Founded in 2013, Hong Kong-based Genesis Mining has become a world leader in providing hosted hashpower for cryptocurrency mining. Clients can choose to mine bitcoin, or distribute hashpower on various altcoins such as Litecoin, Dogecoin, and Darkcoin. The company operates several mining farms in Europe, America and Asia.
“Genesis Mining is an easy and safe way to purchase hashpower without having to deal with complex hardware and software setup.”
— – Genesis Mining
Last week, Genesis Mining CEO and co-founder Marco Streng announced the launch of the world’s first bitcoin mining fund, dedicated to investing into a range of Bitcoin-related businesses.
The Logos Fund is a private, pooled investment fund with a minimum investment of $25,000. Streng founded the issuing company, Logos Capital Fund, with Bjoern Arzt as executive manager.
Logos Capital is a Delaware limited Partnership formed on February 16. Arzt filed an exemption from having to register with the Securities and Exchange Commission (SEC), Form D, on February 25. Exemption allows the company to raise an unlimited amount of money as well as advertise their offerings, but restricts them to accredited investors.
The Fund is responsible for taking reasonable steps to verify accredited investor status, by reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like, according to the SEC.
“Unlike registered offerings in which certain information is required to be disclosed, investors in private placements are generally on their own in obtaining the information they need to make an informed investment decision. Investors need to fully understand what they are investing in and fully appreciate what risks are involved.”
— – Securities and Exchange Commission
Brave New Coin caught up with Streng, who shared more insight into his new venture: "Bitcoin opens up an entire world of opportunities. We are just now starting to realize how impactful this will be." Genesis Mining will be the Logos Fund’s main investment partner, as well as the initial provider of bitcoin mining services. The company will not only provide the mining hardware, but also to provide the expertise and infrastructure the company has acquired.
“The first Bitcoin mining fund is the result of a long term development of sustainable mining, technical development of the mining infrastructure, long term contracts with suppliers and the building of a strong network within the Bitcoin industry.”
The fund’s main interest is to invest in Bitcoin Mining, although it can also invest in Bitcoin directly by buying them, with Arzt at the management helm. While he is the only person named, according to the Logos Fund’s website, professionals with experience in both cryptocurrencies, asset management, and complex financial product structuring will be managing the fund.
Arzt is a lawyer and Global Head of Structured Capital Markets Legal UniCredit Bank AG who has helped develop cryptocurrency mining activities at Genesis Mining. “He has long term experience in the finance world and in particular in the banking industry,” Streng described.
Returns are reliant on bitcoin mining profitability as well as bitcoin prices. Bitcoin mining profitability depends on many factors, including power consumption and cost of the equipment, how fast bitcoin’s mining difficulty changes, and how long it will take for mining hardware to become unprofitable due to competition. Genesis Mining believes that their relationship with hardware manufacturers, large scale purchases, and farms with “cheap electricity supply and little or no need for cooling,” give them profitable advantages.
“We did our calculations, and we think it’s impossible to mine more profitably on a smaller scale, at home and by yourself.”
However, the company recommends all their clients to “do their own research and do their own profitability calculation,” prior to signing a contract with them. “It would not ‘look right’ if we provide data on the mining profitability and selling contracts at the same time,” the website states.
Concurring with his mining company’s stance, Streng stated that “returns in mining as well as the returns in Bitcoin in general are very difficult to define due to the highly volatile nature of Bitcoin.”
“If Bitcoins are bought there are more sophisticated methods used such as an algorithmic trading engine or Bitcoin are bought for more price efficient rates for example on the OTC market.”
— – Marco Streng, Genesis Mining
Algorithmic trading refers to trading systems using complex mathematical formulas and high-speed computer programs to determine trading strategies. It’s estimated that 50 percent of stock trading volume in the U.S. is driven by algorithmic trading.
The SEC is currently working toward strengthening oversight of algorithmic trading. Last month, Financial Industry Regulatory Authority (FINRA), formerly known as National Association of Securities Dealers, Inc. (NASD), filed a proposed rule change regarding algorithmic trading strategies. Whether the design and development of the algorithm is in-house or by a third party, FINRA proposes that the member employing the algorithm be responsible for the algorithm’s activities.
“FINRA is proposing to require registration as Securities Traders of associated persons primarily responsible for the design, development or significant modification of algorithmic trading strategies, or who are responsible for the day-to-day supervision or direction of such activities.”
— – Financial Industry Regulatory Authority
While recognizing the risks and being a proponent of regulating algorithmic trading, the Commodity Futures Trading Commission (CFTC) asserted that a recent study of the equities market concluded that algorithmic trading “narrows spreads, reduces adverse selection, and reduces trade-related price discovery,” as well as improving liquidity.
Perhaps the closest competitor of the new fund is the Bitcoin Investment Trust (BIT), a private, open-ended trust that is solely invested in and deriving value from the price of bitcoin. Launched in 2013, BIT is sponsored by Barry Silbert’s Grayscale Investments LLC, a wholly-owned subsidiary and an affiliate of SecondMarket Holdings, Inc.
The BIT shares (OTCQX:GBTC) are the first to be publicly quoted on OTCQX, under the Alternative Reporting Standards.
Similar to Logos Capital Fund, the BIT also filed Form D claiming the same exemption with the SEC, making the fund available to accredited investors only. The investment minimum for BIT shares is also $25,000.
“BIT’s shares are restricted and subject to significant limitations on resales or transfer. Potential investors should carefully consider the long term nature of an investment in the BIT prior to making an investment decision.”
— – Grayscale Investments
The company first filed Form D with the SEC in October 2013, after having raised $2,542,818 from four investors. In March 2015, the total amount sold had climbed to $61,915,960 from 191 investors. A recent amendment filing, in March 2016, revealed a total of $65,856,195 had been sold to 202 investors.
While Logos Capital Fund had not started raising money by the date of their SEC filing, the number of Genesis Mining customers exceeded 100,000 in December 2015. If investors’ interests in the BIT is any indication of the popularity of a bitcoin-related fund, the Logos Fund may be popular among investors, at least the bitcoin investment part of it. Whether the market is interested in the mining portion of the portfolio remains to be seen.