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Author Topic: P/B ratio, or how to not get raped in the Bitcoin securities markets  (Read 6081 times)
Entropy-uc
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June 23, 2013, 06:53:48 PM
 #1

The recent controversies over mining bonds has made me realize that people are missing a fundamental of value analysis.  If you use a few simple tools, being ripped off by the sharks issuing bitcoin securities becomes a lot less likely.

A simple measure is price to book value.
http://www.investopedia.com/terms/p/price-to-bookratio.asp

This is simply the market value of the security divided by the value of it's assets.  In very basic terms it is the markup that the shares are being offered at relative to the existing assets.  It gives you an idea of the value that could be recovered from the security in receivership.  Note that it is common for stocks to trade at a price to book under 1.  This could indicate a great bargain, or it could indicate a stock where management is actively skimming value to themselves at the expense of shareholders.

ASICMINER's IPO sold at a price to book of 2.  That is because all the investor funds went into the company, and the principals held 50% of the stock as sweat equity.  Today, I estimate the price to book of ASICMINER to be less than 3.  That is based upon valuing existing hash rate at 3 BTC / GH/s, and future hash rate at 0.2 BTC.

Now let's look at a couple other offerings.

TAT.V - no assets, just a promise from a psuedonym on the internet.  Price to book value here is infinite
BFMINES - hash rate purchased at $20 / GH/s and selling for $400 / GH/s.  Price to book of 20.
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.
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June 23, 2013, 07:10:59 PM
 #2

You're missing key elements in your pricing. The cost of BFMines is far above $20/GHs. In fact, just the purchase of the miner is above that, not taking anything else into account.

For one, you can add the BTCT expected time of 10-15 hours of work per week for the lifetime of the asset. This doesn't generate any revenue and must thus be added to the cost. Even if I 'pay' myself minimum wage of $7/hour, that's $10K-$15K over three years or around 30% of the IPO proceeds.

Second, you can add the overhead of risk of hardware failure, again not producing any revenue but must be locked in. If the hardware fails after 1 day of operation (ignoring warranty for a moment) then in 1 month, the payouts must be covered from that initial IPO funds. I bear that risk, are you willing to assume the same for free?

Your evaluation is the equivalent of pricing Apple based on their purhase price of components from their vendors.

.b

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June 23, 2013, 07:20:10 PM
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You're missing key elements in your pricing. The cost of BFMines is far above $20/GHs. In fact, just the purchase of the miner is above that, not taking anything else into account.

For one, you can add the BTCT expected time of 10-15 hours of work per week for the lifetime of the asset. This doesn't generate any revenue and must thus be added to the cost. Even if I 'pay' myself minimum wage of $7/hour, that's $10K-$15K over three years or around 30% of the IPO proceeds.

Second, you can add the overhead of risk of hardware failure, again not producing any revenue but must be locked in. If the hardware fails after 1 day of operation (ignoring warranty for a moment) then in 1 month, the payouts must be covered from that initial IPO funds. I bear that risk, are you willing to assume the same for free?

Your evaluation is the equivalent of pricing Apple based on their purhase price of components from their vendors.

.b

Price to book is a well understood metric to evaluate companies.  It doesn't account for any other factors.  It just tells you if the price is reasonable.

At almost 10x ASICMIMER's price to book, and 20x the cost of ASICs delivered in the time frame yours will arrive, it's obvious the security you are proposing is a bad deal.

By all means, price it at 2x the assets to account for your effort.  Or better yet, create an honest expense model.  But don't mark up an existing order 20x and try to pretend you are offering a fair deal for anyone but yourself.

You are trying to rip people off 50% less than Ken from AMC.  I'll give you that.
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June 23, 2013, 07:29:04 PM
 #4

Price to book is a well understood metric to evaluate companies.  It doesn't account for any other factors.  It just tells you if the price is reasonable.

At almost 10x ASICMIMER's price to book, and 20x the cost of ASICs delivered in the time frame yours will arrive, it's obvious the security you are proposing is a bad deal.

By all means, price it at 2x the assets to account for your effort.  Or better yet, create an honest expense model.  But don't mark up an existing order 20x and try to pretend you are offering a fair deal for anyone but yourself.

I'm fairly certain you misunderstand how P/B is used, especially considering this isn't a company, it is a contract. Thus, there are no future income of any sort in these assets; it's the IPO income for the entire future.

However, I can tell you that just the direct costs are also above 2x what you proposed. In fact, not accounting for any work, the total cost of putting this asset online, not covering any running expenses, no risk, and no work, is much closer to 100$/GHs than $20/GHs. Your P/B, if this was indeed a company, would thus be much closer to 4, which from your analysis you think is more reasonable.

You are of course free to believe or not believe this as much or little as you like, but let me ask you this: If you think it's so profitable to do this at 2x the backing cost, and that such a ratio would be fair pricing to investors, where is your asset priced at $40/ghs?

.b

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June 23, 2013, 07:30:21 PM
 #5

P/B ratio is mostly of interest when analyzing shares in a company.

Most constructions on BTCT aren't proper shares. They're not really your regular flavour of bonds either (in case of PMBs).

So I don't think you can simply apply P/B analysis to PMBs. As an example, if mining hardware breaks down and the company suffers heavy losses, its shares will lose considerable value. A PMBs contract requires continuous payments independent of external factors like said hardware breakdowns.

 I know it's all the rage to throw mud at anything resembling a PMB this week, but lets try to keep it a bit objective and apply metrics that aren't really made for the oddball financial product that is a PMB.
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June 23, 2013, 07:34:23 PM
 #6

Price to book is a well understood metric to evaluate companies.  It doesn't account for any other factors.  It just tells you if the price is reasonable.

At almost 10x ASICMIMER's price to book, and 20x the cost of ASICs delivered in the time frame yours will arrive, it's obvious the security you are proposing is a bad deal.

By all means, price it at 2x the assets to account for your effort.  Or better yet, create an honest expense model.  But don't mark up an existing order 20x and try to pretend you are offering a fair deal for anyone but yourself.

I'm fairly certain you misunderstand how P/B is used, especially considering this isn't a company, it is a contract. Thus, there are no future income of any sort in these assets; it's the IPO income for the entire future.

However, I can tell you that just the direct costs are also above 2x what you proposed. In fact, not accounting for any work, the total cost of putting this asset online, not covering any running expenses, no risk, and no work, is much closer to 100$/GHs than $20/GHs. Your P/B, if this was indeed a company, would thus be much closer to 4, which from your analysis you think is more reasonable.

You are of course free to believe or not believe this as much or little as you like, but let me ask you this: If you think it's so profitable to do this at 2x the backing cost, and that such a ratio would be fair pricing to investors, where is your asset priced at $40/ghs?

.b

Analyzing the offering as a bond makes everything much worse as you very well know.

Once again:  You are attempting to sell assets you purchased at a 20x markup.  That is dishonest.  

I have no interest in running a mining company or a mining bond.  I do have an interest in the future of bitcoin, and every investor you or TAT or Kslaughter rip off is someone who may turn away from bitcoin and influence others to avoid it as well.

Grow some balls, become a man, and earn an honest living for yourself.
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June 23, 2013, 07:38:34 PM
 #7

P/B ratio is mostly of interest when analyzing shares in a company.

Most constructions on BTCT aren't proper shares. They're not really your regular flavour of bonds either (in case of PMBs).

So I don't think you can simply apply P/B analysis to PMBs. As an example, if mining hardware breaks down and the company suffers heavy losses, its shares will lose considerable value. A PMBs contract requires continuous payments independent of external factors like said hardware breakdowns.

 I know it's all the rage to throw mud at anything resembling a PMB this week, but lets try to keep it a bit objective and apply metrics that aren't really made for the oddball financial product that is a PMB.

You are missing the point.  These fundamental metrics exist to do basic value analysis on an investment.  They are a straightforward way to address a simple question: Am I being offered a good value?  Buying bonds backed by hardware that costs 5% of offer pricing is an obvious ripoff.

There is no question that P/B isn't an absolute.  As I pointed out at the start, very low P/B value can be a bad deal.  And a company like facebook can be a great investment with a high P/B.

For mining investments it is a very good indicator.  ASICMINER is proof of that.
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June 23, 2013, 09:48:40 PM
 #8

Once again:  You are attempting to sell assets you purchased at a 20x markup.  That is dishonest.  

Once again: Because your assumption is false so is this argument.

The fact that you aren't willing to work for the same fee you want me to work is irrelevant. If running a mining contract was so lucrative as you think it is, don't you think the market would be saturated with cheaper contracts?

.b

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June 23, 2013, 09:51:12 PM
 #9

Once again:  You are attempting to sell assets you purchased at a 20x markup.  That is dishonest.  

Once again: Because your assumption is false so is this argument.

The fact that you aren't willing to work for the same fee you want me to work is irrelevant. If running a mining contract was so lucrative as you think it is, don't you think the market would be saturated with cheaper contracts?

.b

You're the undercutter at the moment, I'm sure that someone with a similar lack of scruples will come along to undercut you as well
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June 23, 2013, 09:56:37 PM
 #10

You're the undercutter at the moment, I'm sure that someone with a similar lack of scruples will come along to undercut you as well

Of course, this is the nature of business. Someone with access to cheaper or better technology or resources will out-maneuver existing competition, like I am now with BFMines and like someone may very well do if or rather when cheaper resources become available.

If you think this is a lack of scrouples, however, I encourage you to build an actual business case around an asset like this. If you don't have experience running businesses and building business plans, run your new plan by someone with experience. I've previously started and run eight businesses around the world, but I still felt the need to run the numbers by someone with more experience.

If you think this is a pot of gold, again, feel free to join the competition; if it is as luxurious as you claim, I'm fairly certain we'd see a lot of cheaper options on the market, considering that the only thing that really differentiates one contract from the next is the price.

.b

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June 23, 2013, 10:12:35 PM
 #11

You're the undercutter at the moment, I'm sure that someone with a similar lack of scruples will come along to undercut you as well

Of course, this is the nature of business. Someone with access to cheaper or better technology or resources will out-maneuver existing competition, like I am now with BFMines and like someone may very well do if or rather when cheaper resources become available.

If you think this is a lack of scrouples, however, I encourage you to build an actual business case around an asset like this. If you don't have experience running businesses and building business plans, run your new plan by someone with experience. I've previously started and run eight businesses around the world, but I still felt the need to run the numbers by someone with more experience.

If you think this is a pot of gold, again, feel free to join the competition; if it is as luxurious as you claim, I'm fairly certain we'd see a lot of cheaper options on the market, considering that the only thing that really differentiates one contract from the next is the price.

.b

You are wrong.  There is no possibility of offering a mining bond at a fair price.  Which is the reason that only dishonest opportunists bring this crap to the market.

As a buyer, a fair price would have to be competitive with the cost of buying your own hardware and operating it.  Once you come up with a value for that, you then have to discount the price to account for default risk on the part of the operator of the bond.  That discounted value is an actual fair price for a mining bond.  But, such a price would be less than the hardware value, as operations costs are minimal, and the default risk is very high (I know this very well, having operating an FPGA farm that was over 1% of the total network last fall).  Since no one would offer a bond for less than the cost of the hardware there is actually no possibility of mining bonds ever being offered at a fair price.

The entire history of bitcoin securities is a story of lost capital on investors part, with the sole exception of ASICMINER.  This will have to change if bitcoin is going to prosper.  Burnside and Uyko would do well to ban new issues of mining turds.
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June 23, 2013, 11:38:18 PM
 #12

ASICMINER's IPO sold at a price to book of 2.  That is because all the investor funds went into the company, and the principals held 50% of the stock as sweat equity.  Today, I estimate the price to book of ASICMINER to be less than 3.  That is based upon valuing existing hash rate at 3 BTC / GH/s, and future hash rate at 0.2 BTC.

Now let's look at a couple other offerings.

TAT.V - no assets, just a promise from a psuedonym on the internet.  Price to book value here is infinite
BFMINES - hash rate purchased at $20 / GH/s and selling for $400 / GH/s.  Price to book of 20.
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.

As I recall, both GIGAMINING and YABMC launched with a price to book of 2. And yes, this is why I have ignored most of the recent offerings. Virtualmine is a little different, although I must say I did not expect TAT to satiate demand by calculating the price and selling into the market. To a great extent you're simply not supposed to do that, as it is a means of manipulating the market. In this particular case it's a virtual security so it's a bit of a grey area, but it looks very dangerous to me. I still bought some tho Smiley
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June 24, 2013, 12:10:03 AM
 #13

(...)
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.

There is a difference between outstanding shares and authorized shares. I would suggest you looking into it before writing these shiny pearls of information... Roll Eyes
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June 24, 2013, 12:38:49 AM
 #14

ASICMINER's IPO sold at a price to book of 2.  That is because all the investor funds went into the company, and the principals held 50% of the stock as sweat equity.  Today, I estimate the price to book of ASICMINER to be less than 3.  That is based upon valuing existing hash rate at 3 BTC / GH/s, and future hash rate at 0.2 BTC.

Now let's look at a couple other offerings.

TAT.V - no assets, just a promise from a psuedonym on the internet.  Price to book value here is infinite.  
BFMINES - hash rate purchased at $20 / GH/s and selling for $400 / GH/s.  Price to book of 20.
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.

As I recall, both GIGAMINING and YABMC launched with a price to book of 2. And yes, this is why I have ignored most of the recent offerings. Virtualmine is a little different, although I must say I did not expect TAT to satiate demand by calculating the price and selling into the market. To a great extent you're simply not supposed to do that, as it is a means of manipulating the market. In this particular case it's a virtual security so it's a bit of a grey area, but it looks very dangerous to me. I still bought some tho Smiley

Giga was issuing shares at 3.  I remember that clearly because I realized I could make a quarter million dollars of profit if I sold bonds against the hardware I had at the time.  Then I woke up and realized that the only reason I could capture such a huge gain was because the bonds were a huge ripoff.  At 20x it has just gone to insane lengths.

You are the world champion at losing money with mining shares.  Keep at it, there has to be a different outcome someday.   Wink
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June 24, 2013, 12:52:42 AM
 #15

(...)
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.

There is a difference between outstanding shares and authorized shares. I would suggest you looking into it before writing these shiny pearls of information... Roll Eyes

You are nothing but a useful idiot for Ken.  Ken has issued 100 Million shares.  He controls 60 million  of these shares.  20 million of those are a vehicle for retained earnings.  They are still outstanding shares.

And the price to book for AMC is still 35.  Well over 10 times ASICMINER right now.

There are only 40 Million Issued shares.  See the proof below:

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June 24, 2013, 12:53:45 AM
 #16

You are nothing but a useful idiot for Ken.  Ken has issued 100 Million shares.  He controls 60 million  of these shares.  20 million of those are a vehicle for retained earnings.  They are still outstanding shares.

And the price to book for AMC is still 35.  Well over 10 times ASICMINER right now.

Thank you "Oh Enlightened One" for shedding your light into the great unwashed. I am also delighted to know that, being an idiot, at least I'm still an useful one! Grin Grin Grin Grin Grin
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June 24, 2013, 01:14:33 AM
 #17

(...)
AMC - Price: 100 000 000 * 0.0008  = 80000 BTC.  Book value (6 Avalons at 70 GH/s + 5 TH/s of future hashing) 2260 BTC.  Price to book 35

It should be obvious why these securities are beneficial only to their issuers, and why listings for BFMINES and AMC on BTCT.co should be rejected.

There is a difference between outstanding shares and authorized shares. I would suggest you looking into it before writing these shiny pearls of information... Roll Eyes

You are nothing but a useful idiot for Ken.  Ken has issued 100 Million shares.  He controls 60 million  of these shares.  20 million of those are a vehicle for retained earnings.  They are still outstanding shares.

And the price to book for AMC is still 35.  Well over 10 times ASICMINER right now.

There are only 40 Million Issued shares.  See the proof below:

From your asset profile on Bitfunder:

Quote
1 share of AMC on BitFunder represents 1/100,000,000th of 100% of the monthly profits after all expenses.

AMC shares offer no voting rights. Shares of AMC on BitFunder do not represent real world shares of the
company. The shares are solely a distribution mechanism for rights to profits.

20,000,000 shares will be retained by AMC to maintain a growth and expansion fund.

As of the time of this writing, up to 40,000,000 will be released over time to the public on a varying
time scale as capital is required to complete the project. Any remaining shares not included in the
IPO are owned/maintained/controlled by AMC. These shares will be used at the issuers discretion
for any uses deemed fit. These uses are not limited to, but may include employment.

1 share is one 100 millionth of AMC.  And AMC's assets are worth less than 1/35th of the share price.  Plus as you specifically state, "As long as AMC does not sell it's shares below 0.0005 then they may do as they please with their shares. It is their company, their ownership, and their shares."  So you can fuck your shareholders any way you want, if you ever decide that a 3500% mark up wasn't enough.  

SDICE shareholders are learning all about that experience right now.
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June 24, 2013, 01:25:20 AM
 #18

Here is my calculation of the Price To Book value of AMC

5.651 TH/s future hashing starting by August 31, 2013 at 40,000,000 Difficulty (Over 2X the current difficulty) by that time would generate $1,458,007.07 in eight months, the time left for the 40,000,000 Million shares to receive 100% of the dividends.  Now, take 50% of that revenue stream and reinvested that back in mining to keep the revenue stream up with the rise of the difficulty for the next 8 months.  Now, the revenue stream after the 50% reductions would be $729,003.535.  Now, lets convert that to BTC at the conversion rate used in the profit calculation which was $104.87 so that is 6951.497425384 BTC.  Now, lets calculate the Price To Book Value which would be (40,000,000 * .0008) / 6951.497425384  = 4.603324729 Price To Book Value, which makes AMC at this point a great value. 

Of course, Bitcoinx.com "Extrapolating bitcoin difficulty or price is pure voodoo", but above we have tried to take a stab at something that just might be close.  This does give us some idea of what the value of AMC is at this point in time.

Kenneth E. Slaughter, CEO/CTO
Active Mining Corporation
95 Wilton Road
Suite 3
London
SW1V 1BZ
United Kingdom
Fax: +44 (0)20 3004 1756

Active Mining Corporation (AMC) is a Belize International Business Company DBA Active Mining Cooperative and
is a wholly owned subsidiary of Virtual Mining Corporation (VMC) a Delaware Corporation.
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June 24, 2013, 01:27:04 AM
 #19

Giga was issuing shares at 3.

No, I said 2, not 3.

I remember that clearly because I realized I could make a quarter million dollars of profit if I sold bonds against the hardware I had at the time.  Then I woke up and realized that the only reason I could capture such a huge gain was because the bonds were a huge ripoff.  At 20x it has just gone to insane lengths.

You are the world champion at losing money with mining shares.  Keep at it, there has to be a different outcome someday.   Wink

You seem to have a problem remembering things, much like a fundamentalist, religiously vegetarian fur-hating atheist. Every mining issue lost money during the time GLBSE closed. Just look at PAJKA.BOND, YABMC, etc. They all lost many times more than BMF. Which is really no surprise, since BMF is accretes mhash vs. a PMB which does not. And then there's TU.SILVER, which is so successful it was able to temporarily convert into the highest paying daily dividend bond in the market in order to protect it's shareholders from the silver crash. But as they say in France, "C'est la vie".

I do however agree with you when you said "At 20x it has just gone to insane lengths". With this you raise a valid point. Although my personal calculations peg it more in the 30x range, it just goes to show that you cannot hide the truth, only obscure it, from some of the people, and not all the time but just some of the time. Beyond that I think we need to disagree about the huge gains and the huge ripoffs mainly because I think they are relational antonymns instead of graded antonymns -- and as everyone knows, while graded antonymns are self-exclusionary, relational antonymns are not. For example, master and slave, or "top" and "bottom" could be considered relational antonymns because they are only contextually opposite. Sounds good?
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June 24, 2013, 01:33:59 AM
 #20

Here is my calculation of the Price To Book value of AMC

5.651 TH/s future hashing starting by August 31, 2013 at 40,000,000 Difficulty (Over 2X the current difficulty) by that time would generate $1,458,007.07 in eight months, the time left for the 40,000,000 Million shares to receive 100% of the dividends.  Now, take 50% of that revenue stream and reinvested that back in mining to keep the revenue stream up with the rise of the difficulty for the next 8 months.  Now, the revenue stream after the 50% reductions would be $729,003.535.  Now, lets convert that to BTC at the conversion rate used in the profit calculation which was $104.87 so that is 6951.497425384 BTC.  Now, lets calculate the Price To Book Value which would be (40,000,000 * .0008) / 6951.497425384  = 4.603324729 Price To Book Value, which makes AMC at this point a great value. 

Of course, Bitcoinx.com "Extrapolating bitcoin difficulty or price is pure voodoo", but above we have tried to take a stab at something that just might be close.  This does give us some idea of what the value of AMC is at this point in time.

Kenneth E. Slaughter, CEO/CTO
Active Mining Corporation
95 Wilton Road
Suite 3
London
SW1V 1BZ
United Kingdom
Fax: +44 (0)20 3004 1756

Active Mining Corporation (AMC) is a Belize International Business Company DBA Active Mining Cooperative and
is a wholly owned subsidiary of Virtual Mining Corporation (VMC) a Delaware Corporation.

You are talking about earnings, and in an incredibly disingenuous way.

Book Value
is the value of the assets owned by a company.  That is your 6 Avalons, and the orders you have for Avalon chips - although it's not clear what is owned by VMC your company versus AMC the shell company you are selling shares in. The Avalons I priced at 3 BTC / GH/s which is about 50% higher than Avalons are selling for at auction today. I also attributed a generous valuation to the chips on order at the cost of hashpower when they would be ready, rather than the purchase price of the chips.

Still I get a price to book of 35.

Hardly the 2 that ASICMINER sold at when they were raising funds, and certainly in no way comparable to the ~3 they are valued at today.  I wonder why you keep comparing yourself to Friedcat?
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