Lets say we have 2 guys. A and B. A wants to buy a bike so he can deliver newspapers. He ask you (B) for a loan. Once more, bond is a loan and principal investment must be returned.
He tells you:
1) Give me a loan but I have no obligation to pay you back what you gave me or in other words - I will stretch this loan out forever and will not guarantee you get back you money. I'll try to do my best so it won't happen.
2) I will make weekly (or what ever) payments but those payments are not fixed and can float up or down, depending how many papers I managed to deliver riding this bike. Bike I bought with your money. BTW. if I say home and sleep, you get nothing.
3) The road is one way and endless. It's mostly up the hill pedaling. Higher I get, slower I move and less papers deliver. BTW, there will be fewer and fewer houses too. One more thing... I'll deduct the cost of sandwiches and water from the earnings and keep some of the earned coin for my self.
Now, do you lend me the money to buy that bike?
PS! There will be other bikes on that road. Some have motors and "paper cannons".
An apt example, and fantastically humorous to top it off. Nice
I think most people understand what they're getting into.. [...]
I can assure you that many of them don't.
The best example of this comes from my own Note fund. And these are actual Notes (Bonds with a shorter maturity date) and follow the
same rules as the securities you'd find in non-Bitcoin markets...though more floating rate than fixed rate for both coupons and maturity.
The Par value on each Note is
BTC1.0.
The monthly coupon rate starts off at 1% and eventually increases.
If you invested during the initial public offering, by the end of the repurchasing period you'd have made about
BTC1.26 (26%) per Note...assuming a 15 month holding.
Yet for a number of months, people were
actively buying these Notes at BTC1.35-1.45 each. If I followed the contracts to the letter (as in, pay what I owe and that's it..no increased coupons, etc) ..then these buyers will have a guaranteed
loss.
Since that's the case, I can only assume that either
A) these buyers are crossing their fingers and hoping for the best or
B) have no idea what they're actually investing in.
And I didn't say a word while any of this went on. If people want to be dumb, then I say go for it.