Greg

I appreciate the quick and thorough response, as always. One further point of clarification/elaboration though.


It would be silly to worry that Paypal is anything but fully compliant in all its major jurisdictions for the business that it does. But that doesn't necessarily mean that the information that it passes to you or warrants for you would be sufficient for your KYC under UK law, nor does it necessarily mean that Paypal's KYC/AML obligations will match KYC/AML expectations or obligations for the kind of fund you're proposing. They might, and we might even say that they probably will, but there does seem to be a bit of a dis-analogy. Just because Paypal is on the right side of the law in what it does, that doesn't necessarily mean that a third party that makes use of them would also be on the right side of the law. That being said the more substantial point I wanted to get at there (which I expressed poorly in my original post) relates to regulatory compliance in the creation of a financial instrument which, in this case, would have some (albeit nominal) fiat component.

Actually, on second thought, maybe it would be best to just separate that point out from the Paypal question. What are your thoughts on the additional exposure, if any, that you and potential investors might have if you incorporate a nominal amount of fiat in a private Bitcoin fund offering? The Bitcoin-as-commodity situation in the UK was a bit regulatory plus when you launched the original fund. Might you not compromise that advantage by using Paypal?

Greg

If I'm following you correctly, you seem to be suggesting the use of a single Paypal transaction in order to establish the identity of investors in the proposed private fund, and that you intend this to be some kind of nominal fee with the substantive transactions taking place in Bitcoin later on?

If so then, in and of itself, that sounds fine (I am not so attached to my pseudonymity as others here, I suppose), but would you not then need to link the Paypal account to a Bitcoin wallet? A signed message on the blockchain could be used to establish the link in one direction, but how would you corroborate it on the Paypal side? And are you quite sure that Paypal's KYC/AML is something you want to count on? There have been some troubling accounts of Paypal freezing completely legitimate Kickstarter accounts in the name of anti-fraud/AML. That could be a problem if the kind of activity you're proposing were construed as crowd-funding by Paypal. Beyond that, Paypal may not necessarily be sufficiently compliant with UK law and might, in fact, add additional regulatory exposure as you'll be accepting 'real money' as part of the setup of the fund.

To answer your primary question though, the idea of using Paypal for ID verification doesn't strike me as a deal-breaker persay. I certainly find it far more palatable than turning over copies of my passport, credit card and driver's licence to WeExchange (A totally outrageous suggestion, in my books. That's more than enough information to facilitate identity theft). But I'd like to hear more about how you envision the logistics of this working.

Mintchip is not, in fact, a currency at all but a platform for spending fiat using blockchain inspired infrastructure (including digital signing). The Mintchip itself is the hardware on which the platform operates.

Very glad to hear about this Burnside. The exchange continuing forward outside of American jurisdiction with the code base intact strikes me as the best possible outcome at this point.

Am I right in assuming that the existing entity 'LTC-GLOBAL' will wind down after the sale? Does this mean that LTC-GLOBAL (and BT-TRADING-PT) shareholders might look forward to a final payout of some kind after the site code is sold or auctioned? Can you say anything yet about what you anticipate the hierarchy of creditors will look like in that event, given that LTC-GLOBAL still has significant liabilities on its books (in the form of outstanding legal bills and the balance of the loan you made to LTC-GLOBAL to pay the initial legal retainer)?

I believe you are interpreting my comments as directed towards you and BASIC, or as impugning your trustworthiness unless constrained by a contract. Nothing could be further from my intent. In fact this is the only thread I'm following in which the subject of the contract modification terms on Bitfunder has even come up (to say nothing of the fact that it was you who brought it up, much to your credit). I do, however, mean to defend the possibility of moving to Bitfunder if this issue can be addressed in a satisfactory way (setting aside the reasons I noted earlier that suggest that Havelock is on more solid regulatory ground), while also encouraging those reading to take this same problem up with other issuers. Of course the final decision on migration is yours, and I'm confident that you'll make it with the best interests of shareholders in mind.

I think you misunderstand me Creative. My point is simply that issuers moving from BTC-TC have contractual responsibilities to their shareholders, and that shareholders should hold them to those responsibilities. Many many assets will move to Bitfunder in the next two weeks. The details of those migrations matter, and those following this thread who have positions in assets making that migration should be vigilant.

Issuers can, of course, set that box to say 'No' or 'Yes, with vote'. As assets migrate to Bitfunder from BTC-TC it will be up to investors to ensure that issuers respect the terms of their existing contracts and set that option appropriately. As in all things Bitcoin, caveat emptor.

Can you elaborate?

The regulatory environment in Canada is rather more promising than the present situation in the United States, due to a regulatory ruling regarding Bitcoin last year on the part of Revenue Canada (the Canadian equivalent of the IRS). Under Canadian law, Bitcoins are most analogous to gold (i.e. a commodity) and are not money. When exchanging Bitcoins for fiat, one therefore creates the only relevant taxable event in the chain of transactions. The differences between the securities environments in the United States and Canada are also worth noting. Canada lacks a federal securities regulator (despite a small step having been taking towards one last week), and the provincial securities regulators are therefore less powerful and consequently far less aggressive than the SEC. Most security regulation infractions in Canada are a civil matter rather than criminal and IIROC (the Investment Industry Regulatory Organization of Canada) is a opt-in style self-policing organization within the securities industry rather than a government agency.

Some sources to get you started on your own reading if you're curious:
http://www.cbc.ca/news/business/revenue-canada-says-bitcoins-aren-t-tax-exempt-1.1395075
http://www.theglobeandmail.com/report-on-business/flaherty-new-securities-regulator/article14407154/
http://en.wikipedia.org/wiki/Canadian_securities_regulation
http://en.wikipedia.org/wiki/Investment_Industry_Regulatory_Organization_of_Canada

Greg

I'd like to add to the chorus encouraging you to do all that you can to re-list on another exchange and continue if possible. If anything, the happenings at BTC-TC speak powerfully to the importance of hedging in this space and the need for a fund such as this one.

Greg

Thanks for the quick and thoughtful response. I look forward to your final prospectus.

Greg

This looks very promising. Due diligence aside (still plenty to do as per this prospectus), I'd like to hear back from you about some specific questions that your prospectus leaves unanswered.

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?

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?

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?

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?

Thanks for pointing this out. I'd also be interested in something similar that returns LTC instead of BTC, or at least lets me choose. Does anyone in this thread have any experience with this pool or anything like it?