Weekly loss of N% guaranteed - Enjoy perpetual loss with fixed Mh/s mining turds

[EskimoBob]

If you have any investment experience in the real world, especially in the fixed income instruments, you have probably noticed how the word "bond" is misused in this forum over and over again.

Bond is a very specific investment instrument. Fancy way to put it is -  bond is a negotiable certificate that acknowledges the indebtedness of the bond issuer to the holder. Other way to say it is: bond is a loan to bond issuer and who ever holds the bond, receives the payment form the issuer. It's like a IOU.
Another important feature of the bond is this: Issuer is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity.
This means, that you do not only receive the regular coupon payments, but at date X, your bonds will be bought back by the issuer at predetermined price X.
 
Information about different types of bonds and notes is readily available all over the internet. I recommend you read it and make sure you understand the basic ideas of bonds and why people invest in bonds.  

Now, typical mining bonds issued via GLBSE are perpetual mining bonds with fixed Mh/s coupon. It is very important to understand, that there is NOTHING fixed about this type of coupon- Especially, when it comes to your earnings. When difficulty goes up, you earn less per Mh/s. When difficulty drops, you earn more per Mh/s.
I call them mining turds, because they are almost like Floating Rate Notes (FRN) aka floaters - hence the name "turd".  
  
Why are bonds good and turds bad?

Bonds are usually good for preserving your capital and earning you a fixed income from dividends. If you think about it, mining turds offer you none of the previously mentioned benefits. At the moment, dividends do not cover the depreciation of your invested capital. Sorry, but this applies to all the mining turds out there.

There have been some exceptions, where turd price has actually gone up temporarily. One of the example is the GIGAMINING. Vps managed to push his turd prices up temporarily. Last month he increased dividends by 10% (110% PPS) for few weeks. Lets be honest, this was just a ruse, to get you all worked up over nothing.  

Did I really make 2.3841% per week?

To understand, what you have actually lost/gained by investing to mining turds, look at the price you paid for you turd and how much have you earned form your dividends. If you sell your turd today, will your loss of of invested capital be offset by the continuously diminishing dividends?  

If one month ago you paid 0.30 for your "bond" and you have earned 0.038 BTC in dividends, did you actually made money?
You say "Yes!", I say "No!"
OK, lets look at the market price. Oops, as of today, your turd is worth only 0.145 BTC! Now, did you make money or did you actually lose ~40% of your investment in one month to "earn" 0.038.
If diff keeps going up or stays where it is now, you are not going to see your principal returned to you any time soon. As you know, turd issuer has no obligation to buy it back from you at the IPO price. How long will it take for a monthly dividend of 0.038 to earn you those 0.155 BTC, to cover the loss?  4 months if diff stays at or below the current level and price is not dropping another 40%. If it diff keeps rising and price keeps dropping, you are almost perpetually screwed.
 

Bonds, I'll or you can invest in

Only mining bonds (not a turd!), that make any sense to invest in, are the ones with a truly fixed or partially fixed coupon. Bonds with floating rate must have a part of the coupon fixed at % from IPO price (par) and a part of the coupon tied to a Y Mh/s or something similar.

"Mh/s only" turds are garbage and burn investors hard earned bitcoins, while buying turd issuer a room full of equipment at 0 risk.
Difficulty and market risks are all left to to you - turd holder.
 
 If you truly believe that difficulty is going to go trough a massive drop, then yes, you have a good chance of getting back the money you paid for the turd. Now, lets not forget, that the income from mining will be halved soon. No more 50 BTC blocks. Can you see, how this affects your income and turd price, dear turd holder?

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[EskimoBob]

reserved

made some minor edits and removed a section about the .25 BTC rip-off fee.

EDIT: 25.08.2012
You can read all the 11+ pages of this thread if you have nothing better to do with your life. There are some interesting points and counter arguments but it all boils down to this: Buying miningturds (fixed Mh/s perpetual "bonds")  will guaranteed, that every month you can buy less crap with your coin (what ever currency) if you cash in your "investment" -  aka value of your investment is deteriorating. 
If you still think that miningturds are a good investment, please use simple calculations and actual data from GLBSE to confirm, what so many will tell you in this thread - your dividends will not cover your loss of principal even if BTC:EUR (USD, Tögrög or what ever currency) exchange rate improves over the same time. You are better off sitting in BTC.
How hard is it to understand this? Looks like for some this is a serious problem. If you have difficulty understanding 1+1-3=-1, please go play somewhere else
 
Cheers and happy reading. Keep your BTC safe and remember that X Mh/s is meaningless, if you do not know what the "difficulty" is/was/...
 

[Jurek]

...which you, only by the way of example, are happy to suggest. I see what you did there

[Bitcoin Oz]

...which you, only by the way of example, are happy to suggest. I see what you did there

 

[jamesg]

"Mh/s only" turds are garbage and burn investors hard earned bitcoins, while buying turd issuer a room full of equipment at 0 risk.
Difficulty and market risks are all left to to you - turd holder.

Hi EskimoBob,

If you think Mh/s only bonds are, as you call "turds", then are you calling bitcoin mining the same thing?

Also, what exactly is your strategy for investing in these things? I would like to point you to a post that should help form your strategy when dealing with deleting assets.

https://bitcointalk.org/index.php?topic=92090.msg1014750#msg1014750

Just because your investment strategy isn't working to your benefit doesn't mean others haven't figured out the game.

Best regards,
gigavps

[EskimoBob]

The examples of "proper" bonds on glbse would be BDT , BDK.BND and CIUCIU.BOND which offer fixed interest.

BDT has a 3% weekly coupon and buy back clause @1.2, but no maturity date is set.
BDK.BND - has a 1% weekly coupon, will be bought back at .101 but no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he wills. I don't like this at all.
CIUCIU.BOND -  has a 1.1% weekly coupon, will be bought back at and no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he likes. I do not like this because it can turn in to a bottomless pit of debt - outstanding debt gets extended and new debt gets piled on top of it. Usually a red flag and a sign, that there is no positive cash flow in sight. Refinancing a bond is a different story because old bonds are called.

[Bitcoin Oz]

The examples of "proper" bonds on glbse would be BDT , BDK.BND and CIUCIU.BOND which offer fixed interest.

BDT has a 3% weekly coupon and buy back clause @1.2, but no maturity date is set.
BDK.BND - has a 1% weekly coupon, will be bought back at .101 but no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he wills. I don't like this at all.
CIUCIU.BOND -  has a 1.1% weekly coupon, will be bought back at and no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he likes. I do not like this because it can turn in to a bottomless pit of debt - outstanding debt gets extended and new debt gets piled on top of it. Usually a red flag and a sign, that there is no positive cash flow in sight. Refinancing a bond is a different story because old bonds are called.

 In that case are there any bonds at all on glbse that fit the criteria ?

[Bitcoin Oz]

The PPT.x bonds are actually zero coupon bonds - they do meet the criteria set forth.

Aside from pirate I mean 

[EskimoBob]

"Mh/s only" turds are garbage and burn investors hard earned bitcoins, while buying turd issuer a room full of equipment at 0 risk.
Difficulty and market risks are all left to to you - turd holder.

Hi EskimoBob,

If you think Mh/s only bonds are, as you call "turds", then are you calling bitcoin mining the same thing?

I think you are comparing a bit different things here. I am talking about "Mh/s only" bonds and not equity in a mining farm.   

Also, what exactly is your strategy for investing in these things? I would like to point you to a post that should help form your strategy when dealing with deleting assets.
https://bitcointalk.org/index.php?topic=92090.msg1014750#msg1014750

I think you are confusing the issue here. I have no problems with depleting assets, but this is done for accounting purposes and is used in a different situation. You, as a miner, can use it to offset your taxable income etc. while your rig still works and produces income.
Issue here is different. People are buying mining bonds that are losing value (not preserve the capital), and do not pay enough dividends to offset the capital loss (realized or not).
If you can not sell your bond, because you love paper loss and hate realized loss, you own a investment, that can "not" be liquidated.
So, only thing you can do now, is wait 65? weeks, and hope that difficulty stays the same, bond issuer in not going under and bonds will be bought back (or sold) at price, that gives you a positive income. Simply put, you get back your own money but in really small payments and over a very long period of time. Idea of preserving your invested capital and earning fixed income is actually gone.
 

Just because your investment strategy isn't working to your benefit doesn't mean others haven't figured out the game.

Best regards,
gigavps

Sure,  you can make money with bonds by day trading. But this is not the idea behind the bond. Thank you for asking, but my personal portfolio is doing well but I see no reasons to get back into turds any time soon.
 

[EskimoBob]

The PPT.x bonds are actually zero coupon bonds - they do meet the criteria set forth.

I agree. I hope this gets fixed soon and different instruments get grouped by the type. There is another thread for this: https://bitcointalk.org/index.php?topic=74049.260

I personally like zeros and those are excellent instruments to finance all sorts of stuff. Not just issuing a zero, but also by buying zeros.

[Sukrim]

Just release a script that parses the GLBSE CSV file and calculates if one has actually made a loss or is still in the win-zone atm. with mining "bonds".

[GoWest]

Just release a script that parses the GLBSE CSV file and calculates if one has actually made a loss or is still in the win-zone atm. with mining "bonds".

What I did was try to project depreciating asset values and reduced dividends into the future, using a spreadsheet.  The fact of the matter is, as long as you're invested in ASIC-based mining operations, your dividends will outweigh your losses on the bonds well into 2013.  There are some difficult factors to predict, like how much the difficulty is going to increase, but as long as you trust that the owner of the mining operation is going to keep ahead of the difficulty curve (i.e. be one of the first wave to acquire ASIC), then you're golden.

All of my mining bonds are currently worth more than I paid for them.  Add dividend revenues to the mix and I'm laughing. 

Will the value of the bonds eventually drop to zero?  Well yes, they will, but in the short to medium term, they're still profitable.  The key is to not be the last bag holder.  I will probably start selling in a year from now, but a year in Bitcoin-land is a long time.

[Meni Rosenfeld]

The OP is completely nonsensical.

Buying mining equipment has two components - choosing and operating hardware, and speculating on the future of price/difficulty ratio.

Having these two components as a bundle is inefficient.

Mining bonds allow each component to be carried out most efficiently - one side buys bonds thus investing in the concept of mining profitability without having to physically operate hardware, and the other side uses the money to buy equipment without taking speculative risk.

To say that buying (or selling for that matter) mining bonds is "bad" because the returns are not fixed in some arbitrary denomination reflects no understanding at all of economics. It's the equivalent of saying bitcoins shouldn't be bought because they're not backed by a specified amount of dollars, or that any commodity or stock shouldn't be bought because its future price is unknown. It's called "risky investment" and if one doesn't like it he can sit it out, as long as he doesn't complain about those who profit from thought out risky investments.

It's all a matter of the offered price. If the traded price of a bond is high enough it is a bad decision to buy it, if it is low enough it is a good decision, in the middle there's uncertainty and the one making the best decisions wins. The OP can argue that the bonds at some specific time are overvalued but it doesn't seem like that's what he's trying to do.

Mining bonds are called "mining bonds" precisely because unlike usual bonds they are not tied to some currency but rather to mining hashrate. But the OP can call them whatever he wants (except for the term he's used which is offensive).

[jamesg]

The OP is completely nonsensical.

Buying mining equipment has two components - choosing and operating hardware, and speculating on the future of price/difficulty ratio.

Having these two components as a bundle is inefficient.

Mining bonds allow each component to be carried out most efficiently - one side buys bonds thus investing in the concept of mining profitability without having to physically operate hardware, and the other side uses the money to buy equipment without taking speculative risk.

To say that buying (or selling for that matter) mining bonds is "bad" because the returns are not fixed in some arbitrary denomination reflects no understanding at all of economics. It's the equivalent of saying bitcoins shouldn't be bought because they're not backed by a specified amount of dollars, or that any commodity or stock shouldn't be bought because its future price is unknown.

It's all a matter of the offered price. If the traded price of a bond is high enough it is a bad decision to buy it, if it is low enough it is a good decision, in the middle there's uncertainty and the one making the best decisions wins. The OP can argue that the bonds at some specific time are overvalued but it doesn't seem like that's what he's trying to do.

Mining bonds are called "mining bonds" precisely because unlike usual bonds they are not tied to some currency but rather to mining hashrate. But the OP can call them whatever he wants (except for the term he's used which is offensive).

+100

[sunnankar]

All of my mining bonds are currently worth more than I paid for them.  Add dividend revenues to the mix and I'm laughing. 

I hear that if EskimoBob keeps whining and moaning while you keep laughing then EskimoBob will magically have a positive return on investment.

The real issue though is probably his inability to do a discounted future cash flow using multiple numeraires and assumptions.

[EskimoBob]

The OP is completely nonsensical.

Buying mining equipment has two components - choosing and operating hardware, and speculating on the future of price/difficulty ratio.

Having these two components as a bundle is inefficient.

Mining bonds allow each component to be carried out most efficiently - one side buys bonds thus investing in the concept of mining profitability without having to physically operate hardware, and the other side uses the money to buy equipment without taking speculative risk.

To say that buying (or selling for that matter) mining bonds is "bad" because the returns are not fixed in some arbitrary denomination reflects no understanding at all of economics. It's the equivalent of saying bitcoins shouldn't be bought because they're not backed by a specified amount of dollars, or that any commodity or stock shouldn't be bought because its future price is unknown. It's called "risky investment" and if one doesn't like it he can sit it out, as long as he doesn't complain about those who profit from thought out risky investments.

It's all a matter of the offered price. If the traded price of a bond is high enough it is a bad decision to buy it, if it is low enough it is a good decision, in the middle there's uncertainty and the one making the best decisions wins. The OP can argue that the bonds at some specific time are overvalued but it doesn't seem like that's what he's trying to do.

Mining bonds are called "mining bonds" precisely because unlike usual bonds they are not tied to some currency but rather to mining hashrate. But the OP can call them whatever he wants (except for the term he's used which is offensive).

Are you high? You are mixing up debt and equity and some of your references make no sense at all. Obviously you have no idea wtf you are talking about. But keep at it. vps likes this crap because you help to confuse the issue.

gigavps,  +100?  LOL! No wonder.  As you are one of the biggest mining turd pedlar,  I did not expect anything less from you. Cheers!

[FreeMoney]

The OP is completely nonsensical.

Buying mining equipment has two components - choosing and operating hardware, and speculating on the future of price/difficulty ratio.

Having these two components as a bundle is inefficient.

Mining bonds allow each component to be carried out most efficiently - one side buys bonds thus investing in the concept of mining profitability without having to physically operate hardware, and the other side uses the money to buy equipment without taking speculative risk.

To say that buying (or selling for that matter) mining bonds is "bad" because the returns are not fixed in some arbitrary denomination reflects no understanding at all of economics. It's the equivalent of saying bitcoins shouldn't be bought because they're not backed by a specified amount of dollars, or that any commodity or stock shouldn't be bought because its future price is unknown. It's called "risky investment" and if one doesn't like it he can sit it out, as long as he doesn't complain about those who profit from thought out risky investments.

It's all a matter of the offered price. If the traded price of a bond is high enough it is a bad decision to buy it, if it is low enough it is a good decision, in the middle there's uncertainty and the one making the best decisions wins. The OP can argue that the bonds at some specific time are overvalued but it doesn't seem like that's what he's trying to do.

Mining bonds are called "mining bonds" precisely because unlike usual bonds they are not tied to some currency but rather to mining hashrate. But the OP can call them whatever he wants (except for the term he's used which is offensive).

I agree with all.

OP, do you have a point besides that you think the mining bonds are overpriced? Would you buy GIGA at .01BTC even if you were somehow forbidden from selling it forever?

[Meni Rosenfeld]

Are you high? You are mixing up debt and equity and some of your references make no sense at all. Obviously you have no idea wtf you are talking about. But keep at it. vps likes this crap because you help to confuse the issue.

Right, debt and equity are not the same but the difference is irrelevant to the point I was making.

[dust]

It is important to remember that mining bond prices took a huge hit after BFL announced and sold ASICS.  The returns of mining bonds would probably have outweighed the depreciation without unexpected news  of disruptive mining technology.

Just release a script that parses the GLBSE CSV file and calculates if one has actually made a loss or is still in the win-zone atm. with mining "bonds".

I would be interested in the results of this.  Might do it myself...

[jamesg]

Are you high? You are mixing up debt and equity and some of your references make no sense at all. Obviously you have no idea wtf you are talking about. But keep at it. vps likes this crap because you help to confuse the issue.

gigavps,  +100?  LOL! No wonder.  As you are one of the biggest mining turd pedlar,  I did not expect anything less from you. Cheers!

I find it interesting that your only recourse to Meni's comments is to tell him that he doesn't know what he is talking about when in fact he is the creator of mining bonds. I also find your comments about me quite distasteful and rather telling of your maturity and skill level at having a reasonable debate.

EskimoBob, why even post this stuff if you are unwilling to discuss them with people who disagree with you and resort to personal attacks to try and defend you position?