations on marginal trading are shared between SHORTEX and the project which guarantees the safety of all earnings of traders and minimizes risks for exchange’s operations.

Yes, there are always risks behind a pretty picture but if this can lead to a healthy market environment it should be done.


Vitali Mtsariashvili- CBDO   SHORTEX Exchange