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01:36

Winklevoss Bitcoin Trust, why?

The WINKLEVOSS brothers are long on Bitcoin. They said it several time and they hold a large chunk of Bitcoins (around 1% of the market cap ==> around 10M$ according to this Techcrunch article).

Well they just announced filing for a 20m$ IPO for the WINKLEVOSS BITCOIN TRUST an investment vehicle that will mimic the bitcoin value. Here is the IPO document on the SEC website (full of analysis of the bitcoin ecosystem). They want to create a sort of mutual fund where investors can buy sharse of the fund that will mimic the value of a Bitcoin

Extract from the Prospectus :

Trust Structure

The Trust is a common law trust, formed on [ ], 2013 under New York law pursuant to the Trust Agreement between the Sponsor and the Trustee (“Trust Agreement”), which sets forth the respective rights and duties of the Sponsor and the Trustee and establishes the segregated custody account of the Trust that will be used to hold the Bitcoins deposited with the Trust (“Trust Custody Account”). The Trust holds “Bitcoins,” a digital commodity based on an open source cryptographic protocol existing on the online, end-user-to-end-user network hosting the public transaction ledger, known as the “Blockchain,” and the source code comprising the basis for the cryptographic and algorithmic protocols governing the issuance of and transactions in Bitcoins (the “Bitcoin Network”). The Trust is expected from time to time to issue Baskets in exchange for deposits of Bitcoins and to distribute Bitcoins in connection with redemptions of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of a weighted average price of Bitcoins (“Blended Bitcoin Price”), less the Trust’s expenses. The Sponsor believes that, for many investors, the Shares will represent a cost-effective and convenient means to access exposure to Bitcoins. The material terms of the Trust Agreement are discussed in greater detail under the section “Description of the Trust Agreement.” The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and are expected to be traded under the ticker symbol “[TICKER]” on the [EXCHANGE].

….

The Trustee is [TRUSTEE]. In its capacity as trustee of the Trust, the Trustee is generally responsible for the day-to-day administration of the Trust. This includes (1) transferring the Trust’s Bitcoins as needed to pay the remuneration due to the Sponsor (“Sponsor’s Fee”) in Bitcoins (such Bitcoins transfers are expected to occur approximately monthly in the ordinary course), (2) calculating the NAV of the Trust and the NAV per Share, (3) receiving and processing orders from Authorized Participants to create and redeem Baskets and coordinating the processing of such orders with The Depository Trust Company (“DTC”), (4) transferring the Trust’s Bitcoins as needed to pay any extraordinary Trust expenses that are not assumed by the Sponsor and (5) selling the Trust’s remaining Bitcoins at termination of the Trust and distributing the cash proceeds to the owners of beneficial interests in the Shares (“Shareholders”) of record.

why are they creating that fund and raising investors money through an IPO, what’s their strategy? Here is my take :

  • They think there is a demand for bitcoin but the market is not liquid enough and easy to access for the main street crowd. By creating shares of a Trust they allow investors to ride the bitcoin wave (represented by its exchange rate) with regular investment accounts. The value of the stock will mimic the value of bitcoin. The business model will be one of a fund with management fees.  My opinion is that this fund/Trust structure adds layers of fee and intermediary where I don’t see a real value delivered.  I think I would rather have a Bitcoin ETF even though I have no idea on how to build one or even if it is possible. Moreover it is not that complicated to buy Bitcoins eventhough there are sometimes liquidity issues.
  • Since they own a large number of BitCoins, they also want to see the value of bitcoin going north. It’s been stable around the 100$ level for the last 2 months. If the twins manage to raise 20M$ through the IPO, they’ll buy Bitcoins and boost the price up  by pouring 20M$ in the Bitcoin asset class. Today the market cap of the total bitcoin mass is 1 B$ (there is roughly 11.3 M Bitcoins created so far : 11.2M * 97$ = 1.04 Billion $ of market cap). So with 20M$, roughly 2% of the market cap, can they move the price up? well I don’t know. Maybe they also think that bringing more media attention and a “legal” framework will push the value of Bitcoin up.
  • Maddof style? Or maybe, they just found a quick way to make a 10M$ profit, by selling their own Bitcoins to the fund investors for 10M$ and then keep the other 10, like @Beautyon_ mentioned in his tweet.

I woiuld think don’t have a high level of trust with the WINKLEVOSS twins. Maybe I am wrong and it is only because of the movie and the overall « bad»  image the brothers have. So I don’t know if I would invest in that found. It is not that complicated to buy Bitcoins through the different marketplace out there. I don’t really see the value added with that fund.

Actually I tend to see bitcoin the otherway : when I hold a bitcoin it’s like holding a share of the different marketplaces and bticoin payment providers that are being built on it. Its like having a blended share of Visa/MAstercard/NYSE/Paypal.  The more service providers and marketplaces there are, the more agile will the bitcoin ecosystem  be. And it could one day be a full part of the web payment layer. Afterall the bitcoin currency are the defacto comission currency of this decentralized payment network. Miners, each time they validate a transaction, earn bitcoins. The bitcoin currency is the fuel of the bitcoin network, we need bitcoins to take part of the Bitcoin payment network. All service providers in that economy need bitcoins at different level to handle money transfer even if it is $ to bitcoin to boitcoin to $.

Now let’s wait to see if Investors believe in a fund based Bitcoin vehickle.

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