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

[DrGregMulhauser]

Nowhere in that can I see details of how many shares you'd be selling at IPO - or what your plans are in terms of time-scale for releasing all of them.

I'd assume you aren't going to sell all at once (even if there was demand) as it wouldn't be practical to deploy that much capital at once.

Since I have no reliable means of gauging demand except for observing what happens if and when the exchange approves the fund, I can't really guess in advance how the process might progress. However, given the level of attention currently being focused on mining operations that will begin 'real soon now', I suspect that any worries about having too much capital to put to work will be quickly put to rest.

I note that you only intend to publish NAV/U monthly - is it your intention only to sell and redeem once per month?  Or will you be maintaining bids/asks based on a current (but unpublished) NAV/U?  Either way can work of course.

From the section headed "Subscriptions and Redemptions":

"When in operation, the subscription and redemption facility will be made available only for a relatively brief period following the publication of the fund's NAV, so as to preclude any incentive for the issuer either to issue or to re-purchase on the basis of knowledge about the fund's NAV which has not yet been made public. (While doing so might provide a short term benefit for existing participants in the fund, it would be contrary to the interests of new participants and thus would not serve the longer term development of the fund as a whole.)"

As to what "relatively brief period" might mean, that again will depend on overall demand and liquidity. If only a handful of shares are being traded, and the market price is slow to react to changes in NAV, that would be a different matter than if a speedy and liquid market brings prices in line with NAV quite quickly.

I'm glad you're avoiding the cancer that is dividends for the sake of dividends btw.

Yes, I really don't understand what seems to be a fixation on dividends rather than total returns. It is trivially easy to push out a whacking great big (but entirely unsustainable) dividend. Nor do I understand why it seems to be OK with so many would-be buyers of various assets when future dividend streams are linked to an entirely unquantified description of "profit". It is trivially easy to achieve no profit at all -- and therefore pay zero dividends -- simply by incurring new expenses (such as salaries, for example). Too often, IMHO, folks read "profit" but think "revenue" -- or else recognise the difference but think that they know how to get from revenue to profit, even when the issuer hasn't filled them in on any specifics. I'm not saying that all or even most folks do that, but it's hard to avoid the impression that many do.

[DrGregMulhauser]

I'm pleased to say that as of this morning, the exchange has opened BTC Growth for peer review by moderators. This next step of the process -- attention from the moderators and their assessment of the listing submission -- will yield a decision as to whether the fund will be listed on the exchange.

[busidelinghun]

I just want to know when I buy shares ? I dont want to miss this chance

[ArcticWolf]

I just want to know when I buy shares ? I dont want to miss this chance

When it is finished being voted on by the btctc admins

[Luckybit]

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.

I like what you're doing. What are you some kind of genius? 

You took a lot of harassment early on when you gave your views on the ETF but you also taught me and many other people a lot.

Cheers

[Adrian-x]

• What does success for BTC Growth look like to you?

• Have you defined a succession or an exit strategy for BTC Growth in the prospectus?

Thanks Greg please excuse my ignorance since GLBSE I switched to HaveLock, and have not looked into alternates since. (I tend to think everything is a scam until I have a need and then seek the most viable option)

That said your answers are still very much appreciated and relevant.
I have made corrections given I mistook the exchange for the fund.

Your attention to the updated questions is much appreciated.

[DrGregMulhauser]

I like what you're doing. What are you some kind of genius? 

You took a lot of harassment early on when you gave your views on the ETF but you also taught me and many other people a lot.

Many thanks for your support, Luckybit -- I appreciate it!

[DrGregMulhauser]

Thanks Greg please excuse my ignorance since GLBSE I switched to HaveLock, and have not looked into alternates since. (I tend to think everything is a scam until I have a need and then seek the most viable option)

That said your answers are still very much appreciated and relevant.
I have made corrections given I mistook the exchange for the fund.

Your attention to the updated questions is much appreciated.

Ah, I get it -- no problem at all.

Taking the second question first, ironically enough the change doesn't matter, as I had originally interpreted you to be asking about an exit strategy for the fund anyway, just specific to the mechanics of the exchange. (It was your question which prompted the addition of a sentence to the listing documents yesterday, intended to clarify how closure of the fund might be handled using the buyback facility of the exchange.) As I mentioned originally, I would not at this point envision passing the fund on to another manager but would instead envision closing it.

As for the first question, the superficial answer is simply excelling at the fund's stated goal of achieving capital growth denominated in Bitcoin. The deeper answer, though, is much more about adapting my thinking and strategies to the very limited environment of Bitcoin, where tools that folks take for granted in the fiat world just aren't available yet.

[vandinn]

Will the fund take any long term positions on Bitcoin mining activities?

[DrGregMulhauser]

Will the fund take any long term positions on Bitcoin mining activities?

Although your question seems very straightforward, it actually packs in quite a bit of complexity and subtlety. So, rather than trying to pin down a specific yes/no answer and coming up short on something the details of which depend very much on the specific business in question, I would point instead to the comments in the listing document itself which address mining. The document also links to a substantially longer discussion in a standalone article about direct investment in mining hardware, and last but not least there are some brief comments in my reply to Deprived earlier in this same thread.

[vandinn]

Will the fund take any long term positions on Bitcoin mining activities?

Although your question seems very straightforward, it actually packs in quite a bit of complexity and subtlety. So, rather than trying to pin down a specific yes/no answer and coming up short on something the details of which depend very much on the specific business in question, I would point instead to the comments in the listing document itself which address mining. The document also links to a substantially longer discussion in a standalone article about direct investment in mining hardware, and last but not least there are some brief comments in my reply to Deprived earlier in this same thread.

The question was straightforward and I really hoped for a straightforward answer. I didn't get it. I have read the comments in the listing document as well as the article and your answers to Deprived questions. I couldn't find the answer anywhere. In fact, I feel like you are trying to avoid it. The question is extremely important - by answering it properly, you can show how deeply you understand Bitcoin economics. As a matter of fact, the reason why long position in most funds around here will cause losses is precisely because their managers can't answer the question or answer it wrong.

I wonder how happy Deprived is about your answers to his questions. For now, he remains the only person who seems to understand how things work.

[bigdaub]

From the contract:

Q: OMG, are you some kind of total n00b? You only registered on the forum in June! Who do you think you are, proposing an investment fund without at least [insert preferred number] posts or activity level [insert preferred number] under your belt?

This was hilarious, thank you.

[DrGregMulhauser]

Will the fund take any long term positions on Bitcoin mining activities?

The question was straightforward and I really hoped for a straightforward answer. I didn't get it. I have read the comments in the listing document as well as the article and your answers to Deprived questions. I couldn't find the answer anywhere. In fact, I feel like you are trying to avoid it. The question is extremely important - by answering it properly, you can show how deeply you understand Bitcoin economics. As a matter of fact, the reason why long position in most funds around here will cause losses is precisely because their managers can't answer the question or answer it wrong.

The listing document, my earlier comments, and the 2000-word article left you unclear about my thinking on the topic; you still believe that the original question is straightforward; and now, apparently, you even believe that a "long term position" and a "long position" are interchangeable. You also suggest that I am now trying to avoid your question, and that had I merely taken the time for "answering it properly", I would have been able to prove to you how deeply I understand Bitcoin economics.

As I indicated in the listing document, I have no intention of attempting to prove anything to anyone. Given the superior grasp of Bitcoin economics which you have asserted for yourself, the most important question has been answered: you should not participate in the fund.

(Clearly you believe your grasp of Bitcoin economics must be far superior to my own, since I have already indicated why I do not find it straightforward to analyse the Bitcoin-demoninated NPV of a Bitcoin-denominated revenue stream from sunk cost mining hardware, as contrasted with either ongoing partial reinvestment in fiat-denominated mining hardware via a Bitcoin-denominated revenue stream or a new purchase of fiat-denominated hardware. Nor do I find the question even to be intelligible, let alone straightforward, in the absence of specifying the form and duration a "long term position" might take and how it might be hedged -- a net short position, a net long position, or some variant in between -- both with respect to the mining operation itself and with respect to the value of BTC versus fiat and, if such hedging were available more efficiently, with respect to difficulty.)

[DrGregMulhauser]

From the contract:

Q: OMG, are you some kind of total n00b? You only registered on the forum in June! Who do you think you are, proposing an investment fund without at least [insert preferred number] posts or activity level [insert preferred number] under your belt?

This was hilarious, thank you.

Glad to be of service, but I can't really take credit; it's paraphrased from comments levelled at other people by one of our rather colourful colleagues here on the forum...

[vandinn]

Will the fund take any long term positions on Bitcoin mining activities?

The question was straightforward and I really hoped for a straightforward answer. I didn't get it. I have read the comments in the listing document as well as the article and your answers to Deprived questions. I couldn't find the answer anywhere. In fact, I feel like you are trying to avoid it. The question is extremely important - by answering it properly, you can show how deeply you understand Bitcoin economics. As a matter of fact, the reason why long position in most funds around here will cause losses is precisely because their managers can't answer the question or answer it wrong.

The listing document, my earlier comments, and the 2000-word article left you unclear about my thinking on the topic; you still believe that the original question is straightforward; and now, apparently, you even believe that a "long term position" and a "long position" are interchangeable. You also suggest that I am now trying to avoid your question, and that had I merely taken the time for "answering it properly", I would have been able to prove to you how deeply I understand Bitcoin economics.

As I indicated in the listing document, I have no intention of attempting to prove anything to anyone. Given the superior grasp of Bitcoin economics which you have asserted for yourself, the most important question has been answered: you should not participate in the fund.

(Clearly you believe your grasp of Bitcoin economics must be far superior to my own, since I have already indicated why I do not find it straightforward to analyse the Bitcoin-demoninated NPV of a Bitcoin-denominated revenue stream from sunk cost mining hardware, as contrasted with either ongoing partial reinvestment in fiat-denominated mining hardware via a Bitcoin-denominated revenue stream or a new purchase of fiat-denominated hardware. Nor do I find the question even to be intelligible, let alone straightforward, in the absence of specifying the form and duration a "long term position" might take and how it might be hedged -- a net short position, a net long position, or some variant in between -- both with respect to the mining operation itself and with respect to the value of BTC versus fiat and, if such hedging were available more efficiently, with respect to difficulty.)

Wow, I am really allergic to when people say what they think I think. Please, don't do that. There is no possible way you can have any idea and this will never change (certainly not from a couple of lines I've written in a foreign language). It will be much better if you stick with writing about things you DO understand, like, say, investment theory.

Yes, the listing document, your earlier comments, and the 2000-word article left me unclear about your thinking on the topic. You keep repeating what instruments you can use to avoid risks, you know what the risks are and you show good understanding of how investing works. You wrote little, however, about where things currently are in Bitcoin. You seem to have no idea where mining is heading and what the future will be. Your posts are very informational when it comes to topics related to investment, but the same cannot be said when it comes to current developments in Bitcoin.

I have no idea why you think that poking fun at others will win you an argument. I don't believe that a "long term position" and a "long position" are interchangeable - I made a mistake. Drawing conclusions from that would be dumb. I don't think my grasp of Bitcoin is superior to yours - then again, I am not starting a fund and I won't be risking money of anyone else but my own. I have been around for about the same time you have - and I know I am still missing a lot of things. You must have a superb learning curve if you think you are not.

Anyway, I am writing to this topic for a simple reason - your fund was the first one I briefly thought about investing in. I still might put in some coins in the hope that you will learn quickly. You do understand investment, but there is a lot you need to catch up with concerning Bitcoin and cryptocurrencies.


EDIT: I don't want to lose my money in a fund that invests in mining (which will almost always cause losses in the long run, unless they sell equipment to people who are even more dumb or have a huge technological edge). That's why I asked. I don't care too much about your hedges and derivatives as long as you are aware of that.

[DrGregMulhauser]

Wow, I am really allergic to when people say what they think I think... It will be much better if you stick with writing about things you DO understand, like, say, investment theory.

Nobody has to say what they think you think. We already know what you think, because you have told us explicitly and emphatically: you think that "The question was straightforward...".

As far as I can tell, the only way that what you have already told us you think can be true is that either 1) you are grossly mistaken about what a good answer to the question looks like, or 2) you are spot on that the answer to the question is straightforward, I am grossly mistaken, and therefore your grasp of the territory is vastly superior to my own. (For the avoidance of doubt, note the asymmetry. If you grasp the simplicity where I can't manage to find anything but complexity, then I must be clueless. By contrast, if you are mistaken in your grasp of simplicity, then that implies nothing about me: I could still be clueless.)

...You seem to have no idea where mining is heading and what the future will be...

Absolutely correct. I can peruse historical graphs of difficulty, total network power, and BTC vs. USD, and I can also read prognostications about how many terashashes are about to hit the network; anybody can do those things, so if you're looking for me to restate the obvious, you've come to the wrong place. If you're looking for someone who knows what the future will be, you've also come to the wrong place. And if you're looking for me to offer you a step by step introduction to the risks of shorting Bitcoin to acquire fiat-denominated mining hardware, then once more you've come to the wrong place.

...Your posts are very informational when it comes to topics related to investment, but the same cannot be said when it comes to current developments in Bitcoin...

...you think that poking fun at others will win you an argument...

...You must have a superb learning curve if you think you are not...

...I still might put in some coins in the hope that you will learn quickly...

I have no idea how it is that you think I have poked fun at you, but for any misunderstanding I may have created that led you to infer that, I certainly do apologise.

In any case, I would strongly recommend that you do not participate in any fund where you believe the fund manager's grasp of the territory is so flawed and inadequate.

EDIT: I don't want to lose my money in a fund that invests in mining (which will almost always cause losses in the long run, unless they sell equipment to people who are even more dumb or have a huge technological edge). That's why I asked. I don't care too much about your hedges and derivatives as long as you are aware of that.

This is grossly mistaken. Let's assume for the sake of argument that taking a long position in mining is going to lose money; then, skipping over borrowing costs for the sake of simplicity, it is straightforward to make money -- not lose it -- by taking a short position in mining. Even if you had a perfectly functioning crystal ball telling you the future of mining, you cannot have any idea whatsoever whether a fund is going to win, lose, or break even on exposure to mining unless you know what kind of exposure it is.

You say that you don't care too much about hedges and derivatives, and you seem happy to ignore the difference between a long and a short position -- now sweeping the entire distinction under the carpet by switching to talk of investing in mining rather than the original topic, which was taking a position in mining. That provides one strategy for taking a complex topic and turning it into something "straightforward", but doing so moves the discussion far away from the realities of the Bitcoin economy, not to mention the fundamentals of investing.

EDIT: Updated with a parenthetical on asymmetry, lest I be accused again of poking fun at anyone.

[vandinn]

Wow, I am really allergic to when people say what they think I think... It will be much better if you stick with writing about things you DO understand, like, say, investment theory.

Nobody has to say what they think you think. We already know what you think, because you have told us explicitly and emphatically: you think that "The question was straightforward...".

As far as I can tell, the only way that what you have already told us you think can be true is that either 1) you are grossly mistaken about what a good answer to the question looks like, or 2) you are spot on that the answer to the question is straightforward, I am grossly mistaken, and therefore your grasp of the territory is vastly superior to my own. (For the avoidance of doubt, note the asymmetry. If you grasp the simplicity where I can't manage to find anything but complexity, then I must be clueless. By contrast, if you are mistaken in your grasp of simplicity, then that implies nothing about me: I could still be clueless.)

...You seem to have no idea where mining is heading and what the future will be...

Absolutely correct. I can peruse historical graphs of difficulty, total network power, and BTC vs. USD, and I can also read prognostications about how many terashashes are about to hit the network; anybody can do those things, so if you're looking for me to restate the obvious, you've come to the wrong place. If you're looking for someone who knows what the future will be, you've also come to the wrong place. And if you're looking for me to offer you a step by step introduction to the risks of shorting Bitcoin to acquire fiat-denominated mining hardware, then once more you've come to the wrong place.

...Your posts are very informational when it comes to topics related to investment, but the same cannot be said when it comes to current developments in Bitcoin...

...you think that poking fun at others will win you an argument...

...You must have a superb learning curve if you think you are not...

...I still might put in some coins in the hope that you will learn quickly...

I have no idea how it is that you think I have poked fun at you, but for any misunderstanding I may have created that led you to infer that, I certainly do apologise.

In any case, I would strongly recommend that you do not participate in any fund where you believe the fund manager's grasp of the territory is so flawed and inadequate.

EDIT: I don't want to lose my money in a fund that invests in mining (which will almost always cause losses in the long run, unless they sell equipment to people who are even more dumb or have a huge technological edge). That's why I asked. I don't care too much about your hedges and derivatives as long as you are aware of that.

This is grossly mistaken. Let's assume for the sake of argument that taking a long position in mining is going to lose money; then, skipping over borrowing costs for the sake of simplicity, it is straightforward to make money -- not lose it -- by taking a short position in mining. Even if you had a perfectly functioning crystal ball telling you the future of mining, you cannot have any idea whatsoever whether a fund is going to win, lose, or break even on exposure to mining unless you know what kind of exposure it is.

You say that you don't care too much about hedges and derivatives, and you seem happy to ignore the difference between a long and a short position -- now sweeping the entire distinction under the carpet by switching to talk of investing in mining rather than the original topic, which was taking a position in mining. That provides one strategy for taking a complex topic and turning it into something "straightforward", but doing so moves the discussion far away from the realities of the Bitcoin economy, not to mention the fundamentals of investing.

EDIT: Updated with a parenthetical on asymmetry, lest I be accused again of poking fun at anyone.

Doctor, if you could invest as flawlessly as you can talk, I would put all my life earnings into your fund.) You are wrong that we would judge a good answer differently, the only difference is that I treat your answer as inadequate (and I'm sure you would treat mine the same way). There are other discussions on this forum on the topic, and I am sure we would probably find some that we would be both happy with (notably Deprived's ones). 

If there is a way of shorting mining, please, do share. If there is not, then any long term exposure to mining is inevitably gonna bring losses.

[DrGregMulhauser]

...I treat your answer as inadequate...

Fair enough.

If there is a way of shorting mining, please, do share.

There are multiple ways to short mining, either directly -- by borrowing shares (e.g., from someone who holds ASICMiner shares) and then selling them -- or synthetically, via options (e.g., buying put options on the underlying miner). More generally, however, "taking a position in mining" does not have to mean "taking a net long position with delta equal to 1". It might mean taking a short position, or it might mean taking a hedged long position, or anything in between. For example, many people buy exchange-traded shares of a high-yielding miner such as ASICMiner and immediately write calls against the position, yielding an overall position delta which is still positive but less than 1 -- potentially enabling themselves to net the dividend plus the option premium, and gaining a short-term hedge against a fall in the value of the underlying share. (Naturally, that only works if someone buys their calls, given the lack of market makers.)

[dexX7]

If there is a way of shorting mining, please, do share.

Slightly related:
Jurov created difficulty futures on BTC-TC (ending 18th September) and BitFunder (21st August, 18th September), also available for shorting. Related threads are here and here.

[vandinn]

If there is a way of shorting mining, please, do share.

Slightly related:
Jurov created difficulty futures on BTC-TC (ending 18th September) and BitFunder (21st August, 18th September), also available for shorting. Related threads are here and here.

Thanks. I know about those. You can earn 5% in about a month on them (based on the current asks; and the probability of diff not reaching 100M in Sep is prolly very similar to those 5%). Not worth it as there are better and safer investment options. If you could short shares like AsicMiner, ActiveMining etc. that would be a whole different story.

There are multiple ways to short mining, either directly -- by borrowing shares (e.g., from someone who holds ASICMiner shares) and then selling them -- or synthetically, via options (e.g., buying put options on the underlying miner). More generally, however, "taking a position in mining" does not have to mean "taking a net long position with delta equal to 1". It might mean taking a short position, or it might mean taking a hedged long position, or anything in between. For example, many people buy exchange-traded shares of a high-yielding miner such as ASICMiner and immediately write calls against the position, yielding an overall position delta which is still positive but less than 1 -- potentially enabling themselves to net the dividend plus the option premium, and gaining a short-term hedge against a fall in the value of the underlying share. (Naturally, that only works if someone buys their calls, given the lack of market makers.)

Have you talked to people who were willing to lend you shares of these mining companies whose share price will drop? I will give you all my money if you can do that (sorry, I mean, Bitcoins).

There are no worthwhile put options right now that I am aware of.