Bitcoin Forum

UPDATED VERSION, 6 August 2013:

My company has applied to list BTC Growth, a hedge fund-style service, on BTC-TC. The canonical version of the document, at around 8500 words, is now available directly from the exchange:

https://btct.co/security/BTC-GROWTH

In the interest of compactness, I have included here just the 'Executive Summary' and 'About the Fund Issuer and Fund Manager' sections. Please refer to the full version of the document for additional details, including risk factors and FAQ.

Any updates to this document will be summarized in the post following this one.

Executive Summary

Operating as a hedge fund-style service to the exchange, the BTC Growth fund aims to achieve capital growth denominated in Bitcoin.

The fund may invest in securities listed on Bitcoin-denominated exchanges, or in unlisted short-term debt of listed or unlisted businesses with demonstrable cashflow. It may construct strategies using derivatives intended to hedge risks associated with these investments or to generate returns in their own right. In exceptional circumstances, the fund may invest privately in unlisted businesses. The fund may provide capital to exchanges, and it may construct positions designed to extract value from volatility in the value of Bitcoin versus other currencies.

The fund's portfolio will be marked to market and its Net Asset Value published approximately once per month. Being exchange traded, no redemption notice is required, and the fund may provide additional redemption and subscription liquidity by placing bids or asks (respectively) at a level between NAV and open market prices.

The fund employs a 'two and twenty' fee structure common to the hedge fund industry, together with a rolling high-water mark tallied on a trailing three-month basis.

Potential participants for whom the full document is in any way 'TL;DR' should not participate in this fund.

About the Fund Issuer and Fund Manager

The fund will be provided as a service to the exchange by Mulhauser Consulting Ltd., a company incorporated in the United Kingdom eleven years ago and which has been in continuous operation ever since.

The fund will be managed by Dr Greg Mulhauser, the company's founder and Managing Director. In other areas of its business, the company works with a team including both volunteers and paid employees and consultants, but for the purposes of this service, fund management will be handled entirely by the Managing Director.

With educational background in mathematics, philosophy, and later in mental health, Dr Mulhauser has worked at the Pentagon, UK universities, and telecommunications giant BT. Originally employed at BT as a research scientist in cognition, complex systems and biologically inspired computation, he was also responsible for curiosities such as the Lattice of Extended Turing-Style Automata, which he designed as a novel computational architecture for implementation with FPGAs in a fashion similar to cellular automata. He later left the Complex Systems Laboratory for business strategy roles and advised on corporate venturing and on derivatives strategies associated with M&A projects. He contributed to the company's Asian portfolio management, assessed flotation and alternative demerger options for its wireless operation, and developed strategy for its £500 million indirect channels business. In 2002, he left a strategic partnering role in security and mobile technology to found his own firm, securing consulting contracts ranging from ground-based air defence systems at Northrop Grumman and the UK Ministry of Defence to internal communication at the UK's national Police IT Organisation (PITO). A British Marshall Scholar and Fellow of the Royal Society of Arts, Mulhauser lives in Devon, England with his wife and daughter.

Additional information about the fund manager specifically regarding his investment background is available from one of the newest sites in the company's portfolio, Psychological Investor:

http://psychologicalinvestor.com/lib/about-founder/

Potential participants can get something of a flavor of the fund manager's general approach to investing from the same site, and a small selection of his recent articles specifically about the Bitcoin economy can be found here:

http://psychologicalinvestor.com/lib/tag/bitcoin/

For further background, the archive section of the Mulhauser Consulting site also includes work on business strategy development and even older research work on topics like algorithmic information theory, computability and recursion theory dating back to the 1990s. (Greg Chaitin, who as a teenager independently invented algorithmic information theory alongside Kolmogorov and Solomonoff, described the fund manager's first book as "One of the first serious applications of algorithmic information theory; fun to read!")

http://mulhauser.net

Posts by the fund manager on the Bitcointalk.org forum can be found here:

https://bitcointalk.org/index.php?action=profile;u=132160;sa=showPosts

As with ordinary hedge funds, in which the General Partner typically invests alongside Limited Partners, the fund manager intends to participate in the fund, helping to ensure alignment between his interests and those of the fund. Note, however, that the General Partner/Limited Partnership model itself is neither desirable nor practical for a fund intended to trade freely on a Bitcoin-denominated exchange.

Note: This document is copyright 2013 by Mulhauser Consulting Ltd., with all rights reserved, and may not be repurposed without written consent.

13 August 2013

The full document held by the exchange has been updated with the addition of the following section headed "Compliance and Modifications" immediately prior to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"The fund issuer may update this document from time to time as needed for administrative or other reasons, including to ensure compliance with applicable laws and regulations. Except where required to do so by law, the fund issuer will not make any modifications to this document which could reasonably be foreseen to cause a materially negative impact on participants' interest in the fund without a minimum of 30 days of prior notice."

8 August 2013

The full document held by the exchange has been updated with the addition of the following sentence to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"Closure may be effected via a buyback of all outstanding shares using the mechanism provided by the exchange for this purpose."

6 August 2013

The original draft of the fund document has been removed in favour of just the 'Executive Summary' and 'About the Fund Issuer and Fund Manager' sections. The full document, at around 8500 words, is now available directly from the exchange:

https://btct.co/security/BTC-GROWTH

The principal difference between the 6 August version and the original draft is clarified wording throughout which is intended to emphasize that the fund is being provided as a service to the exchange; individual shareholders in the fund are referred to as 'participants' in the fund rather than as 'investors'.

2 August 2013

The original draft of around 8500 words was posted for discussion.

looking forward .I want to invest

TL; yes. stopped here ^^ (bolds by me).

hm...  beautiful.
on too many things must agree investor and too many things can do issuer? ::)

besides, that's an Bitcoin Community Forum, not some official-financial-legal site. Is it not possible to say it (a little) shorter, doctor?
we're Normal People here and not everybody is a lawyer or such. sometimes we can understand with less wording. IMHO.
will do reading further when time permits.



good attitude btw.
are potential investors allowed to ask questions at least?!

Greg

This looks very promising. Due diligence aside (still plenty to do as per this prospectus), I'd like to hear back from you about some specific questions that your prospectus leaves unanswered.

1) Why title this a 'Hedge Fund Style' investment rather than an ETF or ATF? As you say, there are several ways in which this fund will not and cannot behave like a hedge fund. Can you try to state concisely and clearly why you conceptualize this fund to be most akin to a hedge fund?

2) In an otherwise very thorough prospectus, your discussion of regulation and taxation seems to me to be underdeveloped. Do you anticipate that it will remain possible to have investors in this fund whose identities are obscured from you by the mechanics of Bitcoin? Will the fund owe the UK government capital gains taxes? Will investors who redeem their shares in the fund owe capital gains taxes to the UK government? Assuming that you launch the fund successfully, it seems safe to assume that you will have at least one American investor. Will the fund therefore be exposed to the regulatory power of the SEC?

3) Will you be paying any expenses by redeeming Bitcoin for fiat, or otherwise exchanging the management fee for fiat? As you say, the redemption of Bitcoin for fiat creates a taxable event under UK law. Will the fund incur any obligations or liabilities as a result of such redemptions, whether on the part of investors who exit the fund or on the part of management?

4) Have you retained legal counsel? If so, can you provide their contact information and/or credentials? If not, do you expect to do so, and if so, when? If the fund has need of legal counsel in the future, how will their services be paid for?

This is essentially the document which will eventually be in place on BTCT.co. In an ideal world, I would have simply included a brief summary here, and a link to the BTCT.co document. Unfortunately, part of the BTCT.co listing procedure is to provide a link to a discussion on Bitcointalk.org. So, I've offered the full details here in advance of setting up the listing materials on BTCT.co.


Absolutely -- fire away!  :)

Looks good. Do you currently have a list of assets you want to purchase, or do you intend on buying only a few now, and more as they present themselves?

I think you are wise for not buying mining bonds with no proven revenue, I also avoid those. I will probably buy up some of your fund for a bit more diversification. PM me if you want me to chat more about a more substantial investment from BTC-EQTY to your fund.

--

Quite nice prospectus. Will be watching, best of luck!

As I mention in the FAQ, there is no statutory definition of a hedge fund, and nothing at all rides on whether this is called a hedge fund. While it does not employ the GP/LP structure, it will be permitted to use of leverage; it will be permitted to actively hedge investments; and it will be permitted to take positions in a range of equity, debt, and currency; all of which are characteristics common to some (but not all) hedge funds.


As the document indicates, my understanding of the current position of HMRC is that gains are taxable when converted to fiat. To the extent that the aim of the fund is to achieve capital growth in Bitcoin, that understanding, if correct, would imply that the fund would not owe the UK government capital gains tax. As indicated under 'Risk Factors', however, we have no idea whether the UK government may in the future change its stance on this matter. I am not qualified to comment on any individual tax liabilities which might arise for investors redeeming shares, or on any extraterritorial claims of jurisdiction which might in the future be made by the US or other governments. With regard to AML/KYC, the fundamental structure of the exchange itself (quite apart from the mechanics of Bitcoin) currently precludes any kind of individual verification or validation by issuers. This is not unlike the structure of normal exchanges and brokerage houses: responsibility for verification or validation lies not with issuers of listed securities, but with the operators who provide the mechanisms whereby those securities are traded. (For example, if you buy shares in IBM, you won't find someone from IBM phoning you up or asking for a copy of your passport to verify that it's really you.)


Management fees, when converted to fiat, become part of the issuer's normal taxable revenue stream, to be reported just like any other revenue. From the perspective of investment, however, it is my understanding that it is the realization of gains in fiat which creates a tax liability under current HMRC guidance; therefore no, I do not envision the fund incurring obligations or liabilities due to currency conversion. The aim of the fund is, after all, to achieve capital growth in Bitcoin, not to achieve Bitcoin gains and convert them to fiat, and not to achieve fiat gains and then convert them back to Bitcoin.


As in all areas of our business, we make every effort to operate within the law, consulting with our accounting firm -- which has a statutory duty both to understand and to report violations of relevant law -- on any occasion that guidance provided by HMRC or other UK government agencies proves to be confusing or unclear. In this particular case, the issuer is offering a service to the exchange, a service intended to manage Bitcoin-denominated assets, and the guidance which has been provided by HMRC so far does not indicate that this service would in any way merit additional attention. As in the FAQ, however, we have no idea whether the UK regulatory landscape may change in the future, and should that happen, we will take whatever steps necessary to ensure our compliance with any changes, including closing the fund gracefully, should that prove necessary. With regard to who pays for what, my company pays its own expenses; charges to the fund are outlined in the original document.

Many thanks for your thoughts and input -- these kinds of questions may help us fine-tune the final version of the document.

As mentioned in the section on approach and context, I think the space is fairly limited right now, but I'm optimistic that there's still enough here to make things interesting. A few discussions with businesses not yet on the public menu offer some hope it could become more so in the coming months.


Many thanks for your support. We're still moving in baby steps at the moment, though, with the next step being to get things set up on the exchange end.

Many thanks, TradeFortress; I'm looking forward to seeing how it all progresses.

good )
just the problem is that i'm in fact not very familiar with this thing but growing...
so, eventually, will watch here first and then asking questions to be not very inconvenient for both sides :)

despite the fact that my previous post seems a little ironic (maybe its true?  ::) ), i wish you best luck with your initiative.

Many thanks, felente.

In my general, my philosophy is to ask questions first, invest later -- not the other way around.  :)

There is an inherent risk associated with allowing others to manage your BTC-denominated investments for you although your choice to identify may give some avenue towards prosecution and recovery of funds in the case of theft. The risk remains to some degree; therefore, the potential reward of investment must outweigh the risk of placing my BTC in your care. There are existing investment options which provide high rewards, but are inherently susceptible to theft by individual (See #1 and #2 in appendix below). Will their be any verification of the fund's accounting by an outside party? (I apologize if I missed this in your OP)

As a potential investor, I am desirous of a fund manager who will develop strategies to help mitigate risk while maximising potential capital growth. I suppose this is the point of a hedge fund-like investment fund, but I am not well-versed in financial disciplines. Forgive my naiveté, but a simple strategy to reduce risk might be to invest in a "bit of everything" thus holding a market-cap adjusted percentage of all available securities (see #3 below). Do you expect that your fund would outperform the "bit of everything" strategy (#3 in appendix below)?

I know smidge has tried to create an index (DCX (http://dcx.smidge.com/)), but I would like to see other fund managers attempt to develop additional objective performance metrics for their investments as well. Do you have any interest to do something similar?

I thank you for your well thought-out original post; the level of discourse has been raised, sir. I hope you find justification to respond to my inquiry.

Cheers,

Exo

APPENDIX: Existing simple investment strategies:

• #1. ASICMINER: It's risky to place all your eggs in one basket, but how does your investment vehicle compare to simply holding ASICMINER-PT?
• #2. CoinLenders' CD: It is also inherently risky to place your coins with an individual (even if they are reputable; pirateat40 was, after all, reputable until he wasn't)
• #3. Market CAP adjusted holding of all bitcoin securities (excluding  PMBs): This is the true performance standard. Your fund must at least perform as well as a market-cap adjusted holding of all available securities (ASICMINER, BASIC, COGNITIVE, ActM, NastyFans, LABCOIN, BTCGARDEN, etc.)

 

It feels slightly odd replying to your post, given that it is mostly the same as what you've already posted in a different thread a couple of hours earlier, to a different person, concerning a different fund altogether... But to address this specific question in particular, all companies in the United Kingdom are legally bound to keep appropriate records and to submit appropriate accounts to the government each year.


As you'll hopefully have seen in the original post, there's quite a long list of risk factors -- and management of those risks goes quite a bit beyond deciding how many different eggs to put in your basket. Ignoring for the moment the other 10 or so risk factors in the list, and looking only at one single underlying security for the sake of argument, you could gain exposure to that security in any of several different ways, each with slightly different risk profiles: you could buy it outright, you could buy it outright and write a call against it, you could write a put against it rather than buying it, and so on. While the latter two have an equivalent profit graph at expiry, they normally differ in terms of collateral commitment (not so in the Bitcoin world, where exchanges haven't yet moved to treating put writes as they are treated in the fiat world), and each can also be made to look different in terms of risk/reward by altering the strike price.


The fund cannot make any guarantees -- or offer any "expectations" -- about performance, either absolute or relative.


Having an index or two around would be great; I'm quite surprised that the exchanges themselves haven't yet done this themselves, since it seems like doing so would fall naturally in their court, offering both a useful service and a great way of promoting themselves.

However, your suggestion that a market cap "adjusted" (?) holding of all Bitcoin securities would be the "true performance standard" for judging the performance of other funds or securities seems incorrect to me -- for three reasons.

First, not all funds invest solely in a set of securities covered by a candidate index of Bitcoin securities. Imagine a fund whose job it was to invest solely in debt. Why would you want to benchmark a bond fund against an equity index or a hybrid bond/equity index?

Second, the set of all Bitcoin securities is currently far too small and yields far too concentrated a model portfolio to be a good performance benchmark. The reason an index like the S&P 500 is used as a performance benchmark is not merely because it's a handy index that someone decided to put together. It is used because it is sufficiently large and diverse that its statistical properties are attractive. For example, we care about variance relative to the S&P because historically that variance is considered low relative to its returns; to put it a different way, it's hard to generate S&P 500-style returns without adding more variance and taking on more risk.

Third, and most importantly, headline growth numbers obscure underlying risk. As the original post indicates, that's why an entire cottage industry has put analysts to work evaluating skewness, kurtosis, Sharpe ratios and other measures to distinguish good investment management from bad. Three extremely different portfolios might all generate the same returns over a given period of time, but they might do so with entirely different risk profiles. Would you rather have 10% per annum while risking a 50% chance of a 50% loss per annum, or 8% per annum with the same level of risk of a 20% loss; how about 12% per annum with the same level of risk of an 80% loss? If you're merely 'benchmarking' you would probably go for the 12% and be happy; for my part, I'd take the 8% without a second thought.

[Edit: Fixxed my speelling.]

There's this alternate stormy investment fund that aims for 52%/year but has managed to lose 23% in one week, while claiming they are "performing quite well."  :D

+1 to the OP just for typing out that prospectus and FAQ. ;D

Colour me interested.

Did I mention that my treatments for repetitive stress injury will be charged to the fund?

Think I'd dodge all of them.  An 8% return with a 50% chance of a 20% loss still has a negative expectation (of around 2% - depending on what the 20% is of).  Or by 'same level of risk' did you mean 8% not 50%?

There's another issue with compiling an index and comparing to it as well.  There's a large difference in the way various securities determine what profits are and decide on the size of dividends.  So some pay high dividends but have little (or negative) growth whilst others retain most/all profit and pay small dividends.  These different strategies obviously impact market price - making an index created purely on market price not particularly meaningful.

Your fund looks a lot better considered than most - I do have a few questions.

1.  How large do you believe the fund could grow considering the general lack of liquidity in BTC-denominated securities?  There's effectively a maximum amount you can invest in any single security whilst maintaining any degree of liqudiity - it varies widely from security to security and can in theory (but not yet in practice) be extended via use of options.  Once you get over that limit you end up, in practice, with funds committed to the security even if the price moves significantly.  This imposes a practical limit on how large a fund can grow whilst remaining agile (and that limit drops if other funds are following similar general strategies and hence will also want to be using up liquidity at the same time).

2.  If you want to make fees behave similar to a 2/20 model with annual fees then shouldn't your trailing HWM cover at least 12 months?

3.  Do you view mining operations in general as being BTC denominated, fiat denominated or a mix of the two?

4.  You say you won't disclose your personal finances - which is fine.  But will you commit to your own shares in the fund also being included in those listed on the exchange - so investors can readily see total outstanding units and market cap?

5.  Can you confirm that you won't invest (as opposed to trade) significantly in other investment/hedge funds?  Have seen a few cases before of circle-jerking whereby funds invest in other funds - delegating their management responsibility whilst making investors liable to taxation (in the form of management fees) by multiple fund managers (or even the same fund manager twice).

Hey Greg,

Just wanted to say I have nothing but respect for those with the guts to offer more investment options for the community. There is no doubt in my mind that with your intellect you will overcome any challenges that you may face.

That is a mindblowing OP that shows you have literally thought of every base. Even if the unanticipated happens - and hey, it will (its bitcoin after all), its reassuring to know that somebody who has the credentials that you have is behind it.

To diversify my investments I'd happily invest a few bitcoins into this. Sign me up.

Greg

Thanks for the quick and thoughtful response. I look forward to your final prospectus.

Agreed; I stripped out quite a few provisos and qualifiers here (and also with the options example earlier), but the example was meant only to show that choosing from the three on the basis of 'growth' alone could give a result that might not match up with the choice you would make if you had more information available about risk.


Yes, it's clearly total returns that really matter.


Absolutely: all hedge fund-style investments, including those in the fiat world, face the problem of balancing their size with their strategy. I.e., at a certain point, bigger is no longer better, because they cannot efficiently put the capital to work.

As for this fund in particular, it's difficult to project into the future of an environment with such tremendous growth and uncertainty. Seeing as it's intended to be exchange traded, however, the fund would at least have some flexibility to adjust its size via the subscription/redemption facility.


I gave this quite a bit of thought before settling on the 3 month compromise. For a fund which simply raises capital, closes, and then begins investing, it makes sense for the high water mark either to be permanent or to be tallied over quite a long period. For a fund traded on an exchange, it's quite a bit different, because each participant in the fund may have a different entry point in terms of NAV per share. Since it's not practical to keep track of a high water mark for each individual participant in the fund, it makes sense for it to 'decay' in same fashion -- thus the trailing 3 month period which, again, is really a compromise for the context, rather than something which is clearly the 'right' way of handling it.


This rapidly gets complex, which is why the original document sweeps most of that complexity under the carpet and just refers to the BTC-denominated NPV of the resulting free revenue stream. By focusing on the NPV of the revenue stream, we're ignoring the sunk costs of hardware -- and there's good reason for doing that, given that the 'S' in 'ASIC' implies modern hardware ultimately has zero residual value for any other purpose -- and we're also ignoring any future fiat-denominated costs for hardware to be purchased by reinvesting the BTC-denominated revenue stream. (Making this simplification only works at all if you're looking to invest BTC in the first place, as distinct from looking to invest in mining using fiat.) As I say, this is all an imperfect simplification of something which I acknowledge is complex.

And if I'm correctly understanding the meaning behind your question -- namely, not so much what we call it, but how to analyze the outcome with respect to an original investment denominated in Bitcoin or in fiat -- then this simplification alone isn't enough, and we need to know more about how the underlying business works. I take it that a business which is riding their existing hardware investment until the return hits zero is a different beast than one which is investing a load of fiat to create a new chip to begin mining at some point in the future. The former makes it much easier to apply the simplification than the latter.


All share investments would be treated equally, and as far as I'm aware the exchanges keep the information up to date which they display about shares outstanding.


There would be no advantage -- and, as you've pointed out, plenty of disadvantages -- to investing in another fund whose exposure could simply be replicated directly. It's not quite as straightforward as simply never investing in another fund, however, since in some cases that exposure might not be so easy to replicate directly. For example, if someone were to float a private equity fund, the fact that it was another fund wouldn't by itself be a compelling reason not to invest -- since the private equity exposure of the fund could be difficult or impossible to replicate.

Many thanks for your support -- I appreciate it!  :)

do u have offical website?

The skeleton site mentioned in the original post is BTCGrowth.com; the canonical listing documents will be available shortly on BTCT.co and the original post updated accordingly.

The draft of the fund document has been slightly updated and is now available in its entirety at the exchange:

https://btct.co/security/BTC-GROWTH

Please refer to the full document for all details, including risk factors and FAQ.

 ;D

This is gonna be exciting..I can't wait

Many thanks for your support, damiano; next up we'll just need some attention from the exchange and the moderators who serve as gatekeepers between submissions and listings.

Interesting asset.

It seems that you could have some connections to clarify some aspects around the issues mentioned here: https://bitcointalk.org/index.php?topic=269486.0 (https://bitcointalk.org/index.php?topic=269486.0)

Can you please explain how you are going to deal with the legal things?

As indicated in the listing document, we are aiming to provide a service to the exchange. If there are other comments to be made from an exchange perspective regarding "the legal things", in addition to what burnside has already posted in the other thread you mentioned, I imagine he will make them there in that thread.

when do I could buy shares at BTCT?

The exchange operators will need first to unlock the listing, in preparation for attention from the moderators who serve as gatekeepers between submissions and listings.

Thanks Greg,
I haven't reviewed the prospectus yet I've just read the OP and comments.
Before I do I would value your input on the following questions:

• Why have you personally decided to do this?
• What does success for BTC-TC look like to you?
• How will you know when you have met your personal goal of why you are doing this?
• Have you defined a succession or an exit strategy for BTC-TC in the prospectus?

Thanks again

I've had an interest in investing for a long time and an interest in Bitcoin for an unfortunately longer time than I have been actively involved with it. (Why 'unfortunately'? Because when I first read about Bitcoin in 2011, I thought it was an ingenious idea that would ultimately prove to be utterly useless as an actual currency, and I didn't return to it for another two years. I suspect there are others out there who share that kick-myself-later experience.)

In addition to those two interests, the way Bitcoin is currently regarded by the UK government -- specifically, treating gains as irrelevant from a tax perspective until they are converted to fiat -- provides an opportunity to do things, such as providing a low-friction fund management service, which I otherwise could not do at all without creating a whole new corporate structure, with all the additional expense and administrative overhead that would require. In other words, this is a way for me to give that a try without all the additional accoutrements that would otherwise be required.


Success for the exchange -- wow, that's a big question! Personally, I'd like to see it 1) become legally bulletproof -- not legally avoidant, but legally bulletproof, compliant with whatever needs to be complied with, etc. -- and 2) introduce market making services for both listed securities and options, either by becoming the counterparty to all trades itself, or by retaining others to provide market making. In other words, to my mind, success for the exchange means providing the foundations that people need to make real Bitcoin investing much more efficient than it is now.


Almost none of my new business endeavours have ever been undertaken with a specific personal goal in mind; rather, they're undertaken to learn, explore, adapt, and attempt to grow into a niche -- but without any of that codified into specific goals. (When I'm trying to learn about something, for example, I rarely reach a point where I think "great, I've learned it -- now what?".) That doesn't mean I just go off in random directions, of course, without tactical targets or longer term strategies; I do have both. But what it means is that I have no more of an answer for your question about this in particular than I would have if you had asked it about any of my other business efforts.


The listing document mentions a minimum participation level and closing the fund as a matter of exiting positions gracefully and returning NAV to participants. I would not envision passing the fund on to another manager.

answers appreciated.
just do not forget that government(s) can change the mind in (un)predictable way

I'm sure that governments can and will change their collective minds about how best to handle Bitcoin; rapid change in the Bitcoin landscape more generally is just something we should assume. However, this seems to me to be a larger and broader issue, rather than a being a concern which is specifically focused on this fund or that fund, this exchange or that exchange.

“Outstanding 0 / 1000000 Issued” @0.1
How many shares are you going to release? Round 1? 2?

 ???

The asset is now awaiting unlocking by the operators of the exchange, in preparation for attention from the moderators who serve as gatekeepers between submissions and listings.

Please see the section of the document headed "Initial Offering, Minimum Participation Level, and Fund Closure" and "Subscriptions and Redemptions" for more details on the release of shares.

Nowhere in that can I see details of how many shares you'd be selling at IPO - or what your plans are in terms of time-scale for releasing all of them.

I'd assume you aren't going to sell all at once (even if there was demand) as it wouldn't be practical to deploy that much capital at once.

I note that you only intend to publish NAV/U monthly - is it your intention only to sell and redeem once per month?  Or will you be maintaining bids/asks based on a current (but unpublished) NAV/U?  Either way can work of course.

I'm glad you're avoiding the cancer that is dividends for the sake of dividends btw.

this.

Since I have no reliable means of gauging demand except for observing what happens if and when the exchange approves the fund, I can't really guess in advance how the process might progress. However, given the level of attention currently being focused on mining operations that will begin 'real soon now', I suspect that any worries about having too much capital to put to work will be quickly put to rest.


From the section headed "Subscriptions and Redemptions":

"When in operation, the subscription and redemption facility will be made available only for a relatively brief period following the publication of the fund's NAV, so as to preclude any incentive for the issuer either to issue or to re-purchase on the basis of knowledge about the fund's NAV which has not yet been made public. (While doing so might provide a short term benefit for existing participants in the fund, it would be contrary to the interests of new participants and thus would not serve the longer term development of the fund as a whole.)"

As to what "relatively brief period" might mean, that again will depend on overall demand and liquidity. If only a handful of shares are being traded, and the market price is slow to react to changes in NAV, that would be a different matter than if a speedy and liquid market brings prices in line with NAV quite quickly.


Yes, I really don't understand what seems to be a fixation on dividends rather than total returns. It is trivially easy to push out a whacking great big (but entirely unsustainable) dividend. Nor do I understand why it seems to be OK with so many would-be buyers of various assets when future dividend streams are linked to an entirely unquantified description of "profit". It is trivially easy to achieve no profit at all -- and therefore pay zero dividends -- simply by incurring new expenses (such as salaries, for example). Too often, IMHO, folks read "profit" but think "revenue" -- or else recognise the difference but think that they know how to get from revenue to profit, even when the issuer hasn't filled them in on any specifics. I'm not saying that all or even most folks do that, but it's hard to avoid the impression that many do.

I'm pleased to say that as of this morning, the exchange has opened BTC Growth for peer review by moderators. This next step of the process -- attention from the moderators and their assessment of the listing submission -- will yield a decision as to whether the fund will be listed on the exchange.

I just want to know when I buy shares ? I dont want to miss this chance

When it is finished being voted on by the btctc admins

I like what you're doing. What are you some kind of genius?  :D

You took a lot of harassment early on when you gave your views on the ETF but you also taught me and many other people a lot.

Cheers

Thanks Greg please excuse my ignorance since GLBSE I switched to HaveLock, and have not looked into alternates since. (I tend to think everything is a scam until I have a need and then seek the most viable option)

That said your answers are still very much appreciated and relevant.
I have made corrections given I mistook the exchange for the fund.

Your attention to the updated questions is much appreciated.

Many thanks for your support, Luckybit -- I appreciate it!

Ah, I get it -- no problem at all.

Taking the second question first, ironically enough the change doesn't matter, as I had originally interpreted you to be asking about an exit strategy for the fund anyway, just specific to the mechanics of the exchange. (It was your question which prompted the addition of a sentence to the listing documents yesterday, intended to clarify how closure of the fund might be handled using the buyback facility of the exchange.) As I mentioned originally, I would not at this point envision passing the fund on to another manager but would instead envision closing it.

As for the first question, the superficial answer is simply excelling at the fund's stated goal of achieving capital growth denominated in Bitcoin. The deeper answer, though, is much more about adapting my thinking and strategies to the very limited environment of Bitcoin, where tools that folks take for granted in the fiat world just aren't available yet.

Will the fund take any long term positions on Bitcoin mining activities?

Although your question seems very straightforward, it actually packs in quite a bit of complexity and subtlety. So, rather than trying to pin down a specific yes/no answer and coming up short on something the details of which depend very much on the specific business in question, I would point instead to the comments in the listing document itself which address mining. The document also links to a substantially longer discussion in a standalone article about direct investment in mining hardware, and last but not least there are some brief comments in my reply to Deprived earlier in this same thread.

The question was straightforward and I really hoped for a straightforward answer. I didn't get it. I have read the comments in the listing document as well as the article and your answers to Deprived questions. I couldn't find the answer anywhere. In fact, I feel like you are trying to avoid it. The question is extremely important - by answering it properly, you can show how deeply you understand Bitcoin economics. As a matter of fact, the reason why long position in most funds around here will cause losses is precisely because their managers can't answer the question or answer it wrong.

I wonder how happy Deprived is about your answers to his questions. For now, he remains the only person who seems to understand how things work.

From the contract:


This was hilarious, thank you.

The listing document, my earlier comments, and the 2000-word article left you unclear about my thinking on the topic; you still believe that the original question is straightforward; and now, apparently, you even believe that a "long term position" and a "long position" are interchangeable. You also suggest that I am now trying to avoid your question, and that had I merely taken the time for "answering it properly", I would have been able to prove to you how deeply I understand Bitcoin economics.

As I indicated in the listing document, I have no intention of attempting to prove anything to anyone. Given the superior grasp of Bitcoin economics which you have asserted for yourself, the most important question has been answered: you should not participate in the fund.

(Clearly you believe your grasp of Bitcoin economics must be far superior to my own, since I have already indicated why I do not find it straightforward to analyse the Bitcoin-demoninated NPV of a Bitcoin-denominated revenue stream from sunk cost mining hardware, as contrasted with either ongoing partial reinvestment in fiat-denominated mining hardware via a Bitcoin-denominated revenue stream or a new purchase of fiat-denominated hardware. Nor do I find the question even to be intelligible, let alone straightforward, in the absence of specifying the form and duration a "long term position" might take and how it might be hedged -- a net short position, a net long position, or some variant in between -- both with respect to the mining operation itself and with respect to the value of BTC versus fiat and, if such hedging were available more efficiently, with respect to difficulty.)

Glad to be of service, but I can't really take credit; it's paraphrased from comments levelled at other people by one of our rather colourful colleagues here on the forum...

Wow, I am really allergic to when people say what they think I think. Please, don't do that. There is no possible way you can have any idea and this will never change (certainly not from a couple of lines I've written in a foreign language). It will be much better if you stick with writing about things you DO understand, like, say, investment theory.

Yes, the listing document, your earlier comments, and the 2000-word article left me unclear about your thinking on the topic. You keep repeating what instruments you can use to avoid risks, you know what the risks are and you show good understanding of how investing works. You wrote little, however, about where things currently are in Bitcoin. You seem to have no idea where mining is heading and what the future will be. Your posts are very informational when it comes to topics related to investment, but the same cannot be said when it comes to current developments in Bitcoin.

I have no idea why you think that poking fun at others will win you an argument. I don't believe that a "long term position" and a "long position" are interchangeable - I made a mistake. Drawing conclusions from that would be dumb. I don't think my grasp of Bitcoin is superior to yours - then again, I am not starting a fund and I won't be risking money of anyone else but my own. I have been around for about the same time you have - and I know I am still missing a lot of things. You must have a superb learning curve if you think you are not.

Anyway, I am writing to this topic for a simple reason - your fund was the first one I briefly thought about investing in. I still might put in some coins in the hope that you will learn quickly. You do understand investment, but there is a lot you need to catch up with concerning Bitcoin and cryptocurrencies.


EDIT: I don't want to lose my money in a fund that invests in mining (which will almost always cause losses in the long run, unless they sell equipment to people who are even more dumb or have a huge technological edge). That's why I asked. I don't care too much about your hedges and derivatives as long as you are aware of that.

Nobody has to say what they think you think. We already know what you think, because you have told us explicitly and emphatically: you think that "The question was straightforward...".

As far as I can tell, the only way that what you have already told us you think can be true is that either 1) you are grossly mistaken about what a good answer to the question looks like, or 2) you are spot on that the answer to the question is straightforward, I am grossly mistaken, and therefore your grasp of the territory is vastly superior to my own. (For the avoidance of doubt, note the asymmetry. If you grasp the simplicity where I can't manage to find anything but complexity, then I must be clueless. By contrast, if you are mistaken in your grasp of simplicity, then that implies nothing about me: I could still be clueless.)


Absolutely correct. I can peruse historical graphs of difficulty, total network power, and BTC vs. USD, and I can also read prognostications about how many terashashes are about to hit the network; anybody can do those things, so if you're looking for me to restate the obvious, you've come to the wrong place. If you're looking for someone who knows what the future will be, you've also come to the wrong place. And if you're looking for me to offer you a step by step introduction to the risks of shorting Bitcoin to acquire fiat-denominated mining hardware, then once more you've come to the wrong place.


I have no idea how it is that you think I have poked fun at you, but for any misunderstanding I may have created that led you to infer that, I certainly do apologise.

In any case, I would strongly recommend that you do not participate in any fund where you believe the fund manager's grasp of the territory is so flawed and inadequate.


This is grossly mistaken. Let's assume for the sake of argument that taking a long position in mining is going to lose money; then, skipping over borrowing costs for the sake of simplicity, it is straightforward to make money -- not lose it -- by taking a short position in mining. Even if you had a perfectly functioning crystal ball telling you the future of mining, you cannot have any idea whatsoever whether a fund is going to win, lose, or break even on exposure to mining unless you know what kind of exposure it is.

You say that you don't care too much about hedges and derivatives, and you seem happy to ignore the difference between a long and a short position -- now sweeping the entire distinction under the carpet by switching to talk of investing in mining rather than the original topic, which was taking a position in mining. That provides one strategy for taking a complex topic and turning it into something "straightforward", but doing so moves the discussion far away from the realities of the Bitcoin economy, not to mention the fundamentals of investing.

EDIT: Updated with a parenthetical on asymmetry, lest I be accused again of poking fun at anyone.

Doctor, if you could invest as flawlessly as you can talk, I would put all my life earnings into your fund.:o) You are wrong that we would judge a good answer differently, the only difference is that I treat your answer as inadequate (and I'm sure you would treat mine the same way). There are other discussions on this forum on the topic, and I am sure we would probably find some that we would be both happy with (notably Deprived's ones). 

If there is a way of shorting mining, please, do share. If there is not, then any long term exposure to mining is inevitably gonna bring losses.

Fair enough.


There are multiple ways to short mining, either directly -- by borrowing shares (e.g., from someone who holds ASICMiner shares) and then selling them -- or synthetically, via options (e.g., buying put options on the underlying miner). More generally, however, "taking a position in mining" does not have to mean "taking a net long position with delta equal to 1". It might mean taking a short position, or it might mean taking a hedged long position, or anything in between. For example, many people buy exchange-traded shares of a high-yielding miner such as ASICMiner and immediately write calls against the position, yielding an overall position delta which is still positive but less than 1 -- potentially enabling themselves to net the dividend plus the option premium, and gaining a short-term hedge against a fall in the value of the underlying share. (Naturally, that only works if someone buys their calls, given the lack of market makers.)

Slightly related:
Jurov created difficulty futures on BTC-TC (ending 18th September (https://btct.co/security/CB.IDIFF-O)) and BitFunder (21st August (https://bitfunder.com/asset/CoinBr.iDiff-E), 18th September (https://bitfunder.com/asset/CoinBr.iDiff-O)), also available for shorting. Related threads are here (https://bitcointalk.org/index.php?topic=267947) and here (https://bitcointalk.org/index.php?topic=140608).

Thanks. I know about those. You can earn 5% in about a month on them (based on the current asks; and the probability of diff not reaching 100M in Sep is prolly very similar to those 5%). Not worth it as there are better and safer investment options. If you could short shares like AsicMiner, ActiveMining etc. that would be a whole different story.


Have you talked to people who were willing to lend you shares of these mining companies whose share price will drop? I will give you all my money if you can do that (sorry, I mean, Bitcoins).

There are no worthwhile put options right now that I am aware of.

We're now delving into company-specific details, which takes us pretty far afield from the general point I was offering; as of this writing, put options on ASICMiner are available at three different strike prices on BTCT.co alone. I cannot really comment on what would make them 'worthwhile' for anyone in particular, although I will say that in general, options premiums in the Bitcoin space seem to favour option writers.

And difficulty futures have been available for a relatively long time on ICBIT, although liquidity is nearly non-existent, unfortunately.

I don't think 5 days is enough for people to realize how horribly overpriced AM is (and it is on the cheaper side). Although the next 35% difficulty jump might provide a hint for some.


And they are trading at a reasonable price, unlike mining securities.

Congratz. The fund got approved at BTC-TC. One last thing: I hope you understand how careful you need to be with regards to security. Please, use 2FA everywhere and don't trade large amounts anywhere where this option is not available. Too many bots are browsing the internet in search of unprotected Bitcoins. Best of luck.

The fund was approved for listing on BTC-TC last night, so we can move forward with issuing shares at any time. However, the whole application process went very quickly and smoothly, and there is no particular urgency to getting the listing out the door, so what I'd like to do is leave the discussion open for another couple of days to allow any remaining questions to be answered and to give the exchange moderators extra time for any feedback they might like to offer.

I'll post again shortly with details of the specific date and time for getting started, but for now I'd like to thank everyone who has put time and effort into reading and evaluating the listing documents. Thank you also to those who have additionally provided feedback, both publicly and in private.

In order to keep the general discussion about the fund separate from the specifics of the initial offering, I've posted about the time, date, and mechanics of the offering in a separate thread:

https://bitcointalk.org/index.php?topic=272879.0

regarding excluded investments, is creating a separate "LTC-Growth" fund out of the question if not just incorporating a ltc denominated account into the existing BTC-Growth fund?

The fund is permitted to invest in businesses which are not listed on BTC-denominated exchanges, but given that our aim is capital growth denominated in Bitcoin, we would be looking for structures that enable us to reduce or eliminate exposure to exchange rate fluctuations.

A separate LTC-denominated fund wouldn't be out of the question, although we don't have any specific plans for one at the moment.

Separately, please note I'll be out of the office today, so any followups will be delayed until Thursday.

Haha, I like how you handled this in your FAQ,  these exact kinds of questions quickly derailed my fund offering as I wasn't prepared for them. I hope my High Frequency Trading fund IPO thread derailing served as a good case study in helping you form your FAQ

There have still been plenty of questions that I didn't anticipate in the FAQ, though; there might even need to be an expanded version of the FAQ when all is said and done...

I'll be looking for it, I will consider using it as a model for my next fund

Ok I am reading through the document.

Do you think that a 0% per annum of AUM and 25% of profits would be a better incentive than the typical 2/20 hedge fund system?

I find it interesting that you could be losing us money whilst still making 2% year over year.

EDIT: Also how many hours until you close the IPO? I am interested.

Many variations exist, and I'm sure other people would make the relevant judgement calls in different ways. Folks should not participate in the fund if they have any reservations whatsoever about its structure.


As I indicated in the thread about the mechanics of the IPO, I will review the listing Saturday morning UK time and will close the initial ask order if any shares remain at that time; I didn't specify an exact number of hours to go. The offering has now been open for over 28 hours, and it appears that the bulk of current demand for it has been met. As of this writing, 1230 of the initial 20,000 tranche remain.

People are beating around the bush. What they mean to ask is whether this tranche will sell out without new shares being placed for sale. The flippers are waiting.

It looks like 720 shares currently remain from the initial 20,000. I don't have any plans to release further tranches immediately in response to the first tranche selling out, should it do so. As outlined under the "Subscriptions and Redemptions" section, however, we may do so in the future, should the shares begin to trade at a premium to the most recently reported NAV.

Even though I have flipped stock before I am going to hold a small amount of this one. It seems like one of the more interesting investments. (minings IPOS are now a dime a dozen)

All sold  ;D

yes indeed. lets do this  ;)

Obviously I have no real sway in your decision making, and it's your fund so you are going to do what you think is best. However, given that you sold out  (less than) a day and a half, I think that one more round of funding would benefit everyone and would sell out relatively easily. You double your initial capital, and that in turn benefits investors. Just food for thought, good luck!

I appreciate your feedback, and you may be right that another round would find participants relatively quickly. For the time being, though, we're going to press ahead with deploying the capital, and we'll see how things look again in roughly one month's time. We can always release a further tranche down the road if there is demand; there's no hurry.

The price has been relatively stable since the shares sold out so the fund is probably the right size for now. I was a little slow getting some coins together and just missed getting shares at the IPO price but haven't had to pay too much of a premium to grab a few. Looking forward to the journey and learning something as well.

Yep. I was patient and got to add another investment at the IPO price last night. I too am glad to be on board and looking to see what we can learn from our involvement.

Some more shares below the IPO value at the mo. Too late for me :(

What do you mean "too late for you"?

Bought in as much as I wanted.

Oh ok. I get the feeling this stock is going to have a significant increase in value after the first NAV report. I get the very distinct impression Dr. Mulhauser knows how to work this market.

Sometimes, if the whole market is going down, it's hard to make a profit even for someone who knows how to work it. ;-)

I bought as much as I wanted, too. It is tempting to buy a little more, but I would like to see how the fund travels for a bit before committing further.

Sorry if this has been already asked, but is there a specific date for the first NAV report?

I haven't set a specific date yet, but I would expect it to be roughly 1 month after the fund kicked off.

Great, thanks for the swift answer.

How will NAV reporting be verifiable?

I would recommend that anyone interested in participating in the fund should first read through the listing documents provided at the exchange -- including the FAQ -- and perhaps also the earlier discussions in this thread, to get a better understanding of how we'll be reporting.

TL;DR ;-)

Short answer: He won't
Long answer:

That being said; Greg if I might suggest; it might be a good idea to have holdings verified every once in a while by a trusted third party? Otherwise you're making it very easy to run a Ponzi out of this..

You mean having an audit done by a third party? That would certainly boost investor confidence.

Greg, I know you said you will not give details about your investments, but the description is rather unclear about what specific investments would be used? What in the bitcoin world is available right now that you consider worthwhile for investing in?

At the risk of turning this into a circle jerk I think you are right. There is a large amount of blood that's going to be spilled over the next few weeks in mining securities, particularly from a well-known one. Many people are wanting to get off that particular bus, and they only have limited means of doing so.

Ironically I sold all my shares in that company to buy into this asset.

Potential participants who read through the full document and this forum thread will have already read my response to the Ponzi question, and they will also be aware that I have no interest whatsoever in trying out various schemes or suggestions to prop up confidence in a pseudonym. They will be aware that they are dealing with a real live person, with a real name and real accountability and real laws to follow. And they will be aware that as a UK limited company, we have a legal obligation to keep proper records and to submit accounting to the UK government, as we have been doing for more than a decade.

As indicated in the listing documents, I believe the opportunities are severely limited; but they're not entirely absent. Potential participants in the fund who need to know specific investment strategies in advance -- or need to know about them while they're still being executed -- should not participate in the fund and should probably steer well clear of hedge funds in general.

EDIT to more clarify my question.

Jeez Greg, you make it sound as if I haven't read the whole god damned document which I did.. I was just offering you a suggestion because a lot of people here (including myself) would like to see a bit more openness.. I'm not asking for your passport, I'm not asking you to disclose your full portfolio to the world. I'm hoping you will answer "me" this time instead. You sounded a bit condescending there.

Back to my question. As a UK limited company you will have to keep proper records of your profits (management fees) because you have to pay taxes on that. I refer to your own words in that matter:

From that quote I conclude that you have no obligation whatsoever to keep records of bitcoin denominated assets as long as you don't convert them to fiat. You will not have to report your bitcoin assets end of year. If you plan to do that nonetheless please let me know because those reports should be open to the public and would satisfy my initial question.

I appreciate the feedback.

You're welcome ;-)

I just updated my last post with a more concrete question. Can you take a look at that one?

Note on my feedback; I'm no native English speaker (Dutch) but I read your words as being very condescending. In Dutch if you refer to a third person like you did, it's considered quite offensive. I like to think that I'm quite good at English but I might have mistaken your answer there (if so please let me know).

Cheers,

I am a native English speaker. I have interpreted Dr Greg's comments as being somewhat formal but not impolite, consistent with what you'd expect from someone running a hedge fund. I guess you'd call it "maintaining a professional distance". My impression is he does not want to appear to be on intimate terms with any of his investors for fear of appearing partial (we'd be disappointed to find out he'd been dispensing hot tips to certain favored individuals, for example).

My 2 cents.

OK, I'll take your words for that then :)
@Greg, if that is the case, my well meant apologies for any harsh things I said. Never expected a language barrier in the English language ;)

Back on topic; can you elaborate a little more on what you said regarding the reporting you have to do for English taxes and deposition of records?

Correct me if I'm wrong, but your Ltd qualifies for Abbreviated Accounts (I think they call it that?), which do not need to be audited. (There's a 3.26M GBP limit there I believe?). This means you only have to report a short balance sheet and turnover is not even required?

Will the bitcoin assets you now hold in name of the Ltd be reported as Assets in your balance sheet? Or do you follow the same reasoning there that as long as they haven't been converted to fiat they don't have to be reported?

Thanks in advance,

I intended specifically to refer to more than one person; I intend whatever I write here to be of use to whoever happens along to read it. If any potential participants feel they need individual private consultation, this is not the place for it.


Your conclusion is not only erroneous, but grossly so. Basic accounting does not permit companies simply to whip up some profit statements out of thin air, unsupported by detailed records, including detailed records of assets, liabilities, and just about everything else.


Again, your conclusion is not only erroneous, but grossly so. (Not to put too fine a point on it, but we're now descending into the absurd: how do you imagine a company would even begin to report taxable income by reporting only a balance sheet? It's a rhetorical question: I am not looking for a reply.)

More generally, I hope that you and any other interested readers will appreciate that this thread was opened before the fund launched, specifically with the intention of providing a venue for anyone with an interest to ask questions, make suggestions, and evaluate for themselves what was being proposed. (And it certainly was not opened to provide an ongoing opportunity for tutorials on basic accounting or UK law.) I put a great deal of time and effort both into the preparation of the original listing document and into the discussions which took place on this thread before the fund launched.

However, the fund has now launched. As you will hopefully appreciate, that means I now have one or two things that are occupying my time with regard to actually managing the fund -- an activity which I consider altogether more pressing than investing yet more of my time here on the forum, re-hashing the same questions which were already discussed before the fund launched.

Re-hashing the same types of questions represents a direct subtraction from the time that I can spend actually managing the fund: it is, in a very real sense, a direct drag on the returns of the fund. I understand that since you are looking to launch a fund of your own, it would naturally be in your interest to occupy my time as much as possible with extended discussions about basic accounting and even your accusations that I am "making it very easy to run a Ponzi out of this". But I hope you will appreciate that my willingness to engage in this exercise is severely limited, and in my eyes this exercise is directly contrary to the interests of those of us who are actually participating in the fund -- including me.

Maybe my reluctance to take time away from fund management for re-hashing or for discussing basic accounting sheds some light on why my first response to many questions is going to have to be "RTFM" or even just simply to remind potential participants of what it already says in the listing documents: if the information which I have already spent a great deal of my time providing is in any way insufficient for your needs, then do not participate.

FWIW, I don't have a problem with this. Greg - go manage the fund, make us a profit and answer questions about fund performance once they come up. For those concerned about a ponzi, there's not enough at stake to risk jail time. As far as motivations go, I'd say that the 2% fees are also not worth Greg's time by themselves - Greg's clearly going after 20% of the gains. I'm fine with that, since that's why we're all here - looking for increased valuations.

Wow.. Wonder what stripykitteh makes of this..

Anyways, it is not my intention to take time away from your fund management at all, especially since I invest in your fund as well and wish all the best for your fund.

For some reason all my questions turn into conclusions and accusations once you quote them and the real questions remain unanswered to me so I'll just live with it ;)

It was and never will be my intention to do such a thing. Nothing I can say against it though, so I will stop "wasting" your precious time.

Lastly and for the record: I think you are running an honest fund here and I wish you all the best with it (and my btc ;)). This might come as a surprise but my questions all were meant to do good not harm.

All the best,

Nicely put, Sir.   ;)

SHOTS FIRED. Greg doesn't mess around, damn. Do your thing Greg, go forth and earn BTC!

I think everyone made the same of this: Greg didn't answer your questions because he doesn't care - he got his funds for playing already. I agree with you that some kind of supervision of what's going on in the fund would boost the confidence of investors greatly (there are now people willing to sell at a loss). Dr. got his funds just because he was articulate and sophisticated - but he doesn't need to prove anything to anyone as long as people in Bitcoinland are willing to buy that (risk of not knowing anything). And they were.

I think I am very much on the same page with you. I actually also think the fund can have profits (as long as it focuses on (intra-)day trading rather than actual investments). Unlike you, however, due to this lack of knowledge of what's going on in the fund, I decided to stay away for now.

You seem new to the idea of how hedge funds work - they don't disclose their holdings except when required by the SEC. I think you don't realize that you are exactly the kind of investor that Greg does not want - he doesn't want advice on how to trade or to be asked questions about what his holdings are.

We have invested in a fund that will be traded for profit. If there isn't any profit then it sucks to be us for the losses/opportunity cost and it sucks for Greg since he'll have wasted his time for little payback. I think that the wisest thing that you've done is to steer clear - this investment isn't for you, as it would seem many real world hedge funds aren't either.

Haha, almost as if Greg was talking himself. What I am missing here is the SEC (or any variation of it). I won't comment on the derogatory part of your reply. You can keep that style of communication between Dr. and yourself.

As some participants might be aware, up until a certain threshold fund size, the SEC does not require that hedge funds disclose their holdings or their trading activity; thus, analogies based on whether the SEC or some variant is present or "missing" don't seem to bear directly on the question of disclosure for a fund of this size. (Some participants will also be aware of academic studies suggesting that funds which do not disclose their trading activities tend to outperform otherwise comparable funds which do.)

More to the point, however, there is a reason why the listing documents include a Not-So-FAQ: it was in hopes of making some of these questions not so frequently asked. The bottom line is simple: if potential participants lack confidence or want the fund to become something other than it is so that they can feel confident, then they should not participate.

The SEC also doesn't allow non-qualified investors to invest in Hedge Funds either.

That's one of those "wink-wink" rules that the SEC puts in place to keep the good old boys' club intact... they claim it's to protect the retiree from losing it all in one swipe, but it's really about keeping the big money where the big money can watch over it.  The rules are written by the ones with the most to lose, after all.

Am I missing something DrGregMulhauser, or is there no place to check the balance sheet for your fund?

Please advise.

Have a look at Greg's post from August 29.

performance, then?

From the contract at BTCT:

We have no idea what he is investing in, so there is no way to estimate if it is doing well or not. Only Greg knows how the fund is doing, and so he can use his insider knowledge to make trades advantageous to himself just before releasing the monthly report (which we just have to believe him is accurate). Then, whoever sees the report first will be at an advantage to buy or sell at the best rate before the market catches up.

In a couple months we may be able to look back at the reports and see the types of things he invests in, and how well he performs vs the overall market. Until then it is basically gambling?

Think of it this way: just 20BTC will get you a full 1% stake in the fund (at least until he decides to allow another round of funding, but that's supposed to happen at the then-current NPV, so no harm to early adopters.) If you want to be able to take a chance at the first, real, publicly available pseudo-hedge-fund for BTC that is (presumably) professionally managed, this is your security.

If you don't, then it's not.

The next Pirateat40. Anyone who invests in this is going to get destroyed.

Possibly. Perhaps. It might even be likely - but it's a small pond still, and someone has to be the first one to come up with a security like this.

I can't prove that you're wrong but I would at least ask you to ask yourself why someone who has had an impressive career in academia, the professions and industry would 'do a' Pirateat40. Greg would be giving up a lot to do that.

On the face of it, I see very little in common with what Pirate was doing. But if Greg comes out next month with a statement saying "We had profits of 50%, probably going to do that again next month, and now we are selling another 10000000000 shares" then I guess you could start comparing them.

What impressive career in academia?  I only see a single paper from him on Google scholar, some new-agey gobbledygook about 'quantum minds' written in the 90s that isn't even formatted like a proper academic article.

I have friends in academia.  A quick Google search of their name and you can find dozens of paper's they've co-authored.

If he really had a successful academic career where are his published papers?

Of course he may not be doing a actual ponzi scheme.  He may just be a delusional idiot who will lose your money.

It seems a lot of the work he did was for a research lab or something (I have to look into it more), not available on Google Scholar. http://mulhauser.net/lib/research/

Even if I concede your point on academia, I think my argument still stands, unless you want to have a crack at the rest of it. Oh, I see you now just think he may be an idiot. Well, you're entitled to your opinion on that.

I'm not sure I want to wade into the crossfire here, but I feel obligated to point out that pirateat40 DID give up a lot in real life to pull off his scam. I believe he is now being hauled off to jail. Also, Bernie Madoff was very successful prior to his ill-fated ponzi scheme.

Interpret that however you like.

Yes, he did and he is. So much of this business is drawing inferences from incomplete information, a bit like poker. I have read as much as I can about the manager of this fund, and my own conclusion is that the chance that he intends to run a ponzi is low. I could be wrong, though. If I get information to the contrary I will reevaluate my hypothesis.

It's just like I used to think that AsicMiner was worth a lot more than I do now. The more I read, the more I thought about it, until I eventually decided I was wrong.

If you don't have academic papers published in journals, then you don't have an "Academic career".  Period.


Rest of what?  There's no evidence for any of this other then random websites I've never heard of, which he could have setup himself.



Yup. And like Madoff and Pirate he's probably thinking he'll actually make money with his "hedge fund" - and maybe he will. Or maybe he'll make a lot of money and keep most of it for himself. But the problem is this guy is a huckster, pretending to be some uber-smart "Professor Dr." when in reality he's just some ridiculous SEO faker (IMO - again, since I don't see an academic trail in places that they'd normally show up).


Like I said, Neither pirate nor Madoff ever intended to run a ponzi scheme.  They just got sucked in once they started lying about their profits.

False dichotomy. He may also be a smart guy who will lose your money, or he may be a smart guy who will make you a lot of money, or he may be an idiot who makes you a lot of money.

Pirate's scheme was a textbook high yield ponzi. It would be perfectly reasonable to think he planned it that way from the start.

Ultimately it comes down to trust. Anyone looking to invest in the largely unregulated world of bitcoin securities should do their own research and draw their own conclusions based on the information that is available.

I did a very small amount of google-fu and ran across his book published in 1998 on amazon:

http://www.amazon.com/exec/obidos/ASIN/0792351037/rzd6bv3v-20

So there's at least some of a trail and he is an extremely impressive "SEO faker" if he went out of his way to publish a large book in 1998 for the sake of SEO. Anyways, you either trust him or you don't. In truth, Ytterbium, you don't actually know whether he will lose money or not, you're ultimately just spreading FUD based on some poor investment decisions in the past and very little research. Don't invest if you dont want to, but dont act like you know for a fact anyone who invests will get "destroyed". Because you really don't.

Actually if you read the judgement, it looks like he planned on making money day-trading the coins, which he failed to do (the making money part, not the day trading.  He lost money doing that)


Anyone can get a book published. 

Anyway, based on his writings he seems like a someone who thinks he's a lot smarter then he is who will probably lose your money. Of course it is theoretically possible he might be a idiot who makes money despite himself, since it's quite easy to do in the bitcoin world.

Wow, Ytterbium. You've done a masterful job of lowering the tone of the conversation right down into the gutter.

If you'd like to invest as much time reading material that was actually written by me as you've invested in denigrating my character, I would welcome your input. And if you'd like to offer any substantive criticism -- for example, on any of the strategies I've discussed on Psychological Investor, or on anything else relevant to asset management -- then I'm sure that could go a long way toward restoring the conversation to a more civil and productive level.

However, if you envision your principal contribution as leveraging your anonymity in order to hurl abuse at me or at others, then I would encourage you to consider whether your efforts might be more welcome over in the section specifically dedicated to scam accusations.

I think I might be in love with you.

Can't wait the ~two weeks 'til the first monthly report!

Hahah. He really is not afraid to give trolls the business. No-nonsense type guy, I like it.

Psychological Investor?  You mean this site (http://www.alexa.com/siteinfo/psychologicalinvestor.com#trafficstats) with almost zero traffic? (an average of 1.6 visitors per day, according to Alexa.  It doesn't even rate on Quantcast)

And I have looked at your writing, or at least skimmed it.  Your investment articles appear to be re-heated banalities with six extra layers of pointless verbiage slathered on. Your "Academic" work on "Quantum mind theory" or whatever you call it looks to be on par with the Sokal hoax. Vapid "quantum" logorrhea with no real math whatsoever.


Have fun losing your money.

I think it's 1.6 pageviews/visitor, not 1.6 pageviews/day.

Oops, you're right.  It doesn't even list pageviews/day.  Probably because there aren't enough to register.  And only one site links in: cahella.com, which also gets no traffic and is apparently a hackernews outlet.

Sorry guys, there's no real evidence this guy has much of an "Academic" record to speak of, or anything else other then a handful of websites he probably setup himself.

I've stalked your posts on bitcointalk (it's a free country, eh) and I actually agree with most things you've written, so I am prepared to give your views consideration. You don't seem to be a pure troll.

OK, maybe I spoke too loosely when I said Dr Mulhauser had an "impressive" academic career. So what? You can read his resume and articles as well as I can. Does he sound like an idiot to you? He's pointed out a few things about bitcoin that I believe he was the first to elucidate, e.g., that what is missing from bitcoin exchanges is a means of taking any position, long or short, for different time horizons. There's an unmet need for hedging. That's one of the services he intends to offer. I agree that at some point there will be a company or companies successfully offering that service in bitcoin, and this looks like it has a good chance of being one of them.

You haven't really offered any reason why you think he is the next Pirateat40; if you've got any evidence though I'm all ears.

Couple things (please note, I'm not taking sides on the issue. I'm playing devil's advocate).

1. If you Google well enough, he has some legitimate publications. Here's the FWD of his book: http://link.springer.com/content/pdf/bfm%3A978-94-011-5104-7%2F1.pdf Springer is a legitimate academic press.

2. Here's someone who wrote an actual academic review of his book: http://www.theassc.org/files/assc/2495.pdf

3. He's not a professor (as far as I can tell). It's not uncommon for people who aren't professors yet who did a PhD to only have a few (sometimes if any) publications.

4. I do get a gimmicky vibe from his blogs, but that's mostly because they're new and don't have much of a following (yet?). You've got to start somewhere.

5. His public track-record via Google is light, and what there is seems to be more focused on psychology/therapy/philosophy.

6. @ Greg: Bitcoin users have a healthy dose of skepticism and conspiratorial thoughts from its rich history scamming, so heat over credibility and identity comes with the territory.

7. @ Greg: If you do want to lend yourself some more credibility, you might consider posting a more formatted CV and list your publications (ideally with direct links to grab them).

When is this fund going into action??? It's worth hasn't moved much for sh*t since it was made available.

Fund went live 2-3 weeks ago. The reason the price hasn't moved is because it's not due to report for another couple of weeks.

Well, I think his "academic" work on "Quantum mind theory" is rather...  It seems like the kind of thing that someone would write if they thought they were a lot smarter then they actually were.  It doesn't seem like stuff that requires super-genius to come up with at all.  His investing articles are fairly quotidian.


Well, if his plan was simply to make money by writing on a large pool of capital by writing lots of puts and calls and getting people to buy them then you could conceivably make money before other people moved into the market and swamped you out.  But there aren't very many investors on these exchanges and most probably don't even know how options work, so there might not be much volume. If you could actually get people to buy your options you might make some money.   But he's not saying "I'm going to create liquidity for options by writing puts and calls and collecting the fees", he's saying he'll take investments and not tell you what he's doing with the money.

Although it's interesting that that's somewhat similar to what Bernie Madoff claimed to have been doing.



IDK, just seems scammy to me. Like xCrowd did. Plus the whole sales pitch of "I'm super smart so give me your money and don't ask questions, I'll totally make money for you" I'm not seeing enough evidence of super-smartness.

Fact is we'll all see if this is what everyone think it is in a few weeks. Just get your popcorn, folks.

I think the problem here is that the monthly report schedule seems very slow in bitcoin time.

- ASICMiner pays dividends once a week.
- Coinlenders pays interest once a day.
- Just-Dice shows investors' balances to 8 decimals, in real time. 

Some bitcoin investors simply may not have the attention spans for an investment like this.

Haha the beauty of Bitcoin is the diversity. I agree with you too.

I think that a long term investment such as this would be good for bitcoin, maybe get some people used to slowing down a little.

I mentioned the site for those who might like to take a moment to read and understand something I'd written there. In your case, unfortunately, you've passed up the opportunity for substantive engagement in favour of criticising the traffic levels of a new site that's barely 4 months old and contains just a couple dozen articles. And no, not everything in life is an SEO project with success measured in the millions of page views; sometimes I just like to write. I make no apologies for that, to you or to anyone else.

As for some earlier personal insults about SEO, yes, I have a little background in that. "Greg's High Performance SEO" isn't the most popular WordPress plugin in the world, but enough people have found it helpful to their work to have downloaded it a couple of hundred thousand times.


Wow, yet more demonstrations of a really convincing determination to avoid anything of substance...

Anyone who takes the time to read and understand anything I have written on the topic -- including picking up my book if they feel the need for "real math" -- will immediately comprehend that my 1990s-era work on quantum decoherence was specifically aimed at debunking quantum theories of mind. Only someone either hell-bent on hurling personal insults or determined to avoid anything deeper than "skimming" could believe that I have anything whatsoever to do with quantum theories of mind, except to debunk them.


Now it seems to me you're just being offsensive. To the best of my recollection, the only person who has sought to comment on my intelligence at all, in any way, is you -- and you have now done so repeatedly. You have either disingenuously or grossly ignorantly misrepresented my writing on quantum decoherence, you have strung together a few words and phrases about puts and calls without delivering much in the way of actual meaning (and certainly without offering any meaningful engagement with anything I have written), and you have steadfastly refused to offer anything at all of substance or even to do more than "skim" the relevant material I have provided -- apparently preferring instead just to twirl around and spray insults in all directions, in the hope that something will stick.

For my part, I have much better things to do with my time, and it leaves me feeling dirty and grimy even engaging with another human being at this level of conversation.

I would suggest again that for the benefit of those of us who would like to carry on more meaningful and less grossly disrespectful conversations, you might consider setting up your own thread elsewhere for your accusations, rather than continuing to pollute this one.

Ouch.

I was planning to wait for the first report prior to investing, but this guy talks mostly perty good! ^^^ :P

You know, you actually seem quite insecure about your own intelligence. Clinging to the "Doctor" title so much you put it in your forum handle. I know people who have PhDs in mathematics and computer science, and they never refer to themselves as "Dr." - it reads as more then a little desperate.

The fact that you've had an apparent adverse emotional reaction to someone pointing out your less then stellar academic record further indicates your insecurity about your actual academic abilities and record.

I don't want people to get scammed and lose all their money. I also don't want people to lose all their money by investing with charlatans. I don't think it's "trolling" to pose questions about a fund manager asking for other people's money, especially when they're not even willing to tell people what they're going to do with it. To me, you appear to be presenting yourself as someone who's more successful then they actually are. That presentation seems fundamentally dishonest to me.

If people want to trust you, that's obviously they're choice. But there's nothing wrong with pointing out problems and concerns people should have.

If that bothers you, well, that's just too bad.


Well, have fun with that - I guess.

Ok give it a rest man, everyone understands your position. you think it seems scammy, you think he isn't smart, and you think he should identify himself but he shouldn't share the fact that he has a doctorate. Thank you for being a concerned bitcoin community member, but please just give it a rest now.

Wow. Honestly, I have no skin in the game nor do I really care, but I must say your losing credibility by the second. You clearly avoid addressing the rational counter points he makes and instead choose to attack some ethereal insecurity that you only see because you've ignored the substance of his post.

If you want to call him a scammer go do a background check, do some digging on whois see if he is a fraud or has a history of some nonsense. If this is an elaborate scam this guy is clearly a pro and would have done something like this before. Or maybe, actually read his work and not make incomplete judgments about his work. You're not even good at calling him a scammer.

FWIW, the insecurity you cling so desperately is not even insecurity; it's frustration. It goes without saying that people should question the mans intellect, but you are doing so like a child. If you came with reasonable points, quotes from his book, links to direct content of his papers and pointed out reasonable things we wouldn't be having this conversation. Instead, you throw rocks in the air and hope it lands in the right place. Just poor investigative anti-scammer tactics that are doing more harm then good. Worst part is, now you're trying to make it look like you know what you're doing. And you don't.

*shrug* I don't have any skin in the game either.  If people really want to invest with this guy, that's obviously their choice. It's obviously not going to be my problem if they do.

I'm also not really sure what the substantive points were supposed to be. I'm not going to spend a bunch of time reading and critiquing his papers about "quantum mind theory", (even if they are attempts to disprove it, they would still be pretty pointless to read).  I didn't see any particular insight in his other papers that would indicate any kind of exceptional trading skill.

If that upsets people, that's too bad I guess. *shrug*

Obviously we will see who was right in the long run.

The horse you ran on was half founded on the idea that his work with quantum of theory of mind was a joke:


Then comes this gem from him, which you ignored:

So there goes your number 2 argument. Your number one argument was against the "success" of his academic criteria, a label not given to him by himself, but a random passerby:


Now if you look at the Dr.'s (yes, I'm gonna say that just because I can, with no valence attached to the signifier) original post nowhere does he say that he had a "successful" or otherwise impressive career. He just states it as such:



...and directs you to check out his sites. Now, want to prove he is a phony or a scammer, prove something up there is a fallacy.

Then you go say this


Who said his academic career was his strongest asset for trading? Read his work experience again, see that bit about derivitive strategies and portfolio management? See where I'm going with this?

To be clear: what upset people is not the accusation as such, but the fact that you were pulling shit out of your ass and then when it got real you ignored the substance and just kept throwing baseless personal insults. Get real mate, this is real life real consequences your words have weight. Think before you do.

disclaimer: i have not invested, nor do i know if this is a scam or not. i just know a bad accusation when i see one. they deserve polarization just like a true scammer does. it's like girl who cried rape but wasn't really raped. it leaves a stain.

That's nice.  Feel free to read it and tell us all why it's so groundbreaking.


Okay then. If you want to invest with a "Worthy of managing money until proven guilty of fraud" attitude more power too you.     I'm not a prosecutor trying to get a conviction in a court of law, I'm simply sharing my opinion that I think this guy strikes me as fishy.  You don't have to agree with it or like it, nor do I need to care how you feel about it.

Really? This will be my last post on the subject because I'm over this, but because you just did to me what you have been doing to him all along I think this deserves some love.

Again, no one said groundbreaking. I was just pointing out that you were COMPLETELY wrong about what the book was even about to begin with. Like you thought the exact opposite was true. I was just pointing it out.


Lol where are you coming up with this stuff? All I said is that if you're gonna call someone a scammer at least have some real proof. Your spidey sense ain't gonna cut it mate, especially when you are throwing around misinformation.

This is just the beginning of the first wave of many DIY fund managers that may or may not succeed; proof will be in the pudding as you say. I'm sure there are many out there who can do plenty with this kind of funding and less 'real world' experience.

Is he a scammer? IMO the jury is still out, you certainly proved nothing though.

I'm not saying he is certainly a scammer.  I'm saying he comes across as suspicious to me.  I don't need any standard of evidence to share my opinion, and if you want to ignore it you are free to do so.

You can even click ignore if my posts bother you.  As I said, it's not my problem if you lose money.

Why don't you call him Ytt? If he can swing your staunch attitude with a phone call, maybe you'd be more at ease?

Please don't. I have no interest in trying to swing anyone's attitude about anything, and I have no intention of spending time on phone-based hand-holding to help anyone feel more at ease.

As I have indicated previously, the detailed documentation which I have already provided reflects a tremendous amount of my personal time and effort, and it is incumbent upon potential participants to read and evaluate what I have already spent that time and effort providing. If potential participants find that this material is in any way insufficient, then they should not phone me to ask for still more personal attention, they should simply make the decision not to participate.

The first monthly report for BTC Growth will be published in summary form on BTC-TC and in both summary and detailed form on the fund's discussion thread on Monday 16 September at 1 pm UK time. For reference, this is 8 am in New York and 8 pm in Beijing.

For more information on the fund itself, please see the listing documents:

https://btct.co/security/BTC-GROWTH

Can we have some indication regarding your inclination to current investment options? How do you feel about the current mining options? How do you feel about alt currencies and similar (payment systems, etc.)? What are some current attractive investments? Do you have some basic understanding of how the Bitcoin protocol even works?
Seems bizarre to issue more than 1m USD worth of shares, without having any history in Bitcoin or giving any indication about how you intend to invest. I may have missed a post where you explain this, but I couldn't find any of this kind of information in the listing documents.

He answered the majority of those questions in the prospectus and in this thread already. He didn't issue more than $1m USD worth of shares... it's around $200,000 worth. Not really sure where you got that number from. Do your own due diligence no one is going to do it for you.

There is around $240,000 worth of shares outstanding, yes, but the btct page includes some intention to issue 1000000 shares, unless he inputted that number with no purpose.

Regardless of the number, where did he "answer the majority of those questions in the prospectus and in this thread already"?
I've read through the thread and prospectus and do not see any information of the type I specified. Would be happy if you could point it out :)

Are you sure you've read through it? Cause he specifies that he was doing the IPO in tranches of 20,000. He felt that the first 20,000 shares was sufficient and he's leaving it at that. The 1,000,000 shares is just placed there, it doesn't mean anything.

He isn't going to tell you "attractive" investments, he is keeping his investment strategy private he isn't going to give you "hot" tips for your personal investment.

He isn't messing with mining (you used the term "options", I'm not sure if you mean actual options trading or just choices of mining stocks) either way, he isn't investing in mining companies.

He also discussed investing in non-BTC investments but would focus the majority of his investments in BTC, since that's the point of the fund.

Congrats on reaching 2000 BTC, Greg. That's fairly serious money. Good luck.

It's not 1m USD, but rather 12 500 000 USD issued shares value and around 250 000 USD worth for the outstanding shares at around 125 at gox at the moment.
Was around 15 000 000 /300 000 USD a few days ago with price around 150 USD/coin and probably around 10 000 000/200 000 USD worth at the time the first batch was sold if BTC was at 100 USD then.

"Outstanding 20001 / 1000000 Issued"

A high number of issued shares is more to give the asset issuer more/unlimited room to sell shares in the future even thou he/she may not ever intend to actually issue the full amount of shares, if he would have set a limit of 40 000 or 100 000 issued and the fund would go good and he wanted to expand in the future that would have meant trouble, he would then have had to start a BTC-GROWTH2 or something then...

Have fun throwing your money away, people.

Also, go read the 1262 posts I've made here before you criticize me. Apparently you're not supposed to criticize anyone in this thread until you've read everything they've ever written.

The way he handled your criticism helped sell me.

Has 1pm UK time come and gone? Do I have the right day?

Report will be released on "Monday 16 September at 1 pm UK time". It's Tuesday 10th September today.

Ok I'm sorry, its early in the morning here.  Read it wrong.  Thank you for pointing that out.

Who wants to start guessing what the report next week will say? How much profit/loss for the first month?

I am going to make a wild guess and say the report will show a profit of 5% ;D

It's more fun to guess what the share price will do in response to the report. BTC-investors tend to react very strongly to news, rumours and random fear-mongering. I expect that whatever the monthly report says, there will be a strongly amplified initial reaction visible in the share price (at least initially, it may settle at a value that better reflects the performance of the fund after a while).

Right. If my guess is correct that the report says profit is 5%, the price will rise over 50% (or 500%), and then slowly settle downwards toward the IPO price. And anybody who bought at the height will loudly complain about how this fund is losing them money.

Doubt it.  Unless I misunderstand his intentions totally, shortly after publishing reports he'll place Asks slightly above NAV/U and Bids slightly below it.  Even if he doesn't place orders he'll be filling orders.  So market price will be kept stable for a period after the report.

Funds which can issue (effectively) unlimited paper should never be trading far from NAV/U.

The only interesting movement is likely to be BEFORE the report if people strongly believe he will have made or lost anything significant.  But I  think most who bought this realise it's designed for investment not speculation (i.e. the price tied hard to NAV/U) so will just and wait and see.

5% (your guess) would be pretty impressive given that the month started with zero actually invested.  Getting significant(ish) BTC invested at all (without moving prices) takes a while to do.  Though I guess he could have made a few % just by dumping it into J-D and pulling from there gradually to move into actual intended investments.

When you use the notation "U", is that number of shares?

Yes, it stands for "unit", so NAV/U is Net Asset Value per Unit.

Ok thanks

But he is only going to place the bids/asks for a few days after the report comes out, then the market is free to do whatever it wants. And I suspect there are people who will miss out on the monthly buying opportunity and will push up the price after he removes his ask wall.

Over time, it will also be interesting to see how big the bid/ask walls are. If the fund shows strong growth over an extended period, there will be plenty of investors wanting in. However, like Deprived pointed out it takes time to invest a lot of BTC. The bigger you get, the harder it is to maintain returns (the pool of suitable investments shrinks).

I would agree that larger investments will have fewer arbitrage/trading opportunities through straightforward public trading opportunities. However, larger private investments open up other opportunities that aren't available to smaller funds. As an example, we know that private investors bought into IceDrill at lower costs than the .0014 IPO available to the general public. Yes, I know that Greg has said he's steering clear of mining - it's just an example. It all depends upon timing, connections and the creativity of the fund manager, but there are advantages to having a large sum of BTC to invest.

Theres also scope to influence the market with a bigger stack of coins.

AND who knows what he has done as far as providing options trading to the community. That may be a significant source of growth for the fund.

Fair point, I forgot about that.

You losing your money isn't my problem.

Reading your old posts is not going to prove anything. Past performance is not proof of future success; I've looked through and you seem totally sensible, most of your scam accusations have substance and are welcome. Unfortunately the only thing you've really brought to the table this time is your spidey sense and claims that he doesn't know what he is doing (which, if it wasn't clear, hasn't stopped anyone). You continue to post, however, despite the fact that you said you would stop and that we have all heard you loud and clear.

When did I say I would stop?  The only thing I see is that I said people could ignore me if they chose.

ah yep you're right.

Indeed he is and he's provided a convincing argument for me to put him on ignore, which is unfortunate. He's provided useful information on other threads - not sure why he wants to crap up this one.

You can always ignore someone in one thread and then unignore them when you see them in another.

Haha, I love guessing. :D As Deprived mentioned, 5% would actually be very nice considering the size of the fund. I have similar experience - I do occasional trades for my friend who's lent me some money to play with, and I always earn more on his account than on my own (relatively) - simply because there's significantly less money and it's easier to move it around. The fund's size is bigger still, so it will be even more difficult (although the manager probably spends a lot more time on it than I do, so it's possible to meaningfully invest the capital).

The true test though will be the comparison with Just-Dice. While I don't remember what their profit was a month ago; if their luck had been 100% (I think it was a bit higher), their profit would have been ~3,4% (assuming 170k wagered and 50k in the bank; sorry for the estimates) for the month.

EDIT: their real profit was ~1800 BTC (thank you Deprived for keeping the score!), but average bank might have been a bit higher (than 50k) too, so 3,4% monthly profit is a good guess.

I give BTC-Growth a 2,5% estimated appreciation. If it is anything over 4%, the manager is a boss, beating a casino.

Over time BTC-GROWTH would want to return higher than J-D as it lacks the liquidity, simplicity and transparency of that investment. In the short-term of course I imagine returns could be way higher or lower.

It looks that nobody will sell me shares below the IPO price anymore, so now I can post links to the articles from Dr. Greg that convinced me to buy some shares:
http://psychologicalinvestor.com/lib/real-markets/bitcoin-derivatives-liquidity-counterparty-risk-134/
http://psychologicalinvestor.com/lib/real-markets/lose-money-bitcoin-unhedged-short-174/
http://psychologicalinvestor.com/lib/real-markets/asymmetric-risk-145/

Also he did a good prediction about Tesla and Apple stocks:
http://psychologicalinvestor.com/lib/real-markets/tesla-earnings-surprise-put-profit-181/
http://psychologicalinvestor.com/lib/real-markets/avoiding-apple-overreaction-166/

Wow, someone bought in at 7,1% mark-up last night.

Executive Summary

During the month from the fund's initial offering on 15 August to 14 September, net asset value after fees increased from 0.0998 BTC per share (i.e., .1 BTC per share at the offering, net of the exchange's 0.2% transaction fee) to 0.1012 BTC per share. This represents an increase during the month of 1.403%, or 18.20% on an annual basis.

Gains in equity derivatives and forex derivatives offset losses in equities, while a backdrop of debt delivered less volatile returns. As a new fund, the cost of moving from cash to new positions with sometimes exorbitant bid/ask spreads was significant, creating immediate losses -- relative to market bids -- which in some cases approached high single digits in percentage terms.

The fund's initial allocation of capital ensured that no single entity held more than approximately 30% of the total, achieving sufficient diversification that even the complete failure of an entire exchange or an entire asset would have left the vast majority of our capital safe and untouched by such an event.

Context and Environment

During the period, the predominant trend in Bitcoin-denominated 'equities' -- a term which, for convenience, I'll treat as including revenue sharing operations -- was negative, with the most striking exceptions being would-be mining companies that engage in little or no actual mining. Market participants willing to speculate on individual 'faithware' companies -- i.e., those which aspire to become mining companies one day -- and willing to concentrate capital in a small number of such speculative positions, would clearly have outperformed the fund's losses in equities.

The predmoninant move in BTC vs. USD, by contrast, was positive, while volatility remained subdued for nearly the first three weeks. The fund's position was not optimal with respect to volatility, but being delta positive relative to BTC vs. USD enabled it to benefit from the directional move nonetheless. Market participants taking entirely unhedged long positions in BTC vs. USD, especially during the first part of the month, would have outperformed the fund in this area.

Listed debt showed no such sustained directional moves, and the fund benefited from its higher weighting in debt than in equity.

Liquidity and open interest remained anaemic in both equity options and forex futures; with respect to the latter, during much of the month, our own positions represented 5% or more of all open interest in the contracts in which the fund was active. (And as I have argued elsewhere, the Bitcoin economy still lacks a credible and cost effective forex options market, as distinct from a forex futures market; forex options would have made the fund's operations significantly more efficient and straightforward.) The fund's ability to execute otherwise viable strategies using derivatives was significantly constrained by the low liquidity, especially in equity options, as well as by repeated platform failures on our home exchange, which compromised the timeliness of option re-pricing. In addition, the exchange's requirement that put writing be covered 100% by actual cash means that writing such options at all -- even if they are never purchased, let alone exercised -- creates significant opportunity cost by preventing the capital from being deployed elsewhere.

(The 100% cash requirement contrasts sharply with much lower standardized margin requirements familiar in the fiat world. Among other differences, no bona fide market exists for Bitcoin-denominated equity options, and market makers are entirely absent. Therefore, an investor who is short in-the-money puts cannot, except in artificial examples, simply close the position. Instead, they remain on the hook for the full exercise, even if much of the required capital can be immediately recovered by liquidating the shares.)

During the period, the fund's initial allocation of capital ensured that no single entity or platform -- including individual exchanges -- held more than approximately 30% of the fund's total. This is signficant not only from the perspective of reducing counterparty risk and company-specific risk, but also from the perspective of mitigating impact from the types of platform failures mentioned above. During the entire period from when we began logging platform failures on 17 August to 14 September, there were only 6 individual days on which we didn't log at least one outright failure or other anomolous behaviour by at least one of the platforms we used. The most common such failures were CloudFlare error 524 and BTC-TC's "Access Temporarily Denied" message. (With regard to the latter, it seems a stretch to suggest that such frequent failures are solely a result of correctly functioning defenses such as packet filtering or rate-limiting measures.)

A platform problem of my own, in the shape of my primary work computer's abrupt hardware failure on the afternoon of 9 September, compromised my personal efficiency during the entirety of the week. Thanks to redundant backup strategies, data loss was never an issue, but the job of diagnosing, replacing, and re-configuring, all while working from two older and less capable backup machines, came at a distinctly inconvenient time.

Finally, fund participants should note that entering any new position at all in a listed asset entails either waiting a potentially very long time for suitable market sell orders or absorbing the sometimes exorbitant cost implicit in the bid/ask spread. As a new fund, therefore, it should not be surprising that we have conceded non-trivial amounts of capital to the spread simply as a result of entering positions at all.

For the purposes of calculating net asset value, individual positions have been marked to market using either the 7-day trading average where platforms provide this information directly, or the instantaneous market value where they do not.

Individual Securities

The fund has been active across around a dozen platforms and many different businesses, but as illustrative examples I will offer some thoughts on two specifically, with a view to highlighting a little of the fund's general approach.

ASICMiner

Without entering into meta-arguments about the sustainability of Bitcoin mining or the wisdom of investing in it -- topics which I have addressed elsewhere and which many others have addressed at greater length and in greater detail -- the fund does have some exposure to ASICMiner, a security which attracts broad interest and which in passthrough form offers sufficient liquidity to support meaningful and profitable derivatives strategies. Primarily for the purpose of applying simple derivatives strategies on BTC-TC, the fund began establishing a position in ASICMiner shortly before the share price corrected severely in the second half of August.

The timing resulted in an immediate and negative hit to the value of the fund's position.

However, while the overall position is relatively small, the results of the fund's follow-up action are illustrative. Thanks to healthy option premiums, 6 of the fund's shares were sold at net prices above the market at the time, while 16 shares were purchased at net prices below the market -- providing a cost basis as low as 1.2 BTC each, compared to a market price at the time of around twice that. (Notably, such low net entry points are outliers, due more to inefficiencies in the market than to anything exotic in terms of the structure of our strategies.)

As I have suggested previously, "investing in mining" need not be a black and white, do-or-don't issue; nor is it either a guaranteed way to print free money or a guaranteed way to destroy shareholder value.

Ukyo.Loan

During the month, the fund acquired roughly 11.6% of all outstanding units of Ukyo.Loan (https://bitfunder.com/asset/Ukyo.Loan), making it the second largest holder of the loan as of this writing.

Ukyo.Loan, issued by the owner and operator of the BitFunder exchange, is a peculiar creature. Unlike a normal bond, it was not offered at a discount to face value, to be redeemed at that face value upon maturity at a specific date, and with the interest rate therefore set implicitly by the price at which it trades. (In this sense, the loan is similar to other 'bonds' in the Bitcoin world.) Instead, its 'face value' serves two purposes and two purposes only:

• Interest, paid in the form of dividends, is guaranteed to be at least .05% of face value per day.
• Units can be redeemed for face value on demand.

The loan is also described explicitly as being "Similar to Graet.Loan", but it differs in two very significant ways. First, the interest paid indirectly reflects the success of the BitFunder exchange itself, with the Ukyo.Loan specifically described as a sort of roundabout investment in the exchange and the description further indicating that "Additional dividends provided when the site does well". Therefore, while the interest rate never drops below .05% of face value per day, it can climb significantly above that rate. Second, while the units can be redeemed for face value on demand -- a fact which effectively places a floor on the price at which units should trade -- any buybacks must, according to the contract, occur at "110% of the last 30 days average market price".

The combination of these two facts suggests that Ukyo.Loan should trade so as to reflect the market's aggregate estimation of its risk-adjusted return. Unlike Graet.Loan and other similar loans, there is no overhanging threat that units will be bought back at face value, so there is no mechanism in place to force units of the loan to trade near that value. On the contrary, those willing to hold the Ukyo.Loan (and not looking for a quick exit via sale to another party) appear to be essentially guaranteed to break even or make a profit when buying at any price below 110% of face value, since they cannot be forcibly bought out at anything less than 110% of a 30-day trailing average that should never cross below face value. (Trading below face value would offer 'free money' arbitrage via immediate redemption at face value, so while it might occasionally happen, the probability of a 30-day trailing average below face value should be negligible.)

Given the absence of any cap on the unit price created by the threat of a forced buyback at face value, those who are willing to hold Ukyo.Loan at a price of .01 BTC per share for .05% daily yield relative to face value should, other things being equal, be willing to hold it at twice that price in return for twice the yield -- a price of .02 BTC per share for .1% daily yield relative to face value.

(ADDENDUM TO THE ORIGINAL: For anyone who either accidentally or intentionally would like to interpret the previous sentence as implying or suggesting, in any way, shape or form, that I somehow believe that other things are equal, I am making no such suggestion. I am, on the contrary, illustrating how normal bonds trade in the real world. And in the real world, we can assume that other things are not equal when yields change; that is why bond prices change so as to bring the risk adjusted return of a bond in line with the risk adjusted returns of other comparable assets. That is also why higher yields typically correlate with lower quality offerings: issuers of lower quality, higher risk paper must pay higher yields in order to counterbalance their higher risk.)

Yet historically, the price of units of Ukyo.Loan has barely responded to radical changes in yield. From inception (19 July) to 1 September inclusive, by which time the bulk of the fund's purchases had been completed, the loan paid out the equivalent of 10 days of dividends at its normal rate, then 11 days at 150% of its normal rate, then 20 days at 200% of the normal rate, then 4 days at the normal rate. (The loan continued to pay out at its normal rate from the beginning of September to this writing.) Despite the fact that the yield climbed to 200% of the guaranteed rate for a sustained period of 20 consecutive days, the price per unit barely budged during that time, trading at no more than 20% above face value. (Up until 11 August, it traded largely at or very occasionally below face value.) For reference, paying 20% above face value reduces the effective return of the loan from approximately 18% per annum to approximately 15% per annum, or from approximately 36% per annum -- when it is paying 200% of its guaranteed rate -- to 30%.

As far as I can tell, the most plausible justifications for such extreme discounting of potentially above-guarantee returns as reflected in the unit price of Ukyo.Loan are along the following lines:

• Potential holders believe BitFunder is doomed, and therefore future returns from the loan will not benefit significantly from its success.
• Potential holders believe Ukyo is extremely untrustworthy or is extremely likely either to alter the loan contract unilaterally to the detriment of creditors or to breach the terms of the contract altogether. (Note that such ex post facto unilateral contract modifications are permitted by BitFunder.)
• Potential holders are so strongly wedded to the 'get out clause' provided by face value redemption on demand that they will not pay anything for higher yield that is not accompanied by a higher guaranteed redemption price.
• Potential holders have not fully attended to the difference between the buyback provision for Ukyo.Loan and the analogous provisions of related loans which rarely deviate significantly from face value.

As for the first two, I personally have no idea whether BitFunder is doomed, and I have no idea whether Ukyo is so untrustworthy as to effect a radical and unilateral change to the contract to the detriment of those holding the loan. However, to the extent that either of these types of explanations plays a role in current pricing of Ukyo.Loan, I believe the market's pricing reflects a degree of skepticism about BitFunder and/or about Ukyo's trustworthiness that is unsupported by publicly available evidence. As for the second two, it seems likely to me that any influence from factors like these is apt to decrease over time.

The upshot is that Ukyo.Loan appears to me to be mispriced, and I believe there is a worthwhile probability that this mispricing will be corrected over a time horizon relevant to the success of the fund.

Liquidity Facility and Subscriptions/Redemptions

As many participants will be aware, the fund's initial offering of 20,000 shares on 15 August was entirely subscribed in less than 30 hours. Immediately following the initial offering, the fund traded as high as a 7% premium to NAV, but the fund refrained from interfering with the market's natural pricing activity and provided no further liquidity either on the bid or ask side. (As described in the listing documents, the fund may optionally provide additional liquidity when bids or asks fall significantly below or above NAV, respectively.) Some days later, after the initial flurry of activity had settled, the fund did offer limited additional liquidity above NAV, but just one additional share was issued before other market participants stepped in and enhanced liquidity.

Subsequent to this report, the fund may make additional shares available for a time somewhat above NAV.

Note that without interference or 'management' of the spread in any way, the market has already set a difference between bids and asks for the fund which frequently ranges from less than 1% to a bit over 2%, with the spread widening somewhat during the days immediately prior to this report. For the avoidance of doubt, I have no intention of turning the routine maintenance of a wider and less favourable spread into an ongoing profit engine for the fund. The reality is that although wide spread market making by funds' own managers can create the appearance of a performance boost that may appeal to the casual onlooker, in fact it represents an indirect trading tax on fund participants, a tax taken directly out of participants' pockets when buying, when selling, or both. This practice is designed to subsidise early and ongoing shareholders' returns on paper by taxing newer shareholders' and departing shareholders' trading activity. It has nothing at all to do with real fund performance. After all, a trained monkey can generate 12% 'gains' per year simply by skewering participants with a 5% bid/ask trading tax on a monthly churn of only 20% of a fund's total capitalisation; double the spread or the monthly churn, and presto, easy 24% annual 'gains'. It's remarkable that this practice survives at all in a community which is otherwise justifiably hypervigilant about schemes designed to pay early investors using money extracted from later ones.

Finally, a few individuals considering relatively large positions in the fund have been in touch, and I have discussed with them the option of direct share transfers. Since it benefits the fund not to have to pay transaction fees on new share subscriptions, potential participants considering positions in the fund of 5000 shares or larger are welcome to get in touch with me about arranging direct transfers, internal to the exchange. Note that as with any other new share issuance, this facility will only be made available during a period immediately following publication of the fund's latest NAV. (It has, therefore, not been made available to anyone prior to this report.)

Reporting Schedule

I believe it would be useful to synchronise fund reporting with calendar months, rather than with anniversaries of the fund's initial offering date which, as luck would have it, fell squarely in the middle of a calendar month. Therefore, I'm considering extending the next reporting period so as to cover thru the end of October, rather than thru the middle of October. Unless or until any public announcement is made about synchronising the next reporting date, however, it is safe to assume that it will continue to fall on an approximately monthly cycle and will therefore next occur around mid-October.

Trust Ratings

As I mentioned in the fund's listing documents, I have no particular interest in amassing trust ratings for a pseudonymous WOT account. However, if participants in the fund feel it is appropriate to do so, I would invite them to consider leaving trust feedback for my forum account, not as a reflection of positive or negative fund performance, but rather as an indication of how they regard the trustworthiness of my management of the fund. (It is virtually certain that the NAV of the fund will go down as well as up, but hopefully variation in fund performance need not imply variation in trustworthiness!)

Good job with ASICminer, I am pleased with the results.

1.403% - That's great considering the market and other funds here.

I'm pleased by the Ukyo.Loan position - I'm holding some myself because of the 110% clause.

Have to say I disagree with this part of your analysis, largely because all other things are NOT equal.

The first point to consider is that, if the price were to rise to somewhere near .02, then it's highly unlikely Ukyo has liquid assets to perform a buy-back based on that price.  If he HAD liquid assets able to pay out over twice the face value of the loans then it's unlikely he'd have needed the loan in the first place.

The second point to consider is that if he needs to do a buy-back then the first stage before that would be the shrinking of dividends to their guaranteed minimum which would, in any event, cause the price to fall back to current levels anyway.  It's not hard for an asset issuer to cause a price drop by releasing bad news.

The third point is that he is entirely capable of flooding the market in new bonds which, especially if couple with news that the dividend would likely only be the minimum going forward could guarantee the price collapsing back to near IPO.

The fourth point is that if the price inflates then you immediately lose guaranteed liquidity at or near that price.

And the fifth point (and the kicker) is the consideration of why would you pay .02 for something with liquidity only guaranteed (with a delay) at .01 when you could obtain higher expected returns (albeit with much higher variance) investing in J-D where the capital backing is obvious and liquidity at full price 'paid' is guaranteed.

At .01 or slightly over Ukyo.loan is a good investment so long as you believe Ukyo has sufficient assets/is trustworthy (and most of us already use bitfunder so are fine with that).  At .02 it would be absolutely horrible in both return and (especially) liquidity compared to alternatives.

I agree with Deprived.

The reason the price did not go up much when Ukyo was paying the higher dividend is that nobody knows when the dividend will change. There is no way to predict the future dividend amount, so people buy assuming that the dividend will usually be at the lowest possible value.

Obviously: other things are not equal. That's why it was phrased as a conditional: if...then.  :)

For everything that follows, I cannot escape the feeling that you're looking for an argument and have chosen to argue with a whole slew of suppositions that are not my own and which have little if anything to do with what I have actually written.

Is it possible that you simply read 110% as 200% all the way through? I say that because all throughout what follows, you seem to be magnetically attracted to .02 (i.e., 200%), while I am discussing 110% (i.e., .011)...


I have no idea whether Ukyo has sufficient liquid assets to buy back at twice face value, but I think you're missing the entire point that when other things are equal, this is how real bonds trade out there in the real world: bond price goes up to bring yield down to an appropriately risk adjusted level.

By citing risk as a factor which is not equal, you're not somehow backing up your disagreement with my conclusion, you're merely ignoring the remainder of the analysis.


(I'm assuming that Ukyo is rational and that no rational market participant would issue inflated dividends right before buying back a loan at 110% of face value; I didn't think that needed pointing out.)

However, the logic of your argument is spurious, because it assumes the consequent in the conditional: if he needs...back to current levels. What is at issue here is exactly what would make for a rational current level; if you already assume that the current level is rational, then there's no need to make an argument to that effect.


Suppose the price collapsed back to near IPO. Then forcibly buying back shares would occur at 110%.

Remember what I actually said, as distinct from what you seem to be incredibly keen to argue about (and I get that as a bond issuer yourself, you have a strong vested interest in this matter):


You get that, right? We're not arguing about whether anybody should actually buy Ukyo.Loan at twice face value -- or, at least, I'm not. (Maybe you are?) The relevant number here is 110%, not 200%.


Remember what I actually said:


You get that, right? 110% of face value, not 200% of face value? And we're not talking about liquidity at 200% of face value...


Wow, now we're really moving far beyond the other things being equal proviso. If you're keen to argue about something I was not saying, why not just compare it to investing in all other possible investments, rather than merely J-D?


Here again, I can't avoid the feeling that you're taking advantage of the opportunity to create an argument with someone else's views than my own.

Yes, your suggestion that "people buy assuming that the dividend will usually be at the lowest possible value" falls under the very first candidate explanation I suggested:


In other words, when people assume the dividend will be at the lowest possible value, they are assigning a very high discount rate to future returns that are specifically due to BitFunder's success. Of course they should assign a discount rate of some kind, because future returns due to BitFunder's success are entirely unknown. My point is that the discount rate which has been implicitly assigned -- if this putative explanation in terms of people's assumptions about the dividend is correct -- is, in my view, higher than it ought to be, given publicly available information.

*popcorn time*

Seems to be some misunderstanding here.

You said :


My point was simply that all other things are NOT equal - i.e. there's a big difference between it trading at double face value with .01% daily yields and it trading at face value with .05% yields (the most obvious such difference being the price at which guaranteed liquidity is provided relative to the market price).

I was not trying to argue that the bonds are currently overvalued (I don't believe they are) nor was I disputing that the difference in buyback terms makes them better value than alternative bonds (it definitely adds value).

I was pointing out that any analysis/comment based on "all other things being equal" where, rather obviously, all other things are NOT equal is a waste of virtual ink.  Further, it could be read as an attempt to persuade others to drive the price up given that you didn't then go on to explain how the logic doesn't actually apply in practice.

Saying "If X is true then Y" isn't a lot of use unless you also comment on whether X is true.  In the absence of any such comments the obvious conclusion is that you believe (or want readers to believe) X to be true.

Of course other things are not equal, and nowhere in the rest of the analysis do I make any suggestion whatsoever that they are equal, that they should be equal, that I wish they were equal, or that I would like other people to believe that they are equal. Nowhere in the rest of the analysis do I even return to the 200% idea.

I was simply illustrating what it means for bond prices to specify the market's risk adjusted perception of returns. I could have used a factor of 1000% instead of a factor of 200% to make exactly the same point, and it would make no difference whatsoever to the rest of the analysis.

Why would I want to make the point at all? Because the Bitcoin community has a whole bunch of things floating around called 'bonds', and most of them have very little to do with how real bonds operate. (By analogy, the Bitcoin community also has a whole bunch of things floating around called 'futures', and most of them have very little to do with how real futures operate.)

For folks who already understand exactly how bonds normally trade, they can skip over my sentence about price versus yield entirely and move on to the actual point of the analysis -- which is the suggestion that trading at anything less than 110% appears to be guaranteed safe due to the structure of the offering. Or, just for kicks, they could choose to nitpick that sentence, steadfastly refuse to engage with the actual substance of the analysis, and engage in a little ad hominem insinuation.


There was no logic, and there was no analysis or comment that was in any way "based on 'all other things being equal'". There was an illustration of how real bonds trade, nothing more and nothing less.

Can you understand how it might strike some folks as being just a teensy bit disingenuous for you to argue as if to suggest that I am simply ignorant of the fact that other things are not equal -- all while tenaciously ignoring the central point of the entire analysis, which is the 110% argument?


OK, more than a teensy bit disingenuous.

If you read as far as the four candidate explanations I offered as to why market participants might apply such extreme discounting of future yields, you will find that I am assuming that other things are not equal and questioning the degree to which extreme discounting might be justified by those candidate explanations. As I mentioned in my reply to Peter Lambert, obviously market participants will assign a discount rate to future returns from the loan. I am not suggesting that market participants should not apply any discount rate at all, I am suggesting that the discount rate which is implicit in the loan's pricing is higher than ought to be inferred from publicly available information.

I have now edited the report to include the following explicit addendum:


Hopefully that will remove any room for misinterpretation.  ???

BitFunder being doomed to failure is not the same as expecting dividends to generally remain low, since there is not a direct correlation between Ukyo.Loan and the success of BitFunder. If BitFunder does poorly, then Ukyo.Loan will pay the minimum dividend. If BitFunder does well Ukyo.Loan may pay a higher dividend, but there is no guarantee.

I'm guessing we're probably using the word 'correlation' in different ways... To my mind, correlation does not need to be 100% in order to be correlation (even "direct" correlation).

But semantics aside, the underlying principal is the same: I am merely suggesting that if this has anything at all to do with the market's pricing of Ukyo.Loan (and in fact I suspect it has little to do with it -- see below), then the market is discounting the potential future returns at a higher rate than seems to me to be justified by publicly available evidence. The publicly available evidence suggests that Ukyo.Loan has, more often than not, paid out at above the guaranteed rate; the publicly available evidence suggests that BitFunder itself continues to generate significant trading volume and significant commissions; the publicly available evidence suggests that the sentence "Additional dividends provided when the site does well" has accurately reflected Ukyo's intentions and behaviour.

As to why I suspect this all has little to do with the market's pricing of Ukyo.Loan, my interpretation of others' comments on the loan suggests to me that market participants are far more concerned about the 'get out free' clause of the contract -- i.e., redemption at face value -- than about the buyback provision which ensures they will not be bought out at less than 110% of face value. My sense is that many market participants are much more keen to chase yield via the latest promiseware companies than to accept a lower potential return in exchange for a lower probability of losing large amounts of cash; those yield-sensitive participants are likely under-represented in the shareholder base of Ukyo.Loan, which is likely more populated with safety-minded participants entirely disinclined to chase yield.

http://images.wikia.com/random-ness/images/3/34/Michael_Jackson_popcorn.gif

BATTLE OF THE MENTAL GIANTS

Selling so low below NAV/U... that's a new one around here...

I'd certainly agree that a large portion of market participants chase promiseware/vaporware taking on massive risk in return for speculative profits.  But don't assume everyone interested in redemption falls into that boat.  I'm very interested in redemption values but stay well clear of all the wannabe ASIC-manufacturers/massive mining companies (with no hardware yet).  That's because the yield on bonds such as Ukyo (or all the others - including my own) don't appeal to me as a long-term prospect, only as a short to medium-term resting place whilst waiting for much more profitable opportunities.  Those opportunities are rare - but not SO rare that I'm willing to take a large hit whenever one arises.  If the redemption was immediately available via the market then I may be more interested - but with Ukyo frequently not around for a few days the potential hit taken when wanting cash out fast becomes even more significant.  Were J-D (with near immediate cash-out and visible capital backing) not available then I'd also tend to value bonds such this higher.

I'm pretty confident a significant portion of holders of Ukyo.loan are relatively safety-minded AND have a strong interest in having access to redemption at near the price they paid.  Those two factors are actually complementary not opposed to one another - being able to get your cash back out quickly without major loss is a big factor when assessing safety in the BTC environment (though the promise of it doesn't, historically, mean the facility will actually exist if things go wrong).  And as such participants will always sell to the market when they want cash back (if market is above face value + site fees) and won't buy significantly above face value it acts to ensure the bid side won't accumulate significant volume much above face value.

Part of the problem is that the way these 'bonds' are structured (and I include my own in this, obviously) makes valuation much harder than with traditionally structured bonds (where there's an exact value for them defined at a predetermined date).  Variable dividends and a buyback price based on a low-liquidity market make this one even harder to value than others.

Um...yes... We're saying the same thing, except that you're suggesting I'm assuming something I am not, and you're suggesting I am seeing an opposition where I am not. (Why would I think, let alone assume, that those interested in redemption are interested in chasing yield? Why would I think being safety-minded is in any way opposed to wanting easy redemption? I'm not following...) Compare:


In other words, I'm suggesting the primary shareholder base of Ukyo.Loan is disinclined to chase yield (i.e., not ones for "taking on massive risk in return for speculative profits" in your words); those safety-minded participants are more concerned about redemption at face value (i.e., "have a strong interest in having access to redemption" in your words).

So again, there's no "assumption" here, and there's no being "opposed to one another" rather than being "actually complementary". On the contrary, you've nicely restated my own words...


Just so. Moreover, many are presented, either explicitly or implicitly, as perpetual loans, as if the intention is only to service the debt but never actually to repay it. Folks can get all hung up on interest rates without paying nearly as much attention to the eventual return of principal.

I'm one of those offering something meeting your description - where there's no apparent intent or deadline for repayment.  I can't speak for others offering similar things but in my case the issue was more a practical thing than related to my intent.

I'd FAR prefer to have the bonds issued with fixed maturity dates - as that would allow me to reduce as well as increase debt (and, more usefully, reduce the rate paid).  But I ended up issuing perpetual paper because of a combination of the following:

1.  There was no way provided on the exchanges to do a partial buyback (rightly so) so to avoid having to buyback everything at once I'd need to issue a bunch of different bonds with different maturity dates.  The listing fee (5 BTC per listing) compared to the total amount of debt issued makes this unfeasible.
2.  There was no simple way for participants to rollover from one issue to another (assuming I was renewing a batch of debt) without either them having to temporarily tie up double the capital they intend to OR me having to refund all even when I know the new issue will be fully subscribed.

In fact, for future debt (if/when I look to take on more) I intend to move to a more traditional bond structure with fixed maturity dates as I believe those likely to deliver better value for me and more transparency/clearer valuations for investors.  But the solution I've arrived at wasn't available to me back when I initially issued bonds (or even when I more recently sold LTC-ATF.B2) but does solve the especially problematic point 2 above (avoiding either party having to needlessly make liquid and briefly tie up cash where both parties intend to renew the debt).

As an issuer I disliked 'perpetual' bonds - not because I don't have to buyback, but because I can't (at face value) when I want to.

Getting back to your report I'd like to comment on this:


I'm quoting it not because I disagree with it but because I believe it bears repeating.  A fund such as this (where there's no practical limit on units issued) should absolutely trade very close to NAV/U.  About the only practice worse than redemption at a lot below NAV/U (and selling at a lot above it) is the opposite which some funds have in the past indulged in - placing bids on their own units at ABOVE NAV/U to try to force the market up and/or selling below NAV/U to increase capital (some funds have managed to do both).

It's refreshing to see someone trying to grow NAV/U by trading/investment rather than by gouging new/departing investors.

Do you actually have specific percentages (relative to NAV/U) at which you intend to buy/sell (after publication of reports)?

Yep, I hear you -- in this particular context it makes much more sense than in some other contexts, where the rationale which you've set out doesn't fly quite so well.


Yep, I hear you there too; I wonder whether any or all of the exchanges have considered lower listing fees for this sort of thing? That could benefit everyone by enabling new listings from established issuers to appear (along with trading volume) that would otherwise not be cost effective and which would thus not generate listing fees anyway.


A great recipe for implosion...


I'm still getting a sense of how the market behaves, and experience from observing one listed asset doesn't seem to yield much of anything that can be applied to others. Some have ludicrous spreads, some are quite tight; and in at least one case I observed directly, individuals have been so keen to take new positions that they'd rather buy at market than buy a mispriced call and immediately exercise it for a lower total cost -- go figure. I wouldn't have expected this fund to trade at a 7% premium immediately after launch, but nor would I expect it currently to be trading at a 1% discount to NAV. Hopefully as things settle down, as participants have a moment to digest things, and as participants' expectations converge with what can be realistically achieved for a reasonable level of risk, we can get a better sense of when it makes sense to soak up excess shares or provide new ones.

I've suggested special fee structures for different types of securities to Havelock. They seem somewhat open to the logic of it, but some convincing may still be required...

BTC-TC has already done this.  If a business has traded profitably for 6 months+ (note to all the vapourware companies - trading profitably isn't same thing as pumping your market price) then they can make additional listings for free.  As my fund has traded for a nearly year and paid back 300% of initial price in dividends (and has a NAV/U that's 600%+ of initial price) I no longer have to pay for new listings (if they're owned by the fund - for ones where I'm personally the issuer, such as DMS, full listing price has to be paid).

That solves my issue #1 going forward - the solution to my issue #2 (allowing rollovers without anyone stumping up cash temporarily) is solvable with the automated transfer bot I use and a little bit of planning (it could be done manually but that's a prohibitive amount of work).

On the listing without fees on BTC-TC the waiver of fee also applies to businesses that have traded profitably for 6 months without being listed anywhere - they just need to prove they've been making a profit (which is maybe not as easy as it sounds, in fairness).  What's not clear is whether a BTC-denominated business that made a profit in USD but not in BTC is considered profitable (which is where the better mining companies fall).  I (and I'd expect you) would say no - if it's listed as BTC-denominated then it has to make a BTC-denominated profit to be considered profitable.

Yes, breaking it down by security type could be another useful approach -- where debt issuance, for example, might incur a lower fee than equity. What I was envisioning in the back of my mind was more along the lines of lower fees associated with assets somehow associated with the same entity -- for example, different debt series, or different PTs.

In your case, for example, I've had the sense that you might be considering moving into an underwriting type of role; if that were to happen, then I could imagine an exchange offering you a reduced-cost way of bringing new listings to market, some of which might otherwise not have happened at all.


In some cases, this type of 'grandfathering' in based upon past performance could have unintended and negative side effects on quality as the effects of past accidents dissipate into mediocrity and reversion to the mean.

For a real world example, one of my own decently performing investments in the fiat world has delivered around 14,000%, and just a single quarterly dividend payment is now nearly enough to return the whole initial cost. But such numbers are entirely irrelevant to the question of whether that investment is still a good investment, right now or whether it's now just going to muddle along. What really matters is what is happening with the current value of that investment over relevant timescales -- and not merely whether some past event led it to grow in a way which has not been repeated. Were my portfolio made entirely of investments which have done well in the past, its current performance would be substantially worse than it is now.

My point is just that incentivising issuance on the basis of performance over a single window of time might not necessarily be in the interests of the exchanges.


I imagine this will cut out a huge swath of the types of not yet profitable startup businesses which might be of greatest interest to market participants attracted to Bitcoin-denominated exchanges in the first place, not to mention those at a stage of development where they're most likely to want to tap the capital markets in the first place. But it's a start!

Aaaaand ponzi.

This is a common and expected practice. Look at BTC-INVEST, BTC-EQTY, LTC.ATF, DMS.PURCHASE or other funds.
Would you suggest selling additional shares below NAV/U instead?

Yeah - no fund can realistically sell/redeem actually AT NAV.  There's transaction costs and time involved plus also all new capital is by definition cash that isn't deployed and isn't earning.  Without some small markup on new sales, existing investors suffer a penalty whenever there's new investments due to the proportion of their own investment which is in play reducing.  The margin also needs to be sufficient to protect against active traders exploiting moves in underlying investments that take the NAV/U outside the range of the fund's own orders (as an example, DMS has some funds in Just-Dice.  If my spread on PURCHASE were too low then people could buy/sell it as appropriate when J-D's house profits moved a relatively small amount - taking money away from those actually using the security how it was intended.)

The million-dollar question is whether a fund is selling (and redeeming) at a level of premium to NAV/U which is commensurate to the costs/risks of sales/redemptions or at levels which are effectively a tax on sales/redemptions and/or a major source of profit.

Sale of new units is not, of itself, either an indicator of being a Ponzi or an indicator of NOT being a Ponzi - as both Ponzis and legitimate investments do it.

disingenuous?
...
hm
ok
just want to follow :D

This was probably the first (it's highly unlikely for me to spot a mistake) and last time (I won't do it again. I promise!) to correct an eloquent native English speaker.

Nice work Greg, I always like reading your business strategies/explanations on things; very informing and entertaining.  And I mean that in the best way possible!

Was hoping to sell a few shares after the first report, but since the fund has no dividends and is fairly new there's a plague of idiots on BTCTC that want to sell out at a slight loss below IPO price  :-\

Whoops! Corrected now in the original. My 'u' key apparently doesn't like to be uused twice in the same word.


It does seem peculiar... Hopefully over time, however, as participants in the fund come and go, the shareholder base will come to be populated primarily with participants whose expectations and whose attitudes toward risk match up with the strategy of the fund. Participants won't be looking to the fund to provide "the next big thing" but will instead look to it as a way of gaining hedged exposure to promising growth stories while avoiding at least some of the risks of going "all in" on a single asset that could wipe them out in one fell swoop.

Not asking for investment advice or an opinion.  But here is an asset for your consideration.

https://btct.co/security/TAT.NEOBEE
http://lmb-holdings.com/LMB_Holdings_Prospectus.pdf

One of the 'plague of idiots' here. I can't speak for anyone else but I do understand the difference between a fund that pays dividends and one that doesn't. That wasn't my reason for selling. I sold some of my BTC-GROWTH at a small loss to take advantage of buying another security that I believed was very cheap. As BTC-GROWTH isn't very liquid on the bid side it's not easy to move out of, but because of the margin I had in what I bought it was still worth it.

I suspect that others have been liquidating BTC-GROWTH to day-trade LABCOIN over the last few days (I'm not one of them; that game is too rich for my blood). I suspect when that drama resolves itself one way or the other people will start moving back into BTC-GROWTH.

If all goes well and BTC-GROWTH books consistent profits I expect it will trade well North of its NAV/U. But you'll always lose something trying to move out of an asset that is not all that liquid.

What is your plan concerning closing BTCT, DrGreg?

Executive Summary

In light of the pending closure of the BTC-TC exchange, and the immediate and negative impact which Burnside's announcement has had on listed assets across the board, we are releasing an interim report on the current state of the fund and our options going forward.

Taking a snapshot of our current holdings across all platforms, and estimating values on BTC-TC using bid values current as of this writing, the fund's NAV has fallen to .0812 BTC per share, a decrease of 19.731%.

We are currently evaluating ways forward. As of this moment, closure of the fund -- with the option to re-open it in future on another exchange -- appears to be the leading candidate, but if another exchange should step in very quickly to provide a clear plan for picking up the pieces of BTC-TC, that assessment could change.

Exchange Closure, Options and Risks

I was just on my way to BTCT.co to post a notice that we'd be publishing our next report early, on 1 October, so as to bring our reporting in line with calendar months, when I saw Burnside's notice about shutting down the site. During the brief seconds I have been able to access the site reliably, before it failed again, it has been apparent that assets have been hammered across the board.

The shutdown does not appear to me to have been organised or planned particularly well from the standpoint of an orderly winding down of operations, and it is likely that when the dust has settled, the fund's NAV will take a significant hit.

It is too early to say for certain whether it will make sense for another exchange to step in and pick up the pieces again, but it appears we'll have three options, none of which is especially attractive:

• move the entire fund management infrastructure to another exchange
• close the fund entirely via the exchange's forced buyback procedure, with an option to re-open again on another exchange at a later time
• run the fund manually

The last option -- running the fund manually -- is not something I'm prepared to do for a fund of this size.

The first option -- moving the fund to another exchange -- would likely introduce significant delays and limitations on liquidity until such time as the new structure was up and running, but it would provide the benefit of keeping things running.

Closing the fund entirely and using the exchange's forced buyback procedure would provide participants with the greatest liquidity and flexibility, but at the risk of having to trust BTC-TC long enough to hold all our coins safely and execute the buyback reliably.

Of the three, I believe that as of this moment -- without having yet had any word from other exchanges about efforts to step in and pick up the pieces -- the option of closing the fund entirely for the time being would best serve the interests of participants. If we move forward with this option, I believe it should done relatively swiftly, to guard against the risk of the exchange's problems becoming any worse than they already are and compromising its ability to effect a buyback reliably.

If another exchange should step in very quickly to provide a clear plan to move forward, that assessment could change.

Fund Performance -- Abbreviated -- and NAV

Ukyo.Loan and Related Debt

IMPORTANT: This section ("Ukyo.Loan and Related Debt") was written yesterday in preparation for a report in one week's time, but I include it here in unmodified form because it still applies.

Many participants will have seen that since our last report, the Ukyo.Loan's notice about extra dividends connected with the success of the BitFunder site has been removed.

Nonetheless, it remains among the most credible of such loans. There is at least some indication not only of how the loan can be serviced (e.g., what source of BTC-denominated income is covering the interest) but also of significant assets to offset the loan liability (namely, the exchange itself). This stands in sharp contrast to some loan/debt opportunities offering little or no indication of how income is generated to service the loan or how/whether it will ultimately be repaid. The loan also continues to offer a 110% buyback provision, and in terms of effective interest rate, it is superior to all comparable listed debt except for Graet.Loan, which trades closer to face value and therefore has a higher effective interest rate (despite carrying the same base .05% daily rate).

The CipherMine.B1 bond is not directly comparable, as its effective interest rate fluctuates due to an unhedged peg to fiat; notably, it is also 'secured' on a wasting asset (mining hardware), and unanswered questions remain about the issuer's understanding of the seniority of debt relative to equity and its willingness to honour that seniority. It may ultimately prove to offer great total returns, but it is not directly comparable.

Finally, Just-Dice is among the most talked about opportunities available in the Bitcoin space. Much has been said about the mathematics of the 1% house edge, but generally speaking many market participants still appear to focus most attention on expected return -- with less attention to variance -- and continue to treat Just-Dice as if it were the perfect example of a transparent, low risk, high yield investment. As of 22 September, the site had managed to lose all of its entire profit that had been generated since its inception in June, and it went into the red. That does not necessarily make lending to the bankroll a poor investment, but it does demonstrate the power of variance over expected return, and the potentially overpowering influence of a comparatively few 'whales' in the mix. The fund has lost significant capital due to lending to the Just-Dice bankroll, but we are in that position with eyes wide open and an awareness of inherent weaknesses of the model; we are not at all counting on it to be some sort of fairy godmother of 'safe' returns.

BTC Trading/LTC Global Passthrough

Yes, seriously -- our report next week was going to include a whole section about the fundamentals and risks of the company, together with the bizarre trading dynamics of the passthrough. I've deleted all that.

BTC-TC Assets

As of this writing, our assets held on BTC-TC appear to have been hammered. Going by the current bid values, the BTC-TRADING-PT is now effectively worthless, and our fortunately tiny holdings of the CipherMine.B1 bond are also very close to worthless. (The fund traded profitably in this bond earlier in its history, but our holdings are currently just 111 shares.)

Other assets have taken a hit ranging from a few percentage points to a little over 40%.

Net Asset Value

Taking a snapshot of our current holdings across all platforms, and estimating values on BTC-TC using, again, bid values current as of this writing, the fund's NAV has fallen to .0812 BTC per share, a decrease of 19.731%.

Note that this figure is liable to change, perhaps significantly, as the fallout from the exchange's closure becomes more clear. I am putting a specific number on it right now so that participants in the fund know exactly where they stand in terms of the underlying assets of the fund.

This figure includes at face value 7 BTC of debt which is due to be repaid over a 90-day term. If the fund is closed via buyback prior to that time, I will personally take over this debt from the fund at face value.

Closing now is pretty bad option as I expect prices get back to normal if things get handled properly or someone buys btctc.

Lol, you didn't see the writing on the wall when they paid $10k in legal bills and demanded an emergency exit address from users? Awesome "analysis" dude.

Personally I would like you to keep the fund running, either on BTCT if it gets sold, or on Havelock or Bitfunder.
I have a fair amount invested with you, and to see such a lose through no fault from you, then closing this asset seems to be quite unwise.

BTCT should return to normality once Burnside comes to an arrangement of some sort

I would prefer the first option:

Forced buyback at current NAV/U could harm investors more than necessary.

Agree

I agree that a swift forced buyback is probably the worst option. Bids are slowly stabilizing and recovering on BTCT, at least for those assets that have operators that are considered trustworthy and that are generally expected to handle the situation properly (such as liquidation with minimal losses or transfer of shares to a different exchange).

I think it would be best for the fund to wait for the issuers of the assets that it has invested in to report their contingency plans.

As several folks have spoken up in favour of not closing the fund, I'd just like to clarify my thinking on currently ranking a fund closure at the top of the list of options.

First, note that I have specifically said that this thinking will change if another exchange steps up to the plate with a credible plan for supporting the continuing operation of assets skewered by BTC-TC. Participants should be asbolutely clear about this: depending on the underlying reasons for the closure of BTC-TC, it is entirely possible that no other exchange will be able to take over BTC-TC assets; nobody yet knows the answer to this question. If no other exchange offers a credible plan, it is not possible to continue with the fund anyway.

In terms of risk to capital, there are only two realistic scenarios to consider:

1) The BTC-TC closure is an isolated event, all listed assets on both BTC-TC and LitecoinGlobal find new homes, and asset values return to something approaching what they were before the closure.

2) The BTC-TC closure is not an isolated event, some listed assets on both BTC-TC and LitecoinGlobal do not find new homes, and asset values do not return to something approaching what they were before the closure.

My own assessment is that number 2 is more likely than number 1: I believe this will have significant knock-on effects across the Bitcoin asset market. To be sure, I don't think the Bitcoin asset market is going to dry up and blow away -- of course not -- but I do think it's going to take some time to digest this event, and in the interim there is significant risk of further capital loss associated with simply waiting it out.

Moreover, suppose for the sake of argument that the fund had already closed (as Deprived has already done with one of his assets, for example). If participants are returned control of their own capital, then they are free to choose exactly what to do with it: if participants would like to dive back into BTC-TC and scoop up some cut-rate assets while waiting for scenario number 1 to materialize, then they can do so. And if other participants do not wish to wait, and they believe that scenario number 2 is more likely, then they can handle their capital appropriately.

The upshot is that by prioritising the option of fund closure -- again, in the absence of a credible plan from another exchange to support the continued operation of BTC-TC assets -- I am aiming to return control to participants, and I am putting a floor on the capital loss which could actually become worse, depending on whether BTC-TC shows any improvement in terms of how it handles the closure. The exchange's handling of the closure so far has not exactly been a paragon of consideration for the interests of market participants.

There's a few pretty big differences between my fund and yours - which made closure of mine a no-brainer decision:

1.  It was denominated in LTC.  Nowhere else runs a credible LTC-denominated security exchange.
2.  The fund had a lot of capital raised via bonds (approximately half of gross assets managed).  It was not palatable to consider continuing to pay interest on bonds during a move - with uncertainty of what would exist anyway.
3.  LTC-ATF was pretty much entirely a trading fund rather than investment with most of its value as cash at all times.
4.  It had run for a year making very significant profits.  With me owning over half the fund, the fund itself had enough cash to clear all bonds and pay everyone out at last NAV/U (other than myself).  With the profit I'd personally made I was fine with taking the loss on what actual non-cash assets there were.  I've personally made 1k-2K BTC from my own investment in LTC-ATF - counting in reinvestment of profits that I cashed out - so was fine taking a 25-100 BTC loss now to get it all closed out quickly with the minimum of hassle for myself.

So there's pretty significant reasons why the course I've taken with LTC-ATF isn't necessarily the best one for you.

There is a third option you could consider - somewhere in between the two you listed.  That's to dividend out now whatever you have in cash and continue with the other assets.  That gives flexibility to investors with what portion of their investment IS immediately realisable without significant loss - but keeps your options open with what to do with the rest.  Of course that has the disadvantage for you that you have to continue doing the work - but that's unavoidable to some extent anyway.

I (it was LTC-ATF - but now it's me personally) hold some of your shares (was trying to trade the spread) so I do actually have some interest in what happens here.

Yes, of course they're very different beasts. My point was just that your participants now have their capital back, and they can exercise their own judgement as to how best to allocate it going forward. Participants in BTC-GROWTH do not have their capital back, and therefore they have no discretion over how to allocate their capital.

However, I think the point probably needs to be made again: continuing with the fund is only an option if there is an exchange ready with a plan to take over the management infrastructure hole left behind by BTC-TC. I am not going to run the fund manually, handling share transfers via email, friedcat-style.

The only real question, then, is how long to wait for clarity on the availability of another exchange platform. I don't like to speculate, but if I imagine myself in the shoes of Burnside, Ukyo, Lightbox, etc., I imagine that I would be putting something out within the next couple of days to indicate whether they will be coordinating to provide a path forward for those listed on BTC-TC. If that happens, it will be a very different landscape than if the only alternatives are to close or to run the fund manually.

(The third option you mentioned addresses the question of returning capital, but it leaves that underlying problem of management infrastructure still waiting for an answer.)


And vice versa. I really appreciate the certainty of seeing the capital sent out so quickly.

Valueing everything at bid price is a bad way to do things at the moment. Burnsides just wiped the order book, so naturally the bids are very sparse. Let things settle a little bit, move this to Havelock or BitFunder and carry on as normal. You went to great lengths saying the money was spread among various platforms, lets see if that strategy works as well you said it would.

It's exactly the right thing to do at the moment, because that -- and only that -- provides an indication of the fund's liquid net value. When some assets are likely to be wiped out entirely (BTC-TRADING-PT, for example), nobody cares what the 7-day moving average or 30-day moving average might be.

I took the time to release a special interim report immediately so that participants could have quantitative facts in front of them, right now, telling them exactly where we stand. Will things change over the next few hours and days? Of course they will, and hopefully for the better -- but that doesn't make it "a bad way to do things" to have given the specific, quantitative information as quickly as humanly possible.


There's no need to wait and see: of course it "worked" to the extent that the vast majority of the fund's capital is immune to BTC-TC's closure.

Dude. You are awesome.

OK, I see your point, it is the only meaningful observable data to assign a number to the portfolio value. I guess my point is more that the situation is in a state of high flux, and that number will change rapidly as people learn about the order book being wiped and start to add more bids at higher and higher points, so selling now at 80% price would be unwise for people holding this fund.

It's far better to give a slightly pessimistic valuation now - then see it get a bit better - than to give an optimistic valuation now and then have to keep reducing it.

Valuations of funds should ALWAYS be based on what you're pretty certain you can realise - which, right now, isn't much for some securities on BTC-TC/LTC-Global.

Greg

I'd like to add to the chorus encouraging you to do all that you can to re-list on another exchange and continue if possible. If anything, the happenings at BTC-TC speak powerfully to the importance of hedging in this space and the need for a fund such as this one.

Way to hedge

Two quick updates...

First, following some developments with other securities on both BTC-TC and Litecoin Global, I would like to make two points clear to participants in BTC-GROWTH:

• Whatever the eventual disposition of the fund -- continuing on another exchange or closing up shop -- I will make every effort to treat all participants in our fund equally. I will emphatically not be discriminating on the basis of position size.
• I have no intention of suspending trading in the fund. We're all grown-ups here, and participants do not need me forcibly restricting their liquidity.

Second, I have been in contact with another of the exchange operators, and that operator has indicated they will be in discussion with their legal team shortly regarding the potential listing of the fund. I will post an update on this if and when I have something meaningful to report.

This is the first time I've invested in a fund such as this, so I apologize if this is a stupid question - as the current investments have been made via semi-anonymous "user IDs" on BTCT, how will you know how to tie an investment to the same person on a new exchange?

BTCT asset issuers have access to shareholder-lists containing:
- email address
- number of shares
- public BTC address (new feature, if you haven't set this yet, do so quickly)

With this information it is easy (though still requiring some work) to link people to their shares.

It's a good question. The exchange emails all issuers with a list of current participants in their assets. A new exchange would provide some means of importing that list, such that old numbers would match up with new ones.

Although I've just said in an earlier note that I have no intention to suspend trading in the fund, in the case of a transfer to a new exchange, we would announce a planned suspension of trading -- and not a surprise one coming out of the blue "for your own good" -- so that we could secure a current participant list. With that list in hand, we could then begin a move to a different exchange.

EDIT: Whoops, I should have paid more attention to that notice saying the thread had been updated while I was typing, as it looks like Rannasha has already done a good job of covering this.

I know that BitFunder has some option to recover/import shares already. On the account page, there's an option to "claim shares", where in my case it says that no shares were found linked to my email address (which is true) and there's an option to fill in a different email address to claim shares from (presumably it will send some verification code to that email address to verify ownership). I don't know if Havelock has a similar feature.

IIRC, that was set up specifically for GLBSE.

I can imagine it will be extended to also include BTCT imports now.

There was one asset, Bakewell, which transfered from BTCT to BitFunder several months ago, the process was pretty quick and easy. The issuer of that asset later tried to run away with the shareholders money, but that is a different issue entirely.

Well this is a first false statement you have ever wrote here :) (you probably dont follow actm or labcoin thread)

Greg,

You have both my respect and my endorsement for the way you have handled the BTCT shutdown. These events are precisely why I never chose to attempt to start my own fund, but your navigation of what could easily have been a complete disaster demonstrates the burgeoning potential for a responsible actor to diversify risk in the Bitcoin ecosystem.

Best wishes for future success.

Vycid

Many thanks for your kind words and encouragement, Vycid -- I appreciate it.

Yeah, basically this.  I don't understand how you are able to deal with the constant stream of BS, but you have done so masterfully thus far.  It's situations like this that make me that much more confident in leaving my investments in your hands.

"Move the entire fund management infrastructure to another exchange" Is definately the best option for the investors i think.

BTW are you actively trading right now? Because it seems like there is a lot of chances to make some profits.

Your ignorant approach to the matter is pretty much the reason you find yourself in this sad situation.

Pretending like "there are no solutions" because you don't actually have what it takes to use the solutions is a very flimsy excuse for your own inability.

You’re truly one to talk about lack of ability.

Is... is this an advertisement?

"Use my product, or you are incompetent!"

That's pretty much MPex's marketing strategy, along with thinly veiled insults.

Doesn't MPEX still require a $4000 fee to start trading?

Thinly? Veiled?

Last time i saw something about it they had raised the cost for new traders to be allowed to trade on there exchange from 20 btc to 30 btc and that was after btc started to rise they changed the fee, around half a year ago if i remember correctly, i doubt they have had a single trader sign up for that kind of silly deal as the signup was free for the traders on there exchange way back....

Merely having an exchange is quite a few light years away from actually offering a credible plan forward.

This is not the time or place to debate or advertise your own exchange, but if MP has plans for a land-grab in this space -- say, by introducing significant improvements in functionality and value proposition to coincide with the sudden availability of a large number of issuers currently evaluating the merits of potential new homes, then I'm all ears. PM me, and I'd be very happy to hear what he's offering.

if you can't do it without an exchange, you have no place here
dont most of your investees come to you directly anyway?

Sorry Vexual, but I have no idea what you're talking about (again)...

(You do get that my previous reply was to MPOE-PR and her plug for MPOE, right? You get that I was saying just because MP has an exchange does not mean he has a credible offer to provide a home for a fund of this type?)

I've already indicated that I am not willing to operate a fund of this type via email transfers, friedcat-style. Even if I were willing to do that, my guess is that very very few participants would want to continue with such severely impaired liquidity.

This has nothing to do with "can't do it without an exchange": I simply won't do it without an exchange. That's not negotiable, and if you or anyone else has a problem with that, then this fund very certainly is not for you.

ADDITION: For the benefit of Vexual, who edited the original post to add "dont most of your investees come to you directly anyway?": no, of course not. The fund is and always has been exchange traded. (Maybe you are confusing it with a prospective private equity fund, which is a different beast altogether.)

Have you spoken with Havelock?

He needs a platform for us, investors, to offer a liquidity for the shares. He is trading at BitFunder already as we know - the fund holds cca 200 BTC in Ukyo.Loan.

I would prefer Havelock. There are lower fees (but also lower liquidity). On the other hand users there have jumped on pretty much any offering (SANDSTORM, CBTC).

I'm currently in contact with one exchange operator; although Havelock is on the list of possibilities, it's not first on the list. It has a way to go yet in terms of bulking up its relatively low volume, low liquidity/wide spreads, and the absence of derivatives. However, if any exchanges make a public announcement about plans to support ex-BTC-TC assets, or contact me directly, then I'll be very happy to explore in more detail.

Liquidity after the closing of BTCT will surely improve on Havelock & BitFunder.

A land-grab would imply that there's potentially valuable land to be had, and given attitudes like yours that presume it's the exchange, and not you, that needs to have a plan, there's no apparent reason for any such actions.

As to your vague dismissals: bring an argument if you have one, or else you can acknowledge that yes, indeed, you fucked up. Making unsubstantiated allusions to problems of another party is both unproductive and reprehensible. You picked a play pretend exchange built so shakily it couldn't stand for a year and have the gall to suggest that the actual exchange, which has stood on its own as the only correctly built, actually secure, lasting example has unnamed "functionality" issues?

That'd be part of the ignorance I pointed out to you, along with presuming that me taking the time to point this out has anything to do with "arguing" or "advertising".

MPOE-PR, surely you understand that longevity and functionality are not mutually inclusive?  It is entirely possible for a platform with extensive functionality to exist only briefly, and perhaps even easier for a platform with no functionality to exist indefinitely.

As far as I can see, MPEX has never had a public fund traded on its platform before. I cannot understand why a fund which already HAS been exchange-traded in the past would need to be the party bearing a proposal here.

You are confused. Something that occurred on scammy BTCT, just like something that occurred on scammy GLBSE, may not use this putative "experience" as some sort of authority. It is anti-experience and anti-authority. These funds you speak of are significantly less respectable, less serious and less worthy of consideration for being run by people clueless enough to have listed there, exactly in the way some guy who spent a summer as a witch doctor in the Amazon is less likely to be considered for a serious hospital position than someone who did not.

The general point about longevity and functionality in the abstract is plainly irrelevant. MPEx still has most of the BTC financial trade to date. More than GLBSE over its lifetime, more than BTCT over its lifetime, more than half of the sum of it all over its lifetime.

This isn't going away just because random noobs can't afford a little BTC or don't know how to use computers effectually.

Lol, obviously if no one uses it, it's not going to have problems. What's the point of listing on an exchange that charges $3750 to sign up and is used by no one?  (That's 30 bitcoins just to trade, not to issue securities) There clearly is none. There is zero reason for anyone to bother doing it.

Btw, just out of curiosity are you still pretending to be a woman, who works Mircea Popescu, rather then Mircea Popescu himself?  

I think that information would be helpful for people trying to evaluate your sanity, and thus business credibility.

If you sincerely want to go a few rounds with me over this, then feel free to start by finding a few colleagues who have spent some time investing out there in the real world -- as distinct from nothing more than during Bitcoin's brief infancy -- and ask them what real investors think of the "functionality" of MPEx, ask them what they think of the bot's option pricing, and most of all be sure to ask them what they think MP's FAQ answer about options hedging says about his credibility (unless he's long since deleted that out of sheer embarrassment).

Then, if those discussions with your more experienced colleagues haven't led you to question deeply whether MP's monthly PR budget of 12 BTC is even being well spent or is simply being wasted, feel free to PM me. If you have any actual substance to discuss -- rather than merely hurling personal insults -- then when I have the time, I'll consider replying. And we'll both be able to find out whether anything good can come of your insistence that you really want to have this discussion with me.

Otherwise, we're done here.

Can you give an update on how things stand now, things seem to be settling down some, and I would assume you picked up some shares at firesale prices, so what is the fund NAV looking like now?

Barring further major market upheaval, I'd like to steer clear of daily, weekly, or on demand interim reports; there's quite a bit of other work to be done in terms of keeping things stable, taking advantage of the general carnage where we can, and evaluating the options for going forward.

Stay tuned...

As already indicated, the original intention was to publish the next report early, on 1 October, so as to bring our reporting in line with calendar months.

Hopefully all participants will understand, however, that Burnside's countdown to 7 October being only 12 days away introduces a high level of uncertainty. As always, I am prioritising my efforts in a way which I believe best serves the interests of all participants in the fund.

This sounds like a prophylactic unrolling, with your own intrests in mind.

On the surface due to the lack of transparency and gregs stance on btct's closure, this is confirmed a scam.

Hypothetically, say you:
1) take 2000BTC from the BTC community.
2) Let it sit in a wallet for a month.
3) Announce that 25% has been lost due to trading.
4) Give back 1500BTC to the community and keep 500BTC for yourself.
5) go pay off your mortgage

Anyone can do this. This greg guy just happens to be good at writing which made people think he's a smart and trustworthy guy. He is smart!
Trustworthy? how the fuck should we know?!?!?! have you met the guy? NO

If he does not move the fund to another exchange or reveal exactly where the BTC went. this is confirmed a SCAM.
(even if he does reveal where it went. can we trust him? NO)

Disagree with me if you like. But this is how i see it. no fancy words. no bullshit. facts.

Facts require concrete evidence. You have offered nothing but a hypothesis.
No facts. All bullshit.

oooooooo fanboy...you going to get burnt.....but youre right ;)
it's because the way he's set it up is there is no evidence....it's one of those BEAUTIFUL scams.

Theres no way $65,000 would pay off most mortgages. Thats a fact for most people.

Im not a fanboy, and in fact I hold no shares. Your baseless accusations got on my nerves.

He's also not hiding his real identity or his company. If your going to accuse something of being a scam it helps to have a story that makes sense. You have no proof of your accusations or even a well thought out theory.

I said he would lose your money, and he did. Maybe you should re-evaluate how you apportion the burden of proof. 

Neither did Pirateat40

He lost the money cause of some unforeseen and extreme circumstances. You weren't saying "BTCT is going to close down, and it's going to cause the market to crash, don't buy in!" You said "I don't trust this guy, you shouldn't buy in." He had improved the NAV according to the first report and was very transparent with everything, and is STILL transparent with everything. So don't even try to act like you knew what you were talking about, you were spouting bullshit and still are.

The second full report for BTC Growth will be published in summary form on BTC-TC and in both summary and detailed form on the fund's discussion thread on Tuesday 1 October at 1 pm UK time. This early date will bring our reporting in line with calendar months.

Discussions are continuing about moving the fund to another exchange -- nothing substantial to report yet.

His investment decisions didnt lose money, the entire bitcoin security market tanked at the news of btct's closure.
Show me one fund or security that didnt go down in value, then I might listen to you.

Note: The timing of this report is intended to bring reporting in line with calendar months.

Executive Summary

Since our interim report on 23 September, the fund's Net Asset Value has climbed to .0891 BTC per share, an increase of 9.73%.

Relative to our previous full report which covered the month to 14 September, NAV per share decreased by 11.92%.

For comparison, a sample of relatively large and liquid equities across BTC-TC and BitFunder had already fallen by an average of roughly 18% from the end of our previous period thru 22 September, the day before the announcement of BTC-TC's closure. Extending that period by another 8 days, to 30 September, the same group of equities had not only failed to rebound, but had instead continued to fall for a total loss of approximately 43%.

We are still in discussions about moving the fund to a different exchange, and an announcement will be made in this regard as soon as we have something concrete to report.

Context and Environment

Comparing a fund, on the one hand, with individual equities, on the other, is never straightforward, and paying much attention at all to fluctuations over the course of periods like a week or two is of little more than academic interest. But since the value of our fund derives partly from the value of underlying equities (with the remainder from cash, derivatives and debt), and since many market participants clearly do pay attention to performance over brief time periods, I think it's worth sketching at least a rough, back-of-the-envelope picture. This rough picture reveals that not only was the decline in Bitcoin equities already in progress before the BTC-TC announcement was made, but the subsequent rebound which some market participants might have hoped for failed to materialise.

From 15 September until the day before BTC-TC-induced carnage, 22 September, individual share prices of relatively large and relatively liquid equities across the two largest exchanges had already fallen by an average of approximately 18%. Note that this figure represents share prices only and neither total return with dividends nor change in reported NAV.

(For reference, the list is: ACTIVEMINING, ASICMINER-PT, BASIC-MINING, BTC-QUICK, BTC-TRADING-PT, CIPHERMINE-PT, ICEDRILL.ASIC, KENILWORTH, LABCOIN, LABRATMINING, RENTALSTARTER. This list was chosen simply to reflect the activity of relatively liquid equities with relatively large market capitalisations and has nothing to do with my own views of any of them; swap some out or add different ones, and the picture doesn't change much. Due to differences in the way data are provided by the exchanges, and because the last price for a given day might be either a market buy or a market sell, changes have been tracked from the lowest trade price on one day to the lowest trade price on another; values would be similar for tracking highest to highest or average to average.)

The performance of the only other listed fund with size and liquidity comparable to our own (BTCINVEST) was a loss of 34% during that same period, while the house profit at Just-Dice had fallen by 101%.

Extending the period so as to coincide with the latest figures available for 30 September (in the case of BitFunder, the time zone difference puts this part way through 30 September), the comparable numbers are an even wider 43% loss for the large and liquid equities and a 25% loss for BTCINVEST. The figure for Just-Dice house profit worsened to a 148% loss. Excluding the now nearly worthless BTC-TRADING and the 'controversial' LABCOIN from the picture improves the overall performance of the large and liquid equities to a loss of 32%, and further excluding the ICEDRILL.ASIC 'faithware' asset from the calculation brings the loss of large and liquid equities to 37%.

Again, this comparison is intended to offer only an approximation, but whether you round up, round sideways, or pop in a dividend or two here and there, the general picture across Bitcoin equity markets has been grim. On average, the general picture across Bitcoin equity markets has been far worse than the results experienced by our fund.

As per our prior report, for convenience I use the term 'equities' to include revenue sharing operations.

Individual Securities and Primary Influences

While the fund has been active in many different areas during the period and has been influenced by many different factors, the strongest influences on performance during the period were:

• the pending closure of BTC-TC
• the crushing of Just-Dice
• the buying back of our own shares

I'll address each of these in turn.

BTC-TC Closure

The announcement of BTC-TC's pending closure directly took the value of the parent company itself to near zero and indirectly led some assets to close their doors. Public statements by individuals in charge of some listed assets -- to which our fund had minimal exposure -- appear to have led the market to reassess the value of those assets particularly negatively.

The temporary dip in assets which had limited exposure to the closure and which did not suffer from evaporating market confidence in their management enabled the fund to pick up shares in some assets at attractive discounts and to exploit a few arbitrage opportunities, including purchasing discounted bonds which could be redeemed at face value for an immediate profit.

We are still in discussions about moving the fund to a new exchange, and an announcement will be made in this regard as soon as there is something concrete to report.

Just-Dice

During a span of just a few days, a single gambler walked away from Just-Dice.com with a sum approximately six times larger than the entire original capitalisation of BTC Growth. At the time of our previous interim report, the site had gone from over 6000 BTC in house profit to a loss of 49 BTC; in the following days, the total figure for the site collapsed even further, to the extent of mirroring the former profit, weighing in at around -6000 BTC. (The specific house profit figure used in the above comparisons to 30 September is -3064 BTC.) As noted in our interim report, our fund lost significant capital as a result of lending to the bankroll, although after making a change to how our lending is managed, the fund was able to recover some of those losses.

The site's losses became so severe that after repeatedly floating the idea of closing the site completely, the proprietor eventually began testing modifications to the permitted betting structure designed to reduce the likelihood of further massive losses. While the modifications introduced by the proprietor in the aftermath of the site's having lost so much capital may decrease the odds of such high losses going forward, they may also reduce the magnitude of future gains and generally discourage use of the site.

Share Buybacks

During the period, we returned several hundred BTC to shareholders by buying back a total of 4044 of our own shares, reducing the total outstanding to 15,957.

During periods of especially elevated uncertainty, buying back our own shares at a discount to NAV makes very good use of our capital: while buying some other asset might generate gains going forward, we can be certain that undertaking purchases which are analogous to buying dollar bills for something less than one hundred cents each provides participants in the fund with an immediate gain.

Platform Problems

Apart from the obvious closing down of BTC-TC, the types of platform problems mentioned in our last full report improved somewhat on a 'problem free days' basis, with a total of six days during the period remaining free of platform failures. Note, however, that this simple measure obscures the fact that some services were virtually unavailable for a sustained period of two days on 23-24 September, despite, in some cases, public statements that services were operating normally.

Liquidity Facility and Subscriptions/Redemptions

As discussed above, redemptions during the period reduced our outstanding share capital significantly. Subsequent to this report, the fund may optionally place bids or asks for a time, at a discount or premium to NAV, as described in the listing documents.

Reporting Schedule

Having now synchronised with calendar months, our intention is to return to an approximately monthly reporting cycle.

Trust Ratings

As I mentioned in the fund's listing documents, I have no particular interest in amassing trust ratings for a pseudonymous WOT account. However, if participants in the fund feel it is appropriate to do so, I would invite them to consider leaving trust feedback for my forum account, not as a reflection of positive or negative fund performance, but rather as an indication of how they regard the trustworthiness of my management of the fund. (It is virtually certain that the NAV of the fund will go down as well as up, but hopefully variation in fund performance need not imply variation in trustworthiness.)

I'm glad that you have taken the opportunity to make some profit from the BTCT panic.

The perfomance is very good (considering the JD bad luck) compared not only to BTC-INVEST, but also compared to smaller funds (Smidge, SANDSTORM or BTC-EQTY).

Thanks for the detailed report Greg.  My confidence in your abilities just continues to increase.  I just have a quick question:  what's the reasoning behind selling shares at a discount relative to NAV?  I think you talked about this before, that you'd only sell shares at a slight premium to NAV.  Is this to increase liquidity for the fund?  Thanks again and keep up the great work!

I'm pretty sure he places bids at a discount and asks at a premium to NAV/U and not otherwise.

Pretty sure you have but just want to check. Have you got in contact with either Havelock or Bitfunder to try and move your assets over to one of those sites?

Ok thanks, I think you're right.

We're still in ongoing discussions about a move, and we'll plan to make an announcement when we have something concrete to report.

I have a slightly more academic question for you Greg:  Would the fund be breaking its fiduciary duty to a shareholder if the fund bought shares from said shareholder at prices SIGNIFICANTLY below NAV.  I can see the fund buying back shares at a little below NAV to offer said shareholder liquidity.  However I have some reservations about the fund using its knowledge of its own value to "take advantage" of a shareholder for the benefit of other shareholders.  Just wanted to know your thoughts on this Greg.

Thanks!

I think there are two separate questions here: one is about market price vs. NAV, and one is about insider knowledge.

Regarding the second, the listing documents specifically refer to aiming to "preclude any incentive for the issuer either to issue or to re-purchase on the basis of knowledge about the fund's NAV which has not yet been made public". Although doing so is widespread in Bitcoin-land, and although it provides a primary means by which many asset managers pad returns, I would prefer to avoid the practice.

Regarding the second, prices for the fund are set by the market, not by the fund, and the market does not always pay particularly good attention to NAV -- particularly during occasions when individual participants prize liquidity over underlying value. (To my mind, this is exactly analogous to those change-counting machines where you can dump in a bucket of coins and get out notes, with a steep commission applied, often on the order of 10% or more. Why would anyone trade money in one form -- coins -- for money in a different form -- notes -- when the commission is so high? Maybe it's the perceived liquidity of a note vs. a pile of coins, maybe it's entertainment value, who knows?) In any case, I have no wish to interfere in market dynamics -- either to prop up the price by buying back shares at above-market prices or to drive down the price by selling at below-market prices. The provision of additional liquidity by the fund is and always has been entirely optional, but on those occasions when it is in operation, it will not be operated with the intention of introducing these types of artificialities into the market.

So... what you are saying is that after you publish the NAV you will buy back shares at however low people are selling them without feeling bad, but you won't buy back a bunch of shares just before reporting a higher NAV?

As before, the price set by the market and the fund's NAV are two different things; the fund does not control the former and can only report the latter. (You can lead a horse to water...) When the fund actually undertakes buying or selling, I would like that to be done on the basis of publicly available information about NAV.

Thanks for the quick response Greg.  For the record, I didn't think the fund was necessarily doing anything underhanded; I just wanted to see your thoughts on it.

If BTC-TC is now shutdown and this fund is closing how am I going to receive the dividend payout?

From Greg on the BTCT asset page (posted while Bitcointalk was down):

Trading on BTCT will halt today, but dividends will still be possible. There are several assets that plan to continue operating and paying dividends during the coming month while waiting to be relisted or to shut down.

any update on the future of the fund? Relist? Shutdown?

See my post above yours with the quote from Greg from the BTCT asset-page: The plan is to close the fund and the process of unwinding of positions is underway.

yeah, I saw that when it was posted on btct - I read it as ambiguous with the phrase "In the absence of a credible platform for enabling participants to enter and exit the fund at will, I will plan to close the fund...". I take this to mean that he would close the fund unless an alternative came up, and had already started the process (but had not finished.) I was asking if there was an identified alternative yet, or if that tack had been completely abandoned in favor of closing.

Sorry my text left you wondering. No, there is no credible alternative. The fund will be closed and net asset value returned to participants.

More details to come with our final report, hopefully within a couple of days.

fair 'nuff, thanks for the clarification. :)

If you do open another fund, please post here with a link to the new thread (assuming you open a new fund and announce on a new thread) because I don't want to miss it :)

Our fund has now completed the process of exiting all positions, finishing with a NAV per share of 0.08838512, a change of -0.76% from our last monthly report. As previously announced, the full NAV of the fund will be distributed shortly in the form of a dividend.

Market participants may have noticed the steep decline in volume and order depth which began around the time of the Silk Road seizure and the Bitcointalk.org security breach, making this an inopportune time for anyone attempting to exit the Bitcoin asset market. The combination of poor liquidity, poorly performing debt, and the effects on market prices caused by the fund itself resulted in the negative impact on our final NAV.

Comparing our results with the performance of a basket of equities mentioned in our last report, however, and excluding those with newly impaired liquidity due to very small BTC-traded capitalization (BTC-TRADING-PT, with only 19 BTC of shares remaining on the exchange) or ridiculously large spreads (CIPHERMINE-PT, where asks were 150% higher than bids as of a short time before the trading halt), it is notable that this representation of the broader market fell by a further 10.5% from our last report to 6 October, the date on which our liquidations of those assets which were listed on BTC-TC or BitFunder concluded.

The broader market took a further hit in the wake of BitFunder's 8 October announcement that it was closing its doors to US entities.

Regarding the impact of that announcement on Ukyo.Loan, my assessment of the probability that an announcement of this type would be forthcoming had already increased significantly before liquidating the fund. Despite my prior enthusiasm for Ukyo.Loan, I therefore increased my estimate of counterparty risk associated with the loan and decreased my estimate of both the viability of assets backing the loan and the likelihood of prompt repayment at face value. At the time, I was also not alone in finding that Ukyo stopped responding altogether for many days prior to the announcement, precluding any possibility of face value redemption.

In my judgement, it was therefore preferable to liquidate all of our position on the open market rather than to continue waiting for an unknown period of time in the hope that not only would Ukyo eventually respond, but also be in a position to redeem the loan at face value in a timely fashion. We exited our position at prices ranging from a 4.3% premium to face value to a 3.5% discount to face value.

Subsequent to the closure announcement, the loan changed hands at up to a 39% discount to face value; as of this writing, it is still at an 8% discount. Ukyo posted a message earlier today apparently confirming that adequate liquid capital reserves are not available to cover redemption requests.

Further to the topic of capital reserves and redemption delays, this final return of capital would have occurred sooner, had I not relied on CoinLenders to park a portion of the fund's capital as it became freed up from other positions during the final days of liquidation. I had believed that CoinLenders would maintain sufficient liquid capital reserves to cover immediate withdrawals of a few hundred BTC. However, my attempt to withdraw from CoinLenders on 10 October, with the intention of processing the final dividend on that date, failed silently -- with no error message and with no transfer credited to Inputs.io. I wrote to the site's support address, and some hours later I was told that the site's hot wallet was empty and I should expect to receive the coins in the next two days; the funds were received approximately 39 hours after the original silent failure.

Payment of the final dividend brings NAV to zero and officially marks the end of the BTC-GROWTH fund. Thank you again for the opportunity to operate the fund, even if only for a brief time.

Thanks, you handled it very well! I have lost less then 5% (I bought more in the BTCT panic) which is great compared to market, other funds or with the rest of my btc-securities.

Now I must agree that closing the fund was probably the best option, btc-securities markets seems pretty dead now.

Thanks Greg. I've lost a bit with this security overall but did buy back in near the end at a discount to NAV and made a small profit on that. I'll keep an eye out for future investments you offer.

You handled it pretty ok given the facts. Thanks and I hope you bring something similar in the future!

Well handled, considering current state of that market. Was prepared for worst outcome, but at the end it's 2.5% loss for me. I also hope you'll bring something similar in the future.

Lost money.


Would invest again.  8)

Now that the original exchange-traded BTC Growth fund is no more, I've been pondering some other ways of managing membership structure that could enable a fund to be independent of the vagaries of an exchange, reduce the overheads associated with KYC/AML compliance, and also avoid turning it all into an admin-by-email nightmare.

I know that PayPal is almost universally hated across all of Bitcoin-land, but if something involving PayPal isn't just an immediate deal-breaker, I'd be grateful for any thoughts people might have on the following...

What would folks think of a system which required a small PayPal payment as a precondition for participating in a fund? This could offload the whole KYC/AML aspect of dealing with individual participants onto PayPal: to the extent that PayPal can be counted on to have established the identity of their customers, and to be adhering strictly to any and all KYC/AML requirements in every jurisdiction in which they operate, a fund provider could simply point to the PayPal transaction as having established the identity of the participant. My thinking is that this would obviate the need to handle any type of identity documents by saying, in effect, "if your details are good enough for PayPal, they're good enough for us".

The second benefit of a PayPal-based setup is that I already operate some sites which use a membership management system that integrates with PayPal: people pay a fee to become members of a site, and their details are then organised by a membership management system which I know to be fairly usable. By leveraging this same type of membership system, I could reduce at least some of the hassles associated with managing direct participation in a fund.

(None of this would do a thing for liquidity, of course: it would only be suitable for a fund with a fixed initial period of commitment, as distinct from a fund where people could just trade in and out at will.)

Would trying to involve PayPal in something like this just be a silly idea? Is it something people would consider trying?

Immediate deal-breaker.

If it's just about "who-owns-what" and speed of an exchange doesn't matter, why don't you wait for colored coins?

No no no, you did not read what Greg wrote.

Greg wants to use paypal so that all the identities of the investors are known for compliance purposes so that he can operate the fund without having to do compliance himself. The paypal is just for identification.

Greg it is clear you are a state actor. Stop trying to idntiy us, bitcoin was anonymous for a reason and you are trying to ruin this. go back to patting down at the airpot

EDIT: This post was done by a hacker that took control over my account. I had not changed my password on bitcointalk and I had an easy one. I have no regained control over the account. Ignore this post.

Unfortunately running a fund where the participants are anonymous is not going to survive very long, especially from a UK based financial fund manager.

Bitcoin is anonymous, running a hedge fund is not.

Then run an anonymous hedge fund.


EDIT: This post was done by a hacker that took control over my account. I had not changed my password on bitcointalk and I had an easy one. I have no regained control over the account. Ignore this post.

Well Greg cannot, unless he uses another account and in any case we could not tell it was Greg's fund.

So for Greg's purpose he can not run an anonymous hedge fund whilst we know it was his.

EDIT: This was a reply to someone who now says he didn't really make the post. (See the original...)


Gosh, that's a novel suggestion.  ::)

I guess there is that teensy weensy inconvenient little detail that if you'd like it to be exchange-traded, then you'll have to turn over a high-resolution copy of your passport, driving license, and other documentation to somebody who declines to provide his real name, does not operate in the context of a real company, does not provide a real data protection or data retention policy, and cannot be held accountable for potentially illicit use of your identifying documents.

But as long as you're happy with all that, you should be good to go!  ;D

What's that, you don't want to hand over all that detail to an exchange? No problem then: just find some dude named 'Guido67', give him some cash, and hope for the best. I mean, it's all anonymous, right, so who cares whether Guido67 knows up from down?

Ah hey, I got his real name "Charles Ponzi", he seems to know up from down. I even got to see a copy of his driving license. Now I'll just give him some cash, and hope for the best.  ;)

Real names tend to provide a false sense of security where there is little to none.

As long as we keep believing there is little to no security to be had, I think that's exactly what we're going to get: little to no security.

I think part of the problem is that we as a community have such low standards, such low expectations, that we're far more accepting than we need be of folks telling us they accept responsibility for nothing, or folks telling us nothing is real and nothing is an investment, or folks telling us that shares purchased are purely for entertainment. We're simply far more accepting than we need be of dog and pony shows as a proxy for real investment.

(With my high horse moving on to a gallop, I'd also say we are far more accepting than we need be of words of wisdom passed down by traders -- not investors -- who manage to profit on small positions not through insight or strategy, but by exploiting the mistakes and inefficiencies of newcomers. Anybody can make high percentage gains on very small positions merely by setting "noob traps" -- for example, those designed to profit when someone mistakenly enters an order with a price off by an order of magnitude, or those which involve switching an option's strike and premium, in hopes of tricking someone into buying a grossly overpriced option. The forum is full of folks mistaking this sort of banal, labour-intensive and not at all scalable cherry-picking for actual trading ability or investment know-how.)

There, down from that high horse now.

The options situation on BTC-TC/Bitfunder was pretty horrible in that respect - whenever I looked at options the vast majority seemed to have strike/premium reversed or be a decimal place out.

I'll raise my hand to having bought on prices likely (when you're the only liquidity on offer you can't ever assume it was a typo to sell to you) off by an order of magnitude twice - though in both cases there were reasons why my orders were placed other than just hoping someone typoed.

Personally I tended to make most profit either by taking advantage of irrational (but predictable) behaviour (especially in response to news) or from noticing things about securities which others seemed not to have noticed.  The rest of your post (which I didn't quote) explains why I rarely invested - the quality of most 'investments' (I put it in quotes - as where there's no reasonable expectation of profit something isn't really an investment) was too low for me to want to risk relying on them actually making a profit and/or honouring their contracts.

Gawd, I wondered why the options markets on btct.co looked like a playroom for kindergarteners. There was scarcely anything that looked like it ever *could* be value available.

Just so.

And unless 1) you've automated it or 2) your time is worthless or 3) you need to help yourself feel more clever by preying on other people's mistakes, deliberately mispricing options is so utterly pointless. And if you had actually done 1 (automated it), you probably wouldn't waste your time with noob traps, you'd move into legitimate market making and generate far greater profits -- something which I'd discussed at length with Ethan before BTC-TC went tango uniform.

(One could argue that mpbot provides an example of such usurious mispricing that it's one giant noob trap, perhaps even a great example of combining 1 and 3. My general rule is never even to mention that operation or operator unless I absolutely have to, but in this case I mention it specifically because the example fits so well.)

In any case, I wonder does anyone have any other thoughts on that whole PayPal suggestion I made a few posts back...? Deal-killer or a plausible alternative to handing over a bunch of private documents to an exchange operator with a hidden identity, operating without a real company, offering no data protection or retention policy, and subject to no accountability for potentially illicit use of those documents?

Using PayPal as a way of identification seems interesting, not a deal-breaker for me.
On the other hand (with current BTC securities environment) I'm not sure that I would invest in fund not traded on exchange.

Yep, I hear you -- in almost every way, I think an exchange is preferable, both for issuers and for participants.

Using PayPal as a KYC/AML gateway would only be suitable for something catering to participants wanting to forego the liquidity of an exchange and commit to a somewhat longer term horizon.

If you are insistent on KYC, PayPal is not going to solve your problem from the eyes of the SEC.

And what good do you think KYC will do you exactly? Do you plan on barring US-based persons? Because that's what matters. Not what addy is on their PayPal address, but where they reside when they purchase the shares. If you logged the IP and made sure it wasn't US-based and then used a service like miicard to verify people's identity, then you'd be on to something.

I'm not talking about shares, and I'm not talking about the SEC. I'm talking about a prospective privately operated, non-exchange-traded, non-securitised fund. Anyone who wants to run any type of private fund -- be it private equity, buyout fund, hedge fund, whatever -- needs to have their KYC/AML in order, and that basic requirement has nothing to do with the SEC, nothing to do with securitisation, and nothing to do with the distinction between US and non-US entities.

Greg

If I'm following you correctly, you seem to be suggesting the use of a single Paypal transaction in order to establish the identity of investors in the proposed private fund, and that you intend this to be some kind of nominal fee with the substantive transactions taking place in Bitcoin later on?

If so then, in and of itself, that sounds fine (I am not so attached to my pseudonymity as others here, I suppose), but would you not then need to link the Paypal account to a Bitcoin wallet? A signed message on the blockchain could be used to establish the link in one direction, but how would you corroborate it on the Paypal side? And are you quite sure that Paypal's KYC/AML is something you want to count on? There have been some troubling accounts of Paypal freezing completely legitimate Kickstarter accounts in the name of anti-fraud/AML. That could be a problem if the kind of activity you're proposing were construed as crowd-funding by Paypal. Beyond that, Paypal may not necessarily be sufficiently compliant with UK law and might, in fact, add additional regulatory exposure as you'll be accepting 'real money' as part of the setup of the fund.

To answer your primary question though, the idea of using Paypal for ID verification doesn't strike me as a deal-breaker persay. I certainly find it far more palatable than turning over copies of my passport, credit card and driver's licence to WeExchange (A totally outrageous suggestion, in my books. That's more than enough information to facilitate identity theft). But I'd like to hear more about how you envision the logistics of this working.

Yes, the fee aspect would be deliberately inconsequential -- just a small charge to become a member of a site for a specific period of time. The important aspect would be to establish that Person A who has just become a member of the site is really Person A, according to PayPal.


Once a person had become a member of a site, then anything else that needed to be done could be handled directly via that person's account on the site. (The idea is that this is done in connection with a payment flow that creates an account for the person on the site. This is something I do all the time with other PayPal-integrated membership sites in the health professions.)


Yes, clearly that would be something to avoided, since it would shoot the whole thing to pieces.


Hopefully we can be reasonably confident that PayPal complies with the law in all countries in which it operates; if PayPal were found to be breaking the law in any of those countries, that would be rather a big deal, quite apart from any impact on us.


Me too: it seems crazy to me to hand over all those details to a pseudonymous entity with zero accountability. I've verified many different accounts using scanned copies of identity documents, and on every single occasion except for two, those receiving the documents were happy to have a big 'CONFIDENTIAL' splashed across my signature and photograph, so that you could still see it was me and could still see it was my signature, but you would find it much harder to use it to create a convincing fake document. The two exceptions? One was Mt Gox, and the other is WeExchange. Well, Mt Gox lacks any kind of credible data protection or data retention policy, but WeExchange is so far below the standard of Mt Gox that it's not even funny.

If a hacker really took over your account you/they would just remove that edit. Duh.

Greg

I appreciate the quick and thorough response, as always. One further point of clarification/elaboration though.


It would be silly to worry that Paypal is anything but fully compliant in all its major jurisdictions for the business that it does. But that doesn't necessarily mean that the information that it passes to you or warrants for you would be sufficient for your KYC under UK law, nor does it necessarily mean that Paypal's KYC/AML obligations will match KYC/AML expectations or obligations for the kind of fund you're proposing. They might, and we might even say that they probably will, but there does seem to be a bit of a dis-analogy. Just because Paypal is on the right side of the law in what it does, that doesn't necessarily mean that a third party that makes use of them would also be on the right side of the law. That being said the more substantial point I wanted to get at there (which I expressed poorly in my original post) relates to regulatory compliance in the creation of a financial instrument which, in this case, would have some (albeit nominal) fiat component.

Actually, on second thought, maybe it would be best to just separate that point out from the Paypal question. What are your thoughts on the additional exposure, if any, that you and potential investors might have if you incorporate a nominal amount of fiat in a private Bitcoin fund offering? The Bitcoin-as-commodity situation in the UK was a bit regulatory plus when you launched the original fund. Might you not compromise that advantage by using Paypal?

I'm still thinking this through -- thus the rationale for floating it here and soliciting feedback -- but the way I'm envisioning it, there just wouldn't be any fiat component to a fund. There would be a PayPal fee to become a member of a site, but the only connection between that and an actual fund would be that a fund would be open only to members.

It would be analogous to saying that only members of ABC Car Club are eligible to take part in the XYZ Race at the weekend. That wouldn't mean that PayPal has any involvement in the racing activity, or that racing requires payment of a fee per se.

PayPal "Verified" status requirements vary from country to country, but it goes without saying that only verified accounts would be of any use.


Unfortunately, given that the original fund was only capitalised at 2000 BTC, passing on the costs required for consultancies like those would not be plausible unless or until a fund was much larger. I was looking for something ultra-lightweight, rather than something targeted at exchanges and the like, which might have a single day's turnover that exceeded the entire capitalisation of a fund.

Last time i checked BTC(and other cryptocurrencys) was considered of no value from a governement standpoint where i live, so no AML or simular things should be needed here as long as stocks, dividends and so on is denominated in cryptocurrencys, also trades between a cryptocurrency and fiat ends up in the same category as you buy/sell something of no value, therefore you cannot use losses to reduce taxes and no tax has to be paid on profits from it.

I guess the USA or the UK where your based might have a different view on BTC(and other cryptocurrencys) even thou the standpoint probably isen't finally tested in courts of the highest instance in either USA or UK yet.

Involving Paypal money denominated in USD or another fiat on the other hand would probably just complicate things for no added benefit, even if a few cents worth of transaction probably wouldn't qualify for AML laws looking into the company receiving those transactions. But people would still need to have a paypal account or register one to be able to send those micro-transactions so that would just be an unnecessary complication added.
Paypal also has some ridicules fees so why use such company and couldn't anyone register how many paypal accounts they liked way back without any checks done at paypal, they just needed a emailadress to link to each account, so having people use paypal as a way of living up to some AML things is probably pretty useless....

Unfortunately, not everyone lives in a jurisdiction where they can simply say no AML is needed.


Again, the point is not the size of the transaction, but the identity verification which PayPal will already have performed for all verified accounts.


As far as I'm aware, none of this is true for a verified PayPal account.

Lol. You people should have listened to me.

Damn too bad we didn't listen to you about Labcoin too.

While I ordinarily try and avoid wasting my breath responding to such a widely disparaged troll, I would suggest, Ytterbium, that you should step right up if you can point to any other fund of similar size which did a better job of not losing other people's money while the broader market was cratering. Sure, it's trivially easy to 1) stay in cash and plan on zero growth or 2) run a tiny fund and make large percentage gains via little more than setting "noob traps", as I described them earlier in this thread. And of course many people who dabbled in Bitcoin equities for a few months prior to the meltdown have also allowed themselves to confuse a bull market with their own investing genius.

But like I say, if you can point to any other fund of a relevant size that did any actual investment and did a better job of not losing money while the broader market was going to hell in a handbasket, then step right up.

If not, maybe you should try a little harder to find a thread where you can make a contribution that will reflect more positively on you.

Any future plans with funds Greg or are you gonna wait till things settle a bit?

Hahahah, what a dumbass response.  You claimed, incorrectly obviously - that you had some sort of experience that would help you make sound investment choices.  Also the whole purpose of a hedge fund is that it's hedged, you're supposed to be prepared to make money in down markets. A) Clearly you weren't properly hedged and B) Didn't know what the fuck you were doing.

Sure, all other "funds" lost money, and that's because all of these funds were bad ideas from the start. Amateurs playing around with other people's money.

(And by the way, it's not like the money just disappeared, obviously someone made money off of these shares)

Oh, gotta love the "widely disparaged troll" line.  A few people in this thread disparaged me for criticizing this hair-brained scheme.  And then you lost 75% of their money.

After your rigmarole earlier you don't really have a right to say that, sorry. Also, the whole "told ya so" doesn't make you cool, especially when your predictions weren't correct.

You had grand claims that the man didn't know how to manage his fund etc... etc..., but when the going got tough he handled it as well as possible and helped people cash out as quickly and at as low a loss as possible. How this makes you right about him is beyond me.

75%? The fund was down .76% from the last months report. It started at .1, didn't it? Your math... sucks?

Before making a fool of yourself any further -- and wasting the time of everyone else using this thread for more constructive purposes -- perhaps you should go and educate yourself about what it actually means to be hedged.

For the benefit of other readers, I would point out that generally speaking, hedge funds tend to outperform on a relative basis during down markets and underperform on a relative basis during up markets. Outperforming during down markets does not necessarily mean making gains in absolute terms; it can mean that, obviously, but at the expense of further reducing performance during up markets. (The paradigm example of the latter is an unhedged short, which can generate gains during down markets but at the expense of unlimited losses when the market turns.)


Regarding the whole "making a fool of yourself" problem which you seem to have whenever you post in this thread, you're off by two orders of magnitude. As jedunnigan has already pointed out, the fund lost 0.76% during the closure procedure, not 75%. Relative to its IPO value, the fund lost a total of around 11.6% during the market chaos that wiped out several times that much from the broader market and from all but a handful of individual equities.

Contrary to your ludicrously ill-informed rant, that is the benefit of hedging.

Returning to an exchange-traded, hedge fund-style offering will have to await some clarity from the folks operating exchanges. (For a non-exchange-traded fund, I did float the idea earlier of covering KYC/AML via a transaction run through PayPal, but the impression I had was that I'd have my work cut out for me trying to articulate the rationale for using PayPal.)

In addition, part of what made the original BTC Growth fund possible was the availability of individual equity options on BTC-TC; Havelock lacks them, and BitFunder (where the options offering was even weaker than BTC-TC's anyway) appears now to be nearly dead in the water.

Having said that, the forex derivatives space still offers some very nice opportunities. It's a shame that BTC Growth had to end when it did, or participants could have benefited tremendously from our forex derivative positions as a result of the big move in BTC/USD that began just a few days later. (For example, a simple unhedged long in the December BTC/USD futures contract has returned around 65% in less than 2 weeks.)

Last but not least, I've also been running the numbers for something potentially new and different in the real estate space, but I don't have anything to announce about that just yet.

We'll see... :)

Dr Greg is correct about the nature of a hedge fund.

In this situation, the structure of the BTC Growth fund allowed investors to mostly survive the massive market crash that wiped out many investments. I would be surprised if anyone elses diverse portfolio did anywhere near as good as BTC Growth.

Of course the odd person that was mostly in just 1 or 2 investments may have done better but for a diverse fund I can't imagine anyone doing as well as the doctor.

Greg, I hope you return with another investment opportunity at some point.

I've just posted the draft version of a document outlining a forex-focused fund which we're considering offering:

https://bitcointalk.org/index.php?topic=333851.0

Questions, comments, etc. are very welcome!