I'd like to share for discussion an initial draft for a new forex-focused fund which my company is considering operating under the BTC Growth umbrella.

I've now removed the original full document, retaining here only a quick history of the original BTC Growth Fund (now closed), the Executive Summary for the proposed new fund, information about the fund provider, and the brief FAQ. The full draft document is now available here on the BTC Growth site itself:

BTC Growth - Forex Volatility Focus

Updates to this post will be noted in the post immediately following this one.

For those familiar with the original BTC Growth fund, the principal differences distinguishing the original fund from the new are:

• The fund will focus on forex volatility, with no direct exposure to Bitcoin-denominated equities, equity options, or listed debt, and with correspondingly limited diversification.
• The fund will operate for 3 months at a time, with an option for rollovers into future periods.
• The fund will operate on a private, direct basis on behalf of a small set of participants strictly limited in terms of their total number, their minimum level of participation (5 BTC) and, for US or UK participants, their self-certified status.
• The fund will require a one-time 0.1 BTC subscription fee.

This forum post is not an offer to sell, nor a solicitation to buy, any security; nor is it an invitation to participate in this strictly limited, small private fund.

Questions, comments, and feedback are very welcome, though!

Background: Summary of the Original BTC Growth Fund

The original BTC Growth fund was a hedge fund-style service provided to BTC-TC from mid-August thru mid-October 2013. (See the BTC-TC listing here or the original forum announcement and discussion here.) The fund offered exposure to Bitcoin-denominated debt and equity, and it employed derivatives to hedge risks associated with this exposure as well as to generate returns independently. The fund also provided capital to exchanges, and it constructed positions designed to exploit volatility in the value of Bitcoin versus other currencies.

Within around 30 hours of launch on BTC-TC, the original fund was capitalized with 2000 BTC.

As we all know, the broader market for Bitcoin-denominated assets cratered not long after the fund's launch, with many individual equities falling by 75% or more during the following months.

For participants in the original BTC Growth fund, however, the benefits of operating as a hedge fund-style offering rather than a "buy into a rising market and hope everybody wins" offering became apparent very quickly. While BTC-TC's closure announcement marked a temporary low point for the fund's value, it then climbed sharply, regaining much of its lost value within just days of the announcement. While other funds which remained in operation continued to squander shareholder value, BTC Growth completed an orderly liquidation and returned capital to participants in mid-October, its net asset value per virtual 'share' having decreased by a total of 11.6%.

From initial offering to final return of capital, this loss -- small in relative terms -- means that during the period, the fund appears to have outperformed all other comparable funds and nearly all individual Bitcoin-denominated equities by a wide margin.

Executive Summary of BTC Growth - Forex Volatility Focus

Operating as a private hedge fund-style service, the BTC Growth - Forex Volatility Focus fund aims to achieve modest capital growth denominated in Bitcoin.

The fund's primary focus will be the construction of moderately leveraged positions designed to profit from volatility in the value of Bitcoin versus fiat currencies or other cryptocurrencies. The fund may also provide capital to exchanges, and it may engage in limited lending directly to businesses or individuals active in the Bitcoin economy.

The fund is not securitized, it is not exchange traded, and individual stakes in the fund are not transferable. Participation in the fund is not available to the general public and will be administered on a strictly limited private basis directly with individuals who have registered an interest with the provider.

The fund is intended to operate for an initial period of 3 months, subsequent to which each participant's capital will be returned to them unless 1) the fund provider elects to repeat the offering via a follow-up fund into which participants' capital may be rolled over, and 2) that participant has specifically indicated at least two weeks prior to the fund's liquidation that they would prefer their capital to be rolled over.

Being a manually administered private fund which is not traded on an exchange, the fund will be limited to 20 or 25 total participants; participation in the fund will be available from a minimum level of 5 BTC per participant.

The fund employs a once-only subscription fee of 0.1 BTC and the 'two and twenty' fee structure common to the hedge fund industry, subject to a high-water mark. From the subscription fee, 10% will be refunded as part of the fund's security protocol.

This document should be read in conjunction with the fund's Risk Factors and Terms and Conditions, provided separately.

This fund is unsuitable for potential participants for whom the full documentation is in any way 'TL;DR'.

This documentation is not an offer to sell, nor a solicitation to buy, any security; nor is it an invitation to participate in this strictly limited, small private fund.

About the Fund Provider and Fund Manager

The fund will be provided 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.

Potential participants can get something of a flavor of the fund manager's general approach to investing from the same site, along with a small selection of his recent articles specifically about the Bitcoin economy.

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!")

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

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 this strictly limited, small private fund is not structured on the General Partner/Limited Partnership model.

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Mini FAQ

Having dispensed with the lengthy Not-So-FAQ of the original BTC Growth fund, here are brief answers to a few questions I expect would otherwise have come up:

Q: Why isn't this going to be listed on an exchange?

A: I'm always open to suggestion, so if and when someone comes up with a credible and reliable exchange platform which is fully accountable both to its users and to relevant laws and regulations, I'll be very keen to learn about it. (Since I take it that without identity, there is ultimately no accountability, one prerequisite for an exchange platform which is fully accountable would be coming clean about the identities of all those involved.)

Q: Even if it's not going to live on an exchange, why isn't this securitized/tradable/transferable/more convenient?

A: From a regulatory standpoint, offering publicly tradable assets is a whole different kettle of fish than offering a private Bitcoin management service. This fact might figure into the decision by many issuers of more conveniently tradable securities to remain unaccountable by insisting on anonymity. For my part, I think anonymity for individual consumers is great, but for profit-making businesses setting out to offer Bitcoin-based services, I think it's more important to be accountable.

Q: Why are there limits in place on the number of participants and on the minimum participation level for each?

Q: Being a manually administered, direct service, I cannot feasibly manage a large number of participants each with relatively lower levels of involvement in a fund. The UK regulatory framework also treats funds differently according to their number of participants, and it treats funds differently when they are restricted to certain types of participants.

That's not an argument that it is somehow unethical to issue shares without an underwriter -- which was the claim you appeared to be making originally.

If you're only claiming that there are people with experience who can help, that has nothing to do with conflicts of interest or ethical issues, and it's quite a bit less controversial.


As for whether it's better for an issuer to handle their own listing, "like AMC", that's akin to asking whether it's better to set up your corporate headquarters in Houston, Texas, "like Enron". Citing an example of poor corporate management and linking it to a particular geographical location carries no more logical weight than linking it to a listing decision.


As for exchange operators issuing securities on their own exchange, quite a few people seem happy with, say, The Nasdaq OMX Group, Inc., whereas quite a few people find it loopy when those running Bitcoin-denominated exchanges (or tightly associated with them) issue securities on those exchanges. The difference suggests there's something more at work in how people are viewing the two situations than the simple question of whether operators should issue securities on their own exchanges.

I suspect that the primary difference that matters on that particular question is people's awareness that ultimately, without identity, there can be no accountability. When someone wants to run an exchange but refuses to come clean about their own identity, people are right to be cautious, and people are right to want to enforce limits on what they can do, given their ultimately non-existent accountability.

There is a difference between genuine trustworthiness and simply not having screwed anyone over yet. The pseudonymity of Bitcoin-land makes it easy to be lulled into conflating the latter with the former, because we're routinely deprived of the kinds of additional information that would enable us to evaluate genuine trustworthiness and to distinguish it from its murkier proxy.

I think that people's caution about things like exchange operators listing securities on their own exchanges is a bit like a little alarm bell going off and reminding them about that fundamental lack of accountability and all the dangers that go along with it.

I don't think anybody would deny that either incompetence or an outright intention to defraud can easily wind up harming would-be investors. But none of that provides any actual argument that introducing an underwriter would in any way reduce conflicts of interest (as distinct from increasing them) or make the process as a whole any more ethical.

Your original suggestion ("a business should not manage its own public listing...[t]here are conflicts of interest") appeared to be that it was somehow unethical to issue shares without an underwriter, and that using an underwriter made the whole thing better by avoiding conflicts of interest in the first place. That's a pretty hefty claim to make without argument.

That interpretation of your original suggestion -- which I might have just understood -- could benefit from an actual argument, as merely pointing to examples of incompetent or ill-intentioned issuers doesn't do the trick.

I'm a little bit puzzled by this. You haven't just said "get help from folks who know about this stuff"; you've said "get help 'cause it would be unethical to do otherwise" (given those "conflicts of interest" you've alluded to)...

In the fiat world, the primary role of an investment bank in the IPO process is that of underwriter -- providing cash up front, establishing an initial market for the new shares, taking on some risk should they mis-judge the level of demand for shares, and of course making a killing from the underwriting spread.

They typically have no involvement in ongoing "management" of "profit-shares", and it's hard to see how their underwriting role would have much to do with eliminating conflicts of interest. On the contrary, underwriters are often viewed as bringing their own baked-in ethical conflicts to the table, handing flipping opportunities to other large investors while directly disadvantaging the company which is floating via deliberately sub-optimal pricing of its equity. (And so ethical arguments are born in favour of eliminating underwriters, pricing via Dutch auction or other alternatives -- although as Google showed so nicely, trying to achieve reasonable pricing is still no walk in the park...)

Can you say more about what it is that you envision creates conflicts of interest that underwriters are able to take away -- and how they manage the feat without introducing more of their own?

The question isn't about storing significant amounts of BTC on internet facing servers for security reasons. (Although if it were only about security and nothing more, then folks might ask why it would be the case that CoinLenders can only cover a fraction of its obligations to depositors at any one time, while Inputs.io does not have any such limitation -- or do you mean to say that Inputs.io is also unable to cover all its obligations to account holders at one time?)

Rather, the question is about the actual cash on hand (anywhere, in cold storage or otherwise) to pay depositors and how quickly depositors can expect to receive actual cash. If it were merely a matter of not storing large amounts of BTC on an internet facing server, nobody would worry about a delay of a couple of minutes to refill a hot wallet (not that CoinLenders has a normal hot wallet anyway, since it does not use the blockchain). Some, though, might wonder about how many days it could take to retrieve their cash, given that CoinLenders may not have the cash on hand anywhere, including in quickly retrievable cold storage.

As you know, this is not a theoretical question: CoinLenders has run out of cash to cover its deposits in the past and had to halt withdrawals for a couple of days. I'm simply asking about the extent to which distributions made from liquidation of the fund via CoinLenders accounts will be backed by actual cash versus soon-to-be cash. It would be wrong to characterise that question as having anything at all to do with "security reasons": cash is cash, whether it is sitting on a server or in cold storage.

Since CoinLenders is known to maintain cash reserves sufficient to cover only a fraction of its obligations to depositors, a number on a CoinLenders screen is not quite the same as receiving cash. Can you say whether distributions via CoinLenders will be ring-fenced so as to be available to participants for immediate withdrawal as actual cash? Or will distributions be pooled with other CoinLenders reserves, implying that the availability of actual cash will depend on how many other people are already attempting to withdraw from CoinLenders at any given time?

(Disclosure: I have never had any position in BTC INVEST. However, having liquidated my own BTC Growth hedge fund-style offering on BTC-TC a short time ago, after strongly outperforming the broader market during the meltdown, it is educational for me to observe how other fund operators manage the return of capital to participants -- including factors such as overall timeframe, general priorities, and resulting impact to NAV.)

Since many people are still confused about the extent to which the bond is, from a BTC-denominated yield perspective, a gamble on a fall in the value of BTC versus fiat, it seemed worth clarifying the following:


From the overall yield perspective, this is entirely false.

The only sense in which it is partly true is when comparing currency conversion based on the 30-day average versus currency conversion based on spot. In this partial sense, it makes no difference whether BTC is rising or falling against fiat -- it matters only whether spot is above or below the 30-day average, and this may occur regardless of whether the rate is rising or falling at any given reference point. When spot is above the 30-day average, converting fiat-denominated interest to BTC somewhat benefits the bondholder versus having just used conversion at spot, and when spot is below the 30-day average, converting fiat-denominated interest to BTC somewhat benefits the interest payer versus having just used conversion at spot.

But the discrepancies between spot and the 30-day average are overlaid atop the far more significant underlying structure: from a yield perspective, when BTC rises against fiat, bondholders suffer in BTC-denominated terms, and when BTC falls against fiat, bondholders gain in BTC-denominated terms. From a yield perspective, for bondholders the instrument is and always has been a gamble on a fall in BTC versus fiat.

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...

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.

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.

The latest story seems to be that this was never intended as a fund-raising exercise at all and was merely intended to provide bookkeeping functions for existing shareholders. But there's a broader and ongoing problem here which comes down to woolly thinking: assuming without argument that what applies to individual consumers should apply to any entities at all, including businesses.

I appreciate the mathematical beauty of trustless systems in general and the quasi-anonymity of Bitcoin in particular, but none of the respect for privacy for individual consumers that is baked into the DNA of Bitcoin has anything whatsoever to do with institutions such as businesses and this fundamental fact about them: without identity, there is ultimately no accountability.

While identity might not be sufficient to provide accountability, it is a necessary condition for accountability.

And maybe I've been asleep at the wheel, but I've never heard one -- not even one -- decent argument as to why an exchange or an investor should tolerate someone aiming to raise money from other people to run a business without coming clean about their own identity. We're not talking about charities aiding political dissidents suffering under oppressive regimes, after all, we're talking about people in business to make a profit. Sure, there are plenty of assertions which boil down to "well, if you don't know, then I'm not going to tell you", but that's just mixing a spoonful of laziness with a dollop of condescension and hoping people will swallow it down without engaging their brains.

The bottom line is that if you are an asset issuer asking other people to fund your business without coming clean about who you are, you are asking to remain unaccountable. And if you're an exchange willing to list such assets, you're signalling that you're OK with that.

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.

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.

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.

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.

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.

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.

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?

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.

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!  

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?