Author Topic: What is the pitch for holding BTS?  (Read 4301 times)

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Offline arhag

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If a big investor asks why invest into BTS, what are the key drivers of their future financial return?

Imagine we as a society collectively decided to use AAPL stock as a form of currency. And let us say we were confident that Apple wouldn't be diluting the shares or at most they would dilute it to a little less than double the number of shares currently (so say up to 10 billion shares of AAPL). If AAPL was going to become a replacement to our dollars (our trillions of dollars) over the next several years and assuming the velocity of money stayed more or less the same, wouldn't we expect the price of a share of AAPL to grow by an order of magnitude or more? Wouldn't this be true even if Apple stopped making iPhones and iPads and the earnings per share dropped, as long as the societal consensus of using AAPL as currency was maintained? And doesn't this tremendous growth from its increasing use as a currency make the normally large profits from Apple's consumer electronics sales look tiny and almost insignificant by comparison?

Now in the saturation stage when there wasn't much further adoption to be gained for AAPL to be used as a currency, the earnings per share metric would matter again. But even if the profits were small, it wouldn't mean that it would no longer be useful as a currency. It wouldn't mean people would dump their stake because the average real growth is smaller than other investments, just like people don't dump their cash even though its average real growth is negative! This is because holding on to (and ultimately using) some amount of a price stable currency is useful.

Now I know BTS is not a currency and all, but it is the only thing that backs currencies like BitUSD. A BitUSD is a claim on a variable amount of BTS selected from a larger amount of BTS locked as collateral. I do however think the degree to which the BTS in collateral is larger than the BTS claims by BitUSD and other BitCurrencies will have to shrink in the future (in other words, I think the minimum collateral ratios for BitCurrency shorts will have to be lowered in the future). But I think this will be a natural consequence as the volatility of BTS drops as it gets bigger and it starts to resemble a currency more and more.

So, I think the system can be a wonderful success even in the extreme case where the DAC never produces a profit (it should eventually stop diluting though and pay for all expenses with its revenue, aka transaction fees). People who invest in BTS would still get to experience unbelievable growth (at least until the saturation stage). After that point, if there are other services generating additional profits for the stakeholders, then that's even better. But I do not think that is necessary in order for BitShares to become a huge world-changing success. So the main focus should be to get people to adopt BitCurrencies so that this system can grow quickly, but we can also work on all the fun and useful Dapps that this platform makes possible in parallel.

Offline luckybit

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I'm thinking about this is the context of bitshares = the future of banking.

BTS owners are like shareholders in "the bank".
bitAsset owners are like the depositors.
bitAsset shorts are like the borrowers.
(It should be recognised that none of these things are actually true, because all parties simply have different stakes in a decentralised platform. There is no entity and the terms are only used for comparison.)

Total deposits to total shareholder capital can build to a maximum of 1/3 (each deposit requires 3x backing), whereas traditional banks can be massively leveraged to say 20-30x (fractional reserving is incredibly dangerous, I'm against it, but just making a point of comparison).
Depositors get all the interest from the borrowers, there is no margin for the bank (traditional banks take an interest spread)
Depositors only pay transaction fees on the movements in their funds (and we really want these to be as minimal as possible because they are an economic friction or waste)

So here we have a bank that is capital intensive (limited deposit base) and much lower in margin (low cost-based transaction-only fees) than any traditional bank. Income on shareholder capital, even at a point of huge market penetration, looks to be very small on the "deposit" business alone, unless we believe there will be enormous trading volume in bitAssets.

So although bitshares is fantastic for the customer, in its current form can it create enough value for the share owner?

Should we be looking at ways to improve profitability of the existing business, cross-sell the user base into higher margin services with less fixed capital commitment, monetise the network value in other ways, or something else?

I am a BTS holder so obviously I believe in the value that will be made manifest somehow. But I am finding it hard to believe that bitAssets as a stand-alone business can deliver that return, unless others can suggest some better numbers. So what's the path, and what's the next profit source to look forward to?

Making an investor pitch is probably going to attract enforcement by the SEC. Just don't go there and market it differently.
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Offline starspirit

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Should we be looking at ways to improve profitability of the existing business, cross-sell the user base into higher margin services with less fixed capital commitment, monetise the network value in other ways, or something else?

All of these. Think big!
That's cool - thinking big is great. Much much more will be required to convince professional investors with real capital that we actually have a plan.
If a big potential funder asks why hold the BTS, what are the key drivers of their future value?
« Last Edit: November 12, 2014, 06:44:21 pm by starspirit »

Offline toast

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Should we be looking at ways to improve profitability of the existing business, cross-sell the user base into higher margin services with less fixed capital commitment, monetise the network value in other ways, or something else?

All of these. Think big!
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline starspirit

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I'm thinking about this is the context of bitshares = the future of banking.

BTS owners are like shareholders in "the bank".
bitAsset owners are like the depositors.
bitAsset shorts are like the borrowers.
(It should be recognised that none of these things are actually true, because all parties simply have different stakes in a decentralised platform. There is no entity and the terms are only used for comparison.)

Total deposits to total shareholder capital can build to a maximum of 1/3 (each deposit requires 3x backing), whereas traditional banks can be massively leveraged to say 20-30x (fractional reserving is incredibly dangerous, I'm against it, but just making a point of comparison).
Depositors get all the interest from the borrowers, there is no margin for the bank (traditional banks take an interest spread)
Depositors only pay transaction fees on the movements in their funds (and we really want these to be as minimal as possible because they are an economic friction or waste)

So here we have a bank that is capital intensive (limited deposit base) and much lower in margin (low cost-based transaction-only fees) than any traditional bank. Income on shareholder capital, even at a point of huge market penetration, looks to be very small on the "deposit" business alone, unless we believe there will be enormous trading volume in bitAssets.

So although bitshares is fantastic for the customer, in its current form can it create enough value for the BTS holder?

Should we be looking at ways to improve profitability from bitAssets, cross-sell the user base into higher margin services with less fixed capital commitment, monetise the network value in other ways, or something else?

I am a BTS holder so obviously I believe in the value that will be made manifest somehow. But I am finding it hard to believe that bitAssets as a stand-alone source of value can deliver that return, unless others can suggest some better numbers. So what's the path, and what's the next profit source to look forward to?

[Edit 18 Nov 2014:
A number of people have made the argument that at least a certain set of BTS traders, being arbitragers, make money from the bitAsset premium that exists when demand outstrips supply, and that this income potential motivates arbitragers to bid up BTS. Apart from the fact that the trade envisioned is not strictly an arbitrage (i.e. there is no guarantee of profit), as I discuss deeper in this thread, there is also an economic argument for why the level of potential income to BTS holders from such a trade only marginally improves the attractiveness of BTS.

When bitAsset users pay a premium this is just another direct cost to them, in the same way that transaction fees are. If bitShares is promoted as the future of banking, and being more-cost efficient that traditional banking, how much are users going to be willing to pay away in transaction fees, entry/exit spreads etc, in a typical year, just for the convenience of using the currency? A few percent of their capital perhaps? Now distribute this income over the BTS capital base that is three times as large. Now even with the potential for "arbitrage" income, BTS holders are in the same boat as before. The income potential that bitAsset users will allow (as a transactional cost to them) is unlikely to be enough to justify arbitragers bidding up BTS to do the trade***. And indeed it should be our mission to reduce these basic transactional costs to users.

None of this is to say that traders won't bid up BTS if bitAssets grow. In fact, judging by all the responses I've had to this issue, the overwhelming meme is "bitAssets growing = great for BTS price". So I'm sure BTS will indeed rise as a result of this self-fulfilling perspective. That may indeed be good for a while if it helps fund development in other areas. But ultimately I believe that those prices will only be justified by additional income sources to bitAssets.

***[technical point: I also questioned whether arbitragers might increase demand because they get all the arbitrage income, not other BTS holders, justifying an increased price for at least those traders. However this must reduce the income opportunity for non-arbitrage BTS holders further, justifying a decreased price for all those other holders. Net, net, same price result as if everyone did arbitrage.]
« Last Edit: November 17, 2014, 11:35:06 pm by starspirit »