Quote from: davos on April 03, 2013, 08:29:04 PM

Quote from: Deprived on April 01, 2013, 06:52:42 AM

#38

It seems to me that what a service like this needs is a revolving line of USD credit. Just a thought.

Yes - that's, in theory, a very good to resolve the exchange-rate issues and stabilise BTC value of assets/capital.

But anyone who has to go to BTCJam to raise funds at 3% per month is unlikely to have had that option available. Unfortunately most "investments" don't give proper consideration to that sort of isse - and investors end up with massive, undisclosed, exposure to exchange-rate movements.

There are a few issues with it in practice:

1. Sourcing USD-denominated credit.

I faced a similar ssue myself - I run a small LTC-denominated trading fund which conducts most of its trading in BTC-denominated assets. If I took no action then we'd either not be able to do most of our trade or end up with 80%+ of capital effectively denominated in BTC - meaning fund value would almost entirely be determined by the LTC/BTC exchange-rate. I addressed that by selling BTC-denominated bonds - with most of our BTC denominated investments effectively done with that bond capital (not all - we have to keep some BTC exposure ourselves to ensure bond-holders' debt is safely covered if LTC crashes AND we make fairly heavy trading losses). I maintain an exposure level of around 15% to BTC. So if LTC rises vs BTC (as has just happened dramatically) then a doubling of the exchange-rate ends up only losing around 10% of value rather than 40%.

But here is where we run into a problem for anyone trying to the same in terms of BTC/USD. I have no problem raising explicitly BTC-denominated capital that's transacted in LTC (the bonds have a face value in BTC, but are sold/traded/bought back in LTC). But I expect there'd be little interest here in bonds with a face-value in USD (but transacted in BTC) which is actually a bit of a paradox as the same people who wouldn't touch an openly USD investment will happily throw their funds at one that's providing the same exposure covertly (and, in many cases, without even fully realising it). Personally I'd rather take on a specific risk (e.g. exposure to a certain currency) where the issuer had identified the exposure and was properly ensuring clearly defined exposure than take it on where the issuer hadn't properly considered the situation.

2. Cost

If the shares aren't sold denominated in USD and USD-denominated capital is raised seperately then there's going to be an interest-rate associated with servicing that USD-denominated debt. Is that going to leave anything at all for investors who bought shares? I can't see anyone on here buying USD-denominated debt (bonds/loans/whatever) for trivial rates.

3. Duplication/Lack of use of capital

Linked to both the above is the issue of what is actually done with shareholders' capital if it's no longer being used to conduct business? Would people invest if their investment was just being used to pay off existing debt and line the issuer's pockets (taking a significant multiple of total profit to date as an up-front payment as well as a huge share of equity is lining your pockets) whilst capital for actual trading was going to be raised via new debt which, being debt not equity, would get paid first from earnings and have first claim on assets? There'd still have to be capital raised from share sales - to ensure backing for debt in the case of trading losses.

This is actually the issue I ran into - that funds from actual investors in the fund were largely sitting idle, with 90% of them just sitting around as collateral for the bondholders' capital that was actually being used. I had plans for how to address that - but the recent massive rise in LTC price has effectively solved it for me (by increasing the value of LTC assets such that they no longer represent such a minority of investment - coupled with buying back of units to reduce LTC-denominated capital, with the higher rate meaning bonds are still very well protected). And the problem was never quite so severe for me - as at least I was always doing some significant LTC-denominated trading, whilst a business such as this has all active capital (that actually in use rather than reserved for use) in USD (specifically, in the process from payment by a purchaser until it becomes liquid in the hands of the issuer and can be converted).

I'm not sure what the solution is - though something like what I discuss above is definitely one approach. The real problem is the continuing insistence of companies that are effectively fiat-denominated (i.e. all active assets/capital are in fiat) to list in BTC because they can't raised capital elsewhere. Ones such as this are (probably unintentionally) deceptive - as on the face of it they can appear to be BTC-denominated. But in practice the only BTC exposure they have is from inactive capital which, if a significant part of total capital, means they've compounded one error (misidentifying exposure) with another (raising excessive capital so that earnings are diluted).

I mention my fund/bond to illustrate how a similar situation was addressed - not to try to get investment. The fund is buying back rather than selling units (we have more capital than we need due to LTC's rise) and no new bonds have been issued for a few weeks. LTC has quadrupled vs BTC this week. Without the bonds, units in the fund would have lost ~60% of face value in LTC and gained only around 40% if valued in BTC. With the bonds they've lost under 20% of face value in LTC and approximately trebled in value if valued in BTC. That's why managing currency exposure is key - without it, a rise in LTC vs BTC would be a disaster for my investors as they'd take heavy losses in LTC without any large gain from the currency's own increased strength/value. Of course there IS a flip-side to it - if LTC falls vs BTC then investors DO lose value as a result (LTC value of units rises a small bit, BTC value drops a lot) but that's what they should expect from investing in something in currency X - that the price is largely unaffected by changes in exchange-rates and the value (expressed in any other currency/measure) moves broadly in line with the fortunes of currency X. And that's what investors in all these USD-denominated in practice but pretending to be BTC investments are NOT getting - the ability to manage their own exposure to different currencies.