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Author Topic: Help me brainstorm for Spend Bitcoins  (Read 1894 times)
Jeremy West spendbitcoins.com
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August 07, 2011, 11:39:50 PM
 #1

I have really enjoyed running Spend Bitcoins and will continue to do so, but something has to change.

The entire point of Spend Bitcoins was to allow people to spend bitcoins at the market rate without paying any transaction fees. Instead, I got the vendors to pay the transaction fees (+ theoretically a profit for me) by signing up for their affiliate programs.

However, the affiliate payouts are actually not covering my losses. So far, Spend Bitcoins is actually a few thousand USD in the hole (<sob story>which is a large part of the reason I can't afford the trip from Australia to the US I had planned for this Thanksgiving for my parents to meet their new granddaughter Sad </sob story>.

I have been using the 24 hour average as my exchange rate, and it appears that gives too much incentive for my order volume to be greatest during down markets (or perhaps the problem is simply that we have basically been in a down market, with small blips up, since the Mt Gox hack). This then means that when I exchange btc -> USD (which I have to do a few times a week in order to pay for Amazon and other purchases), my loss has averaged greater than 5%, which is about when I get from Amazon.

The ordering pages are currently down for maintenance while I work out what to do with the exchange rate. One idea I have is to use the last Mt. Gox trade as my exchange rate, but that could be abused as well. I really don't want to make my exchange rate lower than the market rate, as I would then be just another btc->gift card exchanger without my unique selling point being that there are no added transaction fees.

So... if you have enjoyed the services of spendbitcoins.com or just have some nifty ideas for me on how to make my business profitable, can you please post them below?

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Jeremy West spendbitcoins.com
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August 07, 2011, 11:53:14 PM
 #2

P.S. -- Here are Spend Bitcoins stats for the last month:

Quote
8,800 Visits
 
17,338 Pageviews
 
1.97 Pages/Visit
 
55.99% Bounce Rate
 
00:02:26 Avg. Time on Site
 
44.39% % New Visits

There's gotta be a way to make that profitable. Smiley

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August 08, 2011, 12:00:31 AM
 #3

Sell featured spots for people's items/store?

Trader Steve
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August 08, 2011, 12:19:22 AM
 #4

Yes, this is a tough challenge because you are basically an exchanger and you are exposed to "exchange rate risk" until you sell your BTC. Ideally, you would sell the BTC into the exchange immediately at the time of receipt so you can lock in your spread (if charging a markup). Using the 24 hour average is bad because, as you stated, people are more inclined to spend with you vs. cashing out when the exchange rate you are offering is better for them than the current market rate.

It is not a big deal to sit on BTC if BTC is appreciating against the currency you are exchanging for but when the value of BTC drops like this last week your losses can pile up quickly.

Solutions:

1. Have a slush fund that will help you weather the dips that can hopefully be made up for if and when the BTC value rises again. This is similar to professional gamblers who have a large enough "bank" to weather long losing streaks until their luck changes back into their favor (perhaps you can take on a partner who is bullish on BTC and is willing to finance you?)

2. Charge a mark-up to give you an added cushion to help weather the down periods. After all, you are providing a service and people will be willing to pay for this service.

3. Figure out how to automate the selling of your BTC into the exchange as soon as you receive it (this means you can't use the 24 hour average) thus locking in your sales price. This is a hedge that bullion dealers like myself use when selling and buying bullion although I don't know of any way to automate this and you still have "exchange rate risk" until the trade is completed.

4. A combination of all of the above.

In summary you are basically a currency trader/speculator. The problem is that sellers of BTC "put" it to you (sell to you) when the BTC buying power is strong thus you are always buying BTC at the top. When the buying power of BTC drops your sales drop off so you don't get to accumulate much BTC at the lower prices. The way your business is structured now, you are betting that BTC will continue to appreciate against other currencies. When it doesn't you suffer losses.

All in all this is a tough situation to be in. You are basically a proxy buyer and currency trader. About the only solution I can see is if you had big pockets and wanted to accumulate BTC regardless of the price swings. Having a steady income of cash from other sources that allowed you to continue buying BTC over time would make it ideal provided you had enough disposable income to cover the sales of your services (your buying of BTC).

I hope this helps!
Trader Steve
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August 08, 2011, 12:22:11 AM
 #5

P.S. -- Here are Spend Bitcoins stats for the last month:

Quote
8,800 Visits
 
17,338 Pageviews
 
1.97 Pages/Visit
 
55.99% Bounce Rate
 
00:02:26 Avg. Time on Site
 
44.39% % New Visits

There's gotta be a way to make that profitable. Smiley

Yes, I neglected to look at advertising revenue as a way to offset losses or add to the bottom line.
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August 08, 2011, 12:38:45 AM
 #6

Another idea: Sell products and services on your site that have a higher mark-up (say 30% to 100%). This could possibly give you enough profits to make the "thin margin" sales (Amazon) worth the trouble and risk.

I've been thinking about these things myself because I am in the same "thin margin" situation with GoldStarBullion.com. Fortunately, I am a net accumulator of BTC and I have been able to weather the dips in BTC's exchange value. That said, I can appreciate the need to minimize exchange rate risk as much as possible.
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August 08, 2011, 12:49:21 AM
 #7

Trader Steve gave some good advice. You can use the mt gox api to sell the coins straight away. One of the big issues is that there arent any suppliers who accept bitcoin either so you always have to go back to bitcoin. It would be nice if a company such as ali baba let you pay suppliers in china with bitcoin.
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August 08, 2011, 04:07:10 AM
 #8

You need to narrow your quoting window.  You really should automate your trades on the exchanges too.

With the wild swings in the market, you really should be quoting live rates, or use a 15 minute window.  Maybe an hour, tops.  If your quoted price is different from the live prices on the exchanges, people will use you for arbitrage.  Since your operation is a way to go from bitcoins (liquid) to physical goods (not liquid), you won't have big operators cycling through you over and over again, but people that want to use your service will do it when it favors them, and wait when it doesn't.  Not absolutely, of course, but there will be a bias, and that bias is already big enough to make your site unprofitable.

Automated trading will limit your exchange losses.  Just sell them the instant that you get them, for the best price that you can get.  The exchanges have APIs that make this pretty easy.

Resist the temptation to speculate with them.  Either you don't know what you are doing and will take unnecessary losses, or you do know what you are doing and really should keep that activity separate.

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August 08, 2011, 03:10:09 PM
 #9

Maybe you should charge a little. 0.0000001 cent @ whatever is not a real price. The average for a larger sum like 50 btc is always lower.
Try 0.5% .Thats not really much. I hope you will continue  Smiley
Jeremy West spendbitcoins.com
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August 08, 2011, 09:30:48 PM
 #10

Sell featured spots for people's items/store?

For sale: Featured spots for people's items/store. Make me an offer by PM. Smiley

Jeremy West spendbitcoins.com
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August 08, 2011, 09:53:07 PM
 #11

(perhaps you can take on a partner who is bullish on BTC and is willing to finance you?)

I have definitely been thinking about this and am considering it very strongly now. It would be a way for someone who wants to accumulate bitcoin (well, that's me--I guess I mean someone who wants to accumulate bitcoin and has the capital to do so) to accumulate them without paying exchange fees and without moving the market, but I would continue to do all the work.

If anyone with very deep pockets is interested, let me know!

Another idea: Sell products and services on your site that have a higher mark-up (say 30% to 100%). This could possibly give you enough profits to make the "thin margin" sales (Amazon) worth the trouble and risk.

Another great idea. You'll be getting a PM from me soon!

Trader Steve gave some good advice. You can use the mt gox api to sell the coins straight away.

I know there is an api to sell the coins straight away, but does that include getting the coins from my wallet to Mt Gox straight away?

Resist the temptation to speculate with them.  Either you don't know what you are doing and will take unnecessary losses, or you do know what you are doing and really should keep that activity separate.

Yeah, I learned my lesson on that one. I was following the "high for the week is on Wednesday or Thursday" rule but news that causes a slide down can happen any day of the week and I don't have enough capital to hold the bitcoins till they go back up again AND keep running the business. I have tightened things up and am not losing nearly as much as when I was trying to speculate, but still am going the wrong direction.

Maybe you should charge a little. 0.0000001 cent @ whatever is not a real price. The average for a larger sum like 50 btc is always lower.
Try 0.5% .Thats not really much. I hope you will continue  Smiley

Don't worry, I'll definately continue.

It will be back up just as soon as I can code a proper exchange rate. 0.5% would not be enough to keep the 24-hour average as the exchange rate, but someone has PM'd me an excellent idea for the exchange rate--the lower of last price and the 24-hour average. That should stop the losses (on average anyway) as long as I automate trading. Does everyone reading this think that is a fair exchange rate (still with no added fees!)?

On a side note, I'm not a programmer. I'm having trouble grabbing the 'last' price from Mt Gox. Here is the current php that grabs the '24 hour weighted average' from bitcoincharts.com:

Quote
<?php
$string = file_get_contents("http://bitcoincharts.com/t/weighted_prices.json");
$json_a=json_decode($string,true);
echo $json_a['USD']['24h'];
?>

My site then just calls what this code echos whenever it needs the current BTC rate.

2 BTC bounty to whoever can rewrite this code (not give me hints on rewriting it myself, actually rewriting it, remember, I'm not a programmer Wink to echo the lower of the Mt Gox 24 hour weighted average and the Mt Gox last price.

Thanks for the help everyone (don't stop now, though, happy to hear any more ideas on making this profitable!).



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August 09, 2011, 12:06:18 AM
 #12

It will be back up just as soon as I can code a proper exchange rate. 0.5% would not be enough to keep the 24-hour average as the exchange rate, but someone has PM'd me an excellent idea for the exchange rate--the lower of last price and the 24-hour average. That should stop the losses (on average anyway) as long as I automate trading. Does everyone reading this think that is a fair exchange rate (still with no added fees!)?

On a side note, I'm not a programmer. I'm having trouble grabbing the 'last' price from Mt Gox. Here is the current php that grabs the '24 hour weighted average' from bitcoincharts.com:

Quote
<?php
$string = file_get_contents("http://bitcoincharts.com/t/weighted_prices.json");
$json_a=json_decode($string,true);
echo $json_a['USD']['24h'];
?>

My site then just calls what this code echos whenever it needs the current BTC rate.

2 BTC bounty to whoever can rewrite this code (not give me hints on rewriting it myself, actually rewriting it, remember, I'm not a programmer Wink to echo the lower of the Mt Gox 24 hour weighted average and the Mt Gox last price.

Thanks for the help everyone (don't stop now, though, happy to hear any more ideas on making this profitable!).

If I were doing it, I would pull the market depth data directly from mtgox (and cache it for a few minutes so you don't have to read it again on every page load), and read the bids (in order from high to low) to find out how many bitcoins it was really going to cost you to cover the transaction.  If you don't know the amount in advance, like if you want to provide a quote up front, pick a number a bit higher than your typical order and use that, probably with a disclaimer that unusually large orders will need to be recalculated.

The reason I'd do it this way is because you don't really care about the last price, or the average price, you care about the price that you are going to get in a few minutes when you sell.  You still have some risk, which is unavoidable, but you can seek to minimize it.

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August 09, 2011, 12:46:23 AM
 #13

From the desk of some guy named Bruno, founder of The Phinnaeus Gage Think Tank (TPGTT). https://bitcointalk.org/index.php?topic=5201.msg440456#msg440456

Quoting Trader Steve:

Quote
In summary you are basically a currency trader/speculator.

You have a killer domain name! What if the service you provide is secondary, while selling products with a nice markup is primary (I believe this was mentioned). But I'm not taking about products easily found on the internet where they're priced lower than what you offer them for. Nor a traditional affiliate program. In fact, you sell items cheaper than they could be purchased for anywhere else on the internet, and still recognize a handsome profit per sale.

PM me if I have your attention. Don't worry, the idea's not a scam, sham or involves pharaohs.
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August 09, 2011, 05:10:28 AM
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I think that you'll still experience arbitrage from people who will game your system via whatever exchange rate you choose. The key would be to pick an exchange rate that minimizes your losses as much as possible. 0.5% over the prevailing MtGox might work, but in a fast moving market, you might get left holding the bag still.

Depending on the volume you plan on moving BTC in and out of the market, you might want to contact MtGox and see if you can get a discount. 0.3% isn't much per trade, but based on the fact that you will probably be executing several small trades with a fairly high frequency, you might be able to make something work out. Worst case, they say no =)
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August 09, 2011, 02:32:40 PM
 #15

 Sad
Dagnabit man,
was an awesome site ... and was wanting to use this again..

I'm happy to run with a lower exchange rate,


In the Beginning there was CPU , then GPU , then FPGA then ASIC, what next I hear to ask ....

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August 09, 2011, 03:35:18 PM
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I have been using the 24 hour average as my exchange rate, and it appears that gives too much incentive for my order volume to be greatest during down markets (or perhaps the problem is simply that we have basically been in a down market, with small blips up, since the Mt Gox hack). This then means that when I exchange btc -> USD (which I have to do a few times a week in order to pay for Amazon and other purchases), my loss has averaged greater than 5%, which is about when I get from Amazon.

Are you doing the exchange btc->usd on MtGox by hand?

I'm currently thinking of automatizing the signup process for the service i offer, which lead me to the very same problem you described here. I think a good solution would be to do a nearly instant and automated exchange on MtGox or Tradehill.
- the users checks out on your site, exchange rate based on freshly updated MtGox weighted avg. (save it)
- as payment address you tell the user your static deposit address from MtGox. (if there is more than one open order in process which does have the very same btc amount, add a small fee of 0.00000001 to make the price unique in the processing queue)
- the user pays to your static deposit address on MtGox
- poll the MtGox API until you see the payment in your account
- initiate a sell order through the API at the saved average exchange rate (since there was a transaction delay from the user to MtGox, double check current avg. exhange rate and see if you can get a better price per BTC)
- remove order from process queue
- release Amazon voucher

This way your account would be based on more stable USD and wouldn't hold any swinging BTC. You still have to count in all transaction fees on MtGox and withdrawal fees and compare it to the affiliate discount...

I will sign you up anonymously at realitykings.com (http://rk.com)[NSFW] for Bitcoins with 20% discount!
http://timmey.orgfree.com/s.php
read all details in this thread (https://bitcointalk.org/index.php?topic=3242Cool
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August 09, 2011, 06:50:09 PM
 #17

Did you stop selling Amazon?
Jeremy West spendbitcoins.com
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August 09, 2011, 07:21:21 PM
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Did you stop selling Amazon?

Only temporarily. Will be back in the next few days.

Jeremy West spendbitcoins.com
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August 09, 2011, 10:07:09 PM
 #19

Did you stop selling Amazon?

Only temporarily. Will be back in the next few days.

...and we're back! Ordering is available again for Amazon with the exchange rate now being the lower of the 24-hour weighted average and the last trade on Mt Gox. That should stop a lot of leakage Wink.

Still happy to hear more ideas on how to make the business profitable, and still very open to an investor who would like to put up money, get paid in bitcoins, and get half the affiliate profits! I do all the work, you put up the money and get bitcoins with no fees + affiliate payouts. PM me to negotiate!

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August 09, 2011, 10:27:06 PM
 #20

Once Bitcoins goes back up to 11USD per 1BTC (if it does), then I'll be more than happy enough to bring back selling steam games.

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