September 2013 Results
Note: The timing of this report is intended to bring reporting in line with calendar months.Executive SummarySince our interim report on 23 September, the fund's Net Asset Value has climbed to .0891 BTC per share, an increase of 9.73%.
Relative to our previous full report which covered the month to 14 September, NAV per share decreased by 11.92%.
For comparison, a sample of relatively large and liquid equities across BTC-TC and BitFunder had already fallen by an average of roughly 18% from the end of our previous period thru 22 September, the day
before the announcement of BTC-TC's closure. Extending that period by another 8 days, to 30 September, the same group of equities had not only failed to rebound, but had instead continued to fall for a total loss of approximately 43%.
We are still in discussions about moving the fund to a different exchange, and an announcement will be made in this regard as soon as we have something concrete to report.
Context and EnvironmentComparing a fund, on the one hand, with individual equities, on the other, is never straightforward, and paying much attention at all to fluctuations over the course of periods like a week or two is of little more than academic interest. But since the value of our fund derives partly from the value of underlying equities (with the remainder from cash, derivatives and debt), and since many market participants clearly
do pay attention to performance over brief time periods, I think it's worth sketching at least a rough, back-of-the-envelope picture. This rough picture reveals that not only was the decline in Bitcoin equities already in progress
before the BTC-TC announcement was made, but the subsequent rebound which some market participants might have hoped for failed to materialise.
From 15 September until
the day before BTC-TC-induced carnage, 22 September, individual share prices of relatively large and relatively liquid equities across the two largest exchanges had already fallen by an average of approximately 18%. Note that this figure represents
share prices only and neither total return with dividends nor change in reported NAV.
(For reference, the list is: ACTIVEMINING, ASICMINER-PT, BASIC-MINING, BTC-QUICK, BTC-TRADING-PT, CIPHERMINE-PT, ICEDRILL.ASIC, KENILWORTH, LABCOIN, LABRATMINING, RENTALSTARTER. This list was chosen simply to reflect the activity of relatively liquid equities with relatively large market capitalisations and has nothing to do with my own views of any of them; swap some out or add different ones, and the picture doesn't change much. Due to differences in the way data are provided by the exchanges, and because the last price for a given day might be either a market buy or a market sell, changes have been tracked from the lowest trade price on one day to the lowest trade price on another; values would be similar for tracking highest to highest or average to average.)
The performance of the only other listed fund with size and liquidity comparable to our own (BTCINVEST) was a loss of 34% during that same period, while the house profit at Just-Dice had fallen by 101%.
Extending the period so as to coincide with the latest figures available for 30 September (in the case of BitFunder, the time zone difference puts this part way through 30 September), the comparable numbers are an even wider 43% loss for the large and liquid equities and a 25% loss for BTCINVEST. The figure for Just-Dice house profit worsened to a 148% loss. Excluding the now nearly worthless BTC-TRADING and the 'controversial' LABCOIN from the picture improves the overall performance of the large and liquid equities to a loss of 32%, and further excluding the ICEDRILL.ASIC 'faithware' asset from the calculation brings the loss of large and liquid equities to 37%.
Again, this comparison is intended to offer
only an approximation, but whether you round up, round sideways, or pop in a dividend or two here and there, the general picture across Bitcoin equity markets has been grim. On average, the general picture across Bitcoin equity markets has been
far worse than the results experienced by our fund.
As per our prior report, for convenience I use the term 'equities' to include revenue sharing operations.
Individual Securities and Primary InfluencesWhile the fund has been active in many different areas during the period and has been influenced by many different factors, the strongest influences on performance during the period were:
- the pending closure of BTC-TC
- the crushing of Just-Dice
- the buying back of our own shares
I'll address each of these in turn.
BTC-TC ClosureThe announcement of BTC-TC's pending closure directly took the value of the parent company itself to near zero and indirectly led some assets to close their doors. Public statements by individuals in charge of some listed assets -- to which our fund had minimal exposure -- appear to have led the market to reassess the value of those assets particularly negatively.
The temporary dip in assets which had limited exposure to the closure and which did not suffer from evaporating market confidence in their management enabled the fund to pick up shares in some assets at attractive discounts and to exploit a few arbitrage opportunities, including purchasing discounted bonds which could be redeemed at face value for an immediate profit.
We are still in discussions about moving the fund to a new exchange, and an announcement will be made in this regard as soon as there is something concrete to report.
Just-DiceDuring a span of just a few days, a single gambler walked away from Just-Dice.com with a sum approximately six times larger than the entire original capitalisation of BTC Growth. At the time of our previous interim report, the site had gone from over 6000 BTC in house profit to a loss of 49 BTC; in the following days, the total figure for the site collapsed even further, to the extent of mirroring the former profit, weighing in at around -6000 BTC. (The specific house profit figure used in the above comparisons to 30 September is -3064 BTC.) As noted in our interim report, our fund lost significant capital as a result of lending to the bankroll, although after making a change to how our lending is managed, the fund was able to recover some of those losses.
The site's losses became so severe that after repeatedly floating the idea of closing the site completely, the proprietor eventually began testing modifications to the permitted betting structure designed to reduce the likelihood of further massive losses. While the modifications introduced by the proprietor in the aftermath of the site's having lost so much capital may decrease the odds of such high losses going forward, they may also reduce the magnitude of future gains and generally discourage use of the site.
Share BuybacksDuring the period, we returned several hundred BTC to shareholders by buying back a total of 4044 of our own shares, reducing the total outstanding to 15,957.
During periods of especially elevated uncertainty, buying back our own shares at a discount to NAV makes very good use of our capital: while buying some other asset
might generate gains going forward, we can be
certain that undertaking purchases which are analogous to buying dollar bills for something less than one hundred cents each provides participants in the fund with an immediate gain.
Platform ProblemsApart from the obvious closing down of BTC-TC, the types of platform problems mentioned in our last full report improved somewhat on a 'problem free days' basis, with a total of six days during the period remaining free of platform failures. Note, however, that this simple measure obscures the fact that some services were virtually unavailable for a sustained period of two days on 23-24 September, despite, in some cases, public statements that services were operating normally.
Liquidity Facility and Subscriptions/RedemptionsAs discussed above, redemptions during the period reduced our outstanding share capital significantly. Subsequent to this report, the fund may optionally place bids or asks for a time, at a discount or premium to NAV, as described in the listing documents.
Reporting ScheduleHaving now synchronised with calendar months, our intention is to return to an approximately monthly reporting cycle.
Trust RatingsAs I mentioned in the fund's listing documents, I have no particular interest in amassing trust ratings for a pseudonymous WOT account. However, if participants in the fund feel it is appropriate to do so, I would invite them to consider leaving trust feedback for my forum account, not as a reflection of positive or negative fund performance, but rather as an indication of how they regard the trustworthiness of my management of the fund. (It is virtually certain that the NAV of the fund will go down as well as up, but hopefully variation in fund performance need not imply variation in trustworthiness.)
