A new bitcoin investment fund, which will actively trade the bitcoin markets, will soon launch in London.
The Bitcoin Superfund will use a combination of algorithmic and human trading to achieve a higher rate of return than a simple ‘buy-and-hold’ strategy, its founders claim.
There is no specific launch date at present, but the Superfund is in the process of identifying institutional and high-net-worth investors to reach a target of £5m ($8.3m) under management at launch.
Don’t just hold, trade
Rival bitcoin investment funds already exist, notably the Exante Bitcoin Fund and SecondMarket, but Bitcoin Superfund CEO Greg Jarrett is dismissive of the challenge that they pose, saying, “I don’t really think either of them are competitive.”
Over the past year the value of bitcoin has skyrocketed, even taking into account its relative decline since last December. Many people have bought into bitcoin in the hope that another similar rise will come in future. But if the price remains relatively flat, active trading is needed, says Jarrett:
“If bitcoin becomes a sideways market, which it seems to have done, something that we’re doing becomes very attractive, trading the volatility.”
The Superfund’s figures suggest that its trading strategies would result in a 70% higher rate of return than simply relying on bitcoin appreciation.
However, its figures are drawn from applying trading strategies retroactively for the period December 2012 to February 2014 (4,068% vs. 6,818% for BTC appreciation vs. Superfund appreciation + alpha, respectively).
Jarrett says trading is now live with a test fund, into which he has invested $30,000 of his own money.
The Superfund team
Unlike the Winklevoss twins, whose announcement of their as-yet unlaunched bitcoin fund was just another quirky twist in their very public lives, Jarrett and his co-founder are relative unknowns.
His co-founder is hedge fund manager at a firm that currently oversees more than £1.3bn ($2.16bn). For now he wished to remain anonymous, however, as he is yet to leave the firm.
The Superfund intends to be based offshore, says Jarrett:
“We’ve been looking at places like Malta. It’s unlikely to be specifically a UK-regulated fund.”
However, the fund is seeking Financial Conduct Authority (FCA) approval to operate in the UK, but with the FCA yet to issue any definitive statement on bitcoin, it is unclear how long this will take or if it will be possible.
Jarrett is optimistic that the FCA will engage positively with bitcoin when it does finally make a public statement:
“I think it will be unlikely that a massively negative view is taken on [bitcoin]. I’d be surprised if they came out with regulation that would shut down a massive potential industry that’s steaming ahead very quickly.”
The Bitcoin Superfund also says it has “fully insured cold-wallet storage”, but Jarrett declined to name the insurer and said “our compliance advisors are assisting us with the set-up of this agreement”, suggesting that the insurance may not be currently be in place.
UK-based Elliptic Vault is currently the only confirmed insured business providing cold storage.
The Superfund is aiming to have £5m under management when it launches. Within three years, it’s aiming to increase that tenfold to £50m, says Jarrett:
“We want to go big, pretty fast.”
His vision of a bitcoin investment fund is one where investors can move money in and out in any currency they like; where any exchanges used by the fund are fully audited; and where special agreements with exchanges ring-fence the fund’s money in case an exchange experiences problems.
Whether all of this is achievable remains to be seen, but Bitcoin Superfund’s ambitions reflect not only the growing institutional interest in bitcoin, but also the recognition of the need for better exchange security.