Disclaimer: When reading articles that discussed financial aspects, always assume that the writer (e.g. me) has hidden motivations. Do not take this as the sole advice in any investing. I am neither qualified not skilled enough to give financial advice. Additionally, as you’ll see in this article, investing in any unregulated market carries massive additional risk compared to traditional market. Do your own research. Be careful. Read this disclaimer at least once per day.
On June 14, 2013, the 100TH project went from being one of the potentially best mining investments on the planet to being a complete disaster for any investor, all by a single event.
You may think that this was because someone hacked an account or leaked insider information or something like that. You’d be wrong. In this case, it was just good news and how the 100TH mine management handled that good news that completely killed off this asset as a worthwhile pursuit.
Note: I have asked tytus, the main person behind 100TH to offer comments on this article but he has not gotten back with a request to neither see the article not offer comments on it.
So what happened? We need to look a few weeks back to understand what went so wrong.
The Story So Far
100TH is a Bitcoin mine that issued shares in its profits closely resembling the behavior of perpetual mining bonds. I’ve previously written an analysis of 100TH showing that it can be a great investment but also carries some risks of which you should be aware.
Note: Before you react to the term perpetual mining bond as a negative thing, please feel free to read my article on whether PMBs are scams (and they aren’t).
100TH is traded on a single exchange only, the Picostocks exchange. As it happens, the same people run all the assets on Picostocks, lead by Polish entrepreneur tytus. Picostocks has a novel approach to trading, with complete transparency in all trades so everyone can study the strategies of successful traders and learn from them.
Everything is not great in the lad of Picostocks, however, as we initially saw in late May 2013, when tytus after some good news decided to start dumping shares onto the market. tytus officially commented on this saying that he felt that the price was too high and that some people were buying out of fear of being left behind and that liquidity had to improve to stabilize the price.
The shares that tytus dumped on the market went up blow the current ask price. In other words, tytus offered his shares cheaper than anyone else. At the time, the shares had been trading at 0.367 BTC per share, and tytus dumped his shares first at 0.2 (almost 50% lower than the market was willing to pay) and then at 0.23.
This act alone was very serious. In a free market, it is that market that must decide how to price a share. Elements include risk, potential reward, news, and other factors. In fact, the market is free to include any aspect in their valuation of a share. If it believes a share should be priced higher because it rained on Monday, then that is up to the market.
tytus effectively interfered with this freedom by limiting how much investors could sell their shares for and how much buyers could pay. In any regulated market, this is called market manipulation, and tytus effectively took away the reward for risk that early investors had expected.
After a few comments and interchanges on the Bitcointalk forum, tytus apparently saw the errors of his ways and promised that in the future, he would announce at least 48 hours in advance when he wanted to sell shares.
This, however, wasn’t what he did.
Good News/Bad News!
The one big question that has been lingering in 100TH investors’ minds are whether the Bitfury chips will perform as expected. Needless to say, when Bitfury and 100TH announced that the chips were ready and are underway to testing, this was very exciting news for those that had risked their money by investing in a very uncertain future.
The share price immediately shot up around 30% from trading around 0.3BTC to just short of 0.4BTC. However, the joy was short lived as tytus immediately put up yet another wall of 4,000 shares at 0.4BTC.
Note: A wall, although not technically the correct term, is used to describe when a huge buy or sell order is put on the market, effectively limiting the upwards or downwards movement of an asset price.
The wall was taken down fairly quickly, but the mistake was already made. Tytus had not only broken his promise to the market but had indicated that he could not be trusted to abide by his own words and that he would willfully continue to manipulate the market as he pleases.
This was a very grievous action by tytus and one that seriously undermines the 100TH mine as a viable investment for anyone. You may not see the gravity immediately, so let me elaborate a bit on why this is considered highly illegal and carries jail sentences in regulated asset markets.
100TH is a non-existing mine that has great potential but also huge risk. That risk is taken by the investors that buy shares in the 100TH mine, and they have done so from the time of the IPO, at which point the risk was massive just like the upside to just now when the risk is much smaller but the potential reward is also rapidly diminishing.
The risk works a bit like a lottery. You buy a ticket in the lottery for a chance to win big. You don’t know how big the price will be because that depends on how many others take a risk as well. Your chance of winning depends on how the market values the price. In this lottery, the price of a ticket increases as time goes by.
I don’t want to drag the analogy too far, but imagine if a lottery came out and said that “Sure, you won, but we don’t think it’s fair to all those that didn’t bet earlier so we’re going to sell them some cheaper tickets after all”.
You would likely feel a bit cheater, right? After all, you took on the risk very early, knowing full well that your bet might turn into nothing, but hoping that it would rise a lot by other people noticing the lottery and placing their bets as well.
In the 100TH situation, this is exactly what happened. tytus put an upper limit to how much you could win, taking away much of your reward for risking your money with him and his mine.
Note: Remember that tytus isn’t just a holder of a lot of shares, he is a key insider in 100TH, and he is the operator of the only exchange where you can buy his shares.
In a regulated market, this is called market manipulation and is investigated as a criminal offence. When it is the operator of the stock exchange itself that commits this act, well, I’m certain the authorities would slap the operator so hard they wouldn’t wake up in this century, at least not as a free man.
But is it really all that bad? Let’s look at some potential consequences.
Really Bad or Just Annoying?
The first factor I want to mention is the complete reversal and outright breaking of the promises that tytus made to investors. Keep in mind that in an open and free market, investors rely on the ability to sell their investments to a market.
Tytus broke that confidence, and didn’t just do it once, or twice, he actually manipulated the market on three occasions; twice in May and once in June. This shows that he is willing to manipulate the market and cannot be trusted to abide by his own rules and promises.
The second factor is what this means to people buying now. They know that there is no way for the price to rise further. Isolated, this may not be such a problem; after all, most investors buy for the chance of dividends, not for a price increase.
However, there is still a lot of risk to be taken by investors buying now. The chips are not tested, the miners have not been built, the data center isn’t operational. A lot of things can go wrong that can greatly reduce the shares’ potential to generate income.
Most investors will want to be compensated for this risk, but tytus has effectively taken away your ability to reap such compensation. In other words, if you buy now, you have to accept that you either get nothing or you get something, the amount of which is still highly unknown. You get no reward for accepting the risk, because that reward is controlled by tytus and he has deemed that if you buy now, you have received enough.
Note: If you want to review possible scenarios for 100TH you can check out my previous article discussing 100TH compared to ASICMiner.
Third, this is a serious blow to Picostocks the platform. In every regulated market in the world, market manipulation is strictly prohibited. In the US, such activities has been forbidden for almost 100 years.
tytus also operates Picostocks and hasn’t just allowed this activity to happen, he has perpetrated it himself. From the perspective of the exchange, this is the equivalent of Robert Greifeld, the CEO of NASDAQ, saying that “I think people are paying way too much for Apple shares so we’re dumping the price”. Such an event would cause the immediate firing of that individual, to be followed by investigations from the SEC, and probably a jail sentence.
Finally, think for a moment what this means for the reputation of the shares. The owner, not having been able to start the operation, says that the shares aren’t worth more than he can get for them on the market, so he’s bailing out.
tytus knows more about 100TH than anyone else; he runs it after all. When he’s selling, as an insider, that sends a very strong message to the market: You will probably not get more from this share than you do by selling now.
Of course, this could be a rare case of altruism, where tytus really just wanted to give more people a chance to buy in, but if he truly believes that the value of the shares are higher than they are now, why would he sell?
If he wanted to give money away, he could do so through an extraordinary dividend payment out of his own pockets.
If he wanted to get more people on the market, he could announce, like he promised, well in advance that he wanted to put more shares on the market.
And if it is like he says that he didn’t want the price to go too wild to protect investors, why doesn’t he mass buy when there are bad news? In recent weeks, we’ve had numerous delays in chip production and Bitfury even lost his 100 BTC bet on Bitbet.us. These events could have dropped the price of shares considerably, but tytus didn’t put up a buy wall to protect investors then.
Instead, he broke his promise, conducted explicit and everywhere else illegal market manipulation, and implicitly telling people that they probably won’t get their money back by buying now. He’s torn away any trust the market has in him and demonstrated that at any time, he can dump more shares for whatever reason, despite anything he has said or says now.
That’s why one action lead to 100TH going from an incredible opportunity to a complete disaster in just one act.
I’m sorry to say, but I’ve sold all my shares in 100TH and I can’t recommend anyone to buy in. Not in 100TH and not in any of the other assets traded on Picostocks. Only if tytus is removed from any abilities to directly manipulate the market would I consider buying back in, and I don’t see that happening.
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