Proxy Bitcoin Mutual Fund/Stock On Nasdaq Or Pink Sheets

[jimbobway]

Does anyone here have any experience or know of a way to create a new stock or mutual fund to be traded on the major exchanges?  This stock/mutual fund could represent x bitcoins.  If this stock/fund existed then people who have etrade, ameritrade, or similar accounts could buy bitcoins. Portfolio managers, hedgefund managers, etc. could pour money into bitcoins.

I think this could be HUGE...

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[seanadams]

Does anyone here have any experience or know of a way to create a new stock or mutual fund to be traded on the major exchanges?  This stock/mutual fund could represent x bitcoins.  If this stock/fund existed then people who have etrade, ameritrade, or similar accounts could buy bitcoins. Portfolio managers, hedgefund managers, etc. could pour money into bitcoins.

I think this could be HUGE...

I was thinking about this today too... if you'll forgive me for digging up this older thread.

First of all ETF and mutual funds usually are created to hold publicly traded equities, which are already highly liquid. You have to be a big "market maker" and get approvals from SEC and so on to do it. Shares are bought and sold in large "Creation units" which are then held in the fund for others to trade in smaller quantities when they buy/sell your ticker. I just don't think it would work until the bitcoin market is much larger and more liquid than it is today.

However, you can go public on OTCBB or pink sheets with relatively less effort. It might cost you $50K-100K in legal work, maybe less if you can find an acceptable shell company to buy. At that point you now have an entity that anyone can trade, but rather than trying to actively maintain an exact proportion between your share price and bitcoin, what you could do is publish your holdings on a web site and let the market dictate your share price. Periodically you could do new share issuances to bring in more cash, and then use that cash to acquire more bitcoins. Then on your web site you would simply publish the real-time book value of the entity, and that would be roughly the market cap at which you will trade. Of course people would have to trust that you actually have the holdings that you say you do, but that's the kind of risk you're assuming with any pink sheet entity. As an investor I wouldn't accept that counterparty risk when I could just own the bitcoins myself, but I'll bet there are a lot of people who would.

[jimbobway]

I was thinking about this today too... if you'll forgive me for digging up this older thread.

First of all ETF and mutual funds usually are created to hold publicly traded equities, which are already highly liquid. You have to be a big "market maker" and get approvals from SEC and so on to do it. Shares are bought and sold in large "Creation units" which are then held in the fund for others to trade in smaller quantities when they buy/sell your ticker. I just don't think it would work until the bitcoin market is much larger and more liquid than it is today.

However, you can go public on OTCBB or pink sheets with relatively less effort. It might cost you $50K-100K in legal work, maybe less if you can find an acceptable shell company to buy. At that point you now have an entity that anyone can trade, but rather than trying to actively maintain an exact proportion between your share price and bitcoin, what you could do is publish your holdings on a web site and let the market dictate your share price. Periodically you could do new share issuances to bring in more cash, and then use that cash to acquire more bitcoins. Then on your web site you would simply publish the real-time book value of the entity, and that would be roughly the market cap at which you will trade. Of course people would have to trust that you actually have the holdings that you say you do, but that's the kind of risk you're assuming with any pink sheet entity. As an investor I wouldn't accept that counterparty risk when I could just own the bitcoins myself, but I'll bet there are a lot of people who would.

seanadams, do u have any experience in this?  I think a pink sheet stock could work.  It's under the radar since it's not SEC regulated.

[seanadams]

seanadams, do u have any experience in this?  I think a pink sheet stock could work.  It's under the radar since it's not SEC regulated.

Hardly. I looked in to OTCBB years ago for maybe taking a small company public. There are reporting requirements, but that's what makes it a tier above the pink sheets in terms of being a little less scammy.

I have a friend at a mutual fund company who is always keen on discussing these kind of ideas. I'll see if I can get some more feedback.

[seanadams]

I got a little more input on this. ETN (exchange traded notes) are one more instrument to look into, but I still think an OTC traded entity is the best way to go here. You could also be dual-listed on pink sheets but I think being on OTC with its reporting requirements would lend a good deal of credibility to the operation.

The objective here would be to create a highly transparent entity whose sole function is to accumulate BTC. You would have a web site that quotes the up-to-the-minute book value of the company based on market pricing, which would in turn suggest the fair per-share value. You wouldn't necessarily have to buy all BTC through the exchanges - you could also buy it through the web site which could perhaps also turn a profit on transaction premiums.

Operating expenses could be low but the startup costs will be non-trivial - as I mentioned the legal costs might be $100K. And you would also want some meaningful initial capitalization, say at least $250K in cash which you would then average in to BTC over the first few months. You would need a somewhat high expense ratio in the first few years to cover the startup costs, and then there would be ongoing expenses for accounting and legal.

Then of course there are many risks that could put the entity out of business where someone holding bitcoins himself would not have the same exposure. For example if trading were banned one day, an individual could still quietly liquidate his bitcoins whereas this entity would be screwed.

This has been a fun thought experiment, but I'm not really sure I see the business case for this. Not yet anyway, unless you think there is immediate demand for several million dollars worth of BTC in such an instrument.

[wumpus]

That would be the ultimate bubble scam, IMO.

If people want to buy bitcoins let them buy bitcoins, not some placeholder ETF.

ETFs make a little sense for gold/silver/pork bellies/etc because you can't just store them in your house in great quantities. Even there, some people frown upon the practice. However, bitcoins don't have this problem and this is complete nonsense.