WEEKLY REPORT




This was the week of S.DICE - there's been more volume in the pass-throughs to this on BTC.CO and Bitfunder than on all their other assets combined.  The release of more shares at below-market prices produced a bit of a feeding frenzy on them which is only now finally dieing down.  Activity has been limited on other assets but we've managed to claw out just under 14% growth for the week (both before and after currency adjustment as the exchange-rate really hasn't moved much).

LTC seems to have settled into a range now vs BTC - it's actually fairly impressive that it managed to stay above .0034 all week despite BTC rising strongly vs USD (which produces downwards arb pressure on LTC/BTC).

With ASICs about to arrive our activity on some mining stocks has been largely curtailed - irrational exuberance has driven the prices of some up well above where they should be.  When valuing mining stocks the main thing I look at is what value of hardware (at the higher of second-hand value and replacement cost for same hash-power) backs each share.  When you see a share trading at three times that number (i.e. for each BTC of shares there's 1/3 of a BTC-worth of ASICs/FPGAs/GPUs) then you KNOW it's overpriced - as there's other shares you could buy where you got nearly 1 BTC worth of hardware for each 1 BTC you spent on shares.  The biggest culprits for these are shares that have previously lost a lot of their value - it's as though investors somehow believe that a share that originally cost X BTC has some divine right to return to being worth X BTC in the future.  They are, of course, wrong.  I refer to BTC not LTC here - as this problem is one fairly specific to BTC.

Linked to this is another area of irrational behaviour - that investors who absolutely wouldn't buy a share of something for X BTC will also refuse to sell shares they hold of it for X BTC.  They're unable to fully accept that whatever they spent on the share is gone - and all shares have the same value whether or not they personally previously bought it or not.

These two factors make trading certain stocks non-viable for our fund.  There's no way I'm going to chase a 10% profit on something that's overvalued by 200% - and likely end up wearing a 50%-70% loss if investors wake up and realise that no way they should pay X BTC for the share when they could pay X/2 BTC for a different one and get more hash-power/share.

Added to this is that investing in mining stocks right now is a total gamble.  There's no guarantee BFL will ship imminently and it's still unclear to me to what extent Avalon have actually shipped in bulk as opposed to just having the intent to ship in bulk.  And of course if/when ASICMINER comes online companies invested in both BFL/Avalon will take an extra hit to their projected profit (or loss).  So right now i'm being very cautious on mining investments (and I wear gloves when I touch them normally) as I only really like to gamble when I know the odds AND am getting better odds than are fair.  This may negatively impact on growth in the short-term - although I don't tend to trade mining stocks a lot we HAVE had some very good profits some weeks from them.

On our pass-throughs, the last batch of S.DICE (1 million at .0062) were all snapped up by someone and relisted higher.  Evoorhees has annoucned he won't be releasing the other 2 planned batches and now has no intent of releasing more onto the market in the foreseeable future.  The remaining walls of these on BTC.CO/Bitfunder have now gone - and our LTC-GLobal one is now the only place you can get these for (slightly) under .0062 (from resellers - our own listing is higher).

S.BBET has seen little trade all week - other than the previous lowest Ask getting impatient and selling into Bids.  So at present there's a huge spread (Highest Bids at ~.0005 and lowest Asks just short of .00195 other than one 500 unit one at .0016).  At present there's no interest in our pass-through in selling into the Bids or Buying from the Asks, so what trade IS happening is investors buying from other investors.  That won't change unless we get a Bid filled at the low end or the spread tightens significantly with some volume.

Bid is at 38.6
Management fee for this week is 6 units which will be transferred shortly.

When asked what the funds were being used for he said:

"I invest in my mining farm, mining bonds and some private investment funds."

There's no sign of the mining frm/mining bonds and seems he spent what was repaid from GIPPT (before GLBSE closed down) leaving basically zero assets backing the bonds.  We don't know WHY he stole the money - just that he did.

Would expect there to be a distribution from him soon - but of excuses not BTC.

Because he can't sell his original Giga shares - so this is only way to dump some of the losses onto other people.

If they're priced below 0.04 then they may actually be a reasonable investment.

I wouldn't take Giga's 'worst-case' scenario too seriously.  Did he preduct the original giga investments would make a loss?

If so, then he misled investors by portraying a donation as an investment.
If not (and he thought the original investment was a good one), then why should his prediction THIS time be any better?

Hashing power will increase until it's barely profitable to mine - the barrier of entry to mining is too low to stop that.  Once it becomes barely profitable, hasing power will STILL rise due to those who can't do math and those who can mine without risk of loss (mining company operators).  Something barely profitable can't make a profit for investors with a 100% markup applied to it (his markup MAY be under 100% now - haven't recalculated recently).

Pricing will be the key - if the shares are going to be worthless in return for 0.04-0.15 BTC then what's a  reasonable price to pay?  If you assumed an even spread over the range then somewhere near the middle (0.095) would be the break-even point (where there'd be 0% expectation on average if you totally ignored the various counter-party risks).  So the price would have to be significantly under that to make them at all attractive to anyone other than gamblers (or donators).  And that's IF you believe the predictions.

Pretty sure the second of those statements is unneeded.

If there's 1000 shares then a 40% quorum requirement means 400 need to vote for any result to count.

If the other 60% do nothing it doesn't matter.  You CAN'T remoe them from the quorum requirement (40%/400 votes) as that would give a negative number (-20%/-200 Votes).

So wording should be more along the lines of:

At least 40% of outstanding shares must register a vote (Yes/No/Abstain)
Of those that express an opinion (Yes/No) at least 70% must vote Yes for the motion to pass.
Motions will always be worded such that a Yes vote is required to make any change to the contract.

Last point is needed otherwise some tricky operator could make a motion to leave the contract the same - and the motion failing would mean it changed

So if there were 1000 shares outstanding, 300 voted Yes, 50 voted No, 100 Abstained then:

45% would have voted - so quorum was achieved (at least 40% of shares voted in the motion).
300/350 = 85.7% voted Yes
And motion would pass.

Had the 100 who abstained done nothign then the motion would fail as only 35% showed any awareness of there being motion.

In principle I'm not keen on minority changes to a contract - but with a 2 week period minimum and the fairly low level activity of many investors, what you propose seems a reasonable compromise.

It honestly make no odds.  Imagine the shares were split exactly 50/50.  If Bitfountain all vote for something what would be the odds that EVERY shareholder would vote no?  About 0%.

If you don't trust them to act in good faith you shouldn't invest in the first place - it's not like there's some SEC equivalent with any power to do anything is there?

Even if every single shareholder voted, with a 50/50 split bitfountain would only need to hold 1 share of the ones sold on GLBSE to get a majority.  So it makes no practical odds as far as voting is concerned that they hold 4/7 instead of 1/2.  The single biggest difference not selling those shares makes is that the original 0.1 BTC/share paid gets repaid faster.

And at some point down the line it will almost certainly make sense to suspend or cut-back on dividends to fund growth/R&D -
that's why we bought equity in a company rather than some shitty mining bond/company that will pay out dividends whilst losing value at a faster rate than it pays out.

WOuld assume that's the good news

It's most likely someone who bought in one of the first 2 tranches who (correctly) realised this one wouldn't sell out immediately so decided to take profits now.  If someone is trading large-scale on S.DICE and making a better return than S.DICE pays then it absolutely makes sense to do this - as to realise profits at higher price not only would he have to wait for this 1 million to sell but also gamble that noone else would take their profits now AND deal with the likelihood that if this block sells slowly the next two blocks of 1 million won't be priced a lot higher.

It's just traders taking their tax on Erik's decision to sell below market basically.  If someone dumps shares below market (and there's no reason why value has fallen) then traders are going to snap them up and sell on to actual investors much nearer to market (or, in this case, when the price growth back upwards stalls) - keeping the profit (discount) for themselves.  That's just how things work.

That's my guess anyway - obviously it could just be an investor who needs to sell in a rush.

To my mind the issues you're describing ARE precisely a lack of competence.

Properly realising your capital requirements (both the minimum AND the maximum) IS an area of competence.  Recognising which skill-sets your business needs but you don't possess yourself IS a competence - if someone can't even recognise the need for something then I'd say that indisputably they lack the basic competence to be running their business.

Capital is one area where a lot of BTC businesses go badly wrong - and I'd argue that raising TOO MUCH capital has been one of the primary reasons for the failure/bad performance of many BTC investment funds (with mining ones the problem is slightly different).

I trade rather than invest, but for both traders AND investors there are two key elements for every potential security purchased:

1.  How the current price relates to the actual value.
2.  The liquidity.

A lot of investment companies have given some attention to #1 whilst completely overlooking #2.  The hard truth is that with the low level of competence in BTC businesses in general #2 is very important - as the value (as well as the price) of securities can change very rapidly.  SO even if investing rather than trading you need to be able to get out of a position quickly if you spot a downwards change in value (usually some act of incompetence by the manager) before it gets reflected in the trading price.  Even a fairly incompetent fund manager can spot these changes in value before the price really crashes - as they pay more attention to what's happening than the casual investor does.

But to be able to respond by divesting yourself of your holding, you have to only be holding an amount that the market can absorb - and many funds have raised so much cash (which isn't necessarily a lot in any absolute sense) that when spread over their small list of investments meeting criterion #1 it leaves them unable to exit at any sort of reasonable price when they need to.

When, inevitably, one of their investments gos bad (and it would be an absolute miracle if none of them ever did) they then end up complaining to their investors that they couldn't sell out because of a lack of liquidity.  But that lack of liquidity existed before they bought in - and their current plight is thus a direct result of their decision to commit to positions such that they could never easily reverse them.  Their lack of ability to recognise the NEED to take liquidity into account BEFORE investing IS, in my view, pretty much a text-book example of a lack of competence.  There was something that needed to be done - and they were unable to even recognise the need for it let alone do it.

You can say they lack experience - but experience itself doesn't help.  Learning from experience helps - and that's pretty much what competence is.

I run a small fund myself (that trades rather than invests).  I could sell plenty more units in now - there's no Ask on it under about 3 times its NAV/U and I frequently get PMs asking to be notified if more units are sold.  But I KNOW that selling a load more units wouldn't be smart.  If I had ten times the capital then one of two things would happen:

1.  I'd only use 1/10th of it to trade with and leave the other 9/10ths idle and the growth per unit would be 1/10th would it is now.
2.  I'd use ALL of it to trade - and I'd make LESS profit than I do now.  Not just a smaller percentage but a lower amount.

The reason for 2. is that at present I only commit to any security I trade the amount I can liquidiate quickly at the first hint of trouble (I prefer not to wait and see - and to take tiny losses when there was actually no problem so as to avoid big losses when there IS a big problem).  If I tried to trade 10 times the volume on the same assets then I'd never be able to get out just before a price crashed - and would make little more profit when things went well.  That would result in lower profits than at present - which would then have to be shared between a lot more investors.

Investment companies need in BTC land to follow a similar policy - far more so than applies in fiat world - because of the volatility of pretty much everything BTC related (e.g. an otherwise perfectly fine business could be screwed if BTC rises more than X% vs USD in a short period).  Yet few investment funds have ever properly considered this -and end up wedded to failing businesses as they plunge to their demise.

Raising more capital than they can safely use is a direct cause of failure - as they then feel obliged to use the capital even when doing so introduces risk outweighing the benefit.

I say it's a lack of competence - if you disagree, then I suspect the difference in our views is more one of semantics than anything else (you're maybe concerned over WHY they lack competence - e.g. lack of experience - I'm just pointing out that they don't have it).

Would guess the website was "hacked" - in the same way Tom's account here was "hacked".

There's two seperate securities.

BitVPS itself - this is relisted on BTC.CO now (by namworld, one of the new owners).  Only way you'll get shares in that in the immediate future is if you held shares in the original BitVPS on MPEx - and you'll have to present namworld with the GPG signed statement of ownership to do that.

This pass-through this thread is for was listed on GLBSE.  Namworld has no way of knowing who had shares in it - only brendio would know that (if he got the list from nefario).  For you to get shares in namworld's listing on BTC.CO a few things would need to happen:

1.  Brendio prove to Namworld ownership of the underlieing MPEx shares and be allocated shares in namworld's new IPO.
2.  Brendio decide to close the pass-through and transfer to you namworld's shares equivalent to your holding in it.

Whether he'll do that or not I have no idea - but you definitely WON'T be getting auto emails from BTC.CO any time soon.  And you won't get anything at all unless brendio shows up - namworld has no idea who owned shares in the pass-through and wouldn't be expected to do anything about it anyway unless/until brendio shows proof that he actually held BitVPS shares on MPEx (if brendio was selling naked shares then that's in no way the problem of namworld - as the pass-through is only a contract between investors and brendio with BitVPS uninvolved other than some of their shares being held to back the issue).

It's probably the cash that was on GLBSE and never returned by nefario (if I remember right).

The 12% he was referring to is the shares NOT sold: so 50%-39% = ~12% depending on how you round.  Not sure why they're of relevance - other than that because they weren't sold we'll get back our initial 0.1 BTC/share a bit quicker.

AmazingRando DID show up - and made a thread talking about how we was going to srot out Bitbond (basically spend what cash he had left from the dividends he owes on ASICs, keep a chunk of what they mine for himself and give some scraps to his investors).  He didn't comment on his debt to BTC-Mining despite namworld asking about it in the thread.  He has now locked that thread and disappeared again.

No, because the definition at launch was 1/400k per share.  Had exchange-rate moved the other direction (or costs been higher than predicted) and they needed to sell more than 200k then the extra would have come from Bitfountain's share - so only fair they get the surplus when it moved the way it did.

Our cut was defined before we bought the shares - so no reason why it should be changed.

On BTC.CO/LTC Global there's no way for an asset owner to create new shares - it currently has to be done manually by burnside.

Personally as everything I run is either a bond or a fund (a pass-through is really a fund where the assets are 1 share of the underlieing per unit sold) I just created them with an arbitrary huge number of shares: the number authorised doesn't matter (much) practically for bonds/funds, just the number sold.  For stocks obviously it's different - but a pass-through to a stock is NOT a stock (shares/units in it have no direct rights in respect of the underlieing asset).  Having said that I listed the pass-throughs to BBET and DICE as stocks - because that's how most investors will think of them and their behaviour will seem as though they're stocks in nearly all circumstances.

Looks like namworld follows a similar policy - with 1,000,000 shares created for each of his pass-throughs.

Exchange-rate : .00347
Adjusted NAV/U : 37.1578
Bid at : 36.4

Well we're up a bit over 6% (before management fee) nearly all of it from trade as the exchange-rate hasn't moved much.  But that doesn't tell the true story of whats happened this week.

We started off well - and by end of Monday were up around 4%.  Then all of a sudden a huge block of S.DICE showed up on MPEx at 0.0044 - when it had been trading at around .0074.  Turned out the asset issuer had decided to release 5 blocks of 1 million shares into the market at prices well below the range it was trading at.

I'd been trading S.DICE (as well as selling it to our pass-through) and when his block was put up it filled a buy order for 1k of ours at around 0.007.  Those then had to be sold to the pass-through at 0.0044 equivalent.  Problem then came when noone was around at CoinBR to manually approve my next deposit.  The sell wall at 0.0044 started vanishing fast (one purchase of 550,000 of them more than halved it) and I was unable to restock at the cheap price.

The net effect of that was to wipe out our profit so far for the week and leave us at a very small loss.

Since then I've traded us back solidly into profit - with a fair chunk of it coming from S.DICE.  The second block of S.DICE sold out immediately last night at 0.055.  The third block is going up tonight at 0.0062 - I'd expect it to sell out immediately or very quickly too as there's a lot of demand for the shares on the various pass-throughs (think around half the block last night was bought by various pass-throughs).

This sort of scenario is the way we're most likely to have a bad week - when the price of something collapses for whatever reason and our order(s) get filled on the way down.  There's no way to avoid it - as a good chunk of our profits come from those very orders.  WE just have to hope it doesn't happen too often - or on multiple shares at the same time.  In this instance the drop was in price not value - but in a lot of scenarios a sudden price drop is caused by an actual major fall in (real or perceived) value making the drop long-lasting.

The security listed on the exchange is the pass-through NOT the underlying asset.

If you see two newsagents in the same street do you complain because they sell the same newspapers?
Two people selling exactly the same thing is the very essence of competition - the product is the same, so they have to compete on price/service.

How is competition bad?

The ones he sold tonight on both sites are largely naked - he's intending to cover them when evorhees releases the next batch in an hour's time.  Or that's what he said when I asked about it in his thread.

My point wasn't so much about that - as that one effect of competition is potentially to increase risk-taking (which in the case of pass-throughs means selling naked in the expectation of being able to buy coverage cheap).  Aside from that, competition is good for investors - as pass-through operators can't then get away with leaving up overpriced offers (NOT an accusation against DT - just a general point).

The walls on both sites sold out ages ago.  From what I saw there was maybe 100k up on BF and 50k on BTCT.  The BTCT one sold out slightly earlier (but was smaller).  I've no way of knowing whether all of the shares sold at that price were actually DT's.

DT has to balance risk/reward.  He's having to break his contract to put up any sort of significant walls at all - and if his bid gets over-bid by 1 million+ shares then he could end up on the line for significant difference to get the naked pass-through shares back to being covered.  As he's only making at most a bit under 2% on the actual sales there's no incentive for him to gamble too wildly trying to meet demand.

Why doesn't it make sense?

That's like saying "There's already a 1 MH/s fixed-rate bond on exchange X".

It's good for everyone other than the operator of the existing pass-through.  More fees for the exchange, potential profit for namworld and competition which usually helps investors.

The 5% fee may be the same - but they can compete on availabilty and pricing of the actual shares.  Only danger is that competition could increase the extent to which naked shares are sold - in an attempt to get market shares by taking risks and breaking their contracts.  DeadTerra has acknowledged that he's selling unbacked share with the plan to then cover them - something that has risk associated with it (if the price then rises sharply and he can't personally afford to cover the difference).  It's the only way he can realistically try to meet the demand with these new batches being sold - but is a potential disaster if something gos wrong (e,g, he loses his net connection for a few hours around the time the batch is released).