Their response will be interesting. Because instead of acquiring bitcoin with the expectation that it has no value unless it is converted back to fit, it really isn't a prepayment of value. It is instead just a purchase, just like if I were buying bananas. If I buy bananas at the store to trade them with you for whatever you are selling then there's no prepayment of value. The seller of the bananas to me is not asserting that those bananas will have any value. The ability to convert back to hard currency is not a a requirement for a product to be considered prepaid access according to FinCEN. While the store selling you bananas is a purchase, the store issuing you a "banana card" is considered prepaid access and subject to MSB regulation. The key thing is that in the case of "Banana card", it would most likely would be considered "closed loop" by FinCEN (my opinion and should not be taken as anything more than that). The requirements and regulatory requirements for a closed loop system are much less restrictive than open loop systems. Obviously things like the hypothetical banana card and phonecards, wireless pins, etc clearly fall into the "closed loop" category while products like "reloadable debit card, greendot moneypaks, etc" clearly fall into the "open loop category". Bitcoin kinda falls in the middle. Our inquiry to FinCEN is on if a Bitcoin prepaid card would be considered closed loop or open loop as that radically changes the cost, regulatory, and information gathering requirements. Our argument is that Bitcoin stored value card should be considered closed loop as the issuer provides no mechanism for conversion to fiat. The counter argument is that Bitcoin ease at being converted to fiat makes it an open loop product even without issuer providing an explicit mechanism to convert back to fiat. Hopefully we will have an answer soon. You may find this interesting: http://www.fincen.gov/news_room/nr/html/20111102.htmlThis is really interesting. I can see the argument for both the closed loop and open loop with Bitcoin. |
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One more thing, my new best guess for when pirate defaults is when we see a correction in the bitcoin price. Not mini-corrections in the uptrend, but a deeper correction followed by a trend reversal. This would be analogous to all the Wall Street ponzis which collapsed in 2008 when the stock prices reverses. Fear gripped the market, depositors wanted to withdraw from funds, and those withdraws exposed the ponzis.
That would be the latest estimate for when he defaults (most certainly before oct 2013), but of course it could be any time.
A Pirate default would likely to be triggered by a sharp increase in the BTC / USD price and in many scenarios could even trigger a BTC buying panic rather than a crash. De-leveraging makes the remaining currency more valuable not less so. During the recent downturn in 2008 prices went down making cash in the form of say USD more valuable. By the way I believe this rally is in spite of Pirate not because of him. |
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Even if Pirate can make 10.65% per week (up to what amount? These never scale up infinitely. Actually, at that kind of return rate the limit should be reached very quickly.), it makes absolutely no sense to borrow such huge amounts of bitcoins at several-hundred-percent annual interest rate. He should have gotten a loan in fiat. He says he knows rich investors etcetera. He could have borrowed a million dollars and bought at least 250kbtc when they were cheaper.
And the argument that he can't buy bitcoins because he'd move the market is ridiculous. As if other people acquiring and tying up bitcoins in his scheme doesn't move the market exactly the same way.
I've answered this 3 times already in various threads. Check my posts if you really care. Or try reading the BTCST thread, where you can hear it from the horse's mouth. Seriously, do some reading. It's all here. TL;DR: he needs to have a large bitcoin reserve to operate and he prefers to not be at risk to a large drop in price Exactly. Here is the Bitcoin Savings and Trust | Home thread and it is all there. https://bitcointalk.org/index.php?topic=50822.0. He is not prepared to accept exposure to a drop in the BTC / USD rate; however he is prepared to accept exposure to a sharp rise BTC / USD rate as no hedging strategy is 100% perfect. This is why I keep saying Pirate is a bear. If you have 2.5 million USD in liabilities denominated in BTC and the BTC / USD rate rises to 10000 USD per BTC your 2.5 million USD in liabilities have now become 2.5 billion USD in liabilities at 0% interest and given the past history of BTC that is possible. |
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Hypothetically, what do you think would've happened if silver were instated as a currency at that point?
The Hunt brothers would have become rich, owning 1/3 of the currency's wealth. That would be a retarded move by any government. Exactly. No government would sign on to that, but with Bitcoin they may not have a choice. Even after over 32 years the price of silver has not reached the 1979 - 1980 peak of 49.45 USD an ounce. As a currency initially hyper inflation. The key difference with Pirate is that Pirate is a bear and the Hunts were bulls. So if Pirate were to try the same thing as the Hunts did in 1979 - 1980 but as a bear, the initial impact on Bitcoin would be hyper deflation.
By hyper inflation, do you mean the relative value of silver would rise? How do you know Pirate is a bear? No. Silver is the currency in this example. In hyperinflation the relative value of the currency will fall drastically. That is what happened with sliver in 1980. As to why Pirate is a bear, my conclusion here is based mostly on Pirate's own threads and comments and some of the comments from his supporters. I then compare this with the market data and have reached my conclusions from the relationship between the pro Pirate comments and the market data. |
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If you were an early oil baron what would you pay to corner the oil market by buying saudi arabia ? 7% seems cheap  It almost always costs more to corner the market than you can possibly make after having cornered it. Hypothetically, what do you think would've happened if silver were instated as a currency at that point? Even after over 32 years the price of silver has not reached the 1979 - 1980 peak of 49.45 USD an ounce. As a currency initially hyper inflation. The key difference with Pirate is that Pirate is a bear and the Hunts were bulls. So if Pirate were to try the same thing as the Hunts did in 1979 - 1980 but as a bear, the initial impact on Bitcoin would be hyper deflation. |
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I still don't get why people believe pirate is short in any significant way.
Remember he has to payout in BTC. Which implies a bullish price for BTC if he ever has to buy it on the open market. he said he was in control of the drop from 7 to 4 he said he would be in control of the drop from 9 to 6 i believe him i believe he believes what he says is true. Now that this post was modified, I must say that I agree. The issue I see here if that if one wishes to take on pirate as a bull, then one must be prepared to tolerate at least a drop to 6 USD. |
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I still don't get why people believe pirate is short in any significant way.
7% interest has to come from somewhere easy way to do that is to buy low sell high? No. Sell high first and then buy low. |
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u scared, bulls?
The presence of bears in a market is in many cases a very good sign for the bulls. It is when all the bears go into hibernation that a market gets really scary for the bulls. |
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In fairness to pirateat40 if a currency in inflating at more than 7% per week (compounded) as was the case for Bitcoin with respect to the USD between July 2011 and December 2011 paying 7% a week in interest is very close to the proper rate and not a ponzi. One needs to consider the real rate of return not the nominal rate of return when considering where something is a ponzi or not. The trouble here is that that an interest rate appropriate for 7% inflation per week does not work for deflation with a significant chance of hyper deflation. By the way the start of https://bitcointalk.org/index.php?topic=50822.1480 is so close to the recent bottom of the market in the 2 USD range that it makes it look like pirateat40 is a very good contrarian indicator on the BTC / USD price. But but but.. He's supposed to pay the invested Bitcoins plus 7% in Bitcoins! Its not like he is borrowing USD, secretly buying into Bitcoin, and paying back USD with 7% USD on top.. Ente If he did the exact reverse between July 2011 and December 2011 it would have worked. Borrow BTC Sell BTC for USD Watch BTC drop in value with respect to USD at a rate greater than 7% compounded weekly Buy back BTC Pay back investors principal plus interest in BTC Keep profit in USD (The greater the drop in the BTC / USD price over the 7% interest compounded weekly) |
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The last trade 59.99 CNY or 9.40 USD @ 6.3795 USD / CNY
look again; 60.5 The spread between btchina and MtGox is not really that high. I have seen bigger spreads here in Canada with Virtex. |
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I suppose it also depends on whether Bitcoin is a currency or commodity. Apparently this has been discussed elsewhere, perhaps you could find pertinent information there.
I very much suspect this has little to do with whether Bitcoin is "currency", "virtual currency", "money", "a commodity", "stored value" etc., as the issue here is whether or not US withholding taxes were withheld and paid to the IRS on US source income to non US persons. In what form this income was paid may turn out to be moot. The potential liability can be up to 30% of all the interest paid by BST, with a valuation in USD based on the BTC / USD exchange rate at the time the interest was paid. Why this is relevant for those of us that have no relationship with piratat40 or BST and in fact may not even live in the United States is that because of the size of BST relative to the Bitcoin economy, an IRS audit of pirateat40 and BST can have an impact on the BTC / USD exchange rate. How it will impact the BTC / USD exchange rate is not clear to me at all. |
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Here is a thought. From the information on this forum it is fair to say that pirateat40 is a US Person and that Income from Bitcoin Savings and Trust is subject to US Tax Withholding on Foreign Persons. http://www.irs.gov/businesses/small/international/article/0,,id=106981,00.html Bottom line the IRS will want its share of the 7% per week interest, and if the lenders have not filed that proper paperwork with pirateat40 and pirateat40 has not sent the appropriate withholding taxes to the IRS this can get real interesting. The deposits and interest are in Bitcoin. There is no tax code for Bitcoin. I doubt very much that the IRS would take that point of view here, otherwise you set a very dangerous precedent. Pay people in Bitcoin and legally avoid taxes. By the way barter transactions are taxable are they not? Yes, barter is taxable. The question becomes, when do you tax Bitcoin earnings? I would have to assume at the point of conversion to fiat, but I am not a CPA (and I doubt they know either). Edit: Or possibly at the point of "possession". But I seriously doubt the IRS is capable of dealing with any Bitcoin related taxation at the present, and probably not for quite some time. My understanding is the fair market value in USD at the time of the transaction. In this case when the interest is paid. As for the IRS been able to deal with this, it may be as simple as an IRS agent typing "bitcoin exchange rate" into a search engine, getting the BTC / USD market rate from MtGox and assessing and auditing accordingly. |
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Here is a thought. From the information on this forum it is fair to say that pirateat40 is a US Person and that Income from Bitcoin Savings and Trust is subject to US Tax Withholding on Foreign Persons. http://www.irs.gov/businesses/small/international/article/0,,id=106981,00.html Bottom line the IRS will want its share of the 7% per week interest, and if the lenders have not filed that proper paperwork with pirateat40 and pirateat40 has not sent the appropriate withholding taxes to the IRS this can get real interesting. The deposits and interest are in Bitcoin. There is no tax code for Bitcoin. I doubt very much that the IRS would take that point of view here, otherwise this sets a very dangerous precedent. Pay people in Bitcoin and legally avoid taxes. By the way barter transactions are taxable are they not? |
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Here is a thought. From the information on this forum it is fair to say that pirateat40 is a US Person and that Income from Bitcoin Savings and Trust is subject to US Tax Withholding on Foreign Persons. http://www.irs.gov/businesses/small/international/article/0,,id=106981,00.html Bottom line the IRS will want its share of the 7% per week interest, and if the lenders have not filed that proper paperwork with pirateat40 and pirateat40 has not sent the appropriate withholding taxes to the IRS this can get real interesting. |
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The last trade 59.99 CNY or 9.40 USD @ 6.3795 USD / CNY
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...
Don't be surprised if PPT/Pirate/BS&T joins the names like MyBitcoin.com and Bitcoinica.
My one comment: The chances of the above happening increases with every increase of the BTC / USD exchange rate. |
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glad to see the bitpay guys can spot this giant ponzi too. They seemed sharp when I met them at CES. 1) https://bitcointalk.org/index.php?topic=50822.1480 why the hell is this locked? 2) I am keeping (wow there a ton of them) a list of obvious BTC ponzis & will expand to other lending-based or high-yield scams. --> https://bitcointalk.org/index.php?topic=94900.0 to hopefully convince these kids to save their BTC and hopefully stop these run away train ponzi's that may have over $1M USD in them... gonna be a huge story when it goes boom... which ain't long at these levels. In fairness to pirateat40 if a currency in inflating at more than 7% per week (compounded) as was the case for Bitcoin with respect to the USD between July 2011 and December 2011 paying 7% a week in interest is very close to the proper rate and not a ponzi. One needs to consider the real rate of return not the nominal rate of return when considering where something is a ponzi or not. The trouble here is that that an interest rate appropriate for 7% inflation per week does not work for deflation with a significant chance of hyper deflation. By the way the start of https://bitcointalk.org/index.php?topic=50822.1480 is so close to the recent bottom of the market in the 2 USD range that it makes it look like pirateat40 is a very good contrarian indicator on the BTC / USD price. |
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So a government does the only sensible thing and treats Bitcoin as money or dare I say "virtual currency" and this is an attack on Bitcoin by a "parasitic" government. I do not think so. For many of us that is good news.
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The point of the article is that a legitimate gun dealer in the United States that decides to accept Bitcoin can sell the same gun for for BTC90 rather than BTC338.69 and the law abiding customer would get the gun in one piece. So crime does not pay.
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