Topic: [BTC-TC] Deprived Mining Speculation (DMS) - page 85. (Read 198958 times)

Yeah definitely the case.

If we consider someone who planned to invest (NOT speculate) in MINING or SELLING then what they should be doing roughly is :

1.  Work out a range within which they believe the correct valuation for each lies.  That means taking best and worse-scenarios that you believe likely for difficulty and from those calculating a range.  How wide that range is depends on the extent to which you prefer EV to variance - if you're risk-averse then the range will be wide.  If you don't mind risk at all - provided the EV is good - then a very narrow range can be generated.
2.  You then need to consider what alternative investments exist that offer returns you can rely on - as even if it's profitable to invest in MINING or SELLING there may be more profitable alternatives.
3.  You can then work out the zones above and below which investment makes sense.  The entire range of possible prices for MINING (0 to PURCHASE) would then be split into 5 zones :

1 : 2 : 3 : 4 : 5

Where:

1.  Means investing in MINING is your best bet (of the options you considered).
2.  Is where investing in MINING is likely profitable - but you have better alternative options.
3.  Is where the market is at what you believe is a fair value - meaning no profit or loss and no point holding either of MINING/SELLING as an investment.
4.  Is where investing in SELLING is likely profitable (you don't want to touch MINING) - but you have alternative better options.
5.  Is where investing in SELLING is your best bet.

TF's point is that a lot of people forget zones 2 and 4 exist.  It MAY still be worth investing if the price falls in them - if you already have exposure to the more profitable alternatives and need to diversify.

If you calculate zones 2 and 4 you need to be calculating the return on MINING/SELLING - which isn't quite as simple, unfortunately, as dividing expected profit by amount paid.  You need to factor in that a lot of that capital will be returned early on in the investment - so effective capital tied up is a lot less than the nominal initial capital.  The precise math depends on your own prediction of future difficulties - as those determine which (of SELLING/MINING) get back what capital and how quickly.

The above only really applies to investment.  Speculation/trading is different - and comparisons are generally NOT worth making with investments as speculating, when profitable, generates profit orders of magnitude higher (over time).  

In investment you (mainly) make profit from the performance of the securities.
In speculation/trading you (mainly) make profit from the other people in the market.

So when you have idiots investing in crap it's pretty obvious that speculating is the way to go - and that's the bulk of the BTC 'securities' market.  I like to think that DMS supports both speculation AND investing - unless the market gets the price exactly right ONE of MINING/SELLING will be a profitable investment.

Remember Profit isn't some binary thing which either exists or doesn't - it has a wide range of potential values, some of which aren't worth touching even when in theory you end up with more than you started with.

Some may call it huge opportunity. Buy low, sell high and not the other way around, right?

mining is dropping so fast.. 

There's also opportunity cost. While something that'll make you profit is not bad, it won't be best if there are better investments (not just pure yield, but also considering the risks).

Well that's plainly wrong - it just depends on price.

If you bought a MINING for .000001 then you'd be in profit after tomorrow's dividend - without having to sell.  It's ALWAYS about the price - scams aside pretty much ANY investment can make a profit, so long as it's bought cheaply enough.

Thanks for more detail information.
However, with this type of bond, I only believe in #1, well it's just me. Cheers!

The reason it's nowhere near right is you said MINING was only profitable if you sell it before the next difficulty change.  It can be profitable without you ever selling it.  There's broadly two ways to make a profit on it:

1.  Speculation/Trading - here its value is irrelevant and the key is to sell it for more than you bought it for (allowing for dividends received).
2.  Investment - here you need to buy it for a price where you'll get back more than the price without EVER having to sell it.

Your description only dealt with a sub-set of #1 (that sub-set where you buy before a difficulty rise and sell after - there's also potential profit buying and selling without a difficulty change or over multiple difficulty changes where you actually take a paper loss temporarily).  Is the price low enough yet for #2 to work?  That's for investors to decide themselves - there's no right or wrong answer as it depends on what assumptions you make about short/mediun term difficulty trends.

DMS.MINING will receive more in dividends, yeah if the difficulty only adjusting 5%, you can accumulate same price until December, with  the new upcoming faster Asic mining HW, I rather sell it early.

You said no where near right, your last paragraph you just summarized what I post.

Sorry - that's nowhere near right.  There's a whole bunch of scenarios in which you can make a profit from one or both of them.

Most obviously you can make a profit from DMS.MINING if you buy it then hold it and receive more in dividends than you paid.  And that can be the case regardless of what happens at the next difficulty change - as future changes can make up any temporary loss of value you suffer.

In summary you make a profit if the price you sell for + dividends you receive is greater than what you paid.  That applies to any single share or combination of shares.

Correct me if I'm wrong.

DMS.MINING can only be profitable
 - if you sell it before the next difficulty adjustment with same or higher price you bought it.

DMS.SELLING can only be profitable
 - if you sell it after the difficulty adjustment with NAV/U post/dividend >= 410
 - or before difficulty adjustment with same or higher price you bought it.

or if you sell DMS.MINING and your DMS.SELLING higher than DMS.PURCHASE price

One of the purposes behind launching DMS was to allow the market to define a price for PMBs.  I'm in no way surprised that value currently lies below what PMBs were previously selling for - and undoubtedly some speculators will have been burned by it (Investors less so - as they bought for the dividends and will continue to receive them.  If they bought too high then their loss will be a gradual one as it would have been anyway).

Speculators were not my intended target (I am, after all, one myself).  My target was people who bought an over-priced pre-order then thought to shift the risk/loss to investors AND get paid for doing so.  It most definitely WAS one of my goals to make it a lot harder for anyone to sell horribly over-priced PMBs in the future - a goal I know you agree with and one which I think DMS will go a long way towards achieving.  In part that goal is achieved simply by having DMS.MINING for sale cheaply - but it's also delivered on by forcing people to think a bit more about what PMBs are actually likely to pay out in various scenarios.

Incidentally there's mining shares out there which are worse value than even expensive PMBs - when I get time I'll have to look at addressing that too.  It isn't actually hard to compare shares with reinvestment to PMBs - once you have a defined value per hash that adjusts over time.  Hopefully MINING will settle into that role (still some way off from that), then I can put some effort into explaining the math of how to value mining shares in comparison and we can start looking at just how shockingly bad value many are (most of their IPO value gone already and/or current trading price based on speculative increases without any corresponding increase in underlieing mining assets).

You had it all pretty much correct - until you jumped to entirely the wrong conclusion.

If difficulty levels off then DMS.SELLING investors would almost certainly vote to close (as the pot would shrink until they got nothing if they did otherwise) and MINING investors would be bought off with a final payment of 365 days of dividends.

In the same scenario TAT.VM investors would face a buy-back at 200 days of dividend - as to continue would mean losses for TAT and is why that buy-back exists (all the time difficulty rises there's no danger of him buying back - as he makes profit by letting it continue to run so his buy-back falls faster than dividends are paid out).  Your mistake is in assuming that if difficulty levelled out with no sign of rising TAT.VM would continue to operate as a charity rather than exercise the buy-back clause in the contract.

Neither offering would survive an extended period of difficulty not rising (or, more likely, rising but by less than a few percent per change) - as in both this would almost certainly trigger a buy-back (not guaranteed in either - but likely in both).

For collapse to occur on DMS-MINING (meaning a forced buy-back at ~100 days of dividend) there'd need to be 300+ days of average zero growth or a longer period of growth averaging under ~3%.  It seems rather unlikely that's going to happen any time soon (Only needs one ASIC producer to continue to produce to exceed that) - but it's definitely possible in the long-term.  But any slow-down in the long-term is essentially irrelevant when measured as a percentage of total output/dividends over the life of the bond.  By the long-term when growth becomes static it's near enough a certainty that difficulty will be immensely higher than at present - so the possible down-side (compared to hardware backed PMBs NOT TAT.VM) is losing out on tiny dividends in the future in return for a lump-sum final payment.

You only have to look at current announced production runs to see that difficulty isn't likely to stop growing  when its at the current order of magnitude - so any impact this has is trivial on expected returns in any reasonable time-frame.  It IS certainly the case that if/when that scenario arrives, the fund will close-down (with a final lump-sum payment to MINING and any change given to SELLING) - and that any replacement fund would then use different parameters to allow speculation on both sides in the very different conditions prevailing then.  

The current parameters were set based on what I considered a safe margin for current conditions in the short/mid term.  If/when difficulty growth starts to decline I would sensibly expect the value of MNING to increase as a percentage of PURCHASE (with SELLING dropping value) until it hits the 9:1 ratio where a sell-back becomes in order.  That's near optimal for investors in both - SELLING get out whilst they still get a final payment and MINING get a year at current dividend even though difficilty would still be rising (and so it would represent over a year of dividends had it continued).

I think that the simplest way to understand DMS.MINING is that the correct price is what the market thinks 1 mh can earn in about a year (plus a safety margin). That time frame is very important because we can say pretty reliably that over a substantial portion of a year difficulty will probably not trend downwards or stay the same. If we extend the timeline further, say to two years, that would be even "safer". If we reduce the calculations and use 6 months, or 3 months, then we run the risk of collapse because DMS would be entitled to ever-increasing dividends out of a fixed pot. Unless new buyers of DMS.PURCHASE come in to provide more capital, I don't see how the fund could avoid catastrophic failure.

So unless I misunderstood, the single most important feature defining the correct value of DMS.MINING is the period of time specified in the contract. If it were calculated based on a 6 month return, we'd have much higher yield per mh, but higher risk of catastrophic collapse. If it were calculated based on a 2 year term, we'd be much safer, but would expect much lower yields per mh. This, I think is the key distinction between DMS.MINING and TAT.VM.  If difficulty levels off in the future, TAT.VM has no problem with it, but DMS.MINING could collapse.

And thats the problem I guess. Like the plausible last post you made in theTAT.VM thread, there seem to be people who realise that this asset isn't just invest and let the satoshis roll in. They are really surprised that a difficulty rise lower the dividend and the value of the bond as well. This is no fault on your side, just investors who start to have a thought.

In the end, it's all coming down to a guess how difficulty will progress in the next weeks. And everyone can make conclusions on his own...

Not that I wanna get into it here, but as I've discussed with Deprived and many others before. TAT.VM was not designed to be an effortless money tree. In many ways I set out to do a lot of what Deprived did, I just didn't include a way for the public to sell too.

The PMBs are hashes, and there is great market demand for that, regardless of the impending onslaught of ASICs. Every single person that bought my IPO had opportunity for healthy profit in the short term and every buyer is getting what was promised. There are risks I had to take to offer it, and work and expense I had to incur.

Unfortunately not everyone is an adept trader, and some will be left confused about what to do, but hopefully what they gain is the insight of how to trade more successfully in the future. Speculators that waited too long will take a hit due to the recent diff increases, and in no small part, the DMS asset set. People that buy hashes of any kind will get what they paid for, without a hitch (within my power at least).

But this is the nature of ALL mining, whether it be PMBs, mining reinvestment assets, group buys, or actual hardware itself. ALL mining depreciates when new technology and new competition arrives; and TIMING is, was, and always will be, the angle to play.

"You gotta know when to hold 'em..."

I really believe this is the truth, on both counts. It seems there's a new PMB every week and more and more buyers are going get taken by them.

DMS.MINING is the only so called "PMB" that is priced the right way. In any other PMB, people who bought in don't want to sell at a perceptible lower price. So the market price is some kind of artificially held high. That doesn't happen with DMS.MINING, because I can buy DMS.PURCHASE and then sell DMS.MINING if I think the DMS.MINING price is too high.

@TAT: I know you are legitimately one of the most respected persons around here, but IMHO the IPO Investors of TAT.VM won't see the light at the end of the tunnel...

Yeah - that's an important point that some people don't understand.

One of the concerns people have is effectively that they doubt whether MINING can pay the same as a PMB - as what happens if SELLING gets paid too much?

The answer to that is that SELLING's dividends are effectively defined as "Whatever's left after paying MINING and ensuring that there's enough capital left to continue doing so."  So by definition dividends to SELLING can't compromise MINING's ability to payout.  Except, as noted before, if difficulty falls or stops rising for a protracted period - which is basically impossible at present and unlikely in the foreseeable future.  And if that starts happening, then that's the point at which a buy-back would likely be executed anyway - giving MINING an immediate lump sum rather than a continuing trickle that they'd get on PMBs.

The pot itself won't necessarily shrink - that will only happen if dividends exceed sales of new PURCHASE (less buy-backs).

What WILL almost certainly shrink is the amount each PURCHASE (or MINING + SELLING) is entitled to.

NAV may or may not shrink - NAV/U almost certainly WILL shrink.

MINING + SELLING (or PURCHASE) will almost certainly shrink - at a rate slightly below the rate at which dividends are paid out.

Yeah, I read it as an honest question - and have no problem at all with it.

MINING is itself pretty much just a sale of hashes.

The complexity in the contract exists to :

1.  Allow any market participant to sell mining as well as buy it - hence allowing the price to fall without sellers necessarily making a loss.
2.  Allow investors to directly bet against one another via the market.
3.  Ensure that there is always sufficient capital to honour the MINING commitment - other than in a scenario where difficulty stays the same or falls for a significant period of time (which is the main - and highly unlikely in the short/mid-term - scenario where PMBs are worth more).
4.  Reduce to a minimum excess capital being held - which dilutes the earnings of SELLING.
5.  Ensure that all dividends etc are determined by formula not by arbitrary decision by myself - a prerequisite for me being able to trade MINING/SELLING myself.

I THINK the model is pretty robust - but any questions which would reveal weaknesses in it are welcome.  Prices of MINING/SELLING WILL move around much more than would be the case for PMBs.  That SHOULD have no impact on investors (those holding long-term) - as the price changing in no way alters their dividends.  For speculators/traders it obviously opens up lots of possibilities - both for profit and for loss : which the get (profit or loss) depends almost entirely on their ability to correctly value PMBs and (more importantly) their ability to predict how the rest of the market will act.  And that's how things should be.