The Malta-based hedge fund which was launched a year ago and that trades in the electronic “money” of Bitcoin claims to have chalked up the highest returns of any hedge fund in history.

The Malta-based hedge fund which was launched a year ago and
that trades in the exotic-sounding electronic “money” of Bitcoin claims to have
logged the highest returns of any hedge fund in history.

Despite doubts in some quarters that Bitcoin will endure, or that governments jealous of their
monetary monopoly powers might ban it – investing in this new area has generated a 4847 per
cent return for the Bitcoin Fund, traded on the Exante platform, a
Malta-registered business. This publication interviewed the firm in May.

To give some measure of comparison – although the term “hedge
fund” covers a wide spectrum of investment styles – a broad gauge of returns
from Hedge Fund Research shows total returns for the year so far amounted to
7.2 per cent (HFRI Fund Weighted Composite Index, October).

“The Bitcoin Fund has now secured its place in financial
history as never before such an exceptional result has been achieved by a fund
of its kind,” Exante said in a statement.

Bitcoin is seen as an inelastic type of money as its
quantity cannot be indefinitely increased. According to one description on Wikipedia, Bitcoin “is a digital currency first described in a 2008 paper by
pseudonymous developer Satoshi Nakamoto, who called it a peer-to-peer,
electronic cash system.”

The creation and exchange of Bitcoin is based on an
open-source cryptographic protocol and is not managed by any central authority.
Each Bitcoin is subdivided down to eight decimal places, forming 100 million
smaller units called satoshis. Bitcoin can be transferred through a computer or
smartphone without an intermediate financial institution such as a bank. Using
an analogy with the language of the gold market, Bitcoin processing is secured
by servers called “Bitcoin miners”. These servers communicate over an
internet-based network and confirm transactions by adding them to a ledger
which is updated and archived periodically. Each new ledger update creates some
newly-minted Bitcoin; a crucial feature is that the number of new Bitcoin units
or “Bitcoins” created in each update is halved every four years until the year
2140 when this number will decline to zero. After that time no more Bitcoins
will be created - the total number of Bitcoins will have reached a maximum of
21 million Bitcoins.

The Bitcoin Fund is a relative minnow compared with many
hedge funds – it has assets over just over $35 million. Unlike most hedge
funds, it does not charge a performance fee, but a 1.75 per cent annual
management charge and a 0.5 per cent transaction fee; it doesn’t use leverage
or employ derivates to manage risk exposure. As at 18 November, the value of a
unit in the Bitcoin Fund was $658, Exante said.