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However, the BIT and GBTC are a far cry from an ETF, both in the regulatory approval they have been granted and in the operational complexity.
investing in bitcoin-based startups. At one point in 2013, they reported owning about 1 percent of all bitcoin in existence (at the time, well over 100,000 bitcoin).11 Cameron has been credited with buying the bitcoin that first pushed the currency’s total network value over $1 billion.
To that end, in July 2013, they filed an SEC Form S-1 for the Winklevoss Bitcoin Trust, which they intended to list as an ETF under the ticker COIN.13 Typical S-1s are often 100 pages or more and cover every imaginable detail of a product. By writing an S-1 for a bitcoin product, the Winkelvoss twins signaled their seriousness.
day. Furthermore, the twins saw the SEC approval as the holy grail for winning investor confidence, and thereby taking bitcoin to the mainstream. While an admirable idea, they would soon find this path was longer than they likely expected.
and even started their own cryptoasset exchange, known as Gemini.
Although a lengthy process, as of March 2017 their exchange was one of two companies in the space that was a limited liability trust company, making it regulated similarly to a bank.
An approval would not only be one of the greatest regulatory wins for the budding asset class, but would also require a large amount of bitcoin to be sourced to meet the demand of capital market investors buying the
The two big takeaways were that the SEC decided the markets for bitcoin were “unregulated” and that there were not sufficient “surveillance-sharing agreements” between Bats Exchange—the exchange where the bitcoin ETF would list—and the cryptoasset exchanges where bitcoin for the ETF would be sourced.
Using Grayscale’s BIT, ARK Invest became the first public fund manager to invest in bitcoin in September of 2015, and as of this writing still has the only ETFs on the market with bitcoin exposure. Given ARK’s focus on fast-moving technologies like machine learning, autonomous vehicles, and genomics, investing in bitcoin was a natural fit for the firm.
In technical terms, ETNs are senior unsecured debt instruments that track a market index or benchmark.
Since an ETN is a debt instrument, investors are then subject to the credit quality of the issuer. If the issuer goes bankrupt, then investors in the ETN may get only a fraction of what they invested in the ETN, whereas with an ETF the fund holds the underlying assets.
As a debt instrument, the health and well-being of the underlying issuer is the added risk that the innovative investor possesses when owning an ETN.
In October 2015, XBT Provider issued Bitcoin Tracker One (COINXBT) to track the USD price of bitcoin.
Another bitcoin investment vehicle for investors is the exchange traded instrument (ETI). ETIs are similar to ETFs in that they are asset-backed securities, whereas an ETN doesn’t have to be backed by the underlying asset. However, ETIs are much less common and are primarily intended to house alternative investments such as futures or options.30
While a price index sounds simple, it can be a complex mathematical process to assess the exact price the market is offering, especially for cryptoassets that trade globally and can be purchased through a wide array of fiat currencies and cryptoassets.
The pricing problem is particularly acute for bitcoin that trades in different geographies and with different fiat currency pairs.
In the equities markets, such differences in price would quickly be solved by arbitrage, but due to time delays in moving bitcoin between different exchanges, not to mention fiat currency capital controls, these pricing discrepancies persist.
The NYSE launched its bitcoin pricing index, NYXBT, in May 2015.33
The index initially began by taking data from Coinbase, in which the NYSE had a minority investment,35 though it has since branched out to include other exchanges.
We commonly use the Tradeblock index, XBX, which is a leading bitcoin index for institutional traders of bitcoin to get the most accurate price of the asset throughout a trading
Similar to REX Share’s S&P 500 gold-hedged ETF, we may someday have a S&P 500 bitcoin-hedged ETF.
The median time for a tech company to IPO in 1999 was four years, whereas in 2014 it was 11 years,
As Ben Evans wrote in his report, “Almost all the returns are now private. Old world tech giants returned plenty in public markets—new ones have not.”
While most ICOs meet the first two conditions, the third condition is up for interpretation. Do investors buy into an ICO as an “expectation of profit,” or do they buy into an ICO to gain access to the ultimate utility that will be provided by the blockchain architecture?
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies…
They must be plans for learning rather than plans for implementation.
the S&P 500, or their average life span. The average life span for companies in the S&P 500 has fallen from 60 years in the 1960s to below 20 years of late.
Generally, disruptive technologies underperform established products in mainstream markets.
One area long discussed as ripe for disruption is the personal remittances market, where individuals who work outside of their home countries send money back home to provide for their families. The market is massive, with the World Bank reporting worldwide remittance flows north of $600 billion, though it admits that the estimate is conservative:
While the investing or takeover strategy has been a go-to for incumbents trying to avoid disruption, it is rarely as effective as hoped.
Nimble cultures are key to succeeding in the early stages of a disruptive technology, and if the startup is tainted by corporate bureaucracy, then it will quickly lose its edge.
The Hyperledger project was launched in December 2015 under the umbrella of the Linux Foundation to create a collaborative and open-source platform that could work with many industries, not just financial companies.
With few exceptions, the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology.
Commodities fall under the 60/40 tax ruling, meaning 60 percent of the gains on a commodity transaction are treated as long-term capital gains and 40 percent are treated as short-term capital gains. This is different from taxing stocks where profitably selling an equity after 12 months is classified as a long-term capital gain with a current tax rate cap of 15 percent.
Lynch stressed the need for fundamental analysis of any investment. “People buy a stock and they know nothing about it,” Lynch said. “That’s gambling, and it’s not good.”
