Personally, I find it hard to get excited about claims to have invented a whole new way of securing Bitcoins. To my mind, this is a bit like announcing you've developed a whole new way of securing text documents that contain the letter 'G': what is it about securing Bitcoins that is any different than securing any other piece of digital information? But who knows -- maybe they've come up with something really surprising!

In any case, if you buy the view that wherever the volume goes becomes the principal price discovery mechanism, then I suppose that any contribution made by the patent to attracting volume could in turn add to the effect.

Which I "now admit"? I reminded folks of this very fact on a separate discussion thread (here and here) over two weeks ago...


And my use of a metaphor doesn't seem like a particularly good rationale for insinuating that I am somehow insulting someone's intelligence -- yours or anyone else's. If I failed to anticipate how you or anyone else might take a throwaway comment as a personal insult, then my bad. However, exploiting my failure to anticipate your misinterpretation as an opportunity for a condescending restatement of the obvious -- namely, that all of us, including me, are lacking knowledge in almost all areas -- seems in remarkably poor taste.

It's like any ETF: the fees are only worth paying if you place a value higher than the fees on whatever benefits the ETF might be offering. In this particular case, some people might like the liquidity, some people might like being able to hold it in a brokerage account, some people might like to hold it in a retirement account where the funds are otherwise unavailable to them, etc. For many people who are already fully capable of buying Bitcoins directly, I don't think there's much advantage at all.

I don't imagine that something like a reverse split would be unheard of, but on the other hand it wouldn't really have any impact on a commodity ETF except to increase the price per share.

Full details on the mechanics are available from the S-1 filing.

Of course the NAV, denominated in Bitcoins, is publicly known; unless the NAV of a commodity ETF is publicly known, nobody is going to want to buy it.

As for any preconditions on being the pricing mechanism for Bitcoins, it's important not to get the cart before the horse. The suggestion of the article is that the trust's becoming the principal price discovery mechanism for Bitcoin vs. the dollar will be an outcome of its introduction, not something which has to be deemed, decided, stipulated, or dictated by anyone. In other words, I'm not saying that we or anyone else should make it the principal price discovery mechanism, I'm saying that when you set up something which provides high levels of liquidity, low barriers to trading, and introduces the future likelihood of standardized options trading on the underlying ETF, it is highly likely that as a result, it will wind up becoming the principal way in which price gets discovered.

Also, on the whole "backed by Bitcoin" issue, as it relates to the proposed Winkelvoss trust, I wondered whether it might help to highlight one way in which commodity ETFs do not work: they do not issue shares with a face value denominated in units of the commodity. Rather, they simply issue shares which represent a proportional ownership of the commodity being held by the ETF.

In the case of the Bitcoin trust we're talking about, buying a share does not mean you're buying something initially representing .2 Bitcoins, where the trust then gradually, over time, starts magicking away little chunks of those Bitcoins and replacing them with fluffy white marshmallows. The shares represent a proportional interest in whatever the Bitcoins the trust actually holds. Of course the Bitcoins held per share will decline over time due to expenses; every investor knows this, in advance, and the Net Asset Value of such ETFs is always public knowledge. But that does not mean the shares somehow become less backed by Bitcoins: they are always and forever backed by the Bitcoins being held by the trust.

Just in case folks from this topic might be interested, I've created a separate topic over in the general Bitcoin discussion section on a separate article from the beginning of this month called In the Bitcoin Economy, Anonymity and Privacy are Not the Same Thing. It suggests that there are important differences between the two, and that it's wrong to think that if you take care of the anonymity, the privacy will take care of itself. I'd welcome any comments, thoughts, etc.

https://bitcointalk.org/index.php?topic=257734

Every so often, the distinction between anonymity and privacy comes up, and I recently tried to bring a few ideas together on this in an article suggesting that privacy in the Bitcoin economy often winds up either being conflated with anonymity or being set aside in the implicit belief that if you take care of the anonymity, then the privacy will take care of itself. In my view, this is pretty far from the truth.

The article suggests that preoccupation with anonymity risks both undermining privacy itself and impeding the wider acceptance of Bitcoins as a currency for conducting business. Many people in the broader economy are far more concerned with their privacy than with the capability to conduct transactions anonymously, and unfortunately many of the makeshift solutions which have been developed to address the challenges which anonymity creates actually risk making privacy in the Bitcoin economy worse, rather than better.

The article also touches on the extent to which increasingly powerful network analyis tools mean that each identification of a link between a real person and a single transaction -- i.e., identification of one vertex in an overall flow of transactions -- could potentially impact the privacy of other people and other transactions.

The full article is here:

In the Bitcoin Economy, Anonymity and Privacy are Not the Same Thing

Thoughts, comments, criticisms all welcome...

From my perspective, your insistence on these kinds of points has developed to where it's no longer productive for me to debate them any further. It looks like you and I will disagree pretty strongly on matters of fact as well as on implications from those facts, but that's OK.

In addition, one of the lubricants that keeps ETFs in general running smoothly is the 'Authorized Participant'; earlier in this thread, there's a discussion about how shares are created or redeemed via the APs, who either hand over large blocks of the underlying entity in exchange for shares, or who hand over large blocks of shares in exchange for the underlying entity. Ordinary investors trade shares, but they don't engage in the redemption or creation process.

At the risk of interjecting in a question that may have been directed at NewLiberty... The ETF is 100% backed by Bitcoins, it's just that the ratio is set up so that 1 share = .2 BTC initially. But the fund's Net Asset Value per share is always the Net Asset Value divided by the number of shares outstanding; there aren't any extras floating around that aren't backed by real Bitcoins. And yes, by definition ordinary short selling requires that shares be borrowed before they can sold. It doesn't matter whether the short seller puts up dollars for collateral, or a goat, or his great aunt; it is still shares which are being borrowed. The special situation of naked short selling is an edge case, where share have not been borrowed first. (I think it's important to distinguish those two very very distinctly, because otherwise an argument that begins talking about ordinary short selling can then wind up dipping into the properties of naked short selling before reverting to ordinary short selling again and emerging at the other end with an argument that seems plausible but which is entirely unsound.) Last but not least, an ETF itself normally isn't in a position to lend shares to anyone else; it can issue new ones in exchange for the underlying, or it can retire old ones and cough up the underlying, but it doesn't hold any that can be lent.

It might also be worth noting that in investment terms, in most situations except really exceptional ones, a significant amount of short interest (i.e., the proportion of the shares outstanding which are currently sold short) is actually a bullish indicator, since the short interest provides a 'cushion' against falls in value and tends to accelerate increases in value. The level of short interest is, in effect, latent additional demand which must at some point be met when the short sellers eventually have to cover their positions by re-purchasing whatever it is that has been sold short. When price falls significantly, some short sellers will be there to take profits and act as buyers. When the price rises significantly, some short sellers will be there to cut their losses and act as buyers (this is the 'short squeeze', when short sellers must either buy at higher prices or stomach larger and larger losses). Either way, short sellers become eventual buyers. The reason I mention this is that except for very rare cases, short selling is both entirely healthy and temporary and is not something which in and of itself is negative for the market.

Which is exactly the sort of tension that -- to me, anyway -- makes this topic especially interesting!

I also can appreciate both perspectives, and I get that there's a long tradition in the Bitcoin community leaning toward the rebel side. What fascinates me is the possibility of the two coexisting, the idea that some of the pre-existing, already well cooked apparatus could, in a sense, be permitted into the Bitcoin system, on the system's own terms, without Bitcoin winding up simply being railroaded or ridden over rough-shod. How often does the little guy get to deal with the big kahunas without ultimately being crushed? Bitcoin could change that dynamic. Now that's what I find cool.

OK, it's way past my bedtime in this part of the world, and I'm probably not even thinking clearly.

Yes, certainly worth...mentioning. I generally avoid saying much about MPEx. I'm not aware of anything about the exchange that would change the general points of the derivatives article, including those on market makers, counterparties, and liquidity.

Cryptoanarchist, you're too funny. 

I'm not sure whether you're deliberately setting out to try and turn total strangers into enemies, but my view is that all of us probably already have enough of those. If you'd like actually to read some of my previous posts that weren't about investments, I'd be happy to discuss them with you. However, I make no apologies for the fact that I have an interest in investing and have done for a long time; I also have an interest in Bitcoins and have done for a long time.

And of course, if you'd like to discuss Bitcoin investments, I'm fine with that. But co-opting an otherwise potentially interesting discussion to create an excuse for impugning my integrity -- twice now, on two different threads -- doesn't seem like it does either of us much good.

Wow, I must admit I've never been referred to as a sock puppet before! 

I wonder have you had a chance to look over the original article?

Seriously, I hear that you're opposed to it, but as I already posted in the other thread where you described the very idea as "stupid" and negating the whole point of owning Bitcoins in the first place, wouldn't you consider it possible -- likely, even -- that different people might want exposure to Bitcoins for different reasons than yourself?

I'm guessing you'd happily acknowledge that, but that you have some supporting arguments in mind, lurking in the background, that you haven't shared yet; do feel free to fire away! (As the OP, I did try a few posts back to summarise the different threads that have interwoven themselves so far in the discussion, some on topic and some -- like this, perhaps -- not so much. But obviously there's plenty of room for more.)

Absolutely, they could be!

Unfortunately, so far the Bitcoin economy as a whole hasn't yet mustered what is needed to reinvent that wheel. As I mentioned in the article on Bitcoin Derivatives, Liquidity and Counterparty Risk, which is linked from the article that kicked off this thread, the Bitcoin economy could desperately do with decent derivatives. However, existing Bitcoin exchanges haven't yet even advanced to the point of acting as counterparty to the trades they broker or providing market making services -- they're still operating as trading network style exchanges with transactions between one person and another -- let alone moving in a direction that would permit a standardized options clearinghouse to function.

If you want a shortcut to all that, the relatively easier way to make it happen is to stuff the Bitcoins into an ETF wrapper, backed by real Bitcoins, that enables all the existing market apparatus to be applied to it: introduce a Bitcoin ETF, and if there is sufficient volume, expect options on the ETF to follow.

I get that to some folks the very idea of any transaction Bitcoin-related that doesn't occur directly with real Bitcoins is anathema. However, unless real businesses handling significant sums can find a way to hedge currency exposure, I think it's going to be pretty tough to convince many of them to take Bitcoin transactions seriously.

I'm guessing that if you were to ask all the folks who would like to own Bitcoins, though -- some of whom already do and some of whom haven't been able to yet -- you'd probably find quite a few different reasons why they'd like to own them. Quite a few more might not care much whether they own any directly or not, but they might like exposure to Bitcoins as an asset. In any case, some of them would undoubtedly agree with you that it's all a stupid idea that negates their reason for wanting to own Bitcoins in the first place. Others, not so much.

In my personal view, it seems like it could be a big positive for the Bitcoin economy.

I expect you're right -- where there's an opportunity and clear value to be provided, someone will probably step in and make it happen. If much wider trade in Bitcoins does become available, in my view that will be a great thing for the Bitcoin economy. (Although many would disagree with me, some vociferously -- see NewLiberty's thoughts above.)

If the ETF does wind up being approved and options on the ETF eventually appear, as has been the case with other commodity ETF, then at last Bitcoin businesses will have a viable means of hedging their exposure to the currency. (IMHO, existing Bitcoin derivatives leave much to be desired.)

It doesn't seem to me that you have shown how collateral is in any way relevant: it is fiat in both cases, and in both cases either Bitcoins or ETF shares backed by Bitcoins must be borrowed.


This doesn't seem to me very much different from saying "shorting gold is qualitatively different than shorting a gold ETF", which on the face of it doesn't seem very convincing.


Except that 0) this is extrapolating from a speculated explanation about events surrounding an existing ETF to a hypothetical future in which an unrelated ETF is retrospectively altered to work in a fashion contrary to how it is currently set to work, 1) "folks" are not redeeming gold from their ETF, only APs ever redeem gold from their ETF, 2) to the extent that some unknown entity out there did actually try to redeem gold and instead got that nasty fiat stuff, of course they will have received the current spot price, which they could immediately have turned around and converted right back to gold if they so desired, and 3) if you really want to turn this into an actual argument about leaking assets out of an ETF, you need to demonstrate that the quantity of physical gold per share outstanding in fact changed -- not just temporarily, while someone was holding this or that as temporary collateral to keep the market functioning in an orderly fashion, but permanently.


If you'll forgive me a brief moment of barbed levity to let a bit of steam out of my frustration pot -- we're still among friends, right   -- my bias here is not toward optimism, but away from argument by repetition or argument by reference to converging irrelevancies. Either my understanding of what you have actually said is entirely inadequate -- and I accept entirely that I may simply not be keeping up -- or what you have said does not embody any sound arguments to support your conclusions. I'm guessing that we'll need to disagree on the topic.

There is a lengthy discussion underway in the Economics section on the proposed Winkelvoss Bitcoin Trust, which would provide a Bitcoin-backed ETF:

https://bitcointalk.org/index.php?topic=252330.0

That particular discussion covers the potential impact of the Bitcoin ETF on Bitcoin price discovery, as well as touching on some of the ins and outs of how such products work, how creation and redemption is handled, fund expenses, and more.

If memory serves, there are at least a couple of other Bitcoin ETF threads which had been going gangbusters, although I haven't dipped into those in awhile.