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".
   [↩]