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Does anybody know if BlackRock will really hold as many Bitcoins as their users "buy"? It surprises most people that even your stockbroker, who is supposed to

Does anybody know if BlackRock will really hold as many Bitcoins as their users "buy"? It surprises most people that even your stockbroker, who is supposed to hold "your" shares for you, does not do so. The trick they use is that, yes, initially they buy Tesla shares when "you" buy Tesla shares. But then they 1) mix them with all the Tesla share of other customers and 2) lend them out. So, by some definition, they "have" the shares they owe you. But in reality, they don't. As they lent them out. And the borrowers sell them to some other "shareholder". So now both, you and the other shareholder think they own the same share in Tesla. If you combine all the gold people think they own, you end up with an amount of gold that is 100x greater than all gold in existence. I wonder if we will see the same with Bitcoin?

asldjajlfkj 4y ago
European stockbrokers may not lend out your shares. I don’t think US brokers do that either. Where are you from?
- shawabawa3 4y ago
  Interactive Brokers (US company but operates globally) have something called "Stock Yield Enhancement Program" which you can opt into, they give you 50% of the interest on any shares of yours they lend out This is the case in the UK at least, you may need to have "Professional Client" MiFID status which means a lot of EU consumer protections don't apply to you
- ArtTimeInvestor 4y ago
  Do you have a link to back that up, that European stock brokers cannot lend out shares?
- colechristensen 4y ago
  Stock loan absolutely is a thing in the US. Sometimes you get a cut, sometimes your broker does it in the background without giving you anything.
  - frumper 4y ago
    Just curious, if they do it in the background how do they get around dividend complexity? The company won't pay 2 people a dividend for the same share.
    - colechristensen 4y ago
      The borrower pays the dividend to the owner, all handled with brokerage mechanisms.
NovemberWhiskey 4y ago
>So, by some definition, they "have" the shares they owe you. But in reality, they don't. As they lent them out. And the lenders sell them to some other "shareholder". So now both, you and the other shareholder think they own the same share in Tesla. Pardon, what?
- tanseydavid 4y ago
  It's called rehypothecation: https://www.merriam-webster.com/dictionary/rehypothecation#:~:text=Definition%20of%20rehypothecation,for%20their%20purchase%20on%20margin https://www.merriam-webster.com/dictionary/rehypothecation#:...
- deleted 4y ago
  [deleted]
- shawabawa3 4y ago
  he's describing short selling Some brokers will lend out your stock holdings (usually it's in T&C or you have the option to opt-in to lending for a cut of the interest) to short sellers These short sellers sell the borrowed stock and hope its price drops and they can buy it back for cheaper. As shares are fungible, the borrowed share the short-seller has sold gets bought by someone, so two people "own" the same share. In reality, two people are owed a share by the broker, the broker owns a share, and the broker is owed a share by the short-seller, so everything adds up The short-seller will have posted collateral and if the price of the stock rises too much the broker will force them to sell the collateral to repay their borrowed stock.
  - NovemberWhiskey 4y ago
    I know what short-selling is, and I understand the stock-lend business, but what the poster is describing doesn't have any resemblance to it; particularly this part: >So now both, you and the other shareholder think they own the same share in Tesla. If I have an account with a stock-loan feature, and my broker lends a short-seller my share then I no longer own the share. We can tell that because, for example, I no longer have the voting rights associated to the share, and, if a dividend were declared (forget we're talking about TSLA obviously) then I wouldn't receive it from the issuer; but from my broker (who gets it from the short-seller). The short-seller then sells the share to someone else. They own that share then as the holder of record.
JumpCrisscross 4y ago
> ven your stockbroker, who is supposed to hold "your" shares for you, does not do so This depends on jurisdiction. In the U.S., there are tight controls around custody. (In terms of mixing, shares are fungible. If you want to certificate your holdings you can, but it's stupid.) There are more people making sure BlackRock has the coins than e.g. Coinbase or Kraken. > they "have" the shares they owe you. But in reality, they don't. As they lent them out. Lent securities can be recalled by the lender "whenever they want, for whatever reason they want, and they do not have to provide an explanation" [1]. Shares BlackRock owns in street name [2] are owned and controlled by stricter definitions than that which connects a landlord to their real estate. [1] https://www.bnymellon.com/us/en/insights/aerial-view-magazine/stock-lending-dispelling-the-myths.html https://www.bnymellon.com/us/en/insights/aerial-view-magazin... [2] https://www.investopedia.com/ask/answers/185.asp https://www.investopedia.com/ask/answers/185.asp
- ArtTimeInvestor 4y ago
  Lent securities can be recalled by the lender "whenever they want, for whatever reason they want, and they do not have to provide an explanation" Unfortunately, the borrower does not lend the shares to keep them in their drawer. They sell them. If they cannot buy them back, the lender cannot get them back.
  - JumpCrisscross 4y ago
    > if they cannot buy them back, the lender cannot get them back In the history of post-Securities Act American stock lending, I don't think this has once happened for a public stock. The lender's broker is entitled to buy the stock in the open market at any price (e.g. [1]) and stick the bill to the borrower's broker. The borrower's broker will chase the borrower. But the broker is immediately responsible. For every share in oversupply there is someone naturally short. Between them and the market are layers of collateral and covenant, from the broker to the borrower to their clearing broker, from the clearinghouse to the banks mutualizing it. [1] https://www.contractscounsel.com/t/us/securities-loan-agreement#toc-covenants https://www.contractscounsel.com/t/us/securities-loan-agreem... § 13.1(a)
stainablesteel 4y ago
> Does anybody know if BlackRock will really hold as many Bitcoins as their users "buy"? this was my immediate concern as well
- colechristensen 4y ago
  It’s stated that the fund is meant to track which gives signals that more than just the base asset will be backing it.
starkd 4y ago
Is not this the essence of fractional reserve lending?
zajio1am 4y ago
> It surprises most people that even your stockbroker, who is supposed to hold "your" shares for you, does not do so. Depends on contract with stockbroker. For example stockbroker i use cannot lend my shares unless i allow it in an amendment to contract, such amendment is required for things like margin trading, but not for basic investing. > If you combine all the gold people think they own, you end up with an amount of gold that is 100x greater than all gold in existence. This is true only if you ignore people who 'own' negative amount of gold/shares. If you count all people, you end with true amount.

asldjajlfkj 4y ago

European stockbrokers may not lend out your shares. I don’t think US brokers do that either. Where are you from?

shawabawa3 4y ago
Interactive Brokers (US company but operates globally) have something called "Stock Yield Enhancement Program" which you can opt into, they give you 50% of the interest on any shares of yours they lend out This is the case in the UK at least, you may need to have "Professional Client" MiFID status which means a lot of EU consumer protections don't apply to you
ArtTimeInvestor 4y ago
Do you have a link to back that up, that European stock brokers cannot lend out shares?
colechristensen 4y ago
Stock loan absolutely is a thing in the US. Sometimes you get a cut, sometimes your broker does it in the background without giving you anything.
- frumper 4y ago
  Just curious, if they do it in the background how do they get around dividend complexity? The company won't pay 2 people a dividend for the same share.
  - colechristensen 4y ago
    The borrower pays the dividend to the owner, all handled with brokerage mechanisms.

NovemberWhiskey 4y ago

>So, by some definition, they "have" the shares they owe you. But in reality, they don't. As they lent them out. And the lenders sell them to some other "shareholder". So now both, you and the other shareholder think they own the same share in Tesla. Pardon, what?

tanseydavid 4y ago
It's called rehypothecation: https://www.merriam-webster.com/dictionary/rehypothecation#:~:text=Definition%20of%20rehypothecation,for%20their%20purchase%20on%20margin https://www.merriam-webster.com/dictionary/rehypothecation#:...
deleted 4y ago
[deleted]
shawabawa3 4y ago
he's describing short selling Some brokers will lend out your stock holdings (usually it's in T&C or you have the option to opt-in to lending for a cut of the interest) to short sellers These short sellers sell the borrowed stock and hope its price drops and they can buy it back for cheaper. As shares are fungible, the borrowed share the short-seller has sold gets bought by someone, so two people "own" the same share. In reality, two people are owed a share by the broker, the broker owns a share, and the broker is owed a share by the short-seller, so everything adds up The short-seller will have posted collateral and if the price of the stock rises too much the broker will force them to sell the collateral to repay their borrowed stock.
- NovemberWhiskey 4y ago
  I know what short-selling is, and I understand the stock-lend business, but what the poster is describing doesn't have any resemblance to it; particularly this part: >So now both, you and the other shareholder think they own the same share in Tesla. If I have an account with a stock-loan feature, and my broker lends a short-seller my share then I no longer own the share. We can tell that because, for example, I no longer have the voting rights associated to the share, and, if a dividend were declared (forget we're talking about TSLA obviously) then I wouldn't receive it from the issuer; but from my broker (who gets it from the short-seller). The short-seller then sells the share to someone else. They own that share then as the holder of record.

JumpCrisscross 4y ago

> ven your stockbroker, who is supposed to hold "your" shares for you, does not do so This depends on jurisdiction. In the U.S., there are tight controls around custody. (In terms of mixing, shares are fungible. If you want to certificate your holdings you can, but it's stupid.) There are more people making sure BlackRock has the coins than e.g. Coinbase or Kraken. > they "have" the shares they owe you. But in reality, they don't. As they lent them out. Lent securities can be recalled by the lender "whenever they want, for whatever reason they want, and they do not have to provide an explanation" [1]. Shares BlackRock owns in street name [2] are owned and controlled by stricter definitions than that which connects a landlord to their real estate. [1] https://www.bnymellon.com/us/en/insights/aerial-view-magazine/stock-lending-dispelling-the-myths.html https://www.bnymellon.com/us/en/insights/aerial-view-magazin... [2] https://www.investopedia.com/ask/answers/185.asp https://www.investopedia.com/ask/answers/185.asp

ArtTimeInvestor 4y ago
Lent securities can be recalled by the lender "whenever they want, for whatever reason they want, and they do not have to provide an explanation" Unfortunately, the borrower does not lend the shares to keep them in their drawer. They sell them. If they cannot buy them back, the lender cannot get them back.
- JumpCrisscross 4y ago
  > if they cannot buy them back, the lender cannot get them back In the history of post-Securities Act American stock lending, I don't think this has once happened for a public stock. The lender's broker is entitled to buy the stock in the open market at any price (e.g. [1]) and stick the bill to the borrower's broker. The borrower's broker will chase the borrower. But the broker is immediately responsible. For every share in oversupply there is someone naturally short. Between them and the market are layers of collateral and covenant, from the broker to the borrower to their clearing broker, from the clearinghouse to the banks mutualizing it. [1] https://www.contractscounsel.com/t/us/securities-loan-agreement#toc-covenants https://www.contractscounsel.com/t/us/securities-loan-agreem... § 13.1(a)

stainablesteel 4y ago

> Does anybody know if BlackRock will really hold as many Bitcoins as their users "buy"? this was my immediate concern as well

colechristensen 4y ago
It’s stated that the fund is meant to track which gives signals that more than just the base asset will be backing it.

starkd 4y ago

Is not this the essence of fractional reserve lending?

zajio1am 4y ago

> It surprises most people that even your stockbroker, who is supposed to hold "your" shares for you, does not do so. Depends on contract with stockbroker. For example stockbroker i use cannot lend my shares unless i allow it in an amendment to contract, such amendment is required for things like margin trading, but not for basic investing. > If you combine all the gold people think they own, you end up with an amount of gold that is 100x greater than all gold in existence. This is true only if you ignore people who 'own' negative amount of gold/shares. If you count all people, you end with true amount.