Originally Posted by
Ars Technica
“Similar to Exchange Traded Funds, the Bitcoin Fund objective is to purchase and store BTC; 1 Bitcoin Fund Unit = 1 BTC,” the site states. “The investment objective of the Fund is to achieve capital gains in the Net Asset Value of the Fund Shares. The fund currently manages a portfolio of 81,000 BTC and has achieved a phenomenal +1000% return in its short 3-month history.”
Reached by phone in Singapore, Anatoliy Knyazev told Ars that the “Bitcoin Fund” was a “nice addition” to the mix of existing funds and other financial transactions that the company offers. Americans, due to existing regulations, can’t invest in the Bitcoin Fund just yet, but a “feeder fund” is set to be ready in a few months.
“We have alternative funds that invest in wine, real estate,” he said. “Bitcoin as a share of our business is growing but it's [still small.] We have 82,000 BTC in the fund—today that’s almost $20 million. To compare it with the rest of our business it might be trickier. Our hedge fund market is about $2 billion. What's important is the amount of return that we get from Bitcoin. In January we had subscriptions, we tried pitching Bitcoin last summer and autumn with mixed results. After the price appreciation in January from 10 to 20 [dollars per bitcoin] we were overwhelmed with people wanting to get in.”
Knyazev added that his investors were other hedge funds and “high net-worth individuals.”
“Let’s say you invest $1 million, and from that we purchase bitcoins. You're issued the fund shares, so you get 100 shares. After that we take custody of them, geographically distributed, cryptographically secured. The encrypted flash drive copies [of the Bitcoin wallet itself] are kept in bank safes [in Moscow, Singapore and Switzerland.]”
Shorting bitcoin
But while Exante may be the best example of what’s out there in terms of bitcoin-based investments, there’s also some pretty sketchy stuff too.
Alex Stukalov is one of the “roughly four people” behind ICBIT.se, a Russia-based site, who operates under the shared handle “fireball.” ICBIT has been in operation since November 2011, boasting 5,000 registered users, with “around 100” online at any given time.
Stukalov, who spoke to Ars via Skype text chat, said that a well-known Bitcoin user in Vietnam named named “Tycho” (who has also been publicly accused of “cheating” the entire Bitcoin network) receives some of the revenue from the site and acts as a consultant. He claims that in six months, the team has taken in roughly 2,000 BTC in revenue (approximately $300,000 at $150 per bitcoin). But, he says, all that money has been put straight back into the company.
“The profit inflow is not really that stable. Even more, we put all money currently taken from fees into the so-called ‘reserve fund,’ which should cover exchange from default,” Stukalov said. “And currently, during recent rate volatility, that reserve fund was heavily exhausted.”
“The best statistics [are] the total volume and open interest (quantity of contracts currently bought/sold). So, counting in dollars (1 contract = $10), total volume for all three contracts for the recent three months is $1.4 million.”
ICBIT is one of the few places on the Internet where investors can engage in a futures market, effectively betting on the upcoming exchange rate from bitcoins to dollars. On its site, it also says: "ICBIT currently is in process of incorporating in an offshore jurisdiction. If you are a lawyer willing to help us - please let us know, we need your help."
Ars spoke to three traders on the site on Thursday afternoon, who identified as a Dutch business student, a Los Angeles-based IT manager, and a French scientist who recently finished his doctorate in bioinformatics and was headed to a new job in Brazil in a few months.
Simon Gorter, the Dutchman who goes by the online handle “chipsticky,” told Ars that he had only bought 0.6 BTC “a few days ago” and used it to “short a position,” effectively betting that fraction-of-a-bitcoin’s exchange rate would go down. In just a few days, he claims to have tripled his money to 1.8 BTC, currently worth roughly under $300.
“I’m still a student,” he added “I do online poker as well, but just got interested in this Bitcoin hype and looked at the charts and realized how crazy it was. Sure, I’m trying to profit, but just for small money. It’s more like a game for me, to see if I am right about the market.”
When asked if he was “long” on bitcoin—believing that its value will increase over time—he had a decided answer.
“I’ve thought about it a lot last few days, and I came to the decision that its a bubble that will burst,” the University of Groningen business student said. “The question is, how high can it go before it does? I think there is a good chance it already did and will drop even further. Another possibility is that the mainstream media has brought a lot of interested people willing to buy a few coins which could cause another boom going way higher than the last high before the bubble will burst.”
The Los Angeles-based trader, who goes by the online handle “bV” openly accused Stukalov and the others behind the site of “manipulating” the future price in the middle of a given futures contract.
“I figure my only recourse is to just going to keep buying until I run bust and stick the exchange with the debt,” he said, noting that in the worst-case scenario, he would lose his original investment of $1,000. “Since I can't get my money out, I can at least bet on a quick recovery!”
Stukalov dismissed such allegations, saying that they followed norms for futures markets.
“We do stuff the right way,” he said. “We have several people with background in finances and stock market trading participating in ICBIT development, we know how to do it really properly, not amateurish. And we stick to what we say (it's even obvious from the ratio: there are about three upset people now, out of 5,000 registered, and around 3,000 trading)”
But, ICBIT has no listed legal address, nor a listed mechanism through which to adjudicate disputes. Plus, it wouldn't be hard to imagine a scenario where someone shorts Bitcoin, then launches a distributed denial of service attack on Mt. Gox or another exchange, causing chaos in the market, and likely, profiting.
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