So let me get this straight. Are you investing in something using bitcoins directly, or are you planning to cash out to fiat in order to make your investment? Because I don't know of any large markets that take BTC directly.
So if we take the worst case scenario: suppose someone actually came up with 500k bitcoins; do you actually have another 500k to match them? And furthermore, there is no possible way that the market depth could handle a 1,000,000 BTC sale.
Good questions.
The hedge fund has a bitcoin wallet that will be used for transactions; however, it's more of a symbolic first step with bitcoins. They're just testing the waters at this point. The bitcoins will have to be converted to fiat to accomodate the fund's brokers/services providers.
In the hedge fund world, most quants are at least aware of bitcoin, but the fund managers, accountants, compliance officers, etc are mostly clueless.
I can only match funds up to about 10,000 bitcoins (that's my risk tolerance threshold). Beyond that, the only other thing I can offer an investor is a little more information about what's going on behind the scenes.
And if the numbers get large enough, which I highly doubt, I'll offer some tranching and escrow choices.
