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weisoq
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January 24, 2014, 11:31:18 AM |
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Basically it sounds like we need a writers futures market - not for usd per devcoin, but USD per devcoin per share. Or even an options market considering we can know exactly how many shares the writer has for sale at any one time.
Eg options market: middle of the month a writer has 20 shares, and opens up 20 contracts to sell the share at say 150,000 devcoins, when the round finalizes (this can be checked, for the most part). Anyone who thinks the shares will be worth more than that (ie the final tally will be less than 1200 total shares), can buy it and basically buy the final value of shares for the set price. If the tally ends up being 1000 shares, the person who bought the option walks away with 30,000 devcoins profit. If the tally ends up being a lot more than 1200 shares, the speculator only gets 120,000 devcoins for the 150,000 he paid. There would have to be some way to get the share payment from the writer to the speculator automatically, like maybe putting up the full amount as collateral. I don't know how easy it would be to game this system. This doesn't really help with the devcoin per $ problem, but that could be handled in a similar way, really.
I think that would need a liquid dvc/$ market before a dvc per share/$ market to hedge or determine margin or premium and escrow, and get anywhere close to guaranteeing delivery on exercise or expiry. It would be doable at some point though with a lot more writers, as the regular rounds and transparency lend themselves to standardised terms, but risks the classic derivatives tail wagging the project dog. |
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Hunterbunter
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January 24, 2014, 12:26:32 PM |
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Basically it sounds like we need a writers futures market - not for usd per devcoin, but USD per devcoin per share. Or even an options market considering we can know exactly how many shares the writer has for sale at any one time.
Eg options market: middle of the month a writer has 20 shares, and opens up 20 contracts to sell the share at say 150,000 devcoins, when the round finalizes (this can be checked, for the most part). Anyone who thinks the shares will be worth more than that (ie the final tally will be less than 1200 total shares), can buy it and basically buy the final value of shares for the set price. If the tally ends up being 1000 shares, the person who bought the option walks away with 30,000 devcoins profit. If the tally ends up being a lot more than 1200 shares, the speculator only gets 120,000 devcoins for the 150,000 he paid. There would have to be some way to get the share payment from the writer to the speculator automatically, like maybe putting up the full amount as collateral. I don't know how easy it would be to game this system. This doesn't really help with the devcoin per $ problem, but that could be handled in a similar way, really.
I think that would need a liquid dvc/$ market before a dvc per share/$ market to hedge or determine margin or premium and escrow, and get anywhere close to guaranteeing delivery on exercise or expiry. It would be doable at some point though with a lot more writers, as the regular rounds and transparency lend themselves to standardised terms, but risks the classic derivatives tail wagging the project dog. Just some more thoughts on this: Writer wants to sell a share for 150k dvc. If it ends up being worth 200k dvc, the writer has to settle the debt, but it can be automatically done if the devcoin project was willing to collaborate and divert shares at the writer's request to the exchange. No need for up front collateral from the writer. If the share ends up being worth 100k dvc, the speculator loses collateral, but at least it's not an infinite possibility. I still don't know if this adds a negative pressure on number of shares, though - if speculative community members have vested interests in fewer shares per round, it could subtly redirect the emphasis on giving out fewer shares. That could be a good or bad thing depending on the perspective, and I think that might actually be a bad thing for open source...but then higher dvc per share might also lead to a more efficient machine with less waste, attracting more writers and so on. I agree we still need a ton more liquidity anyway, even if this could still work as a shares -> dvc pair irrespective of dvc/$. Putting effort into a dvc/$ exchange would make a lot more sense first, though, because basically everyone would find a use for that. |
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weisoq
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January 24, 2014, 01:00:19 PM |
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Just some more thoughts on this:
Writer wants to sell a share for 150k dvc.
If it ends up being worth 200k dvc, the writer has to settle the debt, but it can be automatically done if the devcoin project was willing to collaborate and divert shares at the writer's request to the exchange. No need for up front collateral from the writer.
If the share ends up being worth 100k dvc, the speculator loses collateral, but at least it's not an infinite possibility.
I still don't know if this adds a negative pressure on number of shares, though - if speculative community members have vested interests in fewer shares per round, it could subtly redirect the emphasis on giving out fewer shares. That could be a good or bad thing depending on the perspective, and I think that might actually be a bad thing for open source...but then higher dvc per share might also lead to a more efficient machine with less waste, attracting more writers and so on.
I agree we still need a ton more liquidity anyway, even if this could still work as a shares -> dvc pair irrespective of dvc/$. Putting effort into a dvc/$ exchange would make a lot more sense first, though, because basically everyone would find a use for that.
If someone wants to do run this themselves that's private risks. As an actual devcoin project I'm also not sure at all about the net gain for open source or what it's all about. Ultimately, if Devcoin concluded derivatives were necessary to better align shares with work worth and efficiency, then there's something wrong with basic distribution or value assignment. It would be easier and simpler to affect the root problem than build complex layers trying to address it. A short option position can carry unlimited risk, in this case I suppose that would be zero shares or a very big number of them. To be able to cut losses would need mark to market pricing and liquidity - or combinations of options (effective caps/floors) which gets even more complicated - and as you say when interests are vested in a maleable market that's going to be difficult until liquidity is way larger, if at all worthwhile. |
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unclejed613
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January 24, 2014, 01:59:48 PM |
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in the US, fiat money was originally directly backed by gold and silver. in fact you could have currency that actually WAS gold or silver. if you had a $20 gold coin in your pocket, and a $20 bill in your wallet, they were always worth the same. that $20 bill meant that there was an ounce of gold in a federal repository, that was, for all intents and purposes, yours. you could walk into a bank, plop down your $20 bill, and demand your gold coin. these were known as "demand notes". there were a limited number of these notes in circulation, because there had to be physical gold to back them up (and $1, $5, and $10 bills were backed by physical silver). what the federal reserve did, is allow the government to go into debt to print "debt notes", only backed by the government's promise to pay. this trickled down to banks which began giving loans under a new system called "fractional reserve" banking. if a bank had $1000 worth of assets, they could loan out $10,000. you can see where this goes.... when the US was taken off the gold standard, and later silver was no longer backing anything (silver was even removed from the composition of US coins), the fractional reserve system was all that was left. the dollar now floats with the market, and the US economy goes into the toilet every time the market hits a bump.
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melodiem
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January 24, 2014, 02:52:16 PM |
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Ok.. I have tried to write up my idea in a discussion paper.. its only point form at this stage and I am sure I will wake up with a hundred things to add but it's after midnight here and my brain is fried  http://www.devtome.com/doku.php?id=devcoin_fundEven in point form its over 700 words... Night folks xxx |
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Athanasios Motok
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January 24, 2014, 04:49:53 PM |
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How should I factor Devtome income into my tax return?
According to Forbes, cryptocurrency income is taxable!
Once you withdraw currency from an exchange into government cash it would be taxable, by my understanding of my county's tax, as capital gains. You would be wise to then keep a record of how much you purchased the coins for and how much you sold them. The difference would be tax-able. In my country you are permitted something like $100K capital gain tax free. Your first time home, if sold, is also considered capital gains tax free. These rules would vary from jurisdiction to jurisdiction no doubt. A record system of buys and sells would make for a great open source project. Something many of us will need in the future. My approach is to keep crypo as just that until there is need of it in the future. That would be very much like having a stock that pays no dividends. One cannot be taxed on it until you sell it. At that time it is considered capital gains. My advice is to consult an accountant in your local jurisdiction. Consider my remarks as hearsay. - Nova So basically, after converting to bitcoin only if I turn into cash or deposit into a bank account I would need to be taxed? If I turned into a gift card or something since this is not technically cash I would not need to be taxed? Thanks, -AM |
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bit-fxtrader
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January 24, 2014, 04:53:42 PM |
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It is too bad that MPOE is not free open source, as options do sound like just what we need.
I ran around enquiring about the possibility of generic options code a long log time ago, I wanted something where you basically tell it here are the two items of a pair, I want to enable options on that pair.
No luck though.
I also tried working through a bunch of concepts using "long coins" and "short coins" but the big probem with een the best of those ideas was that people are nowadays spiled by options that give you massive leverage so the idea of having to lock up collateral equal to the maximum amount you could lose was a major turn-off for people.
But realistically, look at Lex Cryptographia even, you do need surety bonds aka collateral of some kind if you are not going to depend on the ability to send in the marines or the sheriff or whatever.
MPOE's method of doing options is a kind of zero sum system in which MPOE itself cannot possibly lose, and all potential loses are secured/covered by third party investors who in effect loan capital to the system or to the option writers or something.
It seems a shame to have to re-write the wheel from scratch over and over and over again which is why I tend to prefer to just get it over with by doing free open source in the first place. There should be code for all those kinds of things off the shelf as free open source so that any currency can easily equip itself with such important tools of finance.
-MarkM-
Hedging the writer's risk is exactly what I'm working on atm. Here's a part of my writing application I sent to Fuzzybear yesterday. ----- One of my crypto related articles I’m working on atm is on hedging the devtome writers risk. Since I’ve started thinking about the prospect of getting paid in devcoins I started brainstorming about the possibility of hedging some of the risk due to the large fluctuations in the writers compensation month to month. As you’re aware, pay can wary from 10 to 200 usd per share. One of my ideas is to partially hedge this exposure by shorting bitcoins. Here’s the thinking behind it. Because to my knowledge, there is no way to short devcoin outright, by using btc as a proxy and shorting it instead you stand to gain if cryptocurrencies decline in value. From the data I’ve seen so far (could only find data since June 2013) devcoin’s price in usd tends to follow bitcoin/litecoin’s rise or fall. In the 8 months I have data for, DVC traded within a 30% band against bitcoin/litecoin. In other words, as bitcoin/litecoin price in USD skyrocketed in 2013, devcoin followed suit and only lagged/outperformed by 30%. So basically by shorting btc ( or even ltc) you could in theory cover some of the risk associated with the fluctuating writers pay. If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge. I’m still trying to find more data on dvc and see how it performed versus bitcoin before June 2013. ------- Still trying to find more data on DVC/BTC going prior to June of last year. If It is something that I can import in MT4 it would be even better. If this turns out to be a somewhat viable plan to partially hedge the risk I plan to write an article on this for devtome. I think bitcoin options would be an even better option but I'm not sure that the broker's edge on these makes it worthwhile as a hedging mechanism. With a short btc option you win if bitcoin prices fall but you won't get ''violated'' if btc prices rise by tenfold like in November. Another bonus of a short bitcoin position or option is that the devcoin price won't be affected at all. It's an interesting discussion.  |
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markm
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Merit: 1090
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January 24, 2014, 05:00:34 PM
Last edit: January 24, 2014, 05:14:38 PM by markm |
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So basically, after converting to bitcoin only if I turn into cash or deposit into a bank account I would need to be taxed? If I turned into a gift card or something since this is not technically cash I would not need to be taxed?
Thanks,
-AM
No, as soon as you buy stuff with it - real stuff like fiat-denominated gift cards - you have done barter so tax will probably be involved. It is unreal stuff like shares and game-gold and crypto-coins and magic swords in virtual worlds and such that might manage to skip the taxes for a while until cashed out into something more 'real'. Check with your local licensed accountants and lawyers for how it works in your jurisdiction. I am getting the feeling that maybe on planets where I am licensed to practice law the government will make plenty enough just doing business that it won't need taxes. Maybe not though as maybe Charles Gallagher was right that every new government expenditure results in a unit of beaurocrats and that such units once raised cannot be disbanded thus will continue to drain the economy long past any actual need for them. One way to hedge the shares is to not issue direct shares. Make Devtome operate the way the other planned websites are intended to work, receiving shares itself but then paying its people its own way probably even in its own currency. It could then set the pay for a round up front, based on how much it has in its coffers before the round begins. Heck it need not even use the same rounds as the shares. -MarkM- |
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sidhujag
Legendary
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Activity: 2044
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January 24, 2014, 05:12:02 PM |
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It is too bad that MPOE is not free open source, as options do sound like just what we need.
I ran around enquiring about the possibility of generic options code a long log time ago, I wanted something where you basically tell it here are the two items of a pair, I want to enable options on that pair.
No luck though.
I also tried working through a bunch of concepts using "long coins" and "short coins" but the big probem with een the best of those ideas was that people are nowadays spiled by options that give you massive leverage so the idea of having to lock up collateral equal to the maximum amount you could lose was a major turn-off for people.
But realistically, look at Lex Cryptographia even, you do need surety bonds aka collateral of some kind if you are not going to depend on the ability to send in the marines or the sheriff or whatever.
MPOE's method of doing options is a kind of zero sum system in which MPOE itself cannot possibly lose, and all potential loses are secured/covered by third party investors who in effect loan capital to the system or to the option writers or something.
It seems a shame to have to re-write the wheel from scratch over and over and over again which is why I tend to prefer to just get it over with by doing free open source in the first place. There should be code for all those kinds of things off the shelf as free open source so that any currency can easily equip itself with such important tools of finance.
-MarkM-
Hedging the writer's risk is exactly what I'm working on atm. Here's a part of my writing application I sent to Fuzzybear yesterday. ----- One of my crypto related articles I’m working on atm is on hedging the devtome writers risk. Since I’ve started thinking about the prospect of getting paid in devcoins I started brainstorming about the possibility of hedging some of the risk due to the large fluctuations in the writers compensation month to month. As you’re aware, pay can wary from 10 to 200 usd per share. One of my ideas is to partially hedge this exposure by shorting bitcoins. Here’s the thinking behind it. Because to my knowledge, there is no way to short devcoin outright, by using btc as a proxy and shorting it instead you stand to gain if cryptocurrencies decline in value. From the data I’ve seen so far (could only find data since June 2013) devcoin’s price in usd tends to follow bitcoin/litecoin’s rise or fall. In the 8 months I have data for, DVC traded within a 30% band against bitcoin/litecoin. In other words, as bitcoin/litecoin price in USD skyrocketed in 2013, devcoin followed suit and only lagged/outperformed by 30%. So basically by shorting btc ( or even ltc) you could in theory cover some of the risk associated with the fluctuating writers pay. If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge. I’m still trying to find more data on dvc and see how it performed versus bitcoin before June 2013. ------- Still trying to find more data on DVC/BTC going prior to June of last year. If It is something that I can import in MT4 it would be even better. If this turns out to be a somewhat viable plan to partially hedge the risk I plan to write an article on this for devtome. I think bitcoin options would be an even better option but I'm not sure that the broker's edge on these makes it worthwhile as a hedging mechanism. With a short btc option you win if bitcoin prices fall but you won't get ''violated'' if btc prices rise by tenfold like in November. Another bonus of a short bitcoin position or option is that the devcoin price won't be affected at all. It's an interesting discussion. So a synthetic hedge via correlation.. What happens if the band is broken and difference is greater than 30%? |
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sidhujag
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January 24, 2014, 05:15:27 PM |
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So basically, after converting to bitcoin only if I turn into cash or deposit into a bank account I would need to be taxed? If I turned into a gift card or something since this is not technically cash I would not need to be taxed?
Thanks,
-AM
No, as soon as you buy stuff with it - real stuff like fiat-denominated gift cards - you have done barter so tax will probably be involved. It is unreal stuff like shares and game-gold and crypto-coins and magic swords in virtual worlds and such that might manage to skip the taxes for a while until cashed out into something more 'real'. Check with your local licensed accountants and lawyers for how it works in your jurisdiction. I am getting the feeling that maybe on planets where I am licensed to practice law the government will make plenty enough just doing business that it won't need taxes. Maybe not through as maybe Charles Gallagher was right that every new government expenditure results in a unit of beaurocrats and that such units once raised cannot be disbanded thus will continue to drain the economy long past any actual need for them. One way to hedge the shares is to not issue direct shares. Make Devtome operate the way the other planned websites are intended to work, receiving shares itself but then paying its people its own way probably even in its own currency. It could then set the pay for a round up front, based on how much it has in its coffers before the round begins. Heck it need not even use the same rounds as the shares. -MarkM- Imo that is the best way to pay via ad revenue or individuals requesting and paying.. it would open up shares for something else.We woukdnt have to worry about hedging or anything I think. |
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markm
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January 24, 2014, 05:20:16 PM |
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So a synthetic hedge via correlation.. What happens if the band is broken and difference is greater than 30%?
That is why we need software for doing arbitrary pairs. It would let us do DVC/BTC or BTC/LTC or BTC/DVC or LTC/DVC options, and any other currency or institution or site or group etc to do whatever pairs they wish to do. It has been suggested that one can use smart contracts, which Open Transactions can do. But contracts are not an asset one can trade on the Open Transactions markets. A lot of people seem to think it is important to be able to re-sell their options, though I do not know whether options began from scratch historically as an asset that can be traded rather than as, say, a more private deal between two parties. Smart contracts would at least let two parties lock themselves into an option. Maybe they don't need to be able to re-sell that option? Could it suffice merely to be able to choose whether or not to exercise the option instead of trying to turn it into a thing one runs around trying to re-sell to other people? -MarkM- |
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bit-fxtrader
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January 24, 2014, 05:21:40 PM |
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It is too bad that MPOE is not free open source, as options do sound like just what we need.
I ran around enquiring about the possibility of generic options code a long log time ago, I wanted something where you basically tell it here are the two items of a pair, I want to enable options on that pair.
No luck though.
I also tried working through a bunch of concepts using "long coins" and "short coins" but the big probem with een the best of those ideas was that people are nowadays spiled by options that give you massive leverage so the idea of having to lock up collateral equal to the maximum amount you could lose was a major turn-off for people.
But realistically, look at Lex Cryptographia even, you do need surety bonds aka collateral of some kind if you are not going to depend on the ability to send in the marines or the sheriff or whatever.
MPOE's method of doing options is a kind of zero sum system in which MPOE itself cannot possibly lose, and all potential loses are secured/covered by third party investors who in effect loan capital to the system or to the option writers or something.
It seems a shame to have to re-write the wheel from scratch over and over and over again which is why I tend to prefer to just get it over with by doing free open source in the first place. There should be code for all those kinds of things off the shelf as free open source so that any currency can easily equip itself with such important tools of finance.
-MarkM-
Hedging the writer's risk is exactly what I'm working on atm. Here's a part of my writing application I sent to Fuzzybear yesterday. ----- One of my crypto related articles I’m working on atm is on hedging the devtome writers risk. Since I’ve started thinking about the prospect of getting paid in devcoins I started brainstorming about the possibility of hedging some of the risk due to the large fluctuations in the writers compensation month to month. As you’re aware, pay can wary from 10 to 200 usd per share. One of my ideas is to partially hedge this exposure by shorting bitcoins. Here’s the thinking behind it. Because to my knowledge, there is no way to short devcoin outright, by using btc as a proxy and shorting it instead you stand to gain if cryptocurrencies decline in value. From the data I’ve seen so far (could only find data since June 2013) devcoin’s price in usd tends to follow bitcoin/litecoin’s rise or fall. In the 8 months I have data for, DVC traded within a 30% band against bitcoin/litecoin. In other words, as bitcoin/litecoin price in USD skyrocketed in 2013, devcoin followed suit and only lagged/outperformed by 30%. So basically by shorting btc ( or even ltc) you could in theory cover some of the risk associated with the fluctuating writers pay. If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge. I’m still trying to find more data on dvc and see how it performed versus bitcoin before June 2013. ------- Still trying to find more data on DVC/BTC going prior to June of last year. If It is something that I can import in MT4 it would be even better. If this turns out to be a somewhat viable plan to partially hedge the risk I plan to write an article on this for devtome. I think bitcoin options would be an even better option but I'm not sure that the broker's edge on these makes it worthwhile as a hedging mechanism. With a short btc option you win if bitcoin prices fall but you won't get ''violated'' if btc prices rise by tenfold like in November. Another bonus of a short bitcoin position or option is that the devcoin price won't be affected at all. It's an interesting discussion. So a synthetic hedge via correlation.. What happens if the band is broken and difference is greater than 30%? I believe the technical term for that is ''you're screwed''.  |
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markm
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January 24, 2014, 05:30:09 PM
Last edit: January 24, 2014, 05:51:52 PM by markm |
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You are not screwed for real on any sensible options setup designed to avoid anyone being screwed. The worst that can happen, barring hacks, thefts, embezzling and such, is that you miss out on potential profits you could have made had you taken some other course of action. For example if the DeVCoin Credit Union has ten thousand dollars on hand and makes a deal with you to let you buy up to ten thousand dollars for X number of DeVCoins the Credit Union makes a definite profit in terms of DeVCoins, not only on the actual sale if it happens but also in the form of the price of the option, that is, the service charge it charges you for making such a deal with you. The Credit Union would already know how many DeVCoins it had paid for those dollars, thus how many DeVCoins of profit it would make if you did end up exercising the option. So it would in effect be trading a guaranteed locked in profit against a chance that maybe it could have gotten more DeVCoins for those dollars had it instead waited for a better offer (someone offering a higher price for such an option) or for an exchange rate more in its favour (an exchange where it could buy more DeVCoins for those dollars than you exercising the option would end up providing it.) Similarly the person buying the option would only be screwed to the same extent any insurance screws people. They could end up having paid for an option they end up choosing not to exercise, just like with fire insurance you could end up paying for the insurance then not having a fire. So really the only unlimited losses involved are opportunity costs. You could end up not buying a winning lottery ticket or somesuch on account of getting into an options deal instead. I suppose someone is going to argue that if DeVCoins become worthless then the Credit Union would lose a lot. But fergoshsakes it is a DeVCoin credit union, to it DeVCoins are profit, they are value, they are "worth". Its entire accounting system is based on how many DeVCoins it has, and if it has more now than it had before that is profit. (Its shareholders might not think so, thinking gosh I should have invested in a dollars credit union instead of a DeVCoin credit union, but so what, either they were okay with that or they would not have invested so there would not have been a DeVCoin credit union in the first place. As long as such an institution does exist and it does gain more DeVCoins than it had it still gets to report that to its shareholders as "profit". The fact that dollars went up in value relative to DeVCoins or that a lottery ticket it did not buy did win billions of dollars or even billions of DeVCoins is fundamentally irrelevant.) Maybe the best way to get an Olympian perspective on options is to think about the case where you print/mint yourself two different currencies then offer options between the two. Looking at it that way maybe you can see that frankly you come out ahead no matter which one gets to be worth how much more or less than the other one if you can manage to sell any at all of either one of them! (Well, enough to cover the cost of printing/minting the stuff anyway.) Plus you get paid a fee for the options themselves too! I guess ideally you would charge in bitcoins for for the options themselves, so that regardless of whether foo or bar comes out as worth more you got yourself some bitcoins regardless!   (Or charge meals for the options themselves, so that regardless of whether foo or bar turns out to be worth more you got yourself some meals regardless. Etc.) -MarkM- |
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bit-fxtrader
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January 24, 2014, 05:47:51 PM |
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yep I was just joking. Using a short btc/usd position you're only ''screwed'' if the relationship breaks down and devcoin prices go down while bitcoin prices stay flat or go up. Speaking of devcoin prices in USD here.
I consider this to be a less likely scenario, a more likely outcome is that both cryptos rise/fall together in terms of fiat.
Another possible outcome is that devcoin prices rise a lot more then bitcoin, under this scenario you'll still gain by increased pay so if that part of the relationship breaks down you're not screwed.
A way to directly short devcoin or use devcoin options is of course preferred because it removes another moving risk variable. But I'm not sure this could be achieved with the small market cap devcoin has atm. A large player that already owns a lot of devcoins could maybe get into market making and start to offer this as a financial product.
The question to answer is will there be enough interest on the writers side for this product? With bitcoin and devcoin prices up over 1,000 percent in 2013, I'm not sure many will see the value in this type of risk protection.
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sidhujag
Legendary
Offline
Activity: 2044
Merit: 1005
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January 24, 2014, 06:44:43 PM |
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It is too bad that MPOE is not free open source, as options do sound like just what we need.
I ran around enquiring about the possibility of generic options code a long log time ago, I wanted something where you basically tell it here are the two items of a pair, I want to enable options on that pair.
No luck though.
I also tried working through a bunch of concepts using "long coins" and "short coins" but the big probem with een the best of those ideas was that people are nowadays spiled by options that give you massive leverage so the idea of having to lock up collateral equal to the maximum amount you could lose was a major turn-off for people.
But realistically, look at Lex Cryptographia even, you do need surety bonds aka collateral of some kind if you are not going to depend on the ability to send in the marines or the sheriff or whatever.
MPOE's method of doing options is a kind of zero sum system in which MPOE itself cannot possibly lose, and all potential loses are secured/covered by third party investors who in effect loan capital to the system or to the option writers or something.
It seems a shame to have to re-write the wheel from scratch over and over and over again which is why I tend to prefer to just get it over with by doing free open source in the first place. There should be code for all those kinds of things off the shelf as free open source so that any currency can easily equip itself with such important tools of finance.
-MarkM-
Hedging the writer's risk is exactly what I'm working on atm. Here's a part of my writing application I sent to Fuzzybear yesterday. ----- One of my crypto related articles I’m working on atm is on hedging the devtome writers risk. Since I’ve started thinking about the prospect of getting paid in devcoins I started brainstorming about the possibility of hedging some of the risk due to the large fluctuations in the writers compensation month to month. As you’re aware, pay can wary from 10 to 200 usd per share. One of my ideas is to partially hedge this exposure by shorting bitcoins. Here’s the thinking behind it. Because to my knowledge, there is no way to short devcoin outright, by using btc as a proxy and shorting it instead you stand to gain if cryptocurrencies decline in value. From the data I’ve seen so far (could only find data since June 2013) devcoin’s price in usd tends to follow bitcoin/litecoin’s rise or fall. In the 8 months I have data for, DVC traded within a 30% band against bitcoin/litecoin. In other words, as bitcoin/litecoin price in USD skyrocketed in 2013, devcoin followed suit and only lagged/outperformed by 30%. So basically by shorting btc ( or even ltc) you could in theory cover some of the risk associated with the fluctuating writers pay. If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge. I’m still trying to find more data on dvc and see how it performed versus bitcoin before June 2013. ------- Still trying to find more data on DVC/BTC going prior to June of last year. If It is something that I can import in MT4 it would be even better. If this turns out to be a somewhat viable plan to partially hedge the risk I plan to write an article on this for devtome. I think bitcoin options would be an even better option but I'm not sure that the broker's edge on these makes it worthwhile as a hedging mechanism. With a short btc option you win if bitcoin prices fall but you won't get ''violated'' if btc prices rise by tenfold like in November. Another bonus of a short bitcoin position or option is that the devcoin price won't be affected at all. It's an interesting discussion. So a synthetic hedge via correlation.. What happens if the band is broken and difference is greater than 30%? I believe the technical term for that is ''you're screwed''. You ever read, "old dog with new tricks" over at forexfactory.com? Interesting read on this topic... correlation is a tricky thing, it can work for 100 years and then one day wipe you out. Kind of like martingale because for each band standard deviation away you will have to pour in exponentially more money to return back to the mean in your profit loss column... so 1 black swan event can wipe you out, unless you "know" to get out at the right time... take your profit and go home. Its even more dangerous for arbritary "synthetic" baskets you would create (the cost of doing business rises) because once the underlying fundamentals change resulting in a shift in the correlation it would change drastically and usually quickly enough to do the one thing that your system could not handle in terms of margin requirements.... if you don't use margin its fine but you would be in the red until who knows when. |
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bit-fxtrader
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January 24, 2014, 06:57:04 PM |
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You ever read, "old dog with new tricks" over at forexfactory.com? Interesting read on this topic... correlation is a tricky thing, it can work for 100 years and then one day wipe you out. Kind of like martingale because for each band standard deviation away you will have to pour in exponentially more money to return back to the mean in your profit loss column... so 1 black swan event can wipe you out, unless you "know" to get out at the right time... take your profit and go home.
Its even more dangerous for arbritary "synthetic" baskets you would create (the cost of doing business rises) because once the underlying fundamentals change resulting in a shift in the correlation it would change drastically and usually quickly enough to do the one thing that your system could not handle in terms of margin requirements.... if you don't use margin its fine but you would be in the red until who knows when.
Yeah I've seen the thread on FF but not really read a lot of it. That's certainly true if for example you're running a fund with the aim of profiting entirely from correlation. And yes I do believe that all correlations break down at some point. Here we're only talking about hedging the risk until the next devcoin payday, so the most you would lose with a hedge done correctly should be 1 or 1/2 of a paycheck even if unpredictable few SD events occur. |
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sidhujag
Legendary
Offline
Activity: 2044
Merit: 1005
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January 24, 2014, 07:00:15 PM |
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You ever read, "old dog with new tricks" over at forexfactory.com? Interesting read on this topic... correlation is a tricky thing, it can work for 100 years and then one day wipe you out. Kind of like martingale because for each band standard deviation away you will have to pour in exponentially more money to return back to the mean in your profit loss column... so 1 black swan event can wipe you out, unless you "know" to get out at the right time... take your profit and go home.
Its even more dangerous for arbritary "synthetic" baskets you would create (the cost of doing business rises) because once the underlying fundamentals change resulting in a shift in the correlation it would change drastically and usually quickly enough to do the one thing that your system could not handle in terms of margin requirements.... if you don't use margin its fine but you would be in the red until who knows when.
Yeah I've seen the thread on FF but not really read a lot of it. That's certainly true if for example you're running a fund with the aim of profiting entirely from correlation. And yes I do believe that all correlations break down at some point. Here we're only talking about hedging the risk until the next devcoin payday, so they most you would lose with a hedge done correctly should be 1 or 1/2 of a paycheck. True if we only allow hedge of one round of shares.. I guess its a good compromise although for devtome something would have to be figured out about the rolling share system across to the next round. |
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weisoq
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January 24, 2014, 08:34:27 PM |
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Hedging the writer's risk is exactly what I'm working on atm. Here's a part of my writing application I sent to Fuzzybear yesterday. ----- One of my crypto related articles I’m working on atm is on hedging the devtome writers risk. Since I’ve started thinking about the prospect of getting paid in devcoins I started brainstorming about the possibility of hedging some of the risk due to the large fluctuations in the writers compensation month to month. As you’re aware, pay can wary from 10 to 200 usd per share. One of my ideas is to partially hedge this exposure by shorting bitcoins. Here’s the thinking behind it. Because to my knowledge, there is no way to short devcoin outright, by using btc as a proxy and shorting it instead you stand to gain if cryptocurrencies decline in value. From the data I’ve seen so far (could only find data since June 2013) devcoin’s price in usd tends to follow bitcoin/litecoin’s rise or fall. In the 8 months I have data for, DVC traded within a 30% band against bitcoin/litecoin. In other words, as bitcoin/litecoin price in USD skyrocketed in 2013, devcoin followed suit and only lagged/outperformed by 30%. So basically by shorting btc ( or even ltc) you could in theory cover some of the risk associated with the fluctuating writers pay. If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge. I’m still trying to find more data on dvc and see how it performed versus bitcoin before June 2013. ------- Still trying to find more data on DVC/BTC going prior to June of last year. If It is something that I can import in MT4 it would be even better. If this turns out to be a somewhat viable plan to partially hedge the risk I plan to write an article on this for devtome. I think bitcoin options would be an even better option but I'm not sure that the broker's edge on these makes it worthwhile as a hedging mechanism. With a short btc option you win if bitcoin prices fall but you won't get ''violated'' if btc prices rise by tenfold like in November. Another bonus of a short bitcoin position or option is that the devcoin price won't be affected at all. It's an interesting discussion. I don't know what the actual correlation is, but assuming the 30% band implies it's high then that's trading correlation risk really, rather than hedging - a basis trade. Basis trades are great until they're not. You wrote: 'If devcoin gains in value, you would get paid more for your writing. If it falls, it will likely be in tandem with the fall of bitcoin and you will recover some of the losses with your bitcoin short hedge.' That also means if devcoin rises in tandem you will lose some of your gains with the bitcoin hedge. The issue is that as a writer, writing for devcoins, the only risk you're really concerned about is dvc price falls, not rises. If it falls > 30% tolerance you've given yourself then you can be left worse off than just being long devcoin. So really you'd need to structure it so that the trade has skew which would need options. |
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