Bitcoin Forum

Some people seem to think this ETF could have a positive affect on price of Bitcoin.  I'm wondering how?  

The COIN ETF has a set number of Bitcoins (which are already procured).  Let's pretend for a moment there is huge demand for the ETF.  Wouldn't this just make the ETF trade at a premium to the exchanges?  Would the tail wag the dog in this scenario somehow?  Maybe some sort of arbitrage would between the two would force them into equilibrium and cause Bitcoin price to go up?

Any thoughts welcome.

No because then people would arb between the exchange and the etf.

Ex: Buy 1000 on exchange, redeem on ETF, sell into market, make profit.

That can't ever happen (at least not for long) so it will have positive effecton btc price.

It is just said that it will have a good effect on bitcoin price because the whales of wall street would be able to buy bitcoin in huge quantities without risking money in eastern europe exchanges.

The Winklevii will almost certainly be buying more coins and selling them as ETF shares. The number of shares is not limited by what they have now. So if there is investor demand (and I'm betting there will be tons), they'll be buying more coins and pushing up the price.

Won't 'the whales of wall street' also be able to effectively short Bitcoin now too? I think it's going to lead to a lot more volatility.

Yeah, so basically their stock will be an asset pegged to the bitcoin, if bitcoin goes up everybody win, and without the risk of holding coins by yourself.

That's how I understand it.

I think the attraction of the ETF to Wall Street goes way beyond the technical aspects of storing and handling bitcoins. I think the main issue is that portfolio managers have no way of putting bitcoin into a portfolio without having some sort of instrument like this. It's kinda ridiculous to me that that's the way things work, but that's the way things work ...

How do you short bitcoin using an ETF (besides just selling your ETF shares)?

Large investors already can invest in bitcoin via the second market bitcoin fund. I would argue that the main attraction for large investors is not having to manage a complex security setup to keep the bitcoin safe, but rather let the trust deal with that.  

Is the Winklevii ETF open to investors who do not qualify for Second Market?

Answered my own question, answer is yes

You just issue more ETF without buying coins to back it?

They cant issue ETF shares without backing them with bitcoins, and indeed yes, the only way to short ETF bitcoin is the by the same way your short bitcoin, selling it.

Yes you can. The issuer can't but its perfectly possible for anyone with a seat on the exchange to issue new ETFs. They just have to back it or enter into a repo. How do you think shorting stock works? You can't possibly honestly believe there is some bitfinex swap orderbook for every stock on the exchange, lol.

Exactly, this arbitrage would bring the exchange price up, and the etf price down to equilibrium.  Perhaps the tail can wag the dog after all.  It will be interesting to see.

This is (IMO) the most exciting part about COIN as it allows the average investor to be able to invest in bitcoin without having to go through all the hoops of buying via an exchange.

ok... there are several mechanisms for the tail to wag the dog....

1)  arbitrage between the ETF and actual BTC...  say the ETF values a "btc" at $1000, but spot BTC is only 800... it is worthwhile to sell short the ETF, and use those funds to buy actual BTC to offset your short..  net effect is BTC price goes up cuz you bought.

2) part of the ETF is the ability for whales to deliver BTC into the fund (I believe it has to be in blocks of something like 10,000 BTC) ..anyways.. once again if the ETF is at 1000, but BTC is only at 800... it is an instant 20% return for a whale to by BTC on the market and deliver it to the ETF for additional ETF shares to be created for him.    Once again, buying BTC on the market will raise the price of BTC...

Both the above examples also work in reverse if the fund is cheaper than the actual BTC....

so yes, it is very possible for the fund price to directly influence the price of BTC.

Sigg

I asked the same a thing few days ago... You can find all the replies in this thread:

https://bitcointalk.org/index.php?topic=678576.msg7692583#msg7692583

IIRC you would actually need to purchase bitcoin in blocks of 10k if you were to exchange them for shares of COIN. Either way the principle is correct.

Even without this buying from people hoping to sell the purchased coins via COIN, the prices on exchanges will likely increase in the event that the price of COIN is higher then the exchange prices as people will anticipate this kind of buying.

COIN ETF effect on USD/Bitcoin?
We will see a minimum price of $3,500/BTC within 23 days of the fund trading.  :)

Couldn't you leverage assets to borrow ETF shares to sell? Just like shorting bitcoins, except ETF shares instead? I would think down pressure on the ETF price would cause similar pressure on exchanges. Maybe I'm missing something here.

Once again, if you've got an actual seat at the exchange you don't even need  to borrow shares. You can just issue more (naked short). Even if you can't cover, you just get hit with a what, 5% failure to deliver fee? And usually you can cover by the settlement date, or at least get some via repo.

Mutual funds, for instance (which house lots of assets) can only buy SEC approved funds.  Lots of businesses have rules that they can only buy SEC approved funds.

The SEC does not approve what kinds of funds assets that mutual funds can purchase. The prospectus of a mutual fund will outline exactly what the goals, and risks of the mutual fund are and what kinds of assets that it will invest in. 

Has there been an updates with the COIN fund? Last I heard it was stuck in SEC land.