There is a way we can trade Bitcoin without getting shut down constantly - read

[proudhon]

This is one of the most, if not the most, interesting thing going on around here right now.  Where is the funding for this coming from at this point?

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[cbeast]

JackH, your financial kungfu is strong.

[ineededausername]

We last heard from JackH on October 29.  This does look very interesting to me.

JackH, do you have an update for us?  What, if anything, can any of us do to help?

He's been online recently... hope he gives us an update.  PM him?

[proudhon]

I'm interested to know what progress has been made on this, if any.  Also, if this is being worked on, how is it being funded?

[JackH]

Hey everyone! Here are some updates:

- The broker in Cyprus that will take this on the stock exchange is ready and can do it as soon as I deliver him the business plan for it
- The company is about to be incorporated as I am finalizing the partners structure

However I have stumbled upon problems in regards to the legal framework that is required to be in place in order for it to be accepted by CySe (The Securities and Exchange Commission in Cyprus).

For the instrument to be listed a law firm has to draft up a legal framework on how the investors in the instrument can be protected of their investment (ie. that it is not fraud and a number of issues concerning preparing a public investment vehicle). However the pricing for that has been more than 200.000£ and currently our investors are not ready to finance that high a price, considering it is "just" the legal framework.

At the moment we are trying to find a law firm that would be interested in drafting up the legal framework for the investment vehicle, but we have come short of anyone that can take the task so far, without wanting a huge amount of money.

The other parts of issuing the bond on the market is more or less done and can be completed in less than 14 days once we deliver everything to CySe.

Thats pretty much where it stands at the moment.

[proudhon]

Hey everyone! Here are some updates:

- The broker in Cyprus that will take this on the stock exchange is ready and can do it as soon as I deliver him the business plan for it
- The company is about to be incorporated as I am finalizing the partners structure

However I have stumbled upon problems in regards to the legal framework that is required to be in place in order for it to be accepted by CySe (The Securities and Exchange Commission in Cyprus).

For the instrument to be listed a law firm has to draft up a legal framework on how the investors in the instrument can be protected of their investment (ie. that it is not fraud and a number of issues concerning preparing a public investment vehicle). However the pricing for that has been more than 200.000£ and currently our investors are not ready to finance that high a price, considering it is "just" the legal framework.

At the moment we are trying to find a law firm that would be interested in drafting up the legal framework for the investment vehicle, but we have come short of anyone that can take the task so far, without wanting a huge amount of money.

The other parts of issuing the bond on the market is more or less done and can be completed in less than 14 days once we deliver everything to CySe.

Thats pretty much where it stands at the moment.

Hmmm...

[JackH]

Exactly - a money issue. And a rather large one considering they are asking for a quarter of a million pounds.

I do expect to find a law firm that can do it cheaper, but without a cheaper price this cant move on. CySe needs the legal framework drawn up to exact standards for issuing a financial instrument. And it of course doesnt make it easier that a law firm has to handle it in regards to Bitcoin, which has to precedents they can draw upon. So far - stuck.....

[proudhon]

Exactly - a money issue. And a rather large one considering they are asking for a quarter of a million pounds.

I do expect to find a law firm that can do it cheaper, but without a cheaper price this cant move on. CySe needs the legal framework drawn up to exact standards for issuing a financial instrument. And it of course doesnt make it easier that a law firm has to handle it in regards to Bitcoin, which has to precedents they can draw upon. So far - stuck.....

But for how much cheaper could it be done?  Suppose it could be done for 50% less.  Would your investors finance it then?  At what price would those involved finance it?  Would investors be willing to take some percentage of the value of the total investment's cost in bitcoins - say, 25% - for their investment?

[Isosceles]

There is a major unmentioned problem - liquidity. The market price of the ETF/bond would only truly track the price of bitcoin if the two were convertible as a regular occurance. This is the role of an ETF Authorised Participant http://www.investopedia.com/terms/a/authorizedparticipant.asp#axzz1hhYB1nQP - ie. the AP would take dollars and buy bitcoins, then issue a Bitcoin ETF unit to the market. Bond ETF APs do this once a week or so, liquidity is an issue there too. But if there is insufficient liquidity, a "large" transaction isn't possible or sensible. So the market price of the ETF would detach from the market price of bitcoins.

For example, imagine an investor has $10mm USD for investing in bitcoin, and BTCUSD is $4. He will want at least 2mm BTC. I don't think that would be possible even over 1 week. The price would shoot up before even a small part of the order was filled. Any big investor will know this, so they're not interested - they don't want to give everyone else a free lunch, and anything less than $10mm isn't worth the time of day.

Before listing an ETF, we need the BTC market cap to be back at $200mm, and daily trading of $10mm.

What about creating shares in a private company, and trading on SecondMarket.com?

[JackH]

Exactly - a money issue. And a rather large one considering they are asking for a quarter of a million pounds.

I do expect to find a law firm that can do it cheaper, but without a cheaper price this cant move on. CySe needs the legal framework drawn up to exact standards for issuing a financial instrument. And it of course doesnt make it easier that a law firm has to handle it in regards to Bitcoin, which has to precedents they can draw upon. So far - stuck.....

But for how much cheaper could it be done?  Suppose it could be done for 50% less.  Would your investors finance it then?  At what price would those involved finance it?  Would investors be willing to take some percentage of the value of the total investment's cost in bitcoins - say, 25% - for their investment?

We are currently waiting for other law firms to give us a pricing for this structure. At the moment we cannot say anything as we still dont have a new fixed cost. Stay tuned - we are!

There is a major unmentioned problem - liquidity. The market price of the ETF/bond would only truly track the price of bitcoin if the two were convertible as a regular occurance. This is the role of an ETF Authorised Participant http://www.investopedia.com/terms/a/authorizedparticipant.asp#axzz1hhYB1nQP - ie. the AP would take dollars and buy bitcoins, then issue a Bitcoin ETF unit to the market. Bond ETF APs do this once a week or so, liquidity is an issue there too. But if there is insufficient liquidity, a "large" transaction isn't possible or sensible. So the market price of the ETF would detach from the market price of bitcoins.

For example, imagine an investor has $10mm USD for investing in bitcoin, and BTCUSD is $4. He will want at least 2mm BTC. I don't think that would be possible even over 1 week. The price would shoot up before even a small part of the order was filled. Any big investor will know this, so they're not interested - they don't want to give everyone else a free lunch, and anything less than $10mm isn't worth the time of day.

Before listing an ETF, we need the BTC market cap to be back at $200mm, and daily trading of $10mm.

What about creating shares in a private company, and trading on SecondMarket.com?

That is correct observed, however keep in mind that the price of the EFT/Bond cannot be pegged to the Bitcoin price, since Bitcoin is not a regulated currency, thus creating a regulated instrument pegged to an unregulated instrument is not possible.

This is why a law firm is required, as they would need to draft up the legal framework on how the investments will be used to purchase Bitcoin. Probably the starting price of the EFT/Bond will be completely different from the price of Bitcoin, in a sense so that it doesnt have anything to do with Bitcoin. It will be its own market and its own price, completely unrelated to Bitcoin.

It is also true that an investor with 10.000.000$ would give everyone a "free lunch", but this also applies to a number of Penny Stocks that are higly volatile and much less secure in their essence than Bitcoin itself is.

Issuing shares on either SecondMarket, Pink Sheets or any other OTC market in order to raise cash for this project is not something we are considering at the moment, because we are going to finance it all ourselves, especially when we get a price for the legal framework that is considered sane and in line with reality. Once again, stay tuned!

[proudhon]

Exactly - a money issue. And a rather large one considering they are asking for a quarter of a million pounds.

I do expect to find a law firm that can do it cheaper, but without a cheaper price this cant move on. CySe needs the legal framework drawn up to exact standards for issuing a financial instrument. And it of course doesnt make it easier that a law firm has to handle it in regards to Bitcoin, which has to precedents they can draw upon. So far - stuck.....

But for how much cheaper could it be done?  Suppose it could be done for 50% less.  Would your investors finance it then?  At what price would those involved finance it?  Would investors be willing to take some percentage of the value of the total investment's cost in bitcoins - say, 25% - for their investment?

We are currently waiting for other law firms to give us a pricing for this structure. At the moment we cannot say anything as we still dont have a new fixed cost. Stay tuned - we are!

There is a major unmentioned problem - liquidity. The market price of the ETF/bond would only truly track the price of bitcoin if the two were convertible as a regular occurance. This is the role of an ETF Authorised Participant http://www.investopedia.com/terms/a/authorizedparticipant.asp#axzz1hhYB1nQP - ie. the AP would take dollars and buy bitcoins, then issue a Bitcoin ETF unit to the market. Bond ETF APs do this once a week or so, liquidity is an issue there too. But if there is insufficient liquidity, a "large" transaction isn't possible or sensible. So the market price of the ETF would detach from the market price of bitcoins.

For example, imagine an investor has $10mm USD for investing in bitcoin, and BTCUSD is $4. He will want at least 2mm BTC. I don't think that would be possible even over 1 week. The price would shoot up before even a small part of the order was filled. Any big investor will know this, so they're not interested - they don't want to give everyone else a free lunch, and anything less than $10mm isn't worth the time of day.

Before listing an ETF, we need the BTC market cap to be back at $200mm, and daily trading of $10mm.

What about creating shares in a private company, and trading on SecondMarket.com?

That is correct observed, however keep in mind that the price of the EFT/Bond cannot be pegged to the Bitcoin price, since Bitcoin is not a regulated currency, thus creating a regulated instrument pegged to an unregulated instrument is not possible.

This is why a law firm is required, as they would need to draft up the legal framework on how the investments will be used to purchase Bitcoin. Probably the starting price of the EFT/Bond will be completely different from the price of Bitcoin, in a sense so that it doesnt have anything to do with Bitcoin. It will be its own market and its own price, completely unrelated to Bitcoin.

It is also true that an investor with 10.000.000$ would give everyone a "free lunch", but this also applies to a number of Penny Stocks that are higly volatile and much less secure in their essence than Bitcoin itself is.

Issuing shares on either SecondMarket, Pink Sheets or any other OTC market in order to raise cash for this project is not something we are considering at the moment, because we are going to finance it all ourselves, especially when we get a price for the legal framework that is considered sane and in line with reality. Once again, stay tuned!

Just to clarify, this is a change from your original plan, correct?  In your OP you said:

- Issue 21.000.000 zero-coupon bonds and peg them to the Bitcoin daily price as per Mtgox.com/Tradehill for indication for starting point (as we assume arbitrage would be done in order to stabilize price all over)

[JackH]

Exactly - a money issue. And a rather large one considering they are asking for a quarter of a million pounds.

I do expect to find a law firm that can do it cheaper, but without a cheaper price this cant move on. CySe needs the legal framework drawn up to exact standards for issuing a financial instrument. And it of course doesnt make it easier that a law firm has to handle it in regards to Bitcoin, which has to precedents they can draw upon. So far - stuck.....

But for how much cheaper could it be done?  Suppose it could be done for 50% less.  Would your investors finance it then?  At what price would those involved finance it?  Would investors be willing to take some percentage of the value of the total investment's cost in bitcoins - say, 25% - for their investment?

We are currently waiting for other law firms to give us a pricing for this structure. At the moment we cannot say anything as we still dont have a new fixed cost. Stay tuned - we are!

There is a major unmentioned problem - liquidity. The market price of the ETF/bond would only truly track the price of bitcoin if the two were convertible as a regular occurance. This is the role of an ETF Authorised Participant http://www.investopedia.com/terms/a/authorizedparticipant.asp#axzz1hhYB1nQP - ie. the AP would take dollars and buy bitcoins, then issue a Bitcoin ETF unit to the market. Bond ETF APs do this once a week or so, liquidity is an issue there too. But if there is insufficient liquidity, a "large" transaction isn't possible or sensible. So the market price of the ETF would detach from the market price of bitcoins.

For example, imagine an investor has $10mm USD for investing in bitcoin, and BTCUSD is $4. He will want at least 2mm BTC. I don't think that would be possible even over 1 week. The price would shoot up before even a small part of the order was filled. Any big investor will know this, so they're not interested - they don't want to give everyone else a free lunch, and anything less than $10mm isn't worth the time of day.

Before listing an ETF, we need the BTC market cap to be back at $200mm, and daily trading of $10mm.

What about creating shares in a private company, and trading on SecondMarket.com?

That is correct observed, however keep in mind that the price of the EFT/Bond cannot be pegged to the Bitcoin price, since Bitcoin is not a regulated currency, thus creating a regulated instrument pegged to an unregulated instrument is not possible.

This is why a law firm is required, as they would need to draft up the legal framework on how the investments will be used to purchase Bitcoin. Probably the starting price of the EFT/Bond will be completely different from the price of Bitcoin, in a sense so that it doesnt have anything to do with Bitcoin. It will be its own market and its own price, completely unrelated to Bitcoin.

It is also true that an investor with 10.000.000$ would give everyone a "free lunch", but this also applies to a number of Penny Stocks that are higly volatile and much less secure in their essence than Bitcoin itself is.

Issuing shares on either SecondMarket, Pink Sheets or any other OTC market in order to raise cash for this project is not something we are considering at the moment, because we are going to finance it all ourselves, especially when we get a price for the legal framework that is considered sane and in line with reality. Once again, stay tuned!

Just to clarify, this is a change from your original plan, correct?  In your OP you said:

- Issue 21.000.000 zero-coupon bonds and peg them to the Bitcoin daily price as per Mtgox.com/Tradehill for indication for starting point (as we assume arbitrage would be done in order to stabilize price all over)

Yes, since pegging it to the Bitcoin price cannot be sustained since Bitcoin is not regulated.

[jago25_98]

The £200,000 fee wouldn't surprise me if it includes support of some kind outside a simple drafting of contracts. What does one get for that £200k? If the answer is very little then, seeing as this is Cyprus and everytime I've been there I've been ripped off... perhaps it's about £150k too much from an opportunist.

Good luck, we're all behind you.

 -j

[Findeton]

Lets simplify this thing.

Once we get the legal framework, we need a seed capital. With it the BTC Fund will buy a certain quantity A to be able to maintain liquidity. The Fund will hold as many bitcoins as shares/bonds issued (lets say it holds B bitcoins/bonds), but the quantity A will be something apart. Whenever the Fund issues shares in the primary market what happens is that part of this btc capital from A goes to the B holdings and that new bonds/shares are issued in the primary market. Then with the money received by selling those bonds/shares the Fund will buy enough bitcoins to restore the reserves of A to the initial value.

In fact the price of the bonds in the primary market will have to be calculated by the Fund so they not only get enough btcs to restore the number A, but to be able to pay the people that work for the corporation.

Am I wrong?

[JackH]

Lets simplify this thing.

Once we get the legal framework, we need a seed capital. With it the BTC Fund will buy a certain quantity A to be able to maintain liquidity. The Fund will hold as many bitcoins as shares/bonds issued (lets say it holds B bitcoins/bonds), but the quantity A will be something apart. Whenever the Fund issues shares in the primary market what happens is that part of this btc capital from A goes to the B holdings and that new bonds/shares are issued in the primary market. Then with the money received by selling those bonds/shares the Fund will buy enough bitcoins to restore the reserves of A to the initial value.

In fact the price of the bonds in the primary market will have to be calculated by the Fund so they not only get enough btcs to restore the number A, but to be able to pay the people that work for the corporation.

Am I wrong?

Once we get the legal framework, it pretty much states how the trading of Bitcoin bonds will occur and how Bitcoin will be held as security deposits for the Bitcoin bond.

Here is how this can work simplified:

1) Company gets incorporated and all the directors, shareholders gets nominated etc.

2) Company issues X amount of bonds through a stock exchange (This can be NYSE, LSE, NASDAQ, Hang Seng, CAC, DAX or whatever we pick (however we have a stock exchange we prefer)).

3) To purchase a Bitcoin bond, you can either trade it by contacting the market makers that trade on the given stock exchange, or purchase it through the company by sending them a wire transfer/pay with card, and allowing the company that issued to Bond to fulfill the order, ie. contact the market makers.

4) Company receives X amount of $/€/£ and purchases Bitcoin for that amount at any given time.

5) Bitcoin price rises as soon as company makes a purchase of Bitcoin, from liquidity they received from a Bitcoin bond

6) Once all X amount of bonds are issued people can start trading them among themselves, thus creating a second market of how much Bitcoin is valued, thus allowing for hedging between Bitcoin itself and the Bond.

Complications for law firm that has to draft a legal framework which can be accepted by the governing legislation of the particular stock exchange

1) Security of the investment as it is based upon a non regulated entity, ie. Bitcoin

2) If a price crash occurs, and once again in an unregulated market, how can company ensure investors of their Bond value

3) Maturity on Bond, if any

4) Zero-coupon Bond or flat payout

5) Money laundry

Do remember that the last thing the established stock market wants is another wild west OTC/Pink Sheets derivate or bearer bond, that further allows money laundry and anonymity.

[fivemileshigh]

- Trading occurs when a private person purchases a bond by sending Bitcoin to the company account, and receiving the bond OTC, or purchasing it directly on the market for dollar/euro, controlled by the trustee of the company, which is by law bound to execute order to the CEO of issuing a bond. By law the trustee is a regulated entity which will either risk loosing their license to practice or follow suit. Bond is being issued through a broker, that is usually the marked maker (aka. the Bank that helped issue the bonds on the marked to begin with).

I'm trying hard to get this:

Option one:  I (private person) send 100 btc to the company, in exchange for which I get a 100 btc bond guaranteed by the company to be worth the same (in dollar/euro terms) as 100 btc are worth on mtgox/tradehill?

Option two: I buy 100 btc bonds on the stock exchange market through my broker, and these are guaranteed by the company to be worth the same (in dollar/euro terms) as 100 btc are worth on mtgox/tradehill?

Is this right?

[HorseRider]

Buying a clear OTCBB company. I guess it will cost several thousands of USD. Then make this company issue more shares to raise money and use the money to buy bitcoin. Then the only asset of this company is bitcoin. People can trade the share of the company to trade the bitcoin.

This company can sell more share to raise more money to buy bitcoins.

Why should we do this?

Because the traditional financial institutions will be able to hold the bitcoin commodity without the legal risk of sending money to Mtgox as of today. You cannot image Goldman Sachs can have an account on mtgox officially. However, GS can buy a share on the OTCBB market. If lots of people have an interest related to bitcoin, there will be more people who will actually use\talk\promote bitcoin in their daily life.

Any Wall Street bankers can do this without any difficult. If you're an Wall Street banker, please make this happen in your company. As you surface on this board, I don't think you can call yourself a big name on the Street today. If you make this happen, However, you WILL be the next star in your firm.

[1QaZxSw2]

I love the idea of tradable bonds on fiat exchanges. This needs to happen in one form or the other in my opinion.

Since BTC is effectively a commodity, its legally no different than issuing a bond against Gold as previously suggested in this thread.

The question is, can we address the high cost of issuing the bond by directly funding the bond.

21M * 4.5 = $100M

Given 6 million or so bitcoin users, we would each on average have to raise around 3.xx bitcoins or around $17. This should be fairly doable. An investment bank could underwrite this bond for a fee of about 6%. This would increase each bitcoiner's avg cost to about $18.

The second option is to issue bonds like the government at auction.

Company is formed and auctions the bonds to the public. These would be OTC and not exchange traded, but once bonds are sold (at a 6% premium), the premium can be used to list the bond on an exchange.

[fergalish]

Does the forum really think that some investment banks, hedge funds etc, will really entrust huge sums of money to an entity which must needs guarantee that a 64-byte long hex string [the private key] cannot be copied?  Yeah, there are ways to improve security, but it requires that whoever has access to the off-line private key parts be absolutely incorruptible.  Normally this wouldn't be such a huge problem, but here we're talking about sums of money large enough to buy private islands and mega-yachts... and really nasty hit-men.  Now who said they were incorruptible?  Am I fantasising too much?

[cbeast]

Does the forum really think that some investment banks, hedge funds etc, will really entrust huge sums of money to an entity which must needs guarantee that a 64-byte long hex string [the private key] cannot be copied?  Yeah, there are ways to improve security, but it requires that whoever has access to the off-line private key parts be absolutely incorruptible.  Normally this wouldn't be such a huge problem, but here we're talking about sums of money large enough to buy private islands and mega-yachts... and really nasty hit-men.  Now who said they were incorruptible?  Am I fantasising too much?

Bitcoin can be secured with passwords and multi-key signature requirements. Using a single private key is fine for petty cash, but large sums can be more secure than a Brinks truck Fort Knox.