Winklevoss Bitcoin Trust
sec.gov
sec.gov
The terms are awful: "The Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Administrator, Trust Agency Service Provider and Custodian and the Trust’s lack of insurance protection expose the Trust and its Shareholders to the risk of loss of the Trust’s bitcoins for which no person is liable."
"The Trust will not insure its bitcoins. The Custodian will maintain insurance with regard to its custodial business on such terms and conditions as it considers appropriate in connection with its custodial obligations and will be responsible for all costs, fees and expenses arising from the insurance policy or policies. The Trust will not be a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage. Therefore, Shareholders cannot be assured that the Custodian will maintain adequate insurance or any insurance with respect to the bitcoins held by the Custodian on behalf of the Trust. Further, Shareholders’ recourse against the Trust, Custodian and Sponsor under [New York] law governing their custody operations is limited. Similarly, the Shareholders’ recourse against the Administrator and Trust Agency Service Provider for the services they provide to the Trust, including those relating to the provision of instructions relating to the movement of bitcoins, is limited. Consequently, a loss may be suffered with respect to the Trust’s bitcoins which is not covered by insurance and for which no person is liable in damages."
I've never seen terms this unfavorable to shareholders in a prospectus before. They're taking on less liability than Mt. Gox took on. If the Bitcoins mysteriously disappear, no one is liable.
Otherwise, no large exchange insures bitcoins stored in their cold wallets - which will be the case here. The risks are not well understood/priced yet...
http://www.coindesk.com/coinbase-names-aon-bitcoin-insurance...
- easy shorting of bitcoins which facilitate price discovery
- lower transaction costs. The cheapest and most liquid exchanges still charge .2% per transaction + spread. Most (all?) of them charge you for getting cash in our out of their platform. Buying shares of an ETF would cost just spread + transaction cost charged by your broker which should be much lower (.0035 per share on Interactive Brokers for example)
- easy hedging of a real bitcoin position. Let's say you hold a large fluctuating position in bitcoin that would like to hedge in USD. You could continuously convert all your BTC to USD or go long/short the ETF which is much cheaper.
Am I missing something? Or will broker-dealers turn around and sell single shares to the public? Or these statements don't mean what I think they mean?
The ETF has an associated Sponsor's Fee, to be paid in Bitcoin, that is not yet known. Also, a few relevant sections from the prospectus:
> Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares.
> In consideration for the Sponsor’s Fee, the Sponsor has contractually assumed certain operational and periodic expenses of the Trust. See “Business of the Trust—Trust Expenses.” Extraordinary expenses of the Trust (e.g., expenses relating to litigation) and any other expenses that are not assumed by the Sponsor under the terms of the Trust Agreement are borne by the Trust and paid through the sale of the Trust’s bitcoins. Any incurring of extraordinary expenses by the Trust could adversely affect an investment in the Shares.
And:
> The Trust’s transfer or sale of bitcoins to pay expenses or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution from the Trust.
> Each delivery or transfer of bitcoins by the Trust to pay the Sponsor’s Fee or other expenses will be a taxable event to Shareholders. This or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution or dividend payment from the Trust. Any tax liability could adversely impact an investment in the Shares and may cause Shareholders to prepare and file additional tax documents. See “United States Federal Income Tax Consequences—Taxation of US Shareholders.”
I don't see how anybody actually taking the time to read the prospectus could come to the conclusion that this ETF will provide a lower cost vehicle for investing in Bitcoin.
If you want to "invest" in bitcoin and by that I mean buy some bitcoins and hold them for years, sure, you shouldn't buy an ETF. If you want to trade bitcoins, you're better off trading a liquid ETF than transacting on Coinbase or Bitstamp.
You can have a substantial sponsor's fee of 1%. Let's say you're comparing the ETF to Coinbase - they have a transaction fee of 1% - then as long as you're making more than one transaction a year, you'd rather trade the ETF.
This is true, but choosing a particular security based on transaction costs alone can be penny wise and pound foolish. Savvy traders are obviously cognizant of the pernicious effects of high transaction costs, but you don't win as a trader by minimizing transaction costs; you win by delivering risk-adjusted returns. If the structure of a security produces lower returns or adds a high level of unnecessary risk, the transaction cost savings can be moot.
> If you want to trade bitcoins...
I'd argue that it's premature to suggest this is a realistic vehicle to "trade" Bitcoin until we see how well it actually tracks the Bitcoin market. Obviously, it needs to get the green light from the SEC before anyone has the opportunity to do that.
> You can have a substantial sponsor's fee of 1%. Let's say you're comparing the ETF to Coinbase - they have a transaction fee of 1% - then as long as you're making more than one transaction a year, you'd rather trade the ETF.
No, that's not necessarily true. Again, read the prospectus. Unless you fully understand and are comfortable with the risks associated with the structure of this ETF, the possible consequences of how the Sponsor's Fee and other potential expenses are paid, and the potential conflicts between the parties involved, one might have very good reason to chose a service like Coinbase over the ETF.
https://blockchain.info/charts/estimated-transaction-volume-... https://blockchain.info/charts/market-cap https://blockchain.info/charts/hash-rate
It just struck me that the market cap trend seems to have gone down in very similar fashion tot he price of oil over the last 6 months. If enough people who bought bitcoin did so primarily as a hedge, then you'd expect it to loosely track a basket of popular commodities like oil and gold (the price of which looks quite similar to Bitcoin's market cap over the last year IMHO - http://goldprice.org/). Can't wait for Google to get their automatic statistician tool online - I don't like statistics well enough to want to use R regularly but I would love a tool that I can use to quickly measure the coupling between different datasets.
A good resource on the connection between leverage and financial bubbles is Kindleberger's "Manias, Panics, and Crashes"
I'd much rather put $50,000 down on something like a 30-yr mortgage for $250,000 in a diversified index fund than do the same in a house. But alas this isn't an available product.
I agree with your point, but at the same time I'm not sure I'd want the irrational exuberance that we saw (and will see again) in the real estate market to start happening to equities!
Additionally, margin is only strictly constrained under reg-t for accounts under $100k or so. Above that level you can request portfolio margin.
Not necessarily. All they say is:
> The Index Provider’s Winkdex formula provides a volume-weighted, exponential moving average market price by blending trading data from the three largest Bitcoin Exchanges by volume on a list of Index Provider-approved Bitcoin Exchanges.
> As of December 26, 2014, the eligible Bitcoin Exchanges include Bitfinex, BitStamp, BTC-e, CampBX and LocalBitcoins.
Needless to say, if BTC-e is not one of the three largest BTC exchanges, then it won't be included.
Assuming there's a way to verify every trade reported by BTC-e on the blockchain, shouldn't irregularities show up relatively quickly? More importantly, it seems that they do recognize that possibility: "Even in the absence of large trading fees and fiat currency deposit/withdrawal policies, price differentials across Bitcoin Exchanges remain; for example, bitcoins on BTC-e traded at a discount of approximately 0.9 percent relative to the average daily weighted price for bitcoins on BitStamp and Bitfinex during the week ended December 26, 2014. During the prior month, prices on BTC-e typically traded at a discount of between zero and five percent."
There is no way to verify the veracity of trades on any of these exchanges. The only part that touches the blockchain is deposits and withdrawals, and those are extremely hard to track.
I agree that including BTC-e on that list is a very odd decision, considering they have excluded OKCoin, Huobi, and other Chinese exchanges which make up the lion's share of the market (even ignoring the wash trading).
BTC-e has a reputation of being something akin to Liberty Reserve, in that they exist primarily to enable drug dealers, thieves, and anyone else with dirty money to obtain fiat no questions asked.
Trading doesn't happen on the blockchain, it can't, block chain confirmations are far too slow for trading. All trading on all exchanges happens off chain.
http://www.sec.gov/Archives/edgar/data/1579346/0001193125144...
Creation/Redemption means that if the price of the shares diverges from the true price of Bitcoin, you can convert Bitcoins into trust shares and vice-versa.
Have they become better at managing secrets and 'tech guys'? Because that's what's necessary to safely hold a lot of Bitcoin.
It is difficult, for example, for investors to trade physical gold because it is difficult to acquire and store, difficult to trade in smaller amounts, and does not trade on conventional markets. Gold ETFs solve these problems.
But I agree that this is one of the few ways to get liquidity on a huge position.
On Bitstamp right now "A market order to sell 200000.0000 USD worth of bitcoins right now would sell 639.80163 bitcoins and would take the last price down to 310.7300 USD, resulting in an average price of 312.5969 USD/BTC."
Ticker last is currently $315.15, so just dumping it on a public market orderbook would only cost you two tents of one percent.
One million would cost you 2% in market movement. Four million would cost you 10% in market movement.
So that gives you some boundaries on how much volume you're talking before "just press sell" is no longer a reasonable sales strategy.
nice name there DTC.
I wonder how much bitcoins they own.
[1] http://en.wikipedia.org/wiki/Winklevoss_twins#Bitcoin
EDIT: From the top of the article: "In April 2013, the brothers claimed they owned nearly 1% of all Bitcoin in existence at the time."
10,988,125 * .01 = about 109,881 BTC.
109,881 * $320 (current market value of bitcoin) = $35,161,920.. not bad.
The price of bitcoin in April 2013 was about $138[2]... so if they bought all of them then (I think they got into bitcoin earlier than that so this is unlikely) they would have paid around $15,163,578 for them, so a return of approximately $19,998,342 (131%) from April 2013 to now.
[1]: https://blockchain.info/charts/total-bitcoins?timespan=2year...
[2]: https://blockchain.info/charts/market-price?timespan=2year&s...
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I get gold trusts, like GLD -- transporting and storing and selling gold is a pain. But it's easy to buy and store Bitcoin using a service like CoinBase. Not to mention the fact that you'll be paying management fees.
I suppose if you wanted to put bitcoin in your IRA this would be helpful.
One of the aspects of Bitcoin that gives it value is cutting out third parties for storage.
I honestly don't understand using a bank to store dollars when using a wallet is so readily available.
Do you not see the flaw in your thinking? People with large amounts of money don't want the responsibility of securing their own money themselves. Storing Bitcoin's despite what people may say, is not trivial for the average person.
Perhaps people should get up to speed before using Bitcoin unless they want to lose their money. Storing btc with a third party is a great way to lose them.
"Use Linux! Windoze is insecure!" they said.
Right.
Bitcoin isn't ready for prime time, agreed. But it's still here.
How much did you lose (if you don't mind saying)?
How long was it before you noticed?
Do you think you were (a) individually targeted as a BTC holder, or (b) do you think someone was port scanning the Internet and stumbled onto you?
If (a), how did they know you might have BTC? If (b), is it actually commonplace for automated attacks to seek BTC wallets these days?
Most of the publicity centered around trojan miner applications, but the same issue also exposed the entire file system. So, searching the exposed file systems for wallet.dat files was a trivial and obvious free lunch for the crackers, much more so than mining.
In retrospect, I think the biggest mistake was using the same port for things like the security camera server that is used for remote administration. Taking the time to learn how to use a nonstandard port would probably have kept this particular system safe. I can't blame Synology, really... just a bad threat assessment on my part. My thinking was that keeping the wallet.dat file off of any Internet-accessible Windows boxes would provide enough "security by obscurity," but we all know how that story usually ends.
MtGox is the chief example of a litany of skeezy & sketchy schemes associated with that could be, charitably, called badly done. Less charitable intepretations might be, "cons", or "fraud". Lots of that has shaken out, but the BTC community is rife with bad thinking.
I feel far more comfortable throwing a $100 payment at my stockbroker account for an ETF, knowing that several layers of reliable cutouts stand between my bank account and some seriously dodgy businesses.
And, frankly, I don't particularly feel like going through the dedicated work to secure & backup a bitcoin wallet, and I really don't feel like outsourcing that to a company which isn't already reputable and respected for being secure.
The actual value of the underlying assets may, of course, turn into dust and dreams like so many other assets - that's as risky as all get out, and COIN has a lot of direct risks - it's a VERY speculative ETF. That's just the nature of things. And, too, I'm not going all in on COIN, I diversify my assets as a risk hedge. COIN would strictly be a sideline for amusements & maybe some profit.
So the summation of this is, my fine trading account has a variety of services which serve to mitigate fraudulent behavior, and I will mitigate my risk vs. fraud by paying the trading fees & ETF fees, rather than assuming that risk directly on my systems.
In other words: do you trust the Winklevosses?
> Bitcoins held by the Trust are not subject to FDIC or SIPC protections.
> The Trust is not a banking institution or otherwise a member of the Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Trust are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. The undivided interests in the Trust’s bitcoins represented by Shares in the Trust are not insured.
Also see "Risk Factors Related to the Regulation of the Trust and the Shares." The protections you apparently think you have don't exist.
I realize the underlying assets are subject to some of the same risks as owning BitCoins themselves. The person who said do you trust the Winklevoss's more than the wallet service is on the money.
(Though if you buy through CoinBase and then store the coins in your own wallet, that's different)
please don't remain ignorant.
[1] http://www.bloombergview.com/articles/2014-12-23/and-2014s-w...
Jan 1, 2014: $770.44
April 1, 2014: $478.72
July 1, 2014: $635.59
October 1, 2014: $381.33
December 31, 2014: $315.33
I do agree that the earlier prices were simply based on hype though. Typical buy high and sell low behavior.
You could look at an actual calculation of volatility instead of eyeballing some random prices: https://btcvol.info/ Right now we're in a pretty quiet period after the bubble in Jan 2014.
Also note that the site is measuring historical volatility instead of implied volatility as is customary for most financial instruments so it can't be compared one-to-one with VIX or similar measures.