[Havelock] Bitcoin Difficulty Derivative (BDD)

[twentyseventy]

Period 16, Day 5 Report - July 31, 2014

Balance Post Divs: BTC 324.41657761

Total Units: 12755

NAV/U: BTC 0.02543446

[RiverBoatBTC]

^Huh.  OK.
BTW, there are two possible explanations as to why Voorhees got off so easy.
Perhaps, as you've suggested, the SEC didn't want to to come down hard on a gambling operator flagrantly ignoring SEC's own regulations.  Because ~pause for effect~ ...bad publicity.
Or Voorhees genuinely cooperated
I have no idea.

Im sure he cooperated why would he make things harder on himself, he knew it would be easy for him just to pay the fine and go about his day.

Read this, if you are a U.S. Citizen http://www.sec.gov/rules/interp/33-7516.htm

Think havelock is protecting you, might want to think again. It even address U.S. Citizens using offshore businesses.

[twentyseventy]

Period 16, Day 6 Report - August 1, 2014

Balance Post Divs: BTC 324.41657761

Total Units: 12775

NAV/U: BTC 0.02530174

[Saturnix]

Can someone explain me what's an easy calculation I can make to see when the next dividend of B.SELL will be paid?


Many thanks

[ddalex]

Can someone explain me what's an easy calculation I can make to see when the next dividend of B.SELL will be paid?
Many thanks

Sorry, I have bad news for you and many others.
I think B.SELL would receive no further dividends, because the future is this: "BDD End-Game via Decrease".
For that reason I sold all my B.SELL some weeks ago
 

...
BDD End-Game via Decrease
The second possibility is that Difficulty stagnates or decreases and the fund Reserve is deficient (no longer holds 200 days of dividends at current Difficulty). In this scenario, B.MINE will continue to receive daily dividends until the fund’s capital is exhausted. If the difficulty continued to decrease or stagnate, B.SELL would receive no further dividends and all B.SELL contracts would be bought back (forced) for no value after the fund’s capital is exhausted (as all funds would have been paid out to B.MINE).

In cases of changes between increase and decrease/stagnation in Difficulty, the fund’s Reserve will be the determining factor as to whether B.SELL receives any dividends. There must be in excess of 200 days worth of current B.MINE dividends for B.SELL to receive a dividend.
...
Will there always be a SELL Dividend Issued if the Difficulty increase?

No, and here is why:

I think this is a good time to remind everyone (or make aware to those that haven't done the math) that the Difficulty needs to increase around 6.5% in order for there to be a SELL dividend issued. I say 'around' since it will be somewhat less if there are significant sales of EXCH, which increase the NAV/U.

This is because the Period is started with 200 Days of Dividends and .5% is paid out each day in dividends to MINE (1 Day / 200 Days = .5%). So, at the end of a 10-Day Period, there are only 190 days of dividends remaining at that ending Period's Difficulty.

If there is a Difficulty increase of greater than about 6.5%, then the necessary Reserve of 200 day of dividends has decreased enough to make this a non-issue. If the Difficulty has increased at less than that approximate rate (or stayed the same, or decreased), then the required Reserve is higher than the actual Reserve and there will be no SELL dividend.

TL;DR It's possible that there could be a Difficulty Increase, but no dividends will be issued to SELL for that Period due to the paid Dividends outstripping the decrease brought on by the small Difficulty Increase.
But you really should be reading the whole explanation.

[jjdub7]

Can someone explain me what's an easy calculation I can make to see when the next dividend of B.SELL will be paid?
Many thanks

Sorry, I have bad news for you and many others.
I think B.SELL would receive no further dividends, because the future is this: "BDD End-Game via Decrease".
For that reason I sold all my B.SELL some weeks ago
 

Hasn't it been established that the major mining operators are colluding now to create a shortage in the supply?  Ghash has been producing significantly less blocks over the past weeks - at one point they fell below Discus Fish in the 24 hour numbers.

[junkonator]

Hasn't it been established that the major mining operators are colluding now to create a shortage in the supply?  Ghash has been producing significantly less blocks over the past weeks - at one point they fell below Discus Fish in the 24 hour numbers.

Huh? Where can I read up on this?

[jjdub7]

Hasn't it been established that the major mining operators are colluding now to create a shortage in the supply?  Ghash has been producing significantly less blocks over the past weeks - at one point they fell below Discus Fish in the 24 hour numbers.

Huh? Where can I read up on this?

No, sorry, not operators - I meant hardware manufacturers (but mechanically, its the same).  Just because friedcat, for example, has 20PH worth of chips assembled in miners doesn't mean he's going to dump ASICminer's whole inventory on the market at once.  He's going to price-discriminate, pricing AM hardware by customer segment, quantity ordered, location, etc.  Like any good CEO, he's using the pricing strategy to both maximize his profits by getting the people willing to pay the most first (same as Bitmain's batched, price-tiered S3 release) and by restricting the added supply of bitcoins flowing onto the market from the additional hardware (thereby making the hardware itself more valuable, as the bitcoin it can mine stays at a higher value).

It helps to think of buying mining equipment as buying bitcoin futures realized as coupon payments from your mining pool.

http://www.coindesk.com/private-china-meeting-bitcoin-mining-industry-leaders/

Although my point about Ghash remains - they did have a massive decrease in blocks for the first half of the period (hardware maintenance/upgrade?).

[jjdub7]

Hasn't it been established that the major mining operators are colluding now to create a shortage in the supply?  Ghash has been producing significantly less blocks over the past weeks - at one point they fell below Discus Fish in the 24 hour numbers.

Huh? Where can I read up on this?

No, sorry, not operators - I meant hardware manufacturers (but mechanically, its the same).  Just because friedcat, for example, has 20PH worth of chips assembled in miners doesn't mean he's going to dump ASICminer's whole inventory on the market at once.  He's going to price-discriminate, pricing AM hardware by customer segment, quantity ordered, location, etc.  Like any good CEO, he's using the pricing strategy to both maximize his profits by getting the people willing to pay the most first (same as Bitmain's batched, price-tiered S3 release) and by restricting the added supply of bitcoins flowing onto the market from the additional hardware (thereby making the hardware itself more valuable, as the bitcoin it can mine stays at a higher value).

It helps to think of buying mining equipment as buying bitcoin futures realized as coupon payments from your mining pool.

http://www.coindesk.com/private-china-meeting-bitcoin-mining-industry-leaders/

Although my point about Ghash remains - they did have a massive decrease in blocks for the first half of the period (hardware maintenance/upgrade?).

Granted, when a new generation/smaller process node hitting the market will blow out the difficulty regardless in most cases.  Imagine if all the major manufacturers announced they were releasing 14nm chips in December...the B.MINE price wouldn't drop so much as shift downwards.

[twentyseventy]

Period 16, Day 7 Report - August 2, 2014

Balance Post Divs: BTC 321.56794135

Total Units: 12777

NAV/U: BTC 0.02516771

[twentyseventy]

Period 16, Day 8 Report - August 3, 2014

Balance Post Divs: BTC 319.85326795

Total Units: 12777

NAV/U: BTC 0.02503351

[twentyseventy]

Period 16, Day 9 Report - August 4, 2014

Balance Post Divs: BTC 318.13859455

Total Units: 12777

NAV/U: BTC 0.02489931

[twentyseventy]

Period 16, Day 10 Report - August 5, 2014

Balance Post Divs: BTC 316.42392115

Total Units: 12777

NAV/U: BTC 0.02476511

[luigii]

Hey guys,

First of all i'm a total noob in this market and all this financial instruments, but studying and learning.

Will this BDD dividend value always go downwards as I see in the trend or there a way to go upwards? Are this funds going towards closure or is it possible to invest in them longterm?

Bare with me if you can, hope I wont cause to much trouble!

[jjdub7]

Hey guys,

First of all i'm a total noob in this market and all this financial instruments, but studying and learning.

Will this BDD dividend value always go downwards as I see in the trend or there a way to go upwards? Are this funds going towards closure or is it possible to invest in them longterm?

Bare with me if you can, hope I wont cause to much trouble!

BDD is a pseudo zero-sum game where the existing capital in the fund is paid out to MINE holders on a daily basis.  New capital enters the fund when people buy EXCH shares, which are sold at a premium.  If enough people were to enter into the security by purchasing new EXCH shares, the fund's value could go up, though this would require difficulty to decrease so that the 200 days' worth of reserve payments to MINE that the fund holds will increase.  If people buy EXCH shares and the difficulty rises, the excess is paid out to SELL holders.

[luigii]

Hey guys,

First of all i'm a total noob in this market and all this financial instruments, but studying and learning.

Will this BDD dividend value always go downwards as I see in the trend or there a way to go upwards? Are this funds going towards closure or is it possible to invest in them longterm?

Bare with me if you can, hope I wont cause to much trouble!

BDD is a pseudo zero-sum game where the existing capital in the fund is paid out to MINE holders on a daily basis.  New capital enters the fund when people buy EXCH shares, which are sold at a premium.  If enough people were to enter into the security by purchasing new EXCH shares, the fund's value could go up, though this would require difficulty to decrease so that the 200 days' worth of reserve payments to MINE that the fund holds will increase.  If people buy EXCH shares and the difficulty rises, the excess is paid out to SELL holders.

Thanks for an explanation! One more question. But I can just buy B.MINE and hold to it. Do I need to buy EXCH?

[Lohoris]

Thanks for an explanation! One more question. But I can just buy B.MINE and hold to it. Do I need to buy EXCH?

You can either
- buy MINE
or
- buy EXCH, exchange it for MINE+SELL, sell SELL and keep MINE

obviously the first one is simpler, but in some strange occasion the second one might be more profitable (though I guess there already is a bot ready to do that)

[luigii]

Thanks for an explanation! One more question. But I can just buy B.MINE and hold to it. Do I need to buy EXCH?

You can either
- buy MINE
or
- buy EXCH, exchange it for MINE+SELL, sell SELL and keep MINE

obviously the first one is simpler, but in some strange occasion the second one might be more profitable (though I guess there already is a bot ready to do that)

Thanks!

[twentyseventy]

Period 16, Day 11 Report - August 6, 2014

Balance Post Divs: BTC 314.70924775

Total Units: 12777

NAV/U: BTC 0.02463091

Hey guys, have been very busy lately, so I appreciate anyone answering questions in the thread here.

[twentyseventy]

Period 16, Day 12 Report - August 7, 2014

Balance Post Divs: BTC 312.99457435

Total Units: 12777

NAV/U: BTC 0.02449671

With this being the third Period without a SELL dividend (Spoiler alert!    ), I'm reminded of something Deprived said nearly a year ago regarding DMS. Though BDD and DMS are structured a bit differently, they function very similarly at a basic MINE/SELL level.

Not to say that this is the case now, as much more hashpower may be / will be coming online soon, but it's a thought that has stuck with me:

On a last note let me give a (probably irresponsible - but I've had few beers so who cares) teaser.  The biggest profits to be made trading DMS are yet to come - predicting the cross-over point where difficulty ceases rising and the price of MINING gos through the roof (SELLING has no exit route other than paying 90% of NAV/U to MINING).  I don't pretend to know exactly when that occurs but when it does it's going to catch a lot of people by surprise.

I've posted the full quote below for complete context:

I've had a few (i.e. a lot of) beers so apologies if I'm not as clear as I could be.  MINING can't ever reach 0 or near to it (relative to the price of PURCHASE).  That's because if there's a massive rise then immediately there's a large dividend to SELLING reducing the NVA/U of PURCHASE.

After EVERY increase i ndifficulty greater than a few % MINING is always going to be paying dividends equal to 1/400th of NAV/U per day.  That sets an absolute minimum on the value/price of MINING (depending on what you believe the minimum to be between dfficulty changes).

Where the contract is currently silent is on the situation where MINING's dividends/value end up being effectively rounding errors (which requires a few orders of magnitude increase in difficulty).  Whilst I believe that unlikely (prices were, in part, set based on what I believed to be best/worst cases in the short-mid term) it obviously isn't theoretically impossible (note that if it occurs then nearly all ASICs produced to date would mine less coins than the power cost of running them let alone any recovery of sunk costs).

My expectation was (and remains) that at some point in the not too distant future MINING will end up being the majority of PURCHASE value - and SELLING will then vote to close the fund (obtainin 10% of NAV/U rather than the 0% they'd receive back if they waited).  I don't want to poison the pool by giving by prediction of when that will occur but rather obviously it would have to occur between difficulty increasing by 1 order of magnitude (which is almost certain) and it increasing by 2 orders of magnitude (which I believe to be highly unlikely with current technology).

If it actually happens that MINING dividends drop below 10 satoshis per day then we DO have a problem that isn't covered by the contract.  I believe it exceedingly unlikely that will happen without a period of stagnation previously (where SELLING should rationally vote to close) as the break-even point for those obtaining free hardware and $0.01/KWh electricity falls before that with current technology (and that's the edge case I used when setting hashes/share initially to avoid this problem).

It may not be the most satisfcatory answer ever - but my response is that:

a) It isn't likely to happen.
b) If it does happen then I'll sort something out.

In retrospect there's a few changes I should have made when designing DMS - one of which definitely IS provision for reverse splits to keep the price of MINING in a sensible range.

Do bear in mind when considering this that you'd only be discussing dividends per month of under 1% of current market value of MINING - whatever else is the case it's entirely trivial when currently assessing the value of MINING.

On a last note let me give a (probably irresponsible - but I've had few beers so who cares) teaser.  The biggest profits to be made trading DMS are yet to come - predicting the cross-over point where difficulty ceases rising and the price of MINING gos through the roof (SELLING has no exit route other than paying 90% of NAV/U to MINING).  I don't pretend to know exactly when that occurs but when it does it's going to catch a lot of people by surprise.

From a management perspective it's been a fun (and profitable) security to run - right up until recently.  Hopefully we can get back to that : it offers a legitimate method for people to bet on their judgment vs others KNOWING in advance the odds they get - which is very rare in BTC land (most betting services either don't give fixed odds, have no market depth or are just random in outcome).