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skayl
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November 19, 2012, 01:16:15 AM
Last edit: February 18, 2013, 12:44:24 AM by skayl
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Stephen Gornick
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November 19, 2012, 05:18:20 AM
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Would having depository receipts in old economy companies denominated in btc similar to American Depository Reciepts or other hard assets assist in stabilizing to the price of BTC? Why or Why not?

ADR Wikipedia: http://en.wikipedia.org/wiki/American_Depositary_Receipt

This would create additional demand for bitcoins, sure.  And bitcoin becomes more stable when it is used for a wider and wider variety of purposes.  So, sure, this would help.

About the closest so far is the forex outfits that accept bitcoins to fund a brokerage account:
 - http://en.bitcoin.it/wiki/Trade#Forex

With a couple of them the bitcoins that arrive are converted to USDs or some other fiat for use in trading.   VenetFX apparently provides a way that when a position is entered, the purchase comes from the (leveraged) bitcoin balance and when a position is exited the proceeds are paid to the bitcoin account:
 - http://bit4x.com/faq.html

So in a way, what VenetFX/Bit4X is doing with regard to forex is about identical to the scenario where bitcoins are the funding mechanism for investing in (and cashing out of) ADRs.

There shouldn't be that much of a challenge to a broker offering this -- as long as regulations regarding AML/KYC and other restrictions are followed.

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Stephen Gornick
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November 19, 2012, 06:35:21 AM
Last edit: November 19, 2012, 07:22:46 PM by Stephen Gornick
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Interesting. It doesn't seem like there would be enough volume to support trading within the bitcoin economy(not sure if it would even be necessary) of depository receipts at this stage, but  It would certainly be a huge help for those living in countries where governments use currency devaluations to take wealth away from their citizens or in situations where it is difficult to open a brokerage account.

Perhaps there is some [edit: I am] misunderstanding here?

Take Baidu, for instance.  It is a Chinese search engine company headquartered in Beijing, China.

Here in the U.S. we can buy and sell shares of Baidu on NASDAQ as there is an ADR issue for Baidu
 - https://www.google.com/finance?client=ob&q=NASDAQ:BIDU

So if there was a broker that were to allow its customers to fund a brokerage account with bitcoins to trade on the NYSE or on Nasdaq (including any ADRs which trade there) then that would be good for bitcoin as that is another way that bitcoins can be used as a currency.

But that doesn't help someone in Canada, or China even.  That broker must still follow AML/KYC and I presume the broker is not able to serve customers (facilitate their investment) when the the customer is not from the U.S.

As (if) bitcoin evolves as an international store of value in countries with monetary instability, it will be fascinating to see how it assists the poor with investing.

I see.  That's a different question.   You might be asking how bitcoin can be used to increase the investment options available to those who don't currently have many options for accessing capital markets.  For instance, even in the U.S. I cannot invest in options and futures contracts as my online brokerage requires that I sign some extra paperwork and maintain a large balance with my brokerage account.   But let's say I simply want to lock in today's price for crude oil, as I plan to buy a several hundred dollars worth of gas over each of the next few months and I fear the price of crude will go way up.    With my broker account, there is no way I can "lock in" to today's crude oil exchange rate (well, technically there are ETFs and other things that give me roughly the same thing, but let's just assume these are not available).  

Instead, I can put in $1,000 worth of bitcoins and buy nearly a dozen CLG3 contracts on ICBIT (each CLG3 contract is a future contract for a barrel of oil):
 - https://icbit.se/CLG3
ICBIT operates without the requirement that I sign any paperwork or maintain a large balance.  In fact, I could even buy a thousand dollars worth of these contracts with much less than a thousand dollars worth of bitcoins, thanks to ICBIT offering margin accounts.  Buying on margin is risky though (as might be investing in unregulated exchanges like this), but the point I am making is for the first time ever, I technically have the ability to invest in oil futures by simply going to the convenience store and paying for bitcoins, and minutes later I can hold an investment in crude oil.  If the price of oil skyrockets, I'm covered because my investment will increase in value as well.

How significant are the transaction volumes at these two firms compared to Mt. Gox? Can anyone give their take on the experience with VenetFX/Bit4X or "First National Innovation Brokers"?

I've no idea.  Both have had their skirmishes here on the forum.  (actually, so has ICBIT, and nearly every other securities- or investment-related instrument involving bitcoins).

But because bitcoins are simply used to transfer value, it doesn't matter if bitcoins represent just a little bit of or a lot of the trading at these forex firms.  You aren't speculating on the bitcoin exchange rate, you are simply using bitcoins to transfer value into (and out of) an account at the brokerage.  From there, the speculation is on whatever investment instrument is purchased.

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Stephen Gornick
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November 19, 2012, 07:22:15 AM
 #4

Was talking about bitcoin denominated depository receipts of companies in the real economy.

Like BIDU's (a chinese company) USD denominated American Depository Receipts that trade here (no currency conversion required)

Does anything from this reply from another thread help?

are there any sites that let you invest on the stock market using bitcoins?

You are asking if there are any brokers who accept funds in the form of bitcoins that would allow you to purchase stocks on the public markets?

There are none in the U.S. that (yet) provide that.

There are online brokerages in the U.S. that take ACH / direct deposit transfers, which would allow bitcoins to be traded for USDs and then withdrawn as an ACH.  Any Bitcoin exchange that does Dwolla cash-out would work for this:
 - http://www.MtGox.com
 - http://CampBX.com
 - http://FastCash4Bitcoins.com

There is one type of market where bitcoins can be used to speculate on gold, oil / crude (WTI), and dollars:
 - http://ICBIT.se

There is also a bitcoin-based market where a handful of "equities" for unincorporated entities are traded -- MPEX:
 - http://polimedia.us/bitcoin/mpex.php

There are a couple of methods where bitcoins can be used to fund Forex trading accounts:
 - http://www.bit4x.com/
 - http://www.LiteForex.com

There is a hedge fund that announced plans to invest in bitcoins as one of its asset classes:
 - http://www.hedgeweek.com/2012/10/08/174393/emergence-electronic-gold%E2%80%A6

There has been interest in something like what you are describing, but none to-date have progressed to where this is available today:

Real Life Stock Passthroughs (eg AAPL)
 - http://bitcointalk.org/index.php?topic=112363.0

Buy/Sell AAPL with BTC/LTC
 - http://bitcointalk.org/index.php?topic=100688.0

There isn't necessarily a good reason that this isn't available yet today -- as long as the broker performs the same AML/KYC as a broker that accepts fiat does.  Because bitcoins can be used to transfer funds faster than a bank wire transfer even, it wouldn't be surprising to see support for Bitcoin as a funding method be one of the more common requests.  It's a natural fit, so it will likely be happening.  It is likely just a matter of time.

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Bitcoin Oz
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November 19, 2012, 09:25:13 AM
 #5

I am planning on investing in alpacas and taking btc.

The main problem  of course is the currency risk. You can mitigate it somewhat by keeping half the asset in btc and half in fiat.

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November 19, 2012, 02:30:36 PM
 #6

I don't really see how this works to stabilize the value of bitcoins, and Oz is right in that this would expose the company to bitcoin trade risk.
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November 19, 2012, 07:26:34 PM
 #7

At present bitcoin has a way too small market cap anyway. With a total value of approximately $100-120M it is relatively insignificant and conversion to fiat currencies will be required. However, once it will have reached a more sizable amount (let say $10 Billion and above, $1T would be better), it will become a valid eCurrency with enough weight to be used as a bona fide medium of exchange. Current value of BTC would have to go up by 100-fold to do so though...
Let's be careful for what we wish for though, since at this stage governments will most likely start to show much more interest in BTC...
Stephen Gornick
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November 19, 2012, 07:49:29 PM
 #8

Depository receipts will increase the number of real assets that are being traded within the btc economy

There's a brokerage that lets me buy and sell stocks without having to pay any per-trade commissions.   They can offer this because the trades are not traded in real-time, on-demand but instead trades are grouped together, matched internally and remaining orders are sent to market twice a day.
 - https://www.folioinvesting.com/brokeragefeatures/window-trades.jsp

Because the bitcoin exchange rate is so volatile, I think that if there was some type of trading in equities listed with major exchanges (for bitcoins) it would probably need to start out like this.

So when there is net selling, the issuer would convert the fiat proceeds from selling at the market into bitcoins for crediting the seller's balances.  When there is net buying the bitcoins from the buyers accounts are converted to fiat and used to pay or the orders placed at the market.

But the cost of that Bitcoin-to-fiat (or vice-versa) conversion is known and the exchange costs are allocated proportionally to all shares traded.

That's not the ideal scenario for the individual trader (real-time trading based on the latest info results in the best pricing), but I bet the exchange rate risk is too high and no organization could justify taking on the exchange rate risk without some window trading method like this.

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Rudd-O
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November 25, 2012, 11:19:26 PM
 #9

This is how currency pegs invariably look like in practice:

http://en.mercopress.com/2012/07/17/as-the-dollar-clamp-tightens-in-argentina-the-greenback-traded-at-6.31-pesos
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November 25, 2012, 11:30:14 PM
 #10

Hi Rudd-o

Thanks for sharing. We were more talking about investments like Depository receipts for equities in the real economy, that could be tradable within the bitcoin economy, rather than a currency peg like the hkdusd peg.

That would probably work much better.
johnyj
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November 27, 2012, 01:12:32 AM
 #11

No

1. BTC itself IS the investment
2. No matter how much BTC are put into circulation, the total amount of BTC is very limited, this limited supply nature will never change, so if the demand changes dramatically, the price will change dramatically

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December 01, 2012, 03:14:55 PM
 #12

No

1. BTC itself IS the investment
2. No matter how much BTC are put into circulation, the total amount of BTC is very limited, this limited supply nature will never change, so if the demand changes dramatically, the price will change dramatically

BTC is not only an investment. People do not use it only as a store of value but also as a way to pay for services and goods. It will always help BTC when it is used by more people for new purposes. (It will also help investors if there is more liquidity)

We were more talking about investments like depository receipts for equities in the real economy, that could be tradable within the bitcoin economy, rather than a currency peg like the hkdusd peg.

Do I understand correctly that these depository receipts would have to be issued by a central counterparty (like a Bitcoin exchange)?
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