BTC Growth – Original Hedge Fund-Style Service

The original BTC Growth hedge fund-style service, with a market capitalisation of 2000 BTC, operated from August 2013 to October 2013, closing due to the cessation of business at BTC Trading Corp.

BTC Growth History and Context

The original BTC Growth fund was a hedge fund-style service provided to the exchange simulation that was operated by the BTC Trading Corp. The original fund provided exposure to Bitcoin-denominated debt and equity, and it employed derivatives to hedge risks associated with this exposure as well as to generate returns independently. The fund also provided capital to exchanges, and it constructed positions designed to exploit volatility in the value of Bitcoin versus other currencies.

Participation in the fund via the exchange simulation opened in mid-August 2013, and within around 30 hours of launch, the fund was capitalized with 2000 BTC.

During the subsequent two months, the broader market for Bitcoin-denominated assets cratered, with many individual equities falling 75% or more. BTC Trading Corp.’s sudden announcement of its intention to close its exchange simulation was followed not long after by the introduction of trading restrictions at the BitFunder exchange; the latter announced its own closure soon after.

For participants in the original BTC Growth fund, the benefits of operating as a hedge fund-style offering rather than a “buy into a rising market and hope everybody wins” offering became apparent very quickly. Although the BTC Trading Corp.’s closure announcement and subsequent broad market decline marked a temporary low point for the fund’s value, it then climbed sharply, regaining much of its lost value within just days of the announcement. While other funds which remained in operation continued to squander shareholder value, BTC Growth completed an orderly liquidation and returned capital to participants in mid-October, its net asset value per virtual ‘share’ having decreased by a total of 11.6%.

From initial offering to final return of capital, this loss — small in relative terms — means that during the period, the fund appears to have outperformed all other comparable funds and nearly all individual Bitcoin-denominated equities by a wide margin.

In the real world of fiat finance, it is generally ill-advised to draw any positive conclusions about fund management style or ability over time periods shorter than 3 to 5 years. Nonetheless, the stark contrast in performance between BTC Growth’s hedge fund-style approach and that of other approaches, even over such a brief period of time, is notable.

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