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)...
Agreed; I stripped out quite a few provisos and qualifiers here (and also with the options example earlier), but the example was meant only to show that choosing from the three on the basis of 'growth' alone could give a result that might not match up with the choice you would make if you had more information available about risk.
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...
Yes, it's clearly total returns that really matter.
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...
Absolutely: all hedge fund-style investments, including those in the fiat world, face the problem of balancing their size with their strategy. I.e., at a certain point, bigger is no longer better, because they cannot efficiently put the capital to work.
As for this fund in particular, it's difficult to project into the future of an environment with such tremendous growth and uncertainty. Seeing as it's intended to be exchange traded, however, the fund would at least have some flexibility to adjust its size via the subscription/redemption facility.
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?
I gave this quite a bit of thought before settling on the 3 month compromise. For a fund which simply raises capital, closes, and then begins investing, it makes sense for the high water mark either to be permanent or to be tallied over quite a long period. For a fund traded on an exchange, it's quite a bit different, because each participant in the fund may have a different entry point in terms of NAV per share. Since it's not practical to keep track of a high water mark for each individual participant in the fund, it makes sense for it to 'decay' in same fashion -- thus the trailing 3 month period which, again, is really a compromise for the context, rather than something which is clearly the 'right' way of handling it.
3. Do you view mining operations in general as being BTC denominated, fiat denominated or a mix of the two?
This rapidly gets complex, which is why the original document sweeps most of that complexity under the carpet and just refers to the BTC-denominated NPV of the resulting free revenue stream. By focusing on the NPV of the revenue stream, we're ignoring the sunk costs of hardware -- and there's good reason for doing that, given that the 'S' in 'ASIC' implies modern hardware ultimately has zero residual value for any other purpose -- and we're also ignoring any future fiat-denominated costs for hardware to be purchased by reinvesting the BTC-denominated revenue stream. (Making this simplification only works at all if you're looking to invest BTC in the first place, as distinct from looking to invest in mining using fiat.) As I say, this is all an imperfect simplification of something which I acknowledge is complex.
And if I'm correctly understanding the meaning behind your question -- namely, not so much what we call it, but how to analyze the outcome with respect to an original investment denominated in Bitcoin or in fiat -- then this simplification alone isn't enough, and we need to know more about how the underlying business works. I take it that a business which is riding their existing hardware investment until the return hits zero is a different beast than one which is investing a load of fiat to create a new chip to begin mining at some point in the future. The former makes it much easier to apply the simplification than the latter.
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?
All share investments would be treated equally, and as far as I'm aware the exchanges keep the information up to date which they display about shares outstanding.
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).
There would be no advantage -- and, as you've pointed out, plenty of disadvantages -- to investing in another fund whose exposure could simply be replicated directly. It's not quite as straightforward as simply never investing in another fund, however, since in some cases that exposure might not be so easy to replicate directly. For example, if someone were to float a private equity fund, the fact that it was another fund wouldn't by itself be a compelling reason not to invest -- since the private equity exposure of the fund could be difficult or impossible to replicate.
