GBTC Bitcoin Investment Trust Observer

[ThEmporium]

 It is great to see funds/trusts to invest big millions of dollars into crypto world. The best thing that could happen to cryptocurrencies would be people seeing BEYOND bitcoin. Most people don't know what bitcoin is and even the ones that know there are too many of them that don't know about anything other but bitcoin and maybe litecoin thats it. These big corporations will turn everyones interest into all coins they invest.

[jl2012]

1626XBT bought yesterday.  I think we really have some good support at 500s

[chessnut]

perhaps we had support in the 500s....... but it's spent, or weakened.

[Shak]

no, you can just see whats really going on

btc is completely unregulated. the real guys know how to manipulate prices, but usually most of those methods are not allowed on professional level. severe manipulation gets prosecuted. but not here, in bitcoin wonderland.

so they play their cards as they like, and we see falling prices on the exchanges while at the same time second-market is gobbling up almost the daily bitcoin supply.

only reason for this: guys with big money are really going long, they just prepared a good entry point. once a few of those players decide that it's time to go on, the price will rise again. but for now they are happy driving the sheep right into their arms.

[JorgeStolfi]

Hey, the trust updated the "liquidity" paragraph on their page:

REDEMPTIONS/LIQUIDITY:
Redemption offered on a limited basis with plans for being publicly traded on OTCQX®*
*Redemption of shares will be allowed on a limited basis as of April 2014 with expectation of qualifying for public trading of the shares via the OTCQX® under the Alternative Reporting Standards.

It used to say "no later than March 2014", which of course meant March 31st.  Now "as of April 2014" surely means April 30, and "limited basis" presumably means only some investors may be allowed to take out only some of their money.

And they seem to be hoping to avoid liquidity altogether by implying that it is equivalent to allowing investors to sell to other investors on that specific market.

What a surprise, yawn. 

[JorgeStolfi]

Clarifying that liquidity of course is not equivalent to allowing investors to sell to other investors, on that specific market that (IIRC) has less stringent audting requirements.

If an investor truly liquidates, BIT has to pay him; if that investor entered in September with 100,000 USD, they have to pay him ~500,000 USD now, and then try to recover that sum by selling the corresponding bitcoins.  They will not be free from this obligation until the BTC price itself goes to zero.

On the other hand, if the investor is told to "liquidate" by trading his shares on the open market, he will have to find another sucker who is willing to but a BIT share for its face value; in which case it is that sucker who pays, and BIT keeps all their money, down to the cent.  If BIT then suspends liquidity indefinitely (as other Bitcoin funds have done before, IIUC), the market price of a BIT share may go to zero, and investors may lose all their money -- even if the BTC price (and therefore the nominal BIT share value) goes to the moon.

[jl2012]

Hey, the trust updated the "liquidity" paragraph on their page:

REDEMPTIONS/LIQUIDITY:
Redemption offered on a limited basis with plans for being publicly traded on OTCQX®*
*Redemption of shares will be allowed on a limited basis as of April 2014 with expectation of qualifying for public trading of the shares via the OTCQX® under the Alternative Reporting Standards.

It used to say "no later than March 2014", which of course meant March 31st.  Now "as of April 2014" surely means April 30, and "limited basis" presumably means only some investors may be allowed to take out only some of their money.

And they seem to be hoping to avoid liquidity altogether by implying that it is equivalent to allowing investors to sell to other investors on that specific market.

What a surprise, yawn. 

Full of FUD

"As of April 2014" means 1st April.

The limitation for redemption must have been mentioned in the contract. Obviously, one can't request to redeem 10000BTC at the current market price as there won't be enough buyer

[JorgeStolfi]

"As of April 2014" means 1st April.

Where is that date?  (Their "no later than March 2014" did not mean "March 1st"...)

The limitation for redemption must have been mentioned in the contract. Obviously, one can't request to redeem 10000BTC at the current market price as there won't be enough buyer

Yes, we were duly warned that the trust was "illiquid" on the site, and presumably the contracts specify the details.  But it would be nice if they (or some investor) would publish what the "limited basis" means.  It could only do good for their image.

Full of FUD

I suppose that "FUD" in the investment world is the acronym for a Greek or Latin phrase meaning "Prudence and Healthy Skepticism". 

[wachtwoord]

"As of April 2014" means 1st April.

Where is that date?  (Their "no later than March 2014" did not mean "March 1st"...)

No later than March 2014 meant March 31st 2014 (at the latest) of course. Wasn't that extremely obvious?

[JorgeStolfi]

(Their "no later than March 2014" did not mean "March 1st"...)

No later than March 2014 meant March 31st 2014 (at the latest) of course. Wasn't that extremely obvious?

Actually "liquidity will begin no later than March 2014" seem to have meant "on March 31st, 2014 we will tell you that liquidity will begin sometime in April". 

Liquidity may force BIT to sell some of their bitcoin holdings, therefore the date and conditions are (or should be) of interest to other bitcoin investors too.  Uncertainty may push the price down throughout the whole month.

[nairbv]

If an investor truly liquidates, BIT has to pay him; if that investor entered in September with 100,000 USD, they have to pay him ~500,000 USD now, and then try to recover that sum by selling the corresponding bitcoins.  They will not be free from this obligation until the BTC price itself goes to zero.

On the other hand, if the investor is told to "liquidate" by trading his shares on the open market, he will have to find another sucker who is willing to but a BIT share for its face value; in which case it is that sucker who pays, and BIT keeps all their money, down to the cent.  If BIT then suspends liquidity indefinitely (as other Bitcoin funds have done before, IIUC), the market price of a BIT share may go to zero, and investors may lose all their money -- even if the BTC price (and therefore the nominal BIT share value) goes to the moon.

If you bought shares of the ETF GLD or SPY on the open market, you can't just make a request to get shipment of physical gold or get your cash back out of the ETF.  There are specific kinds of dealers ("authorized participants") who transact with those running the ETF.  Usually shares are only issued/redeemed in blocks of 50,000.  When an authorized participant buys something like SPY, they actually buy 50,000 shares of the ETF (to be sold on the open market) in exchange for 50,000x500 shares of a basket of 500 securities (bought on the open market).

So, what you're saying is sort-of true, but not exactly...  only AP's can transact with the fund itself, and these AP's most likely exchange BIT shares for actual bitcoin, not cash.  The AP's will arbitrage price differences between the NAV and the open market, but they are not forced sellers in a way you suggest here.  The fund can't be driven to zero selling against an illiquid market just because of a desire for redemptions at the NAV.  Retail investors must buy/sell from willing traders on the market for the ETF shares, and redemptions only happen as an arbitrage activity when liquidity is sufficient for the redemption to be profitable.

[JorgeStolfi]

If you bought shares of the ETF GLD or SPY on the open market, you can't just make a request to get shipment of physical gold or get your cash back out of the ETF.

That makes sense, but I was thinking of investors who bought shares from BIT directly. (There isn't an open market for those yet.)

So, what you're saying is sort-of true, but not exactly...  only AP's can transact with the fund itself, and these AP's most likely exchange BIT shares for actual bitcoin, not cash.  The AP's will arbitrage price differences between the NAV and the open market, but they are not forced sellers in a way you suggest here.  The fund can't be driven to zero selling against an illiquid market just because of a desire for redemptions at the NAV.  Retail investors must buy/sell from willing traders on the market for the ETF shares, and redemptions only happen as an arbitrage activity when liquidity is sufficient for the redemption to be profitable.

Er... is that written somewhere on the BIT material, or are you inferring by analogy with those other funds?

If the investors can't liquidate their positions against the fund, then what is the point of it?  It does not pay dividends, there will be no open market for the shares until Q4/2014 at the earliest, its NAV is tied to the bitcoin price... Then why is investing in BIT shares better than investing in bitcoins directly, and trading BIT shares better than trading bitcoins directly? 

If/when an open market for BIT shares exists, would it be possible for their price to be higher than their NAV?

[skivrmt]

If you bought shares of the ETF GLD or SPY on the open market, you can't just make a request to get shipment of physical gold or get your cash back out of the ETF.

That makes sense, but I was thinking of investors who bought shares from BIT directly. (There isn't an open market for those yet.)

So, what you're saying is sort-of true, but not exactly...  only AP's can transact with the fund itself, and these AP's most likely exchange BIT shares for actual bitcoin, not cash.  The AP's will arbitrage price differences between the NAV and the open market, but they are not forced sellers in a way you suggest here.  The fund can't be driven to zero selling against an illiquid market just because of a desire for redemptions at the NAV.  Retail investors must buy/sell from willing traders on the market for the ETF shares, and redemptions only happen as an arbitrage activity when liquidity is sufficient for the redemption to be profitable.

Er... is that written somewhere on the BIT material, or are you inferring by analogy with those other funds?

If the investors can't liquidate their positions against the fund, then what is the point of it?  It does not pay dividends, there will be no open market for the shares until Q4/2014 at the earliest, its NAV is tied to the bitcoin price... Then why is investing in BIT shares better than investing in bitcoins directly, and trading BIT shares better than trading bitcoins directly? 

If/when an open market for BIT shares exists, would it be possible for their price to be higher than their NAV?

The first question has been addressed many times.  Why would someone buy a Gold ETF when they can just buy gold?  Generally it comes down the simplicity and safety, and of course "safe" storage.

The second question is yes and it's likely that will happen.  Depending on the type of ETF, and current market conditions, some will trade above their NAV, many below their NAV.  My guess is that since this will have no immediate competition in the marketplace it will trade above NAV, at least to begin with.

[nairbv]

That makes sense, but I was thinking of investors who bought shares from BIT directly. (There isn't an open market for those yet.)

Is there not?  I thought that was the point of SecondMarket, that they had a platform to allow "accredited investors" to exchange shares of private issues among themselves?

So, what you're saying is sort-of true, but not exactly...  only AP's can transact with the fund itself, and these AP's most likely exchange BIT shares for actual bitcoin, not cash.  The AP's will arbitrage price differences between the NAV and the open market, but they are not forced sellers in a way you suggest here.  The fund can't be driven to zero selling against an illiquid market just because of a desire for redemptions at the NAV.  Retail investors must buy/sell from willing traders on the market for the ETF shares, and redemptions only happen as an arbitrage activity when liquidity is sufficient for the redemption to be profitable.

Er... is that written somewhere on the BIT material, or are you inferring by analogy with those other funds?

Well, I see this:
http://bitcointrust.wpengine.netdna-cdn.com/wp-content/uploads/2014/03/BIT-Fact-Sheet.pdf
Which mentions "Authorized Participants" and says it's modeled after GLD.

They do say here that they'll offer "limited" redemptions, but they also plan to have shares trade OTC.  You have to assume that the people putting together these funds know what they're doing, and there would be clear issues (as you described) with offering unrestricted creation/redemption at the NAV.

Mutual funds trade at the NAV, but they can't be actively traded, and the fund usually has some period of time (7 days?) to liquidate your position and return your capital.  This fund doesn't look like it's targeting a mutual-fund like structure, but I could be wrong.  Mutual fund shares also don't trade on exchanges like BIT describes as its eventual goal.

If the investors can't liquidate their positions against the fund, then what is the point of it?  It does not pay dividends, there will be no open market for the shares until Q4/2014 at the earliest, its NAV is tied to the bitcoin price... Then why is investing in BIT shares better than investing in bitcoins directly, and trading BIT shares better than trading bitcoins directly? 

This has been answered elsewhere in the thread...  when you buy bitcoins directly you have to worry about storage/security.  If you're a large hedge fund, pension fund, etc, this will be cheaper than hiring a security consultant to explain bitcoin to you.  If you buy shares of an E&Y audited fund and the coins get "lost" or "goxed" your investors can't sue you for negligence.  They're audited.  Why do people buy shares of GLD instead of physical gold?  How does one even put physical gold (or bitcoin) in a tax-advantaged retirement account?

If/when an open market for BIT shares exists, would it be possible for their price to be higher than their NAV?

Of course, just like with GLD or any other ETF.  Usually the difference between the price and the NAV will be less than the amount that can safely be arbitraged.  I don't know about you, but I don't have a way to actually buy gold at the published spot price.  There's a premium in walking into my local gold dealer, and I generally would have to sell at a discount.  GLD is, for me, more liquid than physical gold.  All ETFs occasionally have some small premium/discount to the NAV.  It's like the bid/ask.  Most things don't have singular well-defined prices.  There's usually a difference between coinbase/bitstamp/btce too.  I use coinbase largely because I trust them, and I'm probably not going to sign up for btce just for a 50% chance of saving a half a percent.  I'm a long-term investor not a trader.  If I was an active trader, I also wouldn't care about the premium, since I'm just trying to catch the trend not trying to redeem.

An ETF will be about as likely to trade at a discount as a premium.  Some traders have trading strategies based on the size of the premium/discount of certain issues.

[jl2012]

148XBT bought yesterday. Monday is usually low

[JorgeStolfi]

Of course, just like with GLD or any other ETF.  Usually [ ... ]

Thanks for the explanations.

[jl2012]

3877 XBT bought yesterday, basically the sum of all mined coins 

[600watt]

3877 XBT bought yesterday, basically the sum of all mined coins 

wow.

[segeln]

I am curious what SecondMarket Bitcoin Investment Trust is going to buy today after the IRS note.
I am very sceptic about the IRS Impact on bitcoin.
I think/fear it is a great threat.
First time I got doubts about bitcoin going mainstream

[seriouscoin]

I am curious what SecondMarket Bitcoin Investment Trust is going to buy today after the IRS note.
I am very sceptic about the IRS Impact on bitcoin.
I think/fear it is a great threat.
First time I got doubts about bitcoin going mainstream

LOL why? are you stupid enough to think you wouldnt have to pay tax on gains from bitcoin?