Bitcoin's Huge Gains Bring a Windfall to Accredited Investor Funds

December 20, 2017

The currency’s enjoyed an amazing run that’s captured the attention of central banks, commercial banks and speculators/investors, but until one’s investment is sold, the gain isn’t crystallized

For clients of The Cryptocurrency Fund, the first institutional fund of its kind in Canada to give investors an opportunity to participate in the world’s hottest market, the news received this week makes for a nice Christmas present.

But unlike other presents, this gift is just a paper gain at this stage.

The fund, launched in late July, and managed by Calgary-based Ross Smith Asset Management (RSAM), is 97.7 per cent invested in Bitcoin and 2.3 per cent in bitcoin gold.

Bitcoin has enjoyed an amazing run that’s captured the attention of central banks, commercial banks and speculators/investors, but until one’s investment is sold, the gain isn’t crystallized.

On paper, then, investors in the fund, which is small with a net asset value of around $300,000  were up 44.03 per cent in November and 115.85 per cent on the year. (As of mid-December, NAV is about $1 million with year to date performance gains of 250 per cent.)

Given the 60 per cent gains for Bitcoin since the end of November — and assuming that those gains remain until month end — investors will be even happier when they get their December 2017 report.

In its monthly report, RSAM referred to Bitcoin, which traded above the US$10,000 level on Nov. 29, as an asset that’s “somewhat reflexive,” a term that means the “better it performs, the more speculators are drawn to it, creating a virtuous cycle.”

RSAM added that as the number of market participants increases, the intrinsic value of cryptocurrencies increases “according to Metcalfe’s law, which states that the value of a network is proportional to the square of its users.”

When the hedge fund was launched, RSAM said the idea was to offer accredited investors exposure to the cryptocurrency asset class. “Utilizing superior execution, security and storage methods, we believe this is a unique way for Canadians to obtain exposure to these assets,” it said at the time. RSAM, which offers monthly liquidity on the cryptocurrency fund,  manages three other hedge funds.

Two other managers have made moves to enter the cryptocurrency world. In September, Vancouver-based First Block Capital Inc. announced plans for private placement offering of units of FBC Bitcoin Trust “an investment fund managed by First Block that invests exclusively in Bitcoin.”

In October, 3iQ launched the 3iQ Global Cryptoasset Fund, which would invest in bitcoin, ethereum and litecoin, as well as in active management firms working in the crypto-digital world.

It’s understood that the progress of all three funds — all of which were geared to accredited investors — was held up because of new processes put in place by the Canadian Securities Administrators.

Nobilis and NEO

In time Nobilis Health Corp. may become the answer to a trivia question: Name the first corporate issuer listed on the Aequitas NEO Exchange. On Wednesday, the Houston-based Nobilis said it has commenced the ”application process to list its common shares,” on NEO and that it expects the shares to be available for trading in early 2018.

For Nobilis, which is already listed on the NYSE, the application to list on NEO comes about one year after it delisted from the TSX. Back then Nobilis, whose market cap is about US$100 million, said delisting from the TSX would create a “central marketplace” for its shares. “We believe that harmonizing our U.S.-based operational focus with a single U.S.-based trading platform will enhance the Company’s long-term liquidity, analyst coverage and access to U.S. financing. We believe this is a prudent move for shareholders.”

On Wednesday, it said that it came back to Canada because of NEO’s focus “on liquidity, their investor communication services and the streamlined disclosure-based listing model, coupled with their unwavering dedication to meeting the needs of public companies and investors.”

Originally appeared in Financial Post.

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