EXANTE: Winklevoss Brothers’ ETF to Skyrocket Bitcoin Price
Back in 2011, when just a few knew about the existence of cryptocurrencies and even fewer people believed in their future, founders of Bitcoin Hedge Fund Anatoliy Knyazev, Alexey Kirienko, and Gatis Eglitis put their stakes on bitcoin and this was Â theÂ right thing to do.
The price of bitcoin was about $5 these days when they started buying-in, and in a year fund’s team showed a yield of more than 4000% for the investors.
Forklog talked with the creator of the most profitable hedge fund in history Anatoliy Knyazev, currently being the CEO of EXANTE online brokerage, to share the fund’s amazing story with our audience.
FL: How did you understand at this early stage of cryptocurrency emergence, that this could be such a profitable business while market cap and price were so small?
Anatoliy Knyazev: We started to follow bitcoin as early as 2010-2011. After initial spike from $1 to $30, the bitcoin’s price experienced a sharp drop. However, in the course of the next few months and even in a half year bitcoin didn’t fail as a project while the people became more and more interested. We concluded, that bitcoin will inevitably survive. Meanwhile, the bitcoin mining started showing a rapid growth and talks about first ASIC-miners started spreading back in 2012.
We started thinking how to take part in all of this. Naturally, we started working in the area where we are professionals â€“ finance and financial engineering. Back then the regular institutional investors could not take part in this market because it was impossible to buy bitcoins being a licensed company.
You couldn’t even put them on the balance sheets because nobody explained what it is, where those bitcoins are, how to check that each of them truly costs $5â€¦ However, being programmers, we liked this story and we still like it, that’s why we decided to make it possible for the institutional money to enter the market. Simply put, what we did is called securitization, meaning attracting investment money via creating securities. Finally, we made the first ETF of bitcoin. However, being honest, it was not a real ETF because it’s not traded on an exchange. It was a fund with each share being equal to one bitcoin. December 2012 we started trading, and the first subscriptions and investments arrived.
FL: In an interview to Russian magazine â€śRBKâ€ť you told that ‘the resulting 4000% yield of the fund was enabled by bitcoin price rising only while find does not have an active managementâ€ť. Don’t you think about launching a fund with an active management?
AK: That’s true, all our income has been due to rising price of bitcoin. By the way, there was not 4000%, but full 8000%. I vividly remember, that the first fund subscriptions were when the Bitcoin price was 13$, we thought we were late. It was fun when we began to make a legal framework and the fund, a bitcoin cost 5-6 $ and then when we finished with the documents it jumped over 13$. We worried a lot that missed an opportunity, but, in fact, in about a month a cryptocurrency has risen to 30$. And again, we were sure, that it would be difficult to sell such asset, that had increased by 5 times, to the investors. They could say that 5 times in half a year is a limit. But it all turned out the way it was supposed to. So we moved from 13 to 1000$, to be exact, that is how much percent the fund earned. In this regard, it is interesting that you lost nothing at the Mt.Gox collapse!
FL: Did you felt the coming problems against the background of a growth in cryptocurrency or initially you did not trust centralized services?
AK: Being professionals in finance, we fully understood what the credit risk is. It was interesting to watchâ€¦ When everybody sold on MtGox, Btc-e, and half-dead Bitstamp, it was seen during the discussions that people used a substantial amount of money without thinking about the long known things in financial markets. There they faced such problems and found some ways of protecting, for example, credit risk, liquidity risk, short sale risk.
The first bitcoin users did not know this. But we, first, met with all the exchanges and discussed all the details. We made the buys on OTC market (over-the-counter) and on the organized exchange. We also met with MtGox leader Mark Karpeles and with guys from Bitstamp.
It is clear that despite all the meetings, there was a credit risk because the companies were unregulated and unlicensed, and bitcoin was somewhere outside the legal fold. It can be said, that in 2012 and in the first half of 2013, all bitcoin trading was at the mercy of two banks serving Bitstamp and MtGox.
For example, if the Japanese bank Mizuho, MtGox worked with, closed the accounts of the exchange â€“ bitcoin price would drop in 100 times. The same situation was with Slovene UniCredit serving Bitstamp. It is a miracle, that they cooperated with each other so much time because it was obviously that there were some odd flows of payments. And modern banks can’t stand when you get many different payments from different persons and organizations from different countries because at once you are reminded of such boring words as AML and KYC, yet unknown to bitcoin community back in 2012.
Remember Charlie Shrem, who sold bitcoin without authorization, we can see that as much as we would like bitcoin to be free from all theseâ€¦ in 2016 it is impossible.
Returning to our situation in 2012, we did manage to come through the collapse of MtGox without waste. And we are following the same policy with the other exchanges. Why bear the risks if we can do without them!?
FL: What is going on with Bitcoin fund?
AK: The fund works, investors continue to come and to invest. Being a European brokerage company we have launched trading shares of the fund on our trading platform. Buying such a share is equal to buying a bitcoin. However, investors cannot send us bitcoin and take fiat. They can buy a share of the fund for 600$ and sell, eg. for 700$. The platform works since 2013 and it is the first in the world to be regulated and licensed online platform, and each client can have an access to it. Besides bitcoins, you can trade stocks, derivatives, exchange and out exchange assets. It is a very interesting product. Except for prime brokers, nobody in the world offers such opportunities. We are the only brokers in the world who make an opportunity to trade bitcoins with national insurance for 20 thousand euros. Maybe that is the reason why our clients from 100 countries use our platform.
FL: Your fund was launched a few years ago. How many cryptocurrencies have entered the market during these years? Do you invest in anything, besides bitcoin?
AK: Yes, the other cryptocurrencies, such as Litecoin, have appeared after the first bitcoin â€śboomâ€ť. Their number was rising, but, to tell the truth, we were not interested in it at all. It was funny. It was something like pump-and-dump scheme. Technologically, we were only interested in Ethereum, yet we did not invest. Actually, after a more detailed assessment, I am in doubt that we will. We are also interested in Monero. Its creators, at least, have made a technologically real great thing that makes this project more valuable when compared to bitcoin. We like it. That’s all I guess.
FL: Nowadays, cryptocurrency trading is such a wild west. And as your experience shows, the story is repeating itself and the models on traditional markets can be applicable here. What do you think, how long this market will stay free and unregulated?
AK: We understand that it will be difficult because everything can be relocated to Tor or I2P.
The main thing is that it is connected with conventional currencies (fiat). And if it turns out that two crypto wrappers are to be valuable and to be accepted in exchange for fiat then this trading will work. If you can’t pay for goods with cryptocurrency or exchange it for another currency, I don’t understand why should we trade it.
So the market will live if trading with different cryptocurrencies and exchanging them for fiat via bitcoin continue to exist. Besides that, the development will continue, because a new platform generation is born every year receiving free money. Yes, somebody comes to Forex, and others go to crypto markets. I don’t think that all these people have fundamentally different motivations and objectives. The main difference is low entry barrier. And I don’t see any reasons for a decline of this if there will be no excessive control tightening.
Besides, during all the crises bitcoin shows itself on the bright side, so it makes sense. I don’t worry about bitcoin, but we’re not interested in trading crypto for crypto. We are interested in things that can change the world while exchange rate of one unknown cryptocurrency to another is quite a boring story.
Concerning the current market situation, for investors, who are not ready to go into all the details of cryptocurrency market, EXANTE broker has been created being the most convenient way to form a cryptocurrency-based portfolio. Using a single account, an investor can buy shares, futures, obligations or bitcoins. Working with a classical broker, licensed in Europe, allows the investors to stay in their ordinary reality while testing new interesting assets.
FL: Russia is a difficult market. Did you have any problems?
AK: Most of our staff is outside of Russia. Still, we didn’t have any problems here. Of course, it would have been more comfortable if there were stricter playing field, as in the USA, for example. Today Russia is a bit backward, and I always say it in the interviews. However, in the current situation, it does not seem to be important for the government.
FL: And finally, our traditional question: what will be the bitcoin price by the end of the year?
AK: Right now the key event in Bitcoin will be not the blocksize quarrels or the halving. It’s the approval or disapproval of Winklevoss brothers’ application for bitcoin ETF in the US.
Americans are ready to pay twice as much for bitcoin because they do this through their broker and they don’t want to bring money to cryptocurrency exchange. There are different reasons, but the main is that people don’t want to risk. We think that if the Winklevoss’ application is approved, the bitcoin price can easily rise to 2 and even to 10 thousand dollars.
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