
Bitcoin hedge fund - gasull
http://bitcoinfund.eu/joinus
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frisco
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?

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gasull
I think the only advantage is for the regulated entities that you mention.

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damoncali
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.

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nextstep
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?

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damoncali
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.

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

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yk
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.

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omellet
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.

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sandstrom
"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?

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Nursie
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.

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cfontes
thanks for the info, in Brazil you don't hear a lot about bitcoins so I didn't
know about this "Limited amount" thing and that is a REALLY important info.

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Nursie
Yeah it is a fundamental part of the model. The limit is something like 21
million BTC _ever_. The reward from mining diminishes over time, halving every
so often so that it will take quite a while to get to the 21 million.

To BTC enthusiasts, this fixed supply is a major positive point as 'nobody can
dilute my money!', but to others (like me) the idea of a currency with a fixed
supply seems wrong. The more of the global economy BTC comes to represent the
higher the value of each BTC, assuring that so long as it is used it will rise
in value. This creates a big disincentive to spend and pretty much kills any
idea of lending. What's more it concentrates wealth in the hands of people who
put in a comparatively small effort a long time ago and now hold BTC, compared
to those producing economic output now, meaning that _if_ it became common
currency we'd end up with even more extreme division of wealth than we see
now.

Note that I don't necessarily agree with the 'assumption' that BTC will
collapse, that some people use to justify calling it a Ponzi or Pump'n'Dump
scheme, but I do think it would be a terrible choice of primary currency for
the reasons I've given.

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icebraining
_if it became common currency we'd end up with even more extreme division of
wealth than we see now_

I disagree. Unless BTC becomes the _only_ common currency, you'd end up with
more distributed wealth, since the holders of BTC aren't exactly the biggest
holders of USD or EUR.

By the way, how does the drop in prices relative to BTC kill lending?

And tech devices are cheaper every year, from that argument, shouldn't it mean
there's a great incentive not to buy them? By that logic, we should see a
terrible market, with very few buyers.

[http://www.econtalk.org/archives/2011/01/boudreaux_on_mo.htm...](http://www.econtalk.org/archives/2011/01/boudreaux_on_mo.html)

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Nursie
_"I disagree. Unless BTC becomes the only common currency, you'd end up with
more distributed wealth, since the holders of BTC aren't exactly the biggest
holders of USD or EUR."_

This is why I said if it became common currency. --edit-- as A lot of bitcoin
folks seem to think would be a good idea! If it stays a minority interest like
gold then the particular problem of widening wealth disparity is not really an
issue. But that doesn't seem to be the aim of many in the BTC community - they
want society to adopt BTC or something very close to BTC as a main currency,
because they think the limited supply model would be a good thing in this
situation, which I think it would not.

 _"By the way, how does the drop in prices relative to BTC kill lending?"_

Err, because if BTC are always going up in value, why would I bother lending
them?

As a borrower of currency with small, controlled inflation I pay a percentage
in interest. This is eased by tomorrow's money being worth slightly less than
today's.

As a lender I need to lend or otherwise invest to maintain value, and lending
with an interest rate a little above inflation (and a little more to account
for risk) is a good way to do this.

With a deflationary currency the burden on the borrower increases massively as
tomorrow's currency is worth more and you'll have to do more to repay it.

As a lender I'm not going to lend at a flat or negative interest rate because
it's easier and lower risk just to hang on to the coins.

 _"tech devices are cheaper every year, from that argument, shouldn't it mean
there's a great incentive not to buy them?"_

Because they're useful and they're not the same every year? Also there _is_ a
small disincentive to buying computers when you can get more for your money if
you hang on a bit.

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icebraining
_because if BTC are always going up in value, why would I bother lending
them?_

Because you'd get more of them (just like now)? The only difference is that
instead of having to cover inflation, any positive rate would give you profit
over just holding them.

 _As a borrower of currency with small, controlled inflation I pay a
percentage in interest. This is eased by tomorrows money being slightly less
than todays._

But it's _not_ eased, because as you say in the next paragraph, the lender
prices in the inflation in that percentage. How do you benefit from USD being
3% cheaper, if the interest is 3% higher because of it? Only _unexpected_ (not
accounted for) inflation benefits the borrower.

As a lender, you wouldn't lend a little above inflation, but a little above 0%
to get the same returns.

 _With a deflationary currency the burden of the borrower increases massively
as tomorrows currency is worth more_

But the interest rates are dropped to account for that fact.

 _As a lender I'm not going to lend at a flat or negative interest rate_

Oh, with that I can agree: negative or zero interest lending would stop. But
that's hardly _all_ lending, and it's not even clear if we want to encourage
it.

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Nursie
_"Because you'd get more of them (just like now)? The only difference is that
instead of having to cover inflation, any positive rate would give you profit
over just holding them."_

But you _must_ charge a positive rate, which means the gap between deflation
and rate charge may have to be huge. \--edit-- And the bigger the gap (the
more deflation there is) the higher the rate of positive interest you would
want to charge to represent the risk that the person can't pay back, and the
relatively high income to be gained by doing nothing.

 _"But it's not eased, because as you say in the next paragraph, the lender
prices in the inflation in that percentage. How do you benefit from USD being
3% cheaper, if the interest is 3% higher because of it? Only unexpected (not
accounted for) inflation benefits the borrower."_

See above. A positive rate must be charged for it to be worthwhile, even if
this is so far above deflation it's not funny.

 _"But the interest rates are dropped to account for that fact."_

Yes, but they have an absolute cutoff. \--edit-- Also what's my incentive, at
the moment my stash of cash is losing value by holding it. It's (almost) 100%
risk-free with an (almost) guarantee'd small loss in value. If you invent an
implement (let's call it bitcoin) with the same risk profile as cash but an
(almost) guarantee'd gain in value, many investors would just invest in cash.
I know I would.

 _"Oh, with that I can agree: negative or zero interest lending would stop.
But that's hardly all lending, and it's not even clear if we want to encourage
it."_

I'm not sure negative or zero lending is a thing at the moment...

And I'm pretty sure we do want to encourage investment over hoarding, monetary
velocity generally being considered to be _a good thing_ , sitting on piles of
cash which give you an ever greater fortune/stake in the economy just by
holding them... I don't think that can be healthy for an economy.

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yk
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>

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arbuge
Posted earlier: <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.

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jstanley
I have been doing a much smaller-scale version of this for some time now with
a few friends. <http://bitgroin.com/>

EDIT: And "basket fund" is a joke about putting all the eggs in one basket
instead of hedging.

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jerguismi
Are you doing some arbitrage/HFT or just investing to bitcoins?

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jstanley
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.

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

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mxxx
man, i hope that's a joke.

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gasull
It isn't.

<http://www.finalternatives.com/node/23100>

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mxxx
Ah cheers for that, makes a little more sense now.

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username
yay! bitcoins!

