nChain’s Craig Wright Slams Poloniex for Offering BCH Fork “Abusive Naked Short Selling” Option
One of the leading crypto exchanges, Poloniex, recently started to trade to Bitcoin Cash protocols ahead of the upcoming hard fork. They give the option to trade in Bitcoin Cash ABC (BCHABC) and Bitcoin Cash SV (BCHSV). Their plan is to take a neutral stance on the decision of which of the forks that the users opt for, but they also want to empower the users by offering a trading activity that typically is not an option.
Through the pre-fork trading, the exchange wants to become “one of the most innovative exchanges in the world.” As the days get closer to the fork, they plan to evaluate each hard fork individually to help them to determine if they are supporting one of the forks or just offering the trading before the determination is made.
As the trading of Craig Wright’s BCHSV has outperformed BCHABC, it would be safe to assume that Bitcoin Cash SV is much better received by the market. Although, many people, including Dr Wright, are not too pleased about the exchange offering pre-trading. Just yesterday, he took to Twitter suggested that the platform is committing a felony by offering naked shorts.
Naked Short Selling
Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. The transaction generally remains open until the shares are acquired by the seller, or the seller's broker settles the trade.
Short selling is used to anticipate a price fall but exposes the seller to the risk of a price rise. In 2008, the SEC banned what it called “abusive naked short selling” in the United States, as well as some other jurisdictions, as a method of driving down share prices. Failing to deliver shares is legal under certain circumstances, and naked short selling is not per se illegal. In the United States, naked short selling is covered by various SEC regulations which prohibit the practice.
In this particular case, Dr. Wright’s argument holds up because Poloniex is offering a tradeable asset that does not technically exist (pre-fork) till now. Although SEC says that in a few cases market makers are can be permitted to use naked trading to drive up their demand.