Topic: Who Pays What? - page 4. (Read 36787 times)

You might get close by shorting mining bonds

Don't forget that Pirate failed because him lowering rates signaled that his business was weaker, which initiated essentially a bank run. Other investments can fail the same way.
Also, there's still almost no such thing as dealing only in Bitcoin. Unless you buy and sell everything in Bitcoin (such as only earning money on Silk Road and paying your suppliers in Bitcoin), you're still affected by exchange rates.
The best explanation to date I've heard about how 3%/week is possible, is that people take out these loans instead of paying 4%+fees to BitInstant, and then pay the loans back once their money clears and they can buy the BTC back. However, if someone borrows BTC for the same amount of USD they are transferring to MtGox, and the price jumps %10 in a week, they will be 10% short on their loan once the week is up. Just borrowing Bitcoin and sitting on it won't make it grow either, and I can't think of ways for borrowers to increase their Bitcoin holdings 3% in a week without some input from fiat (can you?)

Most of them I'm aware of have no obligation to keep the same rates, Patrick for example lowered rates in August due to market or whatever reason. Most also claim to be dealing only (or mostly) in BTC so the price going up shouldn't be too much of a problem. Pirate was one of the few that claims to transition to real life ventures, it was a mistake because when the price kept spiking up from $5 slump it became ever more obvious he was full of it.

Hrm... I am not sure that is a good idea.  Well it may be confrontational, still provides a very valuable service in my humble opinion.  I think that people just don't understand how the ratings come about, and need to better understand exactly what they're looking at, it is not an endorsement by PH.

Actually it works both ways. Higher risk investments do mean that people would charge more for giving their money to it (higher interest rates), which is the standard understanding of interest rates (price charged for taking on risk, including time risk). However, at the same time, someone paying higher interest rates (especially fixed) is at a much higher risk of not being able to pay should anything happen. It does depend on average revenues for a set business, i.e. I would agree that default risk is low for companies paying 1% and 3% if average revenues are 5%, but Bitcoin doesn't exist in a vacuum, and does get affected by outside economies and exchange rates. So even if average revenues were 5% for these types of businesses in Bitcoinland, should something happen to bring the revenue rates down (Bitcoin price going up, or an unexpectedly high default rate), the business paying 1% will survive, while the business promising 3% could easily go in the red and fail.
Also, even if we stick to the "higher risk of default implies higher interest rate," one could argue that the reason these guys are offering such high interest rates is because they themselves are pricing in their high risk (though more accurately they're likely just chasing greed).

For information: I asked Maged to "un-sticky" the thread. 

Exactly. The relationship is not directly causal, bi-conditionally.

A higher interest rate does NOT imply a higher risk of default. It is the other way around: A higher risk of default implies  ahigher interest rate.

So many people dont understand the difference between an equavalent (double implication) and n implication relationship while the difference is quite clear.

Totally concur with the A rating suggestion. Actually, I would use the following criteria to determine the rating, listed from highest to lowest weight:

Leverage ratio (how much is invested / how much is on hand in reserve)
Proof of reserves (whether the claimed reserves are stored in a public verifiable address)
Interest rate (higher rate = higher risk of default, so lower grade)
Delinquency rate (percentage of loans/investments that are delinquent or in default)
Weekly/monthly report of new deposits v.s. new revenues/profits (publicly verifiable if possible)
Business type (short-term loans, something else, or undisclosed)

Things like how long it's been going, or whether the people behind it are well known and have a reputation, are fairly useless, as demonstrated by pirate and Madoff. The earnings to liability ratios are also useless, if the earnings are just on paper as in a ponzi.
Someone who covers all 6 of the above should only get an A if their leverage ratio AND their interest rates are very low, since someone with even a 2:1 leverage ratio and 3% a week interest will get wiped out if Bitcoin jumps 50% in price too quickly and all the borrowers who were lent the investor's money to end up defaulting. A should mean a safe place to park your money in. Not a good quality casino.

While I trust PH very much I do tend to agree that an A should be the uber goal. A signed message from a reserve account is good.

Also aren't these credit ratings as opposed to risk ratings?

Agreed, but the scale needs to change.

It should be damn hard to get an A, and by these standards https://bitcointalksearch.org/topic/m.1100627 I hardly think any of them are even BBB:

A               Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.
BBB             Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

An 'A' rating should require a wallet address with a balance high enough to pay out all liabilities, either directly (provided by the borrower) or via insurance paid for by the borrower, where the insurance entity discloses such an agreement and THEIR wallet address with balance high enough to cover liabilities.  Such transparency should be front and center on the borrower's main post on their main thread.

RustyRyan - claims a 25% reserve but doesn't back it up.
smart/ziggy - mentions an offline wallet several times but doesn't back it up.
vescudero - no mention of reserve.  has no reserve?
Chungenhung - no mention of reserve.  has no reserve?
Starfish - mentions a reserve but doesn't say how much and doesn't back it up.
Kludge - nothing useful on the forum page, but links to a spreadsheet where we see he has ~184 BTC on hand, but does not back it up.

It would be easy for these people to post a wallet address.  They choose not to.  None of them deserve an 'A' rating IMHO.



 

leave the letter ratings. Good for those only glancing.

You will never please everyone.

I could take myself off the list, and it is indicated that there is a conflict of interest - that's not hidden. (and currently Starfish is running about an 4.86 average across the metrics).    Not only that, buy I'm in competition with the people I'm rating! 

I am inclined to take off the letter codes.  While there have been no complaints until a few days ago (but there was a useful post some weeks back), it's clear that some  people really don't understand what they mean.

The other change I've been considering is making it more explicit for disclosure of identity.  Having someone provide ID to Nefario, myself or someone else isn't much use, so having that more public is a good thing.

Right but what idiot would go "oh this guy gave himself a good rating, so I trust him" It just doesn't pass the common sense test, but neither did pirates thing so who knows.

He wouldn't be considered very credible if he gave everybody but himself a poor rating. By making the others look fairly safe he can make himself look like the gold standard of Bitcoin investments. That's a much better approach than saying that all the others are probably scams, but even though my business appears exactly the same it's completely safe.

That qualifies you as the most honest major account - holder at BCST.

Kudos Zyk

english ok ?

The rates are pretty close to payday loans, actually some payday loans are higher by an order of magnitude (or several) than some of the credible lenders here. Have you ever been to Myrtle Beach, SC? I went there by mistake a couple months ago, there was 5+ payday/title loans places within view at all times. Who are the biggest users of payday loans? Drug users probably, what is one of the biggest markets with BTC? The more risk the higher the interest. The rates are not unheard of whatsoever.

Another thing you fail to mention is cost of getting the coins. If I want them instantly I have to pay at least 4%. I could take out a loan at 2.5%/w, buy coins at 0.2% fee a slower way (ACH, Cash in mail, SEPA, and so on), and get instant coins for 2.7% rather than ripoff fees from "instant" BTC companies.

Now what motive would Patrick Have to make credit ratings for other lenders? The one where you say he has to control to give himself a good (or best) rating is a valid point. But the rest doesn't really make sense to me. By giving other lenders a decent rating he's effectively helping his "competition" (assuming they are all scams) by giving gamblers confidence to deposit in other services to help mitigate risk of default. SO he hurts his own scheme. I guess you could argue that's all part of the plan, but then getting into tinfoil territory.

I will concede I think a few of the ones with good ratings are obvious scams. If you read what he does it's just black/white. He doesn't apply morality to anything. He goes off what the deposit taker gives him. Blaming him for good credit rating to a scam would be similar to blaming Nefario for a GLBSE scammer that supplied fake ID. You have more to go off than just his rating.

everything depends on how pirate is getting away with this

Cheers Zyk

Considering how many people there are who falls for scams that seems unlikely, and there certainly wouldn't be if he followed your advice. When it comes to Patrick I can't quite decide if he's just ridiculously naive or a scammer. Having a ratings scheme which basically is there make more people give him money and where he gives himself top score for completely inverifiable information makes me lean towards a scam. It just seems strange that this many people want a loan that is 10 - 20 times more expensive than a credit card loan. On the other hand the supply of stupid Bitcoin users seems endless, so who knows?

lol, no, 0 to 6.  Might change it given the obvious trouble a few people are having after three months of posting.