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Author Topic: Gigamining / Teramining  (Read 201525 times)
Lumpy
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June 13, 2012, 02:35:46 AM
 #381

Why does (1) matter except for it's potential effects on (2)?

Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.
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June 13, 2012, 03:23:50 AM
 #382

The current numbers are easy, but your post wasn't about future rates or even hedging instruments.  Anyone can look up the BTC/USD cross rate and difficulty.

Well, obviously. I assumed we were talking about doing a NPV from the DFCF of the bond in which case the current numbers are almost irrelevant.

True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it.  But the debate/discussion is useful.
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June 13, 2012, 04:37:05 AM
 #383

True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it.  But the debate/discussion is useful.

True, but with ZIRP and my WACC around 0.75+LIBOR to 4% the issue is somewhat immaterial in my calculations.

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June 13, 2012, 04:53:26 AM
 #384

True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it.  But the debate/discussion is useful.

True, but with ZIRP and my WACC around 0.75+LIBOR to 4% the issue is somewhat immaterial in my calculations.

So if your cost of capital is so low, then you would be investing in something with a higher return?  Giga bonds are paying much higher than that, and even the non-BS&T deposits pay better, or some of the fixed interest bonds on offer then you can easily get 4-6% per month with fairly low risk.

The DCF/FV calcs could then contrast 100BTC invested in Gigamining versus BDK.bond (as an example).
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June 13, 2012, 05:00:06 AM
 #385

Why does (1) matter except for it's potential effects on (2)?

Want to buy a Zimbabwean govt bond?

The issue is your numeraire.

With a mining bond the Numéraire is Bitcoin. I don't see how USD matters in the slightest.

I don't want to buy a Zimbabwean bond. Do you want to buy caramel candies from Bees Brothers?

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June 13, 2012, 05:00:50 AM
 #386

Why does (1) matter except for it's potential effects on (2)?

Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.

Why not? (Because difficulty is way up, but that's all covered in (2))

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Lumpy
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June 13, 2012, 05:39:57 AM
 #387

Why does (1) matter except for it's potential effects on (2)?

Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.

Why not? (Because difficulty is way up, but that's all covered in (2))

You could look at it this way:

Suppose 1 BTC = $100 and 1 share of Gigamining costs 1 BTC. Also suppose $600 could buy 1 Gh/s in mining equipment and that one could receive it in a reasonable time frame. Would it be a better investment to spend 6 BTC (or $600) in 6 shares of Gigamining for a total of 30 Mh/s, or in a piece of hardware that provides 1 Gh/s? No one would buy the mining shares for 1 BTC in such a scenario. They might not even buy them for 0.1 BTC. IMO, the end result is that as BTC gets more valuable (possible) and mining equipment gets cheaper (very likely), the going rate for mining bonds will decrease substantially. And, rightly so, Gigavps should be profitable as the shares decrease in value to the point that he can buy them back for a pittance.

On the other hand, if price and difficulty drop, we're looking at the opposite picture.
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June 13, 2012, 06:03:41 AM
 #388

With a mining bond the Numéraire is Bitcoin. I don't see how USD matters in the slightest.

I think you have completely missed the point of the numeraire.

The relevant part of the article I quoted: "This technique has many important applications in LIBOR and swap market models, as well as commodity markets. Jamshidian (1989) first used it in the context of the Vasicek model for interest rates in order to calculate bond options prices."

If you can't see how a numeraire principle applies to bitcoin mining bonds then you might want do a little more studying in the financial management area. Lumpy has spotted and done a very rudimentary analysis of one of the most basic applications.

So if your cost of capital is so low, then you would be investing in something with a higher return?

More interested in return of capital than return on capital.

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June 13, 2012, 08:42:46 AM
 #389

Why does (1) matter except for it's potential effects on (2)?

Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.

Why not? (Because difficulty is way up, but that's all covered in (2))

You could look at it this way:

Suppose 1 BTC = $100 and 1 share of Gigamining costs 1 BTC. Also suppose $600 could buy 1 Gh/s in mining equipment..

Then why the hell wouldn't the price of Giga adjust?

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June 13, 2012, 11:26:00 AM
 #390

Pulling arbitrary numbers out of your arse and writing absurd What If scenario is pointless. Smiley

Lest get back to Gigamining "FRN" aka floating rate bonds that have a variable coupon (the interest rate that the issuer pays to the bond holders), equal to a X Gh/s etc.  
I think (hope?) those bastardised FRN's disappear soon and new mining bonds, with fixed coupon, will take over the bond market.

Another option is that current mining "bonds" start to resemble the real FNR's, where you have a floating rate from X Gh/s mining + fixed coupon (actually called spread that remains constant).
So, this bond will pay you what ever is mined by X Gh/s + spread of fixed rate.

stuff up to the interesting point

If you buy the bond at 1 (par) .....

Lol - par values went out with the dinosaurs and is not relevant (and it wasn't 1 anyway, and for most instruments would not have been 1).

Not sure, should I laugh or cry Smiley
You can set your "par" at what ever the f* you want and for my example, 1 was perfect.
Par value is still here because you need it for the coupon payment. I guess the meaning of "yield" an "coupon" still escape you. No problem, we all learn something new every day. Smiley

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Lumpy
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June 13, 2012, 01:26:25 PM
 #391

Then why the hell wouldn't the price of Giga adjust?

It would! That's exactly my point.

the end result is that as BTC gets more valuable (possible) and mining equipment gets cheaper (very likely), the going rate for mining bonds will decrease substantially

Someone buying the bonds hoping that they will retain their value would be due for a disappointment. It might not be possible to hold the bonds, make a profit, and resell them. That is why (1), Bitcoin price, matters. And, IMO, since hardware is bound to improve over time (just the trend with electronics these days), and the block reward will be cut soon, the Mh/s value of the bond will also not be nearly as worthwhile.
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June 13, 2012, 02:02:43 PM
 #392

the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon  Grin
copumpkin
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June 13, 2012, 02:32:18 PM
 #393

the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon  Grin

How do you figure? You're assuming difficulty goes up as a rough function of price, in which case the USD yield of these bonds will stay roughly the same over time. Of course, they aren't perfectly correlated (or even close to that), but the directions in which they move should be correlated in the long run.
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June 13, 2012, 02:56:47 PM
 #394

the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon  Grin

How do you figure? You're assuming difficulty goes up as a rough function of price, in which case the USD yield of these bonds will stay roughly the same over time. Of course, they aren't perfectly correlated (or even close to that), but the directions in which they move should be correlated in the long run.

Market's gone crazy today, up around 6-7%. At this pace everyone will mine with everything he has soon, including CPUs Grin I don't expect that to happen though  Cool
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June 13, 2012, 03:05:01 PM
 #395

Got to disagree with the CPU bit there. Wink
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June 13, 2012, 03:20:28 PM
 #396

At $5.95 - doubtful a CPU miner cranks up.

At $15.95 - maybe  Wink

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June 13, 2012, 03:53:53 PM
 #397

At $5.95 - doubtful a CPU miner cranks up.

At $15.95 - maybe  Wink

ROFL.....I don't think CPU miners are EVER coming back.  The difficulty would skyrocket at a price of 15.95!

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June 14, 2012, 01:06:09 AM
 #398

Does anyone know why Giga and many other Mining bonds have lost around 20% of there value in the last few weeks. 

Has a large investor pulled out?

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June 14, 2012, 01:18:41 AM
 #399

Overvaluation, ASIC FUD, BTC price rise, reinvestment from pre-IPO...

Who knows. In this world I've learned to brush off 20% fluctuations. I doubt it was one investor, he pulled out two weeks ago  Cheesy

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June 14, 2012, 01:57:15 AM
 #400

Does anyone know why Giga and many other Mining bonds have lost around 20% of there value in the last few weeks.  

Has a large investor pulled out?

Considering that it really didn't take very much volume to lose that much on the price, I doubt it.

The more likely explanation, as I suggested earlier, is that nobody wants to leave their bitcoins locked up in GLBSE to keep open bids. Thus the bid depth on even the biggest markets like gigamining is laughably small. Occasional random fluctuations mean that someone decided to sell a few shares at whatever price, which took the price from the stable 1.50 down to 1.30ish, because there was almost nothing in between. Naive investors and speculators, ignoring the lack of liquidity, thought the new 1.30 number was somehow meaningful despite it taking just a handful of shares sold to get there, panicked, and sold more. Since there still was very little depth, this took us down to 1.01. A few small purchases later, we're in the 1.25 range again.

I'm not saying that 1.50 or even 1.30 is the right price for gigamining, but the kind of panic I've seen over these effectively meaningless price movements over the past few days is laughable. GLBSE really just needs to figure out how to incentivize market makers for stocks. There's not necessarily an incentive for individual issuers to do this, but due to transaction fees there's always an incentive for the exchange itself. Thus if they could get serious market makers into the exchange, the whole economy would be a lot healthier (a liquid market is a happy one), and so would GLBSE's profits.
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