mcxFEEs and Their Tie to USD

mcxNOW has been offering up stocks in their website for a while now, allowing users to take a cut of the site's income from trading and other sources. Many shares have been sold, and their value fluctuates greatly (generally because of BTC's prices). This is something that should not be happening nearly as much as it is, and it is quite hard to understand why this is happening.

One argument that I have heard is that the price of mcxFEE goes down when the price of BTC goes up, and the opposite also happens. This makes absolutely no sense. mcxFEE pays out in Bitcoin, rather than USD. This means that the “value” of Bitcoin (in USD or other denominations of fiat) is irrelevant. The only time that the two should be tied together is if it were to pay out in the same denomination. This has also led to a lot of confusion by others in terms of why I feel this way, so I want to break it down a bit to help better understand:

Let us say that we have 1 Bitcoin right now. A share of mcxFEE is 1 BTC and the value of a BTC is $100 USD. Now, a month later BTC has doubled in value to $200 each. What we often see with the mcxFEEs is that the value has dropped in half, such that it is still worth the same $100 it was before. So why does this not make sense from an investment perspective? Easy. Instead of buying that mcxFEE, we just hold on to the Bitcoin we already had. Now instead of $100, we have $200, since that Bitcoin does not magically halve itself. In other words, with the way the stocks work (and it is not just with mcxFEE, although these are very fast to take on to the changes), you actually earn more by just holding the Bitcoins themselves if the price is rising.

Were we to be dealing with a stock that utilizes a USD (or other fiat) valuation, however, it would be completely different. In this case, the prices would have to be related in some way, as you would not want to put out $600 in Bitcoin for the same earnings someone else got for $100 just because the prices of the currency itself went up. With the non fiat versions, though, everything should be denominated in just one currency: the one it is using. A Bitcoin will always be a Bitcoin. If you put in a Bitcoin and you get less than that, but its value has gone up, you have still lost money because you could have just held that coin and kept the entire value through the inflation.

I am really hoping that people start to think about what they are doing when they try to base stocks that deal solely in crypto currencies on what their tie is to the USD. They really have no relation unless you are trying to liquidate them (into fiat), and therefore should never be compared to one another except in that one situation. Past that, a Bitcoin should always be worth a Bitcoin. And as a result, a stock that offers up x% in Bitcoin should always retain its value in Bitcoin.

With reading the chat as of lately and seeing how others are responding to the mcxFEE prices, I have the feeling that we are going to continue on this destructive cycle. This will happen until one of two events occur: RealSolid (or long term investors) obtains enough fee shares to keep the market from being over flooded or something all of a sudden clicks and people realize how big of a mistake they have been making all these months. Either of these events could lead the fee shares in to a huge surge in value, of which they should maintain pretty steadily thereafter (at least assuming that the trading volume and gambling volume on the site remains about the same as it is). There really should not be massive fluctuations like we are and have been seeing for the past few weeks.

Update 04-09-2014: The prices of the fee shares have been pretty consistent as of the past few weeks. They have gone up and down on value occasionally, but that is more due to people dumping or pumping than anything else. Even through the fall and rising of Bitcoin, the fee shares remained separated from it. This is a great sign going in to the future, as we only care about one thing: how much Bitcoin do we get in return for holding the fee shares. If we wanted fiat, we would be holding fiat instead.


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