Winklevoss ETF... What are the likely scenarios.

[massivebitman]

The more and more I think about it, this ETF is great news for bitcoins.

If approved, this will give BTC real legitimacy, and become a major consumer of BTC.

BTC that makes it into the ETF is no longer being sold on Gox, and not in circulation.

It's like somebody coming in and buying up all the gold.

There will be less gold for the people who actually want to use it for legitimate purposes, or illegitimate purposes, and so the price will no doubt rocket up to a point where we're all doing transactions with mili BTC.

My thoughts.
The leading gold trust holds $39,851.9 M worth of gold, the leading silver trust $6,239.7 M. BTC is can be a store of value just like gold. Except it's much more than that. A crypto currency is a lot more useful / versatile than gold is in the 21st century.. BTC can be moved anywhere in the world instantly, whereas gold has to be carried.

If I had money in the gold trust, and bitcoin actually made it as an ETF why wouldn't I hedge my bets. After all it's just as scarce, and one day we probably will find a way to make gold cheaply.

Anyway I'd like to hear some scenarios with what could happen with this ETF, and how quickly people think it's likely to grow.

[myself]

The likely scenarios is that if approved it can be a nice tool to make money any other crap is meaningless if does not make money

[b!z]

Let us all hope the twins succeed.

[Jaroslaw]

they are broke up and they will fail

[b!z]

they are broke up and they will fail

Yes they big failure

[phoenix1]

I am interested in your theory that one day we will 'find a way to make gold more cheaply'
There are approx 6 grams of gold in a TONNES of ore and many more tonnes of earth and rock need to be moved to get that tonne of ore. It's a lot of work hence some operations are now uprofitable at the current gold price. Hard to make this cheaper. And that's before extraction costs.

As for the ETF, I think the exposure is good so long as it succeeds and there is no 'funny business' with the market price in the run up to the IPO ... it will be clear for all to see if this happens - could backfire badly.

As for an ETF tracking BTC and backed by BTC, ultimately it's just another speculative vehicle at a time when what we really need is people using BTC ... a Bitcoin economy. I don't think we can bypass that stage and move straight to BTC as a store of value - could be wrong, but this is my opinion. This does nothing to address that. If anything it makes the situation worse if the trust ends up buying more BTC and putting them into speculators hands.
Granted, it will provide easier access for some people to 'invest', but IMO without a credible BTC economy, it will not succeed.

The impact on price - given that they appear to be putting their own BTC into the trust, if there is no manipulation, it is price neutral. Its basically an OTC offering of their own stash. If the fund is successful, in the long run it will be expanded and more BTC bought to back it. So it has bullish potential for price.

Personally I find the fact that they are willing to sell their stash slightly worrying. Why would you sell $20m of something you thought was going to explode in price, just to earn some fees on managing it ?

EDIT : Just read the answer ... they avoid tax paying tax on their profits this way  

[Kazu]

Um aren't they keeping 80% of the etf for themselves?

[phoenix1]

Um aren't they keeping 80% of the etf for themselves?

Where did you get that info ?

They plan to sell about $20m in shares ... that's 200,000 BTC ... they don't have 1,000,000 BTC

[ElectricMucus]

What I like to mention here, like I already described before is the dangerous game the Vinklevoss are playing if they decide to "prop up".

If they leave it at the 200K and be done with it it wouldn't have any dire consequences, maybe siphon a few buyers off mtgox but overall stabilize the price.
However if they do prop up it will lead to a very chaotic market where due to insufficient liquidity prices rally up crazy and crash instantly after the liquidity returns.
There is an interesting academic work on the subject which you can observe here:
http://demonstrations.wolfram.com/TheHazardsOfProppingUpBubblesAndChaos/

[Kazu]

How are the winklevoss propping it up? they are just allowing a larger market to express their demand. Not propping anything up.

[ElectricMucus]

How are the winklevoss propping it up? they are just allowing a larger market to express their demand. Not propping anything up.

They aren't, right now. And they haven't said they will.
This is strictly theoretical.

They own 200K BTC for which they sell 1M shares, all right so good. However since they are paid in Dollars they could use these Dollars to re-invest them in BTC.
Get it? And depending on how the value of the ETF is derived this can result in a liquidity crisis as explained above.

[Jozzaboy]

How are the winklevoss propping it up? they are just allowing a larger market to express their demand. Not propping anything up.

They aren't, right now. And they haven't said they will.
This is strictly theoretical.

They own 200K BTC for which they sell 1M shares, all right so good. However since they are paid in Dollars they could use these Dollars to re-invest them in BTC.
Get it?

What? They would sell their ETF BTC to buy real BTC? Something something ponzi.

[ElectricMucus]

How are the winklevoss propping it up? they are just allowing a larger market to express their demand. Not propping anything up.

They aren't, right now. And they haven't said they will.
This is strictly theoretical.

They own 200K BTC for which they sell 1M shares, all right so good. However since they are paid in Dollars they could use these Dollars to re-invest them in BTC.
Get it?

What? They would sell their ETF BTC to buy real BTC? Something something ponzi.

Either I don't get your sarcasm or you don't get that this is entirety ethical and rational, just dangerous.

[Jozzaboy]

How are the winklevoss propping it up? they are just allowing a larger market to express their demand. Not propping anything up.

They aren't, right now. And they haven't said they will.
This is strictly theoretical.

They own 200K BTC for which they sell 1M shares, all right so good. However since they are paid in Dollars they could use these Dollars to re-invest them in BTC.
Get it?

What? They would sell their ETF BTC to buy real BTC? Something something ponzi.

Either I don't get your sarcasm or you don't get that this is entirety ethical and rational, just dangerous.

No sarcasm but I'm obviously confused. So Winklevi will sell the stocks for their BTC (not actual BTC transferred) and the proceeds from which they may invest in real BTC? I don't get it...

Seriously, if you would like to explain your theory, I'm all ears.

[ElectricMucus]

What is there to explain about it? This is how financial derivatives work.

Then what could happen is that either:
-A share represents more than 1/5 Bitcoin
-The share represents still 1/5 BTC for which they might issue additional shares
-something in-between
-This is all Bullshit and they are just leave it at the 200.000 Bitcoins
* It's all in above link albeit it's very technical and I don't quite understand it myself but I do notice the potential similarity*

[Jozzaboy]

What is there to explain about it? This is how financial derivatives work.

Then what could happen is that either:
-A share represents more than 1/5 Bitcoin
-The share represents still 1/5 BTC for which they might issue additional shares
-something in-between
-This is all Bullshit and they are just leave it at the 200.000 Bitcoins
* It's all in above link albeit it's very technical and I don't quite understand it myself but I do notice the potential similarity*

That was just plain unhelpful. I'll look up how derivatives work later as they appear to be a fancy financial instrument right now.

[ElectricMucus]

Do you realize the runaway effect that happens when the money received is used to buy additional assets (Bitcoins), the amount available on the market, the increased proportion of the asset a share might represents vs the value of all shares? I know it's complicated and the use of technical terms hinders understanding, sorry.
I wish I did fully understand it myself.

[weisoq]

It should fail at whatever their intitial offer price is, because any potential buyer knows (one of the biggest) bitcoin holders is selling-out at X price. It makes no sense to buy the product until a clear post offer position, including that of tax liabilties and any knock on costs and effect from that is known.

[RationalSpeculator]

I see 2 possible scenario's

1. The ETF is a success, it is launched within months, it attracts loads of money, helps pushing btc price up, creating new mania, attracting more people to bitcoin that build the bitcoin economy.

2. The ETF is a failure, it does not get approved by authorities or attracts some money but not enough to make a difference to the exchange rate. This is also possible as indeed the future of bitcoin in my opinion is not ETF's or bitcoin banks, but people owning the bitcoins themselves in a safe & user friendly manner.

[vokain]

I see 2 possible scenario's

1. The ETF is a success, it is launched within months, it attracts loads of money, helps pushing btc price up, creating new mania, attracting more people to bitcoin that build the bitcoin economy.

2. The ETF is a failure, it does not get approved by authorities or attracts some money but not enough to make a difference to the exchange rate. This is also possible as indeed the future of bitcoin in my opinion is not ETF's or bitcoin banks, but people owning the bitcoins themselves in a safe & user friendly manner.

the market will decide it. some people want to buy bitcoins but don't want to spend the time to figure out how to buy them and then secure them (no matter how easy). Instead, they will either pay a broker to buy the ETF, with the added flexibility of using their retirement funds to purchase.