[BTC-TC] BTC Growth: Capital Growth via Hedge Fund-Style Investing

[DrGregMulhauser]

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.

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[DrGregMulhauser]

13 August 2013

The full document held by the exchange has been updated with the addition of the following section headed "Compliance and Modifications" immediately prior to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"The fund issuer may update this document from time to time as needed for administrative or other reasons, including to ensure compliance with applicable laws and regulations. Except where required to do so by law, the fund issuer will not make any modifications to this document which could reasonably be foreseen to cause a materially negative impact on participants' interest in the fund without a minimum of 30 days of prior notice."

8 August 2013

The full document held by the exchange has been updated with the addition of the following sentence to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"Closure may be effected via a buyback of all outstanding shares using the mechanism provided by the exchange for this purpose."

6 August 2013

The original draft of the fund document has been removed in favour of just the 'Executive Summary' and 'About the Fund Issuer and Fund Manager' sections. The full document, at around 8500 words, is now available directly from the exchange:

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

The principal difference between the 6 August version and the original draft is clarified wording throughout which is intended to emphasize that the fund is being provided as a service to the exchange; individual shareholders in the fund are referred to as 'participants' in the fund rather than as 'investors'.

2 August 2013

The original draft of around 8500 words was posted for discussion.

[busidelinghun]

looking forward .I want to invest

[felente]

...
Fund Performance

Potential investors should understand that this is not an absolute return fund.

The issuer provides no guarantee of positive performance, and investors may receive back less than their original investment. The value of Bitcoin businesses and of Bitcoin itself relative to fiat is highly volatile, and Bitcoin financial markets, such as they are, appear to be relatively inefficient from an information theoretic standpoint.

...

Disclaimer of Guarantees, Indemnification and Legal Jurisdiction

The fund issuer makes no guarantee, either explicit or implied, as to the suitability or fitness for purpose of this fund for any investment goal or for the needs of any specific investor. No individual should consider investing in this fund if they require such a guarantee, or if they are in any doubt whatsoever as to the meaning of any word, phrase or concept employed in this document or in an external resource referenced by this document. Potential investors should not invest in this fund if their own personal risk tolerance does not accommodate the general picture of risks described in the section headed 'Risk Factors.' Potential investors should seek independent financial advice if they have any questions about the suitability of this fund for their needs.

By investing in the fund, investors assert and agree that such investment is at their sole risk. By investing in the fund, investors assert and agree that in no event will the issuer or the fund manager or any person or entity involved in the operation of the fund be liable for any damages, including, without limitation, direct, indirect, incidental, special, consequential or punitive damages arising out of the investor's investment in the fund. By investing in the fund, investors agree to defend, indemnify and hold harmless the fund issuer, the fund manager, their affiliates and their respective directors, officers, employees and agents from and against all claims and expenses arising out of their investment in the fund; notwithstanding the aforementioned indemnification, the fund issuer shall remain liable to each investor for that investor's proportional interest in the Net Asset Value of the fund.

By investing in the fund, investors assert and agree that they understand, acknowledge, and accept that the fund manager is not a registered financial advisor and that the fund issuer is not a bank, brokerage firm, insurer, exchange or other financial institution; they further assert and agree that the operation of the fund is provided as a service to the exchange, not as a service to any individual investor.

This document will be interpreted under the laws of England and Wales.

Section headings used in this document are for convenience only and shall not be given any legal import.

Individuals considering an investment in this fund should ensure they are familiar with and fully accept the terms of service of the exchange itself; this fund is available solely through the exchange and should not in any way be construed as a direct offer or solicitation from the fund issuer to potential investors.

Potential investors for whom this document is in any way 'TL;DR' should not invest in this fund.


Initial Offering, Minimum Participation Level, and Fund Closure

Following the initial offering of shares in the fund at a price of 0.1 BTC per share, investment will begin as described in this document, provided that a minimum of 2500 shares have been taken up. If the initial offering does not attain this level, the fund issuer may choose to cancel the exchange listing and promptly return the fund's Net Asset Value to shareholders. If at any point in the future, redemptions bring the total number of outstanding shares below 2500, the issuer may likewise opt to close the fund and return its Net Asset Value to shareholders. The initial exchange listing fee will be paid entirely by the fund issuer and will not be charged against the value of the fund, regardless of whether the initial offering attains the minimum participation level.

More generally, the issuer retains the right to close the fund at any time, for any reason -- including a lack of suitable investment candidates -- its only obligation to shareholders being to distribute current Net Asset Value to them. Should this occur, the issuer intends to provide investors with public notice 30 days prior to closure, but in certain circumstances (including but not limited to the death or disability of the fund manager), notice may not be provided in this fashion.
...

TL; yes. stopped here ^^ (bolds by me).

hm...  beautiful.
on too many things must agree investor and too many things can do issuer?

besides, that's an Bitcoin Community Forum, not some official-financial-legal site. Is it not possible to say it (a little) shorter, doctor?
we're Normal People here and not everybody is a lawyer or such. sometimes we can understand with less wording. IMHO.
will do reading further when time permits.

...
Potential investors for whom this full document is in any way 'TL;DR' should not invest in this fund.
...
Individuals considering an investment in this fund should ensure they are familiar with and fully accept the terms of service of the exchange itself.
...
Potential investors for whom this document is in any way 'TL;DR' should not invest in this fund.
...

good attitude btw.
are potential investors allowed to ask questions at least?!

[Esh]

Greg

This looks very promising. Due diligence aside (still plenty to do as per this prospectus), I'd like to hear back from you about some specific questions that your prospectus leaves unanswered.

1) Why title this a 'Hedge Fund Style' investment rather than an ETF or ATF? As you say, there are several ways in which this fund will not and cannot behave like a hedge fund. Can you try to state concisely and clearly why you conceptualize this fund to be most akin to a hedge fund?

2) In an otherwise very thorough prospectus, your discussion of regulation and taxation seems to me to be underdeveloped. Do you anticipate that it will remain possible to have investors in this fund whose identities are obscured from you by the mechanics of Bitcoin? Will the fund owe the UK government capital gains taxes? Will investors who redeem their shares in the fund owe capital gains taxes to the UK government? Assuming that you launch the fund successfully, it seems safe to assume that you will have at least one American investor. Will the fund therefore be exposed to the regulatory power of the SEC?

3) Will you be paying any expenses by redeeming Bitcoin for fiat, or otherwise exchanging the management fee for fiat? As you say, the redemption of Bitcoin for fiat creates a taxable event under UK law. Will the fund incur any obligations or liabilities as a result of such redemptions, whether on the part of investors who exit the fund or on the part of management?

4) Have you retained legal counsel? If so, can you provide their contact information and/or credentials? If not, do you expect to do so, and if so, when? If the fund has need of legal counsel in the future, how will their services be paid for?

[DrGregMulhauser]

besides, that's an Bitcoin Community Forum, not some official-financial-legal site. Is it not possible to say it (a little) shorter, doctor?
we're Normal People here and not everybody is a lawyer or such. sometimes we can understand with less wording. IMHO.
will do reading further when time permits.

This is essentially the document which will eventually be in place on BTCT.co. In an ideal world, I would have simply included a brief summary here, and a link to the BTCT.co document. Unfortunately, part of the BTCT.co listing procedure is to provide a link to a discussion on Bitcointalk.org. So, I've offered the full details here in advance of setting up the listing materials on BTCT.co.

are potential investors allowed to ask questions at least?!

Absolutely -- fire away! 

[xaviarlol]

Looks good. Do you currently have a list of assets you want to purchase, or do you intend on buying only a few now, and more as they present themselves?

I think you are wise for not buying mining bonds with no proven revenue, I also avoid those. I will probably buy up some of your fund for a bit more diversification. PM me if you want me to chat more about a more substantial investment from BTC-EQTY to your fund.

[🏰 TradeFortress 🏰]

Looks good. Do you currently have a list of assets you want to purchase, or do you intend on buying only a few now, and more as they present themselves?

I think you are wise for not buying mining bonds with no proven revenue, I also avoid those. I will probably buy up some of your fund for a bit more diversification. PM me if you want me to chat more about a more substantial investment from BTC-EQTY to your fund.

Q: Pop quiz: can you give me an investment opinion on EXAMPLE.CORP to prove you know anything about Bitcoin or Bitcoin related businesses?

A: No, I will not be offering any investment opinions or advice, nor entering into any attempts to prove anything to anyone -- except for my identity, [...]

--

Quite nice prospectus. Will be watching, best of luck!

[DrGregMulhauser]

1) Why title this a 'Hedge Fund Style' investment rather than an ETF or ATF? As you say, there are several ways in which this fund will not and cannot behave like a hedge fund. Can you try to state concisely and clearly why you conceptualize this fund to be most akin to a hedge fund?

As I mention in the FAQ, there is no statutory definition of a hedge fund, and nothing at all rides on whether this is called a hedge fund. While it does not employ the GP/LP structure, it will be permitted to use of leverage; it will be permitted to actively hedge investments; and it will be permitted to take positions in a range of equity, debt, and currency; all of which are characteristics common to some (but not all) hedge funds.

2) In an otherwise very thorough prospectus, your discussion of regulation and taxation seems to me to be underdeveloped. Do you anticipate that it will remain possible to have investors in this fund whose identities are obscured from you by the mechanics of Bitcoin? Will the fund owe the UK government capital gains taxes? Will investors who redeem their shares in the fund owe capital gains taxes to the UK government? Assuming that you launch the fund successfully, it seems safe to assume that you will have at least one American investor. Will the fund therefore be exposed to the regulatory power of the SEC?

As the document indicates, my understanding of the current position of HMRC is that gains are taxable when converted to fiat. To the extent that the aim of the fund is to achieve capital growth in Bitcoin, that understanding, if correct, would imply that the fund would not owe the UK government capital gains tax. As indicated under 'Risk Factors', however, we have no idea whether the UK government may in the future change its stance on this matter. I am not qualified to comment on any individual tax liabilities which might arise for investors redeeming shares, or on any extraterritorial claims of jurisdiction which might in the future be made by the US or other governments. With regard to AML/KYC, the fundamental structure of the exchange itself (quite apart from the mechanics of Bitcoin) currently precludes any kind of individual verification or validation by issuers. This is not unlike the structure of normal exchanges and brokerage houses: responsibility for verification or validation lies not with issuers of listed securities, but with the operators who provide the mechanisms whereby those securities are traded. (For example, if you buy shares in IBM, you won't find someone from IBM phoning you up or asking for a copy of your passport to verify that it's really you.)

3) Will you be paying any expenses by redeeming Bitcoin for fiat, or otherwise exchanging the management fee for fiat? As you say, the redemption of Bitcoin for fiat creates a taxable event under UK law. Will the fund incur any obligations or liabilities as a result of such redemptions, whether on the part of investors who exit the fund or on the part of management?

Management fees, when converted to fiat, become part of the issuer's normal taxable revenue stream, to be reported just like any other revenue. From the perspective of investment, however, it is my understanding that it is the realization of gains in fiat which creates a tax liability under current HMRC guidance; therefore no, I do not envision the fund incurring obligations or liabilities due to currency conversion. The aim of the fund is, after all, to achieve capital growth in Bitcoin, not to achieve Bitcoin gains and convert them to fiat, and not to achieve fiat gains and then convert them back to Bitcoin.

4) Have you retained legal counsel? If so, can you provide their contact information and/or credentials? If not, do you expect to do so, and if so, when? If the fund has need of legal counsel in the future, how will their services be paid for?

As in all areas of our business, we make every effort to operate within the law, consulting with our accounting firm -- which has a statutory duty both to understand and to report violations of relevant law -- on any occasion that guidance provided by HMRC or other UK government agencies proves to be confusing or unclear. In this particular case, the issuer is offering a service to the exchange, a service intended to manage Bitcoin-denominated assets, and the guidance which has been provided by HMRC so far does not indicate that this service would in any way merit additional attention. As in the FAQ, however, we have no idea whether the UK regulatory landscape may change in the future, and should that happen, we will take whatever steps necessary to ensure our compliance with any changes, including closing the fund gracefully, should that prove necessary. With regard to who pays for what, my company pays its own expenses; charges to the fund are outlined in the original document.

Many thanks for your thoughts and input -- these kinds of questions may help us fine-tune the final version of the document.

[DrGregMulhauser]

Looks good. Do you currently have a list of assets you want to purchase, or do you intend on buying only a few now, and more as they present themselves?

As mentioned in the section on approach and context, I think the space is fairly limited right now, but I'm optimistic that there's still enough here to make things interesting. A few discussions with businesses not yet on the public menu offer some hope it could become more so in the coming months.

I think you are wise for not buying mining bonds with no proven revenue, I also avoid those. I will probably buy up some of your fund for a bit more diversification. PM me if you want me to chat more about a more substantial investment from BTC-EQTY to your fund.

Many thanks for your support. We're still moving in baby steps at the moment, though, with the next step being to get things set up on the exchange end.

[DrGregMulhauser]

Quite nice prospectus. Will be watching, best of luck!

Many thanks, TradeFortress; I'm looking forward to seeing how it all progresses.

[felente]

are potential investors allowed to ask questions at least?!

Absolutely -- fire away! 

good )
just the problem is that i'm in fact not very familiar with this thing but growing...
so, eventually, will watch here first and then asking questions to be not very inconvenient for both sides

despite the fact that my previous post seems a little ironic (maybe its true?  ), i wish you best luck with your initiative.

[DrGregMulhauser]

just the problem is that i'm in fact not very familiar with this thing but growing...
so, eventually, will watch here first and then asking questions to be not very inconvenient for both sides

despite the fact that my previous post seems a little ironic (maybe its true?  ), i wish you best luck with your initiative.

Many thanks, felente.

In my general, my philosophy is to ask questions first, invest later -- not the other way around. 

[Exocyst]

There is an inherent risk associated with allowing others to manage your BTC-denominated investments for you although your choice to identify may give some avenue towards prosecution and recovery of funds in the case of theft. The risk remains to some degree; therefore, the potential reward of investment must outweigh the risk of placing my BTC in your care. There are existing investment options which provide high rewards, but are inherently susceptible to theft by individual (See #1 and #2 in appendix below). Will their be any verification of the fund's accounting by an outside party? (I apologize if I missed this in your OP)

As a potential investor, I am desirous of a fund manager who will develop strategies to help mitigate risk while maximising potential capital growth. I suppose this is the point of a hedge fund-like investment fund, but I am not well-versed in financial disciplines. Forgive my naiveté, but a simple strategy to reduce risk might be to invest in a "bit of everything" thus holding a market-cap adjusted percentage of all available securities (see #3 below). Do you expect that your fund would outperform the "bit of everything" strategy (#3 in appendix below)?

I know smidge has tried to create an index (DCX), but I would like to see other fund managers attempt to develop additional objective performance metrics for their investments as well. Do you have any interest to do something similar?

I thank you for your well thought-out original post; the level of discourse has been raised, sir. I hope you find justification to respond to my inquiry.

Cheers,

Exo

APPENDIX: Existing simple investment strategies:

• #1. ASICMINER: It's risky to place all your eggs in one basket, but how does your investment vehicle compare to simply holding ASICMINER-PT?
• #2. CoinLenders' CD: It is also inherently risky to place your coins with an individual (even if they are reputable; pirateat40 was, after all, reputable until he wasn't)
• #3. Market CAP adjusted holding of all bitcoin securities (excluding  PMBs): This is the true performance standard. Your fund must at least perform as well as a market-cap adjusted holding of all available securities (ASICMINER, BASIC, COGNITIVE, ActM, NastyFans, LABCOIN, BTCGARDEN, etc.)

 

[DrGregMulhauser]

Will their be any verification of the fund's accounting by an outside party? (I apologize if I missed this in your OP)

It feels slightly odd replying to your post, given that it is mostly the same as what you've already posted in a different thread a couple of hours earlier, to a different person, concerning a different fund altogether... But to address this specific question in particular, all companies in the United Kingdom are legally bound to keep appropriate records and to submit appropriate accounts to the government each year.

As a potential investor, I am desirous of a fund manager who will develop strategies to help mitigate risk while maximising potential capital growth. I suppose this is the point of a hedge fund-like investment fund, but I am not well-versed in financial disciplines. Forgive my naiveté, but a simple strategy to reduce risk might be to...

As you'll hopefully have seen in the original post, there's quite a long list of risk factors -- and management of those risks goes quite a bit beyond deciding how many different eggs to put in your basket. Ignoring for the moment the other 10 or so risk factors in the list, and looking only at one single underlying security for the sake of argument, you could gain exposure to that security in any of several different ways, each with slightly different risk profiles: you could buy it outright, you could buy it outright and write a call against it, you could write a put against it rather than buying it, and so on. While the latter two have an equivalent profit graph at expiry, they normally differ in terms of collateral commitment (not so in the Bitcoin world, where exchanges haven't yet moved to treating put writes as they are treated in the fiat world), and each can also be made to look different in terms of risk/reward by altering the strike price.

Do you expect that your fund would outperform the "bit of everything" strategy...

The fund cannot make any guarantees -- or offer any "expectations" -- about performance, either absolute or relative.

I know smidge has tried to create an index (DCX), but I would like to see other fund managers attempt to develop additional objective performance metrics for their investments as well. Do you have any interest to do something similar?

Having an index or two around would be great; I'm quite surprised that the exchanges themselves haven't yet done this themselves, since it seems like doing so would fall naturally in their court, offering both a useful service and a great way of promoting themselves.

However, your suggestion that a market cap "adjusted" (?) holding of all Bitcoin securities would be the "true performance standard" for judging the performance of other funds or securities seems incorrect to me -- for three reasons.

First, not all funds invest solely in a set of securities covered by a candidate index of Bitcoin securities. Imagine a fund whose job it was to invest solely in debt. Why would you want to benchmark a bond fund against an equity index or a hybrid bond/equity index?

Second, the set of all Bitcoin securities is currently far too small and yields far too concentrated a model portfolio to be a good performance benchmark. The reason an index like the S&P 500 is used as a performance benchmark is not merely because it's a handy index that someone decided to put together. It is used because it is sufficiently large and diverse that its statistical properties are attractive. For example, we care about variance relative to the S&P because historically that variance is considered low relative to its returns; to put it a different way, it's hard to generate S&P 500-style returns without adding more variance and taking on more risk.

Third, and most importantly, headline growth numbers obscure underlying risk. As the original post indicates, that's why an entire cottage industry has put analysts to work evaluating skewness, kurtosis, Sharpe ratios and other measures to distinguish good investment management from bad. Three extremely different portfolios might all generate the same returns over a given period of time, but they might do so with entirely different risk profiles. Would you rather have 10% per annum while risking a 50% chance of a 50% loss per annum, or 8% per annum with the same level of risk of a 20% loss; how about 12% per annum with the same level of risk of an 80% loss? If you're merely 'benchmarking' you would probably go for the 12% and be happy; for my part, I'd take the 8% without a second thought.

[Edit: Fixxed my speelling.]

[🏰 TradeFortress 🏰]

Third, and most importantly, headline growth numbers obscure underlying risk. As the original post indicates, that's why an entire cottage industry has put analysts to work evaluating skewness, kurtosis, Sharpe ratios and other measures to distinguish good investment management from bad. Three extremely different portfolios might all generate the same returns over a given period of time, but they might do so with entirely different risk profiles. Would you rather have 10% per annum while risking a 50% chance of a 50% loss per annum, or 8% per annum with the same level of risk of a 20% loss; how about 12% per annum with the same level of risk of an 80% loss? If you're merely 'benchmarking' you would probably go for the 12% and be happy; for my part, I'd take the 8% without a second thought.

There's this alternate stormy investment fund that aims for 52%/year but has managed to lose 23% in one week, while claiming they are "performing quite well."  

[runam0k]

+1 to the OP just for typing out that prospectus and FAQ.

Colour me interested.

[DrGregMulhauser]

+1 to the OP just for typing out that prospectus and FAQ.

Colour me interested.

Did I mention that my treatments for repetitive stress injury will be charged to the fund?

[Deprived]

Third, and most importantly, headline growth numbers obscure underlying risk. As the original post indicates, that's why an entire cottage industry has put analysts to work evaluating skewness, kurtosis, Sharpe ratios and other measures to distinguish good investment management from bad. Three extremely different portfolios might all generate the same returns over a given period of time, but they might do so with entirely different risk profiles. Would you rather have 10% per annum while risking a 50% chance of a 50% loss per annum, or 8% per annum with the same level of risk of a 20% loss; how about 12% per annum with the same level of risk of an 80% loss? If you're merely 'benchmarking' you would probably go for the 12% and be happy; for my part, I'd take the 8% without a second thought.

Think I'd dodge all of them.  An 8% return with a 50% chance of a 20% loss still has a negative expectation (of around 2% - depending on what the 20% is of).  Or by 'same level of risk' did you mean 8% not 50%?

There's another issue with compiling an index and comparing to it as well.  There's a large difference in the way various securities determine what profits are and decide on the size of dividends.  So some pay high dividends but have little (or negative) growth whilst others retain most/all profit and pay small dividends.  These different strategies obviously impact market price - making an index created purely on market price not particularly meaningful.

Your fund looks a lot better considered than most - I do have a few questions.

1.  How large do you believe the fund could grow considering the general lack of liquidity in BTC-denominated securities?  There's effectively a maximum amount you can invest in any single security whilst maintaining any degree of liqudiity - it varies widely from security to security and can in theory (but not yet in practice) be extended via use of options.  Once you get over that limit you end up, in practice, with funds committed to the security even if the price moves significantly.  This imposes a practical limit on how large a fund can grow whilst remaining agile (and that limit drops if other funds are following similar general strategies and hence will also want to be using up liquidity at the same time).

2.  If you want to make fees behave similar to a 2/20 model with annual fees then shouldn't your trailing HWM cover at least 12 months?

3.  Do you view mining operations in general as being BTC denominated, fiat denominated or a mix of the two?

4.  You say you won't disclose your personal finances - which is fine.  But will you commit to your own shares in the fund also being included in those listed on the exchange - so investors can readily see total outstanding units and market cap?

5.  Can you confirm that you won't invest (as opposed to trade) significantly in other investment/hedge funds?  Have seen a few cases before of circle-jerking whereby funds invest in other funds - delegating their management responsibility whilst making investors liable to taxation (in the form of management fees) by multiple fund managers (or even the same fund manager twice).

[Seal]

Hey Greg,

Just wanted to say I have nothing but respect for those with the guts to offer more investment options for the community. There is no doubt in my mind that with your intellect you will overcome any challenges that you may face.

That is a mindblowing OP that shows you have literally thought of every base. Even if the unanticipated happens - and hey, it will (its bitcoin after all), its reassuring to know that somebody who has the credentials that you have is behind it.

To diversify my investments I'd happily invest a few bitcoins into this. Sign me up.