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Winklevoss twins to offer Bitcoin ETF

143 points by RockyMcNuts 13y ago

deleted 13y ago
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justincormack 13y ago
If you want to invest in bitcoins why not just buy some? An ETF makes no sense...
- tlrobinson 13y ago
  The same reasons there are other ETFs for commodities like gold, etc.
- dangero 13y ago
  As someone outside, I have the impression that buying bitcoins is a bit of a pain, plus once I have them I have to keep track of them. Buying into the market through my already existing brokerage account is much more user friendly especially for non tech people. Bitcoin value is highly speculative at this point, and that means a lot of people will be wanting to get a piece of the action without really understanding how it works. Asking why they don't just buy some directly is kind of like asking why you'd buy a gold ETF instead of buying gold.
- aclevername 13y ago
  Small retail investors that see Bitcoin in WSJ, FT, etc. sit around and say "Hey! I want some of that," and their neighborhood financial planners don't know enough about it (and are not incentivized) to get them to directly buy Bitcoins. An ETF would give exposure to Bitcoin to these Baby Boomer retirement types, of which there are many.
- fr0sty 13y ago
  Same argument can be made for the gold and silver ETF's but they are wildly popular.
- SilasX 13y ago
  Because that would allow larger, regulated funds (like pensions and university endowments) to invest in them, as they're generally restricted to securities listed on credible exchanges. Good news for bitcoin owners, as that means more potential buyers and thus a higher price. I am a bit worried though, about workers who may lose out because a manager got too caught up in the hype.
- dangrossman 13y ago
  Investing in bitcoins by buying bitcoins means choosing an exchange, funding an account, holding the bitcoins, worrying about the security of the bitcoins being held by whatever exchange you've chosen or the security of whatever computer you're holding them on... Investing in a bitcoin ETF means clicking a buy button in your online brokerage account. You invest with minimal effort and minimal risk aside from your investment losing value. Someone else -- a regulatory system and set of agents acting on your behalf -- takes on all the responsibility for enacting and securing your investment.
  - 7Figures2Commas 13y ago
    > ...minimal risk aside from your investment losing value. Classic.
    - erikig 13y ago
      One additional advantage that hasn't been mentioned is that ETF's offer an options market allowing owners of Bitcoins to buy puts to protect the value of their bitcoins (or) buy calls to take advantage of future movements in the price of Bitcoins. In my opinion allowing Bitcoin ETF options might be the next step in allowing widespread Bitcoin adoption because corporate entities can hedge against the fluctuations in the bitcoin exchange rates.
      - 7Figures2Commas 13y ago
        That's technically not true. Options would enable you to hedge your equity position in the trust. The trust is designed to "reflect the performance of a weighted average price of Bitcoins." The degree to which it does this accurately is yet to be determined; tracking error is a real problem with some ETFs. Bitcoin has proven to be subject to extreme volatility, the trust may not achieve its investment objective, the options market (if one becomes available) is unlikely to have significant volume and all of the other risks associated with options trading would apply. If you want to hedge against the loss of value of your bitcoin holdings, your best option today is to pare your holdings and realize gains (if you have them). I wouldn't expect that to change for the foreseeable future even with financial products that you can access as a retail investor.
- SeoxyS 13y ago
  Buying shares on a publicly traded and regulated market (like NYSE), through your usual stock broker, would be a lot safer and more convenient for many investors than the current options available for investing into bitcoin. You don't have to worry about the unreliable exchanges, and semi-shady payment processors like Dwolla.
  - etjossem 13y ago
    What about Dwolla comes across as semi-shady? I ask because I have an account with them, and so far they've treated me well - especially compared to the credit card alternatives.
- bluedevil2k 13y ago
  It makes betting against these items easier.
- pnathan 13y ago
  Converting USD to BTC is still not trivial.
- deleted 13y ago
  [deleted]
- RockyMcNuts 13y ago
  plus it turns an underground darknet into something taxable! thus fully transforming an anti-establishment force into a plaything for speculation and extraction for the 1%.
BallinBige 13y ago
How did this make the Front page of Hacker News?!
- speeder 13y ago
  Why not? I found it particularly interesting, a new step toward making Bitcoin more official of sorts.
quinndupont 13y ago
Can someone offer a non-securities person a description of what an ETF is? What is the impact on Bitcoin?
- RockyMcNuts 13y ago
  It's a fund that invests in Bitcoins that trades like a stock on the stock exchange. If I'm reading this correctly, one share will represent 0.2 Bitcoin. A normal, unleveraged, passive ETF represents an underlying investment or basket of investments, like gold or the S&P 500, or in this case, Bitcoin. At any point, people can go to the sponsor and exchange the underlying for the ETF. So if the price gets out of whack with the underlying, people step in and buy one and sell the other, to bring prices back in line. So it has a lot of the benefits of publicly traded stock, easy/cheap to trade, put in your brokerage account etc. It does add a layer of fees (not specified yet as far as I see in prospectus on p. 40). You can just buy Bitcoin yourself, you avoid the fees, but investment advisors, retirees, may find it worth the usually small fee (like 0.1% for the SPY, probably not quite that low for this ETF). ETFs, used properly, are great - liquidity, tax efficiency, ultra low cost. However, as Gandhi said, "The greater the institution, the greater the chances of abuse." The problem here is, if the underlying Bitcoins are illiquid, in a volatile market, the price of the ETF can diverge a lot from the price of the underlying. Basically, unless you know what you're doing - Stick with big sponsors, like Vanguard, iShares, State Street (SPDRs) - Index ETFs only (not actively managed) - No leveraged ETFs - Liquid underlying securities, actively traded ETFs (e.g., probably doesn't apply to this ETF)
- yelnatz 13y ago
  An ETF is basically a bunch of money pooled in to invest in diverse stuff such as stocks, bonds, etc. The thing is, they can be traded like stocks and their value depends on the total value of all the stuff they're holding. If you invest in ETF it's generally safer since your investment doesn't depend on one stock (putting eggs in one basket) but you're still affected by the market.
- johnnyg 13y ago
  Overview: An Exchange Traded Fund or ETA was originally a way to buy an index or basket of funds. Say you wanted to buy Standard and Poor's top 500 stocks. As an individual investor, you'd would need a lot of money and would pay a lot of fees to buy up all 500. Then if some stocks were added and others were removed from the index, you would have to pay to get in and out of those. Enter the ETF ticker symbol SPY. If you buy it, you own a single stock that reflects the composite value of the Standard and Poor's top 500. ETFs are generally cheaper than mutual funds. Common ETFs: DIA is the Dow Jones index, it is only the biggest/"safest" blue chips. RUT is the Russel 2000 which is a larger number of smaller than SPY stocks. There are now ETFs for everything. GLD for gold, SLV for silver. I'm pretty sure if you wanted to buy cows via ETFs you could do it. ETF Negatives: There is a lot of debate on the precious metals ETFs because there is a LOT more paper being traded than known world supply of Gold or Silver. If everyone called it in, there would be a lot of unhappy people holding paper instead of metal. My opinion on a bitcoin ETF: Bitcoin is bitcoin. Unless you want to say that you are starting an ETF that represents a diverse amount of exchanges and in so doing lowers spread risk, then there is really no technical reason for this ETF being founded. However, if you think that the less technically savvy stock traders in the world might not be able to buy bitcoin because they do not know how but do know how to trade stocks, then you could act as an easier means to the value store they wish to hold. This is likely what they are up to, and I think it'll work for a while.
paulsutter 13y ago
Surprise - a good idea from the Winklevii. The convenience of buying and selling bitcoin from the comfort of an ordinary brokerage account, and making it possible to hedge bitcoin by selling and shorting. Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF?
- jpdoctor 13y ago
  > Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF? Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying. So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of folks who don't understand ETFs in depth. Edit: Clarified the relative quantity.
  - sneak 13y ago
    Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sitting around, APT doesn't even begin to describe the measures people will take to steal your keys. Their S1 specifically states that the fund is not holding the Sponsor company (holding the keys) liable should their proprietary Security System fail and the keys get hacked and the coins are stolen unless it was gross negligence. This is going to be a bumpy ride for those who don't have a deep understanding of security surrounding crypto. Based on some of the technical mis-descriptions in this doc, I am tempted to speculate that they may not have the requisite understanding to fully model the threats they face. Then again, government paperwork takes months, and perhaps this is just an early step and they'll source all of that in the interim. (Hey, tall dudes: I've got 15 years of experience keeping private data away from super-determined hackers and other bad guys, and my email address is jp@eeqj.com! Get in touch!) The filing says nothing about the details of their proprietary Security System. Following that, the future of liquidity is a huge unknown void right now. I wouldn't be surprised if at some point in the next 12 months, there are no exchanges on which you could liquidate more than $50-$100k in bitcoin. It's even difficult right now when everything is nominal - anyone who thinks buying a few million dollars in bitcoin is easy or simple has never even begun to try to do so.
eblume 13y ago
What will this mean for bitcoin? Will the ETF be investing the bitcoins it purchases? Or will this just mean more transfers that steadily increase the value of accounts that never make any debits?
- wmf 13y ago
  It's difficult to invest Bitcoins since the expected rate of return of holding them exceeds the rate of return of almost all legitimate businesses. Although I haven't read the registration document, the idea of an ETF is to simply hold the underlying asset and pass through its appreciation to investors.
- hosay123 13y ago
  They'll be purchasing and (and most likely) holding Bitcoin for prolonged periods
vijayboyapati 13y ago
If this works out, it'll provide a great mechanism for price discovery to happen outside of the scope of exchanges. The ETF price will act as a proxy for the bitcoin price. One of the worst aspects on the crackdown on MtGox has been the hampering of price discovery and liquidity. Dollar prices, in particular, vary greatly across exchanges and this is a sign that the market is still deeply illiquid.
- unclebucknasty 13y ago
  I don't understand how this would be the case. Not challenging your assertion. I literally don't understand. My understanding was that ETFs are usually intended to track the underlying commodity, not the other way around. In fact, they are frequently backed by the commodity itself of course (sometimes leveraged. Sometimes not). So, to that extent pricing should still be pegged to Bitcoin, which would mean that supply and demand on the exchanges should be the biggest determinants of price/discovery. If anything, an ETF would seem to obfuscate the price given the difficulty of tracking the underlying commodity that can occur with some ETFs. So, in my mind, for an ETF to even accurately track the commodity, the liquidity, price discovery, and other market mechanisms for efficient trading of that commodity itself must already be in place. Only then would the ETF serve as a proxy. Otherwise, layering another abstraction would seem to add more confusion than clarity.
epoxyhockey 13y ago
Interesting to see the Bitcoin value dropping after this announcement. I wonder what is going on there..
- deleted 13y ago
  [deleted]
- signed0 13y ago
  Could also have something to do with Mt. Gox registering with the US Treasury Dept as a money services business. http://www.coindesk.com/mt-gox-registers-with-fincen-as-a-money-services-business/ http://www.coindesk.com/mt-gox-registers-with-fincen-as-a-mo...
- foobay 13y ago
  it was dropping before the announcement. this stabilized it
RockyMcNuts 13y ago
Favorite snarky tweets in my feed... "Bitcoin ETF" is an anagram of "Fiction Bet" which seems pretty apt.. https://twitter.com/LorcanRK/status/351840221773578241 https://twitter.com/LorcanRK/status/351840221773578241 Bitcoin ETF ticker ideas: $DCHE $LOSS $ZERO $SCAM (via @jamesvonsimson - his idea: $SCKR) https://twitter.com/finansakrobat/status/351837836724551682 https://twitter.com/finansakrobat/status/351837836724551682 Well, at least the Winkelvii Bitcoin trust is consistent with their practice of being parasitic on new innovation… https://twitter.com/EpicureanDeal/status/351834917593817088 https://twitter.com/EpicureanDeal/status/351834917593817088 The Winkelvoss Bitcoin ETF is the first of many wonderful deals brought to you by the JOBS Act (Just Open Bucket Shops). https://twitter.com/ReformedBroker/status/351830441646489601 https://twitter.com/ReformedBroker/status/351830441646489601 Imagine the call "if you got burned on the Facebook IPO, why don't you take the Winklevoss Bitcoin Trust for a spin?" https://twitter.com/BarbarianCap/status/351825104147189760 https://twitter.com/BarbarianCap/status/351825104147189760
7Figures2Commas 13y ago
A few interesting things to note: 1. The trust sponsor is wholly-owned by Winklevoss Capital Management LLC. 2. The sponsor is licensing intellectual property from Winklevoss IP LLC. 3. The fee has not yet been determined. Fees are often waived for a period of time with new issues but according to the prospectus, "Presently, the Sponsor does not intend to waive any of its fee." 4. The fee is paid via a transfer of bitcoin from the trust to the sponsor. 5. "There are no regulations, rulings or other authority that address the US federal income tax treatment of Bitcoins. Under one reasonable approach, a Bitcoin should be treated as a capital asset (and not as "currency"). In the absence of any future guidance by the IRS, a change in law, an administrative determination or a judicial ruling to the contrary, the Trust intends to treat a Bitcoin as a capital asset for US federal income tax purposes, including for tax reporting purposes."
- sneak 13y ago
  The thing that really jumped out at me was the proprietary "Security System" for holding keys developed by Winklevoss IP LLC and licensed to the Sponsor. ...and the fact that the Sponsor is not liable for security-related losses except in the case of gross negligence, which I don't imagine would cover advanced theft/hacking. (I am not a lawyer.) Something close to 10% of all bitcoin currently in circulation have been stolen— it's a widespread problem and there are presently zero really robust solutions currently in use by bitcoiners. I eagerly await more data about their proprietary setup.
  - clarkmoody 13y ago
    One would hope that an entity with enough capital invested in lawyers to draft an SEC filing would have to good sense to properly secure a Bitcoin wallet.
    - sneak 13y ago
      The SEC filing claims that a 51% attack could somehow modify the source code. Obvious errors like that make it seem rushed. It can't be solved by just throwing money at the problem, either—it takes expertise, too. Nobody in the industry is taking (IMHO) adequate steps for protecting keys worth >$500k presently.
trotsky 13y ago
What exchange is going to list a fund that trades an unregulated market? The potential for manipulation is off the charts.
- scarletham 13y ago
  GLD, the largest gold based ETF, holds bullion. Gold bullion trades in the unregulated OTC markets.
  - trotsky 13y ago
    There are plenty of US regulations that apply to gold: purity, weight standards, futures regulations, security standards, etc. And i'd be pretty surprised if they didn't trade through COMEX or use them or someone similar for clearance or bonded storage.
whatsup 13y ago
Winkelvii will be Zuckerberg's boss someday
Phlarp 13y ago
The bitcoin market cap is still only ~1.5 billion? Good thing there aren't any eccentric billionaires out there with spare change and a good reason to want to mess with "the Winkelvii"
jpdoctor 13y ago
It's clear that many folks don't understand how the price dynamics of ETFs with underlying securities operate. A share in an ETF is a fixed basket of securities. If the price of the ETF differs from the basket, the ETF share creation/redemption mechanism drives the price back to the fair-market value of the basket. If the price of the ETF share is too high: Market participants will short the ETF and buy the underlying. They will then take the underlying to the ETF admin, who will then create shares thus closing out the short. If the price of the ETF share is too low: Market participants will buy the ETF and short the underlying. They will then take the shares to the ETF admin, who will then redeem the ETF share for the underlying, thus closing out the short. Without the ability to short the underlying, there is no mechanism to maintain equilibrium in the share price of the ETF.
- zhoutong 13y ago
  As you have said, the creation/redemption mechanism will enable fair price discovery. The inability of shorting the underlying doesn't matter here, because if the ETF can be redeemed freely, an investor can buy the underpriced ETF and redeem immediately and sell in the spot market. The only difference of this from actually shorting is the time. During the time of this operation, there may be adverse movement in the underlying price making the arbitrage too risky. It's true that fully efficient arbitrage may not happen. But saying that there's no mechanism to maintain equilibrium price of the ETF is entirely wrong. If the ETF price is $60/BTC and the spot is $85/BTC, there's a huge incentive for investors to buy ETF and redeem and then sell in the spot market, even if it takes days. People who already have both BTC and USD in their hands can also quickly increase their BTC holdings, for free! Therefore, the ability to short underlying simply doesn't matter, as long as ETFs can be created and redeemed fairly freely.
  - jpdoctor 13y ago
    > if the ETF can be redeemed freely Not just freely, but without any substantive delay. > If the ETF price is $60/BTC and the spot is $85/BTC, there's a huge incentive for investors to buy ETF and redeem and then sell in the spot market, even if it takes days. Once you think this through, you will come to the conclusion that the mean-squared deviation of the (spot-ETF) is related to the speed at which the shares can be redeemed. Modern investors quickly lose faith in any derivative that does not track the underlying. If you want an example: Shorting of bank stocks was banned by the SEC during the Lehman meltdown. The bank index ETFs went nuts, and the levered ones never really recovered. (See SKF. Those of us who predicted the meltdown made a lot less money because of it.)
drivebyacct2 13y ago
This creates an interesting point of failure. What happens when the private key is stolen or hacked? Because the ETF holders are holding cash with the expectations of assurances and insurances that cash comes with. But uh, that's not how Bitcoins work.
- sirsar 13y ago
  If the Winklevii own "1% of all Bitcoins," I would hope that they know how to do split key sharing and store their Bitcoins on paper. I would hope.
  - jessaustin 13y ago
    If they've owned this sum for any amount of time, that is actually some argument for their having the proper security skills to run something like this.
  - drivebyacct2 13y ago
    I thought it said proprietary system with the key stored in a US bank? :(
mathattack 13y ago
Seems like this would flood the market, and perhaps do good things for the values of the Bitcoins in the Winkelvii personal account, no?
anizan 13y ago
Lets see the benefit of ETF here Impact costs will be higher esp when Bitcoin doesnt have traditional market depth sources like arbitrage Its wallet will be a bigger target than yours for cyber criminals and would atleast get 10000x more attack attempts on it both virtually and physically. Also your holdings will no long anonymous as you're registered under the ETF with your exact holding. In summary makes sense if your lazy and innovation is all about letting people be lazy
Techskeptic 13y ago
This is a case of selling the shovels to gold miners. This is only a way for them to unload their 11mm position in Bit coin to a greater fool. Once the Feds determine that Bit coin is a money laundering service, all these shares will be worthless. If you aren't smart enough to trade actual Bit coins, why would you buy a derivative of one?

143 points by RockyMcNuts 13y ago

deleted 13y ago

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justincormack 13y ago

If you want to invest in bitcoins why not just buy some? An ETF makes no sense...

tlrobinson 13y ago
The same reasons there are other ETFs for commodities like gold, etc.
dangero 13y ago
As someone outside, I have the impression that buying bitcoins is a bit of a pain, plus once I have them I have to keep track of them. Buying into the market through my already existing brokerage account is much more user friendly especially for non tech people. Bitcoin value is highly speculative at this point, and that means a lot of people will be wanting to get a piece of the action without really understanding how it works. Asking why they don't just buy some directly is kind of like asking why you'd buy a gold ETF instead of buying gold.
aclevername 13y ago
Small retail investors that see Bitcoin in WSJ, FT, etc. sit around and say "Hey! I want some of that," and their neighborhood financial planners don't know enough about it (and are not incentivized) to get them to directly buy Bitcoins. An ETF would give exposure to Bitcoin to these Baby Boomer retirement types, of which there are many.
fr0sty 13y ago
Same argument can be made for the gold and silver ETF's but they are wildly popular.
SilasX 13y ago
Because that would allow larger, regulated funds (like pensions and university endowments) to invest in them, as they're generally restricted to securities listed on credible exchanges. Good news for bitcoin owners, as that means more potential buyers and thus a higher price. I am a bit worried though, about workers who may lose out because a manager got too caught up in the hype.
dangrossman 13y ago
Investing in bitcoins by buying bitcoins means choosing an exchange, funding an account, holding the bitcoins, worrying about the security of the bitcoins being held by whatever exchange you've chosen or the security of whatever computer you're holding them on... Investing in a bitcoin ETF means clicking a buy button in your online brokerage account. You invest with minimal effort and minimal risk aside from your investment losing value. Someone else -- a regulatory system and set of agents acting on your behalf -- takes on all the responsibility for enacting and securing your investment.
- 7Figures2Commas 13y ago
  > ...minimal risk aside from your investment losing value. Classic.
  - erikig 13y ago
    One additional advantage that hasn't been mentioned is that ETF's offer an options market allowing owners of Bitcoins to buy puts to protect the value of their bitcoins (or) buy calls to take advantage of future movements in the price of Bitcoins. In my opinion allowing Bitcoin ETF options might be the next step in allowing widespread Bitcoin adoption because corporate entities can hedge against the fluctuations in the bitcoin exchange rates.
    - 7Figures2Commas 13y ago
      That's technically not true. Options would enable you to hedge your equity position in the trust. The trust is designed to "reflect the performance of a weighted average price of Bitcoins." The degree to which it does this accurately is yet to be determined; tracking error is a real problem with some ETFs. Bitcoin has proven to be subject to extreme volatility, the trust may not achieve its investment objective, the options market (if one becomes available) is unlikely to have significant volume and all of the other risks associated with options trading would apply. If you want to hedge against the loss of value of your bitcoin holdings, your best option today is to pare your holdings and realize gains (if you have them). I wouldn't expect that to change for the foreseeable future even with financial products that you can access as a retail investor.
SeoxyS 13y ago
Buying shares on a publicly traded and regulated market (like NYSE), through your usual stock broker, would be a lot safer and more convenient for many investors than the current options available for investing into bitcoin. You don't have to worry about the unreliable exchanges, and semi-shady payment processors like Dwolla.
- etjossem 13y ago
  What about Dwolla comes across as semi-shady? I ask because I have an account with them, and so far they've treated me well - especially compared to the credit card alternatives.
bluedevil2k 13y ago
It makes betting against these items easier.
pnathan 13y ago
Converting USD to BTC is still not trivial.
deleted 13y ago
[deleted]
RockyMcNuts 13y ago
plus it turns an underground darknet into something taxable! thus fully transforming an anti-establishment force into a plaything for speculation and extraction for the 1%.

BallinBige 13y ago

How did this make the Front page of Hacker News?!

speeder 13y ago
Why not? I found it particularly interesting, a new step toward making Bitcoin more official of sorts.

quinndupont 13y ago

Can someone offer a non-securities person a description of what an ETF is? What is the impact on Bitcoin?

RockyMcNuts 13y ago
It's a fund that invests in Bitcoins that trades like a stock on the stock exchange. If I'm reading this correctly, one share will represent 0.2 Bitcoin. A normal, unleveraged, passive ETF represents an underlying investment or basket of investments, like gold or the S&P 500, or in this case, Bitcoin. At any point, people can go to the sponsor and exchange the underlying for the ETF. So if the price gets out of whack with the underlying, people step in and buy one and sell the other, to bring prices back in line. So it has a lot of the benefits of publicly traded stock, easy/cheap to trade, put in your brokerage account etc. It does add a layer of fees (not specified yet as far as I see in prospectus on p. 40). You can just buy Bitcoin yourself, you avoid the fees, but investment advisors, retirees, may find it worth the usually small fee (like 0.1% for the SPY, probably not quite that low for this ETF). ETFs, used properly, are great - liquidity, tax efficiency, ultra low cost. However, as Gandhi said, "The greater the institution, the greater the chances of abuse." The problem here is, if the underlying Bitcoins are illiquid, in a volatile market, the price of the ETF can diverge a lot from the price of the underlying. Basically, unless you know what you're doing - Stick with big sponsors, like Vanguard, iShares, State Street (SPDRs) - Index ETFs only (not actively managed) - No leveraged ETFs - Liquid underlying securities, actively traded ETFs (e.g., probably doesn't apply to this ETF)
yelnatz 13y ago
An ETF is basically a bunch of money pooled in to invest in diverse stuff such as stocks, bonds, etc. The thing is, they can be traded like stocks and their value depends on the total value of all the stuff they're holding. If you invest in ETF it's generally safer since your investment doesn't depend on one stock (putting eggs in one basket) but you're still affected by the market.
johnnyg 13y ago
Overview: An Exchange Traded Fund or ETA was originally a way to buy an index or basket of funds. Say you wanted to buy Standard and Poor's top 500 stocks. As an individual investor, you'd would need a lot of money and would pay a lot of fees to buy up all 500. Then if some stocks were added and others were removed from the index, you would have to pay to get in and out of those. Enter the ETF ticker symbol SPY. If you buy it, you own a single stock that reflects the composite value of the Standard and Poor's top 500. ETFs are generally cheaper than mutual funds. Common ETFs: DIA is the Dow Jones index, it is only the biggest/"safest" blue chips. RUT is the Russel 2000 which is a larger number of smaller than SPY stocks. There are now ETFs for everything. GLD for gold, SLV for silver. I'm pretty sure if you wanted to buy cows via ETFs you could do it. ETF Negatives: There is a lot of debate on the precious metals ETFs because there is a LOT more paper being traded than known world supply of Gold or Silver. If everyone called it in, there would be a lot of unhappy people holding paper instead of metal. My opinion on a bitcoin ETF: Bitcoin is bitcoin. Unless you want to say that you are starting an ETF that represents a diverse amount of exchanges and in so doing lowers spread risk, then there is really no technical reason for this ETF being founded. However, if you think that the less technically savvy stock traders in the world might not be able to buy bitcoin because they do not know how but do know how to trade stocks, then you could act as an easier means to the value store they wish to hold. This is likely what they are up to, and I think it'll work for a while.

paulsutter 13y ago

Surprise - a good idea from the Winklevii. The convenience of buying and selling bitcoin from the comfort of an ordinary brokerage account, and making it possible to hedge bitcoin by selling and shorting. Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF?

jpdoctor 13y ago
> Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF? Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying. So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of folks who don't understand ETFs in depth. Edit: Clarified the relative quantity.
- sneak 13y ago
  Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sitting around, APT doesn't even begin to describe the measures people will take to steal your keys. Their S1 specifically states that the fund is not holding the Sponsor company (holding the keys) liable should their proprietary Security System fail and the keys get hacked and the coins are stolen unless it was gross negligence. This is going to be a bumpy ride for those who don't have a deep understanding of security surrounding crypto. Based on some of the technical mis-descriptions in this doc, I am tempted to speculate that they may not have the requisite understanding to fully model the threats they face. Then again, government paperwork takes months, and perhaps this is just an early step and they'll source all of that in the interim. (Hey, tall dudes: I've got 15 years of experience keeping private data away from super-determined hackers and other bad guys, and my email address is jp@eeqj.com! Get in touch!) The filing says nothing about the details of their proprietary Security System. Following that, the future of liquidity is a huge unknown void right now. I wouldn't be surprised if at some point in the next 12 months, there are no exchanges on which you could liquidate more than $50-$100k in bitcoin. It's even difficult right now when everything is nominal - anyone who thinks buying a few million dollars in bitcoin is easy or simple has never even begun to try to do so.

eblume 13y ago

What will this mean for bitcoin? Will the ETF be investing the bitcoins it purchases? Or will this just mean more transfers that steadily increase the value of accounts that never make any debits?

wmf 13y ago
It's difficult to invest Bitcoins since the expected rate of return of holding them exceeds the rate of return of almost all legitimate businesses. Although I haven't read the registration document, the idea of an ETF is to simply hold the underlying asset and pass through its appreciation to investors.
hosay123 13y ago
They'll be purchasing and (and most likely) holding Bitcoin for prolonged periods

vijayboyapati 13y ago

If this works out, it'll provide a great mechanism for price discovery to happen outside of the scope of exchanges. The ETF price will act as a proxy for the bitcoin price. One of the worst aspects on the crackdown on MtGox has been the hampering of price discovery and liquidity. Dollar prices, in particular, vary greatly across exchanges and this is a sign that the market is still deeply illiquid.

unclebucknasty 13y ago
I don't understand how this would be the case. Not challenging your assertion. I literally don't understand. My understanding was that ETFs are usually intended to track the underlying commodity, not the other way around. In fact, they are frequently backed by the commodity itself of course (sometimes leveraged. Sometimes not). So, to that extent pricing should still be pegged to Bitcoin, which would mean that supply and demand on the exchanges should be the biggest determinants of price/discovery. If anything, an ETF would seem to obfuscate the price given the difficulty of tracking the underlying commodity that can occur with some ETFs. So, in my mind, for an ETF to even accurately track the commodity, the liquidity, price discovery, and other market mechanisms for efficient trading of that commodity itself must already be in place. Only then would the ETF serve as a proxy. Otherwise, layering another abstraction would seem to add more confusion than clarity.

epoxyhockey 13y ago

Interesting to see the Bitcoin value dropping after this announcement. I wonder what is going on there..

deleted 13y ago
[deleted]
signed0 13y ago
Could also have something to do with Mt. Gox registering with the US Treasury Dept as a money services business. http://www.coindesk.com/mt-gox-registers-with-fincen-as-a-money-services-business/ http://www.coindesk.com/mt-gox-registers-with-fincen-as-a-mo...
foobay 13y ago
it was dropping before the announcement. this stabilized it

RockyMcNuts 13y ago

Favorite snarky tweets in my feed... "Bitcoin ETF" is an anagram of "Fiction Bet" which seems pretty apt.. https://twitter.com/LorcanRK/status/351840221773578241 https://twitter.com/LorcanRK/status/351840221773578241 Bitcoin ETF ticker ideas: $DCHE $LOSS $ZERO $SCAM (via @jamesvonsimson - his idea: $SCKR) https://twitter.com/finansakrobat/status/351837836724551682 https://twitter.com/finansakrobat/status/351837836724551682 Well, at least the Winkelvii Bitcoin trust is consistent with their practice of being parasitic on new innovation… https://twitter.com/EpicureanDeal/status/351834917593817088 https://twitter.com/EpicureanDeal/status/351834917593817088 The Winkelvoss Bitcoin ETF is the first of many wonderful deals brought to you by the JOBS Act (Just Open Bucket Shops). https://twitter.com/ReformedBroker/status/351830441646489601 https://twitter.com/ReformedBroker/status/351830441646489601 Imagine the call "if you got burned on the Facebook IPO, why don't you take the Winklevoss Bitcoin Trust for a spin?" https://twitter.com/BarbarianCap/status/351825104147189760 https://twitter.com/BarbarianCap/status/351825104147189760

7Figures2Commas 13y ago

A few interesting things to note: 1. The trust sponsor is wholly-owned by Winklevoss Capital Management LLC. 2. The sponsor is licensing intellectual property from Winklevoss IP LLC. 3. The fee has not yet been determined. Fees are often waived for a period of time with new issues but according to the prospectus, "Presently, the Sponsor does not intend to waive any of its fee." 4. The fee is paid via a transfer of bitcoin from the trust to the sponsor. 5. "There are no regulations, rulings or other authority that address the US federal income tax treatment of Bitcoins. Under one reasonable approach, a Bitcoin should be treated as a capital asset (and not as "currency"). In the absence of any future guidance by the IRS, a change in law, an administrative determination or a judicial ruling to the contrary, the Trust intends to treat a Bitcoin as a capital asset for US federal income tax purposes, including for tax reporting purposes."

sneak 13y ago
The thing that really jumped out at me was the proprietary "Security System" for holding keys developed by Winklevoss IP LLC and licensed to the Sponsor. ...and the fact that the Sponsor is not liable for security-related losses except in the case of gross negligence, which I don't imagine would cover advanced theft/hacking. (I am not a lawyer.) Something close to 10% of all bitcoin currently in circulation have been stolen— it's a widespread problem and there are presently zero really robust solutions currently in use by bitcoiners. I eagerly await more data about their proprietary setup.
- clarkmoody 13y ago
  One would hope that an entity with enough capital invested in lawyers to draft an SEC filing would have to good sense to properly secure a Bitcoin wallet.
  - sneak 13y ago
    The SEC filing claims that a 51% attack could somehow modify the source code. Obvious errors like that make it seem rushed. It can't be solved by just throwing money at the problem, either—it takes expertise, too. Nobody in the industry is taking (IMHO) adequate steps for protecting keys worth >$500k presently.

trotsky 13y ago

What exchange is going to list a fund that trades an unregulated market? The potential for manipulation is off the charts.

scarletham 13y ago
GLD, the largest gold based ETF, holds bullion. Gold bullion trades in the unregulated OTC markets.
- trotsky 13y ago
  There are plenty of US regulations that apply to gold: purity, weight standards, futures regulations, security standards, etc. And i'd be pretty surprised if they didn't trade through COMEX or use them or someone similar for clearance or bonded storage.

whatsup 13y ago

Winkelvii will be Zuckerberg's boss someday

Phlarp 13y ago

The bitcoin market cap is still only ~1.5 billion? Good thing there aren't any eccentric billionaires out there with spare change and a good reason to want to mess with "the Winkelvii"

jpdoctor 13y ago

It's clear that many folks don't understand how the price dynamics of ETFs with underlying securities operate. A share in an ETF is a fixed basket of securities. If the price of the ETF differs from the basket, the ETF share creation/redemption mechanism drives the price back to the fair-market value of the basket. If the price of the ETF share is too high: Market participants will short the ETF and buy the underlying. They will then take the underlying to the ETF admin, who will then create shares thus closing out the short. If the price of the ETF share is too low: Market participants will buy the ETF and short the underlying. They will then take the shares to the ETF admin, who will then redeem the ETF share for the underlying, thus closing out the short. Without the ability to short the underlying, there is no mechanism to maintain equilibrium in the share price of the ETF.

zhoutong 13y ago
As you have said, the creation/redemption mechanism will enable fair price discovery. The inability of shorting the underlying doesn't matter here, because if the ETF can be redeemed freely, an investor can buy the underpriced ETF and redeem immediately and sell in the spot market. The only difference of this from actually shorting is the time. During the time of this operation, there may be adverse movement in the underlying price making the arbitrage too risky. It's true that fully efficient arbitrage may not happen. But saying that there's no mechanism to maintain equilibrium price of the ETF is entirely wrong. If the ETF price is $60/BTC and the spot is $85/BTC, there's a huge incentive for investors to buy ETF and redeem and then sell in the spot market, even if it takes days. People who already have both BTC and USD in their hands can also quickly increase their BTC holdings, for free! Therefore, the ability to short underlying simply doesn't matter, as long as ETFs can be created and redeemed fairly freely.
- jpdoctor 13y ago
  > if the ETF can be redeemed freely Not just freely, but without any substantive delay. > If the ETF price is $60/BTC and the spot is $85/BTC, there's a huge incentive for investors to buy ETF and redeem and then sell in the spot market, even if it takes days. Once you think this through, you will come to the conclusion that the mean-squared deviation of the (spot-ETF) is related to the speed at which the shares can be redeemed. Modern investors quickly lose faith in any derivative that does not track the underlying. If you want an example: Shorting of bank stocks was banned by the SEC during the Lehman meltdown. The bank index ETFs went nuts, and the levered ones never really recovered. (See SKF. Those of us who predicted the meltdown made a lot less money because of it.)

drivebyacct2 13y ago

This creates an interesting point of failure. What happens when the private key is stolen or hacked? Because the ETF holders are holding cash with the expectations of assurances and insurances that cash comes with. But uh, that's not how Bitcoins work.

sirsar 13y ago
If the Winklevii own "1% of all Bitcoins," I would hope that they know how to do split key sharing and store their Bitcoins on paper. I would hope.
- jessaustin 13y ago
  If they've owned this sum for any amount of time, that is actually some argument for their having the proper security skills to run something like this.
- drivebyacct2 13y ago
  I thought it said proprietary system with the key stored in a US bank? :(

mathattack 13y ago

Seems like this would flood the market, and perhaps do good things for the values of the Bitcoins in the Winkelvii personal account, no?

anizan 13y ago

Lets see the benefit of ETF here Impact costs will be higher esp when Bitcoin doesnt have traditional market depth sources like arbitrage Its wallet will be a bigger target than yours for cyber criminals and would atleast get 10000x more attack attempts on it both virtually and physically. Also your holdings will no long anonymous as you're registered under the ETF with your exact holding. In summary makes sense if your lazy and innovation is all about letting people be lazy

Techskeptic 13y ago

This is a case of selling the shovels to gold miners. This is only a way for them to unload their 11mm position in Bit coin to a greater fool. Once the Feds determine that Bit coin is a money laundering service, all these shares will be worthless. If you aren't smart enough to trade actual Bit coins, why would you buy a derivative of one?