Topic: So like...I don't get Mining Securities...can someone explain them to me? - page 2. (Read 2272 times)

I don't understand the mining securities on GLBSE.

What are people actually expecting to get out of them?

Here is an example, where I buy 1000 shares of a mining group:

Gigamining:
1000 shares = 1500btc (april btc/share price) @ approx $5 per share (april $/btc price) = $7500 investment to start off.
Today, dividends would have amounted to approx 400btc since it opened,
and also today 1000 shares can be sold for around 900-950btc (if you're willing to wait a while, if not this is closer to maybe 500 btc).

Total: 1300-1350btc

But it's worth more! 1350 @ market price = $13,500! win!
If I'd just left my 1500 btc alone, it would be worth $15,000 in the same time frame. There is no scenario where the price matters, when the btc returned are less than the btc invested.

The equations give the same story for at least 2 other mining ventures (I worked them out, but cbf doing it again to paste here; you can calc it yourself to confirm).

At best, there is a break even, and usually there is a loss...but this is obvious even from a pre-investing perspective. All mining funds need difficulty to drop over the term of the investment to actually be profitable in btc, so are in fact bets that this is what's going to happen. The only scenario in which more btc can be returned is if the hash rate drops over time, and the only way $US profit can be made is if that happens simultaneously with price increases (yes, hash rate down while price goes up...).

The difficulty does drop when the price does, but in a dampened way - not as much as the drop in price, and it zooms when the price rises. If a person believed the price was going to drop, they would again be far far better off simply selling the BTC and rebuying when it's lower. The constant increasing pressure in hash rate absolutely guarantees the cost of 1 btc is going up (takes longer to earn 1btc for the same electricity), and since mining ventures are capped to initial funding, they cannot actually increase their hash rate without more money.

Mining securities make absolutely no sense what so ever for the investor, and yet here they are existing in plain sight. What am I missing that would explain all this?