Bitcoin Killer App: High Yield Investments

[CoinCidental]

its not 3400% pa special .......

See, 7% a week is not necessary the same as 3400% pa.
Lets say someone exchanges all those coins to fiat and back each week. Lets assume that he makes 10% from it and pays his lenders 7%. So a lender would "only" get 7% * 52weeks = 364%pa. If at the same time the business grows, it could look like as one could simply compound, while in fact this is not the case.

but there IS an option to let the interest compound into the principal to generate further revenue


Pirate actually ENCOURAGES people to re-invest the compounded gains

so what is now the case ?

[aq]

its not 3400% pa special .......

See, 7% a week is not necessary the same as 3400% pa.
Lets say someone exchanges all those coins to fiat and back each week. Lets assume that he makes 10% from it and pays his lenders 7%. So a lender would "only" get 7% * 52weeks = 364%pa. If at the same time the business grows, it could look like as one could simply compound, while in fact this is not the case.

but there IS an option to let the interest compound into the principal to generate further revenue
Pirate actually ENCOURAGES people to re-invest the compounded gains
so what is now the case ?

This could be just business grow. And it is actually less grow than the exchange rate increase over the few weeks. Pirate works in USD not BTC, so when the price did rise from $5 to $8, his working potential did rise from say $2.5M to $4M, a hefty 60% in little more than a month. If he was able to use this for business grow, then something as "little" as 28% a month should be no problem. An keep in mind that he makes most likely more than 10% a monthweek and compounding, now calculate his actual revenue.

[Frankie]

It seems you speak neither English nor mathematics fluently.

If the appreciation of bitcoins explains his return rate, how does it explain his supposed ability to provide even more in bitcoins (you know, the things that are more expensive)?

"Just 10%" per month is still triple in a year, btw.

[JoelKatz]

This could be just business grow. And it is actually less grow than the exchange rate increase over the few weeks. Pirate works in USD not BTC, so when the price did rise from $5 to $8, his working potential did rise from say $2.5M to $4M, a hefty 60% in little more than a month. If he was able to use this for business grow, then something as "little" as 28% a month should be no problem. An keep in mind that he makes most likely more than 10% a monthweek and compounding, now calculate his actual revenue.

Let's say Pirate has deposits of 250,000 Bitcoins. If he works in USD, then at $5, he has been paid $1.25 million. Now, the price goes up to $8. So he now owes his depositors $2 million. Every time the price of Bitcoins goes up, Pirate has a loss. What I think you're missing is that all of his "working potential" is debt, so when it goes up, he just owes other people more.

[fm1234]

HYIPs subtanstantially drove the growth of digital gold currencies.  Unfortunately they also were a major part of that industry's downfall. 

Interesting. Any more details about how they helped lead to downfall of those currencies? I was under the impression their failure was due to government action.

The endless shell games in DGCs led to increasing calls for state intervention.    While I'm not a fan of the state, I don't consider it reasonable to suggest that taking action after years of complaints and problems is really a fault of the state.   The only tragedy there is the way that e-gold's incredibly bad choices regarding how to deal with fraud and other user issues were used to shelve the service, rather than let it become a mature option for consumers like any other financial service.   I think the e-gold case in particular does show that the state is terrified of any serious alternative to fiat currency; however, it was not the state that caused e-gold's downfall -- it was the crooks operating within the system, and e-gold's baffling policies regarding those crooks (not the policies on the website, but rather the actual practices which came out during the trial.) 

Note that e-dinar, GoldMoney and Pecunix, all three of which have historically had pretty strong practices against HYIPs (and, perhaps interestingly, vastly different practices) are all still alive and kicking.    Had it not been backed on e-gold, 1MDC would probably still be around too. 


Frank

[Factory]

This could be just business grow. And it is actually less grow than the exchange rate increase over the few weeks. Pirate works in USD not BTC, so when the price did rise from $5 to $8, his working potential did rise from say $2.5M to $4M, a hefty 60% in little more than a month. If he was able to use this for business grow, then something as "little" as 28% a month should be no problem. An keep in mind that he makes most likely more than 10% a monthweek and compounding, now calculate his actual revenue.

Let's say Pirate has deposits of 250,000 Bitcoins. If he works in USD, then at $5, he has been paid $1.25 million. Now, the price goes up to $8. So he now owes his depositors $2 million. Every time the price of Bitcoins goes up, Pirate has a loss. What I think you're missing is that all of his "working potential" is debt, so when it goes up, he just owes other people more.

You are completely correct.

The fact that he works in USD and the price has gone up recently is actually a negative thing for Pirate.

[CoinCidental]

This could be just business grow. And it is actually less grow than the exchange rate increase over the few weeks. Pirate works in USD not BTC, so when the price did rise from $5 to $8, his working potential did rise from say $2.5M to $4M, a hefty 60% in little more than a month. If he was able to use this for business grow, then something as "little" as 28% a month should be no problem. An keep in mind that he makes most likely more than 10% a monthweek and compounding, now calculate his actual revenue.

Let's say Pirate has deposits of 250,000 Bitcoins. If he works in USD, then at $5, he has been paid $1.25 million. Now, the price goes up to $8. So he now owes his depositors $2 million. Every time the price of Bitcoins goes up, Pirate has a loss. What I think you're missing is that all of his "working potential" is debt, so when it goes up, he just owes other people more.

You are completely correct.

The fact that he works in USD and the price has gone up recently is actually a negative thing for Pirate.

You say that as if paying 3400% interest was not a valid concern for pirate

if the above figures are correct he would have lost the best part of a million dollars ,who can recover loses
that size in a market the size of Bitcoin and still pay 7% every week ?

[danster82]

I have some small investments in GLBSE I look for the honest small startup mining companys only no pirate stuff but so far it really is a mickey mouse or to put another way there is no security whatsoever and I mean literally none.... for example what stops me starting up a security recieving everyones money then just vanishing? Im all for trusting people its a good thing but as they say if you mix 99pounds of icecream with 1 pound of shit you have 100 pounds of shit.

I dont see any reason why the GLBSE cannot demand anyone who wants to create a security have to provide identification in the same way you would in normal commerce for if the GLBSE doesn't someone soon will and whoever does will quickly become the primary investment broker for bitcoins.

[Factory]

This could be just business grow. And it is actually less grow than the exchange rate increase over the few weeks. Pirate works in USD not BTC, so when the price did rise from $5 to $8, his working potential did rise from say $2.5M to $4M, a hefty 60% in little more than a month. If he was able to use this for business grow, then something as "little" as 28% a month should be no problem. An keep in mind that he makes most likely more than 10% a monthweek and compounding, now calculate his actual revenue.

Let's say Pirate has deposits of 250,000 Bitcoins. If he works in USD, then at $5, he has been paid $1.25 million. Now, the price goes up to $8. So he now owes his depositors $2 million. Every time the price of Bitcoins goes up, Pirate has a loss. What I think you're missing is that all of his "working potential" is debt, so when it goes up, he just owes other people more.

You are completely correct.

The fact that he works in USD and the price has gone up recently is actually a negative thing for Pirate.

You say that as if paying 3400% interest was not a valid concern for pirate

if the above figures are correct he would have lost the best part of a million dollars ,who can recover loses
that size in a market the size of Bitcoin and still pay 7% every week ?

You are quoting me quoting someone else.

I never said 3400% annual interest was not a valid concern; quite the opposite in fact. The rates at which Pirate operates dictates that in all likelihood he is either running a ponzi scheme or is involved in other illegal activities. 3400% is just not doable in true terms. Regardless of what he was doing, even if it was a legal operation, anything that has the potential to yield 3400% is inherently risky. This is still the real world. You can't make x34 your money without taking on substantial risk. The fact that Pirate operates in a 'black box' and does not highlight risk to investors are red flags.

[Mageant]

I have some small investments in GLBSE but so far it really is a mickey mouse setup or to put another way there is no security whatsoever and I mean literally none.... for example what stops me starting up a security recieving everyones money then just vanishing? Im all for trusting people its a good thing but as they say if you mix 99pounds of icecream with 1 pound of shit you have 100 pounds of shit.

I dont see any reason why the GLBSE cannot demand anyone who wants to create a security have to provide identification in the same way you would in normal commerce for if the GLBSE doesn't someone soon will and whoever does will quickly become the primary investment broker for bitcoins.

GLBSE does have a "verification section" where it lists the types of identification of the security issuer it has done.

I think it's good that GLBSE leaves it up to the investor to decide what level of identification is sufficient.

What minimum level of identification would you suggest?

[Bitcoin Oz]

I have some small investments in GLBSE but so far it really is a mickey mouse setup or to put another way there is no security whatsoever and I mean literally none.... for example what stops me starting up a security recieving everyones money then just vanishing? Im all for trusting people its a good thing but as they say if you mix 99pounds of icecream with 1 pound of shit you have 100 pounds of shit.

I dont see any reason why the GLBSE cannot demand anyone who wants to create a security have to provide identification in the same way you would in normal commerce for if the GLBSE doesn't someone soon will and whoever does will quickly become the primary investment broker for bitcoins.

You could setup an anonymous venture but not many people would invest in it. Glbse has ID verification if you take a look.

This is what verified accounts look like-


I urge you to avoid those who dont verify like this.

[gene]

Good advice that I expect will be widely ignored: only invest in what you know.

So-called high yield investments are (almost?) always dressed-up Ponzi schemes. If you "invest" in them then please lick your wounds quietly when they implode. And if you're one of the lucky few who make money on them, don't expect me to admire your investing wisdom, any more than I'd admire the number-picking brilliance of a lottery winner.

Good to see Gaven's quote unearthed and featured:
http://www.theverge.com/2012/8/15/3243200/bitcoin-ponzi-schemes-savings-and-trust

[Mageant]

Good advice that I expect will be widely ignored: only invest in what you know.

So-called high yield investments are (almost?) always dressed-up Ponzi schemes. If you "invest" in them then please lick your wounds quietly when they implode. And if you're one of the lucky few who make money on them, don't expect me to admire your investing wisdom, any more than I'd admire the number-picking brilliance of a lottery winner.

Good to see Gaven's quote unearthed and featured:
http://www.theverge.com/2012/8/15/3243200/bitcoin-ponzi-schemes-savings-and-trust

Nice article!

One more thing I want to add to this issue though is that I do believe it is possible to tell the difference between a legit business and a ponzi scheme. It is not a matter of pure luck, such as a lottery.

There are clues one can use. While not 100% reliable it is the skill of a good investor that, on average, he or she can tell what is a good investment and what not.

Obviously, this is not something that everybody can do, which is why good investors are highly paid.

[unclescrooge]

Bitcoin itself is a very high yield investment, does it make it a ponzi?

[gabbynot]

Bitcoin itself is a very high yield investment, does it make it a ponzi?

Bitcoin itself doesn't "yield" anything.

[JoelKatz]

Bitcoin itself is a very high yield investment, does it make it a ponzi?

Some things turn out after the fact to have been high yield investments (for example, Microsoft, Apple and Google over the right time frames). That's not the same as something being offered as a high yield investment (with a predictable future high yield). Bitcoin should not be offered as a high yield investment. The risk and variability is way too high.

What makes HYIPs invariably scams is that there is no way to guarantee future high yields. It is just a fact of life that low risk means low yield and high yield, where even possible, involves high risk.

[defxor]

Obviously, this is not something that everybody can do, which is why good investors are highly paid.

All scientific research done on the market has shown that it's random. Good investors don't outperform chance, but since there are so many of them you will always be able to find those who've done well. The trick is, you can't predict who those will be beforehand.

There's a nice anecdote in Kahneman's "Thinking, fast and slow" where he visited some fund manager office in London and realized that on some rational level they did know what they did was equal to throwing dice. Yet, they still paid out large bonuses to those who had been the best at it.

Nuts.

[Vladimir]

Well, there is portfolio management and Kelly formula etc...

[Mageant]

I wish to apologize to anybody who invested in Pirate because of my posts.
I did not realize it was a scam and have not profited in any way from it (I just barely got my original investment out again).