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.
Yes, it is similar to most ETF. Many here are not your typical ETF investor and not all ETF investor are aware of how they work. Some were surprised and shocked to learn about the decreasing amount of bitcoin per share which you now admit is normal. Learning new knowledge is no reason to insult someone's intelligence or to accuse them of magical marshmallow thinking. We all like to learn and there might even be some things that they know and that you don't know. Be kind. The declining bitcoin per share is not replaced with magic marshmallows, it is replaced with nothing. |
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Thanks for the fun, good times.
Consider this though:
If one of your hints was:
"It is the books of the bible"
It is unlikely that anyone would have guessed it without brute forcing.
If you assume that the guesser would have also guessed that you don't capitalize and that you skipped some books, there are 66 books in the Bible, (+1 for skips) that would give 67 factorial possibilities = 3.6471111e+94 (3 with 94 0's after it)
To guess this It would either take divine intervention, or a patient computer. The difficulty + asking for pay (even if small) might be why some folks think this was not so legitimate. Even knowing it was bible books, there are more guesses needed then there are bitcoins
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Hi Everybody. I've got a question. I have seen that the artist Kuno Goda ( www.kunogoda.com) is selling a painting called "200 Bitcoin". It's inspired by Andy Warhol's "200 One Dollar Bills". The Price of the painting is 200 BTC (surprise surprise). Let's assume that the (art) world agrees on this value. Wouldn't that effectively inflate the Bitcoin supply? If you could send the painting through the internet for a very low fee and people used it as a "money substitute", then yes, it would increase the money supply. However: that's not the case, people don't use the painting as a substitute for bitcoins. Having lots of "things" with a bitcoin value, or priced in bitcoin, is a good thing for bitcoin economy. The more things that can be bought with bitcoin, the more useful bitcoin becomes. This is not money supply. For example, when I release fine gold and silver bullion pieces that are priced in Bitcoin (but do not contain any Bitcoin intrinsically), these can serve as a tangible asset with a Bitcoin value, but this does not increase the Bitcoin money supply. What it does do is provide a Bitcoin-compatible real-money currency, that can serve for instantaneous in-person transactions settled in Bitcoin, in a currency that is even more anonymous than any crypto-currency, finely minted precious metal. true. I found a good definition of "money substitute": Money Substitute
Claims to a definite amount of money, payable and redeemable on demand, against a debtor about whose solvency and willingness to pay there does not prevail the slightest doubt, render to the individual all the services money can render, provided that all parties with whom he could possibly transact business are perfectly familiar with these essential qualities of the claims concerned: daily maturity and undoubted solvency and willingness to pay on the part of the debtor.
Neither your finely minted precious metal nor the painting qualify under this definition, because neither is redeemable on demand against any debtor. Those things may have a market price measurable in BTC. An example of a money substitute for Bitcoin might have been mtGox BTC codes (do they still exist?). However, 1.) people didn't use them widely and 2.) given mtGox was honest, those didn't inflate the bitcoin money supply because mtGox had the bitcoins represented by them in cold storage. Had mtGox entered into a "fractional reserve" scheme with these, it would have inflated the money supply. Yes! Good example. The classic example is a "warehouse receipt" which are covered by the Uniform Commercial Code. MtGox codes operated in a way close to this and arguably would be governed the same way, though getting that protection could be problematic for other reasons. http://legal-dictionary.thefreedictionary.com/Warehouse+Receipt |
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My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was.
(I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.) I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well.
I trust this is better understood by everyone now? The huge difference between 100% backing by .2 Bitcoin and 20% backing by one share which merits all this recrimination?
This is why I don't get into arguments over details with these shitbags. If they want to buy "shares" of bitcoins when its easier to just buy the actual thing, I'd rather just call them out for how stupid the general concept is. It suits my purposes. Everyone is ignorant, just about different things. I'm no exception. Driven by curiosity, I read the public information about this and am using this thread to discover whether I've misunderstood something. If the WBT ETF is ultimately successfully launched, I may have something that will greatly improve it, and enhance its usefulness and marketability to a point where almost everyone here will celebrate its existence. |
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Hi Everybody. I've got a question. I have seen that the artist Kuno Goda ( www.kunogoda.com) is selling a painting called "200 Bitcoin". It's inspired by Andy Warhol's "200 One Dollar Bills". The Price of the painting is 200 BTC (surprise surprise). Let's assume that the (art) world agrees on this value. Wouldn't that effectively inflate the Bitcoin supply? If you could send the painting through the internet for a very low fee and people used it as a "money substitute", then yes, it would increase the money supply. However: that's not the case, people don't use the painting as a substitute for bitcoins. Having lots of "things" with a bitcoin value, or priced in bitcoin, is a good thing for bitcoin economy. The more things that can be bought with bitcoin, the more useful bitcoin becomes. This is not money supply. For example, when I release fine gold and silver bullion pieces that are priced in Bitcoin (but do not contain any Bitcoin intrinsically), these can serve as a tangible asset with a Bitcoin value, but this does not increase the Bitcoin money supply. What it does do is provide a Bitcoin-compatible real-money currency, that can serve for instantaneous in-person transactions settled in Bitcoin, in a currency that is even more anonymous than any crypto-currency, finely minted precious metal. |
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They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....
(...)
From my perspective, your insistence (...) I've supplied support for all of them with quotes from the S-1. (...) Your insisting on a 20% backing makes it unlikely you even read the S-1 You've misread. I never said 20% backing. (...) Yes you said. But you seem to have understood now. My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was. (I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.) I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well. I trust this is better understood by everyone now? The huge difference between 100% backing by .2 Bitcoin and 20% backing per share which merits all this recrimination? |
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They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....
...the trading of a decreasing 1% of all bitcoins...
...controlled by the "market makers"...
...if the WBT ETF never becomes the preferred pricing mechanism for BTC...
...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...
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. I've supplied support for all of them with quotes from the S-1. If you have something to support the opposite, please share. I'm not here to grind any axes, just to discuss this and learn if something I am looking at is not what it seems. If it is not as I have written, I would appreciate learning otherwise. Your insisting on a 20% backing makes it unlikely you even read the S-1 You've misread. I never said 20% backing, just 20% pershare. (They are 100% backed by .2 Bitcoin at the outset.) This decreases over time under .2 as the trust pays expenses. That is right in the table of contents / summary on Page 3: http://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htmThe Trust expects to create and redeem the Shares from time to time, but only in one or more whole Baskets (a Basket equals a block of [50,000] Shares). The creation and redemption of Baskets require the delivery to the Trust, or the distribution by the Trust, of the number of Bitcoins represented by the Baskets being created or redeemed, the amount of which will be based on the combined NAV of the number of Shares included in the Baskets being created or redeemed. The initial number of Bitcoins required for deposit with the Trust to create Shares is [10,000] per Basket. The number of Bitcoins required to create a Basket, or to be delivered upon the redemption of a Basket, will gradually decrease over time, due to the accrual of the Trust’s expenses, the transfer of the Trust’s Bitcoins to pay the Sponsor’s Fee and the transfer of the Trust’s Bitcoins to pay any Trust expenses not assumed by the Sponsor. See “Business of the Trust—Trust Expenses.” This is further documented all through the S-1. This should not be a point of confusion. |
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They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....
...the trading of a decreasing 1% of all bitcoins...
...controlled by the "market makers"...
...if the WBT ETF never becomes the preferred pricing mechanism for BTC...
...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...
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. I've supplied support for all of them with quotes from the S-1. If you have something to support the opposite, please share. I'm not here to grind any axes, just to discuss this and learn if something I am looking at is not what it seems. If it is not as I have written, I would appreciate learning otherwise. |
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I hope im understanding this correct.
In the event that some global economic meltdown happens, and a lot of the investors (let say 30 %) deside to get real Bitcoins for the ETF´s they are holding, then we would have an equivalence of a bank run?
They're 100% backed. 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. What this means, is that the investors are not going to be getting any real Bitcoins for the ETF shares they are holding, meltdown or not. It doesn't matter how many try. If they were Authorized Participants, they could get a fractional percentage of the bitcoin assets in the trust by paying a fee, and redeeming a basket of 50K shares. They would get 10K bitcoins minus the amount of bitcoins the trust spends to operate apportioned across the baskets, or thereabouts. Investors can only sell the ETF for whatever folks thing its worth. The catch is, the trust can swap out for those bitcoins redeemed without notice for fiat, without notice at any time. So even the AP might get no bitcoin out. This isn't unusual, most all ETF are like this. For most, no one would care that they get paid cash instead. For alternative currency ETF it can defeat the purpose of the investment (currency/gold/silver/bitcoin) |
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I'm still unclear about how this works. You said earlier the shares of the ETF have to be 20% backed by bitcoins? So if there's 50,000 BTC in the ETFs coffers, it means the would've issued 250,000 shares for the trading games into the market. While this seems bad in and of itself (inflation of bitcoin M2 or whatever you might call it if you count in the shares of the ETF) it still seems there is a limit to the malicious short-selling. This leads to another question: you said the shares have to actually be borrowed in order to short-sell. What if all shares are in the hands of Joe Normal institutional investors and they are reluctant to lend? Is their consent needed for the lending of shares or will the Winklevoss just lend shares owned by others to the short-seller?
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. They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long. Although they start that way, over time fees and costs are paid out of the trust to the Sponsors and others so it will not remain 20%, and is never expected to reach that level after inception because no management or lending or income operation of the Bitcoin trust assets is done in this trust (SEC rules allow ETFs to lend portfolio assets to Authorized participants that want to create more shares/baskets, but the WBT ETF is not expected to do this). It will thereafter always be less than .2 and decrease over time because the bitcoin in the trust will not be risked in order to earn anything for the trust. So if the ETF is the pricing mechanism for bitcoin, the bitcoin price would be set by the trading of a decreasing 1% of all bitcoins. Selling short an ETF is controlled by the "market makers" who do the buying and selling to the public (usually a large investment banking firm) not the owners of the shares. These are the folks that lend the ETF shares to be sold short. They do so in order to get the interest on that loan. The market maker often also is an Authorized Participant (the Basket buyer). There isn't much reason not to lend them. If the market maker runs out of ETF shares to lend for short selling, they can make more shares to short sell by purchasing bitcoin (at the now discounted price due to the short sales) from the market (which is watching the ETF to know what the bitcoins are worth) and lend them for "serial short selling" depressing the price further. None of this is a problem at all if the WBT ETF never becomes the preferred pricing mechanism for BTC. No uptick rule on ETF shorting |
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With a constant influx of 10M per month (or really any number), and which is staying in BTC, no amount of money in the world is enough to keep the price below 200 (or another number).
Proof: with a constant influx of 10M/month a price of 200 is reached sooner or later. Then to keep the price down you need to buy at 200+x and sell at a loss for 200, losing x*50000 each month. x will be rising, because less and less sellers are available. Remember all the previous buyers stay in BTC, so supply is shrinking. x will skyrocket and likely cause bankruptcy of anyone trying this, but sooner or later you run out of sellers due to the limited amount of BTC even with infinite funds. As a hypothetical upper limit after 21000000*200/10000000/12 = 35 years there are no BTC left for you to buy and resell.
Not quite. Not all transfers occur on exchanges (almost none of mine for example, as I primarily use bitcoin in commerce rather than as investment). If one were only to buy (or trade to acquire) off exchange and only to sell on the exchange, this depresses the exchange pricing. Additionally a large mining concern that sells all it mines and only sells via exchanges, can depress pricing (and also keep the cost to depress the price down if they are using the exchange price to set the price). The point being, the answer is not knowable mathematically in the way you describe without accounting for all the off-exchange transactions. It does not matter where you buy. You will run out of people who can sell to you eventually, because there is a limited amount of bitcoin in existence. You can never* buy and resell more than this amount, regardless how high your subsidy. *) Assuming rational people do not sell to you for less than they bought from you. If they sell to you for equal or more than 200/ your proposed net influx is not maintainable. Only if you assume that the exchange currency is failing, AND/OR that there is no bitcoin being used for commerce. When a transaction in bitcoin occurs, the price used is typically the price at the largest exchange, or a blended average based on volume. These transactions are off-exchange but are based on the exchange price. If the recipient of those coins then transfers the coins to the exchange and places a market sell order, the price falls to the bid price until it is filled. This then lowers the exchange price for the next transaction that occurs in the economy. The definitive math would only work if all transactions occur on the exchanges and bitcoin is never used as currency. For an example. I sell my silver for bitcoin, if I were to sell all the bitcoin I get on the exchanges the price falls. If the buyer of those bitcoins uses them to buy my silver, and I again sell the bitcoin on the exchange, the price falls again. This can happen a thousand times a month and even if 10M enter the exchange that month, the price can still fall. For what its worth, I don't sell bitcoin on exchanges...  |
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With a constant influx of 10M per month (or really any number), and which is staying in BTC, no amount of money in the world is enough to keep the price below 200 (or another number).
Proof: with a constant influx of 10M/month a price of 200 is reached sooner or later. Then to keep the price down you need to buy at 200+x and sell at a loss for 200, losing x*50000 each month. x will be rising, because less and less sellers are available. Remember all the previous buyers stay in BTC, so supply is shrinking. x will skyrocket and likely cause bankruptcy of anyone trying this, but sooner or later you run out of sellers due to the limited amount of BTC even with infinite funds. As a hypothetical upper limit after 21000000*200/10000000/12 = 35 years there are no BTC left for you to buy and resell.
Not quite. Not all transfers occur on exchanges (almost none of mine for example, as I primarily use bitcoin in commerce rather than as investment). If one were only to buy (or trade to acquire) off exchange and only to sell on the exchange, this depresses the exchange pricing. Additionally a large mining concern that sells all it mines and only sells via exchanges, can depress pricing (and also keep the cost to depress the price down if they are using the exchange price to set the price). The point being, the answer is not knowable mathematically in the way you describe without accounting for all the off-exchange transactions. |
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@NewLiberty
I believe in such a scenario, the ETF would cease to be THE pricing mechanism. People will buy on the spot market as they become undervalued, decoupling the ETF rate from the "physical" rate. Unlike gold or any other asset, the barrier to actually move the bitcoins is relatively small.
Moving gold has been done for centuries, it isn't so hard or mysterious. Nevertheless, I am inclined to agree, and I would hope that the de-coupling would happen faster with Bitcoin than it is with gold and silver, but it is guaranteed to not be instant. To some extent this decoupling is beginning to happen with gold and silver as the time to acquire "good delivery bars" lengthens. As much joy as I get from having my raw material costs being so cheap right now, the frustrations I have to deal with in getting delivery almost balance it out. I've had some suppliers decide to stop selling claiming to be "sold out". I don't blame them, but what good is a low price if there is not sufficient availability to back it? Many that were using ETF to get delivery via redemption have been thwarted with fiat. This is not so much a theoretical risk, as one that has been exercised by market participants. Frankly, I am of the opinion that the Winkelvoss ETP will be very unlikely to become THE pricing mechanism for BTC, but since the issue was raised, and there is apparently both confusion and disbelief about the risks of that occurring, it seemed important to explain it in some detail to the community at large. As an aside... Some countries (Germany, Mexico, Ecudor, Netherlands, Switzerland, etc) were asking for their national gold vaulted in the US to be returned a few months before the GLD shenanigans. These are the big players who deal in tons not ounces. They have been told to wait (for years). Driving the price down in advance of the delivery of the goods might be fuel for conspiracy experts. http://www.forbes.com/sites/afontevecchia/2013/01/16/germany-repatriating-gold-from-ny-paris-in-case-of-a-currency-crisis/http://gizadeathstar.com/2013/03/mexico-joins-gold-repatriation-bandwagon/ |
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When the price of BTC can be manipulated with no actual BTC trading hands and by using fiat collateral instead through trading ETF shares instead, we have the pernicious effect.
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. I find it almost incomprehensible that the implications of the difference between borrowing actual Bitcoins, and borrowing ETF shares backed by Bitcoins is not clear in light of the April 12,15 activities in the GLD ETF, in a market where the ETF is the pricing mechanism (as it largely is for gold). When market participants (including those that are not beholden to anti-manipulation rules, such as the central banks) can move the market price of a commodity without ever having to go to the market and acquire any of that commodity through the use of an ETF which acts as the price setting mechanisms, and can do so by securing their trades collateralized with fiat instruments that they can create at will... What part of this is confusing? If these market participants had to go to the market to acquire bitcoin in order to sell ETF shares, there would be a buyer for each seller in the price setting mechanism of actual Bitcoin which would limit the effect as actual Bitcoin owners could decide to sell or not at whatever the price may be. When you don't need to borrow any bitcoin, and only need to borrow ETF shares (and where no bitcoin need be bought at market to support the short selling) such market participants can change the market price of bitcoin at will with relative ease in whatever way they like. An ETF (such as the WBT) acting as THE pricing mechanism for BTC enables this. It resets the price of bitcoin with no bitcoins being traded, and does it through a small fraction of the bitcoin market (just those held in the trust). Can I get a show of hands that DO understand this issue? I feel that I am getting a bit repetitive here, and I don't want to belabor the point if it is not needed. |
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...share value is not by definition, the net asset value of those Bitcoins per share, as the trust also has liabilities which modify the NAV...
Net asset value means the value of assets net of liabilities. Of course NAV changes over time: unlike the 'Bitcoin Fund' which appeared briefly earlier in this thread, and which charges an up front load rather than tapping into the fund's assets, how else would this trust fund itself? No. Remember that we are discussing the future here and so should expect that this WBT will follow the patterns of other ETF.
Don't forget that the Trustee and Sponsor (Winklevoss) may amend any provisions of the Trust Agreement without the consent of any Shareholder.
I wasn't trying to speculate about how the agreement's provisions might change in the future, I was trying to clarify what it actually says right now, which is that shares may be redeemed only in whole baskets, and that whole baskets will be redeemed for Bitcoin. You are speculating about the future. Whether the "Winkelvoss ETP could become THE pricing mechanism for BTC". My quote was from the current text of the S-1, which says they can amend to redeem in fiat, without notice. The effect of this is that shorting ETF shares will effect the ETF pricing... And if the bitcoin price is deemed to be determined by the ETF price, this will reduce the value of bitcoin in and out of the trust...
I'm afraid I'm not seeing the big issue here. Shorting anything in volume may cause its price to fall. You can short Bitcoin right now if you want: open up a Bitfinex account, deposit some collateral, and place your sell order. The issue may be more obvious to you when you look at the difference between shorting bitcoin on an exchange (where you must borrow bitcoin), and shorting shares of the WBT where you are borrowing shares of the WBT ETF, when you consider the topic of your thread here. The use of the WBT as THE pricing mechanism for BTC. When the price of BTC can be manipulated with no actual BTC trading hands and by using fiat collateral instead through trading ETF shares instead, we have the pernicious effect. Read some news about April 12,15 2003 gold ETF pricing? I do some trade in physical gold and silver. The market disruption from the ETF pricing to the extent that they also affect the physical market pricing is a "big issue" in the same way that folks using bitcoin as a medium of exchange may discover a "big issue" if/when the WBT becomes THE pricing mechanism for BTC. The ETF share price can be driven to up or down highly without increasing or decrementing the bitcoins available to the open market from the trust. This is different from the simple exchange-based price discovery which does not allow for collateralized shorting, derivatives, or other complicated market operations.
The Bitcoin market already allows both 'collateralized' shorting and derivatives on BTC/USD. The impact of a broadly available ETF might change this in quantity, but not in kind (except to the extent that options will be vastly better than futures, IMHO, but hopefully you still get my point). It is a change in kind as well as quantity, as noted above (and as you parenthetically note here). Shorting BTC is qualitatively different than shorting an ETF, and becomes pernicious when the ETF is used to price the asset upon which it is based, namely Bitcoin. You may notice the coordinated efforts from regulatory authorities to limit the liquidity and velocity of the exchanges. This adds to the risky possibility of the WBT becoming the pricing mechanism. On a Friday in April, in a few massive block trades totaling more than 13 million ounces of paper ETF gold, the bullion banks set in motion a mechanism to capture the physical assets. This was done with a small fraction of the total gold worth, and no actual gold traded hands to do this. Folks trying to redeem their gold from their ETF can get paid out in fiat currency (at the now lower price because the gold price is based on the ETF not on what it costs to get the physical in good delivery). Subsequently, the good delivery price also fell. What this means to Bitcoin folks is that the merchantability of their Bitcoins in their wallet may suffer a similar fate, but it would be orders of magnitude easier to do with Bitcoin than with gold due to the relative market size, if what you contemplate comes to pass, and the WBT becomes THE pricing mechanism for BTC. ...the entry of the WBT into the market of everyone with a trading account (rather than a bitcoin wallet) may have profound effects on bitcoin valuation. Ceding to it the control of bitcoin pricing may not be (and probably isn't) in the interests of a thriving bitcoin economy.
I agree that it may have a profound effect on Bitcoin valuation, but I do not see any actual argument to the effect that a larger, more liquid, more efficient market with the potential for derivatives vastly superior to what we have now would be other than good news for the Bitcoin economy. In other words, I hear what you're saying, I'm just not grasping any argument along with it. I added a few more handles here to make grasping it more easy. I am not yet suggesting that the existence of the WBT is good or bad, only that using it as THE pricing mechanism for BTC has an important risk, made more important by the fulfillment of that risk in the marketplace a few short months ago. I remain pleased that the Winklevoss brothers have found a use for their Bitcoins, and wish them every success. But to your newly raised point here, there are a variety of other ways that it could be "other than good news for the Bitcoin economy". There is certainly some good things about it for the Bitcoin economy, there are also some which are not good. Please be wary of optimism bias. |
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6) There is no firm linkage between shares value and bitcoin value (share value is somewhat linked to Audited Net Asset Value of the trust, not to value of bitcoins held in the trust).
Hmm, here again, I wonder whether some readers could find this confusing... If, by "share value", you mean "the value of a share as set by the market" (i.e., price), then generally speaking there is never any such linkage except that which is enforced by arbitrageurs. (Provided that can be done; in the case of closed end funds, the price may vary by quite a bit relative to net asset value.) If, however, you mean "the value of the underlying Bitcoins held by the trust", then the share value is, by definition, the net asset value of those Bitcoins per share. I am trying to reduce confusion rather than add it. And to simplify using easy common language words without reducing meaning. Many readers are not reading this in their native language or aren't investing experts. Share value here means the market value of a share (of the WBT). Yes this is similar to any ETF, but to your second interpretation, share value is not by definition, the net asset value of those Bitcoins per share, as the trust also has liabilities which modify the NAV... and as I will reiterate below, this can also be perniciously affected by the market value of a WBT share, and further the bitcoin-per-share is not something that should be expected to stay the same over time, by design it will decrease (below 0.2 BTC). Bitcoins are also over time trickled out of the WBT to the sponsors (Winklevoss) and others to pay them, but that is another issue entirely. 7) Redemption of shares may not give you Bitcoin, the debt may be settled through fiat, redemption may not be honored for legal reason, or logistical reason.
On the contrary, redemption of shares by Authorized Participants always yields Bitcoins delivered to the AP by the trust. The passage in the S-1 which you've referred to previously is describing the process which will be followed if the AP fails to deliver a basket of shares to be redeemed by 9:00 a.m. on a particular day of the week, not the other way around. In other words, the passage about collateralization of that commitment, etc., etc., has nothing to do with failure by the trust to redeem shares in Bitcoin, it has to do with failure of the AP to deliver shares when redeeming for Bitcoin. No. Remember that we are discussing the future here and so should expect that this WBT will follow the patterns of other ETF. Don't forget that the Trustee and Sponsor (Winklevoss) may amend any provisions of the Trust Agreement without the consent of any Shareholder. Any amendment that imposes or increases any fees or charges (other than taxes and other governmental charges, registration fees or other such expenses), or that otherwise prejudices any substantial existing right of the Shareholders will not become effective as to outstanding Shares until 30 days after notice of such amendment is given to the Shareholders. Amendments to allow redemption for quantities of Bitcoins smaller or larger than a Basket or to allow for the sale of Bitcoins to pay cash proceeds upon redemption shall not require notice pursuant to the preceding sentence. (S-1 p. 66) http://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm#tx562329_14This practice has played out with gold and silver ETF as well. Settlement may be in fiat, not the asset. The sale of Bitcoin to pay that cash redemption need not be via a public Exchange and may be private. Redemption of share basket does not necessarily cause Bitcoin to become available. 10) Short selling of ETF shares is not so much limited by the amount of bitcoin in the vault of the trust as it is limited by the ability of short sellers to post adequate collateral (in say, Euros, US Dollars, Mortgage Backed Securities, or whatever is accepted).
The short selling of ETF shares is very precisely limited by the number of ETF shares available to be shorted. Yes thank you for helping to make this clear, selling ETF shares short does not free any Bitcoin in the vault. The effect of this is that shorting ETF shares will effect the ETF pricing... And if the bitcoin price is deemed to be determined by the ETF price, this will reduce the value of bitcoin in and out of the trust. This effect is the pernicious risk of using the ETF to determine market value of bitcoin. Market participants, can short the ETF by posting non-bitcoin collateral (and they don't even have to do it naked), to affect the bitcoin pricing. Then the ETF share price can be driven to up or down highly without increasing or decrementing the bitcoins available to the market from the trust.
If the problem you're getting at is just that, like any other commodity ETF, the trust must hold some of the underlying entity (in this case, Bitcoins) in order to exist at all, then that seems to me an entirely different discussion than all of the above about collateral and redemption and the difference between trading and redeeming. Not really no. That would be a very weird "problem". I am not claiming that the WBT is uniquely weird. Rather I am claiming the opposite, that the WBT could pose the same sort of issues that have been problems for other commodity (and emerging market currency) ETF with respect to the underlying asset (Bitcoin). The ETF share price can be driven to up or down highly without increasing or decrementing the bitcoins available to the open market from the trust. This is different from the simple exchange-based price discovery which does not allow for collateralized shorting, derivatives, or other complicated market operations. For the sake of those less well versed in the potential effects of these, the entry of the WBT into the market of everyone with a trading account (rather than a bitcoin wallet) may have profound effects on bitcoin valuation. Ceding to it the control of bitcoin pricing may not be (and probably isn't) in the interests of a thriving bitcoin economy. On the other hand, a thriving bitcoin economy may vary well improve the value of the WBT. |
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(It makes little difference what is used as collateral in ordinary short selling, by the way: collateral is merely what you are putting up to show you have the resources to buy back the share when the time comes, and the share still has be borrowed from someone before it can be sold. I.e., the share being sold short is not the collateral.
Here is a place where we diverge more strongly, so I will slow down a bit. I would claim that the collateral does matter because it invariably introduces "counter-party" risk in all cases where the collateral is not Bitcoins. The Sponsors, Trustee, and Authorized Participant may agree that the risk is small enough, but in any case this happens out of the sight of the trading public, and the public must blindly trust this trinity's judgement on the matter. We can get more into that part of the discussion, if anyone else is interested. I'm still scratching my head here... Let's ignore "counter-party" risk for a second (I couldn't care less if the lender of the bitcoins doesn't see his coins because of borrower (short-seller) collateral somehow turns out to be insufficient to buy back the bitcoins. It is then as if the borrower had sold the bitcoins himself... a big problem for him (he wanted to lend, not sell), but for outstanders this doesn't make much difference, does it? In other words: this may be a risk for certain participants, but not Bitcoin itself. Now, Greg says the share still has to be borrowed from someone (and I don't think NewLiberty contradicted this?). As I understand shares cannot come into existence without equal amount of bitcoins being deposited, right? This in turn means that potential short-selling is limited to the amount of bitcoins in the coffers of the trust. No one can ever sell 21 million and 1 bitcoin. Just as the ECB (and probably all other central banks) is worried about inflation of the money supply under their management (by others than themselves), I am naturally worried about inflation of the Bitcoin money supply (other than by miners in predetermined way). I seem to oscillate between believing this ETF could become a danger in this regard and thinking it cannot. Currently I think it cannot (simply because every sell is subject to the existence of a share and every share has an associated bitcoin in the vault). The danger is less that the trust exists and more that it might become the pricing mechanism for Bitcoin. Some points that may clarify it. 1) At inception every share has .2 shares in the vault rather than 1. 2) New baskets of 50K shares may be created by sending the trust 10K bitcoin. 3) When shares are sold, bitcoin are not necessarily sold at any external exchange. 4) Shares can be sold short, through the use of collateral. 5) The Collateral need not be bitcoin (it likely rarely or never will be). 6) There is no firm linkage between shares value and bitcoin value (share value is somewhat linked to Audited Net Asset Value of the trust, not to value of bitcoins held in the trust). 7) Redemption of shares may not give you Bitcoin, the debt may be settled through fiat, redemption may not be honored for legal reason, or logistical reason. 8. No bitcoins are need to be borrowed from anyone for the selling short of ETF shares (ETF shares are lent not bitcoin). 9) The problems I mention may occur when folks confuse ETF shares with Bitcoin and equate their value (as is likely to be common given the content of this thread). 10) Short selling of ETF shares is not so much limited by the amount of bitcoin in the vault of the trust as it is limited by the ability of short sellers to post adequate collateral (in say, Euros, US Dollars, Mortgage Backed Securities, or whatever is accepted). I don't oppose the creation of the ETF (nor would it likely matter much if I or anyone here did). If the ETF can be said to inflate the money supply, it isn't M1. I also do not believe that the existence of the ETF poses any existential threat to Bitcoin, and it may be good for Bitcoin, though the ETF does present some new challenges along with the opportunities and these challenges ought not be ignored. If someday in the future, if the ETF becomes the primary pricing mechanism for Bitcoin value this (in my humble opinion) is not such a wonderful outcome. Then the ETF share price can be driven to up or down highly without increasing or decrementing the bitcoins available to the market from the trust. That outcome could pose problems for a commercial bitcoin economy in the same way that gold and silver ETF have posed difficulties for the gold and silver bullion trade (and by contrast, these are only rarely used as in commercial economic exchange in the way that Bitcoin is intended to be used as a medium of exchange). Weirdly...If Bitcoin does have government enemies, then Bitcoiner opposition to the ETF could perversely make it easier for it to pass regulatory approvals... so by folks pointing out these challenges now during this process... |
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The entire world's never going to collapse all at once, but the certain parts of it will see periods of extreme turmoil from time to time.
If you happen to be located in one of those parts of the world and see the signs of impending turmoil, it's far better to move to some calmer part of the world before it's too late rather than try to shelter in place.
In this scenario gold is nearly useless, even in physical form. If you really need to leave a country quickly you can't take significant quantities of gold with you.
Bitcoins, on the other hand...
At such times, Having both is best. |
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The 10th Amendment Center fights for your rights. This group works to improve civil rights in the United States by getting the states to uphold the 10th Amendment reducing the Federal authority over-reach. Specifically it has been successful in advocating alternative currencies. Gold and silver are legal tender in Utah and some other states in the works, next Bitcoin! Eventually the banks and governments may be forced to accept bitcoin as lawful payment due to the will of the people. The TAC need your Bitcoins to survive another year, and not even a lot of them. Here are the details of how you can help: http://us1.campaign-archive1.com/?u=3a5a3fb1ad250e247bde9f42d&id=1c703f95e2&e=649db20ecdHere is some more about what they do for you (whether you know it or not, and whether you are in the US or not): http://tenthamendmentcenter.com/legislation/#.UeGazdK-pS8Send them here: 1irZb63AuCKgxeNee3EdfpPDGAHi9VAFP |
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