I understand you are completely within your rights to start a business like this, but I wish people on the whole would stop issuing new securities just to offer insurance or shorting/etc. on just one security. To get around polluting the namespace as such I created an insurance company which insures miners, account holders, and so on, and we write contracts on a security by security and customer by customer basis. This way we have one company offering a single service. It also helps us avoid an 8BTC listing fee each time we write a contract.
Do we really need three or four tickers for each security? One to issue, one to play long, one to play short, and one for insurance?
I think there must be a better way to approach this.
Yours is a good idea, but not for me.
I know about probability and variance in Bitcoin mining. I'm not an investment expert. I don't offer investments, I don't offer insurance for investments. All I do is offset the variance in pool earnings that miners experience. I know my skillset and I'm not going to risk other people's coin doing more than I know how to do.
So let me make this plain:
MEI.DEEPBIT.A is not a mining company. MEI.DEEPBIT.A doesn't invest in mining companies. MEI.DEEPBIT.A does not hedge against changes in btc value. No company I solely run will invest in mining companies, or anything else where the risk is not completely and utterly defined beforehand..
I would have liked to have been able to offer insurance without using GLBSE, but I lack the skillset to do so.
Also, are you really offering earnings insurance on round lengths for pooled bitcoin mining? I couldn't find mention of it on your thread or website - can you post a link?
All that being said; this does not look like insurance, because it has no backing. It looks like a hedge. Which causes me to wonder how you are making money on this. As you said yourself the variance is your risk. What is your reward? Assuming the difficulty goes up, I suppose you would keep a certain amount of the bond issue by not paying out as much. The problem with this strategy is that your reward is not commensurate with your risk. Simply investing the money in a miner would pay much more. Even if the difficulty rises 10% a month from here on in which I don't think is too likely, you could still make more money investing in other things.
MEI.DEEPBIT.A is is not exposed to variations in Difficulty.
Also, one bad month will wipe you out as this appears unbacked. Your risk is huge for such a little profit.
It's not huge and it's exactly quantifiable.
If you made 10% and sold 10,000 shares, that's not even 100 BTC profit. But if the market were to move against you the losses could be equally great. What will you do if the market moves against you and you find yourself having to pay out 500 bitcoins to cover the hedge?
How can the market move against me - did you read the OP? Insurance expires after two weeks and I pay coupons that have an expected value of the cost of the bond minus my fee. If DeepBit is unlucky, I pay more; if DeepBit is lucky I pay less. Coupon payments mimic PPS, and the insurance is only useful for non-PPS miners to offset their variance. The value of the bond during it's two week life is also exactly quantifiable beforehand. Paying more or less for the bond than it's worth at a given point in time might happen, but since this is not an investment it doesn't affect coupons or my business model.
I can think of a way to describe it without using an example other than insurance against earnings variance in pooled bitcoin mining. Perhaps it is a hedge, but I'm not hedging against anything other than the unluckiness of a pool in terms of pooled mining round lengths - not the price of bitcoin, or the value of a market. Because I think this service is most similar to employment insurance I describe it as such.
As far as backing goes, I concede your point. There is no public indicator that I can pay for variance when the pool is unlucky, and I can't expect people to take my word for it. I'll remedy that soon and place a known amount of coins in a low risk and liquid investment.
The other major issue with this is that there is never any incentive to buy your hedge. If I invest 100 BTC in your company all I can expect to get out is less than 100 BTC if the difficulty rises;
You really didn't read the OP before posting, I think. Long term Difficulty changes cannot affect the insurance paid. Most of the lifetime of the bond is in one difficulty period, and if D does change it doesn't affect coupon payments. Read the OP. If the difficulty skyrockets there'll be just the same complaints about variance as there are now and were when D was an order of magnitude lower than it is now. It's why pooled mining exists - to reduce variance in mining earnings.
but in any case, investing 100 BTC in a mining company is very likely to have a long term positive return, even considering the coming wave of ASICs and the block reward cut in December.
That's a non sequitur if you understand what the insurance does. The bond is not affected by ASICS (unless the ASIC owners use pooled mining in which case they'll be customers), and there is no "long term positive return" and I can show you exactly what the lifetime return probabilities are.
I am grateful you posted and brought up these questions - I'm sure others have thought the same thing probably due to the fact that I had to designate these as a bond rather than an insurance premium. I want to reiterate that the insurance does nothing that a Pay Per Share payment doesn't do - at a much lower fee. It's not an ongoing investment, just insurance against DeepBit's bad luck if you mine there. And also thanks for the heads up about publicly held backing.
