Lower BTC Price: Potential risk for mass speculative refunds on ASIC orders?

[amencon]

The thought occurred to me that as BTC price falls there may come a point where those with preorders for some ASICs may determine that a refund in USD put straight into BTC will net them more BTC than will be generated in the life of their ASIC.  Anyone with orders for purely the BTC ROI potential should then at that point all refund and buy BTC direct as this will net them more BTC instantly with no electricity cost than they expect to earn hashing on the machine.

As an example I have an order in for $7k for a KNC Jupiter.  I paid ~60BTC and estimate that I will mine 150BTC over it's lifetime (pure example figures for illustration).  Currently at $70/BTC I could refund and buy approx. 100BTC, at $46.66 a refund would earn 150BTC bought bitcoins making it an even BTC ROI, at $25 the same refund would get me 280BTC and would be the obvious best BTC ROI.

Note that my ASIC order isn't purely driven by desired BTC ROI and I see much value in adding hashrate to the network and wouldn't mind having an ASIC rig just to play around with.  I have no plans of refunding my order to buy BTC.  However if at some point enough people have this idea inevitably leading to bankrupt KNC by creating a "bank run" on the company due to not being able to refund orders since much of their capital being tied up in NRE costs, I'd rather be one of the first ones out rather than the last.

What do you guys think?  Is there a certain BTC price where this should start to be a concern to consider?  I rolled the dice on KNC and I think there is a decent chance first day orders will be received on time and make a good BTC profit, however I like to be prepared for any potential situations that may arise over the next few months.  Definitely not trying to create any FUD/panic/drama and I sincerely hope this is a complete non-issue but I'd still like to get others' opinions on it.

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[Foofighter]

you are totally right pal, that could be a problem for Miner Manufacturers ;(

[Dyaheon]

I would certainly be tempted. Note that a steeply increasing difficulty can have the same result though.

Now, miner manufacturers might start refusing refunds like BFL is doing now. Although I'm not sure how legal this is, probably wouldn't work in the EU at least? Also, people getting refunds and buying BTC could stop the slump and make the price increase again, just like the current downtrend is probably partially caused by ASIC sales, where BTC is converted into fiat, which the companies need to build the units.

I would probably do it if price approached $30 and manufacturers would grant the refund. I wouldn't feel bad for not adding hashrate to the network; there's plenty coming and I could pocket the difference, waiting for better btc values / more reasonable asic prices and try mining again then.

[Xialla]

As an example I have an order in for $7k for a KNC Jupiter.  I paid ~60BTC and estimate that I will mine 150BTC over it's lifetime (pure example figures for illustration).  Currently at $70/BTC I could refund and buy approx. 100BTC, at $46.66 a refund would earn 150BTC bought bitcoins making it an even BTC ROI, at $25 the same refund would get me 280BTC and would be the obvious best BTC ROI.

I'm on the same boat, paid 8624$ for Jupiter/shipping/VAT so for current bitstamp price, I should get 126BTC.

when I paid during first preorder week slot (4/6), BTC price was around ~121$, so it cost 71.27BTC. Otherwise, my order is scheduled for first shipping day, so I will simply hope, that KNC meet their September deadline and BTC will grow again above 120$

and refund? no way. I want to have shiny piece of ASIC hardware at home.)

[amencon]

I would certainly be tempted. Note that a steeply increasing difficulty can have the same result though.

Now, miner manufacturers might start refusing refunds like BFL is doing now. Although I'm not sure how legal this is, probably wouldn't work in the EU at least? Also, people getting refunds and buying BTC could stop the slump and make the price increase again, just like the current downtrend is probably partially caused by ASIC sales, where BTC is converted into fiat, which the companies need to build the units.

I would probably do it if price approached $30 and manufacturers would grant the refund. I wouldn't feel bad for not adding hashrate to the network; there's plenty coming and I could pocket the difference, waiting for better btc values / more reasonable asic prices and try mining again then.

Yeah good point.  The 2 determining factors are the BTC paid vs BTC purchasable after refund delta and the expected lifetime BTC ROI of the machine.  Higher difficulty would lower the lifetime ROI and thereby allow a lower delta to still make the refund profitable.

I wouldn't be surprised at all if higher difficulty and longer assumed lead times with BFL products are causing refunds for this exact reason.  The one thing they do have going for them is that many of their orders were made when BTC was < $20.  For these people they will take a BTC loss by refunding unless the price continues to drop to extreme lows.  However any person with an order made while BTC was high that is also later in the queue with reasonably predictable long lead times that is also halfway decent with numbers is likely trying to get out as fast as they can.

I was also looking at a $20-$30 range.  I'm a nice guy, however not so nice I'm willing to suck up a $7k loss just so some other random stranger doesn't.  The vast majority of KNC orders up to this point were made when BTC was triple digits, this will make refunding very attractive starting at ~$40 and under I think.  I won't be the first out but will watch to see if the writing is on the wall.

[amencon]

As an example I have an order in for $7k for a KNC Jupiter.  I paid ~60BTC and estimate that I will mine 150BTC over it's lifetime (pure example figures for illustration).  Currently at $70/BTC I could refund and buy approx. 100BTC, at $46.66 a refund would earn 150BTC bought bitcoins making it an even BTC ROI, at $25 the same refund would get me 280BTC and would be the obvious best BTC ROI.

I'm on the same boat, paid 8624$ for Jupiter/shipping/VAT so for current bitstamp price, I should get 126BTC.

when I paid during first preorder week slot (4/6), BTC price was around ~121$, so it cost 71.27BTC. Otherwise, my order is scheduled for first shipping day, so I will simply hope, that KNC meet their September deadline and BTC will grow again above 120$

and refund? no way. I want to have shiny piece of ASIC hardware at home.)

Nice, good luck to both of us then.

[Xialla]

refunds are offered up to the day of shipment of your order.

so I want to believe, that EU based professional company will simply fulfill, what they promised. btw my value for refund is about 50$/BTC. Once, it will be under 50$, I will ask for refund, because difference of paid/refunded BTC will be bigger then expected BTC profit with ASIC mining.(

@amencon: yes, good luck sir.)

[HeRetiK]

Please, get refunds everyone! The more people jump off the ASIC train, the better the ROI!

(good point though)

[markm]

Please, get refunds everyone! The more people jump off the ASIC train, the better the ROI!

I guess what we need then is a massive drop in bitcoin prices, to shake all the ASIC pre-orders out of weak hands...

-MarkM-

[jmaccoin]

Dropping bitcoin prices work out really well for those with their hardware prices in bitcoins...

Seems like a good incentive to try to keep prices low, works out really well if you need a ton of usd for your next round of hardware too.

[jspielberg]

I think the biggest risk to ASIC orders isn't refunds but the producers not being able to profitable convert to fiat for parts.
If they didn't plan ahead, and convert enough fiat to cover construction at time of sale.

They certainly aren't going to produce miners at a loss.

I think this is a biggest risk for those producers only accepting BTC as payment method.

[TheSwede75]

Only a class-A douche would be speculative enough to ask for frivolous refunds based on BTC value. The companies we order from (most at least) work hard and risk a lot in producing ASIC. Using return and refund policies only for short term profit makes us as a community no better then the scams we all spend our days investigating, debunking and criticizing.

[Loredo]

Please, get refunds everyone! The more people jump off the ASIC train, the better the ROI!

(good point though)

It's fun to watch market forces in real time! 

[ecliptic]

I ran some rough numbers on "exchange rate for a sane ROI" for miner marginal costs

https://bitcointalk.org/index.php?topic=251347.0

it's not pretty.  hopefully i'm wrong.

Essentially, ASICminer has such an advantage over everyone else that they can keep investing and making a profit if the exchange rate drops to 10-20$, but for regular plebs the exchange rate has to be at least 40$ if not 90$ to make ROI.  ASICminer will eat you alive

oh, and you can't get refunds on most ASICs

[ecliptic]

Also everyone is forgetting the REASON that BTC was artificially high was because people had to buy BTC to buy ASICs.  Since the price drops, buying ASICs is not a good idea, so nobody buys BTC, so the price drops..

[Trongersoll]

I think the biggest risk to ASIC orders isn't refunds but the producers not being able to profitable convert to fiat for parts.
If they didn't plan ahead, and convert enough fiat to cover construction at time of sale.

They certainly aren't going to produce miners at a loss.

I think this is a biggest risk for those producers only accepting BTC as payment method.

Personally, i think that this is the cause for the drop in value of BTCs at the moment. All the manufacturers who accepted BTC as payment are scrambling to convert them to fiat to pay their bills.

[jspielberg]

I think the biggest risk to ASIC orders isn't refunds but the producers not being able to profitable convert to fiat for parts.
If they didn't plan ahead, and convert enough fiat to cover construction at time of sale.

They certainly aren't going to produce miners at a loss.

I think this is a biggest risk for those producers only accepting BTC as payment method.

Personally, i think that this is the cause for the drop in value of BTCs at the moment. All the manufacturers who accepted BTC as payment are scrambling to convert them to fiat to pay their bills.

That makes sense to me... If so, then I think it is good that btc is being for more the just mt gox speculation and SR.

[amencon]

Only a class-A douche would be speculative enough to ask for frivolous refunds based on BTC value. The companies we order from (most at least) work hard and risk a lot in producing ASIC. Using return and refund policies only for short term profit makes us as a community no better then the scams we all spend our days investigating, debunking and criticizing.

"class-A"? Seems a bit harsh, I think there are many rungs higher on the scumbag totem pole than getting a refund when it makes financial sense for the investor/purchaser.  I agree that I'd hate to see the rug get pulled from under ASIC manufacturers due to speculative refunds.  However these are investors in what is essentially a money-printing machine and I'm not so naive to believe that the majority of these people will see a greater return by refunding and pass on it and hold on to a less lucrative investment for purely ideological reasons.  Even worse I fear under the right conditions the majority would pull out, and leave the ones with the least "greedy" intentions holding the bag.

Although in any potential refunder's defense it was understood that refunds for products yet to be delivered are allowed (at least by US law).  If a company didn't want to expose themselves to mass refund risk then they could have waited until they had product in hand to sell.  It seems to me that there is a bit of gambling going on for both the companies as well as the customers.

I think the biggest risk to ASIC orders isn't refunds but the producers not being able to profitable convert to fiat for parts.
If they didn't plan ahead, and convert enough fiat to cover construction at time of sale.

They certainly aren't going to produce miners at a loss.

I think this is a biggest risk for those producers only accepting BTC as payment method.

Personally, i think that this is the cause for the drop in value of BTCs at the moment. All the manufacturers who accepted BTC as payment are scrambling to convert them to fiat to pay their bills.

I always assumed that at the time of ASIC purchase BitPay deposited USD to the producers accounts.  I realize that there is the option to hold the BTC but I think it's doubtful that most companies didn't take USD from the start considering that's what most ASIC products are priced in and that is what supply chain and R&D costs are denominated in.

I don't know how it's worked on a larger scale but I can give you my story for some anecdotal evidence.  I started by using USD to buy GFX cards to mine BTC.  I then held those BTC keeping them off the exchanges (BTC price goes up), then I used that BTC to buy ASIC, most likely that BTC gets converted to USD (BTC goes down).  If enough people followed that same path it would lend weight to the hypothesis that purchases of ASIC has at least helped to contribute to declining USD price of BTC recently as ASIC purchases rise and GFX card mining rig purchases drop and lose total hashing share.

[superfastkyle]

I think its hilarious you think these scam companies will pay you more btc than you paid for them if you paid in btc. The only reason BFL gave orders back in dollars was because they would have lost money to give you back the same amount of btc, since they converted it to fiat to fund their R&D. You know the big VC, I mean Josh, didn't put up the money for the whole thing.

[amencon]

Sure they might be scammers.  Even making that assumption though it seems reasonable that they would grant some initial refunds not to spook people.  Were the price to drop low enough to cause a wave of speculative refunds eventually they would stop issuing them, many more would likely want to get out at this point and the whole thing could melt down the same way hypothesized in the OP anyway.  In this scenario you'd still want to be one of the first ones out though before the mass rush to the exit, right?  So really your supposition might not make much difference to this discussion anyway.

Not to mention you sound very certain about something I'm not sure you can be certain about.  Do you have some inside information about these ASIC manufacturers that others don't that clearly indicates they are all scammers?  If not your guess at their underlying intentions is as good as anybody elses, but it's still just a guess.

Also, in my speculation I was referring to refunds in USD not BTC.  USD that could then be used to buy more BTC than the BTC value of the USD you originally paid them, most likely converted from BTC to USD by BitPay at time of transaction.