ASICMINER Speculation Thread

[Vycid]

Why don't we forget about the dividend all together and focus on reinvesting the profits into staying competitive.

cause he doesn't need the whole dividend to do that.

Actually, he doesn't need all of the profits. He doesn't need any of the dividend. The dividend is what's left over after he reinvests some of the profits.  

so why is asicminer dropping in value? he should be on top of the game right now.

This has a lot to do with it.

Basically, people are coming out of denial about AM ever having serious competition, and are realizing that profit margins are going to drop precipitously very soon.

[velacreations]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

[Vycid]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

[binaryFate]

Vycid you must be seriously invested, for making this a full time job...

[velacreations]

I think the reality of the situation is that it is far more profitable to sell Gen 1 hardware than to mine with it.  Profit margins on the USBs are huge (cost ~$1.5 /GH, selling for ~$50+/GH), but I think we all agree that they are not great for a mining operation like AM.  So, it makes sense that FC is not increasing the mining farm right now with Gen1.

So, that being said, hash rate and mining revenue becomes less important, but hardware sales are the focus until Gen2 comes out.  And, at that time, it may be that mining just isn't worthwhile when margins on hardware remain so high.

Hardware sales have dominated the weekly profits for a long time, and they will continue to do so., even as mining revenue decreases in the short term.

[Vycid]

Vycid you must be seriously invested, for making this a full time job...

General Statistics - binaryFate
Total Time Spent Online:   22 days, 16 hours and 29 minutes

General Statistics - Vycid
Total Time Spent Online:   12 days, 3 hours and 56 minutes.

I've also been registered longer than you have. So how invested must you be?

[velacreations]

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

no, but AM's plans don't end in Nov, either.  Are we now setting share price for only what can be made in the next 2 months?  Every other security would be 0.

[Vycid]

I think the reality of the situation is that it is far more profitable to sell Gen 1 hardware than to mine with it.  Profit margins on the USBs are huge (cost ~$1.5 /GH, selling for ~$50+/GH), but I think we all agree that they are not great for a mining operation like AM.  So, it makes sense that FC is not increasing the mining farm right now with Gen1.

So, that being said, hash rate and mining revenue becomes less important, but hardware sales are the focus until Gen2 comes out.  And, at that time, it may be that mining just isn't worthwhile when margins on hardware remain so high.

Hardware sales have dominated the weekly profits for a long time, and they will continue to do so., even as mining revenue decreases in the short term.

Just a quick note - the $1.50/GH figure is for the blades, not the USBs. Those are almost certainly considerably more expensive to produce per GH.

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

no, but AM's plans don't end in Nov, either.  Are we now setting share price for only what can be made in the next 2 months?  Every other security would be 0.

Of course not, but this is AM's last chance to crank out some value before getting overrun by competition. 2 BTC really is an extremely high price, even with a 10-year horizon.

[tinus42]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

Friedcat should just cut his losses and close his business. He is bound to fail. In fact no-one can make any money running ASIC mining devices. BTC. People should just quit mining, it is no use, Bitcoin is doomed!

[Vycid]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

Friedcat should just cut his losses and close his business. He is bound to fail. In fact no-one can make any money running ASIC mining devices. BTC. People should just quit mining, it is no use, Bitcoin is doomed!

Your failure to understand even simple logic is really quite impressive.

[tinus42]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

Friedcat should just cut his losses and close his business. He is bound to fail. In fact no-one can make any money running ASIC mining devices. BTC. People should just quit mining, it is no use, Bitcoin is doomed!

Your failure to understand even simple logic is really quite impressive.

Your failure to detect even simple sarcasm is really quite impressive.

[Vycid]

Because there is more credible competition for gen 2 than gen 1.  At this point, day to day price movements meaningless until we see who starts shipping or hasing with gen 2 miners in volume first. We won't really know where AM stands until mid-November.

+1, however, there is a lot of profit to be made between now and mid-Nov

Nowhere near 2 BTC/share worth of profit. Not even close. Especially if AM's hashrate is going to keep dropping to zero.

Friedcat should just cut his losses and close his business. He is bound to fail. In fact no-one can make any money running ASIC mining devices. BTC. People should just quit mining, it is no use, Bitcoin is doomed!

Your failure to understand even simple logic is really quite impressive.

Your failure to detect even simple sarcasm is really quite impressive.

Oh, no, I'm aware it was sarcasm. It was sarcasm because you either didn't understand or refused to consider the very compelling arguments made about AM's fair value.

[kingcrimson]

What price would you value it right now?

[Vycid]

What price would you value it right now?

My price target has been 1.5 BTC ever since Avalon failed to ship their chips. I consider that a fairly generous target - it's when I would execute my options.

I wouldn't consider buying AM until below 1.2 BTC.

At the risk of linking this too many times, https://bitcointalk.org/index.php?topic=235763.msg3134886#msg3134886

The fair value calculated there is 1.224 BTC/share, but it assumes things go well over the next 10 years. AM could get nationalized or taxed or whatever - not to mention FC could just fail to deliver or get tired of running a business - so I'd want a discount on 1.224 BTC before I'd seriously entertain a long position.

[Jutarul]

... about AM's fair value.

You made me curious. What do you think the fair value of bitcoin is?

The reason I pose this question is that you seem to base your analysis on the known rather than the unknown, which doesn't help with strategic portfolios. I.e. How do you determine "how much" of an asset class you should own at any given time to hedge your wealth creation?

[Vycid]

... about AM's fair value.

You made me curious. What do you think the fair value of bitcoin is?

The reason I pose this question is that you seem to base your analysis on the known rather than the unknown, which doesn't help with strategic portfolios. I.e. How do you determine "how much" of an asset class you should own at any given time to hedge your wealth creation?

This is an excellent question, and despite approaching it from a number of angles, I have never come up with a satisfactory valuation for bitcoin itself.

My pedigree is value investing, the mantra of which is essentially "don't buy what you don't know".

But Bitcoin is a special case - it is clearly even riskier to own no bitcoins than it is to own some. I think the appropriate portfolio allocation is up to the individual's risk tolerance.

So, tl;dr - I will not provide a specific number for bitcoin's value, since that number would be highly speculative and nearly worthless.


That said, I am happy to share my thoughts.

One of my favorite approaches was attempting to price bitcoin based on its velocity of money. I started with this assumption:

(USD fair value money supply * USD velocity of money) / (BTC fair value money supply * BTC velocity of money) = USD money supply / BTC money supply

In other words, the assumption is that the value of money is the degree to which it is used as a unit of exchange.

There are some additional assumptions that must be made. The "money supply" we are interested in here for USD is M2; for Bitcoin it's fairly reasonable to use the number of coins mined so far. We use USD as our reference and its fair value is assumed to stay approximately constant through Bitcoin's move to its fair value (this may be a poor assumption but I don't want this to become a calculus problem). The USD velocity of money is published, so we can look that up. The equation becomes

(USD M2 * USD velocity) / (BTC fair market cap * BTC velocity) = USD M2 / BTC market cap

USD velocity / BTC velocity = BTC fair market cap / BTC market cap

USD velocity / BTC velocity = BTC fair price / BTC current price

1.579 / BTC velocity = BTC fair price / ~$125

That leaves only the BTC velocity of money.

This is the snag - there's too much blockchain spam to know what transactions represent real exchanges of value.

I've played with some numbers and done some acrobatics with Bitcoin Days Destroyed, but ultimately, like I said - I cannot provide a useful number. Besides, this is the fundamental value of bitcoin, and I am ignoring the speculative value. Still, I'd feel more comfortable if I knew what the value would be if all the speculators went away.

If anyone believes they've got an accurate method for finding a velocity of money for bitcoin, please share!

[Jutarul]

This is an excellent question, and despite approaching it from a number of angles, I have never come up with a satisfactory valuation for bitcoin itself.

You're in good company. Many have tried and failed. Even the "fair value" established by the consensus across exchanges likely suffers from severe manipulation and price fixing.

My pedigree is value investing, the mantra of which is essentially "don't buy what you don't know".
But Bitcoin is a special case - it is clearly even riskier to own no bitcoins than it is to own some. I think the appropriate portfolio allocation is up to the individual's risk tolerance.

Exactly. So it seems that you in general support the idea of strategic investment allocations. How much is up to each individual.

One of my favorite approaches was attempting to price bitcoin based on its velocity of money.

This assumption falls short since it fails to take into account the symptoms of Gresham's law. In an environment, where bad money is available to conduct economic transactions, the velocity of quality money goes down, since bad money is used as a substitute. Instead quality money is used for savings - thus you have to look at save havens to get a more realistic picture.

In other words, the assumption is that the value of money is the degree to which it is used as a unit of exchange.

Insufficient. This neglects the store-of-value features.

1.579 / BTC velocity = BTC fair price / ~$125

velocity needs a timescale. Money theory when looking at coexisting money systems can be quite a mess, e.g. you'd need to know the average preferences of economic agents to hold liquidity in different forms and how their cash flow looks like.

If anyone believes they've got an accurate method for finding a velocity of money for bitcoin, please share!

Maybe it would be better to move this to a different thread.

The excursion into bitcoin valuation was actually more or less a rhetorical pose to explore your valuation method. As you stated above, you have a sense for risk mitigated investments, so I am asking you directly: Price per share of AM aside, what would be the target ratio in your portfolio for holding mining stocks? (5%,10%,20%,...) Assume that you have insufficient information to evaluate the mining sector.

[keeron]

Apart from all this "intelligent" discussion, anyone looking at AM mining address? Steady steam of revenue from other mining sources... 1HtUGfbDcMzTeHWx2Dbgnhc6kYnj1Hp24i

[Vycid]

One of my favorite approaches was attempting to price bitcoin based on its velocity of money.

This assumption falls short since it fails to take into account the symptoms of Gresham's law. In an environment, where bad money is available to conduct economic transactions, the velocity of quality money goes down, since bad money is used as a substitute. Instead quality money is used for savings - thus you have to look at save havens to get a more realistic picture.

Gresham's law would seem to make a velocity-of-money estimate a low estimate, which is something I would expect in the first place since a lot of BTC trading is speculative.

If I could see a velocity-of-money valuation above $30 or $40/BTC, I would feel much more comfortable maintaining more of my money in bitcoin at prices like $125/BTC.

I'm also curious about a link between gold and bitcoin. Shouldn't their store-of-value properties track against each other in some tangible way - and would relationship allow the store-of-value effect on value to be separated from the medium-of-exchange value?

1.579 / BTC velocity = BTC fair price / ~$125

velocity needs a timescale. Money theory when looking at coexisting money systems can be quite a mess, e.g. you'd need to know the average preferences of economic agents to hold liquidity in different forms and how their cash flow looks like.

I'm not a money theory guy. I wish I had better methods - I'm pretty much in the dark about bitcoin valuation.

I had been thinking about a one-year period, but I suppose the velocity of money for bitcoin has varied enormously over the past year.

The excursion into bitcoin valuation was actually more or less a rhetorical pose to explore your valuation method. As you stated above, you have a sense for risk mitigated investments, so I am asking you directly: Price per share of AM aside, what would be the target ratio in your portfolio for holding mining stocks? (5%,10%,20%,...) Assume that you have insufficient information to evaluate the mining sector.

Ah, well, the zero-information assumption would change everything. Mining is truly an unusual sector because it is dominated by block rewards (completely predictable revenue), and overrun by competition that is the natural product of such low barriers to entry (broad competition makes trends more predictable).

But, assuming a total lack of information, I think that there is little or no need to hedge with mining. Your existing bitcoins won't become devalued if mining succeeds, and that's the argument for owning bitcoins to hedge your dollars.
 
Unregulated mining stocks are highly risky and highly speculative. So, for someone with low risk appetite, zero percent is fine. For someone with a huge risk appetite and a very bullish outlook on bitcoin, 25% of their bitcoin holdings isn't unreasonable.

The trouble is that the most attractive investment opportunities in mining are not open to the public through the exchanges. For this reason, I've been toying with the idea of opening a bitcoin VC fund operating through the Cayman Islands... it's about time for a legal, publicly traded, BTC-denominated VC fund (which could of course extend far beyond mining, and would serve as a vehicle to advance bitcoin as a whole). The exchanges are a clusterfuck.

If anyone believes they've got an accurate method for finding a velocity of money for bitcoin, please share!

Maybe it would be better to move this to a different thread.

I would be happy to. You are obviously an informed investor and I am at least as interested in your perspective as you are in mine.

[velacreations]

Apart from all this "intelligent" discussion, anyone looking at AM mining address? Steady steam of revenue from other mining sources... 1HtUGfbDcMzTeHWx2Dbgnhc6kYnj1Hp24i

Hmmm, interesting

We need a tally of these to see what franchise revenue is producing