Winklevoss twins to offer Bitcoin ETF • Hacker News Board

Re: Winklevoss twins to offer Bitcoin ETF

#41

Post by mrb » Tue, Jul 02, 2013, 12:03 AM UTC

sneak wrote: post #34

jpdoctor wrote: post #27

Earlier quoted context omitted.

> Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF? Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying. So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of…

Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sit…

"the whole public BTC order book on MtGox can be had right now for under $2mm USD"

No it cannot. Some people have placed sell orders at $1000, $10k, $100k, etc. To the point it would take trillion and trillion of dollars to buy up all BTC.

But you can be sure that if you tried to do this, a lot of other sell orders would pop up, making it effectively impossible to buy up all bitcoins.

Re: Winklevoss twins to offer Bitcoin ETF

#42

Post by RockyMcNuts » Tue, Jul 02, 2013, 12:05 AM UTC

Favorite snarky tweets in my feed...

"Bitcoin ETF" is an anagram of "Fiction Bet" which seems pretty apt.. https://twitter.com/LorcanRK/status/351840221773578241

Bitcoin ETF ticker ideas: $DCHE $LOSS $ZERO $SCAM (via @jamesvonsimson - his idea: $SCKR) https://twitter.com/finansakrobat/status/351837836724551682

Well, at least the Winkelvii Bitcoin trust is consistent with their practice of being parasitic on new innovation… https://twitter.com/EpicureanDeal/status/351834917593817088

The Winkelvoss Bitcoin ETF is the first of many wonderful deals brought to you by the JOBS Act (Just Open Bucket Shops). https://twitter.com/ReformedBroker/status/351830441646489601

Imagine the call "if you got burned on the Facebook IPO, why don't you take the Winklevoss Bitcoin Trust for a spin?" https://twitter.com/BarbarianCap/status/351825104147189760

Re: Winklevoss twins to offer Bitcoin ETF

#43

Post by jpdoctor » Tue, Jul 02, 2013, 12:05 AM UTC

sneak wrote: post #34

jpdoctor wrote: post #27

Earlier quoted context omitted.

> Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF? Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying. So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of…

Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sit…

> Following that, liquidity.

There needs to be an effective method of shorting in order for the ETF to be effective. I think it will take much more than a year.

Re: Winklevoss twins to offer Bitcoin ETF

#44

Post by wmf » Tue, Jul 02, 2013, 12:08 AM UTC

sneak wrote: post #34

jpdoctor wrote: post #27

Earlier quoted context omitted.

> Anyone know how to estimate whether there's enough liquidity in existing bitcoin exchages to support it, and allow them to track the price accurately in the ETF? Yes. The daily volume in the ETF must be a small fraction of the daily volume in the underlying asset, and it must be possible to both buy & short the underlying. So net net: An ETF is incredibly premature. This is the Winklevii taking serious advantage of…

Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sit…

A thought occurs to me: Don't the twins own something like $10M of BTC? Perhaps they personally will provide liquidity for this ETF.

Re: Winklevoss twins to offer Bitcoin ETF

#45

Post by 7Figures2Commas » Tue, Jul 02, 2013, 12:10 AM UTC

A few interesting things to note:

1. The trust sponsor is wholly-owned by Winklevoss Capital Management LLC.

2. The sponsor is licensing intellectual property from Winklevoss IP LLC.

3. The fee has not yet been determined. Fees are often waived for a period of time with new issues but according to the prospectus, "Presently, the Sponsor does not intend to waive any of its fee."

4. The fee is paid via a transfer of bitcoin from the trust to the sponsor.

5. "There are no regulations, rulings or other authority that address the US federal income tax treatment of Bitcoins. Under one reasonable approach, a Bitcoin should be treated as a capital asset (and not as "currency"). In the absence of any future guidance by the IRS, a change in law, an administrative determination or a judicial ruling to the contrary, the Trust intends to treat a Bitcoin as a capital asset for US federal income tax purposes, including for tax reporting purposes."

Re: Winklevoss twins to offer Bitcoin ETF

#46

Post by 7Figures2Commas » Tue, Jul 02, 2013, 12:17 AM UTC

erikig wrote: post #24

7Figures2Commas wrote: post #19

Earlier quoted context omitted.

> ...minimal risk aside from your investment losing value. Classic.

One additional advantage that hasn't been mentioned is that ETF's offer an options market allowing owners of Bitcoins to buy puts to protect the value of their bitcoins (or) buy calls to take advantage of future movements in the price of Bitcoins. In my opinion allowing Bitcoin ETF options might be the next step in allowing widespread Bitcoin adoption because corporate entities can hedge against the fluctuations in t…

That's technically not true. Options would enable you to hedge your equity position in the trust.

The trust is designed to "reflect the performance of a weighted average price of Bitcoins." The degree to which it does this accurately is yet to be determined; tracking error is a real problem with some ETFs.

Bitcoin has proven to be subject to extreme volatility, the trust may not achieve its investment objective, the options market (if one becomes available) is unlikely to have significant volume and all of the other risks associated with options trading would apply.

If you want to hedge against the loss of value of your bitcoin holdings, your best option today is to pare your holdings and realize gains (if you have them). I wouldn't expect that to change for the foreseeable future even with financial products that you can access as a retail investor.

Re: Winklevoss twins to offer Bitcoin ETF

#47

Post by mrb » Tue, Jul 02, 2013, 12:21 AM UTC

wmf wrote: post #44

sneak wrote: post #34

Earlier quoted context omitted.

Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sit…

A thought occurs to me: Don't the twins own something like $10M of BTC? Perhaps they personally will provide liquidity for this ETF.

Yup. They claimed they owned "1% of all BTC", without specifying if it was 1% of 11M (current amount) or 21M (max theoretical amount). But if it is 1% of the latter, then it matches perfectly with the number of bitcoins needed to back this ETF (1M shares * 0.2 BTC/share = 200k BTC).

Re: Winklevoss twins to offer Bitcoin ETF

#48

Post by sneak » Tue, Jul 02, 2013, 12:21 AM UTC

mrb wrote: post #41

sneak wrote: post #34

Earlier quoted context omitted.

Yeah, the whole public BTC order book on MtGox can be had right now for under $2mm USD. The other exchanges are smaller yet. The market is very loud, but still very tiny. This will change, and it's good to start early, but I agree wholeheartedly that an ETF is premature. This will not be the case in 12 months, though. I think the biggest risk to a fund like this is data security. If you have more than 50k bitcoin sit…

"the whole public BTC order book on MtGox can be had right now for under $2mm USD" No it cannot. Some people have placed sell orders at $1000, $10k, $100k, etc. To the point it would take trillion and trillion of dollars to buy up all BTC. But you can be sure that if you tried to do this, a lot of other sell orders would pop up, making it effectively impossible to buy up all bitcoins.

> But you can be sure that if you tried to do this, a lot of other sell orders would pop up, making it effectively impossible to buy up all bitcoins.

Yes, at entirely reasonable prices, right? :D A substantially higher cost basis starts to cut into fund profits...

Also, a minor correction to your comment: the depth of the MtGox order book is public, and it was accurate at the time of my comment. It's up to $2.2mm USD to buy the whole thing now.

Re: Winklevoss twins to offer Bitcoin ETF

#49

Post by sneak » Tue, Jul 02, 2013, 12:26 AM UTC

7Figures2Commas wrote: post #45

A few interesting things to note: 1. The trust sponsor is wholly-owned by Winklevoss Capital Management LLC. 2. The sponsor is licensing intellectual property from Winklevoss IP LLC. 3. The fee has not yet been determined. Fees are often waived for a period of time with new issues but according to the prospectus, "Presently, the Sponsor does not intend to waive any of its fee." 4. The fee is paid via a transfer of bi…

The thing that really jumped out at me was the proprietary "Security System" for holding keys developed by Winklevoss IP LLC and licensed to the Sponsor.

...and the fact that the Sponsor is not liable for security-related losses except in the case of gross negligence, which I don't imagine would cover advanced theft/hacking. (I am not a lawyer.)

Something close to 10% of all bitcoin currently in circulation have been stolen— it's a widespread problem and there are presently zero really robust solutions currently in use by bitcoiners. I eagerly await more data about their proprietary setup.

Re: Winklevoss twins to offer Bitcoin ETF

#50

Post by wmf » Tue, Jul 02, 2013, 12:26 AM UTC

mrb wrote: post #47

wmf wrote: post #44

Earlier quoted context omitted.

A thought occurs to me: Don't the twins own something like $10M of BTC? Perhaps they personally will provide liquidity for this ETF.

Yup. They claimed they owned "1% of all BTC", without specifying if it was 1% of 11M (current amount) or 21M (max theoretical amount). But if it is 1% of the latter, then it matches perfectly with the number of bitcoins needed to back this ETF (1M shares * 0.2 BTC/share = 200k BTC).

That probably kills my idea, since to provide liquidity for the ETF they'd need to hold significant BTC outside the fund.