[BTC-TC] Deprived Mining Speculation (DMS)

[Rannasha]

I'm still surprised how big the demand for Mining is. Selling gives at least double the dividend (for expected difficulty change), so its price should be at least double that of mining... 

I think you don't quite understand how this works. It doesn't make sense to compare the dividends. While the value of MINING is based on its dividend payments, the value of SELLING is not.

Depends on the point of view. Eventually, 100% of the asset will be given back as a dividend. So if Selling keeps on giving back more than double the amount than Mining it should be priced accordingly. Let me know if I got sth wring with this thinking.

Yeah, this is the case. Essentially, the MINING/SELLING securities are a zero-sum game. With all assets eventually being paid out as dividend, it becomes a matter of predicting which security will get how much in order to get the correct price. Of course, the matter is complicated slightly by the investments that Deprived made with part of the BTC, the returns from this benefit SELLING, but not MINING.

Other than the long-term plan of predicting which part of the total assets are being paid out to SELLING and MINING respectively, you can profit from more short-term speculation. Earlier someone mentioned buying MINING after a difficulty change and exchanging it for SELLING just before the next one. If you can make this work without losing too much on the trades, you can benefit.

[1715253756]

1715253756

[Deprived]

Valuation based on dividends is an interesting concept - and my personal calculation of value DOES take it into account (as one of 3 seperate calculations of value I use).  Dividends are, however, only part of the story.  Valuation based on dividends WOULD be accurate were the following assumptions ALL correct :

• Income from investments/sales of PURCHASE will remain the same (as a percentage of current capital).
• The fund will run forever.
• Future difficulty rises will remain the same as the average of past ones (since the fund started).

If those were all true then the fund could be considered as gradually returning all capital in a ratio able to be calculated from past dividends.  In practice it's likely NONE of those assumptions are correct.  It has to be remembered that if/when difficulty levels off the fund will likely end with a final distibution in which MINING will receive at LEAST 90% of remaining capital (it's essentially impossible for it to be less than that - due to only holding at most 410 days' dividend and MINING received the lower of 365 days' dividends or the whole balance).  IF you believe that point is likely to be far enough in the future that the vast majority of capital would already have been returned then valuing on dividends DOES work reasonably well NOW (but will cease to do so if/when the rate of difficulty increase slows down).

I have my own views on what's likely to happen in terms of difficulty - the assumptions you (anyone trying to value PMBs) make in terms of future difficulty are by far the main factor deciding the valuation you reach.  Obviously different people have different views - or we'd have no trade occurring (just walls of bids/asks seperated by the minimum return people wanted to accept) other than where people needed to cash out urgently.

[eltopo]

I don't know why there should be a need to calculate SELLING. Like Deprived wrote in the asset description, the easiest way to calculate the value of SELLING is to calculate the value of MINING and substract it from PURCHASE. Current MINING prices at 0.02 are guessing an average future difficulty jump < 8%, otherwise there's no profit. So if you come to the conclusion, that diff jumps will be lower than 8% average, you will buy MINING, otherwise you will buy SELLING (or buy PURCHASE and sell one of the components).

[Lohoris]

I don't agree with the valuation based on dividends because the value of SELLING would be the same even if it paid no dividends.

If SELLING paid no dividends at all, what would be the point of buying it?

It has to be remembered that if/when difficulty levels off the fund will likely end with a final distibution in which MINING will receive at LEAST 90% of remaining capital

This bit always confuses me.
If MINING would get the bulk of the liquidation, why would SELLING vote for closing the fund?

Unless you imply difficulty would have skyrocketed so much that 365 days of dividends would be a negligible part of the capital, and in that case SELLING would still get most of it...

[Deprived]

I don't agree with the valuation based on dividends because the value of SELLING would be the same even if it paid no dividends.

If SELLING paid no dividends at all, what would be the point of buying it?

It has to be remembered that if/when difficulty levels off the fund will likely end with a final distibution in which MINING will receive at LEAST 90% of remaining capital

This bit always confuses me.
If MINING would get the bulk of the liquidation, why would SELLING vote for closing the fund?

Unless you imply difficulty would have skyrocketed so much that 365 days of dividends would be a negligible part of the capital, and in that case SELLING would still get most of it...

The scenario I discuss is one where difficulty stops rising or rises slower than dividends are paid out to MINING.  In that circumstance the number of days cover after each difficulty rise would be LESS than after the previous difficulty change - meaning no dividends ever again for SELLING.  In that situation SELLING has to (rationally) vote for closure before the number of days (of dividend payment) cover reduces below 365 and they receive absolutely nothing.

As capital can never exceed 410 days cover (or it would have been dividended out) the maximum SELLING can receive on closure is 45 days of MINING dividends (with MINING receiving 365).  That would mean SELLING received just under 11% of remaining capital - hence my reference to MINING receiving at least 90% (as in practice it's unlikely that a maximum payment for SELLING would occur).

Under current conditions that seems highly unlikely - but if/when ASIC adoption nears saturation we could easily go back to sub-3% growth where it becomes a reality.  In practice I'd expect such a change to be gradual - and evident from a gradual increase in MINING's value (as a percentage of PURCHASE).

Short version is that if you look at what happens on closure you'll see that MINING always gets most (or all) of what's left.  Unless you believe the fund will run forever that means at some point MINING will receive most (or all) of what's left.  If you believe that end point is in the short/mid term then it should have a significant impact on how you value the securities.  If you believe it won't arise until difficukty is order(s) of magnitude larger then you can discount it for practical purposes as the residual capital (per share) by then will be trivial compared to current value.

[odolvlobo]

I don't agree with the valuation based on dividends because the value of SELLING would be the same even if it paid no dividends.

If SELLING paid no dividends at all, what would be the point of buying it?

If SELLING paid no dividends, then there would be a point at which SELLING would vote to close the fund and receive a distribution of the remaining assets. Either way, you will receive the same amount.

Considering SELLING dividends as an income stream seems odd to me since the total amount is finite (ignoring the fund's investment activity).

[Lohoris]

The scenario I discuss is one where difficulty stops rising or rises slower than dividends are paid out to MINING.  In that circumstance the number of days cover after each difficulty rise would be LESS than after the previous difficulty change - meaning no dividends ever again for SELLING.  In that situation SELLING has to (rationally) vote for closure before the number of days (of dividend payment) cover reduces below 365 and they receive absolutely nothing.

As capital can never exceed 410 days cover (or it would have been dividended out) the maximum SELLING can receive on closure is 45 days of MINING dividends (with MINING receiving 365).  That would mean SELLING received just under 11% of remaining capital - hence my reference to MINING receiving at least 90% (as in practice it's unlikely that a maximum payment for SELLING would occur).
[...]

Oh, true, thanks for the explanation!

[Deprived]

I don't agree with the valuation based on dividends because the value of SELLING would be the same even if it paid no dividends.

If SELLING paid no dividends at all, what would be the point of buying it?

If SELLING paid no dividends, then there would be a point at which SELLING would vote to close the fund and receive a distribution of the remaining assets. The point of buying it depends on whether or not that distribution would be more than the investment.

I did consider doing it that way (so no payments at all for SELLING until the end).  I decided against it for a few reasons:

1.  It increases the amount of capital exposed to me with no benefit in return.  That's actually harmful for ME - as some of whatever limit of capital people will trust me with is being used up to generate no income.
2.  Whilst it may appear to give more cover to MINING in practice it doesn't (SELLING would vote to close before any such extra cover actually came into play).
3.  It unduly pushes SELLING towards closure when they'd prefer not to - were it not for the unused capital diluting their effective returns.
4.  It's wasteful - all of the above combine to mean its capital tied up for no benefit to anyone and direct harm (cost) to myself and SELLING holders.

But yeah - in theory DMS could run exactly the same without ever paying a dividend to SELLING until closure.

[alexius89]

another question: By which amount of TH/s  the Total Hashrate  has increased since the 30th of june  on average?

Is there any link or is someone able to answer it? :-)

best regards
Alex

[elefter]

Got to say Deprived your fund is the most interesting and fun in btct
Any bets  if all of us understand it completely by the fund closure?  

[odolvlobo]

another question: By which amount of TH/s  the Total Hashrate  has increased since the 30th of june  on average?

Is there any link or is someone able to answer it? :-)

best regards
Alex

There are various places to get numbers. Here is a popular source: http://bitcoin.sipa.be

[Rannasha]

bitcoin.sipa.be hasn't been updating recently.

I keep http://bitcoincharts.com/bitcoin/ open; it has various stats including the expected next difficulty (the calculation algorithm estimates too low early in the round though and the estimate moves closer to the final value as the readjustment approaches) and network hashrate.

[Deprived]

bitcoin.sipa.be hasn't been updating recently.

I keep http://bitcoincharts.com/bitcoin/ open; it has various stats including the expected next difficulty (the calculation algorithm estimates too low early in the round though and the estimate moves closer to the final value as the readjustment approaches) and network hashrate.

Unfortunately bitcoincharts takes its graph from sipa.be - so is also out of date on that.  And yeah, bitcoincharts seems to work on a rolling average - so early on in a period it's still mainly using data from the previous difficulty so tends to underestimate change (in an environment of increasing difficulty).

[Rannasha]

bitcoin.sipa.be hasn't been updating recently.

I keep http://bitcoincharts.com/bitcoin/ open; it has various stats including the expected next difficulty (the calculation algorithm estimates too low early in the round though and the estimate moves closer to the final value as the readjustment approaches) and network hashrate.

Unfortunately bitcoincharts takes its graph from sipa.be - so is also out of date on that.  And yeah, bitcoincharts seems to work on a rolling average - so early on in a period it's still mainly using data from the previous difficulty so tends to underestimate change (in an environment of increasing difficulty).

The graph they use is from bitcoin.sipa.be yes, but the network hashrate statistic they list isn't (as it's getting updated) and the same is true for their difficulty estimate.

An alternative source for difficulty prediction is allchains.info. They use a different computation for the expected difficulty.

[Deprived]

LTC-ATF.B1 dividend received and converted back to BTC.

0.797266 BTC this week (less than last week as we sold off some of them).

[Deprived]

Sold   297
Swapped   0
Total   297
Price   0.049083
Total   14.577651
Less Fee   14.5484957
Man Fee   0.436454871

BTC Balance (BTC-TC)   1191.387766
13100 LTC-ATF.B1    131.00000000
Coinlenders CD    201.09903051
Just-Dice Balance    104.17936680
TOTAL ASSETS    1,627.66616302
   
Outstanding MINING   34227
Outstanding SELLING   34227
Outstanding PURCHASE   568
Effective Units   34795
   
Block reward   25
Difficulty   21,335,329
Hashes per MINING   5000000
   
Daily Dividend    0.00011786
50 days (Min Liquid)    0.00589288
100 days (Forced Close)    0.01178577
365 days (Buyback)    0.04301806
405 days (IPO)    0.04773236
400 days (Post SELLING div)    0.04714308
410 days (Pre SELLING div)    0.04832165
   
NAV Post MINING Div    1,623.56530471
NAV/U Post MINING Div    0.04666088
Days Dividend Post Div   395.91
SELLING Dividend    -         
NAV Post SELLING Div    1,623.56530471
NAV/U Post Selling Div    0.04666088
PURCHASE selling price    0.04899392
PURCHASE buy-back price    0.04572766

[FloatesMcgoates]

The amount of BTC just sitting there in cash form is still kind of high, any chance you could spend more on investments?

[odolvlobo]

The amount of BTC just sitting there in cash form is still kind of high, any chance you could spend more on investments?

Let's not get greedy. The assets do not have to be invested in order for your DMS investment to make money.

[Deprived]

The amount of BTC just sitting there in cash form is still kind of high, any chance you could spend more on investments?

If SELLING holders want me to invest more I will.  But that needs two things:

1.  Proposed investments.
2.  A vote approving them.

If cash continues to rise then I already intend to take out a new Coinlenders CD - 2 weeks after previous one started so as to give best possible spread on maturity dates.

Just-Dice there was opposition to investing more than 10%.  In fact we're doing very well there (someone lost a 640 BTC not long back which means we made nearly 3 BTC there today).  I plan to send a top up there after next difficulty change (once we know what capital left will be after that).

There's no more LTC-ATF.B1 available at face value or near.  LTC-ATF.B2 is being approved so I could take some of that - but there's not going to be a lot of that issued initially anyway.

Other options we have are :

Namworld's BTC-Bond on BTC-TC.  That only pays 0.03% per day (.21% per week, not much over 10% per year) - so I've been reluctant to propose it as it's so low and I can't anywhere find details of what assets currently back it.

Graet's loan on Bitfunder.  Pays a decent rate and he has a good rep but problem with it I'm not convinced it's properly backed.  The funds are largely being used to replace BTC stolen from the mining pool he runs - so any time he pays out he has to borrow back money that isn't even his.  And if there are mass withdrawals from the pool then the backing for the bond vanishes and he has to borrow from somewhere else to payout any bond-holders who want to cash out.  Other stated use was to buy servers - which are obviously valued in fiat and so not appropriate to be the backing for a BTC-denominated bond.  Whilst I don't doubt his willingness and good intentions to pay I'm sceptical of his ability to do so if something gos wrong.  For me to trust funds to someone I need to be convinced not just that they're honest and well-intentioned but also that they have the capability to fulfil their end of the deal even if there are significant problems.  I'm not convinced of that with Graet.Loan.

Other option is doing secured loans ourself (this was mentioned in the contract and would be fine).  Basic terms would be:

We'd only do secured loans.
Loans would have to be secured by providing collateral to us - in the form of solid securities - with a value significantly in excess of the loan value.
We'd charge a pretty low rate - reflecting the very low level of risk to us.  Something like a 1% setup fee then .1% per day.
Loans would be small ones (10-100 BTC).  Micro loans (under 10 BTC) aren't worth the hassle and we don't have the capital to do medium (100s) or large (1000s) ones.

I'm fine with doing that - but do SELLING holders want me to?  Feed-back welcome - don't worry about the details just whether you'd like it done in principle.  Before any loans would be made a contract for borrowers would need to be approved by SELLING (and so would the securities we'd accept as collateral).

[twentyseventy]

Namworld's BTC-Bond on BTC-TC.  That only pays 0.03% per day (.21% per week, not much over 10% per year) - so I've been reluctant to propose it as it's so low and I can't anywhere find details of what assets currently back it.

That does seem kind of low, especially if there's no backing information. I'd be more open to LTC-ATF.B2 if there was more than 50BTC opportunity to invest in it.

I would like for DMS.SELLING to invest a bit more, either in J-D, CL, or another avenue - I like the idea of secured loans as long as they're not too much trouble for you to set up and maintain.