Bitcoin Forum

This is a self-moderated topic.  The rules being applied are:

Any posts by usagi or friends will be deleted if they are fully or partially off-topic or attempt to weasel around the questions (clearly given at the end of this post) without actually answering them.  This will be done without delay or discussion - what's good for the goose is, after all, good for the gander.  If this happens repeatedly then, in accordance with the forum rules, usagi will be asked not to post further in this thread.  I'd prefer if he just answered the questions but am not expecting that to occur.

This topic exists because when I asked perfectly clear and simple questions in the main thread for TU.SILVER they were not answered and the second post of mine deleted.  If we can't discuss the security in its own thread then we'll make our own.

BACKGROUND

Today usagi made the following post:


The emboldening is mine.

Whilst it's amusing that someone can misplace half of their 'internal value' and not notice it (and the error get past some kind of rubber-stamping audit) that's not the main focus here.  The auditor not blinking at half the value vanishing is excusable - he probably just has past experience of companies run by usagi (so half value vanishing is entirely standard).


SO WHAT'S THE VALUE OF THE SHARES?

Usagi has been lately paying out dividends to reduce the non-silver element of the shares.  The most recent valuation of the shares was only given a few days ago - with a heavy reduction in price caused in part by that policy.

My reading of usagi's post above was that 30 BTC belonging to investors had been found - what else could the 'internal value' refer to after all?  And there were references to "we" further suggesting that the funds were something other than usagi's personal money.

So I posted asking the following (quoted with usagi's reply) which was NOT deleted:


There were two parts to my question:

1.  A request for a new valuation - pretty simple you'd think as one was given only a few days ago.
2.  A question/suggestion that maybe the 30 BTC should be dividended out - if the funds belong to investors then retaining them undos the good work usagi had been doing in getting the price/share back somewhere towards being representative of actual silver prices.

Much to my amazement (and I WAS genuinely amazed) it appears that somehow doubling internal value of shares has a negligible impact on their price.  Maybe I somehow misunderstood things - and the found 30 BTC weren't investors' but belonged to usagi?


SO WHOSE ARE THOSE 30 BTC?

In the interim the price of TU.SILVER shares had risen sharply - my belief is that was because some people, like myself, read usagi's post as meaning the value of shares had doubled.  If internal valuation has doubled then it's not unreasonable to assume external valuation has increased similarly.

So I posted suggesting this should be clarified.  My post was then deleted and I was PMed a non-response to it.  As the PM was in response to a PUBLIC post I'd made (which has now been deleted) I quote my post AND usagi's PMed response here.


Yes you read it right.  Usagi can't confirm or deny whether 30 BTC that were the subject of an accounting error in his fund belong to him or to investors.  I'm supposed to PM his financial advisor to find out.  That's DeadTerra who:

1.  Didn't even NOTICE the error during an 'audit'.
2.  Has yet to respond to a PM from me about his OWN business sent 3-5 days ago (it was just a question about transferring shares between his pass-throughs to S.DICE on 2 different platforms - nothing urgent or important).

No wonder usagi wished me "Good luck!".

Now in general after some major fuck up (and misplacing half your fund's value IS pretty major - if the found BTC doubled value then half was misplaced) it's good practice to be absolutely clear about what happened.  If usagi doesn't feel competent/qualfied to comment on his fund's value/share then he should get his financial advisor to post it in the thread - not leave everyone in the dark unless they PM.  If none of usagi and his two financial advisors can determine what the shares are worth then maybe he should suspend trading on it until they decide who the 30 BTC belongs to and what value the fund/shares have.

The suspicion has to be that there's some co-mingling of funds/assets going on - with usagi's personal cash and the fund's mixed together.  That suspicion can, of course, be easily dispelled.

THE QUESTIONS

So here's the simple questions that need to be answered:

1.  Does that 30 BTC belong to investors or to usagi personally?  If to neither of those then who owns them?
2.  What's the new book value/NAV/whatever usagi calls the 'official' price/value of a share of TU.SILVER?
3.  If 'internal value' is significantly different to the answer to 2. then just what does it represent and why is it of interest to investors?  i.e. why was that doubling reported but not the extent to which a useful 'real' value had changed?
4.  Is cash belonging to usagi personally kept in the same wallets as cash belonging to the fund?
5.  Are shares of TU.SILVER owned by usgai personally kept in a seperate Bitfunder account to shares belonging to the fund (i.e. treasury shares)?

I appreciate it may take some days or weeks to determine the answers and that both financial advisors would need to be involved in addressing such complicated matters.

Will wait until usagi has answered the actual questions (which are at the end of my post with the helpful title of "QUESTIONS") rather than ones I didn't ask.  He's posted some related things in his FAQ whilst dodging the actual questions of course.

It appears the claim is now that it was just an error made in the spreadsheet AFTER the last audited reports were published.  Given that was only a a few days ago it seems strange that a post would be made announcing as great news that a mistake had been made and corrected without any actual impact on anything.  Guess it's kind of cool that usagi can forget the fund had 30 BTC cash then get reminded of it by a financial advisor.

It still does leave the question of who the 30 BTC belongs to: any clear answer to that will put the lie to a previous statement by usagi so don't expect a clear answer obviously.

Post by usagi deleted as all it did was refer back to his thread for answers.

The basic part of the shares should be worth literally 1/10 of an oz of silver, which is trading around $23 right now.  Therefore, what I'll refer to as the "intrinsic" value of the security is defined by this value.  There's also a speculative value associated with the shares, as Usagi pays out revenue derived from other options and securities trading in secondary markets. 

Seeing as Usagi has already paid out over 30BTC in total revenues (and yes, that's more than 30BTC to shareholders other than himself), its obvious that there is in fact revenue, as opposed to this being a pyramid scheme.

So to answer your question, the shares are worth two things: the market price you can fetch for the share itself or the market price you can fetch for the silver reserve backing the share.  The shares are only "worth" what other people will pay for them, remember...

In terms of the underlying backing asset:

Silver closed trading at $24.72 today, meaning that 1/10th of an oz is valued at $2.472 (~$2.47).  At the current USD/BTC rate of $132/BTC, this leaves us with a spot market value of 0.01872727 BTC per share, which is around 0.05 lower than the current highest bid. 

Investors are obviously willing to pay this premium for the shares based on the recent dividend history rather than invest in TU.Silver as a growth investment.  When it comes to BTC stocks, shareholders hold only the rights to profits, not to assets, although many issuers will make a verbal guarantee of assets if the underlying fund is liquidated.  While there should definitely be a separation of personal and business accounts, it does seem like usagi knows what he's doing.  The TU fund is one of the few that consistently provides investors with newsletters, which can also contribute to the higher price of the asset (investors are willing to pay a higher price for an asset they consider lower risk - see the ZigGap situation for a contrasting reference).

So the "book value" doesn't really matter, just like it doesn't matter in world markets.  That's why there's such a high variation between P/E ratios of competitors in many sectors...investors on both the buy and sell side determine the price, rather than any specific mechanism.

The book value does matter as :

1.  It's presumably what you'd get if the shares were liquidated.
2.  It's the only measure you have to determine what the likely income from investments etc will be.  If usagi has 30 BTC more cash to invest then obviously that should raise expected income.
3.  The most important reason to know it is to know what price the fund would be selling shares at now - so as to know whether to buy from others or wait.  According to the contract shares are sold at the spot price of silver plus a small markup.  That part of the contract was being ignored (unless 200%+ is a 'small markup') - but it seemed usagi was trying to correct that.
4.  At what price could you rely on the fund buying back your shares if the other bids vanished?

The fundamental issue behind it all is that usagi wants to run an investment fund but pretend it's a silver shop.  That leads to shares being sold at a price that isn't consistent with selling silver (for the sort of markups being charged I could go buy physical silver with cash with zero delivery time, counter-party risk or fees) but without any published valuation consistent with an investment fund.  So it ends up being neither.

It's all fine and well saying 'investors can pay a share to see what their shares are worth' - but how is that of use to someone who isn't an investor and wants to invest or trade the shares?

So you tell me if you have a clue what usagi is doing:

1.  What price would usagi be selling shares at now if the fund had some spare to sell?
2.  What does each share actually own?
3.  If the answer to 2. is just "1/10th oz of silver" then do the shares have any rights at all to income from cash they don't own? (i.e. the majority of the cash raised from the sales of shares this week).

If usagi's plan is to personally keep all cash raised from sale of shares but give out dividends based on what they raise (but with NO obligation to do so) then he should come clean and say so.  Until then it just remains YOUR guess that's what he's doing - in previous reports it was clear the investment capital belonged to the share-holders.  You seem to say he now personally owns it (by saying the shareholders don't).  That's scary - as he's not even making an effort to repay all Nyan.A investors (which he personally took respondibility to do - but recently lied and denied making such a statement despite not having deleted it), but now people are supposed to trsut his goodwill without even a promise?

Interesting though your speculation is, it doesn't match what he said before.  Which doesn't mean you're wrong - it would be out of character for his current position to be consistent with his past statements (he's recently lied about a post he made earlier the same day - claiming he didn't say something when he clearly did 2 posts up in the same thread).

I'm also not that interested in speculative defences of usagi's position.  He can either clearly state what is and isn't the case - or not bother if he believes it isn't information anyone is entitled to know.

Since usagi seems comfortable with me answering these types of questions:

There are indeed currently two separate and identifiable asset bases for the fund, a silver-based one and an "other". I have just completed a quantification for a clean split of the two as of March 31st and will, by the 1st or 2nd, have done the same for April 30th. At that point I will provide Usagi with the compiled comparative financial statements (and hopefully to the public) and with that information in hand I leave it up to him how to proceed. I foresee three possible courses of action although the ultimate decisions is up to Usagi and other shareholders:

1) All assets in the "other" are disposed of and a dividend for their value is paid out. The NAV would therefore mimic strictly the silver holdings

2) Some assets in the "other" are kept while the rest is disposed. The value of the "some" is what is predicted to be needed to finance (through interest and other income) the ongoing fees for the fund so that there is no NAV degradation which would occur in the event of a pure silver fund due to management and transaction costs.

3) No "other" assets are disposed and the stock remains a hybrid of about 50% silver and 50% other.


Deprived, I respect your analysis and position both in this case and in other threads where I have seen you. You have a good grasp of things. However, you are being needlessly combative towards Usagi. I don't pretend to know what the backstory is between you to, but this does not seem to be the place to play it out. Sorry if I come across as somewhat rude.

Deprived:

1 - None of this matters because usagi is not legally bound by any financial laws.
2 - If usagi releases more shares, the price should be determined by an indicator such as the 90-day weighted moving average.
3 - As usagi functions as our "board of directors", its up to him to decide whether to reinvest the 30 BTC or distribute it to the shareholders.

It seems like he's addressed the accounting errors in the main asset thread.  As for the pricing of additional shares, they should be sold at a premium to maintain the price integrity of the existing shares.

Edit:  While usagi is not bound by financial or regulatory law, he holds a significant stake (around 25%) in the company's "equity" (technically rights to profit-shares, as TU.Silver is not a business entity and shares "do not represent real world holdings" etc etc).  Therefore it's in his best interests to make the best decisions regarding the reinvestment of funds, and I trust this will remain the case.

Or really, additional shares should be sold at auction.

Well I'm glad to here the two parts are being split up.

I did, after all, say precisely that ages ago when it became apparent to me that was the underlieing problem with the security - that it was neither one thing or the other.

In fairness the problem arose because usagi wanted to avoid a problem with some other silver securities - that the quantity of silver per share would tend to fall over time due to management fees and/or costs of storage etc.  The problem for any PM fund manager is how to generate revenue from people who just buy and hold the silver, generating no income but still requiring maintenance.  The solution chosen was, however, in my view about the worst of both worlds.

To avoid paying for shipping, investors have to instead pay for the capital needed to generate income to pay for shipping.  So to avoid paying for a $2.50 stamp they have to instead buy $50 worth of shares in the post office.  Similarly for storage.  The cure is worse than the problem it attempted to address.

This was all perfectly obvious from the start of course - but not to usagi.  Similarly with his ill-conceived plan to sell CALL options on the silver - which could never work properly when you have to write options vs shares and the shares don't just represent silver (plus you can't write CALLs on the silver actually backing shares without issuing new shares to write options on which they breaks the contract's obligation to hold 1/10th oz of silver per share).

What you aren't aware of in terms of history is that usagi still has half a dozen securities open that have failed/gone bust/are in an extended period of close-down.  You're also unaware of some of his past rather shabby behaviour - such as clearly abusing his position of trust in one company (BMF) to the advantage of another (CPA).  Then denyiing there was any conflict of interest and giving conflicting accounts of the reason why the dubious decision was made.  Eventually he DID admit there was a conflict of interest - but not until AFTER he'd made a scam accusation against me that I was attempting to somehow cause him harm by lieing : one example of the supposed lies being my claim that there was a conflict of interest.

Taken individually his posts tend to seem sensible, straight-forward etc.  The problem comes when you start comparing what he says now about something to what he claimed/promised in the past.  Then you inevitably find that he's not actually doing what he said he would do.  As happened here - where the claim was he was running a silver fund yet it soon turned into something rather different.

As for moving forward with the fund, before looking at detail of what to do with current assets the first stage is to decide what the purpose is.  Is it :

a)  A silver shop
b)  A means for investors to own silver without having to physically possess it
c)  An investment fund which mainly holds PMs.
d)  An investment fund that happens to hold a bit of silver.

There's a distinct difference between the requirements of a) and b) - and it's pretty hard to do BOTH well in one vehicle.

Usagi's original plan COULD have been done decently - but it would have needed two (or even three - there's an argument for a security that is purely used for option execution) securities not one.  But I'm not sure just how keen any exchange would be to list an investment fund run by usagi until he's closed down the 4-5 (depending if you count CPA or not) investment-holding securities or so he currently still has open but largely neglected.

Really the silver should be seperated from the rest of it - which it seems usagi is finally accepting.

Here's what I said over a month ago (after the first report was poduced for it).  I can't quote direct as it's in a usagi thread - so obviously locked.


Link to original post : https://bitcointalk.org/index.php?topic=137459.msg1627088#msg1627088

Seems like usagi is finally realising I was right.

I see you're a new-ish member here.  These allegations against TU.SILVER were made and described at length in the now-locked old Silver thread (https://bitcointalk.org/index.php?topic=137459.0).

For endless discussion of Usagi's previous businesses, see  this thread (https://bitcointalk.org/index.php?topic=114820.0) and this thread (https://bitcointalk.org/index.php?topic=113708.0).  Another independent forum member just like you wanted to get to the bottom of the whole mess and did his own investigation in this thread (https://bitcointalk.org/index.php?topic=133823.0) as well.  That last thread is concisely written and well-organized and has responses from both Usagi and the accusers.  It's a good place to start.

Removed all jjdub7's recent posts as he's clearly a supporter of usagi and didn't address the questions in the topic.  There's a seperate thread run by usagi for posts that believe he's doing a great job.  I've left the earlier posts as they had some merit.

If nothing else I hope this thread shows how stupid it is to allow asset issuers to run self-moderated threads where they can delete questioning posts - forcing seperate threads to raise the questions in.

Deprived's approach is reasonable when considering the disappearing posts in the official thread and how hard it has been to get a straight answer.  Most of the deflection lately has been toward you and DeaDTerra, so it's good to have you involved.

Any ideas what happened to BMF's:
3 BF Singles 832 MH/s
2 BitForce Jalapenos 3.5 GH/s
1 BitForce 'SC' Single 40 GH/s

Have those assets become a part of this new shiny SILVER'i adventure of his?

Some of them the orders were refunded and the proceeds apparently paid out.

Usagi recently claimed that with one of them BFL lost the order or something - but that claim was only made in a post in a totally unrelated thread (for one my assets) and hasn't been reported to investors.  Obviously that's not the one that was sold off and the proceeds given to CPA to pay its debts - that was an entirely seperate one that was owned by usagi personally (despite him having previously said it was BMF's and that the proceeds from its sale were part payment of the funds owed to CPA).

Noone will know for sure what happened with the hardware Unless/until usagi produces proper up to date records of what happened to the assets of his various companies.  That includes CPA - which can't remain a black box when it's in liquidation and has assorted creditors including yourself ( All Nyan.a investors are owed money by CPA - so if funds raised from CPA's assets are going to other creditors with senior claims then those creditors, assets and payments need to be published.)  The nyan.a debt wouldn't have been an issue if usagi had actually intended to keep his commitment to personally repay nyan.a investors - but as I pointed out in a recent thread he's now lieing about ever having made that promise (even though he never deleted the post in which it was made - so the lie is rather obvious).

Really your post (and my response) should go in a thread for BMF/etc but I don't think there's any unlocked ones.  So it may as well stay here to avoid clogging the board up with more usagi threads.

I guess the questions for usagi in respect of the hardware are:

1.  Where's a list of the hardware owned by BMF?  A link to it is fine - no need to repost.
2.  Where are records of which ones were sold - and when that payment was passed on to investors?
3.  Why haven't shareholders been told about a BMF SC totally vanishing?
4.  If BFL are refusing to acknowledge an order made by BMF then what steps are being taken to address that?

Here's the quote from usagi in relation to questions 3/4.


I'm not sure which spreadsheets he refers to in his quote there - or which locked final claims thread it's in (and I'm not going to wade through them all trying to find it - couldn't see it in the OP of the last thread he used which is where there's a bunch of out of date/neglected data about BMF assets).

I know I've already been removed from this thread, but suggestion to usagi...could you use some of the excess 30 BTC or so to purchase shares in mining bonds to diversify TU.Silver's portfolio?  With that additional revenue, you'd be able guarantee the issuance of regular dividends and investors will also have some sense of what the shares are worth from a practical, day-to-day standpoint as well as have the confidence that they're also backed by actual physical shares of silver.

I think this is a suggestion many people could agree upon, and although investors would not see any of the 30 BTC directly, they would be able to see dividends in the coming weeks (i.e. just like pass-through's of ASICMINER-PT shares like DeaDTerra's).  I, for one, believe that ASICMINER is overpriced right now though, so would it be possible to hold a shareholder vote on this or another plan of action?

Hopefully a solution like this will be able to make everyone happy.

And Deprived, don't get me wrong.  We do appreciate people asking the tough questions like this.

Usagi & Deprived:

I've been thinking...because the shares are backed by silver, the price is going to still be pegged to the dollar.  So as the value of BTC goes up, the shares are going to devalue because they're priced in BTC.  Therefore investing in mining bonds would be a solid way to go to hedge against this kind of devaluation.  If BTC were to decrease in value, the result would be even better returns.

Seems like investors would be best served with two assets so that they can mix and match whatever exposure they want.

TU.SILVER (100% silver backed asset, nothing but a silver backstop.)
NYAN.2013 (The Usagi 2013 Fund)

Would definitely simplify things a bit, maybe eliminate some confusion?

Perhaps an equitable solution would be a 2-for-1 split.  Take the entire balance sheet for TU.Silver, separate out a part of the money, and use it to establish a new NYAN fund and then divide the shares into separate funds.  People who want to keep the 1:1 share ratio can do so and those who want to stick with or leave the silver-backed asset can sell off their shares and buy into the other fund.  This would involve moving some money around on the part of investors, but hopefully it could smooth out any speculative problems.

Also, for the TU shares, could we hold a shareholder vote to set a reinvestment parameter for revenues?  It could be good to set (on a quarterly basis) a breakdown of what parts of the cash flow should be paid out as dividends and which parts should be reinvested in additional silver.  Newly bought silver should either A) be sold at auction at a price no lower than the 90-day average (or similar) or B) be reserved on the company balance sheet until such a time when a 2:1 split of silver shares can be issued.

This single sentence highlights the fundamental problem with your fund - that its performance does NOT reflect the behaviour of silver.  Which means that though it MAY be a good investment it is NOT any use for anyone who actually wants to invest (or trade options) in silver.

When BTC rises heavily vs silver (as has been the case over the period from start of your fund until now) your fund will ALWAYS do a lot better than just holding silver.  But the opposite is also true - that if silver rises strongly vs BTC (most likely largely because of BTC falling vs USD) then your fund will significantly under-perform compared to just holding silver.

So the problems (from an investors' perspective) are:

1.  Silver only represents a minority of your fund's asset value - so to expose 1 BTC to silver I have to invest a LOT more than 1 BTC into your fund.  That's inefficient.
2.  The percentage of your fund's assets that are silver (i.e. if I spend 5 BTC on shares what percentage of that is buying silver?) is neither revealed or maintained at a consistent level.  Whilst I can work out how much I'd have to spend NOW to expose X BTC to silver I can't predict how much I'd have to set aside in the future - even if I knew what silver's price would be (as I don't know how much non-silver there'll be per share in the future).
3.  For options the above is even worse - as if I buy an option on the silver then a lot of the premium I pay is actually on an option to buy the BTC denominated element of the shares.  Paying BTC in premium to get an option on BTC that is settled in BTC is NOT good - yet that's what the majority of any option on your shares is doing.

Getting back to the point - in summary if I invest in silver then I expect the results to be exactly (or as near as possible) the same as if I HAD bought silver and held it.  That's what investing in silver means - and what I expect from a silver fund.  If I want profit from an investment fund that operates in BTC then I'd invest in one of those - not a silver fund.  And if I want a bit of both then I'd like to determine the percent of each MYSELF - not have it some random (from my perspective) mix of the two that's neither declared or maintained (the percentage split that is).

If you really MUST insist on mixing the two then please at least do so in a way that allows informed investors to predict their exposure.  e.g. declare (and stick to) X BTC of investment capital per share (dividending out to keep it at that level).  I'd prefer a defined percentage but doubt that's practical (as you then need a source of BTC if silver rises).

So what percentage of assets being BTC do you consider overweight in a silver fund?

We assume you haven't read our FAQ, since there is an in-detail answer there which explains our cost, investment and distribution policy. That might be a good place to start. Beyond that it's not really possible for us to give you a specific answer because we need to evaluate the answer over time. That's why we're making "modest" distribution payments each week and studying how they effect demand. We just don't think it's a good policy to pick a number out of a hat and make a single large payment like you seem to be asking. There's much more to it that that. For one, should the price of silver suddenly rise or we place a large order for silver, that policy could backfire and we may be forced to shut down.

We didn't decide to go X% overweight BTC. It just sorta happened because we got lucky on a few investments right before ASICMINER started selling hardware.

And that's I think the answer I was looking for, at least.  And that's good, I like that answer.  As long as you're keeping a solid balance between the BTC-weighting line of the portfolio and publishing the financial reports, I'm going to keep buying shares.

It's fine as an answer IF you look at the investment in isolation rather than as part of a portfolio or larger position.

Where it isn't fine (and actual numbers are needed not vaguaries like "overweight") is in the following scenarios:

1.  You want to manage your exposure to various things (X% BTC, Y% silver, Z% LTC etc etc).  You can't do that without knowing what percent of exposure the fund will have to BTC.
2.  If you want to invest to balance/hedge against another investment that's long on BTC - that's entirely impossible if the majority of assets backing TU shares are actually BTC-denominated themselves (you end up increasng your long position more than you counter it).
3.  You have X BTC and want to invest X (or nearly X) in silver - impossible to do.
4.  You want to buy options.  Totally impossible to do so in an informed way - if the price of a share is .06 now then buying calls at .08 is horribly risky - as usagi may decide the portfolio is "overweight" and issue a dividend totally devaluing the calls you just bought.  It's also horribly inefficient as a lot of that price is BTC/equivalent which isn't what you want to buy an option on anyway.
5.  You want to buy silver.  Rather than paying an $X markup for postage/storage/etc you have to pay a Y*$X (with Y being way greater than 1) markup for capital sufficient to generate profit of $X to cover the postage/storage/etc.

The ONLY people the plan actually works for are those who:

a) Believe in usagi's investment skills (as opposed to just his ability to store silver)
b) Don't specifically want their investment mainly or entirely held in silver
c) Aren't fussed about managing their personal exposure to different currencies/assets to any great extent
d) Either don't want to redeem for physical silver or are happy to end up paying way over the odds (compared to buying it locally in cash with no counter-party risk) when they do so.

Now there IS a problem that has to be addressed one way or another - how to pay for storage fees etc if people just buy the shares and hold them (generating no revenue).  Writing covered calls on silver (NOT shares) was the means identified in the original contract - but that's badly flawed for various reasons.  What's happening is an attempt to address it by a different way to what most funds use (which is taking the fee from the actual silver) - which is a great objective but this isn't the way to do as the unintended consequence is that teh fund ceases to be a silver fund in any meaningful sense (i.e. the majority of assets backing each share are NOT silver any more).

Here's the easy way of doing it (there's a more complicated option where you sell BTC-denominated bonds so that BTC assets are cancelled out in terms of exchange-rate exposure by matching liabilities):

1.  Create one security (a bond in effect) which is pure silver.  Shares in it represent silver and are sold at a small markup to spot/cost - designed based on expected split between holders and redeemers so that it has a small positive expectation.  Shares in this represent ownership of silver NOT of the asset itself and pay no dividends.
2.  Create a second asset which owns the first.  Sell shares in it.  This one is a pure BTC investment vehicle - it owns the first one, pays the bills and keeps the profit.  Provided operation of 1. has a positive expectation then this is better for investors in 2. than NOT owning 1.

This way:

People who want to invest in silver or trade options on it or buy it can do so via 1 in an efficient manner.
Those who believe in usagi's investment skills but don't like silver's prospects can invest in 2.
Those who like the current setup can invest in both.

The markup at which security 1. is sold can then be dynamically adjusted so as to make a small profit for investors in 2.

Tyring to mix these two things in one security is just horrible from the perspective of any investor who wants to be able to invest efficiently in specific assets (e.g. silver) and have control over their exposure to different things.

Then look at it in isolation using the same criteria you use to look at any other investment in isolation when considering the composition of a portfolio.


Isn't that like saying no one would ever invest in LTC-ATF because they don't know what the individual holdings are? I'm not sure that's right. Anyways, anyone can calculate the non-silver component of the fund by subtracting spot silver, coin premium, and shipping cost from the fund. Vault storage is a marginal cost. An experienced investor will have these numbers on hand but in any case they are easy to research. We don't need to publish them so long as they are disclosed.

I mean yeah I see your point, but we feel it's a non-issue.


This was addressed in Question 2 of our FAQ. This particular take on it is a little different -- the existence of the second investment (which owns the first) is independent of the operation of the first investment (the pure silver one). So we simply don't see the point in creating a pure silver investment and splitting up the operation of TU.SILVER. We are simply not in the "pure silver" business. We offer investors a complete package. We're sorry if you want a simple silver fund but that's just not what we do.

Since you think that a pure silver fund is what people really want, you're more than welcome to start one. My question is, why you think people even want one, seeing as how both LTC-SILVER and GOLD collapsed due to lack of demand... I mean it seems from where I'm standing that I'm the one who is giving people what they want, why would I want to change what I am doing? What is the case you are making exactly? Increased profits? Greater demand?

But that's exactly what I CAN'T do.  As one of the first criteria I use when looking at an investment is to determine to what extent it is effectively denominated in each currency.  Which is what I can't tell for yours over any length of time (I can estimate it now - but have no idea what it'll be at any future point in time).


Nah the LTC-ATF comparison is a different issue.  With LTC-ATF they don't know the specific securities being traded but they DO know that the fund's exposure constantly remains within a few percent of 85% LTC, 15% BTC.  With TU.SILVER the point is that we don't know what X and Y are if it's X% Silver, Y% BTC investments - knowing the detail of the BTC investments is a seperate issue (and not actually one that massively concerns me).

Yes - I COULD calculate what X and Y are right now.  But the problem is that I have no way of knowing whether those percentages will be the same tomorrow, next week or next month - or what impact an exchange-rate move will have on those percentages.  It's what will hapen in the future that I care about - NOT what a current snap-shot is.  I don't invest because of what something's current price/composition is - but because of how I expect that to change over the period of my investment.  Without a clear stated policy on those percentages there's zero way I can predict the extent to which changes in the price of silver and/or BTC/USD exchange-rate will impact the price of your shares.


Well there clearly IS some demand for one - as some people have actually redeemed silver from you.  I have no intention of running a PM fund myself.

But if your argument is that there isn't much demand for one - then what makes you believe demand for your shares would be lower if you didn't bother holding any silver at all?  People investing in your shares are most likely doing so because:

a) It's there - absolutely terrible securities with no prospects get sales (NOT saying yours is one), just being listed gets some sales anyway.
b) It's paid decent dividends - that'll sell anything.
c) Maybe some people invest because they have faith in your investing ability - if so it's DESPITE the silver holdings not BECAUSE of it.
d) Some people day-trade anything which has activity.

I don't see how you have ANY basis for assuming investment is because you happen to hold a bit of silver.  If you believe people want to own a mix of silver/BTC-denominated assets then a pure silver asset satisfies that BETTER than a mixed one - as it adds the ability for them to choose the percentage of each they hold.  A hybrid one gives the worst of all worlds - the inability to invest in just one or the other AND the inability to choose the extent of your holdings in each.

So if there IS interest in silver then a pure asset is attractive to more people (e.g. those who want to own/trade/deal options on silver).
If there isn't interest in silver then you should drop the silver totally - as it's deterring investors who may like your trading but don't want silver.

You widen your potential pool of investors from those who want a fairly random mix of silver/BTC holdings in an asset (they can still get that buy buying shares in both assets).  That's the benefit of splitting it.

Not sure -- you could invest in a BTC denominated bond like BTC-BOND, and you would still retain full exposure to BTC. I don't think there is anything magical about currency or silver or hardware or any other asset class that changes how you can value a security based on what % of the asset it is. If you are unaware of the exact percentage of silver in TU.SILVER, and make the argument that you can't value it based on that, then I can say the same thing about LTC-ATF because I don't know what % of the fund is invested in any particular security, which is in turn exposed to currency. I get what you are saying about 85% though -- we're after a similar ratio in silver, so at least once we return the fund to equilibrium the same principles will apply.


Yes and no. The silver portion cannot go to zero, so if you feel that our units are priced close to the spot price of silver, it is a good time to invest. Unknown upside potential is never a bad thing. You can find information on how much is in what area in our monthly financial report, where we separate the value of silver from the investment position and short term cash accounts of the company.


Simple, if we didn't hold any silver we could only offer a subset of the services we offer now, and we could not guarantee the ability to buy back all of the units of TU.SILVER upon demand. Right now, in an emergency, we can offer cash settlement on all units by selling the silver ourselves and buying units back with BTC. In fact, as a silver investor myself, I am more than willing to be a buyer of last resort and repurchase all existing silver of the fund with my own cash at any time. Or, we can simply redeem ALL units as silver. Both of these scenarios would be impossible if we did not bother holding any silver at all, and we would not be as attractive as an investment vehicle for silver.


Now we're getting somewhere. I agree with what you're saying. However if I ran the fund that way, then we would have to charge investors when they wanted to redeem silver and that may create a situation where someone is unable to ever redeem their silver. I believe our investors recognize and appreciate why we offer this policy. Secondly, if we split the fund like you suggest we could not preserve the long-term value of our investor's silver. There is simply no realistic alternative to the servcie we offer -- someone can buy shares of TU.SILVER and walk away for 20 years and there is a very real financial incentive for us to watch over the silver for our customer that whole time. Say the customer falls upon hard times and calls us up. We can give him his silver even if he has no money to pay for shipping. Out of all the reasons you presented for people owning TU.SILVER, you missed that one and any kind of "silver story" or "silver singularity" event. That is why we exist and if I were to change how we operate I am willing to bet we'd lose our existing customers.

I don't mind starting a secondary "pure silver" fund, maybe, but it would have nothing to do with TU.SILVER. The real problem with something like that is I just don't see the point -- after another week or two, you will see the price of TU.SILVER pushed very close to spot + coin premium. What would the point of a pure fund be? to beat the price by 5% and then have to pay a 5% shipping charge? I don't think it calls for an entirely new asset. I could always just change the company policy, but at this point I'd probably run a motion to do so. In fact, just running motions to change the policy is probably a much better option than creating an entirely new asset.

Let me just say that first off, this conversation has taken a huge leap in a positive direction and the 3-5 of us are actually sounding somewhat like a real mgmt team.

Usagi, I think now that I've looked at things, your only real liability here with the current hybrid form of TU.Silver is making sure the shares do not fall below their 1/10 silver oz valuation in terms of BTC (around 0.02 right now).  Because the asset is backed by silver, you'd need to be willing and able to buy back a certain percentage of the shares at an announced rate (like 90% of silver BTC value or something stated).  This will guarantee the silver-backed portion of the asset.  The rest of the value is based on speculative future gains, so investors are free to trade the remainder of the price based on that speculation, making that percentage of the share price more of an investment fund.

So yeah, again, the shares should only 'officially' be worth an issuer-guaranteed spot price of silver (based on a moving average for cash flow purposes - a large spike in silver prices could force usagi to buyout at the expense of all other shareholders).  Any value above that should and pretty much is set by the market.

However I do like usagi's investment skills and wouldn't mind seeing a pure investment fund in the future.  Keep in mind that this is how Warren Buffett operates too...he says things are worth such-and-such and so they pretty much are...

Thanks. I really appreciate your positive energy here. As a result of that, and of Deprived making a good suggestion, I'm holding a shareholder vote to see whether or not current holders want us to drop the free shipping policy. It has it's benefits, but, it is one of the most dead-weight aspects of the fund right now.

I am a big fan of "baby steps". We will see how that motion goes, and I will continue to pay out excess BTC, and we will see how that ends us up in a couple weeks :)

^This.  Good.

Actually you wouldn't have to charge when they redeem - the purchase price in the first place would include a markup to cover shipping.

For investors who wanted to redeem the markup covers purchase.
For those who want to hold it covered storage costs.
For those who want to trade they get it back when they sell.

In reality shipping isn't free in your current model either - at some stage it HAS to be paid for.  Right now it's paid for by them giving up the non-silver part of the assets backing their shares when they redeem: which is essentially no different to what would happen in what I suggested.  Minor theoretical difference is the shares would ONLY 'own' the silver - the markup for shipping would go to the investment 2nd company (who would pay it when necessary) - but in practice that's not really any different.  Where the difference lies is in the seperation of the two elements allowing those who only want to invest in one to do so.

Which brings me to the main point - why does the percentage of each currency matter anyway?

Well there's two reasons:

1.  The general one which applies to many people (I hope).  Some investors like to manage their investment across different currencies so that in the event of a major swing in the exchange-rates/value of one they keep their losses to a reasonable level.  The most obvious such pair being BTC/USD.  Obviously there ARE people who just invest blindly without consideration of that - and no doubt some such 'investors' got horribly burned buying in at the top of the recent BTC bubble (then compounded it by selling at the bottom).  The degree to which each investor spreads their funds, the extent to which they maintain their preferred ratios and what those ratios are will obvously vary from investor to investor. 

Now some will have their USD investment (and for simplicty we'll consider silver to be such - though it obviously isn't precisely) offline.  Those are irrelevant to this discussion as they won't be buying TU.SILVER anyway (not for the silver anyway).  For the ones who keep their silver/usd investments online they HAVE to know what percentage of an investment in TU.SILVER is (and WILL be) silver to maintain whatever ratios of exposure they wanted.  Otherwise they could end in the nasty situation where BTC crashes, they look at their TU.SILVER investment expecting to see a major rise and instead see it's barely risen - because it happened to have more BTC than silver in it when the BTC price crashed.  And so their attempt to mitigate risk totally failed because of something they had no control over and no way to predict (in fairness THEY are largely at fault in that as they must have bought when the shares contained a large BTC element).  So TU.SILVER ceases to be a useful investment for those who want to use it hold the USD-denominated portion of their investment.

2.  The specific which probably applies to few people.  Sometimes an investment opportunity or potential position exists where something is underpriced but bears a heavy risk if exchange-rates move in the wrong direction.  We're talking about something effectively leveraged into a long position on BTC (unfortunately there's not that many such things around).  For me to safely take advatange of that I need to hedge it with something that's short on BTC - which, if done properly CAN lead to guaranteed profit (provided the discount on price exceeds the cost of hedging).  A pure silver asset is one good way to do this - how good depends on my perception of the likley strength of silver vs USD over the period the other side of the pair is expected to last.  As soon as there's any significant BTC element in the asset it ceases to become useful for this - not so much because it HAS BTC in it (I can manage that) but because it becomes inefficient.  I have to tie up BTC to hold BTC and, worse, if I do it through options a large part of the premium is for BTC that I don't want or need an option on.

More interestingly the opposite direction is more useful (because there's far more opportunities to go short on BTC than to go long).  Here's an example (doesn't apply to my fund - COULD apply to some of my personal.  I give a USD-denominated loan to someone paid and repayable in BTC (but obviously calculated based on exchange-rate).  Because it's USD-denominated I can charge a far higher interest rate than if it were BTC-denominated.  What I now want to do (if I don't want to convert other USD into BTC to rebalance my personal ratio across currencies) is protect against a large rise in BTC (a small rise doesn't matter - the extra interest rate covers that).  Buying PUTs on silver could serve that end (there's other ways to do it of course - options on MPEx, a leveraged position on Bitfinex etc) and would likely be cheaper than the alternatives.  But again it's not really feasible if I'm paying a premium that's largely to sell BTC for BTC.

If you're aiming to get the share price back to somewhere near Spot + small markup (small markup being well under 50% of spot) then that's great.  But it then leaves the rather obvious question of where do the funds to buy new silver come from?  I know your initial silver was bought with a (presumably interest-free) loan from yoruself - but that's not really a great business model (a business shouldn't rely on regular free handouts - and an interest-free loan IS a handout).  With the model I suggested obviously the silver is bought by the investors in the second asset - who get the profit on selling it (but then have to pay some it back for shipping/storage etc).

If the demand for more backing shares manifests itself, why not have potential investors pre-order?  Of course this also begs the question (which usagi may have already answered) - are storage costs variable or are they a flat percentage of the value stored?

There's a minimum fee of around $30 US /month, but beyond that it is about 1/2 to 1% of the spot value of the silver.