Millions of Young People Trade Dollars for Bitcoins. Cue The Hedge Funders. Monopoly Money As a Serious Investment?
There are few things as powerful, or inevitable, as human ingenuity in the pursuit of profit. The alternative currency known as Bitcoin has more than doubled in value over the last two months. Now, for the first time, a hedge fund has been set up to capitalize on the growing dissatisfaction with the global financial system that’s behind Bitcoin’s rise.
The currency only exists online, there is a limited amount of it, and the coins are accepted at an increasing number of virtual retailers. Bitcoins were first minted in 2008 by a mysterious Japanese man and the currency is now managed by seven volunteer developers who believe they are providing a service to the millions of people who distrust banks, governments, and the paper money they circulate. The Bitcoin developers form a central bank, of sorts, though they would hate the description.
Enter the profiteers. The Bitcoin Fund is registered in Malta and it’s principal, Anatoliy Knyazev, is based in Singapore. “Long term we’re sure it will continue to rise, as any fundamental approach values 1 BTC at least above $1000, and as high as $100,000. Short term it is very much supply-demand driven, and a correction can happen any time,” says Knyazev.
Today one bitcoin is traded for over $60 and only 6 months ago it was as low as $5. Knyazev’s hedge fund platform, Exente, has raised US$3.2 million for its Bitcoin Fund. “It is obviously risky, and one has to decide for himself, as usual. There ain’t such thing as a free lunch. We do not give any investment advice,” says Knyazev.
The fund simply buys Bitcoins and holds them, arguing that value will increase as more and more people use it. The fund is denominated in dollars and euros, allowing institutional investors who would not be permitted to buy bitcoins themselves to access the market. The Bitcoin Fund’s fees are also different than most hedge funds; it takes none of the profits for its limited partners and takes a 0,5 percent management fee, compared to 20% of profits and a 2% management fee at many traditional funds.
“We think it will get worldwide adoption, and hope our fund’s AUM [assets under management] will reach 1 billion USD.”
The fund requires US$100,000 minimum investment from investors. But investors who want to go long on Bitcoins can also choose to simply buy directly on the Bitcoin Exchange mtgox.com.
Full disclosure, this reporter bought Bitcoins at $40 last week. They’re over $60 now and she’s still a buyer.