[BTC-TC] Deprived Mining Speculation (DMS)

[Birdy]

Selling is now more than double the price of Mining, not that much to gain anymore.
I do believe difficult will continue to rise, but it's hard to guess the exact amount.
I think I will prefer other investments now.

Thank you for 1 Btc profit and for creating an invtestment that will teach people about PMBs xD

DMS.MINING is just tanking every day anew...

I should've stuck to my rule "never buy what you don't understand".

Lesson learned.

Expect the same for other bonds with a fixed hasrate like Virtualmine, so you don't fall in that trap again.

[Deprived]

Is this gonna implode?

What do you mean?

I can see it being possible MINING will fall even lower - but the relative prices of MINING/SELLING have no impact on what capital cover is maintained.  All they do is change the maximum potential profit you can make on each one.  As MINING falls lower, the maximum possible percentage profit you an make from a SELLING drops.  But that isn't implosion - it's just a part of how the market will finally settle at a price.  If the ratio moves far enough then those who bought SELLING cheaper will reach the point where they decide they're better off taking profit now rather than staying in - which will then move the prices back in the other direction.

I have not taken the time deeply grasp the interactions here, but the pattern I see is the ceiling continuously lowering itself.

What if MINING buyers only post lower and lower bids? Yes, a bottom will surely be reached, but that bottom could get pretty damn low, right?

What if SELLING owners don't have enough people to unload shares to? This will also seek a lower and lower bottom, no?

The book value of those both affect the NAVU of PURCHASE, correct? Doesn't that also lower the ceiling daily?

No - the book value of PURCHASE is totally unaffected by what price MINING and SELLING trade at.  It's just the capital/shares.

If one falls the other pretty much has to rise - if it doesn't then it leaves open a massive arbitrage opening.

PURCHASE receives all dividends paid to MINING and SELLING - and there's no way for NAV/U to reduce other than through dividends (or theoretically through a loss in investments).  So eventually PURCHASE will receive back ALL of its current NAV/U - and trading in MINING/SELLING has zero impact on that.  As the fund will itself buy back pairs of MINING+SELLING at NAV/U-2% it imposes an effective bottom on combined bids - as if they fall below that then there's an immediate opportunity for someone holding one to bid on the other and be able to turn in the pair for a profit if the bid fills.  Even if noone else works the math out for that I'd be doing it on my personal account - as it's free money with no risk.

What's more likely to happen as MINING falls is that there'll be a lack of sales of PURCHASE.  But if MINING drops then at some point even the total retards buying PMBs for double the amount are going to realise they're giving away money - without even needing to have a clue as to the true value of PMBs (whatever that is).  And that should then increase MINING price - tempting people back to buy more PURCHASE.

The nature of the offering is that unless ALL the market agree on what a fair price for a PMB is there's always going to be some sector of it that perceives value in SOME activity here.  The price changing just alters which group see an opportunity - be it people who buy PMBs, people who want to sell PMBs, people who want to arbitrage, people who want to take profit on a position obtained at a different price, other PMB issuers who want to turn off their mining gear and back their offerings with MINING etc.

[Deprived]

DMS.MINING is just tanking every day anew...

I should've stuck to my rule "never buy what you don't understand".

Lesson learned.

Do understand that the value of MINING is what the market decides 1 MH/S of PMB is worth.  If you made an error, don't compound it by selling then buying some other PMB at double the price.

If the price of MINING DOES reflect PMB value (or is still too high) then buying a different PMB higher is a worse mistake than staying in MINING - and would increase your losses.  In that scenario you should sell MINING and not touch another PMB.
If the price of MINING has fallen below value then swapping to a PMB at higher price would be reducing your profits - and the correct move would be to stay in MINING.

Selling and avoiding PMBs totally MAY be the right move.  Staying in MINING MAY be the right move.  Selling then buying (or continuing to hold) PMBs that cost more will rarely if ever be the correct move.  Which is the correct move depends on the true value of PMBs - which I don't claim to know and wouldn't reveal if I did.

On a more general note don't fall into the trap of believing that your lack of udnerstanding was due to the complexity of the contract.  If you bought MINING and now believe that decision was wrong then your lack of understanding was entirely that you didn't understand what ALL PMBs are actually worth.

[Rannasha]

Is this gonna implode?

What do you mean?

I can see it being possible MINING will fall even lower - but the relative prices of MINING/SELLING have no impact on what capital cover is maintained.  All they do is change the maximum potential profit you can make on each one.  As MINING falls lower, the maximum possible percentage profit you an make from a SELLING drops.  But that isn't implosion - it's just a part of how the market will finally settle at a price.  If the ratio moves far enough then those who bought SELLING cheaper will reach the point where they decide they're better off taking profit now rather than staying in - which will then move the prices back in the other direction.

I have not taken the time deeply grasp the interactions here, but the pattern I see is the ceiling continuously lowering itself.

The total NAV/U will slowly deplete through dividends (and increase slightly through investments and sales/buybacks of PURCHASE).

What if MINING buyers only post lower and lower bids? Yes, a bottom will surely be reached, but that bottom could get pretty damn low, right?

Right, I think it can go lower than what we have now before the next difficulty adjustment.

What if SELLING owners don't have enough people to unload shares to? This will also seek a lower and lower bottom, no?

The book value of those both affect the NAVU of PURCHASE, correct? Doesn't that also lower the ceiling daily?

It's the other way around, the NAV/U of PURCHASE affects the price of MINING+SELLING. People can buy PURCHASE (= 1 MINING & 1 SELLING) for slightly more (105%) than the NAV/U from Deprived (unlimited supply) and sell PURCHASE for slightly below the NAV/U (98%).

So the price of MINING+SELLING together should stay locked to the NAV/U. On the short term, a drop in price of MINING should correspond to an increase of SELLING (arbitragers will make sure of it) and vice versa. In the long term, unless investments and other NAV-increases outweigh dividends (highly unlikely), the NAV/U and therefore the sum of MINING+SELLING prices will go down.

[Smidge]

Do understand that the value of MINING is what the market decides 1 MH/S of PMB is worth.  If you made an error, don't compound it by selling then buying some other PMB at double the price.

If the price of MINING DOES reflect PMB value (or is still too high) then buying a different PMB higher is a worse mistake than staying in MINING - and would increase your losses.  In that scenario you should sell MINING and not touch another PMB.
If the price of MINING has fallen below value then swapping to a PMB at higher price would be reducing your profits - and the correct move would be to stay in MINING.

Selling and avoiding PMBs totally MAY be the right move.  Staying in MINING MAY be the right move.  Selling then buying (or continuing to hold) PMBs that cost more will rarely if ever be the correct move.  Which is the correct move depends on the true value of PMBs - which I don't claim to know and wouldn't reveal if I did.

On a more general note don't fall into the trap of believing that your lack of udnerstanding was due to the complexity of the contract.  If you bought MINING and now believe that decision was wrong then your lack of understanding was entirely that you didn't understand what ALL PMBs are actually worth.

Understood. Selling then buying other PMBs would definitely be wrong at this time, that's why I chose to stay in MINING for now. Losses are only losses if you realise them...

[eltopo]

Is this gonna implode?

Hey TAT, wrong Thread. Here's the right one: https://bitcointalk.org/index.php?topic=223442.0

SCNR 

[ThickAsThieves]

Is this gonna implode?

Hey TAT, wrong Thread. Here's the right one: https://bitcointalk.org/index.php?topic=223442.0

SCNR 

My question was honest, not trolling or trying to start something. My asset just sells hashes, and is thus very simple to grasp.

I just wanted to make sure there wasn't a hole in the design the caused it to collapse on itself by its own nature (ignoring difficulty increases, etc).

[Birdy]

I just wanted to make sure there wasn't a hole in the design the caused it to collapse on itself by its own nature (ignoring difficulty increases, etc).

Nope, it puts everything in a big pot, difficulty just defines the way it's distributed between Selling and Mining from this pot.
So it will not implode, but the pot will continue to shrink when distributing dividends, so that the numbers will drop.

[Deprived]

Is this gonna implode?

Hey TAT, wrong Thread. Here's the right one: https://bitcointalk.org/index.php?topic=223442.0

SCNR 

My question was honest, not trolling or trying to start something. My asset just sells hashes, and is thus very simple to grasp.

I just wanted to make sure there wasn't a hole in the design the caused it to collapse on itself by its own nature (ignoring difficulty increases, etc).

Yeah, I read it as an honest question - and have no problem at all with it.

MINING is itself pretty much just a sale of hashes.

The complexity in the contract exists to :

1.  Allow any market participant to sell mining as well as buy it - hence allowing the price to fall without sellers necessarily making a loss.
2.  Allow investors to directly bet against one another via the market.
3.  Ensure that there is always sufficient capital to honour the MINING commitment - other than in a scenario where difficulty stays the same or falls for a significant period of time (which is the main - and highly unlikely in the short/mid-term - scenario where PMBs are worth more).
4.  Reduce to a minimum excess capital being held - which dilutes the earnings of SELLING.
5.  Ensure that all dividends etc are determined by formula not by arbitrary decision by myself - a prerequisite for me being able to trade MINING/SELLING myself.

I THINK the model is pretty robust - but any questions which would reveal weaknesses in it are welcome.  Prices of MINING/SELLING WILL move around much more than would be the case for PMBs.  That SHOULD have no impact on investors (those holding long-term) - as the price changing in no way alters their dividends.  For speculators/traders it obviously opens up lots of possibilities - both for profit and for loss : which the get (profit or loss) depends almost entirely on their ability to correctly value PMBs and (more importantly) their ability to predict how the rest of the market will act.  And that's how things should be.

[Deprived]

I just wanted to make sure there wasn't a hole in the design the caused it to collapse on itself by its own nature (ignoring difficulty increases, etc).

Nope, it puts everything in a big pot, difficulty just defines the way it's distributed between Selling and Mining from this pot.
So it will not implode, but the pot will continue to shrink when distributing dividends, so that the numbers will drop.

The pot itself won't necessarily shrink - that will only happen if dividends exceed sales of new PURCHASE (less buy-backs).

What WILL almost certainly shrink is the amount each PURCHASE (or MINING + SELLING) is entitled to.

NAV may or may not shrink - NAV/U almost certainly WILL shrink.

MINING + SELLING (or PURCHASE) will almost certainly shrink - at a rate slightly below the rate at which dividends are paid out.

[Deprived]

I just wanted to make sure there wasn't a hole in the design the caused it to collapse on itself by its own nature (ignoring difficulty increases, etc).

Nope, it puts everything in a big pot, difficulty just defines the way it's distributed between Selling and Mining from this pot.

Yeah - that's an important point that some people don't understand.

One of the concerns people have is effectively that they doubt whether MINING can pay the same as a PMB - as what happens if SELLING gets paid too much?

The answer to that is that SELLING's dividends are effectively defined as "Whatever's left after paying MINING and ensuring that there's enough capital left to continue doing so."  So by definition dividends to SELLING can't compromise MINING's ability to payout.  Except, as noted before, if difficulty falls or stops rising for a protracted period - which is basically impossible at present and unlikely in the foreseeable future.  And if that starts happening, then that's the point at which a buy-back would likely be executed anyway - giving MINING an immediate lump sum rather than a continuing trickle that they'd get on PMBs.

[eltopo]

DMS.MINING is the only so called "PMB" that is priced the right way. In any other PMB, people who bought in don't want to sell at a perceptible lower price. So the market price is some kind of artificially held high. That doesn't happen with DMS.MINING, because I can buy DMS.PURCHASE and then sell DMS.MINING if I think the DMS.MINING price is too high.

@TAT: I know you are legitimately one of the most respected persons around here, but IMHO the IPO Investors of TAT.VM won't see the light at the end of the tunnel...

[twentyseventy]

DMS.MINING is the only so called "PMB" that is priced the right way. In any other PMB, people who bought in don't want to sell at a perceptible lower price. So the market price is some kind of artificially held high. That doesn't happen with DMS.MINING, because I can buy DMS.PURCHASE and then sell DMS.MINING if I think the DMS.MINING price is too high.

@TAT: I know you are legitimately one of the most respected persons around here, but IMHO the IPO Investors of TAT.VM won't see the light at the end of the tunnel...

I really believe this is the truth, on both counts. It seems there's a new PMB every week and more and more buyers are going get taken by them.

[ThickAsThieves]

DMS.MINING is the only so called "PMB" that is priced the right way. In any other PMB, people who bought in don't want to sell at a perceptible lower price. So the market price is some kind of artificially held high. That doesn't happen with DMS.MINING, because I can buy DMS.PURCHASE and then sell DMS.MINING if I think the DMS.MINING price is too high.

@TAT: I know you are legitimately one of the most respected persons around here, but IMHO the IPO Investors of TAT.VM won't see the light at the end of the tunnel...

Not that I wanna get into it here, but as I've discussed with Deprived and many others before. TAT.VM was not designed to be an effortless money tree. In many ways I set out to do a lot of what Deprived did, I just didn't include a way for the public to sell too.

The PMBs are hashes, and there is great market demand for that, regardless of the impending onslaught of ASICs. Every single person that bought my IPO had opportunity for healthy profit in the short term and every buyer is getting what was promised. There are risks I had to take to offer it, and work and expense I had to incur.

Unfortunately not everyone is an adept trader, and some will be left confused about what to do, but hopefully what they gain is the insight of how to trade more successfully in the future. Speculators that waited too long will take a hit due to the recent diff increases, and in no small part, the DMS asset set. People that buy hashes of any kind will get what they paid for, without a hitch (within my power at least).

But this is the nature of ALL mining, whether it be PMBs, mining reinvestment assets, group buys, or actual hardware itself. ALL mining depreciates when new technology and new competition arrives; and TIMING is, was, and always will be, the angle to play.

"You gotta know when to hold 'em..."

[eltopo]

Unfortunately not everyone is an adept trader, and some will be left confused about what to do, but hopefully what they gain is the insight of how to trade more successfully in the future. Speculators that waited too long will take a hit due to the recent diff increases, and in no small part, the DMS asset set. People that buy hashes of any kind will get what they paid for, without a hitch (within my power at least).

And thats the problem I guess. Like the plausible last post you made in theTAT.VM thread, there seem to be people who realise that this asset isn't just invest and let the satoshis roll in. They are really surprised that a difficulty rise lower the dividend and the value of the bond as well. This is no fault on your side, just investors who start to have a thought.

In the end, it's all coming down to a guess how difficulty will progress in the next weeks. And everyone can make conclusions on his own...

[fently]

I think that the simplest way to understand DMS.MINING is that the correct price is what the market thinks 1 mh can earn in about a year (plus a safety margin). That time frame is very important because we can say pretty reliably that over a substantial portion of a year difficulty will probably not trend downwards or stay the same. If we extend the timeline further, say to two years, that would be even "safer". If we reduce the calculations and use 6 months, or 3 months, then we run the risk of collapse because DMS would be entitled to ever-increasing dividends out of a fixed pot. Unless new buyers of DMS.PURCHASE come in to provide more capital, I don't see how the fund could avoid catastrophic failure.

So unless I misunderstood, the single most important feature defining the correct value of DMS.MINING is the period of time specified in the contract. If it were calculated based on a 6 month return, we'd have much higher yield per mh, but higher risk of catastrophic collapse. If it were calculated based on a 2 year term, we'd be much safer, but would expect much lower yields per mh. This, I think is the key distinction between DMS.MINING and TAT.VM.  If difficulty levels off in the future, TAT.VM has no problem with it, but DMS.MINING could collapse.

[Deprived]

This, I think is the key distinction between DMS.MINING and TAT.VM.  If difficulty levels off in the future, TAT.VM has no problem with it, but DMS.MINING could collapse.

You had it all pretty much correct - until you jumped to entirely the wrong conclusion.

If difficulty levels off then DMS.SELLING investors would almost certainly vote to close (as the pot would shrink until they got nothing if they did otherwise) and MINING investors would be bought off with a final payment of 365 days of dividends.

In the same scenario TAT.VM investors would face a buy-back at 200 days of dividend - as to continue would mean losses for TAT and is why that buy-back exists (all the time difficulty rises there's no danger of him buying back - as he makes profit by letting it continue to run so his buy-back falls faster than dividends are paid out).  Your mistake is in assuming that if difficulty levelled out with no sign of rising TAT.VM would continue to operate as a charity rather than exercise the buy-back clause in the contract.

Neither offering would survive an extended period of difficulty not rising (or, more likely, rising but by less than a few percent per change) - as in both this would almost certainly trigger a buy-back (not guaranteed in either - but likely in both).

For collapse to occur on DMS-MINING (meaning a forced buy-back at ~100 days of dividend) there'd need to be 300+ days of average zero growth or a longer period of growth averaging under ~3%.  It seems rather unlikely that's going to happen any time soon (Only needs one ASIC producer to continue to produce to exceed that) - but it's definitely possible in the long-term.  But any slow-down in the long-term is essentially irrelevant when measured as a percentage of total output/dividends over the life of the bond.  By the long-term when growth becomes static it's near enough a certainty that difficulty will be immensely higher than at present - so the possible down-side (compared to hardware backed PMBs NOT TAT.VM) is losing out on tiny dividends in the future in return for a lump-sum final payment.

You only have to look at current announced production runs to see that difficulty isn't likely to stop growing  when its at the current order of magnitude - so any impact this has is trivial on expected returns in any reasonable time-frame.  It IS certainly the case that if/when that scenario arrives, the fund will close-down (with a final lump-sum payment to MINING and any change given to SELLING) - and that any replacement fund would then use different parameters to allow speculation on both sides in the very different conditions prevailing then.  

The current parameters were set based on what I considered a safe margin for current conditions in the short/mid term.  If/when difficulty growth starts to decline I would sensibly expect the value of MNING to increase as a percentage of PURCHASE (with SELLING dropping value) until it hits the 9:1 ratio where a sell-back becomes in order.  That's near optimal for investors in both - SELLING get out whilst they still get a final payment and MINING get a year at current dividend even though difficilty would still be rising (and so it would represent over a year of dividends had it continued).

[Deprived]

Speculators that waited too long will take a hit due to the recent diff increases, and in no small part, the DMS asset set.

One of the purposes behind launching DMS was to allow the market to define a price for PMBs.  I'm in no way surprised that value currently lies below what PMBs were previously selling for - and undoubtedly some speculators will have been burned by it (Investors less so - as they bought for the dividends and will continue to receive them.  If they bought too high then their loss will be a gradual one as it would have been anyway).

Speculators were not my intended target (I am, after all, one myself).  My target was people who bought an over-priced pre-order then thought to shift the risk/loss to investors AND get paid for doing so.  It most definitely WAS one of my goals to make it a lot harder for anyone to sell horribly over-priced PMBs in the future - a goal I know you agree with and one which I think DMS will go a long way towards achieving.  In part that goal is achieved simply by having DMS.MINING for sale cheaply - but it's also delivered on by forcing people to think a bit more about what PMBs are actually likely to pay out in various scenarios.

Incidentally there's mining shares out there which are worse value than even expensive PMBs - when I get time I'll have to look at addressing that too.  It isn't actually hard to compare shares with reinvestment to PMBs - once you have a defined value per hash that adjusts over time.  Hopefully MINING will settle into that role (still some way off from that), then I can put some effort into explaining the math of how to value mining shares in comparison and we can start looking at just how shockingly bad value many are (most of their IPO value gone already and/or current trading price based on speculative increases without any corresponding increase in underlieing mining assets).

[joele]

Correct me if I'm wrong.

DMS.MINING can only be profitable
 - if you sell it before the next difficulty adjustment with same or higher price you bought it.

DMS.SELLING can only be profitable
 - if you sell it after the difficulty adjustment with NAV/U post/dividend >= 410
 - or before difficulty adjustment with same or higher price you bought it.

or if you sell DMS.MINING and your DMS.SELLING higher than DMS.PURCHASE price

[Deprived]

Correct me if I'm wrong.

DMS.MINING can only be profitable
 - if you sell it before the next difficulty adjustment with same or higher price you bought it.

DMS.SELLING can only be profitable
 - if you sell it after the difficulty adjustment with NAV/U post/dividend >= 410
 - or before difficulty adjustment with same or higher price you bought it.

or if you sell DMS.MINING and your DMS.SELLING higher than DMS.PURCHASE price

Sorry - that's nowhere near right.  There's a whole bunch of scenarios in which you can make a profit from one or both of them.

Most obviously you can make a profit from DMS.MINING if you buy it then hold it and receive more in dividends than you paid.  And that can be the case regardless of what happens at the next difficulty change - as future changes can make up any temporary loss of value you suffer.

In summary you make a profit if the price you sell for + dividends you receive is greater than what you paid.  That applies to any single share or combination of shares.