Topic: [Havelock] Bitcoin Difficulty Derivative (BDD) - page 83. (Read 290235 times)

Regarding the dividend calculations, yes, you do have to use the formula provided in the Contract.

Sorry for the lack of clarity on that point. Your initial interpretation is correct; if difficulty decreases or stagnates, which leads to a Reserve/Unit greater than the NAV/U, then MINE will continue to receive daily dividends until the fund's capital is exhausted. SELL would not receive any further dividends in this case and would be bought back at 0 once the capital is exhausted and paid out to MINE holders.

Hope that clears up any confusion; I will edit the Contract to show this as well.

Ah, I used:
from the Bitcoin-wiki, which is apparently a slight approximation. That explains the discrepancy.

I got the same div as twentyseventy with the formula from the OP:

5000000000 * 25 * 86400 * (65535/2^48) / 2,193,847,870 = 0.00114617

Which formula do you use?

This section is should be clarified. I assume that it means that when the difficulty stagnates or decreases, MINE will continue to receive dividends and SELL will not, until the fund runs out of coins and closes. However, it could also be interpreted as: when the difficulty decreases (even just once), all SELL are bought back at 0 price and MINE continues to receive dividends (and live happily ever after).

Also, when I compute the daily dividends for MINE using the info from the Bitcoin wiki, I obtain a value that is 2 satoshis per day per share higher than what has been paid out to MINE. This discrepancy could be a rounding error, but those typically shouldn't exceed 1 unit at the smallest denomination. Could you specify which equation you use to compute MINE dividends?

A user was just double-issued 5 SELL shares; I'm unable to buy-back these shares at the moment, so I've held this user's 5 MINE shares and have sent him/her an email.

If you're this user; please send me the 5 SELL shares on Havelock ([email protected]) and I'll release the 5 MINE shares to you. Normally, I'd be able to buy back the shares, but there is a bug in the Havelock system which is disallowing me to do so.

EDIT: Resolved with the user very quickly. I can't transfer any funds to SELL to do the buy-back from myself (for 0) until tomorrow, so until then there will be 5 more SELL units issued than MINE, in case anyone notices.

Following

Hello Again All:

Many thanks for your explanations and information.  I view these 3 funds as a package which should in fact behave as a set of interlocked derivatives, as your name implies.  One of the best things about derivatives in general is that they can represent excellent ways to manage risk in the underlying asset.  All Things Bitcoin is nothing if not risky!  You have given us a tool to help transfer risk from those who don't want it to those who do, for a price.  Unfortunately, derivatives have a well-deserved reputation for being complicated and difficult to understand.  Now that you have provided this additional info I think that you have reduced the confusion to its lowest realistic level.  Best Wishes to you and to BDD!

Hello Folks:

Many thanks for your considerate and informative responses to my 7 questions yesterday.  I just have a few additional questions and comments:

1.  Is it correct to assume that you will always value MINE at the stated 200 days of dividends, no matter where in the cycle we are?  For example, after a typical 14-day cycle will dividends be based on 200 days or on 186 days?

2.  I understand where the 1% fee goes much better now.  But I don't see how the Issuer of the fund makes any BTC.  If that fee is just enough to pay HL their fee and to provide a small buffer then how does the Issuer get rewarded for all of the quality time, energy, and ongoing management work necessary to bring this innovative concept to market and to make it a success?  The Issuer deserves compensation for all this work and hassle!

4.  I got the 2,514,532 Difficulty number from the IPO Prospectus on p. 4.  Many thanks for the link to the actual data--it really helps to clear up this issue.  Might I suggest that you include this link directly in future communications with investors, especially those of us who are kind of hazy on the nuts and bolts of how hashing & mining works?

 I assume that you set the penalty at 1/2 % per day for MINE transactions because it reflects the shorter remaining life of the fund, at 1 day less/ 200 days standard.  So in this way it's like the situation with ex-dividend valuation of shares of common stock, where the market price of the stock falls by the $ amount of the quarterly  dividend on the ex date.  Since you pay dividends each day this adjustment makes sense.

In sum, if I get your plan correctly now the 0.2431 BTC for EXCH is ultimately  divided between MINE and SELL holders depending on whether the difficulty increases rapidly (favoring SELL) or slowly/as expected (favoring MINE).  So it really IS a zero-sum game!  In  effect your derivative functions as a LEAP where the time frame is several months, MINE represents a call option for those bullish on mining investments, and SELL represents a put option for those bearish on mining investments.  I really like this concept!

Difficulty is not "resetting". Difficulty is just the current difficulty and it changes every 10-14 days on average. Have a look here for history: http://runeks.dk/bitcoin/diff.txt

No, the current price of BDD.EXCH is 210 days of dividends (will change to 200 days after next difficulty change), so NAV/U is 0.22923491

Correct.

What is that 2,514,532? Difficulty is 2,193,847,870 right now.

Depends on how much the difficulty will increase on average, about 2-5 months per cycle.

No, dividends come from the investors. It's part of the zero sum game.

You are right on the zero sum game, the invested coins are redistributed between MINE and SELL holders, depending on the difficulty changes.

For your second part: Higher difficulty increases (than expected) are bad for MINE holders, because it reduces prices and dividends. You are right when we reach the "endgame", as most of the investment thats left goes to MINE holders.

@twentyseventy: If I explained something wrong, please correct me.

Ding ding ding! Yes, there is definitely some price discovery going on at the moment. No one should be buying SELL or MINE above the EXCH price, as one EXCH shares equals one MINE and one SELL.

I expect this to continue for a bit as those who choose not to read the conrtact (despite my urging) or do not understand the mechanics will be buying too high or selling to low.

EDIT:
Again, please take the time to understand this asset before trading in it; I highly recommend picking a value at which you think the Difficulty will increase/decrease in the future and go from there.

Also, I want to make clear to everyone that I do plan on trading in this fund. As the Issuer, I have no advantage whatsoever over any other users (besides the fact that I can exchange the EXCH for a BDD Pair at will; other users have to wait until I see their order come in). The market sets the price for SELL and MINE; EXCH is set at an ask value that is available and calculable by anyone. I do have previous similar experience with this model, like anyone that traded in DMS would have (hi Rannasha and eltopo), but it is nothing that anyone new to the model wouldn't be able to understand.

Am also talking with Havelock about automatically exchanging EXCH for a BDD Pair when EXCH is purchased; I know this is a most-requested feature. Happy Speculating-

No, you are right. There are bids for SELL at 0.1, so you can get MINE for 0.1431.

I love those folks who notice the 167% annual yield and start buying without reading a single word... 

BDD is an interesting set of funds. Definitely seems like a zero sum game in which you gamble on mining difficulty. There is nothing wrong with that and it makes for some fun. It almost seems like Baccarat except with BTC based securities instead of cards.

P.S. Those of you currently buying B.MINE shares at above the current price of B.EXCH (0.2431), you realize you could simply buy B.EXCH for cheaper, and get both a B.MINE and a B.SELL share and simply sell the B.SELL share. I believe you would be much further ahead by doing this, unless of course this in some way affects the dividend that will be paid.

Dividends should be going to to all B.MINE shares momentarily. Havelock went down right at Noon and took a few minutes to come back up - also, they have a date function set for Dividends, but no specific time function. I'll be working with them to get this sorted ASAP, these are just the few hiccups that happen with starting a funds of this sort.

Thanks to all of the shareholders for their patience; all will be taken care of.

EDIT: Dividends are still processing, so if you do sell any shares of B.MINE before the dividend is paid, you will not receive today's dividend. I figured that would be clear, but wanted to ensure that all interested parties understood. Will be holding any EXCH exchanges until the dividend is paid to minimize confusion. Working with Havelock to better schedule dividends in the future.

I have a few questions about BDD, being new to these derivatives:

1.  Does the difficulty reset every 10 days on average?

2.  At the posted BDD.EXCH price of 0.24310364, if this price includes the 1% fee, then is the NAV/U actually 0.24069666?

3.  If this 0.24310364 does in fact represent 210 days of daily dividends, then is this daily dividend = 0.00114617?

4.  Using the formula in the prospectus (5,000,000,000*25*86,400*65,535/2^48/2,514,532)  the daily dividend computes to 0.00000023.  Why the difference?  Does it imply 5,000 shares outstanding? (0.00114617/0.00000023)

5.  About how much time will each cycle (intro to end game) represent?  Do you intend to restart the derivative funds anew after the end game has concluded?

6.  Since you are not actually mining for BTC, where do the BTC you need to pay those daily dividends come from?  In other words, is there an independent source of income using cash flows not provided by your investors?

7.  I get the impression that the way you have designed the BDD pairs it's a zero sum game--if difficulty increases the BDD.Mine will get most of the 0.24 initial cash flow and if difficulty decreases then BDD.Sell will get the majority of the cash flow.  Is this inference accurate, and if not why not?

Thanks in advance for your help.  I am seriously considering investing in BDD but I need some answers to these questions before I commit BTC, and I can't find simple explanations in the Prospectus.

IMPORTANT Operational Change:

Buyers of B.EXCH will NOT need to send the shares to the Issuer.

As soon as the Issuer sees the purchase of the B.EXCH, he will buy back the EXCH from the purchaser and issue the BDD Pair to the user.

The issuer will check at least every 24 hours. I'm online nearly all day, so I will be checking constantly.

I believe that this will make it easier for users to receive their BDD Pair, instead of having to send the shares back to the issuer. As with any new venture, there will be adjustments made as needed and I thank you for your patience and understanding.

Thanks, I appreciate it!