2012-10-08 hedgeweek.com - The emergence of electronic gold...?

[julz]

The emergence of electronic gold...?

2012-10-08

(Article not publicly available without signing up - T &C's seem to require that you be an 'accredited investor' or 'suitably regulated to access this information'.
I don't know if/how they verify this)

http://www.hedgeweek.com/2012/10/08/174393/emergence-electronic-gold%E2%80%A6

“I hope our fund will be the first hedge fund to take advantage of using Bitcoins,” explains Anatoliy Knyazev in Moscow.
One of Exante's managing partners, Knyazev confirms that the firm is currently in the process of structuring the fund with a view to launch this autumn.

Bitcoin is a decentralised, digital currency that could revolutionise the world of payments.

I'm reporting this despite the lack of access to the text.. as the snippets available via google seems interesting.
Please fill in with any more info if you happen to have access.

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[julz]

Exante is headquartered in Malta and was founded in March 2011 - it claims in Sept 2012 that: "XANTE Hedge Funds marketplace capitalisation reaches USD1.52bn"
https://exante.eu/company/news/96/

[n8rwJeTt8TrrLKPa55eU]

Could be very significant.

A sngle well-capitalized hedge fund with a few billion to spend, could buy out the entire supply on Gox and still have change left over.

[World]

Can someone pls read this article and post full details?

[Stephen Gornick]

A sngle well-capitalized hedge fund with a few billion to spend, could buy out the entire supply on Gox and still have change left over.

All that is needed is for one to be the first,  It may already have happened, just not publicly.  But once that happens, others that were reluctant to be first now don't have the barrier.

This is a very interesting development.

[n8rwJeTt8TrrLKPa55eU]

A sngle well-capitalized hedge fund with a few billion to spend, could buy out the entire supply on Gox and still have change left over.

All that is needed is for one to be the first,  It may already have happened, just not publicly.  But once that happens, others that were reluctant to be first now don't have the barrier.

Undoubtedly true, there is a large lemming effect in the hedge fund industry, possibly Bitcoin will play out the same dynamic as in gold during the past decade which went from being shunned to becoming a somewhat common holding, particularly after Soros and Paulson went long.

The interesting & appealing thing about Bitcoin as a portfolio diversifier is that (for now at least) it marches to the beat of its own drummer, and its movements seem uncorrelated to anything else, including central bank liquidity ups and downs.  A very hard to find quality in any asset class at the moment.

[Serith]

It is accessible through google's cache.
http://webcache.googleusercontent.com/search?q=cache:http://www.hedgeweek.com/2012/10/08/174393/emergence-electronic-gold%E2%80%A6

“I hope our fund will be the first hedge fund to take advantage of using Bitcoins,” explains Anatoliy Knyazev in Moscow. One of Exante’s managing partners, Knyazev confirms that the firm is currently in the process of structuring the fund, with a view to launch this autumn.

Bitcoin is a decentralised, digital currency that could revolutionise the world of payments. It refers to both the open source software used to trade the electronic currency, as well as the currency itself. An anonymous group developed the concept in 2009, publishing a white paper that detailed the crypto-currency algorithms and proof of how Bitcoin worked.

As Knyazev explains: “Bitcoin is basically an electronic version of cash, or gold. Each user has a file on the computer representing their wallet. It has a unique public key which you use to send and receive money.” In order to use received Bitcoins, the user needs to have the private key that matches the public key the Bitcoin was received with.

Bitcoins function the same way as cash: every transaction made is irreversible, and if, for whatever reason, the Bitcoin wallet is lost, there is no way of retrieving it: “What’s lost is lost, what’s transferred is transferred,” says Knyazev.

The Bitcoin system is peer-to-peer. All transactions are visible, and by using cryptographic algorithms Bitcoin is able to verify every successful transaction. What this does is build an ever-growing chain of transactions, allowing users to see where Bitcoins have been traded.

It’s still early days for Bitcoin, which remains a highbrow concept. However, one of the features that could prove critical to its success is in-built deflation. This is because the rate at which Bitcoins arrive into the system is pre-determined. That rate follows a pre-determined curve, which will drop at a future point causing the inflow of new Bitcoins to reduce.

“With Bitcoin you have a process called ‘mining’, which involves the accrual of Bitcoins. To mine at a significant rate one needs custom designed hardware with GPUs or FPGAs,” says Knyazev. This lies at the heart of Exante’s investment strategy in the Bitcoin fund: to raise assets in US dollars and euros and purchase Bitcoins, whose value should increase over time as more users mine them.

“We will hold the Bitcoins securely in a Swiss vault over a period of three, five, 10 years. The fund will be a regulated entity through which institutional investors will be able to access the Bitcoin market,” says Knyazev.

As the rate at which Bitcoins are added to the system is controlled, it means that the more people mine, the less they will get: at a rate of 50 Bitcoins a day, one person mining can get all 50 Bitcoins. However, if 50 people are mining, the most they’ll get is one Bitcoin, and so on. The higher the numbers, the more competitive it’ll become.

“The system will peak at 21 million Bitcoins in 2020. Right now, in terms of where we are on the curve, around one half of the Bitcoins have been mined globally. The rate of circulation is higher in the early stages and slows down with time. So even though it’s only taken three years to mine half of the Bitcoins, it will take another 10 years to mine the remaining half,” explains Knyazev.

The niche fund strategy plans to launch with around EUR1million and Knyazev is excited about its prospects:

“As soon as Exante’s clients hear about a smart new idea they tend to want to get involved. We are confident this will be the case with the Bitcoin fund.”

[kiba]

Information about mining is a bit inaccurate. Only one person or mining operation or mining pool at a given time will win all 50 bitcoin. Otherwise, it seems all the other information is spot on.

[grishnakh]

Interesting. A risky move. I was not expecting to hear this kind of news still in a while.

[nybble41]

“With Bitcoin you have a process called ‘mining’, which involves the accrual of Bitcoins. To mine at a significant rate one needs custom designed hardware with GPUs or FPGAs,” says Knyazev. This lies at the heart of Exante’s investment strategy in the Bitcoin fund: to raise assets in US dollars and euros and purchase Bitcoins, whose value should increase over time as more users mine them.

(Emphasis added.) I really hope that isn't their entire investment strategy, because it's completely backwards. Mining bitcoins increases the supply, devaluing the coins. Right now, the price is going up only because the market for bitcoins is expanding even faster than the supply. The system is still highly inflationary (as it must be at the start--the coins have to be introduced somehow). Long-term, assuming the project is successful, the cap on total bitcoins mined will reduce the inflation rate to near zero, meaning that any increase or decrease must reflect a change in the size of the bitcoin economy. In either case, more mining works against an increase in market value.

Information about mining is a bit inaccurate. Only one person or mining operation or mining pool at a given time will win all 50 bitcoin. Otherwise, it seems all the other information is spot on.

They also implied that only 50 bitcoins are mined per day, when the actual number is 50 BTC every ten minutes (7200 BTC per day), on average, soon to be 25 BTC every ten minutes (3600 BTC per day). Of course, it will drop to 50 BTC per day eventually, but that day is still a long way off.

[Piper67]

“With Bitcoin you have a process called ‘mining’, which involves the accrual of Bitcoins. To mine at a significant rate one needs custom designed hardware with GPUs or FPGAs,” says Knyazev. This lies at the heart of Exante’s investment strategy in the Bitcoin fund: to raise assets in US dollars and euros and purchase Bitcoins, whose value should increase over time as more users mine them.

(Emphasis added.) I really hope that isn't their entire investment strategy, because it's completely backwards. Mining bitcoins increases the supply, devaluing the coins. Right now, the price is going up only because the market for bitcoins is expanding even faster than the supply. The system is still highly inflationary (as it must be at the start--the coins have to be introduced somehow). Long-term, assuming the project is successful, the cap on total bitcoins mined will reduce the inflation rate to near zero, meaning that any increase or decrease must reflect a change in the size of the bitcoin economy. In either case, more mining works against an increase in market value.

No, Bitcoin mining doesn't increase the supply. It increases the difficulty, which the algorithm adjusts to keep the supply at the intended level. The supply will be 50 coins every ten minutes (on average) until a few weeks from now, then 25 coins every ten minutes for another four years, then 12.5 coins and so on. More mining does not equal more coins.

[Fjordbit]

No, Bitcoin mining doesn't increase the supply. It increases the difficulty, which the algorithm adjusts to keep the supply at the intended level. The supply will be 50 coins every ten minutes (on average) until a few weeks from now, then 25 coins every ten minutes for another four years, then 12.5 coins and so on. More mining does not equal more coins.

It think this is well understood. nybble41 was just saying that the process of mining increases the aggregate supply, meaning it represents monetary inflation in Bitcoin (currently near 25%, soon to be 12.5% per year). His points still stand.

[nybble41]

No, Bitcoin mining doesn't increase the supply. It increases the difficulty, which the algorithm adjusts to keep the supply at the intended level. The supply will be 50 coins every ten minutes (on average) until a few weeks from now, then 25 coins every ten minutes for another four years, then 12.5 coins and so on. More mining does not equal more coins.

You're using "supply" to where I used "increase in supply", but we're really in agreement here. The supply of bitcoins is the total amount which have been mined (minus any which have been permanently lost). Mining is the process by which that supply increases. The rate of increase is mostly independent of the amount of mining, due to the difficulty adjustments. (But note that difficulty adjustments lag mining changes, and can only change so quickly, so increases in mining can have some influence on the rate of increase in supply.)

[nybble41]

In either case, more mining works against an increase in market value.

As long as we're defining terms, I would like to clarify that "more mining" in this sentence was a reference to more coins mined (more time having passed), not a higher hash rate. Regarding the hash rate, the causal relationship is the other way around: people start mining because the price increased relative to difficulty; the price doesn't increase because more people are mining.

[julz]

The article is available in this PDF document: http://www.hedgeweek.com/sites/default/files/HW_Exante_Report_12_0.pdf


Bitcoin also mentioned in this related press release, which suggests the fund has been 'established' - as opposed to the previous statement of 'in the process of structuring'.

2012-10-15
http://eworldwire.com/pressreleases/212644

The Hedgeweek Special Report introduces the recently established Bitcoin Fund, which has been designed to institutionalize one of the most successful electronic currencies - Bitcoin. The purpose of the fund is to give an opportunity for professional investors and eligible counterparties to take an advantage of appreciation of digital currency Bitcoin, which otherwise would not be possible.

[Akka]

We will hold the Bitcoins securely in a Swiss vault

On a USB stick?

[marcus_of_augustus]

We will hold the Bitcoins securely in a Swiss vault

On a USB stick?

A UBS stick?

[Akka]

We will hold the Bitcoins securely in a Swiss vault

On a USB stick?

A UBS stick?

googles UBS...

... LOL.


Or maybe as Cascasius Coins. Hopefully they don't buy the chocolate ones.