Bitcoin "Stock Markets" - It's Time To Have A Chat
Over a year ago a Bitcoin-related service named GLBSE (an acronym for GLobal Bitcoin Stock Exchange) had launched. The reason for building this exchange system was described by one of GLBSE's founders quite clearly:
The market, when it comes will be in an unknown location. Backed up, encrypted, anonymous, secure. Away from the hands of any typical terrestrial law enforcement agency. And nothing short of banning cryptograhy and turning off the internet in most countries worldwide would be able to stop this one it begins.
A bitcoin stock market, will involve 0 law, it will evolve and grow at a much faster rate than any normal stock market without so much overheads or red-tape holding it back.
And that is the system that was built. But it didn't necessarily thrive. It did, however, become the stepping stone that brings us to GLBSE v2, launched in March. With this release, the exchange became much more usable. Buying a GLBSE-listed asset is now easier than buying a book from Amazon.
This enabled a broader user base which then brought greater investor interest. The number of "assets" that are listed on the market exchange has exploded since v2's launch and there are several entries showing per week on the "IPO" schedule.
The first bit of evidence indicating how successful GLBSE would be with this new audience came when the "IPO" for the GIGAMINING "asset" occurred. The IPO raised for its issuer tens of thousands of dollars worth of capital, in bitcoins -- the currency used for all GLBSE transactions. The GIGAMINING asset continues to trade above the price from the IPO.
These asset size levels are much higher than many would have believed possible after watching the boatload of fail for investments made through GLBSE v1.
The inflow of bitcoins since that IPO launch have been steady. A table of asset valuations from GoWest (@GoWestBTC) indicates there is over a half million dollars worth of "asset" shares now in just the top half of the exchange's listed assets.
As far as equity markets go, that amount is still a trivial amount of funds -- less than a rounding error even. Last Friday's Facebook IPO alone was 200,000X larger than the current value of all assets on GLBSE combined. The amount of money in GLBSE assets is enough though to begin stirring interest in wider circles than just the Bitcoin community which was exclusively GLBSE's initial base.
And that is why it is becoming necessary to see a greater amount of conversation about what this "stock market" is now and what it becomes.
The author of this post is not qualified to know what that conversation needs to include, but is qualified to see that there are a few turds floating in the punchbowl. Instead of this Bitcoin "stock market" being a rapidly advancing innovation for capital formation, there is instead a growing concern that the whole place is becoming a cesspool.
Progressively more and more bitcoins are being invested in "funds" listed on GLBSE as assets. These funds might be acting as feeder funds dependent on a larger underlying investment. If this is what truly is occurring, these things usually end badly.
When the Bitcoin digital currency first caught the media's attention, there was intense scrutiny into every conceivable aspect that Bitcoin touched. The amount of discussion from technical, legal, political, and economic angles was expected, warranted and truly useful in helping Bitcoin rest on a more stable base.
Conversation on various topics regarding GLBSE (and with related markets such as MPEx) are nearly absent though and information on each listed "asset" is usually sparse. For instance, what does an investor holding a share of a listed asset really own?
Investors seem to proceed with the belief that these "asset" listings closely resemble the concept of stocks or other security investments made in the regulated world. We might blame Kickstarter for that.
Kickstarter in its initial form is a platform that simply allows a donation towards a project where the donation earns some type of reward. Without there being equity there need not be the concept of a corporation or LLC as issuer. Equity markets are not equity markets without the concept of a corporation or LLC where ownership can be shared by its equity investors.
Without this concept of a corporate entity or LLC there is then little parallel between an asset listed with GLBSE and a company that trades on a regulated exchange. But when a GLBSE "asset" fails financially or the issuer defrauds, some investors feel the issuer has responsibility for the capital invested into the cyber-equity. These investors may believe that there is responsibility that extends to the real world. Already occurring is evidence of pressure by investors being applied against individuals who had been issuers of assets where financial losses were the result.
The purpose of this post is to try to raise awareness that should there be any doubt, a $100 investment into a GLBSE "asset" is vastly different than a $100 investment into a Nasdaq or pink sheet (OTC) stock even. There needs to be conversation about this difference each and every time the words "equity", "fund", "dividends", "shareholder", "stock", "company", "capital' and "investment" are used.
There are some good "assets" listed on GLBSE and many more will be forthcoming. But don't make the mistake of thinking that of any of these "assets" are "equities" in any shape or form.
These investments are either donations that come with benefits (à la Kickstarter) or they are speculative gambling at the cheapo casino. There is nothing in between.
[Update: Pirate was indeed a ponzi and the SEC is investigating. In October, 2012 GLBSE abruptly shut down.]
