Winklevoss Bitcoin ETF May Not be Redeemable in Bitcoins for Individual Investor

[row5_seat47]

Winklevoss Bitcoin ETF May Not be Redeemable in Bitcoins for Individual Investors

http://letstalkbitcoin.com/post/55120007013/winklevoss-bitcoin-etf-may-not-be-redeemable-in

[Peter Todd]

Nothing surprising there. To enable shares to be easily redeemed in Bitcoins they would have to make the security of the accounting systems keeping track of who owns what shares just as good as Bitcoin itself or they'd be getting fraudulent share redemptions left right and center in exchange for Bitcoins. It's just another example where the security of banking sucks and the only way banks get away with it is because any transaction can be reversed after the fact.

[row5_seat47]

@retep

how do you think Van Eck is going to do it as stated in the article?

The article proposes that the Authorized Participant could facilitate this (not the Trust)---
do you think that would be possible?

[Peter Todd]

Point is, when you are dealing with a huge block of bitcoins you can afford to spend a lot more money on very carefully auditing and verifying the transaction. I'm sure the large redemptions will have a complex procedure involving a lot human involvement to be absolutely sure everything is happening as expected.

The more interesting question is will the Bitcoin ETF use techniques like merkle sum trees to cryptographically prove to investors that the ETF really owns the bitcoins they claim to and that customer shares are backed 1:1 by those bitcoins.

[row5_seat47]

but the AP would have to buy at least a 50,000 block from the trust.

Then the AP would have a separate deal with retail investor(s) - --- an added value service -- separate from the trust..

this is what the article is saying.

The burden would be on the AP if they want it---if they can find profit in that type of premium svc

[Peter Todd]

Right, and an AP may have a clever way of dodging the fraud issue, but it won't be easy.

[maaku]

This is how all ETFs work.

[suryc]

This is how all ETFs work.

Its true. The proposed structure for the Winkelvoss Bitcoin Trust is not substantially different from other ETFs.

This really isn't surprising and I don't know why it deserved an article. If I buy I share of IAU (the iShares Gold ETF), I have no expectation that I can trade in my shares for equivalent value in Gold, but I do expect that the value of my shares will rise and fall with the price of gold (which they do). It's silly to expect something different with the bitcoin ETF.

[row5_seat47]

"I don't know why it deserved an article."

Did you read the article?

Or did you read the title of the article?

[maaku]

The article describes how every other ETF in existence works. It describes the process by which an ETF must adhere to in order to get regulatory approval. It describes exactly the way in which everyone with knowledge about how ETFs work, expected a bitcoin ETF to operate. There is absolutely no new information here.

[NewLiberty]

Articles are needed because more bitcoin folks are technologists than they are finance folk. 

Here is another longish explanation of why ETF are not redeemable in the underlying asset in many cases.
https://bitcointalk.org/index.php?topic=252330.msg2715524#msg2715524

The ETF isn't for us, we can already trade, buy, sell bitcoin without difficulty, and don't need to pay fees to get a paper contract instead of the actual coins.  The ETF is for investors, large businesses, banks, institutional investors, people that want to sell bitcoin short and generally folks that won't have a wallet.  Folks in this forum are probably never going to use it.