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Author Topic: 2012-05-05 The Bitcoin Stock Market - Miners and Pirates, Oh My!  (Read 1716 times)
matthewh3
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May 05, 2012, 11:07:11 PM
 #1

http://www.thebitcointrader.com/2012/05/bitcoin-stock-market-miners-and-pirates.html

As of this morning, there are 8.9 million Bitcoins in circulation with a combined value of over $45 million USD. It isn't exactly a secret that a good portion of those Bitcoins are held by speculators and investors hoping to see the currency gain traction and their Bitcoins appreciate in value. All that to say, there is a heck of a lot of money sitting idle and not being put to work. At least, that was the case until recently.

Non-Bitcoiners may not be aware of this, but there is a substantial secondary market where Bitcoins are being used to kickstart (heh) various community driven projects, mostly, at this point, with a view to further developing the infrastructure that overlays and streamlines the Bitcoin economy.

The GLobal Bitcoin Stock Exchange (GLBSE) is the primary site through which most of these transactions are occurring. To give you an appreciation of the size of this market, over 5600 BTC ($28,000 USD) in securities were traded on the exchange in the last 24 hours, equal to about 1/6th of the 24 hour volume on Mt.Gox.

The top five securities by total volume traded, measured in Bitcoins, all represent mining operations, which shouldn't come as a big surprise to anyone. The larger mining operations are always looking to acquire more hardware, and there's no better way to do that then to sell stock in your operation. Things get interesting when you look at the next five securities. Four of those five are "Pirate Pass Through" bonds, which I'll explain...

There's this "bank" see, run by a mysterious individual going by the name of "pirateat40" (pirate at 40) who has been soliciting Bitcoin deposits to finance an even more mysterious business of sorts. There are various theories floating around as to the nature of this business, most of which fall into one of two categories: one, a massive (by Bitcoin standards) Ponzi scheme where the interest on earlier deposits is paid using later deposits, or two, pirateat40 actually sells Bitcoins for cash to various entities who are looking to acquire substantial amounts of the currency without leaving a paper trail, as would happen if they used a conventional exchange.

Six months into the scheme, and not a single interest payment from the Bitcoin Savings & Trust bank has been missed, yet the interest rates are enormously lucrative for anyone willing to take the chance. For example, a 2000 BTC deposit (~$10,000 USD) will earn 7% interest per week!  You heard (read) me. If you were lucky enough to be one of the earlier account holders, you could be pulling in enough interest on a 2000 BTC deposit to cover a mortgage on a decent sized home. Unfortunately, pirateat40 is not always accepting new deposits (lending some support to the "not a Ponzi scheme" theorists), which leads us back to GLBSE and the "Pirate Pass Through" bonds, a means for anyone to get in on the Bitcoin Savings & Trust action.

A "cartel" of some of the more well-known members of the community has established a series of bonds that pay out 1.28 BTC per bond after four weeks. Each issue of bonds (PPT.A, PPT.B, PPT.C, etc) is auctioned off on GLBSE and typically sells for between 1.06 and 1.09 BTC per bond, giving investors a very respectable 15 to 20% ROI. The money raised from the bond sales is deposited into the Bitcoin Savings & Trust, where the bond backers earn substantially more interest (as explained above) than is paid out to the bond holders. Should the Bitcoin Savings & Trust default on their interest payments, the whole scheme would fail, and the bond holders would be paid out only a fraction (25%) of the bond value. For the moment, however, everything is holding together.

Not surprisingly, given the ingenuity of Bitcoiners and the ease with which Bitcoins enable financial transactions, an issue of "Anti-Pirate" bonds was created, sort of a credit default swap for anyone looking to hedge the risk of depositing with Bitcoin Savings & Trust. Interestingly, after a week, not a single Anti-Pirate Bond was sold, and in the words of the bond's backer, the sale was "a spectacular failure."

By the looks of things, pirateat40 has earned a lot of trust in the community. The question remains, however: what the heck is he doing with all those Bitcoins?

In the meantime, you might want to look at some of the other offerings on the GLBSE which range from companies like ZipConf (claiming to be able to pay a 6% dividend) to Satoshi's Daemon, a racehorse whereby the horse's winnings are distributed to the shareholders. And if you don't feel comfortable making your own investment decisions, there's always the "Gamma Bitcoin Fund," where you can have your investments managed for you.

Of course, if those don't sound exciting enough, you could always take a chance with the pirate...

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May 06, 2012, 01:10:25 AM
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Thanks for this post! Helps you to know what's on GLBSE. Smiley

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May 06, 2012, 11:45:04 PM
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...

There's this "bank" see, run by a mysterious individual going by the name of "pirateat40" (pirate at 40) who has been soliciting Bitcoin deposits to finance an even more mysterious business of sorts. There are various theories floating around as to the nature of this business, most of which fall into one of two categories: one, a massive (by Bitcoin standards) Ponzi scheme where the interest on earlier deposits is paid using later deposits, or two, pirateat40 actually sells Bitcoins for cash to various entities who are looking to acquire substantial amounts of the currency without leaving a paper trail, as would happen if they used a conventional exchange.

Six months into the scheme, and not a single interest payment from the Bitcoin Savings & Trust bank has been missed, yet the interest rates are enormously lucrative for anyone willing to take the chance. For example, a 2000 BTC deposit (~$10,000 USD) will earn 7% interest per week!  You heard (read) me. If you were lucky enough to be one of the earlier account holders, you could be pulling in enough interest on a 2000 BTC deposit to cover a mortgage on a decent sized home. Unfortunately, pirateat40 is not always accepting new deposits (lending some support to the "not a Ponzi scheme" theorists), which leads us back to GLBSE and the "Pirate Pass Through" bonds, a means for anyone to get in on the Bitcoin Savings & Trust action.

A "cartel" of some of the more well-known members of the community has established a series of bonds that pay out 1.28 BTC per bond after four weeks. Each issue of bonds (PPT.A, PPT.B, PPT.C, etc) is auctioned off on GLBSE and typically sells for between 1.06 and 1.09 BTC per bond, giving investors a very respectable 15 to 20% ROI. The money raised from the bond sales is deposited into the Bitcoin Savings & Trust, where the bond backers earn substantially more interest (as explained above) than is paid out to the bond holders. Should the Bitcoin Savings & Trust default on their interest payments, the whole scheme would fail, and the bond holders would be paid out only a fraction (25%) of the bond value. For the moment, however, everything is holding together.

Not surprisingly, given the ingenuity of Bitcoiners and the ease with which Bitcoins enable financial transactions, an issue of "Anti-Pirate" bonds was created, sort of a credit default swap for anyone looking to hedge the risk of depositing with Bitcoin Savings & Trust. Interestingly, after a week, not a single Anti-Pirate Bond was sold, and in the words of the bond's backer, the sale was "a spectacular failure."

By the looks of things, pirateat40 has earned a lot of trust in the community. The question remains, however: what the heck is he doing with all those Bitcoins?

...


Here is a theory: Factoring, http://en.wikipedia.org/wiki/Factoring_%28finance%29, Bitcoin receivables. This can work particularly well if the business is looking for fiat cash say USD for the receivables up front. Let us say that a business has one or more receivables for 1000 BTC total due in one week. They approach Bitcoin Savings & Trust (BST) who pays the business the USD equivalent of 900 BTC say 4500 USD for the receivables. BST then borrows 900 BTC from its depositors and promptly sells the 900 BTC for 4500 USD on Mt Gox. BST absorbs the carrying cost of the 4500 USD as part of its service. When one week is over BST receives the 1000 BTC, and pays 963 BTC (principal and interest) back to its depositors and keeps the 37 BTC as profit. The only cost is the carrying charges on the 4500 USD between paying the business for the receivables and receiving the funds back from Mt. Gox.

I will leave it as an exercise to the reader to determine where one can find, today, a significant number of Bitcoin receivables due in one to two weeks from debtors who are willing to discount them for an effective interest rate well over 7% a week!

Concerned that blockchain bloat will lead to centralization? Storing less than 4 GB of data once required the budget of a superpower and a warehouse full of punched cards. https://upload.wikimedia.org/wikipedia/commons/8/87/IBM_card_storage.NARA.jpg https://en.wikipedia.org/wiki/Punched_card
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