Bitcoin hedge fund
bitcoinfund.eu
bitcoinfund.eu
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.
What exactly does the management fee buy you?
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.
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...
Anyone who could shed light on this? Why would inflation be a Ponzi scheme?
- 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.
One of the best sources is the Bitcoin wiki, particularly the FAQ[1] and Myths[2] pages.
For instance the entry on chargebacks basically just says "chargebacks are bad and you need to be careful who you send money to", neglecting to mention that the very point of chargebacks is to enable trusted commerce between parties with no prior trust relationship. The Web-of-Trust is not really a good solution to this as it keeps new players out of the game.
It also says that - just like CC companies do to USD, EUR, etc - a payment mechanism can be built on Bitcoin, providing chargebacks. It's just not builtin in BTC, much like it's not builtin in any other currency.
Can we stop claiming it's the best payment method evar now?
You do see it in a lot of places though - that BTC is self-evidently the best payment method ever because of low fees, no middlemen and no chargebacks. Challenge this and someone will tell you it's not a payment method, it's more like cash, you shouldn't expect it to have these features. Tell them it doesn't have the features you'd look for in a currency and it'll be explained to you that it's more like gold, or an investment or... well anyway.
http://rationalwiki.org/wiki/Bitcoin
Although after reading it I'm still convinced that Bitcoin is a good thing and that its use and value will go up.
This seems to confirm a lot of what people say about BTC - that it's a vehicle for speculation and hoarding, and that all the major economic activity is concentrated at the exchanges. Though it could be a little out of date now.
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.
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...
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.
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.
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.
Hence early adopters (with hundreds of thousands of bitcoins) benefit much more from any increase in bitcoins.
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.
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.
EDIT: And "basket fund" is a joke about putting all the eggs in one basket instead of hedging.