Topic: [BTC-TC] BTC Growth: Capital Growth via Hedge Fund-Style Investing - page 18. (Read 251637 times)

good )
just the problem is that i'm in fact not very familiar with this thing but growing...
so, eventually, will watch here first and then asking questions to be not very inconvenient for both sides

despite the fact that my previous post seems a little ironic (maybe its true?  ), i wish you best luck with your initiative.

Many thanks, TradeFortress; I'm looking forward to seeing how it all progresses.

As mentioned in the section on approach and context, I think the space is fairly limited right now, but I'm optimistic that there's still enough here to make things interesting. A few discussions with businesses not yet on the public menu offer some hope it could become more so in the coming months.


Many thanks for your support. We're still moving in baby steps at the moment, though, with the next step being to get things set up on the exchange end.

As I mention in the FAQ, there is no statutory definition of a hedge fund, and nothing at all rides on whether this is called a hedge fund. While it does not employ the GP/LP structure, it will be permitted to use of leverage; it will be permitted to actively hedge investments; and it will be permitted to take positions in a range of equity, debt, and currency; all of which are characteristics common to some (but not all) hedge funds.


As the document indicates, my understanding of the current position of HMRC is that gains are taxable when converted to fiat. To the extent that the aim of the fund is to achieve capital growth in Bitcoin, that understanding, if correct, would imply that the fund would not owe the UK government capital gains tax. As indicated under 'Risk Factors', however, we have no idea whether the UK government may in the future change its stance on this matter. I am not qualified to comment on any individual tax liabilities which might arise for investors redeeming shares, or on any extraterritorial claims of jurisdiction which might in the future be made by the US or other governments. With regard to AML/KYC, the fundamental structure of the exchange itself (quite apart from the mechanics of Bitcoin) currently precludes any kind of individual verification or validation by issuers. This is not unlike the structure of normal exchanges and brokerage houses: responsibility for verification or validation lies not with issuers of listed securities, but with the operators who provide the mechanisms whereby those securities are traded. (For example, if you buy shares in IBM, you won't find someone from IBM phoning you up or asking for a copy of your passport to verify that it's really you.)


Management fees, when converted to fiat, become part of the issuer's normal taxable revenue stream, to be reported just like any other revenue. From the perspective of investment, however, it is my understanding that it is the realization of gains in fiat which creates a tax liability under current HMRC guidance; therefore no, I do not envision the fund incurring obligations or liabilities due to currency conversion. The aim of the fund is, after all, to achieve capital growth in Bitcoin, not to achieve Bitcoin gains and convert them to fiat, and not to achieve fiat gains and then convert them back to Bitcoin.


As in all areas of our business, we make every effort to operate within the law, consulting with our accounting firm -- which has a statutory duty both to understand and to report violations of relevant law -- on any occasion that guidance provided by HMRC or other UK government agencies proves to be confusing or unclear. In this particular case, the issuer is offering a service to the exchange, a service intended to manage Bitcoin-denominated assets, and the guidance which has been provided by HMRC so far does not indicate that this service would in any way merit additional attention. As in the FAQ, however, we have no idea whether the UK regulatory landscape may change in the future, and should that happen, we will take whatever steps necessary to ensure our compliance with any changes, including closing the fund gracefully, should that prove necessary. With regard to who pays for what, my company pays its own expenses; charges to the fund are outlined in the original document.

Many thanks for your thoughts and input -- these kinds of questions may help us fine-tune the final version of the document.

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Quite nice prospectus. Will be watching, best of luck!

Looks good. Do you currently have a list of assets you want to purchase, or do you intend on buying only a few now, and more as they present themselves?

I think you are wise for not buying mining bonds with no proven revenue, I also avoid those. I will probably buy up some of your fund for a bit more diversification. PM me if you want me to chat more about a more substantial investment from BTC-EQTY to your fund.

This is essentially the document which will eventually be in place on BTCT.co. In an ideal world, I would have simply included a brief summary here, and a link to the BTCT.co document. Unfortunately, part of the BTCT.co listing procedure is to provide a link to a discussion on Bitcointalk.org. So, I've offered the full details here in advance of setting up the listing materials on BTCT.co.


Absolutely -- fire away! 

Greg

This looks very promising. Due diligence aside (still plenty to do as per this prospectus), I'd like to hear back from you about some specific questions that your prospectus leaves unanswered.

1) Why title this a 'Hedge Fund Style' investment rather than an ETF or ATF? As you say, there are several ways in which this fund will not and cannot behave like a hedge fund. Can you try to state concisely and clearly why you conceptualize this fund to be most akin to a hedge fund?

2) In an otherwise very thorough prospectus, your discussion of regulation and taxation seems to me to be underdeveloped. Do you anticipate that it will remain possible to have investors in this fund whose identities are obscured from you by the mechanics of Bitcoin? Will the fund owe the UK government capital gains taxes? Will investors who redeem their shares in the fund owe capital gains taxes to the UK government? Assuming that you launch the fund successfully, it seems safe to assume that you will have at least one American investor. Will the fund therefore be exposed to the regulatory power of the SEC?

3) Will you be paying any expenses by redeeming Bitcoin for fiat, or otherwise exchanging the management fee for fiat? As you say, the redemption of Bitcoin for fiat creates a taxable event under UK law. Will the fund incur any obligations or liabilities as a result of such redemptions, whether on the part of investors who exit the fund or on the part of management?

4) Have you retained legal counsel? If so, can you provide their contact information and/or credentials? If not, do you expect to do so, and if so, when? If the fund has need of legal counsel in the future, how will their services be paid for?

looking forward .I want to invest

13 August 2013

The full document held by the exchange has been updated with the addition of the following section headed "Compliance and Modifications" immediately prior to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"The fund issuer may update this document from time to time as needed for administrative or other reasons, including to ensure compliance with applicable laws and regulations. Except where required to do so by law, the fund issuer will not make any modifications to this document which could reasonably be foreseen to cause a materially negative impact on participants' interest in the fund without a minimum of 30 days of prior notice."

8 August 2013

The full document held by the exchange has been updated with the addition of the following sentence to the section headed "Initial Offering, Minimum Participation Level, and Fund Closure":

"Closure may be effected via a buyback of all outstanding shares using the mechanism provided by the exchange for this purpose."

6 August 2013

The original draft of the fund document has been removed in favour of just the 'Executive Summary' and 'About the Fund Issuer and Fund Manager' sections. The full document, at around 8500 words, is now available directly from the exchange:

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

The principal difference between the 6 August version and the original draft is clarified wording throughout which is intended to emphasize that the fund is being provided as a service to the exchange; individual shareholders in the fund are referred to as 'participants' in the fund rather than as 'investors'.

2 August 2013

The original draft of around 8500 words was posted for discussion.

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://bitcointalksearch.org/user/drgregmulhauser-132160

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.