Topic: The Bear Argumemt for ASICMINER (Read 3031 times)

Sorry to dig up this one, but it is very interesting to see how some arguments turned out.

I'm sure there were a lot of people that were blinded by greed.

With AM shares down to 0.7 or so, I don't see any major improvements until Feb '14 when they new generation is scheduled for. It is very hard to believe that AM managed to miscalculate what the future will bring and that they lost all the advantage they had, and now have to play catch up.

Investing is half luck and half good research
Trading/Speculating is 90% luck. To think otherwise is just another's gamblers fallacy.  I thought it was overpriced at 3 but it had so much momentum and euphoria on the board I rode it to 5.  If I decided to hold a week long, would have been selling back under 3.

When traders make money, it is because they are clever, a genius, or simply brilliant. But never because they were just lucky.


When they lose money, it is because they are unlucky, got screwed, or got cheated. But never because they were just stupid.

That was 99% luck - I was just chasing the momentum. That could have just as easily gone the other way.

Bastard. 

Disregarding today's turmoil, I agree. I've always invested based on value, not people's willingness to pay. I sold my AM shares at around 1.8 in April or May because I couldn't see a fundamental value beyond that point. I could have ridden it higher based on people not knowing how to properly value an asset, but I still see ~1.5 as a reasonable valuation of AM.

.b

Thanks so much mechs! That was really helpful for me.

I think at 1.5BTC ASICMiner is fairly valued considering all the unknowns.  At this point, it is all about how fast they can get out gen 2, in what #s and how well it performs. With not too much info coming from FC (which is not unusual for him), it really is a question of your "faith" in FC at this point to be able to deliver.  We do know they lost the first mover advantage though since Bitfury is now mining with Gen 2 (though they mining with the hardware, currently little to none sold) and have 17% of the network hash under their private mining pool ghash.io.  Seems like Bitfury may be the new asicminer except they are a completely private entity.

I think this will drift down to 1.2-1.3BTC with a couple more poor dividends and continued silence from management just on weaker handed speculators continuing to get shook out.  If you are thinking of buying, I would definitely hold off since we will see somewhat lower prices before any catalysts likely appear.  This will jump up at some point, on some positive news from FC, so for the trader at least, a dead cat bounce is likely in store and I would not short it.  Still, for a long-term buy?  No, I personally think FC has falled too far behind now that more professional competition has arrived. It not just BFL & Avalon anymore which are both now largely irrelevant.  It is more professional operations such as cointerra, hashfast, KNCMiner and Bitfury that is the new competitors to look at, and they are much stiffer competition to deal with.  Friedcat is very much a hobbyist by comparison.

Great call Mechs!

The btc price now being $135 and AsicMiner being 1.5 btc, do you think it is a good buy now?

I'm thinking the best moment is likely when btc mining collapses in general, just like the price did. I'm thinking this should happen the next few months somewhere when competition destroys profit margins of old technology and when btc exchange rate drop, destroys profit margins of many asics too. They will have to go offline and hashing power will considerable drop for few months or stagnate.

The best moment to buy is after these few months of drop or stagnation of hashing power has happened since hashing power per definition goes up again after that, meaning profits are again being made. The big question will be ofcourse, has hashing power bottomed out already or will it fall deeper? But for sure, since hashing power did not even start dropping or stagnating yet, now is not the time to invest in mining.

Appreciate your feedback.

I'm investing on value, not price, as you very well know :-)

.b

Will you publish it just as AM hits 5 again? 

Perhaps it's time for my "Why I sold out of ASICMiner" article...

.b

Let the Gox USD "Hiatus" dust settle and remember where the BTC price was 2 weeks ago.

We'll see 55 in days, not weeks.

The Bear argument for ASICMINER is playing out faster than I even expected.  For the reasons I stated in the post at the beginning of this thread, ASICMINER is essentially a leveraged play on the Fiat/BTC ratio - when BTC goes up on value, ASICMINER will rise even faster - however the same is also true in reverse.  I think ASICMINER will overshoot to the downside too the speculators and the lack of liquidity.  We will be seeing a price in the 2.0 to 2.5BTC range by mid-August.  I think the value of Bitcoins will unfortunately reach the mid-50s by then as well.  Hopefully, there will be support there - those are my buy prices for both the bitcoins and the stock (55ish USD & 2.3ish BTC respectively).

Most other companies aren't mining with as much of their own hardware. For example BFL is selling most if not all their units, and I expect the same of KNC and any other large group. The other problem is that mining has had an extremely high profit margin for a while (I would guess partially because of ASIC preorders and lack of new GPU/FPGA miners previously, which isn't the case as other companies begin to deliver more ASIC miners. Again, purely speculation though.) and if that is reduced revenue will decrease. A lot of where things get messy is can AM keep up with all the other players that are finally getting things together at scale. BFL just recently started shipping units en mass and is still clearing their backorder, KNC isn't shipping yet (and looks to have some of the most efficient hardware in GH/J on 28nm), and AM generally beat everyone else to the punch. They also only get money from a hardware sale once, after that they're adding mining competitors even if hardware sales is a parallel and viable business plan it's a different one from what they're currently doing.

They're still profitable and I have no reason to expect them not to be for a good while, but their margins, and returns, almost certainly will shrink within the foreseeable future. The big question left is how much and when?

I like you.

Agreed, on all points. I'd also like to add the fact that only 10% of shares are traded on exchanges - how's that for thin volume? When a really big player decides to get out, it's going to be chaos.

I've been buying puts for a while now, at first because I was concerned the initial performance wouldn't hold up, and as a hedge against USD/BTC; and now as a downside play. I've sold all my shares and I'm sleeping better because of it.

In other news... I can't help but notice something that seems a lot like a sentiment change happening here. Up until the last couple days it's been 95% bullish sentiment.

The point was a thought experiment.  "invested" was a theoretical notion that if the market is valuing AM at 5 it is because it thinks that all of the shares are worth 5.  The fact that the company owns half the shares (and not the company, but an individual) is meaningless when doing analysis on a share.  A share is a share is a share, unless they have been specifically segregated from the rest of the shares by being put in another class or something.

As I said, I use these types of thought experiments to give me a different perspective on what is going on sometimes.  It isn't inaccurate at all though to make this part of an analysis. If someone wanted to buy out ASICMiner using only BTC and the last price was 5BTC, how many BTC would that person need to buy it?

Yes.  17.62%

Sorry, but that isn't throwing around numbers.  It's math.

And not the only analysis we did on this security.  Just the final nail that told me it was time to sell off our position. 

He's telling the market capitalization of AM was 17.62% of all Bitcoins in circulation when the shares hit 5BTC, which is of course much higher that the fair market value, so it was a warning sign.

this selloff though 

I'm back in, my new cost basis is 3.18btc

You were clear. You said when one AM share is 5 BTC then 17.62%  "were invested" but that is incorrect because that many were not invested to become 5 BTC and it doesn't mean we value it at that much of BTC in circulation because the total BTC of all investment valuations greatly exceeds the total BTC in circulation. That is no different than real life. And as soon as you try and claim all of that value, it slips and adjusts. It's never taken for face value. So is the theory that it would require that many to "support that share price." We discussed this in the main topic already.

https://bitcointalksearch.org/topic/m.2627441
https://bitcointalksearch.org/topic/m.2626782
https://bitcointalksearch.org/topic/m.2627210

Market is illiquid, slippage can cut the price in half easily

Ok, maybe I wasn't clear.  If all of the shares in circulation are assumed to be worth the same, then at 5 BTC per share it would require 17.62% of all the Bitcoins in existence to support that share price.

There aren't multiple classes of shares, there are just shares.  I would agree, just because 1 share trades for 5 BTC doesn't make all 400,000 worth that much.  And that is probably the point, if the market can't support a total valuation of 2mil BTC, then why should 1 share be worth that much?  When you are valuing a company, you can't just exclude some shares because they belong to the founder.

That's not true at all. It's far far less.

Friedcat holds half the shares, those cost him 0 BTC.

Majority of people got in at 0.1 and 2.5, not 5. On the way up the purchases are quite thin because people are hoarding. Meaning it didn't take many bitcoin to move it from 2.5 to 5 while at was walled at 2.5

Something like 3-5% of all bitcoin in circulation.

I am a trader at heart, and I owned ASICM from 2.2~ until today. 

There are a lot of ways you could go about trying to model the price of AM and what it should be worth based on projected future earnings, etc...

Sometimes though I find it helpful to step back and take another perspective, and in this case the one that made me decide to get off the ASICMiner train for the time being.

When the shares hit 5BTC per share, somewhere around 17.62% of all Bitcoins in circulation were invested in this one company.

17.62%

Now, like I said, I'm a trader and my gut told me that whatever other reasons I could come up with to justify holding on, that number kept coming back to haunt me.  Our fund has been applying different metrics to try and value ASICM at a reasonable level, but as a trade it was this one number that made me pull the trigger on us selling out our shares.

FWIW...

The P/E analysis stocks have few merits in bitcoin world.  In bitcoin world, people investing in mining equipments would want them to break even in months, break-even exceeding 6 months is unwise in general.  The fast moving and ever changing nature of bitcoin world makes PE rather irrelevant - a PE of 2 means you earn everything back in 2 years.  How many can accurately forecast today's state of bitcoin 2 years ago?  One is better served looking at the discounted cash flow (incl. possible growth in a short term horizon).

Very good argumentation. P/E ratio can be misleading as a streak of good fortune will lead to exceptional high profits growth, and per definition a low P/E ratio. Bidding up the stock price to fair P/E ratio may look reasonable, however if the exceptional high profit growth stops chances are high the market will not be willing to pay that reasonable P/E ratio since the growth is not there anymore.

Satoshi Dice is a prime example. They experienced exceptional high profits growth tenfolding USD profits in a few months time, from an average of only $30k (november 2012) to an average of $300k/month (april 2013). The stock also tenfolded from $4 million to $40 million and the P/E ratio continued to be around 10. Looked fairly priced, however after that the monthly profits stopped growing and even went down somewhat to an average of around $250k/month today. Market didn't like and started selling it, now it's valued at $20 million and P/E ratio of 5. Investors lost -50% the past few months eventhough profits remained pretty much stable!

So anyone buying today AM can better hope the profit growth continues to rise as fast as otherwise the value of the stock will likely correct seriously.

I think you are mistaken - BTC difficulty scales with hashing power. So if global hashing power is lower, then it is proportionally easier to mine bitcoins. Hence why this point is invalid, revenues will be unchanged. The only way AM can lose network share is if its competitors increase their hashrate at a faster rate, which this point has no impact on, as the fiat vs BTC would affect all of them equally.

no, AM (and all competitors) have expenses priced in fiat.  As BTC:fiat falls, it requires more btc to pay for chips, electricity, employees, etc.  Even if the network %'s stayed exactly the same, profits, and thus dividends, would be lower.

Wouldn't that not be the case, as ASICMINERS competitors will also have the exact same problem, hence the mining ratios will remain as they are?

I sold 2/3rds of my ASICMiner-PT at 5btc and all of my TAT.ASICMiner at .05, didn't even stick around for the dividend.

bought in initially at 1.16 and my cost basis was around 1.38

my estimates were for around this price level, so given new information in the future justifying a higher price or an irrational rally, feel free to laugh at me for selling

but I am content with this trade. given that only a month ago, me calling for ~5btc/share was based on "me not understanding how business and valuation works"

So, I bought some Asicminer direct shares for 3BTC, in less than a week they went to almost 5BTC and I sold them.  A 60% profit in a week would just seem piggish to let ride.  Looking at ASICMINER's meteoric rise, especially in the last month, it really is priced for an optimistic scenario.  However, I see several significant negative catalysts which can cause a sharp fall - panic selling in an illiquid market:

1. The tumbling Fiat/BTC ratio impedes ASICMINER's ability to buy new hardware to maintain its total % of the total network hashrate.  In the last 6 weeks we have gone from $130s to $70s. At some point, the relationship between the Fiat/BTC ration and ASICMINE Share price will rubber band back in place if the Fiat/BTC price does not significantly recover.

2. The technological "first mover advantage" of ASICMINER has very front-loaded benefits.  No doubt, early ASICMINER investors between both dividends and the exponential share price rise have been very much enriched.  However, now other ASIC suppliers are finally starting to ship significant numbers of ASIC units, many with significant performance advantages to ASICMINER's proprietary hardware.  ASICMINER is a technology company and you are basically betting they will continue to innovate and stay technologically ahead of the competition if they are to maintain their network hashrate percentage.  KNCMiner, Terrahash, Avalon and even some of the BFL units are superior.  And new more efficient ASIC chips are coming all the time with plenty of eager buyers as the bitcoin awareness raises outside the crypto-libertarian geek world.

3. Everyone wants to compare this to P/E of a Nasdaq listed technology company where a P/E of 15-25 for a fast growing company is reasonable.  However, their is absolutely no regulatory oversight and the risks inherent in investing with ASICMINER are based totally on the trust one places in Bitfoundation and its leadership.  They have shown themselves thus far to be trustworthy (though for the paranoid, that is how the long con works), but the lack or oversight and accountability means this will always trade at a significant discount to a listed company.

I would not short this company outright since it definitely has momentum on its side and friedcat has continuously met and exceeded all expectations.  Still, this stock is due for a pullback and it will be vicious.  Buying some puts to play the volatility may be a good risk/benefit play.  My bet, we will see 3.5BTC/share before we see 6.5BTC/share.