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[ArticMine]

What do you guys think this will do to the price? They are issuing "paper" bitcoins based on their shares

http://blogs.wsj.com/moneybeat/2013/07/01/winklevoss-twins-file-to-launch-bitcoin-exchange-traded-product/

They aren't issuing "paper Bitcoins" in the sense that they aren't backed by anything.  The trust will hold Bitcoins and issue shares to represent those.  Each share is worth 0.2 BTC and the trust will hold 0.2 BTC for each share outstanding.  The trust can't issue shares to represent more then BTC it actually has.  If hypothetically the fund was very popular and the fund wanted to issue more shares they are required to obtain 10K BTC (50K shares) before adding 50K new shares for trading.

Yes that is my understanding. Each share will correspond initially to 0.2 BTC and then diminish by the amount of the Trust's expenses including the sponsor fee, and other expenses. So the BTC value over time of each will drop to cover the expenses of the trust.

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[massivebitman]

You've got to wonder if this news is positive or not...

On the one hand looks like they are selling their BTC.

On the other hand, they are making it fucking easy for the mega whales, hedge funds etc... To take a bite of the BTC pie.

If I ran a managed fund with a high risk profile, why not put a percent or two into this bitcoin thing.

My thoughts... If it goes ahead, there will be a spike in price.

My other thought is, until we know if it's going ahead maybe it'll work as an artificial cap on the BTC price.

After all it's effectively stating that the opening price of BTC is $100.45 no?

This could be a sneaky way to cap the price while they buy up more BTC

[DeathAndTaxes]

After all it's effectively stating that the opening price of BTC is $100.45 no?

This could be a sneaky way to cap the price while they buy up more BTC

No.  The s-1 indicates the quoted price used was solely for the purpose of paying the registration fee.  If approved by regulators and an exchange shares will be priced at the current exchange rate at the time of the IPO.  The S-1 doesn't obligate them to any price.  They could sell pre-IPO baskets of shares at a price of $18.23 or $23.81 per share if necessary.  Baskets will be bought by institutional investors.  They aren't going to pay a huge premium to the underlying asset. 

This isn't unusual, pre IPO generally one doesn't know the exact price the shares will be issued at.  That is the purpose of the pre-ipo.  Pre-IPO investors deliver a deposit held in an escrow account to cover the likely issuing price.  So 50,000 shares * $20 ea = $1M.  XYZ Capital wires $1M USD.  The actual share price ends up being $18.23.  XYZ Capital gets their 50,000 shares plus $88,500 from the deposit is returned.

[chufchuf]

Looks like they are selling out. It's going to raise a lot of new regulatory issues as it would be a BTC tracking product that falls under the SEC jurisdiction. That is a whole new territory. The NAV of the trust would be based on non SEC regulated exchange prices ( Gox, Bitstamp ect). Things start to get blurred very quickly

They even mention this :

(Termination events include) ...

the Trust is determined to be a “money transmitter” under the regulations promulgated by FinCEN under the authority of the US Bank Secrecy Act and is required to comply with certain FinCEN regulations thereunder, and the Trust receives notice from the Sponsor that, because of that determination, termination of the Trust is advisable;

I dont think this IPO will be approved overnight ...

They are effectively receiving USD from clients in exchange for a BTC tracker ... is that money transmitting ? Sounds pretty close to me.

deathandtaxes says they'd get exemption for brokerages

https://bitcointalk.org/index.php?topic=248013.msg2631106#msg2631106

[massivebitman]

After all it's effectively stating that the opening price of BTC is $100.45 no?

This could be a sneaky way to cap the price while they buy up more BTC

No.  The s-1 indicates the quoted price used was solely for the purpose of paying the registration fee.  If approved by regulators and an exchange shares will be priced at the current exchange rate.  I mean say BTC price falls 30% over the next six months you really think institutional investors are going to buy millions of USD worth of BTC paying a 35% to 40% premium over face value?

aha, thanks for clarifying.

Perhaps you can explain how the trust will buy new BTC.

Say my retirement fund allocates 1% of it's high risk package to BTC. That would no doubt increase the price of the winkelvii stock above the market price of BTC, how do they compensate for that?

[Kazu]

Quickly can somebody tell me what this is:

Exchange Traded NOTE (i.e, troll derivative but I'll still probably be trading it)

or

Exchange Traded FUND (which means that its actually backed by bitcoins)

Say my retirement fund allocates 1% of it's high risk package to BTC. That would no doubt increase the price of the winkelvii stock above the market price of BTC, how do they compensate for that?

thats the thing, with an ETN they essentially just issue you debt not backed by anything but... debt. With an ETF they have to actually back it by bitcoins. Now presumably in the case of ETN they'll hedge by buying bitcoins, but still.

[massivebitman]

Man this news is breaking hard.. Getting some major coverage now.

I'd say the biggest positive news for bitcoin in months!!!

Some of the biggest news in fact, compared with the nonsense FUD news like California sues bitcoin foundation. Seems like a joke

I reckon we'll be back at 100+ soon.

[DeathAndTaxes]

After all it's effectively stating that the opening price of BTC is $100.45 no?

This could be a sneaky way to cap the price while they buy up more BTC

No.  The s-1 indicates the quoted price used was solely for the purpose of paying the registration fee.  If approved by regulators and an exchange shares will be priced at the current exchange rate.  I mean say BTC price falls 30% over the next six months you really think institutional investors are going to buy millions of USD worth of BTC paying a 35% to 40% premium over face value?

aha, thanks for clarifying.

Perhaps you can explain how the trust will buy new BTC.

Say my retirement fund allocates 1% of it's high risk package to BTC. That would no doubt increase the price of the winkelvii stock above the market price of BTC, how do they compensate for that?

Initially the trust will need to acquire 200,000 BTC from large investors prior to the IPO.  The W twins reportedly have 210,000 BTC so they "may" use some or all of their BTC holdings to set this up, otherwise the fund would need to buy sufficient BTC on the global market to "back" the shares they will issue.

once trading if demand pushes the price above NAV, the sponsor of the fund or another institutional investor will buy 10,000 BTC, deliver them to the trustee who will issue 50,000 shares (0.2 BTC per share).  The fund now has 50,000 more shares and holds 10,000 more BTC.  The investor can then sell the shares collecting the difference between the NAV and selling price as a risk free arbitrage. In your example, the retirement fund being an institutional investor would never buy overpriced shares (shares trading > NAV) that is for retail schlubs, they would simply deposit with the trustee (wording of S-1 is unclear if one needs to deposit BTC or USD equivelent of BTC and trustee will use that to buy BTC) and receive newly issued shares directly.

All this is routine stuff and has been done for years using physical commodity trust ETFs. Take the GLD fund for example http://www.spdrgoldshares.com/media/GLD/file/SPDRGoldTrustProspectus2012.pdf   Replace "Gold" with "Bitcoin" and everything about it from issuance & redemption, to the creation of a holding trust, to audits & secure storage, etc is very similar to the structure of the S-1 proposed here.

[vokain]

After all it's effectively stating that the opening price of BTC is $100.45 no?

This could be a sneaky way to cap the price while they buy up more BTC

No.  The s-1 indicates the quoted price used was solely for the purpose of paying the registration fee.  If approved by regulators and an exchange shares will be priced at the current exchange rate.  I mean say BTC price falls 30% over the next six months you really think institutional investors are going to buy millions of USD worth of BTC paying a 35% to 40% premium over face value?

aha, thanks for clarifying.

Perhaps you can explain how the trust will buy new BTC.

Say my retirement fund allocates 1% of it's high risk package to BTC. That would no doubt increase the price of the winkelvii stock above the market price of BTC, how do they compensate for that?

Probably the same way they bought their first 1+% of the entire Bitcoin market, by hiring a market operator(s) to wring out all the weak hands like all the bears you see here

[DeathAndTaxes]

Quickly can somebody tell me what this is:

Exchange Traded NOTE (i.e, troll derivative but I'll still probably be trading it)

or

Exchange Traded FUND (which means that its actually backed by bitcoins)

Per the S-1 the trust is obligated to hold 0.2 BTC per share outstanding so it would be an ETF.

Trust Structure
The Trust is a common law trust, formed on [    ], 2013 under New York law pursuant to the Trust Agreement between the Sponsor and the Trustee (“Trust Agreement”), which sets forth the respective rights and duties of the Sponsor and the Trustee and establishes the segregated custody account of the Trust that will be used to hold the Bitcoins deposited with the Trust (“Trust Custody Account”). The Trust holds “Bitcoins,” a digital commodity based on an open source cryptographic protocol existing on the online, end-user-to-end-user network hosting the public transaction ledger, known as the “Blockchain,” and the source code comprising the basis for the cryptographic and algorithmic protocols governing the issuance of and transactions in Bitcoins (the “Bitcoin Network”). The Trust is expected from time to time to issue Baskets in exchange for deposits of Bitcoins and to distribute Bitcoins in connection with redemptions of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of a weighted average price of Bitcoins (“Blended Bitcoin Price”), less the Trust’s expenses. The Sponsor believes that, for many investors, the Shares will represent a cost-effective and convenient means to access exposure to Bitcoins. The material terms of the Trust Agreement are discussed in greater detail under the section “Description of the Trust Agreement.” The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and are expected to be traded under the ticker symbol “[TICKER]” on the [EXCHANGE].

[galambo]

It's an ETF. The shares of the ETF can be converted to bitcoins, or bitcoins converted into shares of the ETF. It would let you buy and sell bitcoins through participating stock brokerages. It would be like Mt.Gox but completely legal and "for real."

[Luckybit]

It is an interesting development. We have speculated that derivates will not be popular, because as opposed to other types of assets, it is practical and easy to just own the bitcoins. Now we will have the answer to that.

It's not practical or easy to own Bitcoins. Thats why so few own any.

[David M]

It's not practical or easy to own Bitcoins. Thats why so few own any.

I'm dumbstruck.

It's 3 steps.

1) https://www.bitaddress.org  (60 seconds)
2) Print & Store (60 seconds)
3) Publish Address and get to work. (A life time)

[Kazu]

Quickly can somebody tell me what this is:

Exchange Traded NOTE (i.e, troll derivative but I'll still probably be trading it)

or

Exchange Traded FUND (which means that its actually backed by bitcoins)

Per the S-1 the trust is obligated to hold 0.2 BTC per share outstanding so it would be an ETF.

Trust Structure
The Trust is a common law trust, formed on [    ], 2013 under New York law pursuant to the Trust Agreement between the Sponsor and the Trustee (“Trust Agreement”), which sets forth the respective rights and duties of the Sponsor and the Trustee and establishes the segregated custody account of the Trust that will be used to hold the Bitcoins deposited with the Trust (“Trust Custody Account”). The Trust holds “Bitcoins,” a digital commodity based on an open source cryptographic protocol existing on the online, end-user-to-end-user network hosting the public transaction ledger, known as the “Blockchain,” and the source code comprising the basis for the cryptographic and algorithmic protocols governing the issuance of and transactions in Bitcoins (the “Bitcoin Network”). The Trust is expected from time to time to issue Baskets in exchange for deposits of Bitcoins and to distribute Bitcoins in connection with redemptions of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of a weighted average price of Bitcoins (“Blended Bitcoin Price”), less the Trust’s expenses. The Sponsor believes that, for many investors, the Shares will represent a cost-effective and convenient means to access exposure to Bitcoins. The material terms of the Trust Agreement are discussed in greater detail under the section “Description of the Trust Agreement.” The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and are expected to be traded under the ticker symbol “[TICKER]” on the [EXCHANGE].

Ok great. Now the question becomes (at least in the medium to short term): Do the Winklevoss dudes use this as a way of selling their Bitcoins with flare, or are they actually buying new bitcoins to finance this?

[DeathAndTaxes]

Ok great. Now the question becomes (at least in the medium to short term): Do the Winklevoss dudes use this as a way of selling their Bitcoins with flare, or are they actually buying new bitcoins to finance this?

My guess (just a guess) is the reason for acquiring their 200,000 BTC quietly and without a splash last summer was specifically for this or something like it.  There is a lot of regulatory headache to launch an ETF.  If one wanted to simply divest there are easier, quicker, and cheaper ways to do it.   I wouldn't expect them to do any panic buying driving up the price prior to an IPO though.  Since a S-1 is a public document my guess is they made sure to have the necessary BTC before filing the S-1.

[Kazu]

Ok great. Now the question becomes (at least in the medium to short term): Do the Winklevoss dudes use this as a way of selling their Bitcoins with flare, or are they actually buying new bitcoins to finance this?

My guess (just a guess) is the reason for acquiring their 200,000 BTC quietly and without a splash last summer was specifically for this or something like it.  There is a lot of regulatory headache to launch an ETF.  If one wanted to simply divest there are easier, quicker, and cheaper ways to do it.   I wouldn't expect them to do any panic buying driving up the price prior to an IPO though.  Since a S-1 is a public document my guess is they made sure to have the necessary BTC before filing the S-1.

No, I mean, clearly they'd need to issue more shares of the ETP, meaning they'd need more BTC right?

[DeathAndTaxes]

No, I mean, clearly they'd need to issue more shares of the ETP, meaning they'd need more BTC right?

Correct they would however that wouldn't happen until after IPO which I think people should realistically expect it to take at best a large number of months.  If the ETP is popular and demand forces issuing additional shares that may be bullish on the "physical BTC" price in ... 2014.

[Kazu]

No, I mean, clearly they'd need to issue more shares of the ETP, meaning they'd need more BTC right?

Correct they would however that wouldn't happen until after IPO which I think people should realistically expect it to take at best a large number of months.  If the ETP is popular and demand forces issuing additional shares that may be bullish on the "physical BTC" price in ... 2014.

I can wait till 2014. As long as its before spring next year I'm perfectly OK

[Frozenlock]

https://news.ycombinator.com/item?id=5973971

I find these comments quite interesting:

> Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF?

Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying.
So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of folks who don't understand ETFs in depth.

It's clear that many folks don't understand how the price dynamics of ETFs with underlying securities operate.
A share in an ETF is a fixed basket of securities. If the price of the ETF differs from the basket, the ETF share creation/redemption mechanism drives the price back to the fair-market value of the basket.
If the price of the ETF share is too high: Market participants will short the ETF and buy the underlying. They will then take the underlying to the ETF admin, who will then create shares thus closing out the short.
If the price of the ETF share is too low: Market participants will buy the ETF and short the underlying. They will then take the shares to the ETF admin, who will then redeem the ETF share for the underlying, thus closing out the short.
Without the ability to short the underlying, there is no mechanism to maintain equilibrium in the share price of the ETF.

[Rampion]

Ok great. Now the question becomes (at least in the medium to short term): Do the Winklevoss dudes use this as a way of selling their Bitcoins with flare, or are they actually buying new bitcoins to finance this?

My guess (just a guess) is the reason for acquiring their 200,000 BTC quietly and without a splash last summer was specifically for this or something like it.  There is a lot of regulatory headache to launch an ETF.  If one wanted to simply divest there are easier, quicker, and cheaper ways to do it.   I wouldn't expect them to do any panic buying driving up the price prior to an IPO though.  Since a S-1 is a public document my guess is they made sure to have the necessary BTC before filing the S-1.

Exactly my thoughts. Serious fun ahead.