Bermuda-registered Bitcoin fund explained

It is the currency without central bank backing that is most often associated with illicit online drug trade and illegal Internet gambling. 

Some critics dismiss it as an unregulated scam.

Bitcoin (BTC) involves a decentralized electronic cash system that uses peer-to-peer networking, digital signatures and cryptographic proof so as to enable users to conduct irreversible transactions without relying on trust.

EXANTE, a Malta-based brokerage company, has registered its Bitcoin fund in Bermuda. We asked EXANTE spokesman Patrick O’Brien about the controversial currency.

BDA SUN: Why register the Bitcoin fund in Bermuda? What appealed about the island’s regulatory climate? 

EXANTE: Bermuda has a strong and effective financial services regulatory environment, supervised by the Bermuda Monetary Authority, which has the world’s largest offshore, fully electronic securities market.

Your website states that the objective of the fund is to purchase and store BTC, how much BTC — in U.S. dollars — is currently being stored in the fund?
Similar to exchange traded funds, the Bitcoin Fund objective is to purchase and store Bitcoins; one fund unit is equal to one Bitcoin. The investment objective of the fund is to achieve capital gains in the net asset value of the fund shares. The fund currently manages a portfolio of 56,000 Bitcoins and has achieved a phenomenal 1,000 percent return in its short 3-month history. Value in dollars at end of November was about $45 million.

Some critics have said Bitcoin fails to offer consumer protections that are as strong as traditional financial products. What would you say to that critique?

Bitcoin does have a weakness and that is the lack of knowledge of some of its critics. Traditional financial products also have their weaknesses. Security is always the key at EXANTE and time-proven cryptographic algorithms are used that allow EXANTE to secure all stored funds against unauthorized access, hence why investing in our Bitcoin fund is the way forward. It eliminates the investors’ risk as we have a team of security professionals that ensure no breaches occur.

Is there a concern that authorities could shut Bitcoin system down because of its affiliation with online illicit drug dealing and illegal gambling?

All currencies can fall under attack from what you mentioned above. Whether it can be shut down — well, look at the euro and the dollar — both have been used for illicit dealings and are still around. Because of concern for the stability of the currency in some countries, there will always be demand for alternative forms of money. For decades, the fallback has been the U.S. dollar. But due to improvements in technology, something like the Bitcoin is now an option.

There is also criticism about a lack of applications. Sure, I could buy drugs or gamble with it, but could I buy a Porsche? A Burberry tie? Does it have uses for more conventional forms of commerce?  
Right now, it is in its formative stages, and there is wild activity going on at times which makes it a dicey proposition. But stability will eventually come and it will become a more viable and accepted option. For instance, recently Bloomberg media featured a “12 days of Bitcoin” segment where they spent every day using Bitcoin. Now, you buy anything from a domain name to an apartment.

Digital currencies are here to stay forever. There are around 150 crypto-currencies developed. To my mind, liberalisation of transfer of value pose a threat to those who are used to profit from manipulating the value of unit and servicing the inefficient conventional clearing of value.