Why S.MPOE is worth more than MtGox

Sunday, 11 November, Year 4 d.Tr. | Author: Mircea Popescu

Currently the market valuation of S.MPOE is something like

mircea_popescu !ticker s.mpoe
assbot [MPEX:S.MPOE] 1day: 0.0004934 / 0.00050333 / 0.00051095 (2193849 shares, 1,104.24 BTC), 30day: 0.00030871 / 0.00044148 / 0.00051095 (75251680 shares, 33,222.70 BTC)

On 1bn total shares, that 30 day average of 0.00044148 BTC per share puts the total value of MPOE/MPEx in the 441k BTC range. That's quite the sum. If we consider instead today's averages then we're looking at something more like 503k BTC. Also quite the sum, and quite the growth, something in the range of 10% a monthi.

These would be the facts, such as they are. While facts on their own are not disputable, their meaning always is, and so I constantly and with increasing frequency find myself asked if I believe that S.MPOE is worth five million dollars. My answer is "possibly".

Well ok then, do I think S.MPOE is overvalued presently ? "Possibly".

That's the truth of the matter, I can see both cases. On one hand, MPEx is more in the Wild West of Bitcoin than Wells Fargo ever was in the Wild West of America. In this sense, buying S.MPOE stock today is like buying dragon eggs : no matter what you pay for them it will look like a pittance in retrospect, years later. On the other hand, most Bitcoin businesses never become anything. In this sense, buying S.MPOE stock is like buying Facebook advertising : no matter what you pay for it, you're still getting gypped.

That's why I allocated the first shares by that auction model, instead of putting an arbitrary price on them. I have absolutely no idea what it's worth, I see no way to actualy evaluate it, it's one of those things the market will have to price. Somehow, it will have to do it.ii

So then they ask, well, but do you think it should be valued above MtGox ? And to that I always answer, "Absolutely" except those times when I say "Certainly". This is even more confusing in general, because most everyoneiii knows MtGox is worth about five million on the simple measure of how much capital and equity was poured into it. So what is wrong with me ? Do I not know this ? Why do I answer possibly on the early question and certainly on the later question when they basically ask the same thing ?

Yes, I am aware MtGox cost something in the neighbourhood of five million dollars. And yes, I do think S.MPOE should be valued above MtGox, probably by degrees of magnitude above. Let's go into the rationale of this :

MtGox is a money exchanger in a dominant market position. S.MPOE is a stock exchange in a dominant market position amalgamated with an investment house with a strong marketmaking position.

The business of MtGox over time is basically a log graph. The business of S.MPOE over time is basically an exponential graph. Sure, most of the dollars that will need to be turned into Bitcoin haven't been turned into Bitcoin yet, and most of the Bitcoin that will need to be turned into dollars has not been turned into dollars yet. However, the growth of the money changing business will lag behind the general growth of the Bitcoin economy, at an ever increasing rate with the growth and maturing of the Bitcoin economy. Putting dollars into MtGox equity might still make perfect sense from a dollar based accounting perspective, but in Bitcoin terms it's not much better than just holding on to the Bitcoin.

Leaving that aside, money changing was in most times and certainly is today in most places such a weak line of business as to be unable to survive on its own. In primitive economies such as all through Africa or Turkey or the poor parts of Asia you see entrepreneurial young men hawking exchange offers mostly to tourists to this day. Other than that however money changing is a sideline, something that banks, hotels and other ventures offer as a convenience to customers but don't actually live off of.

The reasons are plain and obvious, and MtGox is feeling them on its own skin : the margins are very narrow and the competition is very strong. Everyone with five dollars in their pocket can offer the service, there's even websites such as localbitcoins.com dedicated to promoting a myriad independent tiny MtGoxes.

Add to the very narrow margins and very active competition the burden of regulatory infringement. Money changers are spending as it is now literally immense sums (in Bitcoin terms) to try and mostly comply with obscure and convoluted regulation, which they can't avoid or ignore because they're always stuck with one foot in fiat. In exchange for this draining expenditure they are receiving nothing at all, certainly not the protection of their etatist overlords.

They're not in fact receiving as much as recognition of status or effort, they find themselves in the untenable position of a poor immigrant who is spending all his wages and borrowing at unbearable, immigrant-ghetto rates to buy flowers and wine for some local beauty who barely even registers their desperation or even presence.

These costs stand only to expand in the future, probably to the full extent of all the capital available to the money changer. The lack of recognition (forget protection, that's not happening) is not however going to go away. And so, today and for the foreseable future, loads of capital will be poured straight into the sand. But who knows, maybe they can manage to pour enough water so as to make a garden out of the desert.

Nevertheless, I am not blessed with infinite capital. As far as my finite capital goes, if given the choice of investing into either A. a company at the early stages of exponential growth, with a dominant position, fat margins and regulatory immunity vs B. a company at the mid stages of logarithmic growth, with a dominant position, narrow margins and untenable regulatory exposure I would look to obtain a discount to the market price if buying B equity and would be willing to pay a premium to the market price if buying A equity.

So yes, S.MPOE is worth more than MtGox now, will be worth more than 10 times MtGox in the future. And then 100x and who knows, maybe 1`000 or 10`000x eventually. This does not mean MtGox does not provide a valuable service, nor does it mean it should or will go away.

Does it mean MtGox is not worth five million dollars however ? Honestly, I'm not sure. It's possibly worth that and more. It's possibly not worth it at all. How should I know ? But whatever MtGox is worth today, S.MPOE is worth more, and that gap is set to increase in the future, and increase faster and faster as time goes by.

Or at least that's what I think.

———
  1. Should be noted however that currently the MPBOR - Bitcoin's equivalent to the LIBOR - is at 9%. []
  2. And it's probably worth noting that the investors who participated in those auctions back in April and May walked away recently with 1200% returns on their capital, when MPOE.ETF dissolved (right before the GLBSE collapse). 1200% over something like six months is about the same as Pirate was promising, with the obvious difference that these people actually realised their profits, in BTC. []
  3. By most everyone we don't mean here what most everyone thinks. Most everyone in this context is "most everyone in Bitcoin with a million dollars or more in capital and the skills to back that up". Quite a different "most everyone" from the most everyone of the forums, the amusing population that contributes comedy such as

    If there are issuers that collected $100k+ you should think about that he earned $40,000 yearly for his ceo-job. And he owned 60% of the glsbe-shares. Which means these shares has to bring him at least another $40,000 per year. Otherwise the ceo-salary would mean that the other shareholders would earn way less and they wouldnt have said yes to this salary. I mean the salary has to be small enough so that the shareholders at the end earn enough from being shareholders so that they are pleased too. And when nefario owned 60% of the shares then he would get a big chunk on this on top.

    That means some asset issuer collecting $100,000 probably couldnt bring nefario to kill glbse. Because even when this issuer would pay him 50% this would only be $50,000. And this money nefario earned probably in 7 or 8 months. So i doubt that something like this happened.

    Everyone knew all along that GLBSE only extracted itself from the red hole earlier this year, and was never making more than a few hundred Bitcoins a month. Everyone knew that Nefario doesn't personally control a simple majority, and needs support to organise a majority vote block. Different sets of "everyone".
    []

Category: MPEx
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6 Responses

  1. As one of the initial MPOE IPO auction investors, I can confirm the facts and mostly agree with conclusions, although extrapolating market value while only under 3% of all shares were ever released to market is quite an exaggeration. And, maybe it's just that I'm idealist, but expected more concrete proclamation what you are and what you intend to do, not just "I'm big, hear me roar". Perhaps it's mostly an experiment at this stage, but you already went political on this blog, so one's naturally curious how do you imagine going from here to there and what role should mpex play in it.

    As for regulatory immunity - you are really convinced that no one will pull Kim Dotcom on you? And, this being eastern europe, even nastier things are possible. As my business is closely tied to MPEx I have considered these risks myself and find them bearable, but my capital is negligible and I don't advertise myself as some leading figure, either.

    Hehe, and the cospiration thorist in me is intrigued that Mircea is extolling the idea that there is bitcoin millionaires group with some coherent (if not coordinated) opinion.

  2. Mircea Popescu`s avatar
    2
    Mircea Popescu 
    Sunday, 11 November 2012

    Well let's see.

    you are really convinced that no one will pull Kim Dotcom on you?

    Kim Schmitz was convicted of insider trading and embezzlement. It would then seem that nobody can pull a Kim Dotcom on you, it'd have to be you yourself pulling it. Seeing how I don't intend to, ya, I'm pretty convinced.

    On the more general point, yes I think I have certain fundamental rights which are both guaranteed by any civilised state as well as incontrovertible. Operating MPEx in the manner I intend to falls squarely in the purvey of these rights. Obviously I can't guarantee one, any or even all states will not turn rogue, but I can guarantee they will never get away with it. It would seem history shows as much in any event.

    the cospiration thorist in me is intrigued that Mircea is extolling the idea that there is bitcoin millionaires group with some coherent (if not coordinated) opinion.

    This is not new.

    Apr 05 22:35:38 {Blitzboom} bitcoin is stable now
    Apr 05 22:35:48 {Blitzboom} mircea_popescu: is this a problem for your business?
    Apr 05 22:36:01 {mircea_popescu} Blitzboom not that i can see ?
    Apr 05 22:36:04 {prime} bitcoin is very stable.
    Apr 05 22:36:18 {Blitzboom} it’s a problem for mtgox if it gets too stable
    Apr 05 22:36:22 {EvanR} im glad bitcoin has finally stabilized
    Apr 05 22:36:26 {Blitzboom} and speculative volume dries up
    Apr 05 22:36:28 {EvanR} tm
    Apr 05 22:36:43 {EvanR} now tomorrow it will jump by $1
    Apr 05 22:37:13 {smart1985} mtgox get a promotion and half the fee for a short time
    Apr 05 22:37:32 {prime} on a serious note, bitcoin has been on three major news papers lately and it takes about a week for people to get into bitcoin. I would expect a huge jump soon
    Apr 05 22:37:41 {prime} If we only had an "IN" at dwolla
    Apr 05 22:37:44 {bonks} i cant wait to use a few mUTC to buy cofee
    Apr 05 22:37:52 {prime} could tell us when they are ramping up membership... :)
    Apr 05 22:37:56 {EvanR} dwolla is slow for everyone
    Apr 05 22:38:01 {EvanR} it does two ach in a row
    Apr 05 22:38:03 {smart1985} after them was traded more
    Apr 05 22:38:06 {EvanR} no one gets special treatment
    Apr 05 22:38:21 {bonks} anyone selling btc for bank deposit?
    Apr 05 22:38:23 {EvanR} shares in dwolla would be good, maybe
    Apr 05 22:39:18 {ab37} we should get bitcion on the major media networks
    Apr 05 22:39:27 {ab37} then there would be a huge spike
    Apr 05 22:39:46 {prime} It has been, lots of talk about the African Union using bitcoin
    Apr 05 22:39:48 {EvanR} it was already on cbs legal drama
    Apr 05 22:40:00 {EvanR} fuck african union
    Apr 05 22:40:09 {smart1985} yeah and the new message from Bullish bear
    Apr 05 22:40:14 {prime} We need some sucker to use bitcoin for helping the poor or homeless, that'll create a news story
    Apr 05 22:40:23 {ab37} yea but get it on faux news
    Apr 05 22:40:25 {rawrmage} ab37: a huge spike? http://i.imgur.com/ovoZr.png
    Apr 05 22:40:25 {smart1985} [11:55:41] smart990: Bitcoins made some upside progress last week but there is more buying needed to break above key resistances
    Apr 05 22:40:25 {smart1985} (5.15 – 5.2 $). In the meanwhile, the short term remains in a neutral bias which avoids too many false trading
    Apr 05 22:40:25 {smart1985} decisions.
    Apr 05 22:40:25 {smart1985} A rise above this level could lead to a huge rally with mid term targets of at least 32 $, if not even 100 $.
    Apr 05 22:40:43 {ab37} even a bad publicity stunt would help
    Apr 05 22:40:57 {Blitzboom} we need new suckers, and we need them NOW https://bitcointalk.org/index.php?topic=45526.msg548271#msg548271
    Apr 05 22:40:58 {prime} We need to organize a small lobby.
    Apr 05 22:40:59 {rawrmage} smart1985: lul
    Apr 05 22:41:19 {ab37} it would be fun
    Apr 05 22:41:28 {ab37} for e at least
    Apr 05 22:42:14 {prime} We need an exchange that takes a small fee from trades and funds a lobby. When you can get tax refunds in bitcoin, we win
    Apr 05 22:42:15 * Cablesaurus has quit (Quit: Man who run behind car get exhausted)
    Apr 05 22:42:32 {prime} Im talking about 0.0001 btc or somthing
    Apr 05 22:42:51 {danieldaniel} So who has a youtube account list?
    Apr 05 22:43:23 {BohemianHacks} Anyone will to PM me about getting my business into GLBSE. Preferably someone with a company on there not just traders.
    Apr 05 22:43:28 {BohemianHacks} willing*
    Apr 05 22:43:35 {mircea_popescu} Blitzboom im guessing the price stability is only loosely correlated to people's need to insure against the future.
    Apr 05 22:43:38 {dance4x} where can i sell a mt gox redeem code?
    Apr 05 22:43:51 {Blitzboom} mircea_popescu: what do you think is responsible for this
    Apr 05 22:44:00 {danieldaniel} dance4x: what do you want for it?
    Apr 05 22:44:22 {dance4x} usd direct bank deposit
    Apr 05 22:44:33 {mircea_popescu} this = ?
    Apr 05 22:44:38 {dance4x} or anything that can be redeemed today or tomorrow
    Apr 05 22:44:46 {danieldaniel} Im guessing no paypal? :)
    Apr 05 22:45:00 {dance4x} paypal would take too long otherwise i would
    Apr 05 22:45:11 {danieldaniel} You mean to transfer to your bank?
    Apr 05 22:45:14 {dance4x} id have to withdraw to my bank account which takes 3 days or so
    Apr 05 22:45:14 {dance4x} yeah
    Apr 05 22:45:16 {danieldaniel} Yeah, it takes a long time
    Apr 05 22:46:10 {dance4x} would you only be able to do paypal?
    Apr 05 22:46:12 {danieldaniel} How much are you looking for?
    Apr 05 22:46:15 {danieldaniel} No, I can do other stuff
    Apr 05 22:46:23 {Blitzboom} mircea_popescu: this stability
    Apr 05 22:46:35 {dance4x} i have a $732 redeem code
    Apr 05 22:46:35 {prime} I remember when bitcoin was at $30. took a week for people interested to get in the market (on average) and by the time they did, it was $17, then you know the rest....
    Apr 05 22:46:42 {danieldaniel} Oh, I don't want that much :)
    Apr 05 22:47:04 {mircea_popescu} Blitzboom i'd say is the result of a partly conventional partly natural agreement of the large btc holders to stop selling for now.
    Apr 05 22:47:20 {mircea_popescu} displays that the market is pretty much mining-stable

    Apr 05 22:47:37 {mircea_popescu} (as in, money pouring in = money miners need for bills + similar expenses of the system)
    Apr 05 22:47:43 {Blitzboom} The Great Bitcoin Stability
    Apr 05 22:47:50 {mircea_popescu} its an important point tho.
    Apr 05 22:48:05 {Blitzboom} Feb-April
    Apr 05 22:48:14 {pigeons} yes because we're all gonna start selling like crazy again if you fools bid it up to $30
    Apr 05 22:48:14 {mircea_popescu} might stretch into may.
    Apr 05 22:48:33 {prime} A whole bunch on Canadians just learned about digital currency. They will come.....
    Apr 05 22:48:33 {Blitzboom} pigeons: you sold @30 last time?
    Apr 05 22:49:15 {pigeons} Blitzboom: I sold at $30, but then I also sold at .002
    Apr 05 22:49:23 {Blitzboom} nice
    Apr 05 22:49:53 {Blitzboom} have you signed the Pact for The Great Bitcoin Stability too?
    Apr 05 22:49:57 * DBordello (~DB@unaffiliated/dbordello) has joined #bitcoin-otc
    Apr 05 22:49:58 {mircea_popescu} obviously if price goes too high people will sell some.
    Apr 05 22:50:03 {prime} I was in a coma during that time, would have made $550k if i was awake
    Apr 05 22:50:15 {pigeons} You must be the only one who hasn't signed Blitzboom
    Apr 05 22:50:20 {prime} just kidding, i am full of shit :)
    Apr 05 22:50:39 {Cusipzzz} i, for one, welcome our stable bitcoin overlords

    although extrapolating market value while only under 3% of all shares were ever released to market is quite an exaggeration.

    Well, it does give more information as it is than any other available avenue. It's true that a little under 3% of shares are yet floated, it's also true that it adds up to ~14k BTC which should carry some meaning.

    And, maybe it’s just that I’m idealist, but expected more concrete proclamation what you are and what you intend to do, not just “I’m big, hear me roar”.

    The problem with this is sort of visible here : Bitcoin funded debit cards, ASICS, bitcoinwireless, ... did I miss a scam?. There's not exactly very much incentive to announce in BTC World.

    Other than that, I see little harm in making public what I've been telling interested parties privately for a while :

    {mircea_popescu} people don't understand many things, chief among which that the world is at war, and finance is the means of that war.
    {mircea_popescu} mpex is here to arm bitcoin with all the high impact high efficiency weapons fiat currencies have.

    So... that's the plan.

  3. extrapolating a company's value from a freefloat <5% is just hineous.
    try placing those other 95% @ market price, bitcoin devs will have to introduce a 9th and 10th decimal.

    your 30day-avg trading volume of 112k BTC makes for a trading volume of, generously, ~1,232million €.

    let's say your cut is 5%, that is ~62000€.

    per month.

    how, exactly, is this bucket shop worth EIGHTY TIMES THAT?
    a price-earnings ratio of EIGHTY.

    let's pretend for a moment your cut is 10%, that still puts it at a PER of FOURTY.

    sheesh.

    I'd like to see some regulation papers, some KYC material, some licensing that stands up to EU regulations.

    I do not believe for a second that whatever you're doing here will stand up to REAL scrutiny for a satoshisecond. your company is exactly worth the amount of BTC you can/will run away with at any given moment.

  4. Mircea Popescu`s avatar
    4
    Mircea Popescu 
    Wednesday, 19 December 2012

    Mkay.

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