The MVP of your proposed idea is easy; the legal version is hard. If you do the MVP and don't put in an effort to get legal the happy case outcome is the SEC sends you a very annoyed letter and you shut down; there are a number of less-happy outcomes.
(If you're going to spend a few years getting intimately familiar with how to operate mutual funds writing software to do that might be more interesting than anything in crypto, since it doesn't require any speculation to envision a future where mutual funds run the world and are run on Excel spreadsheets and bubble gum.)
>>> It would be cool to do it in such a way that you ship the crypto "fund" as a binary that users run on their own server, kind of like a smart wallet. The program would make automatic trades to rebalance some BTC you initially deposit. You could "withdraw" BTC with a sale (implementation detail) whenever you wanted.
My immediate concern would be ensuring the fund was large enough to support the counter party risk that everyone would take on as their tokens cycled between BTC and whatever else was in the index. If it's not large enough and you have a significant enough event that triggers a higher-than-normal BTC pull out you may end up in a situation where some number of the users are stuck with tokens that they can't do anything with.
The second concern I have is how you'd manage to avoid a situation of a eventual "death by a thousand cuts", wrt all of the token-specific fees that are automatically deducted for each transaction. Every trade the tool makes -- if conducted on-blockchain versus through a centralized service/layer -- will gradually erode the user's capital.
If you tried to aggregate the trades off-blockchain to avoid the individual transaction fees for every trade you introduce a whole new set of risks and challenges.
Finally, if you're doing everything on-blockchain, you need to consider that the "settlement time" for each transaction won't be consistent. The different tokens will take different amounts of time, and even within the same token there's going to be wild variability. For example, within the last two months I've had different BTC transactions take anywhere from 1 hour to 2 days to reach six network confirmations. I always include a (nominally) higher than the minimum required transaction fee to ensure I'm not actively dropped by miners, and it's as much a function of luck as it is lots of other variables that would be outside of your direct control. You could pay a larger fee per transaction in the hopes of getting the miners to prioritize your trades, but that leads you back to my early point about "death by a thousand cuts".
>> I wouldn't think there would be legal requirements there.
For the person running the software there are almost certainly going to be tax implications at a bare minimum (and all sorts of other local regulatory and legal "land mines") that they would need to consider.
If you'd like to charge money for the binary in the form of a perpetual license fee, you may be ok. I expect that you would eventually run in to regulatory issues if you set it up to charge a trading fee or subscription fee (ostensibly for "financial services" such as assisting with the matching of traders). It all depends on how quickly your tool reached a point where it was successful enough to draw the attention of some regulator, somewhere.
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IANAL / IANAA, but I spent a number of years working full-time in the cryptocurrency space, so I've seen a bunch of great ideas up-ended by even the perceived threat of legal action.
I enjoy discussing these topics, so if you or anyone else would like to chat about it off HN, my contact info is in my profile.
Let's be absolutely clear: your coins are only worth what someone is willing to pay. And when the one and only true "run on the bank" of one of these currencies happens, it will happen within the span of less than an hour. All these people who are buying to eventually cash out are going to blink and wonder what the hell happened.
Take BTC as the example right now. All over the place, people are showing regret for not buying in a few years ago. No average BTC "shareholder" is going to be able to cash out for more than mere pennies. The majority of coins are owned by big players, and you are effectively dumping your cash into their pockets by buying into it.
BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh.
Even if 5% of all Bitcoin are dumped on to an exchange / multiple exchanges, it would cause short term panic but you'd still end up with sellers buying back in at lower prices because of the fixed supply. And let's face it, if you're smart enough to create blockchain technology / Bitcoin, you're probably smart enough not to sell your entire portfolio in one swoop on an open market without communicating with anyone...
The current bubble will come to an end and we'll enter a bear cycle at some stage - it's a given... but it's pretty unlikely the technology will just go away and fade in to oblivion given the number of people working with it and potential (or in some cases realised) use cases.
Is about as disruptive a technology as there has been since the internet itself - so if you're waiting for it to fall apart I think you'll be waiting longer than you realise...
That's not so different than what can happen in real life with currencies, isn't it? So at least the goal of treating Bitcoin like a currency has been met.
Those that got in early enough or have already cashed out usually keep their mouth shut. For those who regard it as a speculative asset and only want to get rich and now lament that they missed the early adopter phase, yeah, such people exist. I know several of them personally. It's always interesting to argue with them and yes, it would be better if there were regulations to protect them.
Greed is a bad investment strategy and it's only profit if you are willing to take profit. But people that push out the profit taking will always complain about not getting enough and most of them will get burned.
> BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh.
I see, you are not a true Buttcoin believer. Let me paraphrase an old meme: If Bitcoin succeeds, you won't have to cash out.
Jokes aside, Satoshi never made a promise to not cash out. It's likely, he/she/them are dead or lost the keys to their private wallet. Even in the unlikely case of Satoshi still being alive and having access to the coins, the minute this coins move, the price will plummet. And you can be sure that many people are watching these coins, a move will be noticed. Immediately.
This aspect of BTC specifically makes me roar with laughter. The fact that anyone is willing to hope that Nakamoto's coins are "lost", discounting their very real value should he/she be sitting on that cash cow. What a great con on their part. You say trading of those coins will be noticed "immediately". The transaction log will cement that trade before (well, as) it's noticed. The only thing people will notice is the aftermath. Those who are personally monitoring the blockchain with automation will notify themselves within 5 minutes, while the public at large won't figure it out for hours. By the time the "BTC is now worthless" headlines hit the major news outlets, it will be too late for the average user to cash out.
But tell me how to cash out any of those bitcoins that are supposed to be Satoshis without crashing the price? Just because it's on the blockchain doesn't mean anything as that only shows that those coins have changed ownership. They haven't been converted to fiat at that time.
Being able to sell on exchanges usually takes a few confirmations and by then, enough people will have heard the news of the coins moving and the price will already have plummeted significantly. Sure, those old coins would still be worth something but the actual monetary gain would be much less and Bitcoin itself might not survive such an event.
You could of course trade those coins over the counter, just sell the private keys or another method of an off-chain transaction but that still leaves the issue on how to cash out eventually?
Although seeing the impact of Alphabay (market) adopting ETH, there seems to be a huge market for cryptocurrencies and it probably won't go away until governments start legalizing/regulating harder drugs.
Anybody knowledgeable enough to invest in multiple cryptocurrencies is smart enough to know they need complete control over the primary keys. Otherwise, your investment could vanish at any moment.
I leave my fiat money in banks because I judge that the risk of the bank disappearing and taking my money with it is lower than the risk of my house getting burgled, catching fire, etc. Likewise, it's entirely reasonable to think that a competent Bitcoin broker is more secure and safe than my half-assed attempt to keep my own keys and risk losing access to my coins through my own incompetence.
That's the entire problem. Bitcoin has existed for eight years, and for a long time virtually nobody knew about it. Not a single bitcoin broker could demonstrate competency yet. It's better to stay out of this market if you think you can trust them.
Done correctly you are absolutely better off with your btc stored at home
I can now tell you don't own and know nothing about Bitcoin. This discussion is pointless and has now ended.
I am not talking about if it is a good idea to hold paper gold or btc, just if people would by paper btc.
Granted, risk is higher with cryptocurrency given its infancy; I won't dispute that. But if we trust brick & mortar banks to have adequate security policies and practices to deal with fiat currency, then the amount of trust we need to place in a competent exchange isn't multiple orders of magnitude higher than that. Just as there are security policies to mitigate risk in the world of cash, so are there policies to mitigate risk in the cryptocurrency world.
Maybe the risk with an exchange is one order of magnitude higher at the moment vs fiat; that seems like a reasonable amount. But 2-3+? No, particularly given the risks already present for fiat currency. And while we're at it, consider hardware failure risk if you're storing your own wallet files. What's an average failure rate for a storage device per year? 1-3%? Great, I'm sure you have backups. Not every user can be bothered, but any competent exchange will. Or - on the crypto side - what amount of value would be at risk due to an event like a hard fork? That's a risk at the currency level, not at the wallet/key level.
The overwhelming majority of businesses don't live or die based on the opinions of the paranoid; they succeed or fail based on the opinions of the average customer.
Neither does Polychain Capital, the cryptoasset hedge fund backed by Andreesen Horowitz and Union Square Ventures.
Polychain Capital is a hedge fund that only accepts investments greater than $500k from investors wealthy enough to manage the risk. If op had something like this in mind, he wouldn't be gauging the interest of random people on HN. Still, I believe they're too tempting a target and it's only a matter of time before their holdings are stolen.
[0]:https://support.coinbase.com/customer/portal/articles/166237...
> ... buy the top 10 coins weighted according to some measure, and rebalance once a week
As a relatively sophisticated investor myself, I'm not against the idea, but whether or not I'd invest in it would depend heavily on the implementation. And as of now with that example portfolio, I definitely wouldn't invest in it. Having a large btc bias when all the major cryptos are already highly correlated with btc seems redundant, and rebalancing once a week seems like overkill. Also, marketcap is a poor indicator of returns, in case you're considering using it for weighting.
EDIT: also, the btc bias comment was meant to generalize beyond just that example portfolio, because as a potential 'customer', I felt it should be made clear that btc is what I hold when I want liquidity, therefore it seems redundant to allocate any significant portion of my investment portfolio into an asset that I'm already going to be maintaining for everyday use and casual savings anyway.
What do you mean with "We're YC" ?
i.e. let's say combined market cap is $40b today. Create a token called 'Coin100' and a crowdsale issuing 1 billion tokens.
Also I would suggest allocating more than 20% to ETH.
In reality, we'd probably buy the top 10 coins weighted according to some measure, and rebalance once a week. We would send out investor updates and let you know what the weights are, along with performance over the past week.
We're YC and our previous idea didn't work out, and this is something we're considering pivoting to. If we get enough interest we'll start one!