why would the exchange rate matter for an investment that is denominated in bitcoins? a gain or loss is determined in bitcoins not in dollars. when the "cessation" comes and the fund pays out $500 usd instead of the 110 bitcoins expected then there's going to be some very unhappy campers.
The exchange rate doesn't matter for BS&T investors. They put BTC in, they get BTC back. No matter what, investors' bitcoins remain available. Only Pirate has to be concerned with the exchange rates.
The connection between other economies and Bitcoin is the crux of the issue. It's critical to keep in mind that if Bitcoin remains a purely speculative play, it will
collapse eventually; paper pushing doesn't create value. In addition, until utility bills and such can be paid for directly in BTC, there will be an inextricable link to other currencies - that is part of what helps Pirate to acquire a greater share of the total amount of bitcoins for payment to investors.How do you get a crew to want to get off a nuclear submarine
In the same manner, how do you get people to want
to sell their bitcoins? It's an incentive problem. There has to be something more enticing than holding onto your BTC. That something is higher exchange prices. Miners who see the price rising week after week are likely to dump a good amount of their BTC at some point. So are people who buy in at $5 and see the price nearly double. There's the supply for returns from BS&T.
A portion of the returns investors receive from BS&T may be used to purchasing items online, real goods, services, etc. The businesses receiving those bitcoins may then sell them for dollars, which likely brings the BTC back to the exchanges where Pirate picks them up again. Again, BS&T growth occurs at the margin.
There is no exposure to USD for investors - Pirate assumes that risk entirely. I won't elaborate on exactly how other than to say that it requires multiple pools of different assets. No fiat payouts can even occur for investors; they'll only ever be involved in the Bitcoin side of the operation. So long as the value of BTC remains elevated or continues to climb against other currencies, there is no risk for them.
If the exchange rate were to fall precipitously, it would hurt Pirate as much as it would his investors. In the case of a wild spike high, only Pirate would be at risk and may be forced to halt interest payments. The BTC that have already been earned or deposited don't go away; only the accumulated value relative
to other forms of wealth changes. In the same way that an ounce of gold is an ounce of gold, a bitcoin is a bitcoin.
see, you can't be charged with a serious crime if one didn't happen. a person that lends an amount worth $500 usd and then gets back $500 usd can't really claim that fraud happened. where are the financial losses? u.s. dollars must be accepted as payment for debt. you loaned $500, you got back $500 (plus a little interest maybe). in the worst case, since nobody lost any money (in terms of dollars) there's not much of a penalty even if there is theft (of expected returns) by deception.
That would only be possible if BTC deposits and interest were paid back in another currency like EUR or USD. I only used the example to show that the relative
value would have to fall below the initial entry point to incur a real, or realized loss in purchasing power. The vast majority of people still think in terms of fiat currency denomination, but I could've made an example as follows:
1,000 BTC @ 100BTC/month = 1 Honda Civic
1,100 BTC @ 110BTC/month = 1 Honda Civic
The second line shows that, while the value of BTC relative to a Honda Civic declined by 10%, the returns balanced it out. That's also assuming the relative value of BTC were to fall. If it keeps rising, the only losers in this are those in traditional finance - primarily the big banks and those dependent upon them, especially governments.
simply locking up the bitcoins (which were acquired only through the promise of fantastic returns) is something that keeps the supply on the market low. once the block reward drop occurs in december, the market will have 25,000 btc fewer issued each week. so the exchange rate is likely to be higher at "cessation" and as a result nearly nobody will have lost money, in terms of dollars.
if this is how pirate's scam works, then those who thought their 100 bitcoins which cost $500 at the time are now worth $990 (after returns grew them to 110 btc and are priced at today's $9 each) will find out they were very, very wrong. they get their $500 back plus a jar of vaseline and a note saying thanks but it was perfectly legal.
the only winners are those who withdraw in full before the "cessation" event.
Just to clarify: deposits and dividends made in BTC are exclusively
returned in BTC, not another currency. To do otherwise would expose Pirate to all manner of regulatory agencies and all but guarantee financial fraud charges being made by clueless bureaucrats simply because they don't understand what he's doing any more than they can grasp the LIBOR debacle.
Yes, locking up bitcoins reduces the supply available for Pirate to acquire and disburse to investors. That means price has to continue rising to entice selling. If Pirate were to throw his own money in to raise the price, he'd have to dole out the equivalent of hundreds of thousands of dollars per week with no gain. That would drain his assets, if he has that much in personal wealth, and the economy would end up in decline.
Unless Pirate is more than a little eccentric, I don't think he's dumping his own wealth into the system. Instead, he's acting to stabilize the markets so that real wealth feels comfortable testing the waters - businesses, investors wanting to diversify out of other currencies, early tech adopters who might've been scared off after the bubble last year, even small governments that may be more receptive to disruptive technologies...
By doing the above, Pirate is drawing in much-needed support and interests that do the job of naturally raising the exchange rates in favor of Bitcoin. Awareness is building, and with greater inflows of wealth comes greater systemic strength. Keep in mind that Pirate isn't the only one helping - there are numerous others. Every Bitcoin-related business, every exchange, every advocate telling people about the cryptocurrency makes an impact and contributes to organic growth. Pirate does it in his own way; even Micon contributes (I think it'd be better if he worked on ways to use Bitcoin in the pro gambling area than to pursue Quixotic efforts, but hey).
Hopefully you can see how the external factors indirectly affect investor returns, and how the dynamic can continue for a long time with the only real requirement being a continued steady
rise in Bitcoin exchange rates.
There are also a number of others that are doing what Pirate is doing. As long as my assessment is correct, nothing about this is illegal or fraudulent. It actually provides better market depth and response because those who need to sell can easily match a buyer and vice versa, not to mention the stability and investor returns.
3) I know exactly what he is doing, how he does it and why. It is not a ponzi. It is a a legit business taking advantage of a rare economic opportunity that was just explained to you better and more detail than I have seen anywhere else.
Then why aren't YOU
Someone drops a business opportunity in your lap that pays >3000% APR and you're NOT already a competitor?
Pirate's business model is known by some, but I don't think anyone but those intimately involved in operating BS&T have any knowledge of who the contacts are.
It's also not as simple as flicking a light switch. There's a lot of work involved, even at a small scale. Also, Pirate is so far ahead that it would take a large amount of wealth to acquire the quantity of bitcoins necessary to compete. Going head-to-head won't make sense for a while.