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Author Topic: Physical Silver ETF on GLBSE?  (Read 2416 times)
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April 11, 2012, 10:13:02 PM
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I and my close family happen to own a reasonable amount of physical commodities, mostly silver. I was considering using some of our spare space for storage to run a Silver ETF on GLBSE. Users with a set amount of shares could request delivery of the silver after a period of time, too, assuming they were willing to pay the costs to insure and transport and probably a small fee to cover the spot price on the replacement silver I'd have to purchase.

Does anyone feel like they would be interested in this sort of an ETF or not? Most of the ones I've seen on here seem to have been scams, if anyone is running one successfully I'd be interested in seeing info on it. Thanks!

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April 12, 2012, 03:03:59 AM
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Just set up a TD Ameritrade account.  Ran some numbers on doing trades with commission on stocks and ETF's.  The only thing I could think of while looking at SLV was that I wish I could buy a silver ETF with bitcoins at lower commission rates   Grin
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April 12, 2012, 06:09:18 PM
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No, sorry, I didn't explain. I actually have and own several shares of SLV and CEF (On Ameritrade, in fact, since 2008) in addition to my physical silver, but I'm considering selling SLV, buying more physical silver, and then dedicating maybe half of it to a GLBSE stock. What this would provide is a way for people who maybe wanted to invest in Bitcoin businesses a way to do so, but then instead of storing their dividends in Bitcoin, they could use them to buy shares of a GLBSE ETF (that I would run) which owns silver itself. I don't have any storage costs whatsoever right now and I don't anticipate ever having any. I'd provide pictures of the coins and operation to keep it all above board and I'm pretty confident enough in the security of it that I would consider letting an independent group perhaps audit if there was interest in that as well.

Does that make sense?

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April 12, 2012, 11:13:00 PM
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That's exactly what I meant.  I could buy your silver ETF on GLBSE at lower commission rates (0% I guess) with bitcoin.
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April 13, 2012, 12:47:22 AM
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I'd provide pictures of the coins and operation to keep it all above board and I'm pretty confident enough in the security of it that I would consider letting an independent group perhaps audit if there was interest in that as well.

Reminds me of this discussion:
 - https://bitcointalk.org/index.php?topic=2875.0

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April 17, 2012, 09:23:38 PM
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That's exactly what I meant.  I could buy your silver ETF on GLBSE at lower commission rates (0% I guess) with bitcoin.

Ahh, okay, I see what you're saying. Well this would be a VERY small ETF at first, maybe only $5,000 worth of silver because I am not sure how many Bitcoins I want to actually trade physical silver in for at this time.

Quote
Reminds me of this discussion:
 - https://bitcointalk.org/index.php?topic=2875.0

I spoke with the person who would be managing/storing the silver and they indicated they get a copy of the Wall Street Journal every day. I would have him replace the WSJ every day and keep a camera attached to a router on the silver 24/7. Unfortunately he only has one secure internet connection running to the building, but I do have access to a relay, so I could actually provide 24/7 monitoring of the physical silver with a copy of the WSJ swapped out every morning via a website. I would also maybe take user input every day on what letter or number to have and have the WSJ marked with a black marker accordingly.

I spoke a bit briefly to him about this and it sounded like he would be amenable to doing this. If anyone is interested in a physical silver ETF of this nature, please indicate how many ounces or tenths of an ounce you might be interested in. If I get ~$1,000 worth of interest then I will go ahead and get started immediately. Otherwise I'm going to wait for now and possibly might consider starting up an auditing business instead since there seems to be a need for this...

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April 17, 2012, 09:51:40 PM
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..
I spoke with the person who would be managing/storing the silver and they indicated they get a copy of the Wall Street Journal every day. I would have him replace the WSJ every day and keep a camera attached to a router on the silver 24/7. Unfortunately he only has one secure internet connection running to the building, but I do have access to a relay, so I could actually provide 24/7 monitoring of the physical silver with a copy of the WSJ swapped out every morning via a website. I would also maybe take user input every day on what letter or number to have and have the WSJ marked with a black marker accordingly.

..

Sounds like ridiculous overkill for 5k of silver..  a .jpg every month or so with hot chicks in bikini's would be more then sufficient Wink

Now if it was like 5k face of junk silver, maybe monitering would be in order.
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April 17, 2012, 09:54:56 PM
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Will you also offer a short ETF?

https://www.bitcoin.org/bitcoin.pdf
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April 23, 2012, 09:49:33 PM
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Sounds like ridiculous overkill for 5k of silver..  a .jpg every month or so with hot chicks in bikini's would be more then sufficient Wink

Well, the idea would be that I'd provide the service to be completely above-board and transparent. The more reliable the service, the more likely people would use it, and if it did get popular we'd issue more shares and buy more silver.

Will you also offer a short ETF?

No, I absolutely would not, sorry if you were interested in this. I disagree with this practice when it is done with SLV and other commodity ETFs in the US stock exchanges.

In fact, the seed money used to start this fund will probably come from my sale of my SLV stock which I believe I am finally done with due to their short-selling. Selling what you do not have is deriving value where there is none and is an affront to good sensibility. I cannot imagine loaning stock in silver to someone who I am not certain can pay me back tomorrow, especially if the price were to double or triple. Worse still, even if I were do this of my own accord, this still puts a financial obligation on my own name and net worth, one which I may not be able to fulfill.

The housing crisis has shown us the irrationality of the market. There is something that the Black-Scholes equation does not properly account for called Kurtosis risk, or, if you have heard of it, the "Black Swan" effect. If you do not know what that is, I'll try to explain it here.

Basically, tomorrow everyone could decide to go to their local coin dealer and buy every single silver coin and the price of silver would go from $30 to possibly some unbelievably high number, like $3000/ounce. It is VERY unlikely such a thing would ever happen, but it *could* happen, and that is what Kurtosis risk is, the idea that not only could something go outside of reasonable risk levels, but that it could do so in a major way and in a very short period of time.

One of the examples that I like to use of Kurtosis risk is an experiment in which they asked several professional gamblers to imagine they go into a casino and sit down at a roulette table. They each witness, before their very eyes, the ball land on 0 ten times in a row, meaning neither red nor black bets get paid. Now a rational and logical person, knowing all the odds of the game should never say that 0 on an 11th spin is more likely than the 1 in 37 chance, but every professional gambler said the likelihood was higher than 1 in 37. When asked why, the answer these professional gamblers gave came down to, "How do they know the system isn't rigged, or maybe something is wrong with the wheel that makes it land on 0 more often?" In other words, the circumstances around the situation were so extreme, that it was now likely all logical and rational analysis is risky.

The "Black Swan" reference comes from a book that explains Western Europeans used to have a phrase very similar to "when pigs fly" called "like a black swan". The problem was that around 1790 they did end up finding black swans in Australia. This went to show that there are "known knowns", such that there are species of pig we've identified. There are "known unknowns", such that there may be species of pigs that we may have not yet identified. And finally, there are "unknown unknowns", such that there may be species of pigs that we know so little about, we can't really say with any degree of certainty that "pigs cannot fly".

Sorry I spent so much time on this post, but I wanted to be thorough in explanation. I'm sorry if not providing a short silver ETF upsets anyone, but I cannot make short sale predictions due to Kurtosis risk.

I don't know if I can own my own stock on GLSBE, but if so, I might actually do this on my own so that any increase in the value of silver from here on up doesn't get hit with as big of a cap gains tax. I'm already looking at a tax on the %167 increase I have in SLV right now and I'm not really looking forward to it.

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April 23, 2012, 10:02:07 PM
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Sounds like ridiculous overkill for 5k of silver..  a .jpg every month or so with hot chicks in bikini's would be more then sufficient Wink

Well, the idea would be that I'd provide the service to be completely above-board and transparent. The more reliable the service, the more likely people would use it, and if it did get popular we'd issue more shares and buy more silver.

Will you also offer a short ETF?

No, I absolutely would not, sorry if you were interested in this. I disagree with this practice when it is done with SLV and other commodity ETFs in the US stock exchanges.

In fact, the seed money used to start this fund will probably come from my sale of my SLV stock which I believe I am finally done with due to their short-selling. Selling what you do not have is deriving value where there is none and is an affront to good sensibility. I cannot imagine loaning stock in silver to someone who I am not certain can pay me back tomorrow, especially if the price were to double or triple. Worse still, even if I were do this of my own accord, this still puts a financial obligation on my own name and net worth, one which I may not be able to fulfill.

The housing crisis has shown us the irrationality of the market. There is something that the Black-Scholes equation does not properly account for called Kurtosis risk, or, if you have heard of it, the "Black Swan" effect. If you do not know what that is, I'll try to explain it here.

Basically, tomorrow everyone could decide to go to their local coin dealer and buy every single silver coin and the price of silver would go from $30 to possibly some unbelievably high number, like $3000/ounce. It is VERY unlikely such a thing would ever happen, but it *could* happen, and that is what Kurtosis risk is, the idea that not only could something go outside of reasonably risk levels, but that it could do so in a major way and in a very short period of time.

One of the examples that I like to use of Kurtosis risk is an experiment in which they asked several professional gamblers to imagine they go into a casino and sit down at a roulette table. They each witness, before their very eyes, the ball land on 0 ten times in a row, meaning neither red nor black bets get paid. Now a rational and logical person, knowing all the odds of the game should never bet 0 on an 11th spin is more likely than the 1 in 37 chance, but every professional gambler said the likelihood was higher than 1 in 37. When asked why, the answer these professional gamblers gave came down to, "How do they know the system isn't rigged, or maybe something is wrong with the wheel that makes it land on 0 more often?" In other words, the circumstances around the situation were so extreme, that it was now likely all logical and rational analysis is risky.

The "Black Swan" reference comes from a book that explains Western Europeans used to have a phrase very similar to "when pigs fly" called "like a black swan". The problem was that around 1790 they did end up finding black swans in Australia. This went to show that there are "known knowns", such that there are species of pig we've identified. There are "known unknowns", such that there may be species of pigs that we may have not yet identified. And finally, there are "unknown unknowns", such that there may be species of pigs that we know so little about, we can't really say with any degree of certainty that "pigs cannot fly".

Sorry I spent so much time on this post, but I wanted to be thorough in explanation. I'm sorry if not providing a short silver ETF upsets anyone, but I cannot make short sale predictions due to Kurtosis risk.

I don't know if I can own my own stock on GLSBE, but if so, I might actually do this on my own so that any increase in the value of silver from here on up doesn't get hit with as big of a cap gains tax. I'm already looking at a tax on the %167 increase I have in SLV right now and I'm not really looking forward to it.

Thank you.  This is the best explanation I have ever heard of why shorting can be extremely risky for both the trader and the broker.

https://www.bitcoin.org/bitcoin.pdf
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April 23, 2012, 11:12:43 PM
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This went to show that there are "known knowns", such that there pigs which eat and grow fat. There are "known unknowns", such that we don't know exactly the genetics that control their fur coloring. And finally, there are "unknown unknowns", such that there may be a flying pig somewhere, who knows.

Fixed it for you.

Also, your theory of catastrophic events significantly overstates risk. Suppose I own the house next to you. Would you not loan me one grain of silver to sell short, even if I pledge my house, because you figure that silver could end up so expensive per ounce that a grain could be worth more than a house?

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April 25, 2012, 03:15:59 PM
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You're right that's a better description.

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Also, your theory of catastrophic events significantly overstates risk. Suppose I own the house next to you. Would you not loan me one grain of silver to sell short, even if I pledge my house, because you figure that silver could end up so expensive per ounce that a grain could be worth more than a house?

Yes, I would. But if the silver is not mine, no, I would not. Does that make sense?

I suppose I'm saying that regardless of risk, I could never be generous with other people's money.

In fact, my guess is that these commodity ETFs today that are using Black-Scholes or doing any form of delta hedging are doing so at huge risk to themselves. If they are letting their investor take on the risk, that's one thing, but if they are taking the risk themselves, that's another. I'm not saying it can't be done or it can't be done right, I'm just saying it's a level of risk I wouldn't want to take on myself, in any form.

I suppose I could maybe provide some sort of internal arbitrage, though, so that as demand for the fund increased, shares would be issued to match it. Since I'd probably be one of the bigger shareholders, this would be easy to do. I will be heading on vacation but when I come back I think I'll go ahead and get the ball in motion to get started on this.

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April 25, 2012, 04:46:17 PM
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Quote
I'm not saying it can't be done or it can't be done right, I'm just saying it's a level of risk I wouldn't want to take on myself, in any form.

A, now that's certainly a sound position.

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April 26, 2012, 06:07:44 AM
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you guys can always buy silver from me Cheesy
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April 27, 2012, 03:54:24 AM
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How hard would it be to put a few ounces of silver in some neutral place.. and list its equal value in shares on the glbse?  There would be no option of physical delivery (seems like a headache), but just a way for traders to buy and sell bitcoins in relation to the price of silver?  Is that possible, could that work?  

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April 27, 2012, 04:32:53 AM
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How hard would it be to put a few ounces of silver in some neutral place.. and list its equal value in shares on the glbse?  There would be no option of physical delivery (seems like a headache), but just a way for traders to buy and sell bitcoins in relation to the price of silver?  Is that possible, could that work?  
For traders to have faith in value of an ETF, it needs either to allow physical delivery of the underlying, or an unconditional promise from the issuer to buy back for a set price (e.g. certain percentage of spot price on other exchanges). Otherwise, it's not worth the bits it's written on.

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April 27, 2012, 05:24:33 AM
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How hard would it be to put a few ounces of silver in some neutral place.. and list its equal value in shares on the glbse?  There would be no option of physical delivery (seems like a headache), but just a way for traders to buy and sell bitcoins in relation to the price of silver?  Is that possible, could that work?  
For traders to have faith in value of an ETF, it needs either to allow physical delivery of the underlying, or an unconditional promise from the issuer to buy back for a set price (e.g. certain percentage of spot price on other exchanges). Otherwise, it's not worth the bits it's written on.

What if the issuer put a set date to actually sell the silver on the market (a year from issuance or something) and put the cash into bitcoin form and paid in the form of a dividend? In between that time people could trade?

sorry just brainstorming.

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April 27, 2012, 06:43:12 AM
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How hard would it be to put a few ounces of silver in some neutral place.. and list its equal value in shares on the glbse?  There would be no option of physical delivery (seems like a headache), but just a way for traders to buy and sell bitcoins in relation to the price of silver?  Is that possible, could that work?  
For traders to have faith in value of an ETF, it needs either to allow physical delivery of the underlying, or an unconditional promise from the issuer to buy back for a set price (e.g. certain percentage of spot price on other exchanges). Otherwise, it's not worth the bits it's written on.

What if the issuer put a set date to actually sell the silver on the market (a year from issuance or something) and put the cash into bitcoin form and paid in the form of a dividend? In between that time people could trade?

sorry just brainstorming.
That'd work if clearly stated in the contract. It'd fall in the category of unconditional buy-back promise in my post above.

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