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 FocusUpdates 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 FundThe 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 ManagerThe 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 FAQHaving 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.
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