Author Topic: Economics on BTS 101 : Market cap is not our wealth to spend easily  (Read 12780 times)

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Offline matt608

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OK Found it. (By searching for it. Not good...)

Added it. Voting for it from now on...with all of my uncollateralized stake!

Many thanks :)

zerosum

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OK Found it. (By searching for it. Not good...)

Added it. Voting for it from now on...with all of my uncollateralized stake!

Offline matt608

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Hey Tonyk, you once said this:

Actually I am on quite the opposite opinion on this...
Let's hire 10x more people that we have now. It will be like 60 delegates @ 100% .
Let's not evaluate them after 3 mo., let's do it in 4.5 mo...


It costs us 6.5%*0.6*4.5/12 or about  1.4625% inflation....

Do you stand by your statement?  Will you vote for me?  My campaign is live and every vote and endorsement counts.

Thanks

-matt608

I stand by the statement, now even more than when posted.
I will also vote for both you and the  mobile wallet devs separately ( I really see no need to try for just one delegate combined).
And for the actual voting - I do not see your delegate in the GUI. Is it below #200 or what is the problem? Is it on my end?

I should be in there, a search function was added recently, I should show up in that.  I can't check I'm in there myself right now (different machine) but will be able to look later today.

zerosum

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Hey Tonyk, you once said this:

Actually I am on quite the opposite opinion on this...
Let's hire 10x more people that we have now. It will be like 60 delegates @ 100% .
Let's not evaluate them after 3 mo., let's do it in 4.5 mo...


It costs us 6.5%*0.6*4.5/12 or about  1.4625% inflation....

Do you stand by your statement?  Will you vote for me?  My campaign is live and every vote and endorsement counts.

Thanks

-matt608

I stand by the statement, now even more than when posted.
I will also vote for both you and the  mobile wallet devs separately ( I really see no need to try for just one delegate combined).
And for the actual voting - I do not see your delegate in the GUI. Is it below #200 or what is the problem? Is it on my end?


« Last Edit: December 03, 2014, 10:26:38 am by tonyk2 »

Offline matt608

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Hey Tonyk, you once said this:

Actually I am on quite the opposite opinion on this...
Let's hire 10x more people that we have now. It will be like 60 delegates @ 100% .
Let's not evaluate them after 3 mo., let's do it in 4.5 mo...


It costs us 6.5%*0.6*4.5/12 or about  1.4625% inflation....

Do you stand by your statement?  Will you vote for me?  My campaign is live and every vote and endorsement counts.

Thanks

-matt608

zerosum

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But if this hypothesis is true, I think it is important to reiterate it. I mean, bytemaster appears to be making that (IMO flawed) claim here:
In fact because of the collateral requirement every BitUSD sold and not returned is the moral equivalent of burning $3 USD worth of BTS.

This belief would make us think it is more valuable to bring in wealth into BitAssets rather than BTS. It might make us think it is worth having the yield on BitAssets as high as it possibly can be to attract people to hold BitAssets (rather than BTS). But if there is no advantage, then they can just hold BTS instead (with enough price stable BitUSD or other BitCurrencies for short-term needs). That means putting reasonable caps on BitAsset yields (say 5% p.a.) isn't a problem. You would still allow shorts to bid up the interest rates they pay as high as the market can bear, it's just that not all of that value would go to BitAsset yields. The rest could instead get distributed to BTS holders (or alternatively to delegate pay). Since there would likely be diminishing returns on the BitAsset yields (in fact after a certain yield rate it would have a negative effect since people would become incredibly suspicious), the rational strategy would be to take all profits from short interest (after paying the maximum BitAsset yield cap) and use it more effectively by paying for development and marketing.

I think we going into the territory of what is more valuable - to have high sales of the product (bitUSD) or to have high market Cap because people want to invest in our promising stock...And I tend to think that selling the product is the main goal after all. If we do not sell our product/service we will end with a company stock worth 0 sooner or later.


On a side note people think Bitshares is complicated...and they do not even consider the stuff we are talking about here...
I mean BTS is the currency when one shorts a bitAsset, but it is also the shares on the BTS company in the wider picture.
« Last Edit: December 02, 2014, 04:23:32 am by tonyk2 »

Offline arhag

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I do not see where we disagree. What I am saying is the end result of all that you described.
In short the demand for new bitAssets or new BTS will result in an increase of the BTS price.

The difference is that I am claiming that someone purchasing 1 BitUSD using USD does not ultimately cause the price of BTS to go up to account for a market cap increase by $3 (assuming everyone else's exposure to USD and BTS remains the same and their future expectations of BTS remain the same), but it does cause the price of BTS to go up enough to account for a market cap increase by $1. The reason is because the $2 worth of value that the BTS bull "locks up" in the short position has already been accounted for in the price of BTS since the bull had already purchased those $2 worth of BTS earlier and had no plans to sell it even if his short wasn't matched.
My statement was not meant to be a formula regarding the expected increase. It was just e statement that the price should increase ...eventually... with unspecified amount. Sorry if this was not clear.

Oh okay. I guess I misunderstood.

But if this hypothesis is true, I think it is important to reiterate it. I mean, bytemaster appears to be making that (IMO flawed) claim here:
In fact because of the collateral requirement every BitUSD sold and not returned is the moral equivalent of burning $3 USD worth of BTS.

This belief would make us think it is more valuable to bring in wealth into BitAssets rather than BTS. It might make us think it is worth having the yield on BitAssets as high as it possibly can be to attract people to hold BitAssets (rather than BTS). But if there is no advantage, then they can just hold BTS instead (with enough price stable BitUSD or other BitCurrencies for short-term needs). That means putting reasonable caps on BitAsset yields (say 5% p.a.) isn't a problem. You would still allow shorts to bid up the interest rates they pay as high as the market can bear, it's just that not all of that value would go to BitAsset yields. The rest could instead get distributed to BTS holders (or alternatively to delegate pay). Since there would likely be diminishing returns on the BitAsset yields (in fact after a certain yield rate it would have a negative effect since people would become incredibly suspicious), the rational strategy would be to take all profits from short interest (after paying the maximum BitAsset yield cap) and use it more effectively by paying for development and marketing.

zerosum

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I do not see where we disagree. What I am saying is the end result of all that you described.
In short the demand for new bitAssets or new BTS will result in an increase of the BTS price.

The difference is that I am claiming that someone purchasing 1 BitUSD using USD does not ultimately cause the price of BTS to go up to account for a market cap increase by $3 (assuming everyone else's exposure to USD and BTS remains the same and their future expectations of BTS remain the same), but it does cause the price of BTS to go up enough to account for a market cap increase by $1. The reason is because the $2 worth of value that the BTS bull "locks up" in the short position has already been accounted for in the price of BTS since the bull had already purchased those $2 worth of BTS earlier and had no plans to sell it even if his short wasn't matched.
My statement was not meant to be a formula regarding the expected increase. It was just e statement that the price should increase ...eventually... with unspecified amount. Sorry if this was not clear.

On the other issue - I do not believe the 2x or 3x or Nx collateral have anything to do with the expected increase. The risk/reward is the same from the short exposure perspective as a total...in other words they will short substantially the same amount X of BTS total, at any given price and interest...up to the max allowed by the system...and if they should put 2x collateral (instead of 1x) they will just short twice less bitAssets.*

As well as offer about twice less interest, btw!
« Last Edit: December 02, 2014, 03:33:53 am by tonyk2 »

Offline arhag

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I do not see where we disagree. What I am saying is the end result of all that you described.
In short the demand for new bitAssets or new BTS will result in an increase of the BTS price.

The difference is that I am claiming that someone purchasing 1 BitUSD using USD does not ultimately cause the price of BTS to go up to account for a market cap increase by $3 (assuming everyone else's exposure to USD and BTS remains the same and their future expectations of BTS remain the same), but it does cause the price of BTS to go up enough to account for a market cap increase by $1. The reason is because the $2 worth of value that the BTS bull "locks up" in the short position has already been accounted for in the price of BTS since the bull had already purchased those $2 worth of BTS earlier and had no plans to sell it even if his short wasn't matched.
« Last Edit: December 02, 2014, 03:17:28 am by arhag »

zerosum

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Every $1 of bitAssets created are the  equivalent of buying $3 worth of shares of the company called BTS by itself. While this is not really a profit profit, but the effect on the market cap should be the same as stock-buyback for that amount.

Not really though, because you are assuming someone uses fiat to purchase $3X worth of BTS to short the BitAsset into existence (or rather the short seller purchases $2X worth of BTS with fiat to provide the margin for the short and the BitAsset holder purchases $X worth of BTS with fiat to trade for the BitAsset they want).

The BitAsset holder could trade $X of USD for $X of BTS to later trade the BTS on the decentralized exchange for $X of BitUSD shorted into existence at the price feed (or just go from fiat to BitUSD directly and let arbitrage take care of the rest), and this would result in $X worth of buy pressure on the price of BTS (not $3X) assuming there was latent short demand at the price feed. In this case the BitUSD buyers are not really changing their exposure to the US dollar, just converting it into a cryptocurrency version of it.

On the other side of the coin, the above assumption implies that the short seller needs to purchase $2X worth of BTS using fiat to short sell, but this would increase their exposure to BTS. They wouldn't do this unless their position on BTS changed (they become more bullish). Assuming the market participants views on BTS has not changed, the only reason I can see for why new shorts would be created is because of the short sellers who had been waiting to short at the price feed but had not been able to since there was not enough BitAsset buy demand at the price feed. These bulls were already holding BTS and not selling it, so whether they keep it in their wallet, in cold storage, in an open order, or locked as collateral in a short position, it shouldn't have an effect on the price of BTS.

My conclusion from this analysis (and the one in a little more detail here) is that for the price of BTS to go up (assuming the market participants' views haven't changed), there needs to be increasing outside demand for BitAssets purchased with fiat AND latent short demand limited by the price feed. Obviously, increasing buy pressure for BTS purchased with fiat in outside exchange as well as increasing buy pressure for BTS purchased with existing BitAssets in the decentralized exchange would also cause an increase in the price of BTS (the former directly, and the latter indirectly via arbitrage), but both of those cases require some market participants' views to change for them to want increased exposure to BTS. Furthermore, after taking arbitrage into account, it doesn't matter whether BitAssets or BTS are purchased with fiat in the outside exchange; $X worth of buy pressure for BTS or BitAssets in outside exchanges leads to $X worth of upward price pressure on BTS (not $2X or $3X, and it doesn't really depend on the collateral ratio requirement).

I do not see where we disagree. What I am saying is the end result of all that you described.
In short the demand for new bitAssets or new BTS will result in an increase of the BTS price.


PS
Yes, there is a possibility for somebody to be long and short at the same time and such amounts should be 'ideally' not included in the calculation... How to figure out such amounts ? I have no clue on a practical solution.
« Last Edit: December 02, 2014, 02:55:32 am by tonyk2 »

zerosum

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Every $1 of bitAssets created are the  equivalent of buying $3 worth of shares of the company called BTS by itself. While this is not really a profit profit, but the effect on the market cap should be the same as stock-buyback for that amount.


As in (Increase in bitAssets * 3 - New issued BTS) is the delta of the available shares. And the earnings are the transaction fees that go to the BTS holder (or are destroyed for their benefit).
Stock buybacks do not increase market cap (there are fewer shares on issue) but they can lead to some increase in price if the market views the higher EPS per share (as earnings are now spread over a lower share base) as outweighing the increased risk of higher operational leverage (debt) in the business. The increase in price, if any, is subjectively determined by the market, and not linked formulaically to the number of shares bought back.

I argue that they effectively do. While the market cap per se might be the same, in reality every individual BTS in collateral is still tradable at the new higher price.



Likewise, if BTS in the collateral pool does not earn any transaction fee income (?), and this increases the share of income to each BTS outside the pool, this would be a benefit to un-collateralised BTS (but also an additional cost for shorts). However, the more shares that are in the pool, the less total transaction fee income that can be generated all else equal. I expect this would lead to no net benefit to BTS price.

I know you've argued before that with fewer shares outside the pool, scarcity would lead to a rise in price (and presumably transaction fees). Though I could not say this definitely won't happen, I don't think shares behave like commodities at all, because they are all substitutable, and market participants can switch between different security alternatives on a risk/return spectrum as one security becomes inappropriately priced relative to another. (e.g. Facebook has around 10% free float). I'll elaborate on this later also.

Offline arhag

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Every $1 of bitAssets created are the  equivalent of buying $3 worth of shares of the company called BTS by itself. While this is not really a profit profit, but the effect on the market cap should be the same as stock-buyback for that amount.

Not really though, because you are assuming someone uses fiat to purchase $3X worth of BTS to short the BitAsset into existence (or rather the short seller purchases $2X worth of BTS with fiat to provide the margin for the short and the BitAsset holder purchases $X worth of BTS with fiat to trade for the BitAsset they want).

The BitAsset holder could trade $X of USD for $X of BTS to later trade the BTS on the decentralized exchange for $X of BitUSD shorted into existence at the price feed (or just go from fiat to BitUSD directly and let arbitrage take care of the rest), and this would result in $X worth of buy pressure on the price of BTS (not $3X) assuming there was latent short demand at the price feed. In this case the BitUSD buyers are not really changing their exposure to the US dollar, just converting it into a cryptocurrency version of it.

On the other side of the coin, the above assumption implies that the short seller needs to purchase $2X worth of BTS using fiat to short sell, but this would increase their exposure to BTS. They wouldn't do this unless their position on BTS changed (they become more bullish). Assuming the market participants views on BTS has not changed, the only reason I can see for why new shorts would be created is because of the short sellers who had been waiting to short at the price feed but had not been able to since there was not enough BitAsset buy demand at the price feed. These bulls were already holding BTS and not selling it, so whether they keep it in their wallet, in cold storage, in an open order, or locked as collateral in a short position, it shouldn't have an effect on the price of BTS.

My conclusion from this analysis (and the one in a little more detail here) is that for the price of BTS to go up (assuming the market participants' views haven't changed), there needs to be increasing outside demand for BitAssets purchased with fiat AND latent short demand limited by the price feed. Obviously, increasing buy pressure for BTS purchased with fiat in outside exchange as well as increasing buy pressure for BTS purchased with existing BitAssets in the decentralized exchange would also cause an increase in the price of BTS (the former directly, and the latter indirectly via arbitrage), but both of those cases require some market participants' views to change for them to want increased exposure to BTS. Furthermore, after taking arbitrage into account, it doesn't matter whether BitAssets or BTS are purchased with fiat in the outside exchange; $X worth of buy pressure for BTS or BitAssets in outside exchanges leads to $X worth of upward price pressure on BTS (not $2X or $3X, and it doesn't really depend on the collateral ratio requirement).
« Last Edit: December 02, 2014, 02:45:04 am by arhag »

Offline starspirit

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Every $1 of bitAssets created are the  equivalent of buying $3 worth of shares of the company called BTS by itself. While this is not really a profit profit, but the effect on the market cap should be the same as stock-buyback for that amount.


As in (Increase in bitAssets * 3 - New issued BTS) is the delta of the available shares. And the earnings are the transaction fees that go to the BTS holder (or are destroyed for their benefit).
Stock buybacks do not increase market cap (there are fewer shares on issue) but they can lead to some increase in price if the market views the higher EPS per share (as earnings are now spread over a lower share base) as outweighing the increased risk of higher operational leverage (debt) in the business. The increase in price, if any, is subjectively determined by the market, and not linked formulaically to the number of shares bought back.

Likewise, if BTS in the collateral pool does not earn any transaction fee income (?), and this increases the share of income to each BTS outside the pool, this would be a benefit to un-collateralised BTS (but also an additional cost for shorts). However, the more shares that are in the pool, the less total transaction fee income that can be generated all else equal. I expect this would lead to no net benefit to BTS price.

I know you've argued before that with fewer shares outside the pool, scarcity would lead to a rise in price (and presumably transaction fees). Though I could not say this definitely won't happen, I don't think shares behave like commodities at all, because they are all substitutable, and market participants can switch between different security alternatives on a risk/return spectrum as one security becomes inappropriately priced relative to another. (e.g. Facebook has around 10% free float). I'll elaborate on this later also.

zerosum

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Every $1 of bitAssets created are the  equivalent of buying $3 worth of shares of the company called BTS by itself. While this is not really a profit profit, but the effect on the market cap should be the same as stock-buyback for that amount.


As in (Increase in bitAssets * 3 - New issued BTS) is the delta of the available shares. And the earnings are the transaction fees that go to the BTS holder (or are destroyed for their benefit).

Offline bytemaster

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Shares price only increase if earnings per share increase.

If I create a company with 0 earnings then book value is the share price.    If the share price is heavily based upon earnings per share then you are right that dilution will decrease the earnings per share.   This assumes that cash was kept on the books and did nothing to increase earnings (or earning potential).

In the case of BTS we have near 0 earnings and thus the book value is about all that matters.   We also spend most of the cash raised immediately on things that increase network effect and our technology base.   This in turn increases the "market value" of our "network effect and software".

It is safe to say that increasing usability will increase transaction volume by factors that exceed the percent dilution so earnings per share should also increase.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.