This is not a way to "grow Bitcoin". It's a way for a big holder to dump a lot of Bitcoins without, they hope, crashing the market.
The terms are awful: "The Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, Trust Agency Service Provider and Custodian and the Trust’s lack of insurance protection expose the Trust and its Shareholders to the risk of loss of the Trust’s bitcoins for which no person is liable."
"The Trust will not insure its bitcoins. The Custodian will maintain insurance with regard to its custodial business on such terms and conditions as it considers appropriate in connection with its custodial obligations and will be responsible for all costs, fees and expenses arising from the insurance policy or policies. The Trust will not be a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage. Therefore, Shareholders cannot be assured that the Custodian will maintain adequate insurance or any insurance with respect to the bitcoins held by the Custodian on behalf of the Trust. Further, Shareholders’ recourse against the Trust, Custodian and Sponsor under [New York] law governing their custody operations is limited. Similarly, the Shareholders’ recourse against the Administrator and Trust Agency Service Provider for the services they provide to the Trust, including those relating to the provision of instructions relating to the movement of bitcoins, is limited. Consequently, a loss may be suffered with respect to the Trust’s bitcoins which is not covered by insurance and for which no person is liable in damages."
I've never seen terms this unfavorable to shareholders in a prospectus before. They're taking on less liability than Mt. Gox took on. If the Bitcoins mysteriously disappear, no one is liable.
You must be right when you say that big players will be able to sell a lot of bitcoins with a measured market impact. That's closely related to an improved liquidity on the markets which will help grow Bitcoin.
Otherwise, no large exchange insures bitcoins stored in their cold wallets - which will be the case here. The risks are not well understood/priced yet...
If the SEC approves it, this would be great news for bitcoin.
Assuming the ETF is sufficiently liquid, it would allow:
- easy shorting of bitcoins which facilitate price discovery
- lower transaction costs. The cheapest and most liquid exchanges still charge .2% per transaction + spread. Most (all?) of them charge you for getting cash in our out of their platform. Buying shares of an ETF would cost just spread + transaction cost charged by your broker which should be much lower (.0035 per share on Interactive Brokers for example)
- easy hedging of a real bitcoin position. Let's say you hold a large fluctuating position in bitcoin that would like to hedge in USD. You could continuously convert all your BTC to USD or go long/short the ETF which is much cheaper.
Not sure this is true. The registration documents claim shares can only be traded in 50,000 share blocks (called "Baskets", approx worth $1 million at launch) and you have to be a registered broker-dealer (with a bunch of other rich-people-problem restrictions) to trade.
Am I missing something? Or will broker-dealers turn around and sell single shares to the public? Or these statements don't mean what I think they mean?
> lower transaction costs. The cheapest and most liquid exchanges still charge .2% per transaction + spread. Most (all?) of them charge you for getting cash in our out of their platform. Buying shares of an ETF would cost just spread + transaction cost charged by your broker which should be much lower (.0035 per share on Interactive Brokers for example)
The ETF has an associated Sponsor's Fee, to be paid in Bitcoin, that is not yet known. Also, a few relevant sections from the prospectus:
> Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares.
> In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed certain operational and periodic expenses of the Trust. See “Business of the Trust—Trust Expenses.” Extraordinary expenses of the Trust (e.g., expenses relating to litigation) and any other expenses that are not assumed by the Sponsor under the terms of the Trust Agreement are borne by the Trust and paid through the sale of the Trust’s bitcoins. Any incurring of extraordinary expenses by the Trust could adversely affect an investment in the Shares.
And:
> The Trust’s transfer or sale of bitcoins to pay expenses or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution from the Trust.
> Each delivery or transfer of bitcoins by the Trust to pay the Sponsor’s Fee or other expenses will be a taxable event to Shareholders. This or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution or dividend payment from the Trust. Any tax liability could adversely impact an investment in the Shares and may cause Shareholders to prepare and file additional tax documents. See “United States Federal Income Tax Consequences—Taxation of US Shareholders.”
I don't see how anybody actually taking the time to read the prospectus could come to the conclusion that this ETF will provide a lower cost vehicle for investing in Bitcoin.
I don't think it matters. Per blockchain.info, the volume of Bitcoin transactions is in gradual decline over the last year and seems stuck at about $50m USD/day, despite many more merchants offering to accept payment. Market cap is fairly steep decline and hash rate has been leveling off.
It just struck me that the market cap trend seems to have gone down in very similar fashion tot he price of oil over the last 6 months. If enough people who bought bitcoin did so primarily as a hedge, then you'd expect it to loosely track a basket of popular commodities like oil and gold (the price of which looks quite similar to Bitcoin's market cap over the last year IMHO - http://goldprice.org/). Can't wait for Google to get their automatic statistician tool online - I don't like statistics well enough to want to use R regularly but I would love a tool that I can use to quickly measure the coupling between different datasets.
The amount of bitcoins being spent is a function primarily of the amount of bitcoins earmarked for spending by the userbase, rather than the number of deals closed by a payment processor's sales team.
It's not about the liquidity.
It's not about shorting.
It's not about leveraging.
It's a little bit about ease of investing.
It's a lot about the fact that once this is available, hordes of brokers can make commissions by recommending their clients buy into this ETF.
By being in the general markets, bitcoin will finally have mass access to leveraged trading. The result will be that bitcoin will finally see a 'true bubble'. While the bitcoin price has been decreasing, it's not really been a bubble as the popping of a bubble is usually twice as fast as its inflation, the opposite of which is true in the current bitcoin decrease.
A good resource on the connection between leverage and financial bubbles is Kindleberger's "Manias, Panics, and Crashes"
You really can't lever up equities all that much. Mom & pop can margin up to 50%. Even professional investors are quite constrained in how much leverage they can apply for outright bets.
One thing sticks out as a red flag to me: they invented their own spot index (the Winkdex(R)) to price their NAV and that index includes BTC-e. BTC-e is a widely used site in the Bitcoin world, but no one knows who operates it or exactly where they are located (Bulgaria? Russia?). You would seriously base a large component of your index pricing an SEC regulated instrument on a number coming from unknown individuals who can not sign a contract or accept any liability? When people in the Bitcoin world always wonder "Why did X not include BTC-e?? How incompetent!" they never stop to think that there is no one on the other side that can pick up the pen.
> The Index Provider’s Winkdex formula provides a volume-weighted, exponential moving average market price by blending trading data from the three largest Bitcoin Exchanges by volume on a list of Index Provider-approved Bitcoin Exchanges.
> As of December 26, 2014, the eligible Bitcoin Exchanges include Bitfinex, BitStamp, BTC-e, CampBX and LocalBitcoins.
Needless to say, if BTC-e is not one of the three largest BTC exchanges, then it won't be included.
Assuming there's a way to verify every trade reported by BTC-e on the blockchain, shouldn't irregularities show up relatively quickly? More importantly, it seems that they do recognize that possibility: "Even in the absence of large trading fees and fiat currency deposit/withdrawal policies, price differentials across Bitcoin Exchanges remain; for example, bitcoins on BTC-e traded at a discount of approximately 0.9 percent relative to the average daily weighted price for bitcoins on BitStamp and Bitfinex during the week ended December 26, 2014. During the prior month, prices on BTC-e typically traded at a discount of between zero and five percent."
That's just being consistent with the reality of the Bitcoin market. BTC-e, whatever its structure, is one of the main Bitcoin exchanges, and as such it is necessary that it is represented in the index, else the index would present a distorted picture of the real market.
This could be one of the reasons the SEC hasn't approved the ETF for sale to the public. The first S-1 for this ETF is dated 2013-07-01, so it's not like the SEC hasn't had time to look at it. That said, there is a whole universe of bizarro exchange traded products in the US equity market so who really knows. I don't think the feedback from the SEC to the Winklevoss brothers has been made public.
Creation/Redemption means that if the price of the shares diverges from the true price of Bitcoin, you can convert Bitcoins into trust shares and vice-versa.
An amusing oversimplification, but an oversimplification nonetheless. They didn't view it as a "billon-dollar secret", but there's clearly something morally deficient about being contracted to work on something and then moving on with a clone of that something.
Doesnt the ETF also open the door to institutional funds that are normally restricted to specific assets? Seems to me that is the biggest advantage of a bitcoin ETF as it will open the gates to more capital for bitcoin investments.
This is exactly my thought as well. Not just for institutional money either. This makes it dramatically easier and simpler for retail investors (in both taxable and tax advantaged accounts) to get some exposure to BTC.
The main point of the vehicle is to make it easier to trade BTC by removing the need to acquire BTC directly and by allowing trading to occur on conventional financial markets.
It is difficult, for example, for investors to trade physical gold because it is difficult to acquire and store, difficult to trade in smaller amounts, and does not trade on conventional markets. Gold ETFs solve these problems.
The creation/redemption process is intended for market makers known as Authorized Participants (APs) to arbitrage differences in the ETF price and the underlying price. While, yes, you can sell bitcoins to the trust in exchange for shares of the ETF, you would then need to sell those ETF shares in the market. So in other words, you would only have liquidity if there were demand for the ETF. It's possible that there will be more demand for the ETF than for bitcoins simply because ETFs are more accessible.
I see the down votes but I'm genuinely curious. I'm assuming the Winklevi stand to profit from this and hold a large number of BitCoins that would probably be hard to get liquidity from.
huh? they're talking about starting this with 200k worth, I though (1M shares at 0.2 BTC each).
On Bitstamp right now "A market order to sell 200000.0000 USD worth of bitcoins right now would sell 639.80163 bitcoins and would take the last price down to 310.7300 USD, resulting in an average price of 312.5969 USD/BTC."
Ticker last is currently $315.15, so just dumping it on a public market orderbook would only cost you two tents of one percent.
One million would cost you 2% in market movement. Four million would cost you 10% in market movement.
So that gives you some boundaries on how much volume you're talking before "just press sell" is no longer a reasonable sales strategy.
I think it's really sad that Bitcoin trading ended up being so ridiculously expensive to trade that an ETF listed on traditional markets will drop the costs by an order of magnitude.
> In March 2014, it was announced that the twins had purchased seats on Richard Branson's Virgin Galactic shuttle using the profits they had made from Bitcoin. [1]
On April 3rd, 2013, there were 10,988,125 bitcoins in circulation[1].
10,988,125 * .01 = about 109,881 BTC.
109,881 * $320 (current market value of bitcoin) = $35,161,920.. not bad.
The price of bitcoin in April 2013 was about $138[2]... so if they bought all of them then (I think they got into bitcoin earlier than that so this is unlikely) they would have paid around $15,163,578 for them, so a return of approximately $19,998,342 (131%) from April 2013 to now.
If you have access to the dev console I highly recommend setting the max-width of the body to 40em. The text spans all the way across the screen by default.
What will definitely fall out is whatever fees the Winklevoss brothers decide to pay themselves. We don't know what those fees are though, because they haven't said. You can ctrl-f around in the S-1 for "sponsor's fee" and note that it's left blank in the filing.
I get gold trusts, like GLD -- transporting and storing and selling gold is a pain. But it's easy to buy and store Bitcoin using a service like CoinBase. Not to mention the fact that you'll be paying management fees.
I suppose if you wanted to put bitcoin in your IRA this would be helpful.
According to the filing, they have a 50,000 share minimum, which works out to $1 million at IPO price. Going to buy a few of those $1 million lots on a whim?
This is mostly irrelevant. The index used for pricing could be a weighted average of Thomas' and my karma, but if the trust was still backed by ~0.2 BTC per share and had working redemption mechanics, one would expect shares to trade around where rational market participants thought 20% of a Bitcoin was worth.
[+] [-] Animats|11 years ago|reply
The terms are awful: "The Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, Trust Agency Service Provider and Custodian and the Trust’s lack of insurance protection expose the Trust and its Shareholders to the risk of loss of the Trust’s bitcoins for which no person is liable."
"The Trust will not insure its bitcoins. The Custodian will maintain insurance with regard to its custodial business on such terms and conditions as it considers appropriate in connection with its custodial obligations and will be responsible for all costs, fees and expenses arising from the insurance policy or policies. The Trust will not be a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage. Therefore, Shareholders cannot be assured that the Custodian will maintain adequate insurance or any insurance with respect to the bitcoins held by the Custodian on behalf of the Trust. Further, Shareholders’ recourse against the Trust, Custodian and Sponsor under [New York] law governing their custody operations is limited. Similarly, the Shareholders’ recourse against the Administrator and Trust Agency Service Provider for the services they provide to the Trust, including those relating to the provision of instructions relating to the movement of bitcoins, is limited. Consequently, a loss may be suffered with respect to the Trust’s bitcoins which is not covered by insurance and for which no person is liable in damages."
I've never seen terms this unfavorable to shareholders in a prospectus before. They're taking on less liability than Mt. Gox took on. If the Bitcoins mysteriously disappear, no one is liable.
[+] [-] ucha|11 years ago|reply
Otherwise, no large exchange insures bitcoins stored in their cold wallets - which will be the case here. The risks are not well understood/priced yet...
http://www.coindesk.com/coinbase-names-aon-bitcoin-insurance...
[+] [-] juliangregorian|11 years ago|reply
[+] [-] ucha|11 years ago|reply
- easy shorting of bitcoins which facilitate price discovery
- lower transaction costs. The cheapest and most liquid exchanges still charge .2% per transaction + spread. Most (all?) of them charge you for getting cash in our out of their platform. Buying shares of an ETF would cost just spread + transaction cost charged by your broker which should be much lower (.0035 per share on Interactive Brokers for example)
- easy hedging of a real bitcoin position. Let's say you hold a large fluctuating position in bitcoin that would like to hedge in USD. You could continuously convert all your BTC to USD or go long/short the ETF which is much cheaper.
[+] [-] unreal37|11 years ago|reply
Am I missing something? Or will broker-dealers turn around and sell single shares to the public? Or these statements don't mean what I think they mean?
[+] [-] 7Figures2Commas|11 years ago|reply
The ETF has an associated Sponsor's Fee, to be paid in Bitcoin, that is not yet known. Also, a few relevant sections from the prospectus:
> Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares.
> In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed certain operational and periodic expenses of the Trust. See “Business of the Trust—Trust Expenses.” Extraordinary expenses of the Trust (e.g., expenses relating to litigation) and any other expenses that are not assumed by the Sponsor under the terms of the Trust Agreement are borne by the Trust and paid through the sale of the Trust’s bitcoins. Any incurring of extraordinary expenses by the Trust could adversely affect an investment in the Shares.
And:
> The Trust’s transfer or sale of bitcoins to pay expenses or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution from the Trust.
> Each delivery or transfer of bitcoins by the Trust to pay the Sponsor’s Fee or other expenses will be a taxable event to Shareholders. This or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution or dividend payment from the Trust. Any tax liability could adversely impact an investment in the Shares and may cause Shareholders to prepare and file additional tax documents. See “United States Federal Income Tax Consequences—Taxation of US Shareholders.”
I don't see how anybody actually taking the time to read the prospectus could come to the conclusion that this ETF will provide a lower cost vehicle for investing in Bitcoin.
[+] [-] anigbrowl|11 years ago|reply
https://blockchain.info/charts/estimated-transaction-volume-... https://blockchain.info/charts/market-cap https://blockchain.info/charts/hash-rate
It just struck me that the market cap trend seems to have gone down in very similar fashion tot he price of oil over the last 6 months. If enough people who bought bitcoin did so primarily as a hedge, then you'd expect it to loosely track a basket of popular commodities like oil and gold (the price of which looks quite similar to Bitcoin's market cap over the last year IMHO - http://goldprice.org/). Can't wait for Google to get their automatic statistician tool online - I don't like statistics well enough to want to use R regularly but I would love a tool that I can use to quickly measure the coupling between different datasets.
[+] [-] Adlai|11 years ago|reply
[+] [-] murbard2|11 years ago|reply
[+] [-] minimax|11 years ago|reply
[+] [-] dnautics|11 years ago|reply
A good resource on the connection between leverage and financial bubbles is Kindleberger's "Manias, Panics, and Crashes"
[+] [-] jim_greco|11 years ago|reply
[+] [-] apaprocki|11 years ago|reply
[+] [-] sheetjs|11 years ago|reply
Not necessarily. All they say is:
> The Index Provider’s Winkdex formula provides a volume-weighted, exponential moving average market price by blending trading data from the three largest Bitcoin Exchanges by volume on a list of Index Provider-approved Bitcoin Exchanges.
> As of December 26, 2014, the eligible Bitcoin Exchanges include Bitfinex, BitStamp, BTC-e, CampBX and LocalBitcoins.
Needless to say, if BTC-e is not one of the three largest BTC exchanges, then it won't be included.
Assuming there's a way to verify every trade reported by BTC-e on the blockchain, shouldn't irregularities show up relatively quickly? More importantly, it seems that they do recognize that possibility: "Even in the absence of large trading fees and fiat currency deposit/withdrawal policies, price differentials across Bitcoin Exchanges remain; for example, bitcoins on BTC-e traded at a discount of approximately 0.9 percent relative to the average daily weighted price for bitcoins on BitStamp and Bitfinex during the week ended December 26, 2014. During the prior month, prices on BTC-e typically traded at a discount of between zero and five percent."
[+] [-] rockyleal|11 years ago|reply
[+] [-] minimax|11 years ago|reply
[+] [-] murbard2|11 years ago|reply
http://www.sec.gov/Archives/edgar/data/1579346/0001193125144...
Creation/Redemption means that if the price of the shares diverges from the true price of Bitcoin, you can convert Bitcoins into trust shares and vice-versa.
[+] [-] late2part|11 years ago|reply
http://en.wikipedia.org/wiki/Libor_scandal
[+] [-] gojomo|11 years ago|reply
Have they become better at managing secrets and 'tech guys'? Because that's what's necessary to safely hold a lot of Bitcoin.
[+] [-] refulgentis|11 years ago|reply
[+] [-] justinireland|11 years ago|reply
[+] [-] jcliff|11 years ago|reply
[+] [-] ssharp|11 years ago|reply
[+] [-] foobarqux|11 years ago|reply
It is difficult, for example, for investors to trade physical gold because it is difficult to acquire and store, difficult to trade in smaller amounts, and does not trade on conventional markets. Gold ETFs solve these problems.
[+] [-] tpeng|11 years ago|reply
[+] [-] wmf|11 years ago|reply
[+] [-] ssharp|11 years ago|reply
[+] [-] nullc|11 years ago|reply
On Bitstamp right now "A market order to sell 200000.0000 USD worth of bitcoins right now would sell 639.80163 bitcoins and would take the last price down to 310.7300 USD, resulting in an average price of 312.5969 USD/BTC."
Ticker last is currently $315.15, so just dumping it on a public market orderbook would only cost you two tents of one percent.
One million would cost you 2% in market movement. Four million would cost you 10% in market movement.
So that gives you some boundaries on how much volume you're talking before "just press sell" is no longer a reasonable sales strategy.
[+] [-] maaku|11 years ago|reply
[+] [-] pc86|11 years ago|reply
[+] [-] califield|11 years ago|reply
[+] [-] fennecfoxen|11 years ago|reply
nice name there DTC.
[+] [-] bobcostas55|11 years ago|reply
[+] [-] Kiro|11 years ago|reply
I wonder how much bitcoins they own.
[1] http://en.wikipedia.org/wiki/Winklevoss_twins#Bitcoin
EDIT: From the top of the article: "In April 2013, the brothers claimed they owned nearly 1% of all Bitcoin in existence at the time."
[+] [-] firloop|11 years ago|reply
10,988,125 * .01 = about 109,881 BTC.
109,881 * $320 (current market value of bitcoin) = $35,161,920.. not bad.
The price of bitcoin in April 2013 was about $138[2]... so if they bought all of them then (I think they got into bitcoin earlier than that so this is unlikely) they would have paid around $15,163,578 for them, so a return of approximately $19,998,342 (131%) from April 2013 to now.
[1]: https://blockchain.info/charts/total-bitcoins?timespan=2year...
[2]: https://blockchain.info/charts/market-price?timespan=2year&s...
[+] [-] jekrb|11 years ago|reply
[+] [-] yafujifide|11 years ago|reply
document.querySelector('body').style['width'] = '40em';
However, setting the max-width did not work:
document.querySelector('body').style['max-width'] = '40em';
Any idea why?
[+] [-] pnathan|11 years ago|reply
[+] [-] minimax|11 years ago|reply
[+] [-] nostromo|11 years ago|reply
I get gold trusts, like GLD -- transporting and storing and selling gold is a pain. But it's easy to buy and store Bitcoin using a service like CoinBase. Not to mention the fact that you'll be paying management fees.
I suppose if you wanted to put bitcoin in your IRA this would be helpful.
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] unreal37|11 years ago|reply
[+] [-] primitivesuave|11 years ago|reply
[+] [-] elwell|11 years ago|reply
[+] [-] foobarqux|11 years ago|reply
[+] [-] patio11|11 years ago|reply
[+] [-] kumarski|11 years ago|reply
[+] [-] benguild|11 years ago|reply
[+] [-] giarc|11 years ago|reply
[+] [-] 7Figures2Commas|11 years ago|reply
[1] http://www.bloombergview.com/articles/2014-12-23/and-2014s-w...