Topic: Gigamining / Teramining - page 111. (Read 216459 times)
Got to disagree with the CPU bit there.
the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon 
How do you figure? You're assuming difficulty goes up as a rough function of price, in which case the USD yield of these bonds will stay roughly the same over time. Of course, they aren't perfectly correlated (or even close to that), but the directions in which they move should be correlated in the long run.
Market's gone crazy today, up around 6-7%. At this pace everyone will mine with everything he has soon, including CPUs
I don't expect that to happen though 
the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon
How do you figure? You're assuming difficulty goes up as a rough function of price, in which case the USD yield of these bonds will stay roughly the same over time. Of course, they aren't perfectly correlated (or even close to that), but the directions in which they move should be correlated in the long run.
the truth is, that at current pace of bitcoin price appreciation, current mining bonds will become worthless pretty soon
Then why the hell wouldn't the price of Giga adjust?
It would! That's exactly my point.
the end result is that as BTC gets more valuable (possible) and mining equipment gets cheaper (very likely), the going rate for mining bonds will decrease substantially
Someone buying the bonds hoping that they will retain their value would be due for a disappointment. It might not be possible to hold the bonds, make a profit, and resell them. That is why (1), Bitcoin price, matters. And, IMO, since hardware is bound to improve over time (just the trend with electronics these days), and the block reward will be cut soon, the Mh/s value of the bond will also not be nearly as worthwhile.
Pulling arbitrary numbers out of your arse and writing absurd What If scenario is pointless. 
Lest get back to Gigamining "FRN" aka floating rate bonds that have a variable coupon (the interest rate that the issuer pays to the bond holders), equal to a X Gh/s etc.
I think (hope?) those bastardised FRN's disappear soon and new mining bonds, with fixed coupon, will take over the bond market.
Another option is that current mining "bonds" start to resemble the real FNR's, where you have a floating rate from X Gh/s mining + fixed coupon (actually called spread that remains constant).
So, this bond will pay you what ever is mined by X Gh/s + spread of fixed rate.
Not sure, should I laugh or cry
You can set your "par" at what ever the f* you want and for my example, 1 was perfect.
Par value is still here because you need it for the coupon payment. I guess the meaning of "yield" an "coupon" still escape you. No problem, we all learn something new every day.
Lest get back to Gigamining "FRN" aka floating rate bonds that have a variable coupon (the interest rate that the issuer pays to the bond holders), equal to a X Gh/s etc.
I think (hope?) those bastardised FRN's disappear soon and new mining bonds, with fixed coupon, will take over the bond market.
Another option is that current mining "bonds" start to resemble the real FNR's, where you have a floating rate from X Gh/s mining + fixed coupon (actually called spread that remains constant).
So, this bond will pay you what ever is mined by X Gh/s + spread of fixed rate.
stuff up to the interesting point
If you buy the bond at 1 (par) .....
Lol - par values went out with the dinosaurs and is not relevant (and it wasn't 1 anyway, and for most instruments would not have been 1).
If you buy the bond at 1 (par) .....
Lol - par values went out with the dinosaurs and is not relevant (and it wasn't 1 anyway, and for most instruments would not have been 1).
Not sure, should I laugh or cry
You can set your "par" at what ever the f* you want and for my example, 1 was perfect.
Par value is still here because you need it for the coupon payment. I guess the meaning of "yield" an "coupon" still escape you. No problem, we all learn something new every day.
Why does (1) matter except for it's potential effects on (2)?
Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.
Why not? (Because difficulty is way up, but that's all covered in (2))
You could look at it this way:
Suppose 1 BTC = $100 and 1 share of Gigamining costs 1 BTC. Also suppose $600 could buy 1 Gh/s in mining equipment..
Then why the hell wouldn't the price of Giga adjust?
With a mining bond the Numéraire is Bitcoin. I don't see how USD matters in the slightest.
I think you have completely missed the point of the numeraire.
The relevant part of the article I quoted: "This technique has many important applications in LIBOR and swap market models, as well as commodity markets. Jamshidian (1989) first used it in the context of the Vasicek model for interest rates in order to calculate bond options prices."
If you can't see how a numeraire principle applies to bitcoin mining bonds then you might want do a little more studying in the financial management area. Lumpy has spotted and done a very rudimentary analysis of one of the most basic applications.
So if your cost of capital is so low, then you would be investing in something with a higher return?
More interested in return of capital than return on capital.
Why does (1) matter except for it's potential effects on (2)?
Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.
Why not? (Because difficulty is way up, but that's all covered in (2))
You could look at it this way:
Suppose 1 BTC = $100 and 1 share of Gigamining costs 1 BTC. Also suppose $600 could buy 1 Gh/s in mining equipment and that one could receive it in a reasonable time frame. Would it be a better investment to spend 6 BTC (or $600) in 6 shares of Gigamining for a total of 30 Mh/s, or in a piece of hardware that provides 1 Gh/s? No one would buy the mining shares for 1 BTC in such a scenario. They might not even buy them for 0.1 BTC. IMO, the end result is that as BTC gets more valuable (possible) and mining equipment gets cheaper (very likely), the going rate for mining bonds will decrease substantially. And, rightly so, Gigavps should be profitable as the shares decrease in value to the point that he can buy them back for a pittance.
On the other hand, if price and difficulty drop, we're looking at the opposite picture.
Why does (1) matter except for it's potential effects on (2)?
Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.
Why not? (Because difficulty is way up, but that's all covered in (2))
Why does (1) matter except for it's potential effects on (2)?
Want to buy a Zimbabwean govt bond?
The issue is your numeraire.
With a mining bond the Numéraire is Bitcoin. I don't see how USD matters in the slightest.
I don't want to buy a Zimbabwean bond. Do you want to buy caramel candies from Bees Brothers?
True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it. But the debate/discussion is useful.
True, but with ZIRP and my WACC around 0.75+LIBOR to 4% the issue is somewhat immaterial in my calculations.
So if your cost of capital is so low, then you would be investing in something with a higher return? Giga bonds are paying much higher than that, and even the non-BS&T deposits pay better, or some of the fixed interest bonds on offer then you can easily get 4-6% per month with fairly low risk.
The DCF/FV calcs could then contrast 100BTC invested in Gigamining versus BDK.bond (as an example).
True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it. But the debate/discussion is useful.
True, but with ZIRP and my WACC around 0.75+LIBOR to 4% the issue is somewhat immaterial in my calculations.
The current numbers are easy, but your post wasn't about future rates or even hedging instruments. Anyone can look up the BTC/USD cross rate and difficulty.
Well, obviously. I assumed we were talking about doing a NPV from the DFCF of the bond in which case the current numbers are almost irrelevant.
True, and also the graph Daily Anarchist threw up doesn't take different assessments of time-value of money into account, but when deciding what to invest in, the competing alternatives and portfolio risk also comes into it. But the debate/discussion is useful.
Why does (1) matter except for it's potential effects on (2)?
Imagine that 1 BTC = $100. How would you feel about 1.35 BTC for 5 Mh/s? Not so great, I'd reckon, since you would be FAR better off spending a few BTC on mining equipment of your own. Now imagine that 1 BTC = $0.10. Etc.
Why does (1) matter except for it's potential effects on (2)?
Want to buy a Zimbabwean govt bond?
The issue is your numeraire.
The current numbers are easy, but your post wasn't about future rates or even hedging instruments. Anyone can look up the BTC/USD cross rate and difficulty.
Well, obviously. I assumed we were talking about doing a NPV from the DFCF of the bond in which case the current numbers are almost irrelevant.
1 and 2 easy, it's the third one that's hard - hence my starting a credit rating discussion to actually collect those ideas.
No, 1 & 2 are not easy as there are currently no reputable sufficiently liquid instruments, that I am aware of, to hedge in either direction the volatility of either.
I do think the credit rating idea has a tremendous market need and not just for bonds but for developing the BitCoin economy's credit markets in general. Perhaps something like Prosper and a credit score. But no need to threadjack GIGAMINING's to discuss that.
The current numbers are easy, but your post wasn't about future rates or even hedging instruments. Anyone can look up the BTC/USD cross rate and difficulty.
However, knowing the forward curve for them would be much more challenging - possibly too illiquid a market to have futures on them yet.
I do think, eventually, somebody will do a very thorough number crunching analysis of fixed bonds ROI, which will help to set the price of these sorts of bonds in the future. Then the only real differences in the price of bonds will be credit rating, also to be determined by reputable Bitcoin credit agencies.
Oh, there has been some thorough number crunching analysis which has been done. They are largely depleting assets and somewhat like an oil well.
The three main variables are (1) BTC:USD exchange rate, (2) network difficulity and (3) counter-party risk.
I had lunch with a couple attorneys last week and we discussed securitizing bonds. Just goes to show that there are all types of interesting opportunities available with this nascent economy.
Why does (1) matter except for it's potential effects on (2)?
Where can these numbers be found? Also, you're bullish on them?
Trade secrets. Information asymmetry is just a fact of the universe.
Prefer not to say although I would like to see GLBSE introduce both the ability to use securities as collateral, for example lines of credit or margin to buy other securities, and the ability to short.
1 and 2 easy, it's the third one that's hard - hence my starting a credit rating discussion to actually collect those ideas.
No, 1 & 2 are not easy as there are currently no reputable sufficiently liquid instruments, that I am aware of, to hedge in either direction the volatility of either.
I do think the credit rating idea has a tremendous market need and not just for bonds but for developing the BitCoin economy's credit markets in general. Perhaps something like Prosper and a credit score. But no need to threadjack GIGAMINING's to discuss that.
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