Winklevoss Bitcoin ETF effect in price

[notung]

I have a few questions regarding the Winklevoss Bitcoin ETF and its effect on price. I keep reading that it will make skyrocket the price of bitcoin. However, I don't see how. Let me explain:

As far as I know the Winklevoss ETF consists on putting on the market shares representing the value of the bitcoins held by the twins. Let's say they have 100.000 BTC and they will create 1.000.000 shares (hypothetical numbers). I would expect that the price of each share would be calculated according to the price of BTC at the moment of the IPO. Afterwards, the price of the shares would change depending on supply/demand. How can this supply/demand of the shares affect the price of bitcoin in markets like Bitstamp/Huobi/etc? If the Bitcoins held by the brothers are not sold or they don't buy more, how can it affect the price?
The way that I understand it is that the price of the shares will be highly influenced by the value of bitcoin, but not the other way around!

Am I missing something? Otherwise, just let me know how the shares can affect the price of BTC.

Thanks in advance for clarifying my doubts!

[BitchicksHusband]

Because we are assuming that they will have to buy more bitcoins eventually. And once they run out, there is a supply of only 3600 a day worldwide.

Let's put it this way. I have more money tied up in IRAs and 401k than I have invested in bitcoin already. By several times.  And probably most middle class Americans are in the same situation.

Then you have mutual funds, which can invest in an ETF, but not directly.

So, it's the sheer amount of money that CAN come in.

[Benjig]

We are saying it will impact the price positively because we are assuming the fund will have succes and all the shares will be sold.

[siggy]

ok... there are several mechanisms...

1)  arbitrage between the ETF and actual BTC...  say the ETF values a "btc" at $1000, but spot BTC is only 800... it is worthwhile to sell short the ETF, and use those funds to buy actual BTC to offset your short..  net effect is BTC price goes up cuz you bought.

2) part of the ETF is the ability for whales to deliver BTC into the fund (I believe it has to be in blocks of something like 10,000 BTC) ..anyways.. once again if the ETF is at 1000, but BTC is only at 800... it is an instant 20% return for a whale to by BTC on the market and deliver it to the ETF for additional ETF shares to be created for him.    Once again, buying BTC on the market will raise the price of BTC...

Both the above examples also work in reverse if the fund is cheaper than the actual BTC....

so yes, it is very possible for the fund price to directly influence the price of BTC.

Sigg

[Ibian]

So all they have to do is set the price a bit higher than regular market price? Nice. Like printing money.

[okthen]

I have a few questions regarding the Winklevoss Bitcoin ETF and its effect on price. I keep reading that it will make skyrocket the price of bitcoin. However, I don't see how. Let me explain:

As far as I know the Winklevoss ETF consists on putting on the market shares representing the value of the bitcoins held by the twins. Let's say they have 100.000 BTC and they will create 1.000.000 shares (hypothetical numbers). I would expect that the price of each share would be calculated according to the price of BTC at the moment of the IPO. Afterwards, the price of the shares would change depending on supply/demand. How can this supply/demand of the shares affect the price of bitcoin in markets like Bitstamp/Huobi/etc? If the Bitcoins held by the brothers are not sold or they don't buy more, how can it affect the price?
The way that I understand it is that the price of the shares will be highly influenced by the value of bitcoin, but not the other way around!

Am I missing something? Otherwise, just let me know how the shares can affect the price of BTC.

Thanks in advance for clarifying my doubts!

As people said, they'd eventually buy more.

But I actually think the effect it will have will be more undirect: a big name like the Winklevoss will make other big Wallstreet investors aware and more likely to trust bitcoin.

[spiderbrain]

As units of an ETF are bought or sold on the market, the unit price of the ETF can diverge from the price of the underlying commodity. This is addressed by the issuer creating more of it's own units and using the money to purchase more assests (in this case, bitcoins) or the reverse process when the price is low. As this is an on going process, you can assess an ETF unit for fare value by comparing it with the Net Asset Value (NAV), which is the current market value of all the assets held by the trust divided by the number of units. There are lots of different legal ways to set ETFs and ETNs up, I don't know how COIN will be set up, but that's the way some mainstream comodity ETFs are run.

I think the overall effect will be to increase the demand for bitcoins, because money that was already capable of buying them on exchanges already has, this is new money (trillions) that can only invest in legal exchange entities, such as stocks, bonds, ETFs etc.

[HarryT1923]

isn't this what institutional money is waiting for?

[Mythul]

I'm pretty sure it's going to have a positive effect on the bitcoin ecosystem.

[LiteCoinGuy]

I'm pretty sure it's going to have a positive effect on the bitcoin ecosystem.

think so too but dont expect that the price will be like a skyrocket because of one etf. maybe we see the 1500 - 2000 USD after some moths. that would be nice.

but silberts etf is also on the way and more will follow...what should cause a price rise 

[Justine]

I'm pretty sure it's going to have a positive effect on the bitcoin ecosystem.

think so too but dont expect that the price will be like a skyrocket because of one etf. maybe we see the 1500 - 2000 USD after some moths. that would be nice.

but silberts etf is also on the way and more will follow...what should cause a price rise 

Think many people are expecting 4k-5k after etf is out.

[okthen]

I'm pretty sure it's going to have a positive effect on the bitcoin ecosystem.

think so too but dont expect that the price will be like a skyrocket because of one etf. maybe we see the 1500 - 2000 USD after some moths. that would be nice.

but silberts etf is also on the way and more will follow...what should cause a price rise 

Think many people are expecting 4k-5k after etf is out.

Yes but it probably won't get there on the EFT solely.
One piece of good news along with it should do the job.

[windjc]

What people are underestimating is the shear lack of bitcoins available on the market. Any decent amount of institutional money that comes into the game when the ETF starts will push the price higher. 3600 coins a day for the next year and a half and then 1800 coins a day for the ENTIRE WORLDS SUPPLY.  Holy crap.

What about all the holders? Well, as Risto and others have shown, an average of about 10% of "hodlers" coins get redistributed during every bubble.  10% is a decent amount, but not anywhere close enough to bridge the gap betwen potential institutional/401k-like investments and 3600 coins a day.

And that's not even counting other financial ETFs that will follow in other finance centers in places like London, Germany, Asia, etc.

[YipYip]

I have a few questions regarding the Winklevoss Bitcoin ETF and its effect on price. I keep reading that it will make skyrocket the price of bitcoin. However, I don't see how. Let me explain:

As far as I know the Winklevoss ETF consists on putting on the market shares representing the value of the bitcoins held by the twins. Let's say they have 100.000 BTC and they will create 1.000.000 shares (hypothetical numbers). I would expect that the price of each share would be calculated according to the price of BTC at the moment of the IPO. Afterwards, the price of the shares would change depending on supply/demand. How can this supply/demand of the shares affect the price of bitcoin in markets like Bitstamp/Huobi/etc? If the Bitcoins held by the brothers are not sold or they don't buy more, how can it affect the price?
The way that I understand it is that the price of the shares will be highly influenced by the value of bitcoin, but not the other way around!

Am I missing something? Otherwise, just let me know how the shares can affect the price of BTC.

Thanks in advance for clarifying my doubts!

As people said, they'd eventually buy more.

But I actually think the effect it will have will be more undirect: a big name like the Winklevoss will make other big Wallstreet investors aware and more likely to trust bitcoin.

AN ETF is a regulated instrument ....@ a certain tipping point ratio they MUST buy more ...otherwise they are in breach and it can be wound up etc

[galbros]

The price should go up, maybe even a lot.

This is because a lot of people who are new to bitcoin will be able to buy it very easily without trust issues or having to send dox to God knows where.  Of course, they wont be able to USE the bitcoin they buy in the Winklevoss fund, but they will still be able to trade it.

This is a win, and maybe even a big one.

However, I thought it was going to be a closed end fund.  If it's that, then they will NOT be buying more coins for it.  If it is an ETF then they may have to buy more coins for it.

Nope clearly looks like an ETF: http://www.sec.gov/Archives/edgar/data/1579346/000119312514058712/d562329ds1a.htm

[Erdogan]

I can already see in the future people complaining about "paper" bitcoins artificially depressing the price of "physical" bitcoins 

Yes, but these are not paper bitcoins. The shares are fully backed.

If on the other hand someone should offer contracts to buy bitcoins in the future, not holding any bitcoins at the sale of that contract, it constitutes naked short selling, which will effectively increase the supply of coins. It is not what is going on.

[bitrider]

What people are underestimating is the shear lack of bitcoins available on the market. Any decent amount of institutional money that comes into the game when the ETF starts will push the price higher. 3600 coins a day for the next year and a half and then 1800 coins a day for the ENTIRE WORLDS SUPPLY.  Holy crap.

What about all the holders? Well, as Risto and others have shown, an average of about 10% of "hodlers" coins get redistributed during every bubble.  10% is a decent amount, but not anywhere close enough to bridge the gap betwen potential institutional/401k-like investments and 3600 coins a day.

And that's not even counting other financial ETFs that will follow in other finance centers in places like London, Germany, Asia, etc.

Amazing to think about, yes.

[BTCtrader71]

I can already see in the future people complaining about "paper" bitcoins artificially depressing the price of "physical" bitcoins 

Yes, but these are not paper bitcoins. The shares are fully backed.

If on the other hand someone should offer contracts to buy bitcoins in the future, not holding any bitcoins at the sale of that contract, it constitutes naked short selling, which will effectively increase the supply of coins. It is not what is going on.

Yes of course at the beginning everything is always fully backed. And then the derivatives show up and pile on top of each other. And you end up with a leverage of 100.

You're referring I think to a fractional reserve banking system, where the bank's holdings equal only 1% (assuming a leverage of 100) of what is lent out. I think that a deflationary currency like bitcoin would be less likely than an inflationary currency like the USD to support fractional reserve lending. My rationale is that people will be less willing to borrow (with interest) a deflationary currency than an inflationary one. Just think about it from the borrower perspective.

I could be wrong -- I've never actually pondered this issue in depth before. People will always need to borrow money in one form or another. So in a bitcoin world, how would that work? Would a loan be denominated in something other than bitcoin, something that loses value over time? What would that be? Hmmm.
 

[ArticMine]

I can already see in the future people complaining about "paper" bitcoins artificially depressing the price of "physical" bitcoins 

Yes, but these are not paper bitcoins. The shares are fully backed.

If on the other hand someone should offer contracts to buy bitcoins in the future, not holding any bitcoins at the sale of that contract, it constitutes naked short selling, which will effectively increase the supply of coins. It is not what is going on.

Yes of course at the beginning everything is always fully backed. And then the derivatives show up and pile on top of each other. And you end up with a leverage of 100.

You're referring I think to a fractional reserve banking system, where the bank's holdings equal only 1% (assuming a leverage of 100) of what is lent out. I think that a deflationary currency like bitcoin would be less likely than an inflationary currency like the USD to support fractional reserve lending. My rationale is that people will be less willing to borrow (with interest) a deflationary currency than an inflationary one. Just think about it from the borrower perspective.

I could be wrong -- I've never actually pondered this issue in depth before. People will always need to borrow money in one form or another. So in a bitcoin world, how would that work? Would a loan be denominated in something other than bitcoin, something that loses value over time? What would that be? Hmmm.
 

I suspect the fractional reserve banking will not work very well with bitcoin. This is not because bitcoin is deflationary since fractional reserve banking worked well with gold, but rather because it is extremely easy and cheap to take delivery of bitcoin, when compared to gold and even fiat currencies. Fractional reserve banking ultimately involves short selling and there in no more effective way to push a short to the wall than to take delivery.

By the way fractional reserve banking has been tried with bitcoin. Pirateat40 was the first significant case and he managed to suppress the price of bitcoin in 2012 before he came to grief. There is also a very good case the MTGox was running a bitcoin fractional reserve before it also came to grief. My take is that Bitcoin will end up complementing rather than replacing fiat currencies for this reason, with bitcoin being an equity based currency complementing the debt based fiat.

[theonewhowaskazu]

The thing about the ETF is that it gets more volume, both long and short. And the thing about Bitcoin is that volume = good in the long term, either direction. Also, its a lot of publicity. There will surely be a lot of volume that comes the moment it drops on the market. Basically whats going to happen is:

1) A whole bunch of traders who didn't trade on bitfinex/bitstamp etc... "trust" the etf more, so they trade that instead.
2) A whole bunch of BTC-likers will buy the BTC in their IRAs, etc...
3) A whole bunch of BTC-haters will short the BTC.

Probably, the amount of money longing from (2) is going to be greater than the amount of money shorting from (3) because the people in (2) tend to be more risk-on than those in (3) so they will put more money on it.

But its also true that some traders, the most risk-on group of all, might decide to short. Also, its also true that group (2) has had places like bitfinex & bitstamp the whole time, while group (3) was very unlikely to use these services. So the amount of shorts might actually become pretty large.

Either way, it doesn't really matter. No matter, the volume is going to be really high, and that's the main bullish indicator in the long term. If its short interest causing it, then the price will crash for 2 years, while BTC-likers accumulate and shorters pay interest, eventually causing price increase.

If its longs causing it, then the price will bubble immediately, just causing a repeat of 2013 all over again. Bubble-burst bubble-burst each bubble being higher.

The bad situation would be if the ETF was canceled or if it needed to be pulled due to some kind of scandal or concerns over what someone somewhere can label "insider trading."

The less bad situation would be if the ETF didn't take off in popularity/volume, kind of flopped, but continues trading nonetheless.