I've heard of at least 2 financial products which enable people to take positions on bitcoin in the stock market. Here's a Reuter's article on one. Can anyone explain what the purpose of these investment vehicles is? Why would someone want to pay a financial institution ~2%/year to hold their bitcoin for them? Not to mention the counterparty risk...

"By listing the ETI on the Gibraltar Stock Exchange, which is an EU-regulated market, we are able to bring a high level of transparency and liquidity to investors", said Revoltura CEO Ransu Salovaara.

Transparency? How is an opaque financial product - which may or may not be backed by actual bitcoin - going to provide more transparency than trades on a public blockchain?

Is this simply a money grab to exploit the people who don't have a clue or am I missing something?

1 Answer 1

  1. Regarding audience: ETIs are regulated. Not just regulated, but they are marketed for sophisticated investors. In fact regulation prevents marketing these for general audience, so there shouldn't be issues having investors who do not know what they are doing. Investors in this case are banks and pension fund like actor, though I am not sure what's the definition of the sophisticated investor in EU.

  2. Regarding cost: There is a premium cost bringing a new investment vehicle to market. Mainly, because to have something regulated it should be insured. Bitcoin is very new. Financial market operators are not familiar with all risk models yet. Thus, insurance carries a high premium. BitcoinETI is audited by PriceWaterhouseCoopers and needs to pay various fees to stock markets, exchanges and such. For comparison, Digital Currency Group's Grayscale Bitcoin trust carries 2% maintenance fee.

  3. Regarding transparency: BitcoinETI prospectus is public, vetted by regulators and all fees are clear up front. The ETI must publish it Net Asset Value (NAV) continuously. Public blockchain doesn't include fiat nominated (USD, EUR) transactions of traded Bitcoins. These are internal to Bitcoin exchanges. Some exchanges choose to publish this data independently. Even if it's published, it is suspected that many Chinese exchanges manipulate this data. As virtual currency exchanges companies are not regulated, this practice cannot be confirmed or stopped.

  • I can understand the need for creating a more secure exchange to buy/sell bitcoin. I don't understand the need to hold customers' bitcoin at 1.75%/year. All they do is make 1 transaction to cold storage once. It costs $0 to maintain the bitcoin in cold storage. Since the actual trading is done over the stock exchange, and paid separately by the clients to the stock broker, they're literally providing no service at all for this fee.
    – bkoodaa
    Commented Jul 27, 2016 at 23:08
  • What fees you pay to bring your product to stock markets? Who holds the access to your cold storage? Is it insured? What happens if you lose the key? What guarantees your cold storage service provider is not going to disappear with your Bitcoins? These are some of the questions you might want to think of. Whether or not the price is right is up to the markets to decide. Commented Jul 27, 2016 at 23:21
  • The costs of converting fiat to bitcoin and back are paid by the fund managers; the commission on trades goes to the brokers, not the managers. So the management costs have to cover that. Also, it costs significantly more than $0 to maintain Bitcoin in cold storage securely. And you can't just keep it there; investors are buying and selling constantly. Commented Jul 27, 2016 at 23:22
  • For comparison, Grayscale Bitcoin Trust (from Digital Currency Group, DCG fame) has a management fee of 2%: grayscale.co/bitcoin-investment-trust Commented Jul 27, 2016 at 23:22
  • @Nate Eldredge: there is no fiat-to-bitcoin-and-back trading going on. They buy bitcoin once and put it in cold storage. The only thing that's being traded is investors' claim to the ownership of those bitcoins - on the stock exchange, for a separate fee.
    – bkoodaa
    Commented Jul 27, 2016 at 23:26

Not the answer you're looking for? Browse other questions tagged or ask your own question.