4 ms·

Decision On Bitcoin ETF Coming March 11

61 points by vinchuco 10y ago

vetler 10y ago
On a related note, there's already a Bitcoin ETF on the Swedish stock exchange: http://xbtprovider.com/ http://xbtprovider.com/
- haakon 10y ago
  That's actually an ETN (exchange-traded note). But don't ask me what the difference is.
  - TuringNYC 10y ago
    ETNs carry credit risk as they generally dont actually own the underlying asset. Instead, the ETN's issuer promises to stand by the value of the underlying asset. Historically this was not an issue but the collapse of Lehman Brothers, AIG-FP and others made it clear that owning assets is preferable to someone making a promise to give you those assets.
    - Ntrails 10y ago
      You still don't directly own the assets in the case of an ETF as far as I am aware? You own shares in the ETF and the ETF owns the assets so I imagine in the case of liquidation you're below creditors? Someone more familiar with the concept would need to elucidate. In addition, a synthetic ETF the company doesn't own the underlying exactly (but some portfolio which perfectly replicates it) - which is again slightly different from a Note I think but still has counterparty risk in there.
      - runeks 10y ago
        If the fund owns the assets, and you own shares in the fund, then you own a part of the assets. Who else would? The management?
        TuringNYC 10y ago
        You are right, in the case of ETFs. The parent is describing ETFs but my comment (the grandparent) was describing ETNs in response to the great-grandparent which is also speaking about ETNs. Phew! OK -- to clarify my original comment -- ETNs DO NOT own the asset. The issuer of the ETN promises value equal to the asset, but that promise is worth only as much as the Issuer actually is good for. In cases like Lehman's bankruptcy, the promise would need to go through bankruptcy like any other promise. Thus, ETNs are like debt linked to an asset index rather than an interest rate/index. So not only are you exposed to the risk that underlying/linked asset loses value ("market risk"), but you are also exposed to the risk that the underlying/linked asset does fine yet the Issuer cannot make good on their promise ("counterparty risk"). With ETFs, on the other hand, the fund (and hence you) generally own the asset, but even then, some ETFs are slightly different in that they actually own derivatives on the assets such as futures. They are almost the same since futures are daily-settled. ETNs are not daily-settled thus carry longer-term counterparty risk.
eb0la 10y ago
It's very interesting to see the (153 pages long) filling from BATS: http://cdn.batstrading.com/resources/regulation/rule_filings/pending/2016/SR-BatsBZX-2016-30.pdf http://cdn.batstrading.com/resources/regulation/rule_filings... Specially the legal stuff (they are incorporated as Delaware Trust), and that they will track the price bitcoin in the Gemini Exchange at 4pm.
matt4077 10y ago
For those looking at this article with their head tilted like a confused dog (i. e. me): "An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks." So this would a fund that buys bitcoin with the money it gets by issuing shares, with its price essentially following the bitcoin exchange rate. You could invest in bitcoin and leave all the technical and security aspects to the fund's management. It may also allow investing in bitcoin in situations where it wasn't previously possible for (for example) regulatory reasons. I'm unfamiliar with the specifics, but these 401k's come to mind (feel free to correct me if I'm wrong). Please don't invest all of your pension savings in bitcoin. Thx, <someone who would consider it unethical to leave you to starve even if it's the fault of your moronic decisions earlier in life>
- pizza 10y ago
  where the btc futures at???
  - runeks 10y ago
    https://deribit.com https://deribit.com
koolba 10y ago
There's going to be a ton of money to be made on this ETF through loans. Shorting rules require that the party doing the short sale acquire the securities which is usually done by borrowing from someone else who has them on hand. In the case of hard to borrow securities (ex: fresh dot com IPO) the interest rates on the loans can reach 100-200%. I bet the Winklevoss twins will be owning a substantial amount of the security themselves purely to be able to loan it out. If they're already planning on owning a substantial bitcoin position, it doesn't increase the risk much further as stock loans are usually capitalized 102-105% of market value (though the swings in BTC prices will make this interesting).
runeks 10y ago
There's also https://grayscale.co/bitcoin-investment-trust/ https://grayscale.co/bitcoin-investment-trust/ -- which awaits approval as well.
BenoitP 10y ago
I'd love for a portfolio manager to chime in and comment on this. BTC has often had uncorrelated or inversely-correlated behavior with regards to the market; Making it a very good component to manage risk in a portfolio.
- zzalpha 10y ago
  I dunno, BTC seems a little too unstable as a good hedge, IMO. To me, the real value is being able to make money on volatility, since you can buy and sell shares in this ETF far more easily than you can with BTC... That said, I'm very curious how they plan to track it. What's the "gold standard" for the "value" of BTC, given its price can vary across exchanges? The difficulty of getting money in/out limits the opportunities for arbitrage, so this kind of thing can happen pretty easily. Are they going to track an average across exchanges or something? EDIT: Or I could just read the SEC filing. They're going to use their own index (which is an average based on the spot price of "Qualified Exchanges" they've identified): https://winkdex.com/ https://winkdex.com/ Well, that doesn't sound shady at all!

61 points by vinchuco 10y ago

On a related note, there's already a Bitcoin ETF on the Swedish stock exchange: http://xbtprovider.com/ http://xbtprovider.com/

haakon 10y ago
That's actually an ETN (exchange-traded note). But don't ask me what the difference is.
- TuringNYC 10y ago
  ETNs carry credit risk as they generally dont actually own the underlying asset. Instead, the ETN's issuer promises to stand by the value of the underlying asset. Historically this was not an issue but the collapse of Lehman Brothers, AIG-FP and others made it clear that owning assets is preferable to someone making a promise to give you those assets.
  - Ntrails 10y ago
    You still don't directly own the assets in the case of an ETF as far as I am aware? You own shares in the ETF and the ETF owns the assets so I imagine in the case of liquidation you're below creditors? Someone more familiar with the concept would need to elucidate. In addition, a synthetic ETF the company doesn't own the underlying exactly (but some portfolio which perfectly replicates it) - which is again slightly different from a Note I think but still has counterparty risk in there.
    - runeks 10y ago
      If the fund owns the assets, and you own shares in the fund, then you own a part of the assets. Who else would? The management?
      - TuringNYC 10y ago
        You are right, in the case of ETFs. The parent is describing ETFs but my comment (the grandparent) was describing ETNs in response to the great-grandparent which is also speaking about ETNs. Phew! OK -- to clarify my original comment -- ETNs DO NOT own the asset. The issuer of the ETN promises value equal to the asset, but that promise is worth only as much as the Issuer actually is good for. In cases like Lehman's bankruptcy, the promise would need to go through bankruptcy like any other promise. Thus, ETNs are like debt linked to an asset index rather than an interest rate/index. So not only are you exposed to the risk that underlying/linked asset loses value ("market risk"), but you are also exposed to the risk that the underlying/linked asset does fine yet the Issuer cannot make good on their promise ("counterparty risk"). With ETFs, on the other hand, the fund (and hence you) generally own the asset, but even then, some ETFs are slightly different in that they actually own derivatives on the assets such as futures. They are almost the same since futures are daily-settled. ETNs are not daily-settled thus carry longer-term counterparty risk.

eb0la 10y ago

It's very interesting to see the (153 pages long) filling from BATS: http://cdn.batstrading.com/resources/regulation/rule_filings/pending/2016/SR-BatsBZX-2016-30.pdf http://cdn.batstrading.com/resources/regulation/rule_filings... Specially the legal stuff (they are incorporated as Delaware Trust), and that they will track the price bitcoin in the Gemini Exchange at 4pm.

matt4077 10y ago

For those looking at this article with their head tilted like a confused dog (i. e. me): "An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks." So this would a fund that buys bitcoin with the money it gets by issuing shares, with its price essentially following the bitcoin exchange rate. You could invest in bitcoin and leave all the technical and security aspects to the fund's management. It may also allow investing in bitcoin in situations where it wasn't previously possible for (for example) regulatory reasons. I'm unfamiliar with the specifics, but these 401k's come to mind (feel free to correct me if I'm wrong). Please don't invest all of your pension savings in bitcoin. Thx, <someone who would consider it unethical to leave you to starve even if it's the fault of your moronic decisions earlier in life>

pizza 10y ago
where the btc futures at???
- runeks 10y ago
  https://deribit.com https://deribit.com

koolba 10y ago

There's going to be a ton of money to be made on this ETF through loans. Shorting rules require that the party doing the short sale acquire the securities which is usually done by borrowing from someone else who has them on hand. In the case of hard to borrow securities (ex: fresh dot com IPO) the interest rates on the loans can reach 100-200%. I bet the Winklevoss twins will be owning a substantial amount of the security themselves purely to be able to loan it out. If they're already planning on owning a substantial bitcoin position, it doesn't increase the risk much further as stock loans are usually capitalized 102-105% of market value (though the swings in BTC prices will make this interesting).

runeks 10y ago

There's also https://grayscale.co/bitcoin-investment-trust/ https://grayscale.co/bitcoin-investment-trust/ -- which awaits approval as well.

BenoitP 10y ago

I'd love for a portfolio manager to chime in and comment on this. BTC has often had uncorrelated or inversely-correlated behavior with regards to the market; Making it a very good component to manage risk in a portfolio.

zzalpha 10y ago
I dunno, BTC seems a little too unstable as a good hedge, IMO. To me, the real value is being able to make money on volatility, since you can buy and sell shares in this ETF far more easily than you can with BTC... That said, I'm very curious how they plan to track it. What's the "gold standard" for the "value" of BTC, given its price can vary across exchanges? The difficulty of getting money in/out limits the opportunities for arbitrage, so this kind of thing can happen pretty easily. Are they going to track an average across exchanges or something? EDIT: Or I could just read the SEC filing. They're going to use their own index (which is an average based on the spot price of "Qualified Exchanges" they've identified): https://winkdex.com/ https://winkdex.com/ Well, that doesn't sound shady at all!