For the benefit of anyone reading this thread who might be in the UK or elsewhere in Europe, speedybitcoin.co.uk seems to offer pretty decent service. A user in the UK can transfer directly to their account and a couple of hours later, presto -- BTC arrives safely.

I won't bother to pick out all the other quotes illustrating the full range of utter baloney here, but clearly I stand corrected: to rescue your credibility, you'll need to spend a few minutes not just reading up about how the Bitcoin protocol works, but you'll also need to revisit the basics of ETFs and in particular the distinction between Authorized Participants, normal investors, and the fund itself. It would also be worth considering actually reading the Winkelvii's S-1 filing before prognosticating about how you imagine redemptions might work.

There's a lengthy discussion about this from half a year ago available in the Economics section:

https://bitcointalk.org/index.php?topic=252330.msg2688380

As I have no involvement in your particular scheme, it doesn't matter a jot to me whether you actually want to rescue your credibility, but I've offered the suggestion -- twice now -- that you're not helping yourself in the least in the eyes of the people you claim to want to reach, and to whom you claim to be able to offer something of value. So just take it as a friendly observation of you shooting yourself in the foot, and if you believe I'm simply wrong about that and want to disregard it or dismiss it entirely, that's your call, and I'll leave it to you to keep shooting.

By now, most or all of the large Bitcoin holders who grok finance will have left this thread, but best of luck with it all anyway. Anything that genuinely improves access and transparency for the wider community is bound to be a good thing.

Your apparent re-invention of the Winkelvoss wheel, together with what seems to be your misunderstanding of the basics of the Bitcoin protocol as revealed by your response to User705, are really straining your credibility as someone well prepared for the intersection of traditional finance and Bitcoin. As I've just suggested in a PM, it may be a good idea to take a break from this discussion before you dig the hole any deeper and spend a few minutes reading up on Bitcoin; the Winkelvii have made it clear that they understand entirely the mechanics of holding BTC in trust, while your comments suggest that you do not.

NAV Update

For the month to 7 January 2014, the BTC Growth Forex Volatility Fund's net asset value rose marginally to .1005 BTC per unit, an increase of 0.5%, or approximately 6% on an annualised basis.

Due to my recovery from a back injury on the Monday preceding the fund's launch, for much of December the level of attention I was able to provide the fund was less than I would have liked. As a safety precaution, I therefore kept the fund's exposure to the market almost entirely hedged, meaning that while small gains continued to trickle in, the risk of loss due to sharp market movements was minimal.

As a result of my reduced availability during much of the month, I have discounted the fund management fee for the period by 50%.

Exchange Challenges and Moving Goalposts

The fund relies primarily on Bitfinex and ICBIT, but it has also had exposure to BTC.sx and indirect exposure to BTC-e.

During the period, Bitfinex rolled out a few changes which have impacted daily trading, most notably an altered interface for displaying available liquidity swap interest rates. While this generally improves margin borrowers' efficiency, it does not help the fund in any way, since it is inefficiencies which provide more opportunities for us.

ICBIT, however, has been far worse for the fund. In addition to widespread reports of trader defaults on 8 December and 19 December, which may have reduced our gains, and repeated problems with site responsiveness and reliability, the exchange also chose Sunday 5 January to introduce (quietly and without any official announcement, unless we count a comment in the troll box) it's most trader-unfriendly "improvement" yet: variation margin will no longer be assigned during twice-daily clearing and will simply float as unrealised profit or loss until the position is closed, via trade or settlement. A handful of participants who previously found it hard to track their cost basis under the normal (by futures standards) system of variation margin seem to like the change, but apart from those challenged by cost basis mathematics, it's not clear to me how this change could bring any benefit whatsoever to participants; for the exchange itself, by contrast, the value of indirectly levying steep new fees to realise gains is crystal clear.

Ironically, BTC.sx chose the same day to give just over three hours of notice that it was suspending trading for two days to perform platform upgrades. One potential benefit to the upgrades is the appearance in the trading interface of a mechanism for altering the stop level. The fund typically uses the site under only one scenario, specifically to make small delta adjustments to positions already established on other exchanges in response to expansion or contraction of contango in the futures market. (This is exactly analogous to adjustments traders make in ordinary stock markets to ensure that options positions move in the desired ratio relative to stock positions.) Because the site has stuck to narrow fixed stops -- and because it is insanely expensive to hold a position longer than 24 hours -- it has remained largely unsuitable for serious investment activity. In fact, the fund's NAV was negatively impacted twice during the month by the site's 8% stops, resulting in our being stopped out from a position that was otherwise profitable, and with knock-on effects that followed for the rest of our hedging strategy. The introduction of adjustable stops may reduce this problem and make the site more useful going forward.

Finally, the fund has been indirectly impacted by the recent change of BTC/USD exchange volume leadership first to Bitstamp and then to BTC-e, of all places. It remains to be seen whether the emergence of BTC-e as a volume leader will be sustainable, whether it is a temporary side effect of promotions connected with the site's introduction of MT4, or whether the availability of MT4 will actually keep what has long been regarded as a second-tier exchange at the top of the volume table. This matters to the fund because ICBIT's most liquid futures contract -- March 2014 -- is settled with reference to the BTC/USD exchange rate on the exchange with the highest volume. Since Mt. Gox, the former volume leader, trades around 14% higher than BTC-e and around 12% higher than Bitstamp, the current number two, the change from Gox for settlement has had a huge impact on the futures market. For the fund, this change has been negative.

Next Up

Barring any unforeseen major market events, we will plan to return with an update in approximately one month's time.

Please note that by default, participants' capital will be returned to them when the fund finishes in March. Participants who would prefer that their capital be retained for rollover into a second fund, should we elect to offer one, will need to indicate this preference in their account interface at least two weeks prior to the fund's closure. To date, most participants have indicated they would prefer to roll over their capital, but this preference can be changed up until two weeks prior to closure. The next report will include a note of the specific date on which we'll take a snapshot of participant preferences so as to manage the winding down of the fund.

For me, it's hard to fathom how BTCINVEST could be construed as anything resembling a hedge fund -- let alone a legitimate one -- or, even if it were a hedge fund, how that would offer any opportunity to "cook the books". (I do recall that when I pointed out to TF, in private, several errors in BTCINVEST's public reporting of NAV, TF thanked me for bringing the matter to his attention and promised to look into it.)

What is certain, however, is the timing of the following reply to my enquiry about requiring distributions to occur via CoinLenders, given that CL was already known not to maintain cash reserves sufficient to cover its obligations to depositors:


What was not disclosed was that the alleged hack had already occurred at the time of that reply.

I'm pleased to say that our intial private offering went off without a hitch, and the Forex Volatility Fund is now underway.

With the requisite admin tasks completed over the weekend and some initial fund allocations taking place on both Saturday and Sunday, we're now on track for the fund's three-month period of operation to finish up on 7 March 2014. Barring any major news before a month has passed, I'll plan on making an initial report during the week of 6 January 2014.

As some of you will probably be aware, the ICBIT exchange drastically altered its margin rules just days before the fund launched, and the effect has been to reduce many of the opportunities which had previously existed to capitalise on the relationship between contango^* in the longer-dated futures contracts and interest rates in the spot market. Going forward, this will make the fund's job more challenging, but hopefully the rule changes will also reduce the risk of default from counterparties on the losing end of futures contracts when variation margin is assigned. (As recently as just yesterday, some traders apparently defaulted due to the sharp fall in BTC vs. USD, and unfortunately such losses wind up being distributed against those of us who were neither in default nor on the losing end of the relevant contract.)

^*I'm using this term loosely (and wrongly), as seems to be the custom in Bitcoin futures, to refer to futures trading at a premium to spot; everywhere else in the world, contango and backwardation refer to the difference between futures and the expected spot price at settlement, not the spot price right now.

As I understand it, though, the exemption is specifically for commercial paper with maturities of 270 days or less -- and this fund would not pass the duck test. I.e., it doesn't look like commercial paper, and it doesn't act like commercial paper, so I think it would be hard to make the case that it is commercial paper.

The initial private offering has now closed, incidentally (with registrations of interest having been open for one week up until last Thursday), and we'll shortly be getting underway with the FVF fund.

At least one person missed the offering announcement, I'm afraid, but unfortunately the activity in the Securities section lately seems to be dominated primarily by one of two things: 1) people trying to recover funds from an old "investment" that was poorly managed or an outright scam, or 2) people trying to attract funds for a new "investment" that is poorly managed or an outright scam. As a result, it's easy for everything else to get drowned out.

Many thanks to all those who have already registered on the BTC Growth site to participate in the Forex Volatility Focus fund.

This is a quick update to let you know that I injured my back yesterday, and it's likely going to be at least a couple of days before I'm able to focus on getting things up and running. However, the registration process itself does not require any involvement from me, so all will proceed just fine for now even if I'm horizontal. Many thanks for your patience.

In the meantime, if you'd like to register your interest in participating in the fund, we still have another two days left of open registration.

Yada yada yada yaaawwwwnnn. Is there anybody else here besides you?

Despite my better judgement warning me it is an utter waste of my time to respond to such ongoing flailings and desperate attempts to lower the tone of the conversation, on this occasion I will accept the invitation to explain the inherent idiocy of claiming to provide competent options market making services while never hedging options positions and never entering naked positions.

By definition, an options market maker is a guaranteed buyer, and a guaranteed seller. The market maker does not get to decide, in advance, whether they're going to be buying or selling, and the market maker does not get to use a crystal ball to tell them, in advance, what demands are going to be made either to buy or sell options or to deliver or to take delivery of the underlying.

As a result, any competent market maker -- who, being competent and all, is not going to introduce inordinate levels of counterparty risk -- continually adjusts positions both in cash and in the underlying entity which are sufficient to cover their obligations created by ongoing sales and purchases of options. That's in addition to ongoing adjustments to bids and asks across option chains so as to accommodate changes in the price of the underlying and fluctuations in demand for the options. In my original example, when they're short a call, they might ensure that short position is balanced by a long in the underlying -- and, notably, maintaining that long position, whose price moves inversely relative to the short position, is the very definition of hedging. To the extent the position is covered, it is hedged -- by definition. Someone who claims otherwise either does not understand the meaning of the words, or they hope that you don't.

(I'm simplifying quite a bit here. More generally speaking, options market makers keep a lid on directional risk, or delta risk, via a range of strategies, including using futures. They also keep a lid on risks associated with the other Greeks -- gamma, vega, and theta -- but we're dealing here with someone who claims to provide competent market making while ignoring the obvious delta.)

The types of adjustments I've just outlined explain why, generally speaking, competent market makers tend not to lose large amounts of money: a competent market maker is not merely gambling with a pot of underlying capital by buying and selling options willy-nilly, hoping to make a killing on the bid/ask spread. On the contrary: their entire operation is designed and delta hedged so as to avoid wild swings in the net value of their position and to provide a service which is both extremely reliable for market participants -- by virtue of continually ensuring their ability to deliver on their obligations -- and highly profitable to themselves.

Merely "having money" and providing a bit of options market making without a grasp of the basic mechanics of risk management in the activity does not make one a competent market maker; it makes one a gambler.

Merely "having money" and occasionally losing large sums while options market making does not make one a competent market maker; it makes one a source of counterparty risk.

The bottom line is that out in the real world of finance, a supposed market maker who not only failed to grasp the concept of delta-neutral hedging but actively promoted their lack of hedging activity as some sort of good thing would be laughed out of the room -- or more likely just ignored. Only here, where Bitcoin finance remains in its infancy, can someone swagger in without a clue about even basic delta hedging, point to a big bag of money, and attempt to browbeat and intimidate folks into thinking that that somehow implies they know what they're doing and can be relied upon as a safe counterparty.

Until such time as you are capable of magicking up anything other than a fairly tale to explain how a competent options market maker can simultaneously never hedge option positions and never enter a naked option position, it will remain the case that the primary source of gross financial illiteracy being spewn all over innocent bystanders here is you.

The genuinely competent know when to acknowledge they've made a mistake. They also recognise when they've stepped over the boundary that separates healthy and even entertaining assertiveness from merely spewing logical incoherence and last-ditch defensiveness. It's a shame you seem to be blind to that boundary.

If you have some competence to show, and you'd like to take a stab at rescuing your previous assertions from logical incoherence, then have it it. If not, perhaps it would be worth considering whether all PR really is good PR after all -- or whether sometimes it actually matters whether you have something worthwhile to contribute.

The rest of us here on planet Earth will take your latest playground antics as an admission that your claims regarding never hedging options positions while simultaneously never entering naked options positions are every bit as laughable as they appeared when you first made them -- while your allusion to MPBOR smacks of proof by reference to converging irrelevancies.

Was the request to back up your condescension with substance too hard for you? Remember, all you have to do is explain how one never enters naked options positions, while simultaneously never hedging options positions.

Or did you mean for hand-waving references to borrowing to somehow accomplish this magical feat all by itself?

Interesting. Perhaps then you would enjoy deigning to explain to we mere mortals how one reconciles the following two statements:

1) I do not enter into naked (translation for current purposes: unhedged) options positions.

2) I do not hedge options positions.

Oh do tell, so that we may be enlightened.

Alternatively -- much as I suggested to you the last time you started throwing the weight of your own confusion around over in one of my threads where I had just rejected the possibility of listing on MPEx -- perhaps you'd like to run off and find a colleague or two who has acquired some investing experience elsewhere than while toddling around during Bitcoin's brief childhood, and first ask for an outside opinion on this ludicrous excuse for options market making.

The quasi-options available are generally priced by a bot which maintains a usurious spread and ludicrous levels of implied volatility frequently far above historical volatility -- making them a perfect way to extract cash from those who don't ignore the place entirely because they don't realise there are cheaper ways of doing this stuff. As for reliability, the operator claims in his site's FAQ that he "doesn't hedge...options positions".

However, a reliable market maker -- one which does not introduce inordinate levels of counterparty risk -- does not enter into naked positions. (No pun intended, despite MP's history of involvement in the Romanian porn industry: I mean naked options positions). Not entering naked positions means, for example, taking a long position in the underlying whenever one becomes net short in calls on that underlying. This type of hedge is part and parcel of any competent market making activity in derivatives. Failing to do so means failing to deliver under a non-trivial set of possible market outcomes. (It also means profiteering by continuing to run that risk of failing to deliver and not spending the resources to reduce that risk.)

As far as I can tell, judging by the shellacking which the bot sometimes takes, the claim about failing to hedge is correct. This suggests that with respect to options market making, the operation is not reliable from the standpoint of counterparty risk. To someone not paying attention to the counterparty risk which is necessarily introduced by a failure to hedge, the operation may appear to be perfectly safe and reliable...right up until it isn't. This is little different than the appearance that a 20-sided die will never come up showing '1', because it hasn't yet done so during your first 10 rolls.

Oh, and just as a reference point, the combined revenue for MPOE options contracts sold during August, September, and October was something around 2180 BTC.

The current open interest on ICBIT just in the March 2014 BTC/USD futures contract is 387,424, while volume is showing at a little under $13 million. I have no idea what the site's revenue on that volume might be. But it's interesting that during just the last 7 days, the top trader on ICBIT generated a profit of around 755 BTC, and during the last 30 days, the corresponding figure was 1877 BTC. In other words, the profit generated by just one trader during the last 30 days is approaching the entire MPOE options revenue across all contracts for a 3-month period.

ICBIT carries significant counterparty risk too, but at least it comes clean about it, as distinct from disingenuously promoting a failure to hedge as a positive point, rather than as an indication of what it really is.

EDIT: Clarified my wording about revenues and volumes.

Many thanks, and a belated Happy Thanksgiving to you as well. 

Several folks have now registered their interest in participating in the fund, despite the naturally quiet day yesterday. (Unfortunately, the announcement itself has now slipped off the front page of the Securities section, but hopefully those interested will still get to hear about it via this thread instead.)

I've now posted a separate announcement that registrations of interest via the BTC Growth site will be open for the next week:

https://bitcointalk.org/index.php?topic=350281

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.

If we allow "identity" to encompass non-real world identity -- say, a pseudonymous user name on a discussion forum -- then sure, you might at a stretch say there's some sort of quasi-accountability there, in the sense that behaviours become associated with the pseudonymous "identity" rather than just being chalked up to an entirely anonymous entity.

But to the extent that the sort of accountability that I think people will be concerned with -- especially the large set of people who have lost money to unaccountable, pseudonymous operators wearing badges of "trust" bestowed by the Bitcoin forum software -- is real world accountability, it seems to me pretty darned difficult to achieve that without real world identity.

There's a world of difference between knowing, for example, that a person with the pseudonymous "identity" of "ExampleScammerDude" is responsible for stealing a bunch of cash, and the real person behind "ExampleScammerDude" being in any way accountable for having stolen a bunch of cash.

I really appreciate the situation and the impact that these types of restrictions have on most of us.

In the current climate, however, at least as far as I can tell, a direct fund provider can either be identifiable and accountable, or a direct fund provider can be be open to all -- but not both at the same time. Find a direct fund provider who has come clean about their own identity, is accountable for their actions, and who doesn't place restrictions on participation, and you've found a ticking time bomb. Find one that is able to remain open to all by insisting on their own anonymity, and you'll find one that is ultimately unaccountable -- since ultimately, without identity, there is no accountability.

That very problem is something to ponder when reading the spate of new "fund" announcements from would-be currency arbitrageurs. (The other thing to ponder about those is the apparent universal failure of their promoters to grasp that arbitrage is, by definition, risk-free profit. To the extent that a supposed "arbitrage fund" is not risk-free, it is not an arbitrage fund at all.)