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Author Topic: There is a way we can trade Bitcoin without getting shut down constantly - read  (Read 18653 times)
JackH
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October 25, 2011, 10:19:09 PM
 #1

Hello everyone,

As it seems our "industry" has a problem which is float. We keep on trying to make things happen, despite the fact that most banks and financial institutions wont touch Bitcoin with a fire hose. When it comes to PayPal, Visa & Mastercard the game is even worse as complete shutdown for no apparent reason always occurs.

Well there is a way into the world of finances which is possible, and shutting "us" down would be quite difficult, none the less it would probably cause mayor headlines if such was to happen, as it plays with the foundation of capitalism - the right of ownership (compared to the right of having a merchant account).

It takes significantly more to shut down a company, which is publicly listed, has its shares spread among (X + 1000) shareholders and the company's share price is denominated in the daily price of Bitcoin.

Now you ask, how is this possible?

Well it requires that someone, pegs a public listed company to the Bitcoin price, by issuing a bond, a socalled zero-coupon bond.

Here is how it can go step by step. Mind you, this is all still in theory and would require a great amount of funds.

- Incorporate a company in Europe/Offshore (Europe/Offshore because the SEC regulations for getting a company up and running on a publicly listed exchange is quite harsh).

- Make sure the company memorandum & articles states that the company's sole purpose is to issue bitcoin denominated zero-coupon bonds.

- Make sure the company is owned by a trust with a trustee guardian (this can be a law firm), which is only bound by following the company memorandum & articles by law. Thus CEO influence is down to minimum and only on an administrative level. CEO responsibilities/profit would be paid out on a % basis of the public trade. Same goes for trustee.

- Issue 21.000.000 zero-coupon bonds and peg them to the Bitcoin daily price as per Mtgox.com/Tradehill for indication for starting point (as we assume arbitrage would be done in order to stabilize price all over)

- Trading occurs when a private person purchases a bond by sending Bitcoin to the company account, and receiving the bond OTC, or purchasing it directly on the market for dollar/euro, controlled by the trustee of the company, which is by law bound to execute order to the CEO of issuing a bond. By law the trustee is a regulated entity which will either risk loosing their license to practice or follow suit. Bond is being issued through a broker, that is usually the marked maker (aka. the Bank that helped issue the bonds on the marked to begin with).

- It does not have to be called a bond, which is a debt certificate. The instrument can be something different, a CDO (Collateralized Debt Obligations), which is backed by the company's holdings of Bitcoin. Or it can be one of the myriad of financial instruments that covers the exact need. For more types of bonds and for the sake of debate look here: http://en.wikipedia.org/wiki/Bond_market#Types_of_bond_markets

Now there are implications with this method. It more or less requires someone that wants to setup and exchange, but wants to be free of the hassle of having their bank account shut down every second month. By running a company, it is based on a complete different set of laws, and closing something like this down, just because someone doesnt like the idea is next to impossible. Actually as far as I know closing down a public company has not happened, apart from bankruptcy.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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Andrew Vorobyov
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October 26, 2011, 07:18:51 AM
 #2

Nice idea... but how it will simplify buying bitcoins? buying bonds seems to be complicated thing

JackH
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October 26, 2011, 08:30:44 AM
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May be for the average person, but what this solves is a fast track into the money markets, where institutional investors, banks, financial companies and other legal entities can purchase a financial instrument pegged to a currency. A bit like the Eurobond that is pegged directly to the Euro, a Bitcoinbond can be pegged to Bitcoin. This allows for hedging by large corporations.

The incentive would of course be that Bitcoin offers something no other currency offers, which is basing its price on pure supply/demand. This gives Bitcoin a carte blanche into the money markets and institutional investors can start treating Bitcoin as a currency adopted by the professional markets.

Basically the company running such a scheme would be an exchange, in the same way MtGox is an exchange. But instead of basing it on old fashion "money for bitcoin" we overlay the structure with a product that is legally binding by the laws set forth in the companies act.

No shut down can occur!

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
ovidiusoft
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October 26, 2011, 08:50:20 AM
 #4

@JackH, you seem to know a lot about the subject, you care to give us a hand? https://bitcointalk.org/index.php?topic=48704.0
JackH
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October 26, 2011, 08:58:02 AM
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Your complicating your issue way to much in your topic. What I am simply saying in this thread is that you dont have to invent the wheel again. You do as every large corporation or country is doing when they need money and float. Instead of treating Bitcoin as something that cannot be integrated with the money markets - start playing ball in the field where the money lies.

Banks and investors dont care much about what Bitcoin is doing to change the world, they just want to make money. Give them the means to make those money, and issue a financial instrument to THEIR ballgame they can play with.

Not only is this completely legal, but it will completely go around the system that is constantly shutting down Bitcoin. Here we are talking about issuing a financial product to the markets that people can purchase and sell as they have always been used to.

As I said, the incentive is that the instrument has a unique behavior compared to other instruments. The instrument, lets call it Bitcoinbond, will have unique properties, which will/will not be enough incentive for a professional investor to treat it as safe investment.  

Here is another way to put it so people can understand:

1) Company A is incorporated
2) Company A issues X amount of bonds and pegs them to the Bitcoin price
3) Bonds gets sold on the respective exchange to investors/banks
4) Company buys up Bitcoin for all the money it receives of the bonds

Instead of Bitcoin input Gold, and this would be a business that is completely legal and possible and is actually a reality these days.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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October 26, 2011, 09:28:20 AM
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I haven't dealt with any of the major exchangers since June, I've had nothing but positive experience with the bitcoin-OTC

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October 26, 2011, 11:11:48 AM
 #7

If you view Bitcoin as a commodity, you could "simply" set up a Bitcoin ETC.
In fact, we discussed exactly this within our group - the problem is, that you'd need quite substantial initial capital to get the whole thing up and running.

Apart from that, it would be a great thing! If anybody knows of an organization actually willing to do that, let us know!
JackH
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October 26, 2011, 11:34:26 AM
 #8

Very good idea! Bond-EFT's are the best solution for sure!

I have some contacts in the stock exchanges and law firms that can setup the issuing of a financial product. I will try to post more information as I get more information.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
ovidiusoft
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October 26, 2011, 12:13:51 PM
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Your complicating your issue way to much in your topic. What I am simply saying in this thread is that you dont have to invent the wheel again. You do as every large corporation or country is doing when they need money and float. Instead of treating Bitcoin as something that cannot be integrated with the money markets - start playing ball in the field where the money lies.

Well, money transfer is a complicated matter, one that is still not completely solved in a reasonable way by current systems. My plan was to create a system transparent to the user, easy to understand (give me your cash, get this code, send it to your friend and he'll exchange it for cash), fast and cheap. I am starting to think that's not possible, though... Sad

Quote
Not only is this completely legal, but it will completely go around the system that is constantly shutting down Bitcoin. Here we are talking about issuing a financial product to the markets that people can purchase and sell as they have always been used to.

This sounds good and the system you describe is simple enough. What I'm not sure about is how easy it would be to buy and sell bonds (or EFTs) in <random location here>. It might simply be way to complicated or expensive, or both.

Anyway, following with interest! If what you suggest is possible, count me in.
JackH
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October 26, 2011, 12:38:26 PM
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You are looking at it from a wrong perspective. Purchasing bonds is not about giving the means for each and every person to purchase a bond/EFT which is pegged to Bitcoin.

By issuing a bond/EFT you simply increase the float, ie. you increase the customer base into an environment that is dealing with trillions daily. If you list the product on the financial markets, all banks, financial institutions, and everyone that does some small time trading through trading platforms will be able to purchase the product, thus indirectly purchasing Bitcoins.

While people will still be able to purchase on Mtgox and Tradehill, a whole different class of speculators and institutions will gain access to Bitcoins through a familiar platform, which is a stock exchange such as NASDAQ, Amex, Euronext and so on. This is about float, not about giving everyone here easier access to Bitcoin - this is already possible for us through Mtgox and Tradehill.

Yet some people outside our core forum/industry does not like to purchase Bitcoin this way because the amounts you can exchange is simply to little for a bank or corporation to matter. We have to start talking 10+ million of dollars.

For the sake of simplicity imagine it as being virtual gold pegged to an EFT/bond.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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October 26, 2011, 12:42:42 PM
 #11

Wouldnt you need to go through middlemen like stock traders ?

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JackH
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October 26, 2011, 12:46:40 PM
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Stock traders are just executing orders on the market. A market such as Euronext and NASDAQ has middle men, which are banks and other financial institutions that are allowed to execute financial orders on behalf of third party. But this is not a problem per say, since you as client tell your broker (bank) to execute an order for you. You basically do that through an online system, and the bank purchases the instrument on behalf of you. There is no magic here or any chance of getting "shut down". It is just a financial instrument as all other financial instruments.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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October 26, 2011, 02:40:54 PM
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JackH - Sorry if this post takes this thread slightly off-topic but I'm happy to start a new thread if you think it better.

The shutting down issue is a major problem but I'm not sure how facilitating people to hold shares of exiting companies denominated in Bitcoin really helps. From the perspective of traction, who would be interested that isn't already a Bitcoin 'believer'?

From what you said though, would this be a more grassroots way of achieving the same goal:

1) Set up a multitude of companies with hundreds/thousands of Bitcoin users

2) Articles to require shares to be denominated in Bitcoin and transactions to be done in Bitcoin

3) List shares on a stock exchange

All products and services would be traded in Bitcoin. These companies could then be traded on a Bitcoin stock exchange for any investor to buy from (plus all the other financial instruments that can be derived from a stock trading platform).

Could this not be economically more feasible in order to get to your scenario?

If this post was useful, interesting or entertaining, then you've misunderstood. 1N6rmaDiPf8ke3mx8217NykAMDZXkX713x
JackH
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October 26, 2011, 03:13:38 PM
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There is no reason to complicate it to such an extend. By simply pegging the bond to the bitcoin price you archive float, which is the purpose. The bitcoin success only depends on float and volume. The method described allows for such.

What you describe is going to cause havoc, be many times more expensive and not feasible since it would require a company to be listed. Mind you there is a big different from listing a bond to listing a whole company on an exchange. Big difference aka. price and time

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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October 26, 2011, 03:41:46 PM
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There is no reason to complicate it to such an extend. By simply pegging the bond to the bitcoin price you archive float, which is the purpose. The bitcoin success only depends on float and volume. The method described allows for such.

What you describe is going to cause havoc, be many times more expensive and not feasible since it would require a company to be listed. Mind you there is a big different from listing a bond to listing a whole company on an exchange. Big difference aka. price and time

I don't mean to list on a traditional stock exchange but an exchange we would create ourselves.

If this post was useful, interesting or entertaining, then you've misunderstood. 1N6rmaDiPf8ke3mx8217NykAMDZXkX713x
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October 26, 2011, 04:02:10 PM
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I think the majority of people here are totally missing your point.

The idea is simply to leverage funds against bitcoins to allow major financial industries to speculate on the market and the value of bitcoin. Right?

This would allow BIG money to flow in and out of bitcoin completely legally. It would give a huge increase to the value opening it up to the real markets and this would be the simplest way to do it it seems.

How much funds would be needed to start this?

Do correct me if im wrong this is the way I seem to understand your proposal. I think the large number of software developers here and very few economists here does lend well to your way to access the financial markets Smiley
JackH
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October 26, 2011, 04:31:13 PM
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I think the majority of people here are totally missing your point.

The idea is simply to leverage funds against bitcoins to allow major financial industries to speculate on the market and the value of bitcoin. Right?

This would allow BIG money to flow in and out of bitcoin completely legally. It would give a huge increase to the value opening it up to the real markets and this would be the simplest way to do it it seems.

How much funds would be needed to start this?

Do correct me if im wrong this is the way I seem to understand your proposal. I think the large number of software developers here and very few economists here does lend well to your way to access the financial markets Smiley

Glad to see someone really got it! You are correct, that is exactly what I want to archive!

Required funds is in the range of 10.000€ to 15.000€ depending on which stock exchange and how we eventually end up listing the bond/EFT's.

<helo> funny that this proposal grows the maximum block size to 8GB, and is seen as a compromise
<helo> oh, you don't like a 20x increase? well how about 8192x increase?
<JackH> lmao
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October 26, 2011, 08:35:55 PM
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Nothing to add except that this could be a big boon.

Bitcoin is just another asset, and adding it there could allow big money to flow.

Now for a dissenting opinion:
Quote
Incitatus: also it's not huge
Incitatus: there are tons of listed dead stocks
Incitatus: whcih no one trades
Incitatus: that'swhat this would be
Incitatus: unlessthere was another hype

Jason: listing a company is serious work

I'm not a finance person so I can't really make an informed opinion, but what do you think of the above?
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October 26, 2011, 08:44:35 PM
 #19

I hate to be a wet blanket, but if "they" wanted to stop this why couldn't "they" simply pass a law stating that it was illegal to buy or sell bitcoins?

Or "they" could impose a punitive tax on purchases or sales of bitcoins.

I suppose my point is: if "they" really want to make bitcoin illegal, then they will find a way to do it; I don't think creating bitcoin derivatives will help much on the legal front.

How often do you get the chance to work on a potentially world-changing project?
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October 26, 2011, 08:54:57 PM
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I hate to be a wet blanket, but if "they" wanted to stop this why couldn't "they" simply pass a law stating that it was illegal to buy or sell bitcoins?

Or "they" could impose a punitive tax on purchases or sales of bitcoins.

I suppose my point is: if "they" really want to make bitcoin illegal, then they will find a way to do it; I don't think creating bitcoin derivatives will help much on the legal front.


Agreed but two points
1) Other that a single politician spinning there has been no effort to make bitcoin illegal (yet).
2) There is no universal "they".  Even if bitcoin becomes illegal in the US I would gladly rent out my rigs to support network in other places.

Personally I feel Bitcoin has the most value in chaotic economies (places with rampant inflation, or unstable currencies) and totalitarian regimes (where the privacy aspects have higher utility).
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