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1. I'll mostly concede this one. You're right that investors can look at this index and mirror it, but any investor who does this should be thankful that Coinba

by Meekro 9y ago

1. I'll mostly concede this one. You're right that investors can look at this index and mirror it, but any investor who does this should be thankful that Coinbase created this fund and gave them something to mirror! 2. Coinbase's main product lets you buy the coins, but storing them safely is another matter. Just wait until c0inbase.com sets up a duplicate site and buys Google ads for "coinbase" so it shows up above the real site in search results. Two-factor auth won't help because the fake site will just prompt you for the 2FA and immediately use it to log into your account on the real site. This isn't a hypothetical -- things like this happen all the time and target all of the most popular online bitcoin wallets. The difference with an index is that there's no "withdraw crypto" button. Even if your account is hacked, the worst they can do is try to force you to sell your position -- and even that could probably be rolled back when you get in touch with Coinbase. The hacker couldn't take your money because adding a new bank account for withdrawal is slow and produces a bunch of emails to you. And even if they did add a new bank account and withdraw, that would generate a paper trail that could be used to undo the bank transfer or prosecute the thieves. Setting up bank accounts with a fake identity is much harder than creating a new bitcoin wallet address to withdraw your stolen coins to. 3. Again, the lack of a "withdraw crypto" button makes all the difference. If that button exists, business partners will always be eyeing each other with suspicion, wondering if one of them is going to steal the coins and claim that a hacker did it. If it doesn't, there is no easy way for one partner to screw the others. The worst he could do is add his personal bank account and try to withdraw to it. Even if he succeeds, that will leave a huge paper trail. The other partners will know who did it and he'll soon discover that the FBI frowns on such things. 4. You're right that you don't avoid the taxation burden, but there is still a difference. First, the fund is more likely to have tax experts who can figure out how to minimize the tax burden from rebalancing. They'll be aware of tricks like tax loss harvesting that a random investor would find burdensome to implement even if they knew about them. Second, as an investor, getting a 1099 from an index fund makes my life simple because I can just copy a few numbers into TurboTax and be done. If I've been running and rebalancing my own portfolio, I instead have to download the year's worth of trade data and fill out IRS form 8949 with a list of all trades.

evrydayhustling 9y ago
Debating this should bring up some interesting details! 1) Non-investors have more than that to be thankful for, as Coinbase has offered us a terrific front-running opportunity! Rebalances due to supply changes every Jan 1, and due to added constituents 5 days after trading begins on GDAX, offer great chances to buy with a guaranteed follower. And the more we buy, the more they have to follow! Like the high fees, these gifts to the community are of course extracted from investors. 2-3) You make a good point that withdrawal friction offers a form of security. By far the biggest impact is the fact that withdrawals are "quarterly with 30 days notice". This is the first time I've seen incredibly restrictive withdrawal rights listed as an advantage to investors, but I admit that someone sufficiently risk averse about their account management could see it that way. I still think it's pretty funny to charge a high fee for the inability to access your money. And, we shouldn't pretend that Coinbase's internal handling of capital is uniquely safe -- they are not SIPC insured or such, so a common brokerage account (with no management fee) has better protections against structural events. 4) Keep in mind that this fund trades once a year (plus once more when a currency gets added). There are minimal opportunities for them to exercise expertise in tax characterization -- not to mention that they don't claim they will, and have no incentive to under the terms of the fund. I also would doubt that you're getting a 1099 -- based on requirement for accredit investors, they are probably handing you a K-1, which as a pass-through might or might not simplify your reporting. And finally, producing the most compact tax-form ever would still be something that is done as table stakes for funds with fractions of the management fee.

by Meekro 9y ago

evrydayhustling 9y ago

Debating this should bring up some interesting details! 1) Non-investors have more than that to be thankful for, as Coinbase has offered us a terrific front-running opportunity! Rebalances due to supply changes every Jan 1, and due to added constituents 5 days after trading begins on GDAX, offer great chances to buy with a guaranteed follower. And the more we buy, the more they have to follow! Like the high fees, these gifts to the community are of course extracted from investors. 2-3) You make a good point that withdrawal friction offers a form of security. By far the biggest impact is the fact that withdrawals are "quarterly with 30 days notice". This is the first time I've seen incredibly restrictive withdrawal rights listed as an advantage to investors, but I admit that someone sufficiently risk averse about their account management could see it that way. I still think it's pretty funny to charge a high fee for the inability to access your money. And, we shouldn't pretend that Coinbase's internal handling of capital is uniquely safe -- they are not SIPC insured or such, so a common brokerage account (with no management fee) has better protections against structural events. 4) Keep in mind that this fund trades once a year (plus once more when a currency gets added). There are minimal opportunities for them to exercise expertise in tax characterization -- not to mention that they don't claim they will, and have no incentive to under the terms of the fund. I also would doubt that you're getting a 1099 -- based on requirement for accredit investors, they are probably handing you a K-1, which as a pass-through might or might not simplify your reporting. And finally, producing the most compact tax-form ever would still be something that is done as table stakes for funds with fractions of the management fee.