The coming flash crash in AMC

[burnside]

Sometimes I wish I was the only gatekeeper.  It's better though that I am not, I was wrong on so many different things back in the GLBSE days that I when I setup btct.co I knew I needed to get other people involved somehow.  I really hope they're right on this one.

Are there any plans or thoughts so that in the future any companies or other entities which wish to be put on your exchange will be required to be vetted first? Or will it continue to be a wild west sort of situation still?

Depends on your definition of vetted.  I'd argue that we're one of the harder ones to get listed on at the moment.  Aside from MPEx we certainly have the most documented minimum requirements.  (Check out the Asset Issuers ToS.)

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[DeathAndTaxes]

Any rational businessman would stop selling equity once his capital needs are filled.

Except if his business was selling shares in a worthless company, that is...

This.  It seems many never really consider what equity is.  Equity is selling off future profits of an enterprise.  If one believes their enterprise is profitable AND they have sufficient funds to ensure that profit what rational reason would there be to sell off more future profit?

Hint: there isn't one.   Companies sell enough equity to meet their capital needs and not a penny more.

[burnside]

Plus you have Garr taking an existing company, rewriting the contract and relisting without review.

Cripes.  Fixed that.  :/

[Deprived]

Any rational businessman would stop selling equity once his capital needs are filled.

Except if his business was selling shares in a worthless company, that is...

This.  It seems many never really consider what equity is.  Equity is selling off future profits of an enterprise.  If one believes their enterprise is profitable AND they have sufficient funds to ensure that profit what rational reason would there be to sell off more future profit?

Hint: there isn't one.   Companies sell enough equity to meet their capital needs and not a penny more.

Well AMC's a bit different.  Here's what happens with the cash.

Shares are sold to the public - and immediately diluted in value by 50% or more due to Ken's personal holdings + the way he deals with unsold shares.

Those then buy miners that mine.

From what Ken just posted, mined income gos into a pot that once it gets to $1 million the cash will be loaned to VMC (wholly owned by Ken).

VMC then makes chips and repays the principal to AMC using 100% of profits.  That means that for the first $1 million of profit AMC doesn't even get its 10% royalty - as the royalties it was due are treated as repayment on capital (rather than repayment coming solely out of VMC's 90%).

So after $1 million of profit AMC has received 0% profit.
After $2 million profit it would have received 5% of profits.
After $4 million if would have increased to 7.5%

But how likely is that much PROFIT will be made on sales of ASICs that only get produced end of this year/beginning of next?  By then demand will largely have been satisfied by existing producers - and sales prices will have been driven down by competiton.  If that chip line never makes $1 million proft then investors bear all 100% loss - Ken only takes the lion's share of profits not losses.

So the best result for investors is that they get, as profit 0-5% of all cash funnelled through VMC - with VMC (Ken) deciding what counts as profit.  Even the mined coins get passed through VMC to make sure Ken gets at least 95% rather than the 50% share distribution would suggest.

So it's an entirely rational decidion for Ken to sell more shares - as he gets at least 95% of any profits from the capital with no risk.  Having decided he's going to skin investors (rather than just fleece them) it's the logical thing to do.  It is, of course, entirely irrational for investors to send him any cash.

[carnitastaco]

Its actually a lot worse because kslaughter cuts himself in on the dividends as well.  The whole thing has been amazing to watch.

[dhenson]

Cognitive dissidence is a powerful thing and causes people to only listen to the posts/news that supports their desires.   Everyone wants to catch the next AM at the bottom.

Once you realize logic isn't always the primary driving factor, you can predict the moves and make a lot of btc.  I don't think this ride is over.

[ryantw]

It's going to be a long painful death for holders of this mess.

Did you honestly expect anything less?

I expected burnside to examine the self dealing built into the stock, which guarantees loses for everyone but the owner of VMC and reject the listing.

Since that didn't happen, people are going to learn the expensive way.

Sometimes I wish I was the only gatekeeper.  It's better though that I am not, I was wrong on so many different things back in the GLBSE days that I when I setup btct.co I knew I needed to get other people involved somehow.  I really hope they're right on this one.

Well I appreciate that you care.  And the idea of peer review is a good one.

But some things, like the extreme conflict of interest in this case, just shouldn't be allowed at all.  It really pains me how badly naive newbs are fleeced by this community.  It is going to cost us all in terms of slowing the adoption of bitcoin.

I agree 100%. I hold the exchanges, specifically their owners, responsible. This get rich quick method of opening a "company" and then listing it on an exchange is going to hurt bitcoin investing in the long run.

The first time I read the description of AMC I was extremely disappointed that exchanges would even allow such a concoction to be listed. Shame on the exchanges. The ridiculous business model and rules, especially that AMC and VMC are owned by the same entity, should have been an instant no-go for the exchange. Burnside/Ukyo/whoeverelse, please tell me how you can possibly read the description of AMC and allow such a thing to exist on your exchange.

Exchanges: enjoy your fee's now, because this method of doing business will hurt you in the long run. However, if you gain the reputation as a diligent exchange that does not allow these type of "securities" you will gain the respect and confidence of investors. Please do not use the "investor ignorance is not our fault" copout. Its your responsibility to disallow these types of schemes from being listed in the first place. You are a pseudo accessory by allowing it to be listed.

[Kyune]

Cognitive dissidence is a powerful thing and causes people to only listen to the posts/news that supports their desires.

I agree 100%.  This is what I've been trying to tell everyone but they just wouldn't listen.  I had to put them all on ignore.

 

[empoweoqwj]

Cognitive dissidence is a powerful thing and causes people to only listen to the posts/news that supports their desires.   Everyone wants to catch the next AM at the bottom.

Once you realize logic isn't always the primary driving factor, you can predict the moves and make a lot of btc.  I don't think this ride is over.

Absolutely right. Humans filter out stuff that doesn't agree with their current "world view". Its a horrible fault, and why its good to not take "snap" decisions. At a minimum, sleep on stuff before diving in.

I came across AMC and thought "I want to get in on this before it becomes another AM" and was completely blinkered, bought in at 0.0025 and within 48 hrs sold out again at a loss after realizing what mess the whole thing was.

Lesson learned. "Fools rush in where angels fear to tread". I've put the bitcoins I clawed back into AM

Sure lots of people have something to learn from this episode.

[empoweoqwj]

By the way, I blame myself primarily. Perhaps this offering shouldn't have been listed, but in the end, do your own research.

Plenty of terrible / fraudulent stocks have been listed at major exchanges. I won't bother to list them.

[Kyune]

I agree 100%. I hold the exchanges, specifically their owners, responsible. This get rich quick method of opening a "company" and then listing it on an exchange is going to hurt bitcoin investing in the long run.

The first time I read the description of AMC I was extremely disappointed that exchanges would even allow such a concoction to be listed. Shame on the exchanges. The ridiculous business model and rules, especially that AMC and VMC are owned by the same entity, should have been an instant no-go for the exchange. Burnside/Ukyo/whoeverelse, please tell me how you can possibly read the description of AMC and allow such a thing to exist on your exchange.

Exchanges: enjoy your fee's now, because this method of doing business will hurt you in the long run. However, if you gain the reputation as a diligent exchange that does not allow these type of "securities" you will gain the respect and confidence of investors. Please do not use the "investor ignorance is not our fault" copout. Its your responsibility to disallow these types of schemes from being listed in the first place. You are a pseudo accessory by allowing it to be listed.

It is a bit disappointing, isn't it?  Zero negative votes against the AMC-PT on BTCT -- I would have thought this was an opportunity for BTCT to distinguish itself from the crowd.  Sort of demonstrates how a financial sector, left to its own devices, can't self-regulate effectively when all the individual players, including the exchanges, act in their narrow self-interest.

Somewhere down the line, months or years from now, it will be situations like this that cause government agencies to wave their arms and insist that more regulation is needed over this space.  (Whether enforcement is feasible is a separate question.)

[Birdy]

I wish people who are really good in those analytics like Deprived would be included in the valuation of new securities, it really hurts btct.co's and Bitcoins reputation when you include crappy moneygrabs in there.

I was also tempted to put money in this as I saw it got zero "no"-votes and people buying lots of this. (But then I saw this big wall and thought, well better wait a while and take your time to read what this is about)

[empoweoqwj]

I wish people who are really good in those analytics like Deprived would be included in the valuation of new securities, it really hurts btct.co's and Bitcoins reputation when you include crappy moneygrabs in there.

I was also tempted to put money in this as I saw it got zero "no"-votes and people buying lots of this. (But then I saw this big wall and thought, well better wait a while and take your time to read what this is about)

Wiser than me! Fortunately AMC's shares are so "cheap" I bought a few thousand and thought "that's enough" for now. When I realized how dodgy an investment it was, I sold them at a loss and put them in ASICIMINER, who incidentally have just announced they will be releasing "800-1000T hashing power this year". And what they announce historically normally happens.

[hl5460]

So Ken's big announcement is out, and his pump and dump is failing.

He needs to sell another 3 Million shares at 0.0025 to raise the money he is going to gift to VMC, his privately held company, for chip NRE.  But Bitcoiners aren't buying a $25 Million dollar valuation for a $300k company.  So the party is over for Ken right?

Wrong.  Shortly he is going to hit all the bids on BTCT.co and Bitfunder so that he can give himself that million dollar gift.

How do I know?  Well if you read his contracts, you would know too.

From the summary page on Bitfunder:

Notes On The IPO:

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.

During the IPO, not all shares may be posted as an ASK.

So expect Ken to start hitting bids, and keep hitting them all the way down to 0.0005 if that's what he needs to do.  Because who wouldn't when every dollar they raise goes to benefit their company rather than the company they are selling the shares in?

We do not need to sale any more shares to fund the chip, see spreadsheet below:

Oh, according to Asicminer's estimate, network hashrate will reach 0.8-1P by the end of 2013.

[canth]

Many prophets of doom yet no one is selling me call options... I am willing to negotiate on all details if someone wants to send me a counter offer...

Eh, because the highest risk anyone is willing to take on is actually buying AMC at the IPO price. From Wikipedia:

"A naked call occurs when a speculator writes (sells) a call option on a security without ownership of that security. It is one of the riskiest options strategies because it carries unlimited risk as opposed to a naked put where the maximum loss occurs if the stock falls to zero."

For bearish call option sellers, the same is true when the price rises. No one should be writing naked call options - that makes investing in BTC securities look conservative.

[ronaldlee0917]

So Ken's big announcement is out, and his pump and dump is failing.

He needs to sell another 3 Million shares at 0.0025 to raise the money he is going to gift to VMC, his privately held company, for chip NRE.  But Bitcoiners aren't buying a $25 Million dollar valuation for a $300k company.  So the party is over for Ken right?

Wrong.  Shortly he is going to hit all the bids on BTCT.co and Bitfunder so that he can give himself that million dollar gift.

How do I know?  Well if you read his contracts, you would know too.

From the summary page on Bitfunder:

Notes On The IPO:

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.

During the IPO, not all shares may be posted as an ASK.

So expect Ken to start hitting bids, and keep hitting them all the way down to 0.0005 if that's what he needs to do.  Because who wouldn't when every dollar they raise goes to benefit their company rather than the company they are selling the shares in?

We do not need to sale any more shares to fund the chip, see spreadsheet below:

Oh, according to Asicminer's estimate, network hashrate will reach 0.8-1P by the end of 2013.

I think AMC would struggle with 10TH at that time.

[ryantw]

I agree 100%. I hold the exchanges, specifically their owners, responsible. This get rich quick method of opening a "company" and then listing it on an exchange is going to hurt bitcoin investing in the long run.

The first time I read the description of AMC I was extremely disappointed that exchanges would even allow such a concoction to be listed. Shame on the exchanges. The ridiculous business model and rules, especially that AMC and VMC are owned by the same entity, should have been an instant no-go for the exchange. Burnside/Ukyo/whoeverelse, please tell me how you can possibly read the description of AMC and allow such a thing to exist on your exchange.

Exchanges: enjoy your fee's now, because this method of doing business will hurt you in the long run. However, if you gain the reputation as a diligent exchange that does not allow these type of "securities" you will gain the respect and confidence of investors. Please do not use the "investor ignorance is not our fault" copout. Its your responsibility to disallow these types of schemes from being listed in the first place. You are a pseudo accessory by allowing it to be listed.

It is a bit disappointing, isn't it?  Zero negative votes against the AMC-PT on BTCT -- I would have thought this was an opportunity for BTCT to distinguish itself from the crowd.  Sort of demonstrates how a financial sector, left to its own devices, can't self-regulate effectively when all the individual players, including the exchanges, act their in their narrow self-interest.

Somewhere down the line, months or years from now, it will be situations like this that cause government agencies to wave their arms and insist that more regulation is needed over this space.  (Whether enforcement is feasible is a separate question.)

Very true. Having a poorly run investment exchange is just welcoming government problems. Look at what happened to mtgox. Obviously that is a different scenario, but it shows that you have to run a tight ship. Having a bitcoin securities exchange that is irresponsible as far as assets it allows is asking for problems. The concept of wild west investing when using bitcoin should be abandoned when it is obvious that the asset is a delusion investment.

Bitfunder/BTCTC/others: please be responsible in what you allow to be listed. Fancy spreadsheets, "estimates" and big promises should be considered worthless. At least have a warning on specific assets that (a) do not have hardware in hand (b) are heavily based on research/development before profit occurs (c) cashflow will not occur for over 3 months.

I keep seeing these assets being listed that are basically "Ordered asic chips from xyc. They are expected to be here in 3-6 months. Pay off my initial cost, believe my estimates and share in the mined bitcoin". Its awful.

[lysr]

Another imminent crash coming, if the support at 0.0008 does not hold, it would be a freefall back to IPO price!

[Entropy-uc]

Another imminent crash coming, if the support at 0.0008 does not hold, it would be a freefall back to IPO price!

Ken is free under his contract to crash it to 0.0005 whenever he chooses.

Based on the assets of the company it is worth about 0.00006  (that is 60 millionths of a BTC).  But the self dealing terms make it worth zero in my eyes.

[auto2nr1]

What if Ken re-wrote the contract to give him less power in AMC in regards to controlling the share prices and issuing shares. Do you guys think that would help AMC and it's investors?