You'll forgive me, I hope, if the feelings of crankiness you're managing to generate show through a bit here...


This has nothing to do with meeting SEC requirements; it has to do with satisfying the barest minimum of demonstrating an accurate grasp of basic concepts.


Here again, this has nothing to do with giving a specific number for returns; it has to do with spouting acronyms in a nonsensical context and either 1) not knowing what they mean, or 2) hoping that nobody else knows what they mean.


Of course I do, but I do not provide free consulting in this sort of context.


Wow, now you're just insulting people's intelligence while simultaneously looking silly.

You are talking about a BTC-denominated "investment". When you sell BTC out of the coffers of a BTC-denominated investment, you are liable for ultimately replenishing those coffers with BTC. The equity of that BTC-denominated investment is -- shocker -- valued in BTC. You don't get to put USD equities, USD loans to friends, and fluffy white kittens on the balance sheet and just value them however you want to value them -- you value them in BTC. This has nothing to do with special "btc community definitions".

Since you've steadfastly avoided the question of how you intend to hedge your short positions in BTC, all while insisting that you're not really going to be short BTC at all, you might enjoy the article "How to Lose Money with a Bitcoin Investment, Part 2: The Unhedged Short". Or even "How to Short Bitcoin -- Without Just Being Silly".

My point was that the original statement was nonsense. Saying that if you know about EMAs and MACD then you'll know what the returns look like is exactly analogous to saying that if you know what an average temperature looks like, then you'll know how many cherry tomatoes I'm going to grow this year. Since EMAs are statistical properties of markets, and average temperatures are statistical properties of weather, then yes, sure, they have some bearing on investment returns and cherry tomato returns, respectively, but to say that one somehow sheds light on predictions of the other is pure nonsense.


On the contrary, selling BTC to buy fiat -- regardless of whether that's to invest in equities, options, fiat-denominated debt, or cherry tomatoes -- is exactly what it means to take a short a position in BTC.

Sniff test failed, utterly and completely.

I am "familiar with EMAs and MACD", and I can say with 100% certainty that they tell me nothing whatsoever about what your "returns would look like".


So 25% of the "portfolio" will be short BTC, invested in fiat-denominated instruments on exchanges which you haven't mentioned, and hedged against increases in BTC via mechanisms that you haven't spelled out, meeting AML/KYC requirements in ways you haven't elucidated.

Addressing these kinds of basics directly could help improve the plausibility of what you're proposing and help it possibly, maybe -- probably not, but perhaps -- even pass the sniff test.

Kate's public comments have strongly suggested that she does not understand (or perhaps merely does not want to acknowledge) the fundamentals of capitalising a business, and in particular the seniority of debt over equity. This basic feature of debt financing was thinly papered over at the time the bond scheme was created, so it should not come as a surprise now to find that bond holders have been placed second in line.

One of the many things that mystified me at the time Deprived decided to back these bonds in such a big way was that he and Kate had a public discussion about this, right here on the forum (not going to bother looking it up, but it's out there), and Kate never did address the basic question about the senior claim of bond holders. Given the gaping chasm of elementary financial confusion which appeared to have been embodied in the bonds right from the get-go, I concluded at the time that something must have been hammered out in private between the two of them to address the issue, and since I didn't personally see any value in the bonds as an investment anyway, I didn't bother to follow it up.

If the bonds-that-don't-behave-like-bonds are now coming home to roost, I don't think it would be at all unreasonable to expect a full and complete explanation and a public commitment to observing the fundamental seniority of debt over equity.

Too funny. Despite the incoherence of his blog post, at least MP has finally stepped up and conceded the incompetence of his former approach to options market making. For finally admitting that and quitting the business of options market making without being adequately prepared, he deserves a positive acknowledgement.

It's ironic that it was just a few months ago I warned about the risks of MP's approach to market making and even spelled it out for MP's PR lackey, but since she seems to have trouble with words of more than two syllables, all we got in return at the time was an unflattering spectacle of her flailing about in her own misunderstandings. Fortunately, MP's actions in quitting the business speak louder even than the PR lackey.

Now back to something more interesting.

Clearly -- but even more so. IMHO, would-be investors in the Bitcoin space expect completely unrealistic levels of return from real businesses and real investments, yet fail to demand sufficiently high levels of return in exchange for funding junk debt. This ongoing failure to differentiate between clearly different risk profiles all but guarantees that the market will continue to be flooded with garbage. High-quality investments won't make it to market because investors unrealistically expect them to deliver junk-style returns, while those peddling actual junk are banging on the doors of any exchange or any individual creditor who will have them, because in risk-adjusted terms, most Bitcoin "investors" are giving away free money.

Yep, don't get me wrong -- I'm not defending anyone's bonds!

Borrowers paying exorbitant rates of interest are doing so because they have to do so in order to attract capital, not out of the kindness of their hearts.

From an article last year called "Junk Bond Indigestion in the Bitcoin Economy":

"...promises of exceptionally high yields on Bitcoin-denominated debt do not represent the “going rate” or remotely plausible yield expectations for debt or other Bitcoin investments; they represent nothing more than the risk premium for low-quality debt."


Just to clarify, the current yield on US 30-year treasuries is 3.56% per annum.

Folks following the BTC Growth funds -- and especially participants in the Forex Volatility Focus fund -- might be interested in a separate thread on an article I sent out earlier today called "Selling the Froth: A Simple Hedged Forex Strategy for Bitcoin-Denominated Returns". It covers a simple strategy which is relevant to the fund.

Any comments, etc. are welcome!

Although I wouldn't ordinarily launch into a discussion about trading strategies which are directly relevant to one of my own hedge funds, today I finished up an article called "Selling the Froth: A Simple Hedged Forex Strategy for Bitcoin-Denominated Returns", and I'd welcome any comments, criticisms, or alternative interpretations of what I've been seeing.

In a nutshell, on several occasions over a period of many months, it's been possible to lock in a reasonable level of return in BTC terms by buying additional bitcoins and shorting a corresponding number of Bitcoin vs. USD futures. Modelling over a range of exchange rate changes from -90% to +400% for the value of BTC, the strategy can still remain profitable -- sometimes even beyond a 400% gain in the value of the bitcoins purchased as part of the strategy.

What's puzzling to me is why such a strategy would remain profitable, given that it doesn't require taking a directional position, and given that it can be profitable even when plugging in quite a high cost of capital; i.e., why hasn't such an opportunity already been eliminated? In the article, I suggest at least two possibilities, including an inefficiency in the market or an aggregate market view of the futures exchange that is fairly negative, but as I say, I'd welcome comments, criticisms, or other interpretations.

Just an update: I've corrected the closing date for registrations to 6 March 2014, rather than the originally indicated 10 March.

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

The second round of the BTC Growth - Forex Volatility Fund is now open for registrations of interest thru 6 March 2014 at 12 noon (GMT).

Concurrently, registrations of interest are now open for two companion funds. Based on the same underlying framework as the Forex Volatility Fund, one will offer only exposure that is net long Bitcoin versus the US dollar, while the other will offer only exposure that is net short Bitcoin versus the US dollar. Please see the main BTC Growth funds page for details. The former may be suitable for potential participants who anticipate an increase in the value of Bitcoin versus the dollar during a period of time coinciding with the fund's operation, while the latter may be suitable for potential participants who anticipate a decrease in the value of Bitcoin versus the dollar during the same period.

This thread is intended only to cover the mechanics of registering interest for the private offering; for feedback on the funds themselves, please see the original forum thread on the BTC Growth - Forex Volatility Fund.

Just a quick note for folks following this thread directly: we've now opened registration for the second round of our Forex Volatility Fund, and I'll post a separate announcement shortly. (Registration will remain open thru 6 March at 12 noon GMT.)

In addition, we've decided to offer two companion funds at the same time, both operating along the same lines as the main FVF fund, but one offering long-only exposure and the other offering short-only exposure.

Finally, I've updated the document on risk factors for funds involving derivatives in order to highlight the fact that returns from a directional position established using futures can be impacted significantly by changes in contango or backwardation, quite apart from directional moves in the underlying spot market.

[Edit: corrected registration deadline to 6 March from 10 March.]

A thread started last summer (still active) includes some suggestions:

List of Bitcoin Hostile (and friendly) Banks

It might be a worthwhile starting point.

Yawn.

You may take solace in the knowledge that among people actually doing finance of any kind, it is pretenders such as yourself and MP who are laughingstocks.

Problems With BTC.sx Order Execution

Here's an urgent warning to anyone who might be considering using BTC.sx today, 10 February 2014, as part of any multi-part/hedged position: don't. I've just waited over 10 minutes staring at an order status message saying "Awaiting Fill...", during which time no option was provided for cancelling the order. Finally, after around 11 minutes and under completely different market conditions, the order -- which was by that time worse than worthless to the fund -- finally executed.

As anyone who has been observing the markets in the wake of Mt Gox's announcement about the "transaction malleability" flaw in the underlying Bitcoin protocol will be aware, 10 minutes is one heckuva long time, especially when it comes to multi-part/hedged positions which you might expect to be able to enter and exit in a matter of seconds.

Note that for comparison, the Mt Gox trading engine lag as displayed by bitcoinity.org did not exceed 4 minutes at any time after the first minute or two of this wait. (I began following Mt Gox activity directly as soon as it became apparent something had gone spectacularly wrong.) And ironically, when the order finally executed and I immediately closed it for a loss, that happened immediately and without delay.

I have emailed Joe at BTC.sx hoping to find out what on Earth was going on, but I am posting this now in hopes it will serve as a warning to anyone else who might be wrong-footed by this surprising and frustrating "Awaiting Fill..." message.

Impact on the Fund

Due to the fun of repeatedly chasing my tail for several minutes, backing out of positions left unhedged by the BTC.sx delay, and eating the spread both at BTC.sx and at ICBIT as a result, the fund has taken a haircut of just over 2% -- enough to erase all our gains to date.

On a personal note, I am not at all happy about this outcome.

For the benefit of anyone who happens to be considering using BTC.sx right now, today, here's a big red warning: I've just waited over 10 minutes watching a relatively small order display the message "Awaiting Fill...". By the end of that time, when the order finally executed, the market and -- more importantly -- the rest of a hedged position changed significantly. Once an order is stuck in "Awaiting Fill...", there is no way to cancel: you're stuck. I had not previously seen this "Awaiting Fill..." message, so I don't know whether it's a part of the site's recently upgraded functionality or whether it's been there all along.

Until this behaviour is rectified or at least disclosed by the site as a possible outcome of submitting an order, I cannot recommend it for any position that would rely on BTC.sx as part of a hedge.

NAV Update

For the month to 7 February 2014, the BTC Growth Forex Volatility Fund's net asset value rose to .1013 BTC per unit, an increase of 0.837%, or approximately 10.5% on an annualised basis.

Trade in BTC versus the dollar and other currencies during the last month has been largely lethargic and directionless, presenting the fund with few strong opportunities. The fund is currently positioned cautiously, with a bias that is slightly long on a net basis.

Arrangements for Fund Rollover and the Fund's Second Round

This first round of the Forex Volatility Fund will wind down on 7 March, and by default all capital will be returned to participants at the address they specified when registering for the fund.

A second round of the fund will be offered, to commence in March, subject to sufficient participation. Current participants who would like their existing positions to be rolled over into the second round must specify their preference to do so by Friday 21 February 2014 at 12 noon GMT. All participants are urged to review and confirm the rollover setting in their account interface prior to that date.

Should the fund's second round go ahead, it will proceed under the same terms as the first round, as outlined on the BTC Growth website, including the initial net asset value for calculation purposes of 0.1 BTC per unit. New units in the fund's second round will therefore be allocated to participants rolling over from the first round according to the value of their position in the first round. Fractional balances below 0.1 BTC will be held separately and returned or rolled over at the conclusion of the second round. For example, if a participant holds 50 units in the first round, which at the conclusion of the first round are worth 5.15 BTC, they will hold 51 units in the second round, with the additional 0.05 BTC returned when the second fund finishes operation.

No subscription fee will be charged for fund rollovers.

New Participants in Round Two of the Forex Volatility Fund

The second round of the fund will open shortly for new participant registration, under the same terms as the first round, which are available here:

BTC Growth - Forex Volatility Focus

A separate announcement will provide further details when new registrations open for round two.

Market Environment and Exchange Challenges

For much of the month, the fund has maintained a bias that is slightly long on a net basis, partly with the view that widespread concerns about the impact of changes in Chinese regulations taking effect at the end of January were both overblown and already priced in. But while no meltdown has occurred, neither has any resumption of an uptrend in Bitcoin versus the dollar or other currencies.

The fund has no direct exposure to Mt. Gox and thus was impacted only indirectly by the broader market's negative reaction to the exchange's abrupt announcement on 7 February that it was "temporarily" and immediately halting BTC withdrawals.

Next Up

Barring any unforeseen major market events, we will plan to return with an update at or shortly after the conclusion of this first round of the fund.

This is just a quick note to let everyone involved with our fund know that the BTCGrowth.com site as well as several other of our sites are currently down due to what appears to be a network outage at the server's data centre. In addition to the disappearing sites, this also means that I will not, for the time being, receive emails sent to any of my usual addresses.

No Bitcoins are stored on the server.

Many thanks for your patience, and we hope to be up and running again soon.

Should the ETF go ahead, then IMHO, it's very likely that standardized options will appear -- and that, finally and at long last, will provide a credible mechanism for large Bitcoin handlers to hedge positions effectively. (No, the existing quasi options offered on "THE" exchange don't come close to offering such a credible mechanism. And the futures available on ICBIT become less and less appealing with every new change to the exchange's "rules".) Making more effective hedging possible would arguably remove one of the major roadblocks currently standing in the way of larger scale adoption of Bitcoin for real commerce.