Quote from: Esh on August 03, 2013, 10:30:02 PM

1) Why title this a 'Hedge Fund Style' investment rather than an ETF or ATF? As you say, there are several ways in which this fund will not and cannot behave like a hedge fund. Can you try to state concisely and clearly why you conceptualize this fund to be most akin to a hedge fund?

As I mention in the FAQ, there is no statutory definition of a hedge fund, and nothing at all rides on whether this is called a hedge fund. While it does not employ the GP/LP structure, it will be permitted to use of leverage; it will be permitted to actively hedge investments; and it will be permitted to take positions in a range of equity, debt, and currency; all of which are characteristics common to some (but not all) hedge funds.

Quote from: Esh on August 03, 2013, 10:30:02 PM

2) In an otherwise very thorough prospectus, your discussion of regulation and taxation seems to me to be underdeveloped. Do you anticipate that it will remain possible to have investors in this fund whose identities are obscured from you by the mechanics of Bitcoin? Will the fund owe the UK government capital gains taxes? Will investors who redeem their shares in the fund owe capital gains taxes to the UK government? Assuming that you launch the fund successfully, it seems safe to assume that you will have at least one American investor. Will the fund therefore be exposed to the regulatory power of the SEC?

As the document indicates, my understanding of the current position of HMRC is that gains are taxable when converted to fiat. To the extent that the aim of the fund is to achieve capital growth in Bitcoin, that understanding, if correct, would imply that the fund would not owe the UK government capital gains tax. As indicated under 'Risk Factors', however, we have no idea whether the UK government may in the future change its stance on this matter. I am not qualified to comment on any individual tax liabilities which might arise for investors redeeming shares, or on any extraterritorial claims of jurisdiction which might in the future be made by the US or other governments. With regard to AML/KYC, the fundamental structure of the exchange itself (quite apart from the mechanics of Bitcoin) currently precludes any kind of individual verification or validation by issuers. This is not unlike the structure of normal exchanges and brokerage houses: responsibility for verification or validation lies not with issuers of listed securities, but with the operators who provide the mechanisms whereby those securities are traded. (For example, if you buy shares in IBM, you won't find someone from IBM phoning you up or asking for a copy of your passport to verify that it's really you.)

Quote from: Esh on August 03, 2013, 10:30:02 PM

3) Will you be paying any expenses by redeeming Bitcoin for fiat, or otherwise exchanging the management fee for fiat? As you say, the redemption of Bitcoin for fiat creates a taxable event under UK law. Will the fund incur any obligations or liabilities as a result of such redemptions, whether on the part of investors who exit the fund or on the part of management?

Management fees, when converted to fiat, become part of the issuer's normal taxable revenue stream, to be reported just like any other revenue. From the perspective of investment, however, it is my understanding that it is the realization of gains in fiat which creates a tax liability under current HMRC guidance; therefore no, I do not envision the fund incurring obligations or liabilities due to currency conversion. The aim of the fund is, after all, to achieve capital growth in Bitcoin, not to achieve Bitcoin gains and convert them to fiat, and not to achieve fiat gains and then convert them back to Bitcoin.

Quote from: Esh on August 03, 2013, 10:30:02 PM

4) Have you retained legal counsel? If so, can you provide their contact information and/or credentials? If not, do you expect to do so, and if so, when? If the fund has need of legal counsel in the future, how will their services be paid for?

As in all areas of our business, we make every effort to operate within the law, consulting with our accounting firm -- which has a statutory duty both to understand and to report violations of relevant law -- on any occasion that guidance provided by HMRC or other UK government agencies proves to be confusing or unclear. In this particular case, the issuer is offering a service to the exchange, a service intended to manage Bitcoin-denominated assets, and the guidance which has been provided by HMRC so far does not indicate that this service would in any way merit additional attention. As in the FAQ, however, we have no idea whether the UK regulatory landscape may change in the future, and should that happen, we will take whatever steps necessary to ensure our compliance with any changes, including closing the fund gracefully, should that prove necessary. With regard to who pays for what, my company pays its own expenses; charges to the fund are outlined in the original document.

Many thanks for your thoughts and input -- these kinds of questions may help us fine-tune the final version of the document.