Closed

[Kazu]

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 OETF 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.

The second statement isnt true. There is no way of doing direct arbitrage but its still possible. You can just take the shares directly to the admin to settle them. There is just risk of extreem decline in value of underlying asset while you're doing so. A true ETF will stay pegged to the underlying within reason assuming nothing weird is going on.

[massivebitman]

So overall this is an incredibly good thing right?

The buying behaviour of the trust is likely to inflate the price of BTC, without really doing anything that could negatively affect it.

[Kazu]

Or you can see it as a pseudo-sell of 200k coins.

[massivebitman]

Or you can see it as a pseudo-sell of 200k coins.

Well perhaps. But at least they're not dumping them onto Gox.

I don't think they just suddenly decided to turn bear onto BTC. They must have been planning this from the start.

In practical terms it can only push the price up

[Kazu]

I dont actually belive this. But one could argue that goxxers will remove their bids and buy the etf if gox rallies, making the etf functionally the same as a gox dump.

[massivebitman]

I dont actually belive this. But one could argue that goxxers will remove their bids and buy the etf if gox rallies, making the etf functionally the same as a gox dump.

Any price change on Gox is likely to be reflected in the ETF.

Similarly if people want to buy on the ETF, they'll effectively end up buying from Gox.

I think we'll see what the real deal is when NY wakes up.

Personally I think this is the biggest news for BTC in a while, it opens it up to a whole new market, a market where people have serious coin

[massivebitman]

The other question that pops into my mind is what if, what if the Winklevii don't have the BTC to back it.

Seems unlikely... but according to the press they only had $10Million back in April (during the bubble!)

That doesn't equate to 200k worth today.

If they didn't have more, doesn't that mean the trust's would need to buy BTC?

That would inevitably cause a price rally

[Pierre]

They should keep buying BTC to stabilize the price if they know what's good for their fund 

[Asrael999]

this looks like an incredibly smart way to sell out of a lumpy position in bitcoin while avoiding the illiquidity of mtgox and the limited size of the order book. With daily volumes on gox of what 50K? there is no way they could sell their bitcoin holdings in a reasonable timescale on that market without seriously impacting the price.
By launching an ETF they ideally attract new capital into the market to hold these bitcoin, the ease of ownership and the ability to buy via brokerage accounts makes this a far simpler method for individuals to acquire bitcoin holdings than setting up a wallet and going through all the fuss of creating an account at one of the exchanges and then waiting days/weeks for the FIAT to move to the right place so that you can actually buy the bitcoin. If they can parley the ETF into a BTC lending business as well then they can probably earn sufficient additional BTC to make dividend payments viable on the ETF as well.
Hell the right sort of ETF might even work for pensions and other tax efficient savings.  Who knows what 1% of your pension pot in BTC might be worth in 20years.

If they can get the ETF off the ground it has the potential to make BTC a real investment option for the general public - which could provide a real impetus to drive the price of bitcoin up. But if this ETF fails and those BTC have to be sold on the exchanges because the twins choose to sell their excess BTC, well then hitting the exchanges in 100,000 bitcoin? - That's going to put a serious dent in the price.

[Pierre]

But if this ETF fails and those BTC have to be sold on the exchanges because the twins choose to sell their excess BTC, well then hitting the exchanges in 100,000 bitcoin? - That's going to put a serious dent in the price.

Oh please let this happen, I want to buy 2100 BTC for $10k please

[Rampion]

this looks like an incredibly smart way to sell out of a lumpy position in bitcoin while avoiding the illiquidity of mtgox and the limited size of the order book. With daily volumes on gox of what 50K? there is no way they could sell their bitcoin holdings in a reasonable timescale on that market without seriously impacting the price.
By launching an ETF they ideally attract new capital into the market to hold these bitcoin, the ease of ownership and the ability to buy via brokerage accounts makes this a far simpler method for individuals to acquire bitcoin holdings than setting up a wallet and going through all the fuss of creating an account at one of the exchanges and then waiting days/weeks for the FIAT to move to the right place so that you can actually buy the bitcoin. If they can parley the ETF into a BTC lending business as well then they can probably earn sufficient additional BTC to make dividend payments viable on the ETF as well.
Hell the right sort of ETF might even work for pensions and other tax efficient savings.  Who knows what 1% of your pension pot in BTC might be worth in 20years.

If they can get the ETF off the ground it has the potential to make BTC a real investment option for the general public - which could provide a real impetus to drive the price of bitcoin up. But if this ETF fails and those BTC have to be sold on the exchanges because the twins choose to sell their excess BTC, well then hitting the exchanges in 100,000 bitcoin? - That's going to put a serious dent in the price.

I think you read too much in this move. Its just a way for the Winklevoss to profit, while trying to become some kind of "market makers" supported by their toilet paper ETFs, like JPMorgan does in the silver market for example.

[johnyj]

That's only 20 baskets of coins, I guess their rich friends and relatives already bought them all 

Since the face value is $100 per coin, an investor might consider direct buy at MTGOX, in case he have enough IT knowledge

[Seal]

I'm interested to see how they will handle expansion if institutional money moves in and buys out all $20 mill straight away. What is their profit model from all of this?

[btceic]

This story is spreading, now on bloomberg tv headlines.

[Jaroslaw]

This story is spreading, now on bloomberg tv headlines.

Thats mean that they actualy dont have any money and loose hight ammount of USD on april bubble

[massivebitman]

Man this news is massive.. It's broken on so many major news outlets. It's been ages since any bitcoin news did that.

[myself]

Man this news is massive.. It's broken on so many major news outlets. It's been ages since any bitcoin news did that.

sell ur house take a loan and buy bitcoins 

[b!z]

That's only 20 baskets of coins, I guess their rich friends and relatives already bought them all 

Since the face value is $100 per coin, an investor might consider direct buy at MTGOX, in case he have enough IT knowledge

Maybe Feds are shutting down exchanges so they can control twins & bitcoin

[phoenix1]

I'm interested to see how they will handle expansion if institutional money moves in and buys out all $20 mill straight away. What is their profit model from all of this?

Deferred taxation on the profits on their stash
Avoiding slippage selling on the exchange
Management fees for the trust

[gizmoh]

I'm interested to see how they will handle expansion if institutional money moves in and buys out all $20 mill straight away. What is their profit model from all of this?

Deferred taxation on the profits on their stash
Avoiding slippage selling on the exchange
Management fees for the trust

Wow so they are selling ALL their coins for a maximum amount of Fiat dollars and some find that its good news..