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1  Economy / Trading Discussion / Selling the Froth: A Hedged Forex Strategy and What, if Anything, It Tells Us on: March 03, 2014, 02:27:57 PM
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.
2  Economy / Securities / [Direct] BTC Growth - Second Round Forex Fund Now Open, Plus Long/Short Funds on: February 25, 2014, 01:17:59 PM
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.
3  Economy / Securities / BTC Growth - Forex Volatility Focus - Initial Private Offering Details on: November 28, 2013, 01:02:50 PM
The Forex Volatility Focus fund is now accepting registrations of interest for its initial private offering. Initial registration via the BTC Growth site -- visit the contact page and click on "register here" -- will remain open from today (28 November 2013) thru Thursday 5 December at 14:00 GMT.

For further details about the fund itself, please see the linked site or the original forum announcement here:

BTC Growth - Forex Volatility Focus

This thread is intended just for fielding any questions about registration; please use the main discussion thread for any feedback or questions about the fund itself.
4  Economy / Securities / [Direct] BTC Growth - Forex Volatility Focus on: November 14, 2013, 04:54:13 PM
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.

-----

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.
5  Economy / Securities / [BTC-TC] IPO Details for BTC-GROWTH on: August 13, 2013, 01:07:06 PM
UPDATE: As of around 7 pm UK time on Friday 16 August, the initial tranche of shares has been allocated. We don't plan to release further tranches immediately, although we may do so in future should shares begin to trade at a premium to the most recently published NAV. (Please see the section "Subscriptions and Redemptions" for more details.)

The initial offering for BTC Growth will kick off on Thursday 15 August at 1 pm UK time. For reference, this is 8 am in New York and 8 pm in Beijing.

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

For more information on the new offering, please see the exchange documents available at the URL above, or stop by the discussion thread here:

https://bitcointalk.org/index.php?topic=266828.0

Based upon demand, we'll set up an initial tranche and release additional tranches over the following few days if necessary to ensure that those who would like to participate have an opportunity to do so. Note that the offering price is 0.1 BTC, and there should be no need to pay a premium to that price during the offering. (Unlike an equity offering, where there might be disagreement about the value of the underlying assets, leading to some price discovery dynamics following the offering, this offering is for a fund and therefore represents nothing more than the raising of capital.)

If there are any questions specific to the initial offering itself, please fire away; I'll likely be out of the office on Wednesday, but I'll check back into this thread both later today and on Thursday in case anything comes up. For more general feedback on the fund itself, as distinct from the offering mechanics, please visit the original thread mentioned above.
6  Economy / Securities / [BTC-TC] BTC Growth: Capital Growth via Hedge Fund-Style Investing on: August 02, 2013, 02:14:42 PM
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.
7  Bitcoin / Bitcoin Discussion / Is Focusing on Anonymity Over Privacy Holding Back Bitcoin? on: July 17, 2013, 08:45:23 AM
Every so often, the distinction between anonymity and privacy comes up, and I recently tried to bring a few ideas together on this in an article suggesting that privacy in the Bitcoin economy often winds up either being conflated with anonymity or being set aside in the implicit belief that if you take care of the anonymity, then the privacy will take care of itself. In my view, this is pretty far from the truth.

The article suggests that preoccupation with anonymity risks both undermining privacy itself and impeding the wider acceptance of Bitcoins as a currency for conducting business. Many people in the broader economy are far more concerned with their privacy than with the capability to conduct transactions anonymously, and unfortunately many of the makeshift solutions which have been developed to address the challenges which anonymity creates actually risk making privacy in the Bitcoin economy worse, rather than better.

The article also touches on the extent to which increasingly powerful network analyis tools mean that each identification of a link between a real person and a single transaction -- i.e., identification of one vertex in an overall flow of transactions -- could potentially impact the privacy of other people and other transactions.

The full article is here:

In the Bitcoin Economy, Anonymity and Privacy are Not the Same Thing

Thoughts, comments, criticisms all welcome...
8  Economy / Economics / Winkelvoss ETP could become THE pricing mechanism for BTC on: July 08, 2013, 02:48:16 PM
Last week, I put together some thoughts on the potential impact of the Winkelvoss Bitcoin Trust on current exchanges such as Mt. Gox. At first glance, it might seem like exchanges would be dancing in the streets -- after all, shouldn't more potential demand for Bitcoins mean more potential business for exchanges? On the contrary, I'd suggest that the trust, if approved, would 1) wind up becoming the principal price discovery mechanism for Bitcoin, supplanting existing exchanges, and 2) drain much of the existing speculative and investment volume away from the exchanges.

In my view, this is partially due to the larger potential volume for the trust, which would remove many of the barriers that currently keep the ordinary person on the street from participating in the Bitcoin economy, and partially due to the sorry state of existing exchanges, especially their universal failure to grab the counterpary risk baton and run with it. (Existing exchanges just provide networks of buyers and sellers, as opposed to acting as counterparty for each trade.)

The full article is here:

Winklevoss Bitcoin Trust May Become THE Price Discovery Mechanism for Bitcoin

Comments, criticisms, corrections welcome...
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