Securities Newbie. HELP ME INVEST!

[DobZombie]

Hello Gentleman!

I'm a soon to be ex-miner who would like to invest the BTCBTC now into something that will still produce me some income in the future. I've had it with making future plans with most of the hardware out there (or not out there). Had it up to here with waiting for my BFL orders

I'm completely baffled at who is selling what in here! I understand Asicminer is one of the best right now, but I'm having trouble finding out where to buy, how much, how much it pays out, historical costs etc.

any other investments pointers guys?

[Chet]

I been doing ok with bitcoin based stocks - Satoshi dice, bitbet, mpoe - have really tried options.

[Franktank]

Check out:

ASICMiner for Dummies

Direct vs Passthru Shares

[MPOE-PR]

A lot more reading is probably the only good advice.

[kakobrekla]

any other investments pointers guys?

http://bitcoin-assets.com/

[MikeMark]

I have an interesting story:

I first discovered BitCoin near mid November 2013. After reading a bit I felt that mining probably wasn't a way to have much income. ASICs were being developed, FPGAs had been shuffled to the side, except for those already with them.

Sometime in late Nov, early Dec I bought my first BTC. Coinbase was just starting & I found I could buy straight from my bank account. Cool!

But what to do with it? I'm a fairly decent businessman and investor. Invest!

Where? How do you find where? Trial and error is what I tried. But who & what sites can you trust?

I ended up losing lots of BTC at BTCJam.com, thinking that loans are "safe". That's a holdover from the physical, regulated banking world. Not true here. I'm actually a fairly good judge of "character", so I didn't lose all, as I saw that many did there. But I did lose about 30% of what I loaned out. The site itself is fairly good, but the "borrowers" are often not...

While making that mistake, I discovered btct.co (bad name! - I still sometimes forget it) and BitFunder.com (great name!). Both seem to be good places to make investments.

Round about Mar 1, 2013 is when I made my first investments. SDICE, ZigGap, JAH and BAKEWELL. I realized that everything would be thinly traded, so I looked to the securities with the most activity. At the time I knew nothing about ASICMiner and Avalon, I could only see BFL mainly due to their advertising.

When ASICMiner popped up for me was a few days or so later, I think. I bought a share at about BTC0.7. I thought it was way too high. I found an auction where shares had gone for about 0.42 max. After I received my first dividend from it, I bought as much as I could. In fact the biggest mistakes I've made so far have had to do with selling ASICMiner. When I sell it, I seem to end up buying it again at a higher price down the road.

I do think there are other good investments. I like RTM, Cado.AvalonB3, BTCINVEST, and Win.Avalon. Those are all at BitFunder. I also have an account at btct.co, but haven't made any investments there. The obvious heavyweight in the investment world in BTCitcoin is ASICMiner. I do think that there will come a time soon when that is less the case, but right now you get steady income coupled with price growth for your money there.

ASICMiner - Mining Rig production & mining. Currently the worlds largest miner. Shipping rigs to customers profitably.

BTCINVEST - Fund that targets BitCoin growth without Fiat exposure.

JAH - Mining Bond with daily dividend (straight Hashrate based)

RTM - Mining Bond with daily dividend (straight Hashrate based)

Cado.AvalonB3 - Mining BTC with possible growth (currently not yet mining)

Win.Avalon - Mining BTC with possible growth (currently not yet mining)


When I look at an investment based in BTCitcoin, I ask myself these really important questions:

Does it have fiat exposure?  Big exposure: SDICE, ZigGap, btcQuick, BitPride; low exposure: see list above. Fiat exposure means that you will lose BTCitcoin as the exchange rate goes up. You are better to just hold BTCitcoin than have that.

Can I trust the Issuer? This one just takes time. Spend it on these forums. Sometimes it takes a small investment for a time.

What is the expected mining return? The answers here are more difficult   than you think.

Am I being offered a reasonably good deal for my investment? Put yourself in the Issuer's shoes. When the security was created, did they try to set it up so that the share owner would make a good profit, or did they just think of themselves?


Hope this helps.

Enjoy,

-MikeMark

[furuknap]

A lot more reading is probably the only good advice.

^^^ This

[Deprived]

Does it have fiat exposure?  Big exposure: SDICE, ZigGap, btcQuick, BitPride; low exposure: see list above. Fiat exposure means that you will lose BTCitcoin as the exchange rate goes up. You are better to just hold BTCitcoin than have that.

You're wrong on your fiat exposure definitions.

Most mining operations usually have massive fiat exposure.  Right now that's not the case - due to scarcity of ASIC supply - but as soon as supply catches up with demand mining investments become effectively fiat-denominated.  I'll let a few people claim that's not the case before I explain (again) why mining bonds/shares are effectively fiat-denominated (hint: consider how you'd value a new mining secuirty.  Now consider how you'd value an existing one with same hardware.  Now look at how that value varies with exchange-rate).

S.DICE isn't massively exposed to fiat - it's only exposed to whatever extent you believe volume of bets declines when BTC rises in price.  The jury's still out on what evidence there is for that being signifiant.

ZigGap (in your list) was a scam and collapsed a few months back (it only lasted a few weeks before issuer vanished).  As such it no longer has any fiat exposure - as its value remains at zero no matter what happens with the exchange-rate.

[MPOE-PR]

I ended up losing lots of BTC at BTCJam.com, thinking that loans are "safe".

That's what I have this for.  Sorry to hear.

Most mining operations usually have massive fiat exposure.  Right now that's not the case - due to scarcity of ASIC supply - but as soon as supply catches up with demand mining investments become effectively fiat-denominated.  I'll let a few people claim that's not the case before I explain (again) why mining bonds/shares are effectively fiat-denominated

No need, you're exactly right.

[iCEBREAKER]

Invest about 20% in each of these Bitfunder assets:

DMC, MININGCO, G.ASICMINER-PT, CRYPTO.LTC, AMC

That's what I'm doing and it's working great so far! 

[MikeMark]

Does it have fiat exposure?  Big exposure: SDICE, ZigGap, btcQuick, BitPride; low exposure: see list above. Fiat exposure means that you will lose BTCitcoin as the exchange rate goes up. You are better to just hold BTCitcoin than have that.

You're wrong on your fiat exposure definitions.

Most mining operations usually have massive fiat exposure.  Right now that's not the case - due to scarcity of ASIC supply - but as soon as supply catches up with demand mining investments become effectively fiat-denominated.  I'll let a few people claim that's not the case before I explain (again) why mining bonds/shares are effectively fiat-denominated (hint: consider how you'd value a new mining secuirty.  Now consider how you'd value an existing one with same hardware.  Now look at how that value varies with exchange-rate).

S.DICE isn't massively exposed to fiat - it's only exposed to whatever extent you believe volume of bets declines when BTC rises in price.  The jury's still out on what evidence there is for that being signifiant.

ZigGap (in your list) was a scam and collapsed a few months back (it only lasted a few weeks before issuer vanished).  As such it no longer has any fiat exposure - as its value remains at zero no matter what happens with the exchange-rate.

Agreed on ZigGap. Given as an example. Could have given ianbakewell as a fiat exposure example also, but that's not really about a security, it's about an issuer.

I think one of the best examples of fiat exposure in S.DICE is price decline as exchange rate climbs. We can beat the causes and effects to death here, but that effect is what to avoid.

As far as miners are concerned, I tend to believe that most of the field can be eliminated by making a simplifying assumption: power cost is close enough to the same for profitable ventures. After that it's basically price in BTC per hashrate, with some possible toss-outs for "unable to pay fully" due to difficulty rate of change.  There seem to be lots of "opportunities" to buy a miner with the idea of holding long enough to get a  > 100% total dividend. However, when you look closely at it in terms of BTC price and the predicted increase in difficulty, they just don't fly.

They might actually be a short term buy as JAH was when it went from 0.1 to 0.32 while paying a nice dividend, but that had much more to do with people not seeing and understanding the offering being made.

Comparisons between miners are most often in the double or triple digit percentages, when done in this way. I really think a miner that isn't putting aside at least 10% for new equipment is really a mining bond, and should be thought of as a (possibly slowly) dying business.

However, you have a way of looking at them that ties them to fiat. Tell me about that, please.

[DobZombie]

Wow, thanks for the info guys!  To be honest I was expecting more of a troll and useless feedback 

I've got a bit of a starting point now. No point leaving my bitcoins just sitting there doin nothin.

THANKS!

[Deprived]

As far as miners are concerned, I tend to believe that most of the field can be eliminated by making a simplifying assumption: power cost is close enough to the same for profitable ventures. After that it's basically price in BTC per hashrate,

Emboldened is where you're going wrong.

As soon as supply of ASICs is sufficient to meet demand their price will NOT be in BTC it'll be in USD.  Same as was the case with CPUs, GPUs and FPGAs.  That's unavoidable because the manufacturing costs are in USD not BTC.

Once hardware reverts to being priced in fiat then mining shares/bonds also end up being effectively valued in fiat.  You don't need to do any complicated math to demonstrate it either.  All you need to do is consider the following:

Company A starts operations and sells shares in BTC.
BTC doubles in value vs USD.
Company B starts operations with same hashpower as company A.
Company B can raise the capital for half the BTC it cost company A (same USD).
How can company A's shares now be worth twice that of company B's?  They can't - they've fallen to same BTC value.

Mining companies aren't like most companies when it comes to valuing shares.  There's a minimal barrier to entry and no real benefit for being in operation first.  If I produced a website with all the functionality of Facebook, share in my company would be worth nowhere near those of Facebook - as I wouldn't have the billions of existing customers.  No such issue exists with mining - just buy the hardware, set it up and you generate same revenue as an existing company.

The only way to value mining companies is on hashing power - and so they have to be valued in the currency hashing power is priced in.  And that's fiat other than briefy, as now, when demand supasses supply and pricing is whatever they ask for with no meaningful denomination.

In general when BTC rises vs USD more miners come online (as it makes sense for them to mine) increasing difficulty and reducing BTC earned per hash (but not necessarily USD earned per hash).  Difficulty follows exchange-rate - not the other way round (as some mistakenly think).  And that makes actual earnings tend to be inline with USD not BTC anyway - even discounting my earlier point.  Where supply meets or exceeds demand then profitability of mining will tend to zero - meaning only those with cheap power make any profit at all - which is why, other than in short-term supply shortages - mining in general is a horrible investment, especially if the issuer takes their cut as a percentage of revenue rather than of profit.

There may be other factors impacting the traded price of specific securities - e.g. reliability of issuer - but those are entirely independent of the BTC/fiat denomination discussion and generally serve to ensure that if you want a reliable issuer you make a larger loss.

Mining companies are all about an issuer passing the risk to investors whilst getting some income whether or not investors ever get their original money back.  If BTC rises then it's pretty much a certainty other than in exceptional circumstances (e.g. investment has early ASICs) that an investment in mining is worse than just holding BTC.  There's plenty of 'reliable' mining comapneis around.  But take a look at their dividend history and see how reliable they've been at getting investors back their initial investment - it's not a pretty picture.  Right now mining securities is all about late-batch Avalons etc being resold by purchasers to investors so as to lock in their profits and leave investors with the risk of never making their investment back if either BTC rises a lot OR another manufacturer starts mass shipping.

By all means consider mining as a BTC-denominated investment - but you're wrong if you do so (once ASIC supply rises to around demand or higher).

[MikeMark]

Excellent.

I agree with most of what you state.

I think you glossed over the important facts of time, changing cost of hashpower and need for greater hashpower later in your A vs B company comparison, but as you say in the long run it doesn't matter.

However opportunity is now. There are opportunities for good and sometimes high profit in some of these companies, where in others there aren't.

And I agree with you that miners are not to be held for the long run, especially if they have no plan to keep up with the changing difficulty (or network hashrate if you prefer). This is one of the reasons ASICMiner has captured the investment of so many. It's a miner, it's a mining equipment producer, it looks like they are still looking to the future and it's one of the first movers in that market.

Most miners in the long run will become unprofitable. I came to that conclusion long ago, while looking at the idea of investing in large amounts of mining hardware. That's why it's so important to predict when that will become true for a particular miner during this transition and opportunity time. It may be true from the beginning. It may become true later. For some (a few), they may actually make it through the tough time to longer term profitability. There will probably always be new blood to give it a try and make it harder for those already mining.

And I agree about mining companies passing risk from the issuer to the investor. However, that's always the case with any security and issuer and is the reason for creating the security in the first place. The trick is to discover which ones also pass along the reasonable profit that should go along with it. If you don't find the reasonable profit, don't put your hard earned BTCitcoin there.

Basically we are saying the same thing in different ways:

As ASIC supply rises to meet demand (or as difficulty rises beyond the predicted rate of change), a particular miner who is not keeping up with equipment renewal (difficulty or network hashrate) will become unprofitable. The fact that ASICs have costs in terms of fiat certainly does enter into the profit equation at that time, and so does the cost of power (also in fiat).

[Deprived]

I think you glossed over the important facts of time, changing cost of hashpower and need for greater hashpower later in your A vs B company comparison, but as you say in the long run it doesn't matter.

I didn't gloss over those points - they were irrelevant.  My example was looking at two companies with identical hardware/hashpower - only difference being when they bought it.  They have identical future outlooks (other than a potential minor difference in that company A's equipment is older and so likely to fail sooner).

And I agree with you that miners are not to be held for the long run, especially if they have no plan to keep up with the changing difficulty (or network hashrate if you prefer). This is one of the reasons ASICMiner has captured the investment of so many. It's a miner, it's a mining equipment producer, it looks like they are still looking to the future and it's one of the first movers in that market.

Most miners in the long run will become unprofitable. I came to that conclusion long ago, while looking at the idea of investing in large amounts of mining hardware. That's why it's so important to predict when that will become true for a particular miner during this transition and opportunity time. It may be true from the beginning. It may become true later. For some (a few), they may actually make it through the tough time to longer term profitability. There will probably always be new blood to give it a try and make it harder for those already mining.

Plans to expand/reinvest/keep up with changes are a red herring.  Mining companies talk about reinvestment as though it somehow increases profitability.  It doesn't - profitability as a percentage of capital over the lifetime of an investment is unaffected by reinvestment.  If a business model is unprofitable then reinvestment won't change that - it'll just increase losses as a percentage of invested capital (but delay the point at which the losses become unavoidably obvious).

Where reinvestment serves a useful purpose is in maintaining the capital value of an investment - which is something you only want done on investments that are profitable in the first place.

In any event, until mining companies stop defining profit as "anything I mine" and instead define it as "the excess value of our assets over their initial value" reinvestment is the wrong word.  Most mining companies that claim to reinvest aren't actually doing so - they're just not dividending out as much of their capital as ones that make no such claims.  And they won't change because they like to define profit as "anything I mine" so they can then claim their management fee is taken from profit - when in reality its taken at the expense of eroding the asset base which isn't really profit at all.

And I agree about mining companies passing risk from the issuer to the investor. However, that's always the case with any security and issuer and is the reason for creating the security in the first place.

Not all securities are created with the primary intent of passing risk on to investors.  Obviously there's always SOME risk in investment but it doesn't have to be the one-sided transaction that it is in most mining securities.  Some securities are issued to raise capital - with little risk to investors.  But to do that means the issuer needs to be confident of making profit - which doesn't apply to most mining securities.

There's absolutely nothing wrong with passing risk on to investors.  What's wrong is the amount of cream some issuers want to skim off the top risk-free without any realistic likelihood of investors making any profit in return for all the risk being passed to them.  That's by no means unique to mining securities - just look around and you'll find plenty of other 'businesses' that have made trivial profit, have modest epectations, yet want a fat chunk of cash up front as a reward for exposing investors to high-risk, low-potential securities.

Basically we are saying the same thing in different ways:

No.

You claimed mining securities are BTC denominated.
I pointed out they're fiat denominated.

That's in no way the same thing.  They're about as opposite points of view as you can get.

[MikeMark]

You claimed mining securities are BTC denominated.

Where did I say that?  

Are you putting words in my mouth again?  Don't do that. I might have to eat them later.  

I'm pretty sure I suggested they had lower exposure to fiat than some other investments. And I also suggested that right now (and I think usually) you can ignore the power use and look only at the predicted return in BTC given the current predicted increase rate of difficulty, in order to compare mining companies.

However, the securities I buy at BitFunder and btct.co are BTCitcoin denominated. That means they are listed in BTCitcoin.
Is there a fiat based stock exchange where you can buy them in USD?

I guess you did put words in my mouth after all. Dang it. I'll probably have to eat them now!  

[Deprived]

You claimed mining securities are BTC denominated.

Where did I say that?  

Are you putting words in my mouth again?  Don't do that. I might have to eat them later.  

I'm pretty sure I suggested they had lower exposure to fiat than some other investments. And I also suggested that right now (and I think usually) you can ignore the power use and look only at the predicted return in BTC given the current predicted increase rate of difficulty, in order to compare mining companies.

However, the securities I buy at BitFunder and btct.co are BTCitcoin denominated. That means they are listed in BTCitcoin.
Is there a fiat based stock exchange where you can buy them in USD?

I guess you did put words in my mouth after all. Dang it. I'll probably have to eat them now!  

Just because you buy something with BTC doesn't make it BTC-denominated.

If you buy a Dollar bill with BTC the bill is still denominated in USD.  Same with mining securities.  Their value is pegged to USD not BTC - no matter what the issuers pretend or which currency trades are transacted in.  If BTC rises vs USD their value falls.

Given that mining securities have 100% exposure to fiat it's hard to see how your claim they have less exposure than some other investments could be correct.  Are there securities whose value is more than 100% tied to fiat?  If BTC double vs USD do you honestly believe S.DICE bet volume more than halves (S.DICE being something you claimed had more exposure to fiat than mining securities)?

Your claim that they were priced in BTC was made when you stated that hash power was priced in BTC.  Hash power is pretty much ALL that mining companies have - so rather obviously their price is denominated in whatever hashing power is priced in.  Which you said was BTC - but it's usually fiat (even if transacted in BTC).  Try finding somewhere that sells hashing power priced in BTC - and keeps same BTC price if BTC moves majorly in either direction vs USD.

[Deprived]

Maybe we're just using 'denominated' for different purposes - you meaning the currency they're traded in and me meaning the currency in which their value is defined in practice.

So let me reword our difference.

You claimed mining securities have low fiat-exosure.  I disagree - they have as high fiat-exposure as you can get.

[MikeMark]

Didn't you also say that there's a form of timing involved?

This is what I learned from you:

When the supply is available for the demand in ASICs, the mining companies become heavily fiat biased.

I looked at that in a different way:

When the difficulty grows beyond the predicted rate of increase (of difficulty), the miners become unprofitable (in terms of BTCitcoin).


However, in either case, there's a timing involved. And I also claim that it can be exploited currently (opportunity!)

There's also risk, and in fact I believe that risk can be quite high. Especially if we don't pay attention.

And you are right. Miner prices have dramatically changed, with the exchange rate. Those who bought earlier have been rewarded both with easier difficulty and with lower miner prices. And that's exactly my point about your A vs B example. Timing of mining gear matters. And it especially mattered from Feb to now. I think that may continue and even accelerate for a while, making it quite difficult   to predict profitability.

Still, the best of the best is ASICMiner. Mining, equipment production, sales, early mover in the market, plans for the future.  

I also think that when things begin to settle down a bit, the BTCitcoin securities market companies may perform better than anything else for a while.

What are your thoughts there?

[MikeMark]

Hey, one other thing:

Technically, everything in BTCitcoin here has exposure to fiat. However, the activity here is a concerted effort to remove that as a problem. There are attempts to switch away from fiat being made.

Really, all I'm trying to do is find good ways to measure profitability without converting back and forth to fiat. Predictions become very difficult when you do, mainly because of the extreme volatility of the exchange rate.

As someone keeps in their signature: The Volatility Monster is gobbling up all my BTCitcoins!