Let us start with the traditional “Meilleurs voeux pour cette année 2020”. Love, happiness and health to all of you and your families. 2019 has just ended, and what we can say is that it started as a promising year for BTC and ETH with a performance of c. +187% and +117% on 30th June to end +92% and -3% for the entire year.
2019 was the year when we finally managed to launch our first (regulated) fund, the Napoleon Bitcoin Fund. It is a French Professional Specialized Fund (regulated but not authorized per nature) offering direct exposure to Bitcoin performance.
This exposure is made via Bitcoin futures listed on the Chicago Mercantile Exchange. It allows professional investors or similar to avoid any custodian or valuation issues while being exposed to a reliable futures contract on Bitcoin.
What the story does not tell is that 2019 saw a change in the market structure with much higher average volumes coming from either whales or institutional investors (observed through CME Futures).
We had a lot of small sharp moves, but they were not sustained, resulting in a long trendless period. This is the worst configuration for models that try to capture trends that are the most efficient for these assets. In this highly unusual context, the best performing strategy was our oldest one, the BTC Long Only that rebalances on a weekly basis with a 176% return over the year vs 92% for BTC.
The other popular one, the ETH.BTC.USD, returned +50%, due to underperformance of the ETH component. Again, keep in mind that those figures are past ones and are not a reliable indicator of future results. Moreover, all those figures are calculated gross of fees.
That is why we have designed brand new 4h strategies (as opposed to daily ones) that allow us to filter a little bit better the false start of our daily models. We are implementing it in our systems as we speak after 2 months of paper trading. It should become live in the next few weeks for our Software community.
The fund has been launched and created on 8 November 2019 and fully hedged on 6 December 2019. Its has been seeded by our proprietary money (300k€). As a reminder, it is a Professional Specialized Fund (“FPS”) with daily liquidity and uses Financière d’Uzes as Custodian & Valuation service provider and PWC as the auditor.
On the marketing side, we have been very active to promote the asset management company and of course, the fund. On top of the articles to evangelize Bitcoin, we have indeed been presented or cited in +18 newspaper (from “Les Echos” to “Yahoo Finance”).
We will also organize a dedicated and proprietary conference at Palais Brongniart in Paris on 21st January with institutional investors to educate about the interest of Bitcoin in portfolio composition and capitalize on our Research article on the topic.
Last but not least, we have also negotiated a monthly slot with Allnews CH to promote our brand and thought leadership. Additionally, we finally managed to display the Napoleon Bitcoin Fund on Bloomberg (Bloomberg ticker: NAPOBTC) to disseminate the Net Asset Value per share of the fund and its Asset Under Management.
On the sales side, it is also active with spontaneous approaches by prospects (approx. 10) and our natural activity. We have collected a small but important first ticket of 60k€ and we are also building interest with wealth managers and qualified investors as well (a handful of potential investors being very interested) for the Q1. It is also fair to say that the early 2020 price action is helping a lot.
Implementation of licensing fee payments
As explained on the newsletter dated 17th July 2019, despite the fact that the Napoleon Bitcoin Fund (or “NBF”) is not a DAF per se, being a pure market access product, and despite the fact that it does not bear any performance fees either, we have decided to include it within the perimeter of the license agreement borne by the NPX, as long as the first 3 DAFs have not been launched. As soon as the third DAF is launched, the Napoleon Bitcoin Fund shall exit the scope of the license agreement.
Moreover, they have been a few changes to what was announced on the newsletter dated 17th July 2019, mainly due to the tax, legal and regulatory framework and to how the NBF has been structured. Basically, payments will be made on a quarterly basis and not on a monthly basis and we couldn’t avoid a VAT impact of 20%. The global scheme is the following.
Napoleon Crypto will quarterly invoice Napoleon AM for a global amount of S/(D*29 800 000) of 85% of the management fees due and paid by the fund, where:
· S is sum, for all days of the period, of the tokens regularly registered on the napoleonx.ai platform, and
· D is the number of calendar days (for which the NBF is valued) of the period.
Such period (quarter) will be called a Management Fee Generation Timeframe (or “MFGT”). For a MFGT, the Unitary Daily License Amount (UDLA) is defined as the amount (net of taxes) invoiced by Napoleon Crypto for such MFGT, divided by the number S. The amount perceived by Napoleon Crypto for a MFGT is in EUR and includes VAT due to the French state (20% rate). Such amount (exc. VAT) will be kept in EUR until the payment date.
Each token holder having regularly registered his tokens will have a right over an MFGT equals to the sum of the right of each token. Each token will be entitled to an amount equal to the UDLA multiplied by the number N of days during the MFGT that such token has been regularly registered. You can find below several examples that show how N is computed:
Update : the calculus of the UDLA has been updated so that it is not an average over the MFGT, but for each day of the MFGT, the real value of the licensee right that could be entitled to one token on such day. Refer to the March newsletter for more info.
So far, the cumulated amount of management fees is 91,43€ at Jan. 10th 2020. It corresponds to management fees paid since Nov. 8th 2019 and for 7,03 A Shares that have been subscribed in two phases: on Nov. 8th 2019 (1 A Share) and on Dec. 20th 2019 (6,03 A Shares). The UDLA is defined as 1/(D*29 800 000) of 85% of the management fees net of taxes (20%). Then we have:
UDLA = (1/29 800 000)*(1/43)*0,85*91,43/1,2
UDLA = 1,50611434/29 800 000
The licensee right of one NPX on the [Nov. 8th 2019; Jan. 10th 2020] is then equal to : 43 x UDLA = 64,7629167/29 800 000.
The license agreement will be soon available to be approved by each token holder. To regularly register his token, a token holder will need:
· To pass a KYC /AML process aiming at confirming his identity and eligibility. It is recalled that the NPX gives no rights to US Persons or people living in embargo countries. By law, this process will notably require two different IDs (among passport, national ID and driving licence) since it is done online,
· To approve the license agreement,
· To register the addresses of the tokens on the napoleonx.ai platform by signing a message from such addresses,
· To keep his tokens on these addresses until the payment date: any token moved before this date will lose its rights toward the corresponding period.
Payments will occur at payment date that shall not happen more than 30 days after the end of each quarter.
At the payment date:
· The amount due to each regularly registered token holder will be computed in EUR. It will be added to the balance of such token holder. At the beginning, balances of each token holders are set to 0€.
· For each token holder having a balance >= 10€, the amount of the balance will be converted in ETH at market price, a provision of 0,01€ equivalent ETH will be deducted to pay the gas, and the remaining balance will be sent to the payment address given and validated by the token holder. After payment, the balance of the token holder is set back to 0€.
· For each token holder having a balance < 10€, no payment will be made, and the balance will be kept for the next quarter, so that when the cumulated due amount shall exceed the 10€ threshold, it will be paid according to the previous point.
First payment and first MFGT
By exception, the first MFGT begins on November 8th and ends on March 31st 2020. The first payment date will occur before April 30th 2020. Still by exception, every token that will have been regularly registered before March 31st 2020 will be entitled to the license on the full first MFGT, so that the scheme will be the following for this MFGT only:
The license agreement shall be available in early March. Meanwhile, the napoleonx.ai platform will be updated so that every token holder will be able (i) to pass the KYC process, (ii) to approve the license agreement and (iii) to see his balance.
We are looking to launch the first DAFs as soon as possible. It will depend on (i) the appetite of the investors and on (ii) the legal and regulatory framework to embed more complex strategies than the buy and hold on BTC. Although not being a DAF, the NBF, as a proof of concept, has validated the fact that a regulated fund, based on a simple strategy on the BTC, may be issued in France.
The first DAFs shall be built the same way, but with a share on the Performance Fees instead of a share on the Management Fees. The share due to a token holder will be computed and paid back from the Performance Fees of a DAF, the same way the share due to a token holder will be computed and paid back from the Management Fees of the NBF.
At the moment, the only possible DAF to be launched is a DAF based on the BTC-LO strategy. We are still doing some research about the execution costs linked to its implementation based on the CME BTC futures. If investors show sufficient interest in this strategy we may launch it on S1 2020.
Let us finish by a big thank you for having supported us for so long and now let the market rock so that we can make an awful lot of money !!! Trade wisely.
The co-founders of the NapoleonX project