GBTC Bitcoin Investment Trust Observer

[Roy Badami]

Also, another option typically available to managers of an investment trust trading at a discount is a share buyback (but I don't know if this option is open to BIT under FINRA rules).

In this scenario, when an investment trust is trading at a substantial discount for a prolonged period of time, the managers sell some of the assets (in this case bitcoins) and use the money to buy back shares in the trust.  The shares they buy are cancelled (i.e. they cease to exist).  So the trust now owns fewer bitcoins, but it also has fewer shares - so the number of bitcoins per share stays roughly the same.  Actually, because they got a good price on the shares they bought back (they were trading at a discount, remember) the number of bitcoins per share actually goes up slightly.  But more importantly, they're creating buying pressure in the market - and they can keep doing this until the discount is eliminated.

Investment trusts have been around since 1868 and they do generally work - this isn't some kind of whacky new financial instrument.  EDIT: Don't expect it to track the bitcoin price perfectly, though.  Discounts or premiums of +/-10% are not unusual for investment trusts, depending on market conditions.

[1714693065]

1714693065

[JorgeStolfi]

Also, another option typically available to managers of an investment trust trading at a discount is a share buyback (but I don't know if this option is open to BIT under FINRA rules).

In this scenario, when an investment trust is trading at a substantial discount for a prolonged period of time, the managers sell some of the assets (in this case bitcoins) and use the money to buy back shares in the trust.  The shares they buy are cancelled (i.e. they cease to exist).  So the trust now owns fewer bitcoins, but it also has fewer shares - so the number of bitcoins per share stays roughly the same.  Actually, because they got a good price on the shares they bought back (they were trading at a discount, remember) the number of bitcoins per share actually goes up slightly.  But more importantly, they're creating buying pressure in the market - and they can keep doing this until the discount is eliminated.

This is what I understood that "redemption" meant, except that I was assuming it would happen by decision of the share holder (possibly restricted to the primary broker or whatever) rather than by choice of the fund's manager.

So you expect that the fund will not be required to redeem, unless all holders vote to close the fund (as you explained in the preceding post)?

[Roy Badami]

So you expect that the fund will not be required to redeem, unless all holders vote to close the fund (as you explained in the preceding post)?

Well, majority of holders rather than all holders, but yes, that's probably how I'd expect it to work (at least that's how investment trusts usually work).   It's generally only with ETFs (a much more recent type of financial structure) that shares can be redeemed - and this isn't an ETF.

That said, I'm just guessing here - I haven't read the prospectus.

[gotmilk_]

BIT didn't win a single lot... They will need to buy more on market probably  

http://www.bloomberg.com/news/articles/2015-03-06/secondmarket-failed-to-win-bitcoins-in-latest-government-auction

[Roy Badami]

Having skimmed the recently released interim financial report ( http://www.otcmarkets.com/stock/GBTC/filings ) the answers to the question about redemptions appears to be:

* The trust intended to (and started to) allow redemptions by authorized participants; however they had to suspend redemptions due to an SEC ruling.  This appears to be due to a technicality (I get the impression that the rules under which the trust is operating weren't really designed with ETF-style trusts in mind).  It appears the trust desires to resume redemptions but it's not clear if or when the legal situation will be resolved.

* A winding up resolution requires shareholders representing 75% of shares to vote in favour

[picolo]

Anyone know when people will be getting their shares?

In a "few weeks" TM.

It will be interesting to see that. Hopefully in early April.

[chriswen]

Any info?

[BitcoinIsLiberty]

I noticed http://www.otcmarkets.com/stock/GBTC/quote went from OTXPink to OTXQX this time and isn't hiding the bids with latest $31.50.

[Fabrizio89]

Bitcoin, land of the hype.

[JorgeStolfi]

I noticed http://www.otcmarkets.com/stock/GBTC/quote went from OTXPink to OTXQX this time and isn't hiding the bids with latest $31.50.

That bid price has been there for a while.  It may be just a placeholder.

[oda.krell]

I noticed http://www.otcmarkets.com/stock/GBTC/quote went from OTXPink to OTXQX this time and isn't hiding the bids with latest $31.50.

There are ~10 shares per bitcoin held, correct? So the visible bids on otcmarkets.com are well above "market" considering the 10:1 ratio and current exchange market price, correct as well?

Someone who knows more about BIT, and investment trusts in general, can try to explain this?

Order book padding by the fund owners themselves? (Would seem very, very risky, so I doubt it).

Any why aren't the bid matched? Lacking liquidity? But the bids I can see are in the range of at most 1000 shares, which means, it's that's basically nothing.

Anyone else wants to speculate on this, or explain it to me?

[chriswen]

They currently look like they might just be test bids.


Maybe because its been a month?  But the order book now looks more like the other stocks.

http://www.otcmarkets.com/stock/GBTC/quote

We see the bids from the different brokerages.


But don't be fooled that people are willing to pay 26% over market.  And we don't see asks out yet.  (Delivery of the shares)

[JorgeStolfi]

Any why aren't the bid matched? Lacking liquidity? But the bids I can see are in the range of at most 1000 shares, which means, it's that's basically nothing.

AFAIK trading has not started yet.  That number may be just the share's nominal value, copied down at some past date.

As I understand, when trading starts, their current clients who have held shares for more than 12 months will be allowed to offer them for sale through brokers, and OTCQX will record the price.  One authorized primary broker will also be allowed to buy additional shares for sale through other brokers.  (I don't know whether that primary broker would have to wait 12 months too.)

[JorgeStolfi]

the order book now looks more like the other stocks.
http://www.otcmarkets.com/stock/GBTC/quote
We see the bids from the different brokerages.

Indeed, the 30+ price is now "N/A" and there is a bid at the bottom for 100 shares at 20.00 $/share (meaning 200 $/BTC).  Hm.

EDIT: more bids, up to 31.50 $/share (315 $/BTC)

[JorgeStolfi]

This file available on the OTCQX page, dated Sep 30 2013, describes how the fund works and its the situation as of that date (shortly before redemptions were suspended).

[gotmilk_]

No asks yet? Will be interesting to see how much sellers will be at those prices... 80% of them bought at much higher prices.
So they hold 135737 btc at the moment (if I calculated right). Will they add more btc to their holdings to increase liquidity? Can new investors still buy new shares and not only those from old investors?

Would be great to have Barry here  

[NotHatinJustTrollin]

Bitcoin, land of the hype.

Yes.

Hype around Coinbase because $75M from NYSE. Institutional investors from Wall Street they said. Better liquidity they said. Better regulated they said.
Today? Nobody cares about Coinbase.

Hype around Second Market. Same mantras.
Today? This pink sheets stuff.

Hype around Noble Market? Same thing all over again.


Bitcoin: hype & smokescreen, as always.



Keep us updated with this tho, very good job so far.

[JorgeStolfi]

If I understand correctly the above file (from page 31 onwards), the BIT fund will no longer sell or redeem shares for dollars, only for bitcoins.  That is, a broker gives 10 BTC to BIT, gets 100 BIT shares; or the reverse.

Thus the buying and selling of bitcoins for dollars will be done by the brokers or final investors.

BIT will be basically a safekeeper of the BTC, and will not buy or sell bitcoins by itself (except the BTC collected as fees, presumably).

Is this correct?

Note from page 51:

The Shareholders’ limited rights of legal recourse against the Trust, the Trustee and the Sponsor and the Trust’s lack of insurance protection expose the Trust and its Shareholders to the risk of loss of the Trust’s bitcoins for which no person is liable.

The Trust will not insure its bitcoins. Further, Shareholders’ recourse against the Trust, the Trustee and the Sponsor is limited.  Consequently, a loss may be suffered with respect to the Trust’s bitcoins that is not covered by insurance and for which no entity or person is liable in damages.

The Trust may not have adequate sources of recovery if its bitcoins are lost, stolen or destroyed.

If the Trust’s bitcoins are lost, stolen or destroyed under circumstances rendering a party liable to the Trust, the responsible party may not have the financial resources sufficient to satisfy the Trust’s claim.

(bolding as in the original)

[Alley]

If I understand there won't really be any "new" money coming into bitcoin.  The only way I can buy shares is if somebody in the trust is willing to sell.  The trust won't be buying new bitcoins like the winklevoss thing. 

[Kupsi]

If I understand there won't really be any "new" money coming into bitcoin.  The only way I can buy shares is if somebody in the trust is willing to sell.  The trust won't be buying new bitcoins like the winklevoss thing. 

As always, qualified accredited investors may choose to invest in shares of the BIT directly through the BIT's ongoing private placement at the daily NAV/share¹.