Topic: [BTC-TC] BTC Growth: Capital Growth via Hedge Fund-Style Investing - page 17. (Read 251720 times)

The exchange operators will need first to unlock the listing, in preparation for attention from the moderators who serve as gatekeepers between submissions and listings.

when do I could buy shares at BTCT?

As indicated in the listing document, we are aiming to provide a service to the exchange. If there are other comments to be made from an exchange perspective regarding "the legal things", in addition to what burnside has already posted in the other thread you mentioned, I imagine he will make them there in that thread.

Interesting asset.

It seems that you could have some connections to clarify some aspects around the issues mentioned here: https://bitcointalksearch.org/topic/the-sec-is-investigating-bitcoin-securities-exchanges-269486

Can you please explain how you are going to deal with the legal things?

Many thanks for your support, damiano; next up we'll just need some attention from the exchange and the moderators who serve as gatekeepers between submissions and listings.

 

This is gonna be exciting..I can't wait

The draft of the fund document has been slightly updated and is now available in its entirety at the exchange:

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

Please refer to the full document for all details, including risk factors and FAQ.

The skeleton site mentioned in the original post is BTCGrowth.com; the canonical listing documents will be available shortly on BTCT.co and the original post updated accordingly.

do u have offical website?

Many thanks for your support -- I appreciate it! 

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.


Yes, it's clearly total returns that really matter.


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.


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.


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.


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.


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.

Greg

Thanks for the quick and thoughtful response. I look forward to your final prospectus.

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.

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).

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

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

Colour me interested.

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."  

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 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.


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


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.]

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.)

 

Many thanks, felente.

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