Topic: ASICMINER: Entering the Future of ASIC Mining by Inventing It - page 782. (Read 3917468 times)

Gosh, I see how silly I am, now. I might as well have said "cars", since cars are obviously just as adjacent a market to bitcoin mining as a bitcoin exchange would be!

If you don't know what I mean by "platform", look up the difference between "bitcoin" and "Bitcoin".

I also believe the biggest mistake friedcat made was not to build cars and sell them. Cars could well be sold for bitcoin (as a PLATFORM instead of a currency), you know. Billions of dollars!!! Many transaction fees! Synergistically fuel its mining business!

You just disqualified yourself. What are you smoking? Thank you for shutting up.

Let's ACTUALLY go through them, yeah?

1: Revenue growth is approaching growth rate in economy.

Hell, we don't even KNOW the revenue growth rate, because the financials aren't published (pretty mature, right?). But it's pretty clear that whatever the revenue growth rate is (positive or negative), it surely hasn't stabilized to the growth rate of the wider economy. It is currently dictated by the rate of increase in the difficulty rate, something completely external to AM and not at all "stable".

2: Margins are established.

I can't fucking believe you just said "check" for this one. Did you read it at all? This was the core of my argument that you actually agreed with. "Another feature shared by growth companies is that they tend to have stable margins". Hurp durp.

3: Competitive advantages?

The advantage is having a product. That's called the "first-mover advantage" and is NOT a hallmark of mature companies for reasons I really, really hope I don't need to explain.

4: Debt capacity

Uh, they could issue bitcoin bonds, no trouble... but AM has no reason to have ever attempted to do so, so this one is sorta irrelevant.

5: Cash build up and return?

This one I agree with, AM fits the bill.

6: Inorganic growth

WTF? What inorganic growth has AM seen?

Please get your head out of your ass.

http://blockchain.info/block-index/408762/000000000000002661e7868b26511a32259d595d20bc056b87e6ca1e00a7bf11

For those that think being poorly connected doesn't matter.  First AM block found in 7 hours and it's an orphan.

So are you saying that is a "growth" company?  Again you are contradicting yourself.  Your whole initial argument was that the initial returns are not sustainable and can't be maintained--YOU ARE RIGHT.

Yes, companies / industries can mature very quickly and things move very fast in the technology and bitcoin world. Your link just shows your stupidity and your complete lack of understanding of companies' life cycles.  Let's go through the points:

1 - check
2 - check
3 - check(exactly the type of competitive advantage I have been describing)
4 - does not apply to bitcoin securities as they cannot issue debt
5 - check, and is why friedcat is paying dividends
6 - check

So yes, thanks for posting the link.  You are correct, it is mature.

The companies with huge market caps are not the only companies that have generated amazing returns for their shareholders.  As an investor you are concerned about return.  It doesn't really matter if the company becomes a household name or is only B2B and the average american doesn't even know exists.  Both can bey very extremely profitable.  Good night.

You've just called a ~year old company whose competition hasn't even started launching products yet "mature".

Expanding is a very risky move for a young company, but young companies are risky 100% of the time. Focusing on core competencies is important, but if Google JUST licensed their search engine and never said "hey, we should start doing this advertising thing!", where do you think they'd be?

Follow the money.

(To pre-empt your "it IS mature!" argument - no, it's not. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/littlebook/maturecompanies.htm)

Dude, just take a moment to think.  Could AM's revenues continued to expand?  I think most rational people would say no.  It could not gain a greater share of the network hashrate, nor could it realistically sell significantly more hardware.  Thus it transformed from a growth company into a mature company.  That is just a natural progression for all industries that can't be prevented without creating barriers to entry that are not cost.  There is nothing wrong with that, and mature companies can still be very profitable.

Now think about investing.  I give friedcat 100 dollars to build a farm and mine bitcoins.  He then earns 3 bitcoins, then I want him to return me the 3 bitcoins or invest in more mining equipment!  I don't want to him to go investing it in random, unrelated fields that prove to be far less profitable or even fail to generate a return.  As an investor I wanted to invest in MINING.  Now add to the fact that friedcat has already stated that exchanges are more heavily scrutinized in China, then the exchanges would actually bring substantial risk to our mining operation.  That is an even worse result! 

I think you are greatly underestimating the value a company in a mature industry that has comparative advantages.  It can continue to operate indefinitely at a profit.  That is an extremely valuable company.

AM fit the description of a company with "rapidly expanding revenues and rapidly expanding costs" up until very recently, did it not? Its decision to pidgeonhole itself into mining, pursuing a fixed number of bitcoins with a growing amount of competition, is why it has ceased growing, despite the fact that it is valued like the growth company it so recently was.


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This is a great question, and I don't have the answer, just ideas.

My hypothetical vision of the most valuable company in Bitcoin-land is not just a mining company, but instead a company that really capitalizes on Bitcoin as a PLATFORM instead of a currency - for example, enabling USD->BTC->USD transactions for significantly less than credit card fees. Then we are talking about a company with the potential to be worth many billions USD, AND with the potential to create miner fees that will help synergistically fuel its mining business. Why sit around and wait for transaction fees that may not materialize before your competition erodes all your market share - why not create the infrastructure to make Bitcoin accessible to the wider market?

In order to establish this kind of business, there are a lot of core components - a trusted currency exchange, a bitcoin bank, a USD-denominated Bitcoin wallet.

Who is more trusted and better funded to have done all this than AM?

The generated cashflow of a company is tightly connected to the utility of the products they offer. In case of mining, it's likely the expected nominal yield of the hardware. However, the economics of mining is still not settled. It can range from profit mining to subsistence mining to defensive mining. Defensive mining results from an environment where the utility of mining is not capped by the nominal yield, but by he ability to govern the bitcoin. In such an environment the utility of the produced hardware is greater than the expected nominal yield and should allow companies to demand a higher price than the naive economic calculus would suggest.

I sympathize with your sentiment that it would be disappointing if a growth company would stop to innovate. For that reason it is important for ASICMINER to closely watch the needs of the mining community and respond in a timely manner. As far as Microsoft and Apple goes, they pursued very different strategies and were blessed with the necessary luck. Unfortunately there is no standard recipe for entrepreneurial success, except to be responsive. That said - what do you think would be the next big move for a company like ASICMINER?

We invested in AM to invest in a company that produces ASIC miners to mine bitcoins.  I want my bitcoins to fund MINING.  If I wanted to invest in an exchange, then I would have invested in an exchange.

There is a direct logical contradiction to claiming that AM is a "growth company" and that bitcoin mining suffers from the tragedy of the commons.  I see that thinking is difficult for you, so I will break it down:

A growth company is a company with rapidly expending revenues and rapidly expanding costs.  Every dollar invested will return more than a dollar but not immediately.  As a result a growth company typically requires additional capital and cannot pay out dividends. If bitcoin mining truly suffers from the tragedy of the commons, then each dollar invested will return less than one dollar.  In this situation no mining company could possibly be a growth company.

AM's revenue is very much capped by bitcoin's scheduled release and the demand for bitcoin mining hardware.  As a result AM has likely come close or already achieved to its maximum revenue (revenue is not equal to profit).  Revenues may very well slowly decline or stagnate but that is fine.

Investing in 130 nm devices to invest in bitcoin mining was an AMAZING investment when AM launched.  It was genius and the shareholders profited enormously.  That is no longer the situation and AM has to operate in a changing industry.

By the way, bitcoin mining is not even close to a "tragedy of the commons" situation.  Tragedy of the commons also doesn't really apply when the resource cannot be exhausted.  You are mis-applying the concept but I understand your point so I originally ignored this point.

LOL!  That made me laugh almost as much as your suggestion that AM should have started up a Bitcoin exchange.

It IS dissapointing. What if Microsoft or Apple had gotten to 5x their IPO, then said "OK, we made our shareholders happy!", converted to 100% dividends, and stopped growing?

And no, it doesn't contradict the tragedy of the commons argument. How do you think it does? Because Friedcat has pidgeonholed himself into mining? There is a shared valuable resource (minable bitcoins), and everyone is going to scramble to get them until we begin to approach the point where it isn't profitable anymore (factoring in the cost of labor). Then it will be a brutal cost-cutting battle between ASIC companies. The profit margins will be very small, just like it is for real PCB and electronics assembly companies.

http://en.wikipedia.org/wiki/Foxconn

NT$3.452 Trillion revenue, NT$81.59 Trillion net income, for a margin of 2.36%. Imagine if AM only kept 118 BTC for every 5000 BTC of hardware sold.

The four-week MA must stay within 25% of the trailing 167 day average (the full history as of today, 32.63% APR) for 6 months.

To be honest I was thinking more along the lines of a fruit hat. You've caught me.

Wow, what a wall of absurdity.  Lets break it down:

"In my opinion a lot of AM's potential for value has been expended in the last couple of months. Rather than pursuing aggressive growth options (like becoming a Bitcoin->USD payment system, opening a Bitcoin exchange, opening a trustworthy Bitcoin bank, and offering a USD-denominated Bitcoin wallet, all of which are synergistic growth options), they've paid back all their dividends. That's disappointing. ~0.5 BTC a share is enough money that they could have become all of those things under competent leadership."

It is disappointing to pay out 5x of your IPO valuation in less than a year?!  Are you insane or are you just completely clueless when it comes to investments?  As you mention, bitcoin mining may suffer from the tragedy of the commons, so it makes sense for Friedcat to pay out the short-lived economic profit due to our comparative advantage immediately.  The other option is to re-invest, but if it is a maturing industry then your rate of return will be lower than your investors' initial rate of return of just paying profits immediately.  Therefore it makes sense to disburse the profits to shareholders.

Friedcat has mentioned a couple of times that exchanges are much more higher risk than his operation.  Labcoin's fiasco suggests he is not lying.  Friedcat's expertise is in crafting mining devices efficiently, running an efficient farm, and delivering devices as promised.  He is wise to concentrate on his strengths.

"Growth companies are supposed to grow. AM is the first "growth" company I have ever seen that has managed to shrink its revenue. I only consider it a growth company because it is priced like one."

This point directly contradicts your tragedy of the commons argument.  Mining / hardware operations could not possibly be "growth" businesses if it the costs of mining bitcoins exceed the revenue.  Instead, as you mentioned it is becoming a mature industry where only competitors with cost advantages will be able to earn economic profit.  So it makes sense for Friedcat to make the operation leaner, and seek to achieve cost leadership.  You claim that his energy his higher than his competitors, but you do not know that.

Obviously dividends will fall as more miners / companies fire up their ASICs.  That is inevitable, but companies that produce low but steady rate of returns are still very valuable.  Friedcat has a major longterm advantages with cheap labor, low production costs, and a lean supply chain.  His franchising idea is very forward thinking and he has consistently validated his business acumen.  AM's value lies not in its short term dividends (although they continue to impress) but in its long term value as a lean mining operation.

Define what you would accept as stable dividends.  Within ___% for _____ months.

What sort of hat will you eat?  Baseball cap?  fedora?  Cowboy hat?  Some may be harder to get down than others.

If dividends stay stable I'll eat my hat. Or I'll buy a hat and eat it, as appropriate.

In my opinion a lot of AM's potential for value has been expended in the last couple of months. Rather than pursuing aggressive growth options (like becoming a Bitcoin->USD payment system, opening a Bitcoin exchange, opening a trustworthy Bitcoin bank, and offering a USD-denominated Bitcoin wallet, all of which are synergistic growth options), they've paid back all their dividends. That's disappointing. ~0.5 BTC a share is enough money that they could have become all of those things under competent leadership.

Growth companies are supposed to grow. AM is the first "growth" company I have ever seen that has managed to shrink its revenue. I only consider it a growth company because it is priced like one.

"Priced like one?!" you exclaim, "but it's got a 25% APR!"

Right. And how long does that last? Everyone should understand the following, read it very carefully.

AM owned the market for ASICs at the point when they were MOST profitable. This is why their dividends were so incredible. But, even if AM continues to dominate the market for ASICs in the next generations forward, the performance per watt for all ASICs will not vastly increase. This means that the potential profit per ASIC over the cost of electricity will shrink.

Think of what it was like with GPUs for a while. It was very profitable, but then everyone started doing it and electricity costs got in the way. You were fighting the electricity bill. You could run them in low-cost electricity regions, you could tune things to reduce power consumption, but it simply wasn't as profitable as it was when the bitcoins/watt ratio was higher.

AM's ability to sell their hardware at incredible prices (or run it for incredible profits) depends on the PROFIT MARGINS of that hardware, not the potential coins generated. If the value of the coins mined is barely higher than the cost of the electricity consumed (and the competition will make sure that happens one way or another), then AM isn't making much money and the dividends vanish.

This is a http://en.wikipedia.org/wiki/Tragedy_of_the_commons situation, for those familiar with the concept. There are only so many bitcoins to go around, everybody wants some, and it requires resources to get them. Before long the value of the resources expended in obtaining the bitcoins (electricity, hardware manufacturing cost) will approximate the resources required to obtain them, despite the fact that it would be in everyone's best interest to keep the difficulty low (and not waste money on electricity). But humans are greedy motherfuckers.

If you prefer to think about it on a macro scale - the sum of all the money spent on electricity for mining and all the money spent on hardware for mining cannot exceed the value of all the coins mined. Or people wouldn't do it. And the electricity being used for mining will inexorably take a larger share of that pie as more and more hashpower is required to find a block, squeezing out the revenues for mining hardware. Moore's law will not save us here. And a potential increase in the value of bitcoins is no counter-argument here - AM is a Bitcoin-denominated security. You could hold BTC instead of buying the stock and you'd do just as well.

I should point out that AM's electricity rate is (probably - I only know the rates for Shenzhen, AM's HQ) the worst in China, and not particularly competitive with people smart enough to start up ops in places like North Central Washington. And before long, the most important factor in the ASIC battle will not be how good your hardware is, but how much your electricity costs. Your hardware can be twice as efficient, but if they get $0.01/kW-h electricity (North Central Washington) and you get $0.02/kW-h, you have no advantage.

So, margins cannot and will not remain stable. The dividends will start to drop heavily within the next month, I suspect.

My price target, based on all this? 1.2 BTC per share. Failure to beat the competition would reduce that further.

Vycid, I agree as well and know you are bearish on AM, but what is your price target? How low does AM have to go before you think it's fairly valued? 1, 2, 2.5, 3? If it's dividends were to stay stable, I think it's undervalued at its current level, but its priced lower due to risk of dividends dropping, which is definitely a possibility. Right now, I think investing in AM (at least new coins) is a gamble on them beating competition to gen 2 ASICs and shipping/deploying them consistently. If they lose, it doesn't really matter what their current dividends are because they will trickle to nothing within a few months.

I'd say AM is a Hold at the current time, don't buy or sell until some of the uncertainty of gen 2 chips disappears over the next 2-3 months.

Same here.

Yeah, I agree. If I was an AM investor I would be 0% worried about the Monarch (I think more of the Venture Bros. loser supervillain than a butterfly). I'm bearish on AM, sure, but BFL is a tremendous fuckup of a company.

We're in agreement. If it's plugged in to a PCI-E slot it can get 75 W from there and then draw 150 W each from two 8-pin connectors.  If it's hooked up via USB it will need three 8-pin PCI-E or some other high-power connector from an external PSU because you're not getting 350 W through a USB cable :-)