[IPVO] [Multiple Exchanges] Neo & Bee - LMB Holdings

[N_S]

Oh, I am deeply sorry, it looks like I am talking about something completely different than the rest of us. I didn't catch up completely to recent discussion and was talking about european deposit insurance (which is for persons up to 100k €). Again, I am sorry, don't pay any attention to me. Thanks.

Oh, no worries in that case

[ex-trader]

Experience: 25 years of working with bank balance sheets.....



The proof, with real simple numbers (for example):

You raise 100m of euros from depositors opening accounts.

They all (well 98% in reality from the survey but we'll assume 100%) want their accounts pegged to Euros.

Month 1:

Spend all 100m euros buying Bitcoins at 100 EUR=1 BTC.

Balance sheet at close Day 1.

Assets: 1m Bitcoins = 100m euros

Liabilities: 100m euros

Net balance sheet = zero (well plus the small capital raised that hasn't been spent opening the branch etc)

All is ok.



Month 2:

Bitcoin exchange rate falls by 20% (as happens).

Guess what the value of the assets is now only 80m euros.

The liabilities are still 100m euros (as customers are expecting to get back the euros they invested).

Net balance sheet = MINUS 20m euros = insolvent

Now the smart customers realise that there's not enough money to pay everyone and start withdrawing and it creates a 'run on the bank'. All deposits withdrawn = bank collapses


It's real simple, if the euros are invested in Bitcoins then there's a huge risk of change in value in euro equivalent. This is either retained by the depositor ie they have fixed amount of Bitcoins but accept that the euro equivalent varies, or the risk is passed to the capital base of the bank and borne by the shareholders.

NB This is banking not insurance.

[N_S]

How extensively have you looked through the spreadsheet Danny put forward going over what would happen if a crash the likes of April 2013 happened on opening day?

[EskimoBob]

ex-trader +10

[Stelios]

EX-trader,
You made exactly the same claim before in the same thread and it was answered. Now I really respect your 25 year of banking experience and I really, REALLY, want to hear what you have to say but please at least read their prospectus first so we can have a proper conversation.

SK
p.s. In addition, to quote Danny,
"If you can buy €10m worth of Bitcoin without generating a cent of upwards movement, do you want a job?"

[lewicki]

SK
p.s. In addition, to quote Danny,
"If you can buy €10m worth of Bitcoin without generating a cent of upwards movement, do you want a job?"

In addition, I think that envisioning more banks/institutions following in the footsteps of Neo would be entirely reasonable. This would further drive the price up.

[Peter Lambert]

SK
p.s. In addition, to quote Danny,
"If you can buy €10m worth of Bitcoin without generating a cent of upwards movement, do you want a job?"

In addition, I think that envisioning more banks/institutions following in the footsteps of Neo would be entirely reasonable. This would further drive the price up.

If more banks are going to follow in their footsteps, it will take them a while to get up and running, so you cannot assume they will start increasing the price within the first month that NEO is open.

[ex-trader]

EX-trader,
You made exactly the same claim before in the same thread and it was answered. Now I really respect your 25 year of banking experience and I really, REALLY, want to hear what you have to say but please at least read their prospectus first so we can have a proper conversation.

SK
p.s. In addition, to quote Danny,
"If you can buy €10m worth of Bitcoin without generating a cent of upwards movement, do you want a job?"

I've read the prospectus.

Here's their quote pg 20: "Neo will hedge against future potential losses caused by large downwards price movements" - explain how.....

They plan to (pg 8 ): " publish verifiable public Bitcoin addresses"  so customers own Bitcoins not euros. Where will they find the extra Bitcoins required when prices fall.

Neo (pg 8 ): "keeps all remaining profits from increases in ...BTC reserves'

Pegged accounts will 'earn derive income from fluctuations in the market rate' also  'profits from increases in the BTCEUR....is expected to be the primary source of income'.

The three business plans show either 1%, 5% or 13.6% monthly increases in BTC every month (pg 22,23,24). Show us a plan with a 1% fall every month, or a 5% fall every month, so people can see what happens then....

Its a well-written document and has loads of talk about features and ideas and actually I buy a lot of that and if it was all in BTC it might work, but the fact is that the whole business is simply a giant bet on Bitcoin going up continually and that just doesn't work.

The quote about moving Bitcoin prices by buying some is naive, of course it'll generate a short-term upward movement, but that doesn't mean it'll be sustained in the long-term. This is called self-reinforcement and works also on the downside, when the price falls and some depositors ask for their money back, then Neo will have to sell BTC which pushes prices lower, causing more withdrawals etc. It's a downwards spiral. The argument applies both way.

[N_S]

The three business plans show either 1%, 5% or 13.6% monthly increases in BTC every month (pg 22,23,24). Show us a plan with a 1% fall every month, or a 5% fall every month, so people can see what happens then....

My big contention with this statement is that one can always choose a doomsday scenario where no matter what, the venture would fail.

The question is about expectation. Do you expect bitcoin to drop in value over a given time period? If you're just mentioning that most people won't have the risk appetite for that possibility, that's fine. Perhaps you have a point. But remember what Cypriots are faced with now as far as traditional financial institutions are concerned. What evidence do we have to suggest bitcoin will see a sustained drop in price? Not a whole lot. Will it continue to grow at 30+% per month for the next 2mo? I'm not sure, although I'd put the possibility of that higher than a negative price change over the same time period.

Essentially, if Neo can enter the market at a time where the price of bitcoin continues to increase (no matter the rate), the longer that goes on, the better position they'll be in in case it does go negative at some point in the future.

[stenkross]

ex-trader, you seem like a smart person, have a look at his spreadsheet.
I'm sure you'll be able to find your answers in there.

I've had a look at it, I spent 1-2 hours trying to figure out all columns, numbers and math, but I'm not smart enough.
Or maybe it's because I have exactly 0 years in banking experience ...

[Stelios]

EX-trader,
You made exactly the same claim before in the same thread and it was answered. Now I really respect your 25 year of banking experience and I really, REALLY, want to hear what you have to say but please at least read their prospectus first so we can have a proper conversation.

SK
p.s. In addition, to quote Danny,
"If you can buy €10m worth of Bitcoin without generating a cent of upwards movement, do you want a job?"

I've read the prospectus.

Here's their quote pg 20: "Neo will hedge against future potential losses caused by large downwards price movements" - explain how.....

They plan to (pg 8 ): " publish verifiable public Bitcoin addresses"  so customers own Bitcoins not euros. Where will they find the extra Bitcoins required when prices fall.

Neo (pg 8 ): "keeps all remaining profits from increases in ...BTC reserves'

Pegged accounts will 'earn derive income from fluctuations in the market rate' also  'profits from increases in the BTCEUR....is expected to be the primary source of income'.

The three business plans show either 1%, 5% or 13.6% monthly increases in BTC every month (pg 22,23,24). Show us a plan with a 1% fall every month, or a 5% fall every month, so people can see what happens then....

Its a well-written document and has loads of talk about features and ideas and actually I buy a lot of that and if it was all in BTC it might work, but the fact is that the whole business is simply a giant bet on Bitcoin going up continually and that just doesn't work.

The quote about moving Bitcoin prices by buying some is naive, of course it'll generate a short-term upward movement, but that doesn't mean it'll be sustained in the long-term. This is called self-reinforcement and works also on the downside, when the price falls and some depositors ask for their money back, then Neo will have to sell BTC which pushes prices lower, causing more withdrawals etc. It's a downwards spiral. The argument applies both way.

Now that's much better .

So if i get it correctly, there is this spreadsheet (www.lmb-holdings.com/opening_week_crash.ods) that imitates the questions yous asked above (and also gives you the opportunity to dynamically change them). Could you please share your opinion on it with the group.

SK

[ex-trader]

ex-trader, you seem like a smart person, have a look at his spreadsheet.
I'm sure you'll be able to find your answers in there.

I've had a look at it, I spent 1-2 hours trying to figure out all columns, numbers and math, but I'm not smart enough.
Or maybe it's because I have exactly 0 years in banking experience ...

I cannot open that file.

[ex-trader]

My big contention with this statement is that one can always choose a doomsday scenario where no matter what, the venture would fail.

The question is about expectation. Do you expect bitcoin to drop in value over a given time period?

You are completely missing the point. I have no clear opinion right now as to where the market will go.

A bank is not designed to succeed or fail based on some underlying single volatile market rate. It exists to raise money from depositors, keep it safe and make profits from providing services and by earning a spread (interest margin) between where they borrow and where they lend. It is when banks went away from this type of retail banking and into making huges bets on markets that most of the banking crisis started.

If this business was being promoted as 'invest in a giant bet on bitcoin' I'd have no problem and it's still likely that many would believe that story and invest accordingly. If everyone is investing with that full understanding then fine. However this is being promoted as a bank, offering safe euro-linked deposits to it's customers. This is simply not true, eitther the customers or the shareholders are taking that risk and both will understand which it is in time.

[Stelios]

My big contention with this statement is that one can always choose a doomsday scenario where no matter what, the venture would fail.

The question is about expectation. Do you expect bitcoin to drop in value over a given time period?

You are completely missing the point. I have no clear opinion right now as to where the market will go.

A bank is not designed to succeed or fail based on some underlying single volatile market rate. It exists to raise money from depositors, keep it safe and make profits from providing services and by earning a spread (interest margin) between where they borrow and where they lend. It is when banks went away from this type of retail banking and into making huges bets on markets that most of the banking crisis started.

If this business was being promoted as 'invest in a giant bet on bitcoin' I'd have no problem and it's still likely that many would believe that story and invest accordingly. If everyone is investing with that full understanding then fine. However this is being promoted as a bank, offering safe euro-linked deposits to it's customers. This is simply not true, eitther the customers or the shareholders are taking that risk and both will understand which it is in time.

Yes but i think their plan in the long run is to offer exactly what you say, provide services. On top of that is the bitcoin rise which ofcourse will happen at the beginning (because of their entrance) and hopefully later as more enterprises mimic their business plan (if its successful that is). Did i got it correctly? 

p.s. I will try to save the odt file in a different format for you        

[halfawake]

The three business plans show either 1%, 5% or 13.6% monthly increases in BTC every month (pg 22,23,24). Show us a plan with a 1% fall every month, or a 5% fall every month, so people can see what happens then....

My big contention with this statement is that one can always choose a doomsday scenario where no matter what, the venture would fail.

The question is about expectation. Do you expect bitcoin to drop in value over a given time period? If you're just mentioning that most people won't have the risk appetite for that possibility, that's fine. Perhaps you have a point. But remember what Cypriots are faced with now as far as traditional financial institutions are concerned. What evidence do we have to suggest bitcoin will see a sustained drop in price? Not a whole lot. Will it continue to grow at 30+% per month for the next 2mo? I'm not sure, although I'd put the possibility of that higher than a negative price change over the same time period.

Essentially, if Neo can enter the market at a time where the price of bitcoin continues to increase (no matter the rate), the longer that goes on, the better position they'll be in in case it does go negative at some point in the future.

N_S, have you been paying attention to how insanely volatile bitcoin is?  ex-trader has a really good point because while the fairly long term progression of bitcoin is upward, there is a LOT of short term volatility where it plunges 20 - 30%.  It's not a question of in case it does go negative, it's a question of when it does go negative, we've probably got a long ways before bitcoin becomes less volatile than it is now.  Even the US Dollar loses value from time to time, even aside from the massive printing of money that devalues it, there are exchange rate fluctuations between the US Dollar and some other currency like the Euro.  And the US Dollar has a market cap in the trillions, vs almost $1.5 billion for bitcoin.  

[N_S]

It exists to raise money from depositors, keep it safe and make profits from providing services and by earning a spread (interest margin) between where they borrow and where they lend.

This is precisely Neo&Bee's intent as best I can tell.

[Stelios]

If anyone has a Windows machine please convert this (www.lmb-holdings.com/opening_week_crash.ods) to .xls . For some reason, even though I can open see and play around with it, I cannot convert it.

SK
p.s. or install libreOffice

[N_S]

N_S, have you been paying attention to how insanely volatile bitcoin is?  ex-trader has a really good point because while the fairly long term progression of bitcoin is upward, there is a LOT of short term volatility where it plunges 20 - 30%.  It's not a question of in case it does go negative, it's a question of when it does go negative, we've probably got a long ways before bitcoin becomes less volatile than it is now.  Even the US Dollar loses value from time to time, even aside from the massive printing of money that devalues it, there are exchange rate fluctuations between the US Dollar and some other currency like the Euro.  And the US Dollar has a market cap in the trillions, vs almost $1.5 billion for bitcoin.  

I'm well aware of the volatility it's experienced in the past, yes. What I was mentioning was negative growth rates for a period measured in months, not days or hours. Aside from a specific 30-day period between April/May 2013, there hasn't been a negative month in the past two years. The past month, for example, has been fairly uneventful at least as far as price movement goes, and we're still looking at a 5% gain.

[Rannasha]

If anyone has a Windows machine please convert this (www.lmb-holdings.com/opening_week_crash.ods) to .xls . For some reason, even though I can open see and play around with it, I cannot convert it.

SK
p.s. or install libreOffice

http://ge.tt/5UxhJ8t/v/0?c
Opened the .ods in LibreOffice and saved as .xls. Didn't check to see whether the conversion went okay.

[Stelios]

If anyone has a Windows machine please convert this (www.lmb-holdings.com/opening_week_crash.ods) to .xls . For some reason, even though I can open see and play around with it, I cannot convert it.

SK
p.s. or install libreOffice

http://ge.tt/5UxhJ8t/v/0?c
Opened the .ods in LibreOffice and saved as .xls. Didn't check to see whether the conversion went okay.

Perfect, it looks ok.
thanks Rannasha.

Ex-trader, Now you should be able to open it.