Winkelvoss ETP could become THE pricing mechanism for BTC

[wachtwoord]

I hope im understanding this correct.

If you can get all of your Bitcoin ETF´s converted to bitcoin, but there only is 20 % backing by actual bitcions. I that not a problem?

In the event that some global economic meltdown happens, and a lot of the investors (let say 30 %) deside to get real Bitcoins for the ETF´s they are holding, then we would have an equivalence of a bank run?

They're 100% backed.

[DrGregMulhauser]

I hope im understanding this correct.
In the event that some global economic meltdown happens, and a lot of the investors (let say 30 %) deside to get real Bitcoins for the ETF´s they are holding, then we would have an equivalence of a bank run?

They're 100% backed.

In addition, one of the lubricants that keeps ETFs in general running smoothly is the 'Authorized Participant'; earlier in this thread, there's a discussion about how shares are created or redeemed via the APs, who either hand over large blocks of the underlying entity in exchange for shares, or who hand over large blocks of shares in exchange for the underlying entity. Ordinary investors trade shares, but they don't engage in the redemption or creation process.

[cryptoanarchist]

They're 100% backed.

Holy fucking christ, there sure are some naive people on here. Please read some fucking history. Or tell you what, I'll sell you shares of my bitcoins - 5% off!!

[wachtwoord]

They're 100% backed.

Holy fucking christ, there sure are some naive people on here. Please read some fucking history. Or tell you what, I'll sell you shares of my bitcoins - 5% off!!

They are 100% backed.

[NewLiberty]

I'm still unclear about how this works. You said earlier the shares of the ETF have to be 20% backed by bitcoins? So if there's 50,000 BTC in the ETFs coffers, it means the would've issued 250,000 shares for the trading games into the market. While this seems bad in and of itself (inflation of bitcoin M2 or whatever you might call it if you count in the shares of the ETF) it still seems there is a limit to the malicious short-selling. This leads to another question: you said the shares have to actually be borrowed in order to short-sell. What if all shares are in the hands of Joe Normal institutional investors and they are reluctant to lend? Is their consent needed for the lending of shares or will the Winklevoss just lend shares owned by others to the short-seller?

At the risk of interjecting in a question that may have been directed at NewLiberty... The ETF is 100% backed by Bitcoins, it's just that the ratio is set up so that 1 share = .2 BTC initially. But the fund's Net Asset Value per share is always the Net Asset Value divided by the number of shares outstanding; there aren't any extras floating around that aren't backed by real Bitcoins. And yes, by definition ordinary short selling requires that shares be borrowed before they can sold. It doesn't matter whether the short seller puts up dollars for collateral, or a goat, or his great aunt; it is still shares which are being borrowed. The special situation of naked short selling is an edge case, where share have not been borrowed first. (I think it's important to distinguish those two very very distinctly, because otherwise an argument that begins talking about ordinary short selling can then wind up dipping into the properties of naked short selling before reverting to ordinary short selling again and emerging at the other end with an argument that seems plausible but which is entirely unsound.) Last but not least, an ETF itself normally isn't in a position to lend shares to anyone else; it can issue new ones in exchange for the underlying, or it can retire old ones and cough up the underlying, but it doesn't hold any that can be lent.

It might also be worth noting that in investment terms, in most situations except really exceptional ones, a significant amount of short interest (i.e., the proportion of the shares outstanding which are currently sold short) is actually a bullish indicator, since the short interest provides a 'cushion' against falls in value and tends to accelerate increases in value. The level of short interest is, in effect, latent additional demand which must at some point be met when the short sellers eventually have to cover their positions by re-purchasing whatever it is that has been sold short. When price falls significantly, some short sellers will be there to take profits and act as buyers. When the price rises significantly, some short sellers will be there to cut their losses and act as buyers (this is the 'short squeeze', when short sellers must either buy at higher prices or stomach larger and larger losses). Either way, short sellers become eventual buyers. The reason I mention this is that except for very rare cases, short selling is both entirely healthy and temporary and is not something which in and of itself is negative for the market.

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long.  Although they start that way, over time fees and costs are paid out of the trust to the Sponsors and others so it will not remain 20%, and is never expected to reach that level after inception because no management or lending or income operation of the Bitcoin trust assets is done in this trust (SEC rules allow ETFs to lend portfolio assets to Authorized participants that want to create more shares/baskets, but the WBT ETF is not expected to do this).  It will thereafter always be less than .2 and decrease over time because the bitcoin in the trust will not be risked in order to earn anything for the trust.

So if the ETF is the pricing mechanism for bitcoin, the bitcoin price would be set by the trading of a decreasing 1% of all bitcoins.

Selling short an ETF is controlled by the "market makers" who do the buying and selling to the public (usually a large investment banking firm) not the owners of the shares.  These are the folks that lend the ETF shares to be sold short.  They do so in order to get the interest on that loan.  The market maker often also is an Authorized Participant (the Basket buyer).  There isn't much reason not to lend them.  If the market maker runs out of ETF shares to lend for short selling, they can make more shares to short sell by purchasing bitcoin (at the now discounted price due to the short sales) from the market (which is watching the ETF to know what the bitcoins are worth) and lend them for "serial short selling" depressing the price further.  

None of this is a problem at all if the WBT ETF never becomes the preferred pricing mechanism for BTC.





No uptick rule on ETF shorting

[cryptoanarchist]

They're 100% backed.

Holy fucking christ, there sure are some naive people on here. Please read some fucking history. Or tell you what, I'll sell you shares of my bitcoins - 5% off!!

They are 100% backed.

Yeah, and so are mine!

[NewLiberty]

I hope im understanding this correct.
In the event that some global economic meltdown happens, and a lot of the investors (let say 30 %) deside to get real Bitcoins for the ETF´s they are holding, then we would have an equivalence of a bank run?

They're 100% backed.

In addition, one of the lubricants that keeps ETFs in general running smoothly is the 'Authorized Participant'; earlier in this thread, there's a discussion about how shares are created or redeemed via the APs, who either hand over large blocks of the underlying entity in exchange for shares, or who hand over large blocks of shares in exchange for the underlying entity. Ordinary investors trade shares, but they don't engage in the redemption or creation process.

What this means, is that the investors are not going to be getting any real Bitcoins for the ETF shares they are holding, meltdown or not.  It doesn't matter how many try.

If they were Authorized Participants, they could get a fractional percentage of the bitcoin assets in the trust by paying a fee, and redeeming a basket of 50K shares.  They would get 10K bitcoins minus the amount of bitcoins the trust spends to operate apportioned across the baskets, or thereabouts.  Investors can only sell the ETF for whatever folks thing its worth.
The catch is, the trust can swap out for those bitcoins redeemed without notice for fiat, without notice at any time.  So even the AP might get no bitcoin out.
This isn't unusual, most all ETF are like this.  For most, no one would care that they get paid cash instead.  For alternative currency ETF it can defeat the purpose of the investment (currency/gold/silver/bitcoin)

[DrGregMulhauser]

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....

...the trading of a decreasing 1% of all bitcoins...

...controlled by the "market makers"...

...if the WBT ETF never becomes the preferred pricing mechanism for BTC...

...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...

From my perspective, your insistence on these kinds of points has developed to where it's no longer productive for me to debate them any further. It looks like you and I will disagree pretty strongly on matters of fact as well as on implications from those facts, but that's OK.

[NewLiberty]

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....

...the trading of a decreasing 1% of all bitcoins...

...controlled by the "market makers"...

...if the WBT ETF never becomes the preferred pricing mechanism for BTC...

...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...

From my perspective, your insistence on these kinds of points has developed to where it's no longer productive for me to debate them any further. It looks like you and I will disagree pretty strongly on matters of fact as well as on implications from those facts, but that's OK.

I've supplied support for all of them with quotes from the S-1.  If you have something to support the opposite, please share.  I'm not here to grind any axes, just to discuss this and learn if something I am looking at is not what it seems.  If it is not as I have written, I would appreciate learning otherwise.

[wachtwoord]

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....

...the trading of a decreasing 1% of all bitcoins...

...controlled by the "market makers"...

...if the WBT ETF never becomes the preferred pricing mechanism for BTC...

...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...

From my perspective, your insistence on these kinds of points has developed to where it's no longer productive for me to debate them any further. It looks like you and I will disagree pretty strongly on matters of fact as well as on implications from those facts, but that's OK.

I've supplied support for all of them with quotes from the S-1.  If you have something to support the opposite, please share.  I'm not here to grind any axes, just to discuss this and learn if something I am looking at is not what it seems.  If it is not as I have written, I would appreciate learning otherwise.

Your insisting on a 20% backing makes it unlikely you even read the S-1

[NewLiberty]

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....

...the trading of a decreasing 1% of all bitcoins...

...controlled by the "market makers"...

...if the WBT ETF never becomes the preferred pricing mechanism for BTC...

...investors are not going to be getting any real Bitcoins for the ETF shares they are holding...

From my perspective, your insistence on these kinds of points has developed to where it's no longer productive for me to debate them any further. It looks like you and I will disagree pretty strongly on matters of fact as well as on implications from those facts, but that's OK.

I've supplied support for all of them with quotes from the S-1.  If you have something to support the opposite, please share.  I'm not here to grind any axes, just to discuss this and learn if something I am looking at is not what it seems.  If it is not as I have written, I would appreciate learning otherwise.

Your insisting on a 20% backing makes it unlikely you even read the S-1

You've misread.  I never said 20% backing, just 20% pershare.  (They are 100% backed by .2 Bitcoin at the outset.)  This decreases over time under .2 as the trust pays expenses.

That is right in the table of contents / summary on Page 3:
http://www.sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm
The Trust expects to create and redeem the Shares from time to time, but only in one or more whole Baskets (a Basket equals a block of [50,000] Shares). The creation and redemption of Baskets require the delivery to the Trust, or the distribution by the Trust, of the number of Bitcoins represented by the Baskets being created or redeemed, the amount of which will be based on the combined NAV of the number of Shares included in the Baskets being created or redeemed. The initial number of Bitcoins required for deposit with the Trust to create Shares is [10,000] per Basket. The number of Bitcoins required to create a Basket, or to be delivered upon the redemption of a Basket, will gradually decrease over time, due to the accrual of the Trust’s expenses, the transfer of the Trust’s Bitcoins to pay the Sponsor’s Fee and the transfer of the Trust’s Bitcoins to pay any Trust expenses not assumed by the Sponsor. See “Business of the Trust—Trust Expenses.”

This is further documented all through the S-1.  This should not be a point of confusion.

[NewLiberty]

They WBT ETF shares are not required to be 20% backed by Bitcoin and they won't be for long....
(...)

From my perspective, your insistence (...)

I've supplied support for all of them with quotes from the S-1. (...)

Your insisting on a 20% backing makes it unlikely you even read the S-1

You've misread.  I never said 20% backing. (...)

Yes you said. But you seem to have understood now.

My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was.
(I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.)  I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well.  
I trust this is better understood by everyone now?  The huge difference between 100% backing by .2 Bitcoin and 20% backing per share which merits all this recrimination?

[cryptoanarchist]

My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was.
(I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.)  I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well.  
I trust this is better understood by everyone now?  The huge difference between 100% backing by .2 Bitcoin and 20% backing by one share which merits all this recrimination?

This is why I don't get into arguments over details with these shitbags. If they want to buy "shares" of bitcoins when its easier to just buy the actual thing, I'd rather just call them out for how stupid the general concept is.

[NewLiberty]

My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was.
(I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.)  I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well.  
I trust this is better understood by everyone now?  The huge difference between 100% backing by .2 Bitcoin and 20% backing by one share which merits all this recrimination?

This is why I don't get into arguments over details with these shitbags. If they want to buy "shares" of bitcoins when its easier to just buy the actual thing, I'd rather just call them out for how stupid the general concept is.

It suits my purposes.  Everyone is ignorant, just about different things.  I'm no exception.  Driven by curiosity, I read the public information about this and am using this thread to discover whether I've misunderstood something. If the WBT ETF is ultimately successfully launched, I may have something that will greatly improve it, and enhance its usefulness and marketability to a point where almost everyone here will celebrate its existence.

[molecular]

If the WBT ETF is ultimately successfully launched, I may have something that will greatly improve it, and enhance its usefulness and marketability to a point where almost everyone here will celebrate its existence.

you have everyones attention now.

[notme]

My understanding was never amiss on this, though I've been quoted out of context in order to make it appear that it was.
(I did maintain the "20% backing" descriptor as used by molecular without correcting it on first use to keep the response in context.)  I agree it would have been a good point to work out definitions of what "backing" means, because it looks to have led to some confusion by others further in the thread, though it seemed to be getting off the point at the time, as it does now as well.  
I trust this is better understood by everyone now?  The huge difference between 100% backing by .2 Bitcoin and 20% backing by one share which merits all this recrimination?

This is why I don't get into arguments over details with these shitbags. If they want to buy "shares" of bitcoins when its easier to just buy the actual thing, I'd rather just call them out for how stupid the general concept is.

Not everybody has the same technical skills, motivations, and ideology as you.  That doesn't make them shitbags or stupid.

And no, I won't be selling my bitcoin to buy shares.  But I am able to step outside of my little world and see how it might be useful for many people for many different reasons.  The fact that you are unwilling or unable to see any of these as anything but stupid shows just how narrow minded you are.

People like you give anarchy a bad name.  You are trying to act like an authority when you say your way is the only way.

[ProfMac]

People like you give anarchy a bad name.  You are trying to act like an authority when you say your way is the only way.

[felente]

NewLiberty is talking here about facts and possibilities, which really could happen to the bitcoin.

the fact is, that bitcoin is a thread to an established system (investment=>banking=>government, or whatever you name it), and there will be not approved anything, what makes bitcoin (&co) even more powerful against existing apparatus, so to say.
almost sure at some point the situation will be exactly the opposite - nothing good for bitcoin, if not fatal.
this is very simple logic.

in my opinion such legal ETFs and further integration of bitcoin in existing system is (almost) the only way to control it. then there will be no need to shut down the network, which actually is impossible to shut down. the bitcoin (or any successor of it) just will be controlled in a very decent way, that's all.

we should do not even dream that all subjects for who bitcoin is a pain in the ass, are complete brainless dicks, right?

[Luckybit]

This really does make a lot of sense. Holding your own Bitcoins is still going to be the top pick for experienced users I imagine but this ETF is going to let the average person invest without fear of losing their coins to malware or a shady exchange. That's going to make it the number one place that Bitcoin is traded on a daily basis.

Thanks for the great insight!

BTW are you really Dr. Greg Mullhauser? If so, welcome to the forum!

There's a lot of smart people around but also a lot of people just here to try and make money who don't really understand economics. Don't let them scare you off!

Many thanks for your welcome and encouragement -- I appreciate it!

And yep, that's my real identity. (In case you're wondering why I'm using my real name, I wrote up some separate thoughts on the distinction between anonymity and privacy here: In the Bitcoin Economy, Anonymity and Privacy are Not the Same Thing. I'm big on privacy, but I don't necessarily think that anonymity is the best way to achieve it.)

Anonymity allows for free speech. Privacy affords liberation from coercion/blackmail.

Each are valuable.

[ProfMac]

Anonymity allows for free speech. Privacy affords liberation from coercion/blackmail.

Each are valuable.

I advocated for anonymous student evaluations back in the early '70s.  What we have found is that anonymity allows irresponsible evaluations.  Anyone who has been divorced and had anonymous child abuse complaints made understands this process as well.

Confidentiality, which would mean the professor doesn't know who wrote the evaluation, but someone does, gives a much better balance of rights.