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?

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.

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.

As a general point, not necessarily specific to this security, loan-type securities can also wind up being discounted below face value when questions arise over the viability of assets backing the loan, or more generally over the debtor's ability to pay in a timely fashion. Over the last couple of weeks in particular, those kinds of questions have come up with regard to several different individuals and businesses.

As far as I can tell, the domain name itself expired yesterday, and the registrar eNom has helpfully decided to cease providing correct DNS information with immediate effect: their service at name-services.com is now returning the IP 8.5.1.36 for btct.co queries instead of the IP 141.101.113.21.

I am not recommending the following, because many people will rightfully expect a signed, sealed, and gold plated confirmation from Ethan before trusting any information about IP addresses, but if you were to place the original IP address in a hosts file, and clear your DNS cache, you would then find that the site is still very much alive and kicking. I have just done this myself and could see the last trade shown on the front page was only 49 seconds ago, so either people with cached DNS information are still able to get there, or the problem was resolved while I was typing.

The registration itself should have a grace period, and abruptly ceasing DNS services for the domain does not, in my view, speak very well at all for eNom.

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.

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.

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

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.)

That looks to be the case. However, there were also three payments on the 27th (maybe to cover 28th and 29th in advance?), and a 150% payment on the 30th.

We've heard from quite a few people who put money in the J-D bankroll, left it unattended, and lost large chunks of it. I have every sympathy for those losses.

Apart from the ongoing discussions about bet size and house edge, though, now it turns out that much of the "blame" for these losses is being placed squarely on the shoulders of those investors who choose to time their moves in and out of the bankroll, rather than putting it in once and leaving it unattended. Now there are even suggestions about how to "fix" the problem by enforcing capital controls, restricting investors from moving in and out of the bankroll according to their own preferences.

Focusing in on a specific imagined scenario -- namely, that everyone else is out there timing their investments in the bankroll perfectly, and that if only those darned "day traders" would go away, then a set-it-and-forget-it investment strategy could finally pay off again -- is, in my view, missing the forest for the trees.

It is trying to turn a model which has high variance baked in as an essential feature into something else entirely, something with "protections" for "investors", but only for a specific set of "investors" -- namely, those who are vocal about losing money from their unattended investments and expect dooglus to do something to help them get it back.

It's missing the fact that introducing asymmetric capital controls -- e.g., divest when you want, but invest only after a delay -- would, for a fixed investment size, be likely to increase the magnitude of changes in both directions by driving away capital that would otherwise have been lent to the bankroll. It's missing the fact that if those darned "day traders" are not standing by to add capital to the bankroll when the house is losing, then there's nothing to prevent the maximum profit from shrinking right along with the bankroll. It's missing the risk of actually breaking the house altogether, should a determined whale's winnings grow large enough relative to the size of a shrinking bankroll no longer being replenished by those silly "day traders".

My point is not to name every last problem with attempts to control how other investors lend to the bankroll, it's just to make a more general point related to that old saying that there's no such thing as a free lunch. I believe it's a mistake to imagine that making it harder to invest in the bankroll would make things better for the set of investors who want to be able to put their money into J-D, leave it, and come back after a day or a week or a month and see how nicely it's grown. Throughout history, we've seen over and over that fiddling with complex financial systems by enforcing capital controls designed to "protect" winds up having unintended consequences. Seemingly "protective" capital controls have a habit of increasing variance, not decreasing it.

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.

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.

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...

An order entry interface which includes a button labelled "Save" that actually means "Execute" is not a particularly good example of "user-friendly" design...

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.

As of this moment, his profile shows he hasn't been active since 21 September. I tried PM-ing yesterday as well as emailing the address specified on the BTC-BOND details page just a few minutes ago, but no luck so far...

Great -- that clarifies it. Many thanks.

Just to clarify my understanding...

Do you mean do not use this facility at all this week prior to dividends (do not use it on Tuesday, for example)?

Or just do not use it on Wednesday right before dividends go out?

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.