Topic: [BTC-TC] Deprived Mining Speculation (DMS) - page 95. (Read 198958 times)

That's true, Thus, I'm actually selling my TAT.VM shares and buying more DMS

There's a bunch of reasons why TAT is higher.  The long contract for MINING is definitely one of them.  

One of the main reasons is just lack of supply.  If you look at what happened when the 21K were put up, the vast majority were bought in 2 big buy orders - so there's never actually been a chance for most people to buy them other than from the resellers.  If I'd been around when the batch went up I would have bought a bunch as well - not because I necessarily think they're worth .007 or more - but because there was always going to be people who'd buy them for 10% more.  I did that with them on Bitfunder (for LTC-ATF).

In comparison, MINING has near-unlimited supply (so long as there's people willing to buy PURCHASE and sell the MINING).  So there's no way for people to buy MINING with any great certainty of being able to sell at a profit.  That means they have to worry about what the shares are actually worth - rather than just following the "bigger fool" principle which is what flipping is all about.

But the extent of the price difference does surprise me a bit - given the enormous difference in buy-back terms.  I guess a lot of investors don't even read that far.  Or maybe they're ALL just hoping to sell for a bit more than they bought for - in which case some of them are obviously going to have an unhappy result (in that they'll have to keep shares they didn't intend to or take an immediate hit - there can only be so many cycles of reselling higher before the buyers dry up).  It's interesting to watch anyway - and it'll get even more interesting later in the week I think.

And do realise that the majority haven't actually bee successfully resold - total volume is 24642 meaning only 3.6k have resold so far.   Other than the two massive buys from resellers we've actually sold more hashes than TAT - the high prices are more because noone (other than the 1 or 2 resellers) has any to sell than because of overwhelming demand at a price over .007.

DMS.MINING seems like a great buy right now at 0.031/share for 5MH, especially when TAT.VM is selling as high as .009/share for 1MH. VM seems overvalued right now, but MINING seems undervalued even if the VM value drops back to sane levels. I suppose a lot of potential investors are put off by the long contract, but that is their loss.

Okey, I guess it does.

Yeah - like PMBs we don't pay fees.  Or maybe think of it as we mine 'virtual' blocks with no transactions in.  Of course we also don't get stales, orphans or power-cuts on our virtual mining - which probably more than compensates.

If you worry about 1 satoshi difference, there is an even bigger one:

Actually the block reward is 25+fees.

Seems the above is just a display error in historical dividends.  If I look at my personal account (where I held exactly 1 PURCHASE - I wanted to make sure someone got the dividend so there was a record of it) I see :

Dividend History: DMS.PURCHASE Reinvest At Max ฿  Per Share
Date   Shares Held   Per Share   Total
2013-06-11 17:01:16   1   ฿ 0.00016113   ฿ 0.00016113

So the correct dividend WAS paid - it's just being reported incorrectly in the security history.

I have noticed a tiny error myself.

MINING received a dividend of 0.00016113 per share
PURCHASE a dividend of 0.00016112 per share - 1 satoshi less.

Whilst I doubt anyone cares about 1 satoshi it shouldn't happen.  I know for certain that I entered the correct amount for the PURCHASE dividend per share - as I picked it from the list of previously used values.  And that list contains 0.00016113 but not 0.00016112.  I'll prod burnside about it - it looks like some very minor rounding error somewhere (am guessing a dividend per share is done by calculating the total dividend then dividing it by number of shares - rather than just by sending the specified amount).

Below is a copy/paste from my spreadsheet showing all calculations made in respect of dividends.  I'll explain all the lines today - on future days I'll just copy/paste the report here (with the calculation of management fee above it in same post).

BTC Balance (BTC-TC)    303.05291603
10000 LTC-ATF.B1    100.00000000
TOTAL ASSETS    403.05291603

The data above shows the value of the fund immediately prior to dividend payment.  This is AFTER the deduction of (any) management fees due.

Outstanding MINING   6248
Outstanding SELLING   6248
Outstanding PURCHASE   129
Effective Units   6377

The next block of data records outstanding shares.  Although the number of outstanding shares on BTC-TC is cached, the issuer can work out the exact number by looking at their own holdings.  Effective units is PURCHASE + (either of MINING or SELLING).  If there are different numbers of MINING and SELLING then this will say "ERROR" and it means I've just been very careless.  Effective units is the number by which NAV is divided to find NAV/U.

Block reward   25
Difficulty   15605633
Hashes per MINING   5000000

This data are the variables used to calculate dividends.
   
Daily Dividend    0.00016113
50 days (Min Liquid)    0.00805649
100 days (Forced Close)    0.01611298
365 days (Buyback)    0.05881238
405 days (IPO)    0.06525757
400 days (Post SELLING div)    0.06445192
410 days (Pre SELLING div)    0.06606322

This block of data show the calculated daily dividend and (for reference) various relevant values for "X days of dividends at current difficulty".)
   
NAV Post MINING Div    402.02539127 <-- This is the total assets calculated earlier less (daily dividend * effective units)
NAV/U Post MINING Div    0.06304303 <-- This is the NAV calculated in the previous row dividede by effective units and is NAV/U after payment to MINING
Days Dividend Post Div   391.26 <-- This is number of days of dividends left as capital.
SELLING Dividend    -         <-- If the previous row is greater than 410 then the dividend to pay SELLING is calculated here.
NAV Post SELLING Div    402.02539127 <-- NAV after paying any dividend due to SELLING
NAV/U Post Selling Div    0.06304303  <-- NAV/U after paying and dividend due to SELLING
PURCHASE selling price    0.06619518 <-- Price to sell PURCHASE at.  That's the NAV/U in previous row *1.05
PURCHASE buy-back price    0.06178217 <-- Price at which the fund will buy-back PURCHASE (or MINING + SELLING).  98% of NAV/U.

The actual wallet balance after this dividend (plus 100 BTC for our LTC-ATF.B1) matches the calculated post-div NAV to 5 decimal places.  The last few digits will rarely match due to rounding errors.

You will note that the days of dividend left after this report have dropped from 405 to 391.  That's not as alarming as it may seem - and today will be the only day it drops significantly (normally it will drop by 1 or less).  The drop is because 3% management fee was taken - when you buy a PURCHASE initially at 405 days' dividend, 12 of those days are going in management fee.  The remaining drop is due to transaction fee on sales and, of course, a 1 day reduction from actually paying a dividend.

If the management fee seems harsh, remember it's only taken once - there's no other management fees at any times.  A 3% fee is VERY cheap compared to just about every other security out there.  I just don't try to hide or the disguise the fee.

All questions, comments and suggestions for changes/additions are welcome.

Bid has been taken down.

As this is the 1st day of trading the management fee can be calculate from current assets.

Wallet (315.51791603) + Investments (100 BTC) = 415.51791603 BTC
A management fee of 3% is due on that - 12.465 BTC.

This will be transferred now and the balance after that used for calculating the report.

On future days the management fee will be calculated on new sales.

I've nearly made back the 15 BTC listing fees in one day - a pleasant surprise.

Please do not send any more PURCHASE to me until after the dividends have processed - I do not want PURCHASE sitting with me and not receiving dividends.  I'll process any exchanges made nearer dividend time.

Don't panic if you haven't sent in PURCHASE to exchange - all dividends paid to MINING also go to PURCHASE (as PURCHASE is a MINING + a SELLING).

I'll leave the ask-wall of PURCHASE up until a few minutes before dividend payment.

Details of the dividend payment and all other accounting info should be up within about 10 minutes of the dividend actually processing (which could be at any point in the 15 minutes after 16:00 GMT).  A fresh ask for PURCHASE will then be placed up at the new price (which will be very slightly above the current price - probably the only time its price will ever rise).

Per the contract I just exchanged in 10,000 LTC-ATF.B1 in return for units of MINING and SELLING.

LTC-ATF.B1 is a bond, issued by my trading fund LTC-ATF.  Although it's traded on LTC-GLobal (in LTC) it has a face value of 0.01 BTC on which 0.6% interest is paid each week.

No new LTC-ATF.B1 are being issued at present (it's actually unlikely any ever will be - as my belief is LTC-ATF can now raise capital cheaper than that if it needs it).  The bonds traded in are ones personally owned by me - either bought via the market or bought directly from other investors who wanted to sell back.  No bonds are availalable cheaper on the market (the cheapest Asks are at about 10% over face value).

There is no currency risk associated to these.  The face value is fixed in BTC - and backed by BTC-denominated assets exceeding the value of all debt.  The bonds are further backed by all LTC-denominated assets of LTC-ATF.  In total the bonds are backed by assets worth well over double the value of all debts/liabilties of LTC-ATF.  At this instant 91.28% of all of those assets are cash - either LTC or BTC on various exchanges (most of which is backing Bids).  The dividends are paid in LTC - this will be exchanged back to BTC (by LTC-ATF) at the same exchange-rate used when calculating the dividend payment for this fund immediately after dividend payment (because the debt is BTC-denominated LTC-ATF has to exchange some LTC back to BTC anyway to maintain its ratio of currencies, so this saves LTC-ATF some tiny fees whilst ensuring zero non-BTC exposure for this fund, even on dividends)

In short, they're about as low-risk as you'll get.  This is also likely to be about all of them that this fund gets (unless anyone wants to trade some in at face value).  The bonds are redeemable at 99% of face-value to LTC-ATF.  In practice I'll just buy them back myself at 100% of face value when the fund needs to get rid of them.  They will generate just over 0.6 BTC per week for the fund (LTC-ATF rounds dividends up to be round numbers, so the effective percentage paid per week is slightly over 0.6%).

As of this instant these now constitute around 25% of all assets of the fund.  That percentage will drop as more PURCHASE are sold.

10,000 LTC-ATF.B1 is 100 BTC face-value.
1532 each of MINING and SELLING have been transferred to my personal account along with change of 0.024744 BTC.

I will now update the fourth post of this thread so it can be used to calculate all of our assets with a reasonable degree of accuracy at all times.

Spreads have narrowed and mining is trading at a 20% discount to TAT.

Interesting, but also quite complicated.
I gave it a try with a small BTC amount and bought some DMS.Purchase, breaking them into Mining and Selling worked fine so far.
But now I need to make my mind up when to sell what of those xD

You could be right about that - especially as not only is the price of them lower (but can reflect the same change - hence making them mor efficient) but people can also write CALLs based on holding assets that they believe are long-term viable even if the option isn't exercised.  With writing CALLs on purchase the writer has to commit to holding purchase - meaning they give up the opportunity cost of being able to sell one part (mining or selling) if at any time in the interim prices move to as to make that attractive.

It's highly likely no big option market will develop at all - and options would only be used occasionally where two people wanted what boils down to an escrowed bet.

On which note I'm off to bed.  Sales for the first half day have surpassed what I expected on Purchase (I didn't expect much over 100 BTC worth) and are around what I expected on Mining (there won't be significant sales there until a dividend has been paid - all the investors who don't read the forums or contracts want to see a dividend) and Selling (people have already given away money by buying MINING when they could have bought purchase and sold the selling into bids and ended up with MINING for up to 10% less - volume just won't be high there for a bunch of reasons, inability to do very simple math being one of them).

Will deal with any transfers in when I get back online.

I'm guessing that is the driver behind your prediction about a fair amount of purchase not being converted? It will be interesting if there is indeed sufficient liquidity and activity for a reasonable option market on the instrument. I have my doubts. My prediction, if there ever is a solid option market, would be that pure short-term difficulty bets would be synthetically created through mining and selling before purchasing. While the process is slightly more complicated (especially since you cannot directly short), those markets are going to have 5x+ the volume which will lend itself to a smoother options market.

I'm around for about another hour - then off to bed.  I'll process all conversions I receive prior to that - once I've gone there'll be no more MINING or SELLING given out until I get back online tomorrow.

There's another use for this fund which hasn't been touched on yet.  Investing in MINING and SELLING allows you to gamble on the medium to long-term trend of difficulty, but trading options on PURCHASE allows you to speculate on short-term difficulty changes with very high precision.

Once you've mastered the math of how PURCHASE price will change (which will become a LOT clearer after the first dividend tomorrow - when I'll post all of the calculations and numbers with explanations) you can (with hardly any time at all making a spreadsheet) predict precisely what the PURCHASE price would be if the next difficulty change was any value you like (the only bit you can't precisely predict is any increase in NAV/U from sales or income from investment).  That then allows writing options based on any cut-off point on difficulty you want.

Whilst you CAN in theory write such options on MINING or SELLING instead, PURCHASE is the best to write them on as its price is determined entirely (other than the minor factors mentioned earlier) by formulae dependent at root solely on difficulty.  Whether there's enough spread in the range of views people hold (strongly enough to bet on) is of course the main limiting value on the utility of this - but the opportunity is definitely there.

The remaining capital in the fund will tend towards 0 - whether difficulty rises, falls or stays the same (I'm ignoring for now buy-backs - those take capital to 0 immediately with the majority of it going to MINING).

What will change massively is the extent to which each of MINING and SELLING receive that capital back.

Let me give two extreme examples - reality lies somewhere in between.

If difficulty were to stay the same (or fall) then there's ZERO chance of SELLING ever receiving a single payment - as capital would never be over 410 weeks of dividends.  After some period of time, capital would drop below 100 weeks' of MINING dividend prompting a forced closure with everything being given to MINING.

At the other extreme if difficulty rose to 100 times present at next change then after the change the vast majority of all remaining capital would immediately be sent to SELLING (leaving 400 weeks of a miniscule MINING dividend as capital) and MINING would never get back anything much more than what they received before next difficulty change.

We can be pretty certain neither of the above will happen - though in theory results not too far from either are not unfeasible.  The skill is to estimate where in the interval between those extremes real future difficulty changes will lie - and buy/sell appropriately.

And remember that whatever you work out for MINING DOES apply almost unchanged to ALL PMBs - even ones that have hardware.  Their payouts are calculated in almost exactly the same as ours.  The only place where there is a significant difference is if you believe the reality will closely mirror the first scenario (difficulty staying the same or falling in the short to medium term) - if you believe that is likely then you should value PMBs significantly higher than MINING (as our cap on payout becomes relevant).

Dividends from DMS.SELLING can approach zero while also giving 91.25% APR. It all depends on the price of DMS.PURCHASE

My understanding is that in an environment of continually increasing mining difficulty, the dividends of DMS.MINING and DMS.SELLING will BOTH asymptotically approach zero.  It's the rate at which they approach zero -- largely determined by the speed that mining difficulty increases -- that determines which asset gets a bigger slice of the ever-shrinking pie.  But if I've understood it correctly, both assets should theoretically decrease in value each time there is a jump in difficulty, and ultimately reach zero.

Of course, I could be massively confused.