2013-07-01 WSJ - Winklevoss Twins File to Launch Bitcoin Exchange-Traded Product

[vokain]

Someone's bullish  

Here’s one of the more interesting S-1 filings of the year.

In a filing with the SEC 5304.OK +1.25%, the Winklevoss Bitcoin Trust, headed by Cameron and Tyler Winklevoss, said it will sell around $20 million worth of shares, which will each represent a fraction of a single bitcoin, the digital currency the twins have invested in.

Bitcoin has become the best known virtual currencies since its release in 2009. The currency was created by a person or group known as Satoshi Nakamoto (whose true identity is unknown) and is primarily used by online merchants, though some mostly smaller brick-and-mortar retailers have recently begun to accept bitcoins for payment. People can “mine” bitcoins using complex algorithms that require intensive computing power, though they can also buy the currency on exchanges and through services like BitInstant and Coinbase. The total number of bitcoins that can be created is capped at 21 million, and currently more than 11 million have been mined, according to various websites. Bitcoin has attracted attention from companies like Western Union, MoneyGram and eBay’s Paypal, which have said they are evaluating whether it makes sense to allow their customers to use the currency on their platforms.

Here's the filing: http://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm

And by the way, creating these paper markets is how they control the price of alternative commodity currencies like gold. Nobody bothers actually buying or selling the actual metal when they can just go to the paper market... which puts the paper market in control of the underlying commodity! And it's not like it's difficult to naked short a paper market to drive prices anywhere you want.

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[btceic]

Other thread going on over here: https://bitcointalk.org/index.php?topic=248013.0

[Arvicco]

If I'm reading the filing correctly, this is essentially an ETF with BTC as a base asset. So, if this gets approved and listed, everyone will be able to buy bitcoins in any amount through their favorite broker. Institutional investors into BTC, anyone?

Trust investors will be also able to convert this instrument into underlying BTC in 10K increments. Again, this gives a clean and easy access to BTC for institutional investors.

And for every additional 50K units the trust issues, it has to buy 10K BTC on the open market. Once this works, resulting demand for BTC will be absolutely unimaginable for anyone involved in BTC trading right now. 260 usd/btc bubble top? We haven't seen nothing yet, mark my words.

[btceic]

If I'm reading the filing correctly, this is essentially an ETF with BTC as a base asset. So, if this gets approved and listed, everyone will be able to buy bitcoins in any amount through their favorite broker. Institutional investors into BTC, anyone?

Trust investors will be also able to convert this instrument into underlying BTC in 10K increments. Again, this gives a clean and easy access to BTC for institutional investors.

And for every additional 50K units the trust issues, it has to buy 10K BTC on the open market. Once this works, resulting demand for BTC will be absolutely unimaginable for anyone involved in BTC trading right now. 260 usd/btc bubble top? We haven't seen nothing yet, mark my words.

Agreed, this makes the trust a net buyer of bitcoin for as long as the trust is alive, $1000.00 here we come?

[vokain]

what a pipedream

[Arvicco]

what a pipedream

What exactly? It may be challenging to get the filing approved, but far from impossible. Once it is exchange-traded, this instrument will effectively become a primary market for BTC due to superior liquidity and current "BTC exchanges" will just take its price and follow it.

[humanitee]

what a pipedream

What exactly? It may be challenging to get the filing approved, but far from impossible. Once it is exchange-traded, this instrument will effectively become a primary market for BTC due to superior liquidity and current "BTC exchanges" will just take its price and follow it.

Moistcoin, brought to you by humanitee. 

The more I read into it, the happier I become. Good luck, Winklefriends.

[alxs]

'Once it is exchange-traded, this instrument will effectively become a primary market for BTC due to superior liquidity and current "BTC exchanges" will just take its price and follow it.'


This is my feeling on this news as well.  If approved and begins to work, its potential liquidity could be huge.  

Doesn't this open up all of the existing trading tools and options without any new software or websites to trade on to every single trader out there?

[Arvicco]

Doesn't this open up all of the existing trading tools and options without any new software or websites to trade on to every single trader out there?

Exactly, no need to reinvent the wheel. All the data feeds will carry BTC price, and all the trading software in the world will 'just work' with it. Trading lag no more, and no need to wire your money to shadow dealers in Russia, Slovenia or Japan. Pure bliss.

[DeathAndTaxes]

It will also open up the ability to hedge using shorts against the ETF.

Take a company which needs working capital in BTC but doesn't want to be exposed to losses due to exchange rate decline.  The company could open a margin account and short the ETF while holding physical BTC thus being hedge out against the exchange rate.

A person with BTC in cold storage and a brokerage account with sufficient margin could quickly liquidate/trim a BTC position by using a short against the ETF very quickly without keeping BTC on exchange or having to wait for the transfer.

Lastly it would be possible to buy sell options against the ETF.  By selling "naked" calls against the ETF and holding physical BTC it would be possible to secure a call revenue stream at the expense of capped upside potential.

[toffoo]

Thank you Winklevii, this is probably the biggest step to financial legitimacy in Bitcoin's brief lifetime.

A listed Bitcoin ETF was an "obvious" idea that someone had to put together sooner or later, but coming from them rather than a random "some guy" is priceless in free press and legitimacy.

If they manage to pull this off, I agree that the listed Bitcoin ETF liquidity could quickly dwarf all existing bitcoin exchanges and become the new standard for pricing.  In other words: a new era in trading bitcoins.

[flipper]

If this is approved, anyone cares to predict when all this will come to market?

[vokain]

If this is approved, anyone cares to predict when all this will come to market?

They'll want to as fast as they can without compromising their investment

[DeathAndTaxes]

If this is approved, anyone cares to predict when all this will come to market?

They'll want to as fast as they can without compromising their investment

It needs to be approved by regulators and then accepted by exchange underwriters.  The process moves at the speed of government with a healthy dose of beucracy and side order of legal teams.  We are talking a timeframe in months if not the better part of a year.  There isn't much they can do to make it go faster. 

[marcus_of_augustus]

The increase in liquidity and legitimacy should be a boost ... but if it gets big it will become a centralised point for price ... with all the possibilities of manipulation and control that opens up.

And after all that people will not be buying an actual bitcoin (or possessing private keys) just a promise from Winklevi that they hold bitcoin in equal amounts somewhere to back their deposits ... what are the rules on taking delivery of btc? They probably couldn't do that without becoming a "money transmitter" ... what a thicket of laws and regulations surrounding some simple private keys ... lol, absurd when seen from a distance. Imagine if they did the same thing with PKI and GPG keys?

[Inedible]

If ever there were news to drive price speculation, this surely is it.

[kjlimo]

If this is approved, anyone cares to predict when all this will come to market?

They'll want to as fast as they can without compromising their investment

It needs to be approved by regulators and then accepted by exchange underwriters.  The process moves at the speed of government with a healthy dose of beucracy and side order of legal teams.  We are talking a timeframe in months if not the better part of a year.  There isn't much they can do to make it go faster. 

Is there any money in trying to have another one?

[DeathAndTaxes]

And after all that people will not be buying an actual bitcoin (or possessing private keys) just a promise from Winklevi that they hold bitcoin in equal amounts somewhere to back their deposits ... what are the rules on taking delivery of btc? They probably couldn't do that without becoming a "money transmitter"

Issuance of new shares and redemption of existing shares is only in baskets of 50,000 shares (10,000 BTC).  The process outlined in the  S-1 is very similar to physical gold ETFs.  To be issued new shares (as opposed to buying shares on market) one needs to deliver 10,000 BTC to the trustee.  The trustee will then issue a new basket of 50,000 shares and transfer them to the depositor.  To redeem shares the same thing applies, one must have 50,000 shares and can then take delivery of 10,000 BTC.  

Like in other similar ETFs the overwhelming majority of investors will never make a deposit or redeem shares, and will just trade existing shares on the market.

As for MT regs.  There are various exemptions for MT regulations including registered broker dealers and deposit institutions.  I would imagine the fund would use an exempt entity or become an agent of an existing MT rather than try to become licensed as a MT in all jurisdictions.

[smoothie]

Watching this. Looks interesting.

[vokain]

Watching this. Looks interesting.

Smoothie, wanna start a Litecoin ETP now?