11 ms·

Bitcoin hedge fund

46 points by gasull 14y ago

mxxx 14y ago
man, i hope that's a joke.
- gasull 14y ago
  It isn't. http://www.finalternatives.com/node/23100 http://www.finalternatives.com/node/23100
  - mxxx 14y ago
    Ah cheers for that, makes a little more sense now.
frisco 14y ago
It's not clear to me what being a hedge fund gets you if all you're doing is holding Bitcoins. Sure, there are some regulated entities that can't invest in Bitcoins otherwise (i.e., pension funds), but they probably aren't going to start here. Otherwise, how is this in any way better than just buying Bitcoins on your own and not paying the fees?
- gasull 14y ago
  I think the only advantage is for the regulated entities that you mention.
  - damoncali 14y ago
    Is that even true? There are restrictions on the types of portfolio companies that VC's can invest in because of the limited partners. That's why startups are corporations and not LLC's, for example.
- ianpurton 14y ago
  If investment banks want to invest in Bitcoin a hedge fund would give them an easy way to do this. The fund would cover the IT side of things, i.e. coin storage.
  - lubos 14y ago
    Considering how many bitcoins have been stolen due to security issues last 3 years, when it comes to bitcoins, I wouldn't trust anyone but myself.
    - ianpurton 14y ago
      There's an article over on slashdot to do with the security model. http://news.slashdot.org/story/13/03/09/0757245/how-the-first-bitcoin-hedge-fund-approaches-security http://news.slashdot.org/story/13/03/09/0757245/how-the-firs... Basically, this is a very big move for Bitcoin. Once investment banks have access to Bitcoins they can decide whether they see it as a potential revenue stream both for FX and prop trading. It would take just one announcement from a large investment organisation to see the Bitcoin price rally.
nextstep 14y ago
This may seem like a really dumb question, but how is this different than just buying bitcoins as an investment? I don't understand what a hedge fund is. If I choose to invest in bitcoin, why would I want to be forced to buy $100,000 and then $10,000 per year?
- patrickk 14y ago
  I'd really love an answer to this too. Especially if you've only got small amounts to invest. What exactly does the management fee buy you?
- damoncali 14y ago
  A "hedge fund" is nothing more than a legal structure for private investment, usually with the familiar 2/20 fee structure we see with VC's (or something similar). That is all it is. A way to pool the money of limited partners under the control of investment manager(s). A smart guy once told me "a hedge fund isn't an asset class, it's a fee structure". That said, I have no idea what these guys are up to.
jaggederest 14y ago
That's neat, but where is the hedge against bitcoins? This is a long hedge, you'll need short hedges too, no?
- Gustomaximus 14y ago
  Assuming there is an active trading of this fund you could look to buy a put option on this fund.
  - radicaldreamer 14y ago
    Due to the volatile nature of bitcoins in general, I imagine the premium on those options would be very high (if anyone was willing to offer them in the first place).
- 1053r 14y ago
  One way you can hedge against bitcoins is by making a bet on betsofbitco.in. I could, for example, register a bet that bitcoin will have a value of under $10 USD by the end of May 2013. However, you are limited by your ability to find a counterparty. Of course, willingness to find a counterparty is a limit in most forms of short or put. Judging by some of the current odds on other bets, finding counterparties to small bets of large swings downward might not be that hard. That particular forum seems to think that bitcoin will go up. Of course getting paid in bitcoin for your bet that bitcoin will drop might be a problem...
- yk 14y ago
  AFAIK short selling originated as a flaw in manually settled stock exchanges. ( You only needed to have the stocks when the accounts were settled, so you could sell first and then buy later.) But you can get the same effect by borrowing bitcoins and selling them. Then you need to buy them back later.
  - omellet 14y ago
    That's exactly what short selling stock is: you borrow it from someone and sell it, and return it to them later by buying it for (hopefully) cheaper. To sell short without borrowing is called 'naked' short selling, and it's not allowed on US equity exchanges.
sandstrom 14y ago
"Critics have claimed it is a Ponzi scheme due to its strictly-limited inflation program, which is set to run until 2140." Anyone who could shed light on this? Why would inflation be a Ponzi scheme?
- rmc 14y ago
  The earlier you get into bitcoins, the easier they were to get or mine. As a result many early adopters have phenomonial amounts of bitcoins. For example in 2010 someone traded 10,000 bitcoins for a pizza on the bitcoin forum. Hence early adopters (with hundreds of thousands of bitcoins) benefit much more from any increase in bitcoins.
- kristofferR 14y ago
  They're confused, it's deflation that is the issue with Bitcoin - not inflation. Since there never will be more than 21 million Bitcoins in circulation due to how the protocol is coded - as Bitcoin becomes more popular everything will become less expensive (requiring less Bitcoins to buy, making Bitcoins more expensive). While early adopters could easily buy thousands of Bitcoins for "nothing", a single Bitcoin today costs $46.
- eru 14y ago
  I guess they talk about the strict limits on inflation?
- Nursie 14y ago
  It's talked about as a Ponzi scheme because the assumption is - - Early adopters hold a lot of coin because it was easy and dirt cheap to do so early on. - The market is based entirely on speculation. - Early adopters make money by pumping the price up and encouraging new people in to the market, then cashing out and absconding. - The value will collapse at some point leaving the early adopters dollar-rich and everyone else screwed This isn't the classic definition of a Ponzi but has some of the hallmarks. I guess the limited inflation part plays into this - as the amount of BTC is limited, if it becomes more widely held and used it has to increase in value, directly enriching those that come in early at the expense of later adopters. I'll admit that's a big part of why I'll never touch it. That and the limited amount means the built in deflation is just (economically speaking) bad anyway.
username 14y ago
yay! bitcoins!
Hitchhiker 14y ago
http://www.theregister.co.uk/2011/11/15/bitcoin_flaw/ http://www.theregister.co.uk/2011/11/15/bitcoin_flaw/
jstanley 14y ago
I have been doing a much smaller-scale version of this for some time now with a few friends. http://bitgroin.com/ http://bitgroin.com/ EDIT: And "basket fund" is a joke about putting all the eggs in one basket instead of hedging.
- jerguismi 14y ago
  Are you doing some arbitrage/HFT or just investing to bitcoins?
  - jstanley 14y ago
    I've experimented with quite a few "high-frequency" (actually only re-evaluating every minute) trading strategies. (Un?)fortunately deflation is so rapid at the moment, I haven't found anything better than just buying bitcoins and holding them.
yk 14y ago
I am slightly confused by their description of their security model. [1] It is all about long term protection of their secret key. However, if they need this key ( is it actually just one?), it seems that they need to compromise a large part of their security. So does this mean, that they will simply never sell bitcoins? [1] http://bitcoinfund.eu/security http://bitcoinfund.eu/security
arbuge 14y ago
Posted earlier: https://news.ycombinator.com/item?id=5344902 https://news.ycombinator.com/item?id=5344902 As stated in that Forbes article, it seems the only advantage is for certain corporate entities with restrictions on what they can invest in. Other players like individuals could just buy Bitcoins on their own without exposure to an additional layer of fees.

Bitcoin hedge fund

46 points by gasull 14y ago

mxxx 14y ago

man, i hope that's a joke.

gasull 14y ago
It isn't. http://www.finalternatives.com/node/23100 http://www.finalternatives.com/node/23100
- mxxx 14y ago
  Ah cheers for that, makes a little more sense now.

frisco 14y ago

It's not clear to me what being a hedge fund gets you if all you're doing is holding Bitcoins. Sure, there are some regulated entities that can't invest in Bitcoins otherwise (i.e., pension funds), but they probably aren't going to start here. Otherwise, how is this in any way better than just buying Bitcoins on your own and not paying the fees?

gasull 14y ago
I think the only advantage is for the regulated entities that you mention.
- damoncali 14y ago
  Is that even true? There are restrictions on the types of portfolio companies that VC's can invest in because of the limited partners. That's why startups are corporations and not LLC's, for example.
ianpurton 14y ago
If investment banks want to invest in Bitcoin a hedge fund would give them an easy way to do this. The fund would cover the IT side of things, i.e. coin storage.
- lubos 14y ago
  Considering how many bitcoins have been stolen due to security issues last 3 years, when it comes to bitcoins, I wouldn't trust anyone but myself.
  - ianpurton 14y ago
    There's an article over on slashdot to do with the security model. http://news.slashdot.org/story/13/03/09/0757245/how-the-first-bitcoin-hedge-fund-approaches-security http://news.slashdot.org/story/13/03/09/0757245/how-the-firs... Basically, this is a very big move for Bitcoin. Once investment banks have access to Bitcoins they can decide whether they see it as a potential revenue stream both for FX and prop trading. It would take just one announcement from a large investment organisation to see the Bitcoin price rally.

nextstep 14y ago

This may seem like a really dumb question, but how is this different than just buying bitcoins as an investment? I don't understand what a hedge fund is. If I choose to invest in bitcoin, why would I want to be forced to buy $100,000 and then $10,000 per year?

patrickk 14y ago
I'd really love an answer to this too. Especially if you've only got small amounts to invest. What exactly does the management fee buy you?
damoncali 14y ago
A "hedge fund" is nothing more than a legal structure for private investment, usually with the familiar 2/20 fee structure we see with VC's (or something similar). That is all it is. A way to pool the money of limited partners under the control of investment manager(s). A smart guy once told me "a hedge fund isn't an asset class, it's a fee structure". That said, I have no idea what these guys are up to.

jaggederest 14y ago

That's neat, but where is the hedge against bitcoins? This is a long hedge, you'll need short hedges too, no?

Gustomaximus 14y ago
Assuming there is an active trading of this fund you could look to buy a put option on this fund.
- radicaldreamer 14y ago
  Due to the volatile nature of bitcoins in general, I imagine the premium on those options would be very high (if anyone was willing to offer them in the first place).
1053r 14y ago
One way you can hedge against bitcoins is by making a bet on betsofbitco.in. I could, for example, register a bet that bitcoin will have a value of under $10 USD by the end of May 2013. However, you are limited by your ability to find a counterparty. Of course, willingness to find a counterparty is a limit in most forms of short or put. Judging by some of the current odds on other bets, finding counterparties to small bets of large swings downward might not be that hard. That particular forum seems to think that bitcoin will go up. Of course getting paid in bitcoin for your bet that bitcoin will drop might be a problem...
yk 14y ago
AFAIK short selling originated as a flaw in manually settled stock exchanges. ( You only needed to have the stocks when the accounts were settled, so you could sell first and then buy later.) But you can get the same effect by borrowing bitcoins and selling them. Then you need to buy them back later.
- omellet 14y ago
  That's exactly what short selling stock is: you borrow it from someone and sell it, and return it to them later by buying it for (hopefully) cheaper. To sell short without borrowing is called 'naked' short selling, and it's not allowed on US equity exchanges.

sandstrom 14y ago

"Critics have claimed it is a Ponzi scheme due to its strictly-limited inflation program, which is set to run until 2140." Anyone who could shed light on this? Why would inflation be a Ponzi scheme?

rmc 14y ago
The earlier you get into bitcoins, the easier they were to get or mine. As a result many early adopters have phenomonial amounts of bitcoins. For example in 2010 someone traded 10,000 bitcoins for a pizza on the bitcoin forum. Hence early adopters (with hundreds of thousands of bitcoins) benefit much more from any increase in bitcoins.
kristofferR 14y ago
They're confused, it's deflation that is the issue with Bitcoin - not inflation. Since there never will be more than 21 million Bitcoins in circulation due to how the protocol is coded - as Bitcoin becomes more popular everything will become less expensive (requiring less Bitcoins to buy, making Bitcoins more expensive). While early adopters could easily buy thousands of Bitcoins for "nothing", a single Bitcoin today costs $46.
eru 14y ago
I guess they talk about the strict limits on inflation?
Nursie 14y ago
It's talked about as a Ponzi scheme because the assumption is - - Early adopters hold a lot of coin because it was easy and dirt cheap to do so early on. - The market is based entirely on speculation. - Early adopters make money by pumping the price up and encouraging new people in to the market, then cashing out and absconding. - The value will collapse at some point leaving the early adopters dollar-rich and everyone else screwed This isn't the classic definition of a Ponzi but has some of the hallmarks. I guess the limited inflation part plays into this - as the amount of BTC is limited, if it becomes more widely held and used it has to increase in value, directly enriching those that come in early at the expense of later adopters. I'll admit that's a big part of why I'll never touch it. That and the limited amount means the built in deflation is just (economically speaking) bad anyway.

username 14y ago

yay! bitcoins!

Hitchhiker 14y ago

http://www.theregister.co.uk/2011/11/15/bitcoin_flaw/ http://www.theregister.co.uk/2011/11/15/bitcoin_flaw/

jstanley 14y ago

I have been doing a much smaller-scale version of this for some time now with a few friends. http://bitgroin.com/ http://bitgroin.com/ EDIT: And "basket fund" is a joke about putting all the eggs in one basket instead of hedging.

jerguismi 14y ago
Are you doing some arbitrage/HFT or just investing to bitcoins?
- jstanley 14y ago
  I've experimented with quite a few "high-frequency" (actually only re-evaluating every minute) trading strategies. (Un?)fortunately deflation is so rapid at the moment, I haven't found anything better than just buying bitcoins and holding them.

yk 14y ago

I am slightly confused by their description of their security model. [1] It is all about long term protection of their secret key. However, if they need this key ( is it actually just one?), it seems that they need to compromise a large part of their security. So does this mean, that they will simply never sell bitcoins? [1] http://bitcoinfund.eu/security http://bitcoinfund.eu/security

arbuge 14y ago

Posted earlier: https://news.ycombinator.com/item?id=5344902 https://news.ycombinator.com/item?id=5344902 As stated in that Forbes article, it seems the only advantage is for certain corporate entities with restrictions on what they can invest in. Other players like individuals could just buy Bitcoins on their own without exposure to an additional layer of fees.