Mining Bonds, Stocks For People Who Can't Do Basic Maths.

[Mabsark]

It's quite clear that the majority of people buying mining bonds, haven't got a clue what they are actually buying, otherwise they wouldn't be paying such ridiculous sums.

Look at TAT.VIRTUALMINE going for 0.00518 BTC. It's currently paying 0.00002600 BTC per day per share. At that rate, it would take 200 days to mine 0.00518 at a constant difficulty.

If we assume a 10% difficulty increase per round, then the daily dividends for the next 10 successive rounds look like the following:

Round 1 = 0.00002364 BTC
Round 2 = 0.00002149 BTC
Round 3 = 0.00001954 BTC
Round 4 = 0.00001776 BTC
Round 5 = 0.00001615 BTC
Round 6 = 0.00001468 BTC
Round 7 = 0.00001334 BTC
Round 8 = 0.00001213 BTC
Round 9 = 0.00001103 BTC
Round 10 = 0.00001003 BTC

Those 10 rounds will take just 12.7 days each, so say 13 days of dividends at that rate for each round. So, over those 130 days, a total of 0.00207722 BTC would be mined. In fact, with a constant 10% difficulty increase each round, over the next 57 successive rounds (next 2 years), only 0.00336580 BTC would be mined.

If you're looking into mining bonds, you should be looking at the short term profits over each difficulty round.

TAT.VM was still around 0.007 BTC per share at the beginning of this difficulty round. Assuming a full 14 days per round (no difficulty increase), then the maximum amount mined per share for the current round would be 0.00036406 BTC. If we assume TAT.VM would sell at 0.005 BTC per share at the end of this difficulty round, then that would be a net loss of -0.007 + 0.005 + 0.00036406 = -0.00163594 BTC. In order to make a profit, TAT.VM shares would have to sell for more than 0.00663594 BTC (ignoring trading fees) at the end of the round.


As you can clearly see, the current prices for these mining bond are insanely overpriced. Personally, I wouldn't pay more than 0.002 BTC per Mh/s.

[1714772509]

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[1714772509]

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[1714772509]

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[Rannasha]

In general, with a daily dividend D and a fractional difficulty increase per readjustment of X (so X = 0.1 for a 10% increase), the total dividends (or: mining revenue if you mine yourself) you will ever get from your investment is:
14 * D / X
(the full derivation is somewhere in the DMS-securities thread).

That means that with a 10% increase per readjustment, you will receive 140 times the daily dividend over the lifetime of the asset. If you pay more than 140 times the daily dividend, you will make a loss in this case. If you pay slightly less, it will still take a very long time to recover your investment.

[coco23]

It's quite clear that the majority of people buying mining bonds, haven't got a clue what they are actually buying, otherwise they wouldn't be paying such ridiculous sums.

Well, that is not limited on mining bonds, but includes pretty much everybody who bought USB Asics or other overpriced mining hardware in order to make profit...

[Birdy]

I like TF's post about this

Yay, waste more coins on PMBs that will have zero value soon

Take a look at this: http://bitcoindifficulty.com/

Print it out, hang it on your wall - upside down - and this is your PMB's value.

[twentyseventy]

This is why I'd really like to be able to short securities on BTCT.

Before Deprived comes running in, you CAN do this with DMS.SELLING/MINING - that's the entire point of the security!

But I'd also like straight shorts, as well 

[pneumatic5]

I owned this stock for a week, then sold for a little more than what I payed for it. I have been kicking myself for selling so early....until now. I didnt even notice this price drop. The dividends are not worth it, and you will lose more than what your divs will pay in the long term.

[Mabsark]

I owned this stock for a week, then sold for a little more than what I payed for it. I have been kicking myself for selling so early....until now. I didnt even notice this price drop. The dividends are not worth it, and you will lose more than what your divs will pay in the long term.

It's not about a specific stock, it applies to all mining bonds. People are grossly overestimating the value of them or simply not understanding what they're paying for.

[drdanishkhan]

yeah got to understand it the hard way..
Be it DMS or TAT.. any PMB isnt worth investing.. you WILL end up losing money if your not careful..

[MPOE-PR]

It's quite clear that the majority of people buying mining bonds, haven't got a clue what they are actually buying, otherwise they wouldn't be paying such ridiculous sums.

Look at TAT.VIRTUALMINE going for 0.00518 BTC. It's currently paying 0.00002600 BTC per day per share. At that rate, it would take 200 days to mine 0.00518 at a constant difficulty.

If we assume a 10% difficulty increase per round, then the daily dividends for the next 10 successive rounds look like the following:

Round 1 = 0.00002364 BTC
Round 2 = 0.00002149 BTC
Round 3 = 0.00001954 BTC
Round 4 = 0.00001776 BTC
Round 5 = 0.00001615 BTC
Round 6 = 0.00001468 BTC
Round 7 = 0.00001334 BTC
Round 8 = 0.00001213 BTC
Round 9 = 0.00001103 BTC
Round 10 = 0.00001003 BTC

Those 10 rounds will take just 12.7 days each, so say 13 days of dividends at that rate for each round. So, over those 130 days, a total of 0.00207722 BTC would be mined. In fact, with a constant 10% difficulty increase each round, over the next 57 successive rounds (next 2 years), only 0.00336580 BTC would be mined.

If you're looking into mining bonds, you should be looking at the short term profits over each difficulty round.

TAT.VM was still around 0.007 BTC per share at the beginning of this difficulty round. Assuming a full 14 days per round (no difficulty increase), then the maximum amount mined per share for the current round would be 0.00036406 BTC. If we assume TAT.VM would sell at 0.005 BTC per share at the end of this difficulty round, then that would be a net loss of -0.007 + 0.005 + 0.00036406 = -0.00163594 BTC. In order to make a profit, TAT.VM shares would have to sell for more than 0.00663594 BTC (ignoring trading fees) at the end of the round.


As you can clearly see, the current prices for these mining bond are insanely overpriced. Personally, I wouldn't pay more than 0.002 BTC per Mh/s.

Welcome back to last year's discussion on PMBs.

[eltopo]

PMBs are not generally bad investments, it's all about the buying price. Like Mabsark rightly pointed out, about 0.002 BTC per Mh/s could be a price where an investment could be profitable.

[coinminers]

To calculate the current rate of return of a perpetual mining bond I am applying the perpetuity formula with growth (see http://www.financeformulas.net/Present_Value_of_Growing_Perpetuity.html where in our case the growth is negative).

P: Current stock price or present value
D: Dividend per 2 weeks
r: Rate of return
g: Growth

P = D/(r-g)

That transforms into

r = D/P + g

So for example in the case of TAT.VM if we assume difficulty will rise by 10% every 2 weeks (so g = -0.1), then at the current price I come up with:

r = 0.000364/0.0035 - 0.1 = 0.004

So r would currently be 0.4% for the 2 week yield.

If the price were to fall to, say 0.002 then it would be more like 8.2%.

So I guess I could compare that against a G.ASIC for example, but I have no idea what growth rate to apply there so let's just take the most recent div payment and assume it won't grow at all. The last one was 0.01810108 and they pay out weekly so that would be 0.03620216.

So the 2 week yield under those assumptions would be:

r = 0.03620216/3.16 = 0.01145637974684 = 1.146%

Now if I were to apply a 2 week growth rate of only 1% r would already be 2.146%

If we wanted to calculate a maximum price that TAT.VM would be worth paying for we could use that conservative G.ASIC yield and plug it into the initial formula:

P = 0.000364/(0.02146 - (-0.10)) = 0.002997

So 0.002997 may be a ceiling for TAT.VM given the current conditions.

Note that the recent G.ASIC div was unusually low so to come up with a floor you could just use a bit more optimistic G.ASIC numbers which would then give you some kind of reasonable trading range for TAT.VM

(By the way ... how are we so certain that the decline rate will be around 10%? I remember in 2011/12 there were periods when it barely changed or even declined for a while. But I think that was after a huge and sustained drop in the Bitcoin price.)

[EskimoBob]

I have written about this for almost a year now and guess what - idiots are still dumping money to perpetual mining turds (bonds? LOL!).
Brilliant!

[SOSLOVE868]

I have written about this for almost a year now and guess what - idiots are still dumping money to perpetual mining turds (bonds? LOL!).
Brilliant!

Yes...old idiots dead, then new idiots come in..

I am once a idiot too...but soon realize it.

[furuknap]

(By the way ... how are we so certain that the decline rate will be around 10%? I remember in 2011/12 there were periods when it barely changed or even declined for a while. But I think that was after a huge and sustained drop in the Bitcoin price.)

We aren't. In fact, it is highly unlikely that a 10% growth per 2 weeks can keep up for very long. This is the perpetual proportional growth theory, which assumes that by February 2014, and assuming there aren't any incredible revolutions in mining technology just around the corner, the community would have invested another $200 million in hardware (or around $700K every single day) by February 2014. Keep it up until 2016, and we're looking at $2.7 billion, all to capture a market that has a cap of a third of that.

I wrote briefly about the perpetual growth theory here:
http://coin.furuknap.net/are-perpetual-mining-bonds-scams-not-really/

I do intend to write another article, though, to further elaborate on pricing versus difficulty.

.b

[SOSLOVE868]

(By the way ... how are we so certain that the decline rate will be around 10%? I remember in 2011/12 there were periods when it barely changed or even declined for a while. But I think that was after a huge and sustained drop in the Bitcoin price.)

We aren't. In fact, it is highly unlikely that a 10% growth per 2 weeks can keep up for very long. This is the perpetual proportional growth theory, which assumes that by February 2014, and assuming there aren't any incredible revolutions in mining technology just around the corner, the community would have invested another $200 million in hardware (or around $700K every single day) by February 2014. Keep it up until 2016, and we're looking at $2.7 billion, all to capture a market that has a cap of a third of that.

I wrote briefly about the perpetual growth theory here:
http://coin.furuknap.net/are-perpetual-mining-bonds-scams-not-really/

I do intend to write another article, though, to further elaborate on pricing versus difficulty.

.b

Come ,again? how about your PAJKA bond??

[somestranger]

(By the way ... how are we so certain that the decline rate will be around 10%? I remember in 2011/12 there were periods when it barely changed or even declined for a while. But I think that was after a huge and sustained drop in the Bitcoin price.)

We aren't. In fact, it is highly unlikely that a 10% growth per 2 weeks can keep up for very long. This is the perpetual proportional growth theory, which assumes that by February 2014, and assuming there aren't any incredible revolutions in mining technology just around the corner, the community would have invested another $200 million in hardware (or around $700K every single day) by February 2014. Keep it up until 2016, and we're looking at $2.7 billion, all to capture a market that has a cap of a third of that.

I wrote briefly about the perpetual growth theory here:
http://coin.furuknap.net/are-perpetual-mining-bonds-scams-not-really/

I do intend to write another article, though, to further elaborate on pricing versus difficulty.

.b

I don't think anyone expects the difficulty to continue to grow at 10-20% every difficulty increase for the next 3 years. If it continues for even one year the difficulty will increase tenfold, which will already make all PMBs unprofitable at their current prices. You're also assuming that the market cap of Bitcoin will stay the same by 2016; it is over $1 billion now and by 2016 there will be 3 million more coins which adds  $300 million even if the price stays the same (which is unlikely given Bitcoin's history) and the cap would be $3 billion or more if it doubled or more in price which is certainly a possibility in 3 years.

[furuknap]

I don't think anyone expects the difficulty to continue to grow at 10-20% every difficulty increase for the next 3 years. If it continues for even one year the difficulty will increase tenfold, which will already make all PMBs unprofitable at their current prices.

I think you underestimate the markets ability to price PMBs (or mining contracts as I prefer to call them; thei are neither perpetual nor bonds). Prices on mining contracts have dropped in response to the recent difficulty climb already.

I'm in the process of IPOing a new mining contract at 0,004, which I believe is fairly priced. With a 10% monthly increase, that contract will return its IPO value in a year and over three years (with 10%/mnth growth) return 147% for a total of around 16% per year. If difficulty 'just' rose for one year and then flattened out, the return would be around 243% or just under 50% per year.

I have no idea what scenario is most likely, but I don't think the pessimistic idea that mining will keep being so insanely profitable that everyone will get 50% on every dime they throw in will continue. A more modest but still profitable middle ground is more likely.

The question is, however; from where is all this additional mining power going to come? We have a fairly good overview of who is building ASICs and we're fairly good at calculating future deployments. I don't see anyone who could reasonably come up with 9PH/s over the next three years, which would be the result of 'just' having 10% growth.

Remember, we need new technology to go below 28nm, which is very expensive and takes a lot of time, and even Intel and the big boys (who sells hundreds of millions of chips) is struggling to go below 22nm. At 28nm, which is what KnC is currently researching, 9PH/s will cost $2 billion. Even if you get that at half price (and three years isn't really that far off), we're still talking about someone or the community combined willing to invest $1 billion to capture the mining market. That mining market, remember, halves in 2016.

We're rapidly approaching a point where even ASIC mining won't be very profitable. My asset already sells for less than AM's Block Erupter blades (which are priced at 0,005/mh) so they are unprofitable already, if my asset is. Pretty quickly, investments won't make sense and thus difficulty growth will stop and difficulty may even go down.

You're also assuming that the market cap of Bitcoin will stay the same by 2016; it is over $1 billion now and by 2016 there will be 3 million more coins which adds  $300 million even if the price stays the same (which is unlikely given Bitcoin's history) and the cap would be $3 billion or more if it doubled or more in price which is certainly a possibility in 3 years.

I don't speculate in difficulty and I would never speculate in price, especially not with billions of dollars. Those that gambled, say $140 dollars for a Bitcoin just a few weeks ago has lost almost 30% of that already. You won't convince someone to invest a billion dollars in the hope that prices will go up by 8x in three years.

.b

[Entropy-uc]

It's quite clear that the majority of people buying mining bonds, haven't got a clue what they are actually buying, otherwise they wouldn't be paying such ridiculous sums.

Well, that is not limited on mining bonds, but includes pretty much everybody who bought USB Asics or other overpriced mining hardware in order to make profit...

Not really.  Avalon sold ASICs at $20/GH/s.  Mining bonds are going for $700 / GH/s.

[Entropy-uc]

I don't think anyone expects the difficulty to continue to grow at 10-20% every difficulty increase for the next 3 years. If it continues for even one year the difficulty will increase tenfold, which will already make all PMBs unprofitable at their current prices.

I think you underestimate the markets ability to price PMBs (or mining contracts as I prefer to call them; thei are neither perpetual nor bonds). Prices on mining contracts have dropped in response to the recent difficulty climb already.

I'm in the process of IPOing a new mining contract at 0,004, which I believe is fairly priced. With a 10% monthly increase, that contract will return its IPO value in a year and over three years (with 10%/mnth growth) return 147% for a total of around 16% per year. If difficulty 'just' rose for one year and then flattened out, the return would be around 243% or just under 50% per year.

I have no idea what scenario is most likely, but I don't think the pessimistic idea that mining will keep being so insanely profitable that everyone will get 50% on every dime they throw in will continue. A more modest but still profitable middle ground is more likely.

The question is, however; from where is all this additional mining power going to come? We have a fairly good overview of who is building ASICs and we're fairly good at calculating future deployments. I don't see anyone who could reasonably come up with 9PH/s over the next three years, which would be the result of 'just' having 10% growth.

Remember, we need new technology to go below 28nm, which is very expensive and takes a lot of time, and even Intel and the big boys (who sells hundreds of millions of chips) is struggling to go below 22nm. At 28nm, which is what KnC is currently researching, 9PH/s will cost $2 billion. Even if you get that at half price (and three years isn't really that far off), we're still talking about someone or the community combined willing to invest $1 billion to capture the mining market. That mining market, remember, halves in 2016.

We're rapidly approaching a point where even ASIC mining won't be very profitable. My asset already sells for less than AM's Block Erupter blades (which are priced at 0,005/mh) so they are unprofitable already, if my asset is. Pretty quickly, investments won't make sense and thus difficulty growth will stop and difficulty may even go down.

You're also assuming that the market cap of Bitcoin will stay the same by 2016; it is over $1 billion now and by 2016 there will be 3 million more coins which adds  $300 million even if the price stays the same (which is unlikely given Bitcoin's history) and the cap would be $3 billion or more if it doubled or more in price which is certainly a possibility in 3 years.

I don't speculate in difficulty and I would never speculate in price, especially not with billions of dollars. Those that gambled, say $140 dollars for a Bitcoin just a few weeks ago has lost almost 30% of that already. You won't convince someone to invest a billion dollars in the hope that prices will go up by 8x in three years.

.b

Arguing that people might profit because bitcoin goes up makes no sense.  A security has to offer a gain above the currency it is traded in to be worthwhile.  Holding bitcoin would be more profitable than buying your bonds.

I would note that buying bitcoin and holding it was also a better choice than buying mining hardware, unless you are one of the few dozen folks who bought Avalon round 1 machines and hit the jackpot.

[Entropy-uc]

I have written about this for almost a year now and guess what - idiots are still dumping money to perpetual mining turds (bonds? LOL!).
Brilliant!

They aren't turds... they are scat bonds.  The buyers are asking to be shit upon.