BIT Poised to Become Publicly Traded Bitcoin Fund(wsj.com)
wsj.com
BIT Poised to Become Publicly Traded Bitcoin Fund
http://www.wsj.com/articles/bitcoin-investment-trust-gets-finras-ok-to-become-public-bitcoin-fund-1425242094
45 comments
Oh goody, I can short bitcoin now.
Now all the people who say they wish they could short bitcoin will need another excuse for why they don't short bitcoin.
Shorting and options will probably help to stabilize price volatility (I'm neutral on bitcoin).
You can already do it at BitFinex with 3:1 leverage.
Not sure if you're serious, but at what price would you stop shorting? What strategy would you use? Short with a trailing stop?
As a bonus you get the considerable chance that they will lose all their bitcoins in a hack/fraud for free.
Hmmm... going long bitcoin and shorting this may be the trade to do.
Hmmm... going long bitcoin and shorting this may be the trade to do.
Before thinking this is a free trade, consider that it costs money to short a stock. In order to short the stock, you need to first borrow it from someone so that you could sell it to someone else. When borrowing a stock, you have to pay an interest rate for the shares which were loaned to you.
Some stocks are cheap to short while others could have high double digit interest rates. The rate depends on the willingness of people to lend and volatility.
Some stocks are cheap to short while others could have high double digit interest rates. The rate depends on the willingness of people to lend and volatility.
That's what the fund's issuers are doing, too.
Check out http://btc.sx/
You already can on a few places. OKCoin seems to be most popular, and up to 20X leverage on their futures, http://okcoin.com/
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Additional Note: Barry Silbert is the founder of SecondMarket.
Not sure what they're doing now (website is confusing) but when I interned there in 2012 they were a marketplace for all sorts alternative assets. They became somewhat well known when they made a deal with Facebook to be the exclusive pre-IPO market for Facebook equity. They made a business of helping private companies organize buying/selling of their shares. They branched out into all sorts of things including a gold fund, etc. So this seems like a natural move for Barry.
Not sure what they're doing now (website is confusing) but when I interned there in 2012 they were a marketplace for all sorts alternative assets. They became somewhat well known when they made a deal with Facebook to be the exclusive pre-IPO market for Facebook equity. They made a business of helping private companies organize buying/selling of their shares. They branched out into all sorts of things including a gold fund, etc. So this seems like a natural move for Barry.
Is this an ETF? If so, what happens to the ETF if the underlying asset is lost/stolen?
ETF stands for exchange traded fund. This will trade over the counter (OTC) and won't be listed on an exchange, so it isn't technically an exchange traded anything.
The other problem is that there is no creation process for publicly tradable shares. With a typical ETF, there are entities known as "authorized participants" who can exchange a fixed amount of the underlying securities for shares in the ETF (and vice versa). This creates the mechanism for the ETF price to track the price of the underlying securities. If the price of SPY rises above the price of the S&P 500 index, APs can buy the underlying securities, exchange them for new shares of SPY, then sell the SPY shares. This pushes the price of SPY down towards the fundamental value. That process doesn't exist for BIT because new publicly tradable shares can be created only through this weird 12-month lockup expiration process. It will be interesting to see how it trades!
The other problem is that there is no creation process for publicly tradable shares. With a typical ETF, there are entities known as "authorized participants" who can exchange a fixed amount of the underlying securities for shares in the ETF (and vice versa). This creates the mechanism for the ETF price to track the price of the underlying securities. If the price of SPY rises above the price of the S&P 500 index, APs can buy the underlying securities, exchange them for new shares of SPY, then sell the SPY shares. This pushes the price of SPY down towards the fundamental value. That process doesn't exist for BIT because new publicly tradable shares can be created only through this weird 12-month lockup expiration process. It will be interesting to see how it trades!
The ETF files for bankruptcy and the creditors and shareholders divvy up the remaining assets (which will be practically nothing).
Especially nothing for shareholders, since creditors get paid first.
It is not an ETF.
Why did they choose OTC? Usually the shady penny-stocks or the Qs are traded OTC.
I wonder if market dynamics will force an artificial increase in the value of bitcoin. If the bitcoin market is operating properly, a bitcoin ETF existing should not increase the price of bitcoins. If it does, can we assume bitcoins are overvalued?
In the housing boom people built houses and sold mortgages because they were a good investment, not because people actually needed the houses. If the bitcoin ETFs make speculative buying of bitcoins so easy for the average joe, we could see a huge bitcoin price increase, followed by a crash a while later.
In the housing boom people built houses and sold mortgages because they were a good investment, not because people actually needed the houses. If the bitcoin ETFs make speculative buying of bitcoins so easy for the average joe, we could see a huge bitcoin price increase, followed by a crash a while later.
Can anyone explain to me what the purpose of owning bitcoin stock is as opposed to just owning bitcoin?
It's the same reason why you don't buy and own steel, but rather you buy stock in a mining conglomerate or a refinery. Owning a piece of a business in the long-run may be more less volatile than the commodity itself. Though the two can't necessarily be separated in terms of future outlook.
As the fund tracks the price of bitcoin, this isn't a reason that applies in this case. It's not a fund that tracks the value of Coinbase and Bitpay etc, there are barely any public bitcoin companies anyway (maybe 1 or 2 as far as I know, and they're not big players either.)
It's interesting because it interfaces with existing investment infrastructure, culture, protocols etc. Trying to buy, store securely and apply proper accounting rules to a not fully defined (by law) digital currency concept, is not something investment firms want to bother with unless they specialize in bitcoin. (like SecondMarket).
Instead, they'd just want to pull up a vetted fund on an exchange they're familiar with, on their bloomberg terminal they're familiar with, purchase a financial product whose structure they're familiar with, and apply the same accounting standards as they would normally, and deal with the normal legal ramifications of shares of ETFs.
This essentially means anyone can now get exposure to the price of bitcoin without any extra understanding or investment necessary on the technical bits of storage, accounting etc.
And that could be very interesting. Bitcoin makes for a great opportunity. It can go to 0, or it can do 100x or even 500x value growth in the next 20 years. And I'd say the odds of the latter are greater than 10%. That's why it's not such a crazy idea for billion dollar funds to put $10m into bitcoin, as they'd have a chance of making billions at the cost of losing millions. I wouldn't be surprised if, now that it's easy for any pension fund, hedge fund, family fund or university endowment fund to buy in, that we'll see quite a few of them do.
At least, that's always been the story. "If pension funds dedicated only 0.1% to bitcoin, the price would go up one or two orders of magnitude this decade" or something to that effect.
We'll see how this one plays out.
It's interesting because it interfaces with existing investment infrastructure, culture, protocols etc. Trying to buy, store securely and apply proper accounting rules to a not fully defined (by law) digital currency concept, is not something investment firms want to bother with unless they specialize in bitcoin. (like SecondMarket).
Instead, they'd just want to pull up a vetted fund on an exchange they're familiar with, on their bloomberg terminal they're familiar with, purchase a financial product whose structure they're familiar with, and apply the same accounting standards as they would normally, and deal with the normal legal ramifications of shares of ETFs.
This essentially means anyone can now get exposure to the price of bitcoin without any extra understanding or investment necessary on the technical bits of storage, accounting etc.
And that could be very interesting. Bitcoin makes for a great opportunity. It can go to 0, or it can do 100x or even 500x value growth in the next 20 years. And I'd say the odds of the latter are greater than 10%. That's why it's not such a crazy idea for billion dollar funds to put $10m into bitcoin, as they'd have a chance of making billions at the cost of losing millions. I wouldn't be surprised if, now that it's easy for any pension fund, hedge fund, family fund or university endowment fund to buy in, that we'll see quite a few of them do.
At least, that's always been the story. "If pension funds dedicated only 0.1% to bitcoin, the price would go up one or two orders of magnitude this decade" or something to that effect.
We'll see how this one plays out.
Your comment is very informative but I don't think most of the above applies to this BIT fund, since it's just an over-the-counter listing. It does apply to the upcoming Winklevoss fund, which will be an ETF.
It is easier to buy / sell an exchange traded fund than bitcoin. You can use an existing brokerage account to buy it.
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For one, there's less worry that you'll forget your private keys or have them stolen.
Will be traded on OTC markets? I believe OTC is where most penny stocks are bought and sold, right?
So this should be a pretty good gambling opportunity. Wish I knew the exact date this thing launches.
So this should be a pretty good gambling opportunity. Wish I knew the exact date this thing launches.
Big news. Sent the price for a big jolt! https://cryptowat.ch/bitfinex/btcusd/30min
There's a strong bias for short jumps, not so much attention for constant falls. This claim also depends on which time scale you use.
It jumped up about $15, the same as it jumped when Coinbase exchange rumors came out, and well short of the PayPal partnership announcement. (about $50) In both of those cases, the price retreated to previous levels within a day.
That's why trading Bitcoin is fun
Hello, index arbitrage!
Well this is not good for price stability, has to happen though.
Why not? More volume = more stable.
1) Barry Silbert's BIT has beat the Winklevoss' (or Winklevii) bitcoin fund to market by using a backdoor listing technique.
2) Finra granted its request for a permanent ticker symbol, GBTC, and that “is expected to be effective shortly.”
3) Each share of BIT is worth approximately one-tenth of a bitcoin. As of Friday, the trust’s net asset value stood at $24.43 per share.