Buy bitcoins on Nasdaq

[Paladin69]

What would stop mega banks from naked short selling?

[vokain]

What would stop mega banks from naked short selling?

it's illegal

[Pajamaw]

Haha thank you laws

[vokain]

Haha thank you laws

http://online.wsj.com/article/SB10001424127887324904004578537692730996164.html

http://www.cato.org/sites/cato.org/files/serials/files/regulation/2008/2/v31n1-6.pdf
besides, it just means cheaper coins for us long run. if they sell too much, and lose money when they can't cover, that's a deterrant. It's illegal if they don't cover.

[DeathAndTaxes]

What would stop mega banks from naked short selling?

it's illegal

That has never stopped them before.  Also contrary to popular opinion naked short selling is NOT illegal in the US.  It likely should be.  There is no conceivable reason that entities are allowed to sell something they don't have but the SEC has NOT made naked short selling illegal.  Now there are rules which make certain activity illegal like naked short selling with the intent to artificially manipulate the price lower however the problem there is "intent".  What is the difference between short selling something because you believe it is overvalued and short selling it because you believe you can manipulate it downward.  On the ticker absolutely nothing and that provides entities which do it plausible deniability.  They are almost never prosecuted and barring a whistle blower it is almost impossible to prove the case even if they are.



However naked short selling an ETF which allows redemption to manipulate the price below NAV is a good way to simply lose a lot of money.  1 share = 0.2 BTC.  Now it will be traded in dollars but for simplicity I will use BTC pricing just remember it would be the BTC equivalent in USD.  The naked short seller inflates supply causing the ETF to fall below NAV.  Lets say it trades to 0.19 BTC per share (whatever that is in USD).  A large institutional investor could simply purchase 50,000 shares @0.19 BTC ea = 9,500 BTC.  The institutional investors then redeems the basket of 50,000 shares for 10,000 BTC.  The institutional investor who already has some "physical BTC" can execute both of these simultaneously and simply profit 500 BTC instantly.  Obviously this is a zero sum event so the amount of profit the redeemer makes is simply a transfer of wealth from the short seller.  One gains 500 BTC the other loses 500BTC.

Would you like to buy 10,000 BTC for 9,5000 BTC?  I know I sure would.  

[discopete]

Also known as how do you exit an illiquid market without destroying the price...

i have to agree.. this was my first thought when i saw the article too
a 200k sell on the current market would drive the price down but by doing it this way and creating demand from a new market if enough people bite it'll drive the price up just long enough for them to have turned all their BTC into cash

their 'company' will then be able to pay them wages/dividends and generally bleed down the value of BTC whilst only they benefit from it

it's a clever piece of latteral thinking, but not a good thing for a technology whose best outcome would be it stabalised into a currency

[vokain]

Also known as how do you exit an illiquid market without destroying the price...

i have to agree.. this was my first thought when i saw the article too
a 200k sell on the current market would drive the price down but by doing it this way and creating demand from a new market if enough people bite it'll drive the price up just long enough for them to have turned all their BTC into cash

their 'company' will then be able to pay them wages/dividends and generally bleed down the value of BTC whilst only they benefit from it

it's a clever piece of latteral thinking, but not a good thing for a technology whose best outcome would be it stabalised into a currency

It's a chicken and egg problem. If not enough people buy into it, then they're back to where they've started it. If people buy the entire trust, then that means Bitcoin already succeeded, and they've succeeded. Your proposition doesn't work

[cypherdoc]

Also known as how do you exit an illiquid market without destroying the price...

i have to agree.. this was my first thought when i saw the article too
a 200k sell on the current market would drive the price down but by doing it this way and creating demand from a new market if enough people bite it'll drive the price up just long enough for them to have turned all their BTC into cash

their 'company' will then be able to pay them wages/dividends and generally bleed down the value of BTC whilst only they benefit from it

it's a clever piece of latteral thinking, but not a good thing for a technology whose best outcome would be it stabalised into a currency

this ETF will be constructed to go out and buy new BTC, not sell the private stash of the Winklevii.  that would be illegal unless they plan on "donating" their BTC to the Trust, which I highly doubt.  so whatever investment fiat goes into buying shares will represent new demand.

[DeathAndTaxes]

i have to agree.. this was my first thought when i saw the article too
a 200k sell on the current market would drive the price down but by doing it this way and creating demand from a new market if enough people bite it'll drive the price up just long enough for them to have turned all their BTC into cash

Nonsense.  You do realize that registration, approval, underwriting, listing, and pre-IPO process is measured in month lots of months.

200K BTC over 6 months is 1,800 per day.
200K BTC over a year is 547 per day.

Far easier to just sell a "small" on the market each day then go through all this process plus you gain the added advantage of selling over a period of time and getting capital back quicker rather than waiting 6-12 months and selling it all at once (at potentially a much lower price).

their 'company' will then be able to pay them wages/dividends and generally bleed down the value of BTC whilst only they benefit from it. it's a clever piece of latteral thinking, but not a good thing for a technology whose best outcome would be it stabalised into a currency

I mean it is that hard to actually read the S-1 (publicly released).  It isn't a company it is an ETF and the Bitcoins are held by a trust.  0.2 BTC per share issued.  The trust can't spend any of those Bitcoins not a single Saotshi for anything... ever.   The trust simply keeps 0.2 BTC * the # of shares outstanding.  Nothing more, nothing less.

The sponsor (a company which is NOT going public) can charge a management fee but usually these are something like 0.4% so we are talking decades before any significant fraction of the coins in trust are "paid out".

The ETF may be a bad idea, it may not ever get approved, it might be downright silly but it would be the absolute worst possible way to sell 200K BTC.  I can't possibly think of a method with more cost, more legal complications, more chance of failure, more risk, and require more time.

[CurbsideProphet]

If the ETF is approved, then the regulators are basically saying that Bitcoin is a commodity and the Trust does not have to register as a money transmitter.  Doesn't this basically open the pandora's box for every exchange out there?  This seems like an easy rejection but surely the Winklevii must think they have a fairly decent shot at getting approval.  Either they're getting poor legal counsel or they see something that I do not.  I simply do not see FinCEN rolling over on this one.

[btceic]

Just wanted to chime in here regarding the time frames that people can expect for approval on this.

IMHO, this will take at least 1 year from today to get approved, there are so many issues, regulations, etc. that need to be dealt with, not the least of which are, fincen, irs, sec, doj and many more, unless and until the winklevii bribe "donate to" a ton of congressman and senators to get this through all of the red tape will this get the nod from those up on high to allow this to be on their nasdaq or nyse or amex exchange.

What we really need here is all of the VC's that are putting fiat behind their btc start-ups to really push this as hard as they can and call in all of their favors.

This may sound like I am pessimistic and perhaps I am but I would say I am cautiously optimistic.

[willphase]

This may sound like I am pessimistic and perhaps I am but I would say I am cautiously optimistic.

I think 1 year is definitely quite optimistic - I was thinking more like 18 months and then they say 'no'.

Will

[DeathAndTaxes]

If the ETF is approved, then the regulators are basically saying that Bitcoin is a commodity and the Trust does not have to register as a money transmitter.  Doesn't this basically open the pandora's box for every exchange out there?  This seems like an easy rejection but surely the Winklevii must think they have a fairly decent shot at getting approval.  Either they're getting poor legal counsel or they see something that I do not.  I simply do not see FinCEN rolling over on this one.

No it means nothing of the sort.  Regulations aren't mutually exclusive unless they specifically define an exclusion.

The SEC could approve this as a "virtual asset", the CFTC could say it is a "commodity" and FinCEN could still define it as "monetary value" (and thus MSB/MT provisions apply). Don't try to apply logic to the law it will make your head hurt.  If regulators try to impose conflicting regulation that defacto is IMPOSSIBLE to apply they will still each expect that you apply their regulation.  It is quite common for regulators to be utterly dysfunctional.  Your recourse is to file a lawsuit.

[btceic]

This may sound like I am pessimistic and perhaps I am but I would say I am cautiously optimistic.

I think 1 year is definitely quite optimistic - I was thinking more like 18 months and then they say 'no'.

Will

been through a few m&a cycles too, I presume?

[DrGregMulhauser]

I mean it is that hard to actually read the S-1 (publicly released).  It isn't a company it is an ETF and the Bitcoins are held by a trust.  0.2 BTC per share issued.  The trust can't spend any of those Bitcoins not a single Saotshi for anything... ever.   The trust simply keeps 0.2 BTC * the # of shares outstanding.  Nothing more, nothing less.

Just to clarify a little, this is incorrect. While the original ratio will be 0.2 BTC per share, that will decay over time, and the trust will spend a portion of those Bitcoins. There is nothing sinister or odd about this -- it is, on the contrary, common and entirely expected by investors.

As I mentioned earlier in this thread, the relevant passage is on pp. 40-41 of the filing:

https://bitcointalk.org/index.php?topic=248013.msg2636138#msg2636138

Specifically:

"The Trust will transfer Bitcoins to the Sponsor Custody Account in payment of the Sponsor’s Fee and transfer Bitcoins to the Trust Expense Account and sell Bitcoins to raise the funds needed for the payment of all Trust expenses not assumed by the Sponsor... As a result of the recurring transfers of Bitcoins to pay the Sponsor’s Fee and the Trust expenses not assumed by the Sponsor, the net asset value of the Trust (“NAV”) and, correspondingly, the fractional number of Bitcoins represented by each Share, will decrease over the life of the Trust."

Again, there is nothing in any way surprising about this.

[Rinorbirch]

I mean it is that hard to actually read the S-1 (publicly released).  It isn't a company it is an ETF and the Bitcoins are held by a trust.  0.2 BTC per share issued.  The trust can't spend any of those Bitcoins not a single Saotshi for anything... ever.   The trust simply keeps 0.2 BTC * the # of shares outstanding.  Nothing more, nothing less.

Just to clarify a little, this is incorrect. While the original ratio will be 0.2 BTC per share, that will decay over time, and the trust will spend a portion of those Bitcoins. There is nothing sinister or odd about this -- it is, on the contrary, common and entirely expected by investors.

As I mentioned earlier in this thread, the relevant passage is on pp. 40-41 of the filing:

https://bitcointalk.org/index.php?topic=248013.msg2636138#msg2636138

Specifically:

"The Trust will transfer Bitcoins to the Sponsor Custody Account in payment of the Sponsor’s Fee and transfer Bitcoins to the Trust Expense Account and sell Bitcoins to raise the funds needed for the payment of all Trust expenses not assumed by the Sponsor... As a result of the recurring transfers of Bitcoins to pay the Sponsor’s Fee and the Trust expenses not assumed by the Sponsor, the net asset value of the Trust (“NAV”) and, correspondingly, the fractional number of Bitcoins represented by each Share, will decrease over the life of the Trust."

Again, there is nothing in any way surprising about this.

+1

[Paladin69]

What would stop mega banks from naked short selling?

it's illegal

I don't think it's illegal.  A big stink was made in 2008 to try and make it illegal but it never happened.

[DeathAndTaxes]

Just to clarify a little, this is incorrect. While the original ratio will be 0.2 BTC per share, that will decay over time, and the trust will spend a portion of those Bitcoins. There is nothing sinister or odd about this -- it is, on the contrary, common and entirely expected by investors.

Agreed and I misunderstood although (possibly my reading of) your wording seems to indicate a sinister intent.

their 'company' will then be able to pay them wages/dividends and generally bleed down the value of BTC whilst only they benefit from it. it's a clever piece of latteral thinking, but not a good thing for a technology whose best outcome would be it stabalised into a currency

The company is able to bill the trust for the small management fee (unstated but 0.5% annually is a common amount) and the NAV will decline over time but I wouldn't call it "only they benefit".  If there is no benefit to shareholders (of the trust not the management company) then they won't buy it.  I mean it is an open market.  Investors will weigh the value/utility (if any) of the fund vs the cost (in terms of annual management fee).  They buy because the value outweighs the cost.

I would argue there is a lot of potential utility here:

* A company which had a margin brokerage account could accept BTC for goods and hedge volatility between time of acquiring and time of selling by selling short the fund.
* Speculators looking to go long could use margin to extend their leverage at lower cost and risk compared to systems like bitfinex.
* Long term holders of physical BTC (in cold storage) could sell covered calls against the fund for USD cashflow without needing to periodically sell off BTC on exchanges of unknown risk.
* Buying calls and puts would be a more sophisticated way of trading Bitcoins without dealing with entities of unknown trust.
* Someone looking to borrow BTC but sell them for USD could hedge out the currency risk partially or fully through the use of options.  If nothing else buying way out of the money calls would be a method of capping currency risk.

[vokain]

What would stop mega banks from naked short selling?

it's illegal

I don't think it's illegal.  A big stink was made in 2008 to try and make it illegal but it never happened.

Looking into it we have

http://en.wikipedia.org/wiki/Failure_to_deliver
http://en.wikipedia.org/wiki/Regulation_SHO#Regulation_SHO

I think failure to deliver is illegal already covered under some business law, contract law I imagine

On November 4, 2008, voters in South Dakota considered a ballot initiative, "The South Dakota Small Investor Protection Act", to end naked short selling in that state. The Securities Industry and Financial Markets Association of Washington and New York said they would take legal action if the measure passed.[45] The voters defeated the initiative.[46]

In July 2009, the SEC, under what the Wall Street Journal described as "intense political pressure," made permanent an interim rule that obliges brokerages to promptly buy or borrow securities when executing a short sale.[47] The SEC said that since the fall of 2008, abusive naked short selling had been reduced by 50%, and the number of threshold list securities (equity securities with too many "fails to deliver") declined from 582 in July 2008 to 63 in March 2009.[48][49]

In January 2010, Mary Schapiro, chairperson of the SEC, testified before the U.S. Financial Crisis Inquiry Commission, fails to deliver in equity securities has declined 63.4 percent, while persistent and large fails have declined 80.5 percent.

[btceic]

I think failure to deliver is illegal.

it may be illegal but it sure isn't enforced, sirixm has been dealing with this for years, and recently I learned that treasuries I think it was was getting fails to deliver as well.

Edit: yep, fails to deliver on treasuries...

http://www.zerohedge.com/news/2013-06-17/following-surge-fails-deliver-two-year-highs-treasury-market-finds-brief-respite