Fidelity Bitcoin Index Fund

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EnjoyIt
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

F150HD wrote: Sat Sep 12, 2020 10:05 am
w3ldon wrote: Sat Aug 29, 2020 12:07 pm I know cryptocurrency is not thought of highly on this forum, but I thought this might be a more boglehead way to invest in cryptocurrencies.

It is called the Wise Origin Bitcoin Index Fund I from Fidelity. Minimum investment is $100,000, which I think may be a nonstarter, for me at least (1% of portfolio is in BTC).

https://sec.report/Document/0001822414-20-000002/

Thoughts? Would you do this over just investing in Bitcoin for a high volatility, high reward asset?
LOL

"Fidelity Bitcoin Index Fund"

Thought this was a joke. A fund like this could break this board. :happy
We still have no proof that such a fund exists or is in the process of existing soon.
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Northern Flicker
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Re: Fidelity Bitcoin Index Fund

Post by Northern Flicker »

TheTimeLord wrote: Sat Sep 12, 2020 9:31 am
Northern Flicker wrote: Sat Sep 12, 2020 1:33 am
TheTimeLord wrote: Thu Sep 10, 2020 11:44 pm
Northern Flicker wrote: Thu Sep 10, 2020 11:34 pm
investing engineer wrote: Here's my thought. I would ask myself this key question: Do I need bitcoin in my portfolio? For every asset class, one must be clear about what role it plays in the portfolio. I can only think of one non-speculating purpose of bitcoin: Protection against massive financial collapse, similar to the purpose of gold buried in backyard. If this is its role, then, if I were to put in any money in bitcoin, I would do so by storing them on my own hard drive, not in some bitcoin exchange, not to mention "mutual fund" that holds bitcoins.
If there is a massive financial collapse, I would not want to be depending on any asset whose only value is if you can find someone willing to buy it from you.
Isn't any asset only worth what someone is willing to give you in exchange for it?
No. Some assets like residential real estate provide you with a place to live independently of what its market value may be. Stocks and bonds are claims on assets (if any) of the issuer.
Would it make you feel better if we change the word from asset to investment.
So that it precludes bitcoin? Residential real estate provides value whether or not it is tou that lives there. It can be an asset or investment because, unlike bitcoin, it provides an intrinsic stream of value.
Risk is not a guarantor of return.
EnjoyIt
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

Northern Flicker wrote: Sat Sep 12, 2020 11:08 am
TheTimeLord wrote: Sat Sep 12, 2020 9:31 am
Northern Flicker wrote: Sat Sep 12, 2020 1:33 am
TheTimeLord wrote: Thu Sep 10, 2020 11:44 pm
Northern Flicker wrote: Thu Sep 10, 2020 11:34 pm
If there is a massive financial collapse, I would not want to be depending on any asset whose only value is if you can find someone willing to buy it from you.
Isn't any asset only worth what someone is willing to give you in exchange for it?
No. Some assets like residential real estate provide you with a place to live independently of what its market value may be. Stocks and bonds are claims on assets (if any) of the issuer.
Would it make you feel better if we change the word from asset to investment.
So that it precludes bitcoin? Residential real estate provides value whether or not it is tou that lives there. It can be an asset or investment because, unlike bitcoin, it provides an intrinsic stream of value.
I think this is where the bitcoin conversation gets lost.
“Intrinsic stream of value”

As an investor we want to invest in an asset that provides an intrinsic stream of value

As a speculator one is buying something with the goal of selling it to someone else for a higher price.

There is a big difference in the above that I feel many bitcoin proponents refuse to recognize.

With regards to this ETF I just don’t see why one would need an ETF to hold something they can do themselves without the ETF fee. Unless of course there is an additional risk in holding bitcoins oneself.
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nisiprius
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Re: Fidelity Bitcoin Index Fund

Post by nisiprius »

Note: I stand corrected by bogivan below and have struck out some portions of this accordingly.
HomerJ wrote: Sat Sep 12, 2020 10:08 amPlus, where is the word "Index" coming from? What Index?
It's all guessing at this point, but am guessing the following things are true, and would welcome actual information if anyone can find any.

a) The fund does not exist yet. It's been submitted to the SEC for approval... just like the Winklevoss COIN ETF was submitted, back in 2013.

b) "Fidelity?" The fund can be called a "Fidelity spin-off" or possibly even a "Fidelity subsidiary," but it is not "Fidelity;" it is an independent business called "Wise Origin." That is a very curious and puzzling name, by the way, and I'd like to know the story behind it. See boglvan's comments. I still don't understand the branding issue, though.

c) "Fund?" It isn't a mutual fund. That is, it isn't regulated by the Investment Company Act of 1940. It is only a "fund" in the same sense that a "hedge fund" is. So it probably won't have a ticker symbol, and you probably won't be able to buy it at a regular online brokerage by clicking "FBTCX" and "buy." You probably have to set up a separate account at Wise Origin.

d) "Bitcoin?" It probably does not hold any bitcoin at all. So far the SEC has not approved any exchange-traded product that actually holds bitcoin, because of concerns about transparency and price manipulation. When rejecting the Winklevoss COIN ETF (for the second time), the SEC said the price of bitcoin is susceptible to manipulation and said
“Because adequate surveillance-sharing agreements are not in place—and any current surveillance-sharing agreements are with bitcoin-related markets that are either not significant, not regulated, or both—the Commission concludes that the proposal is inconsistent with Exchange Act Section 6(b)(5)."
It seems unlikely that packaging the same wine in a different bottle would change that.

So if it doesn't hold bitcoin, what does it hold? Probably a bunch of derivatives and futures, and a financial engineering strategy that has the goal of tracking the price of bitcoin.

e) "Index?" "Index" probably means "the price of bitcoin," and it is an index because it is an average of prices available at different exchanges.

And it is probably intended to serve some kind of buyer who, for some reason, is not legally allowed to invest directly in bitcoin.
Last edited by nisiprius on Sun Sep 13, 2020 11:04 am, edited 4 times in total.
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Re: Fidelity Bitcoin Index Fund

Post by AlphaLess »

Abi Johnson not rich enough, and now she is pulling off stunts like that.

Oh, there is never end to human greed.
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Re: Fidelity Bitcoin Index Fund

Post by AlphaLess »

Impatience wrote: Sat Aug 29, 2020 12:17 pm An index fund to invest in a single asset? Seems to defeat the purpose, especially as bitcoin can be broken down into trivially small denominations (satoshis). If I wanted to own BTC I’d buy some on a low-fee exchange then park them in Coinbase myself. No minimum, no fees aside from a tiny transaction fee and the bid/ask spread.
Why would you park your fake-coins at coinbase?
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EnjoyIt
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

AlphaLess wrote: Sat Sep 12, 2020 3:51 pm
Impatience wrote: Sat Aug 29, 2020 12:17 pm An index fund to invest in a single asset? Seems to defeat the purpose, especially as bitcoin can be broken down into trivially small denominations (satoshis). If I wanted to own BTC I’d buy some on a low-fee exchange then park them in Coinbase myself. No minimum, no fees aside from a tiny transaction fee and the bid/ask spread.
Why would you park your fake-coins at coinbase?
where do you recommend we hold our fake-coins?
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
am
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Re: Fidelity Bitcoin Index Fund

Post by am »

EnjoyIt wrote: Sat Sep 12, 2020 3:18 pm
Northern Flicker wrote: Sat Sep 12, 2020 11:08 am
TheTimeLord wrote: Sat Sep 12, 2020 9:31 am
Northern Flicker wrote: Sat Sep 12, 2020 1:33 am
TheTimeLord wrote: Thu Sep 10, 2020 11:44 pm

Isn't any asset only worth what someone is willing to give you in exchange for it?
No. Some assets like residential real estate provide you with a place to live independently of what its market value may be. Stocks and bonds are claims on assets (if any) of the issuer.
Would it make you feel better if we change the word from asset to investment.
So that it precludes bitcoin? Residential real estate provides value whether or not it is tou that lives there. It can be an asset or investment because, unlike bitcoin, it provides an intrinsic stream of value.
I think this is where the bitcoin conversation gets lost.
“Intrinsic stream of value”

As an investor we want to invest in an asset that provides an intrinsic stream of value

As a speculator one is buying something with the goal of selling it to someone else for a higher price.

There is a big difference in the above that I feel many bitcoin proponents refuse to recognize.

With regards to this ETF I just don’t see why one would need an ETF to hold something they can do themselves without the ETF fee. Unless of course there is an additional risk in holding bitcoins oneself.
As an investor I just want returns during my investing life. I don’t care if the returns come from stocks, bonds, bitcoin or quick sand. If bitcoin gives me a nice stream of returns during my lifetime then I am happy even if it crashes to 0 later on.
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Re: Fidelity Bitcoin Index Fund

Post by Northern Flicker »

Sure, but you lower the chances of being rewarded when you invest in things like bitcoin that have no mechanism for estimating fair value.
Risk is not a guarantor of return.
am
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Re: Fidelity Bitcoin Index Fund

Post by am »

Northern Flicker wrote: Sat Sep 12, 2020 8:02 pm Sure, but you lower the chances of being rewarded when you invest in things like bitcoin that have no mechanism for estimating fair value.
“Fair value” is not predictive of future returns. Stocks are overvalued according to multiple metrics. So what? I’m still investing because they’re better then most other investments and sometimes do well even if above fair value (whatever that means).
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Re: Fidelity Bitcoin Index Fund

Post by arcticpineapplecorp. »

AlphaLess wrote: Sat Sep 12, 2020 3:49 pm Abi Johnson not rich enough, and now she is pulling off stunts like that.

Oh, there is never end to human greed.
True story, Word of Honor:

Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island. I said, “Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel ‘Catch-22’ has earned in its entire history?” And Joe said, “I’ve got something he can never have.” And I said, “What on earth could that be, Joe?” And Joe said, “The knowledge that I’ve got enough.”

Not bad! Rest in peace!”

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Northern Flicker
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Re: Fidelity Bitcoin Index Fund

Post by Northern Flicker »

am wrote: Sat Sep 12, 2020 8:06 pm
Northern Flicker wrote: Sat Sep 12, 2020 8:02 pm Sure, but you lower the chances of being rewarded when you invest in things like bitcoin that have no mechanism for estimating fair value.
“Fair value” is not predictive of future returns. Stocks are overvalued according to multiple metrics. So what? I’m still investing because they’re better then most other investments and sometimes do well even if above fair value (whatever that means).
Stocks have a fair bit of uncertainty in predicting future revenue, but it still gives us an anchor for estimating fair value. Fair value for bitcoin could be anything.
Risk is not a guarantor of return.
EnjoyIt
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

am wrote: Sat Sep 12, 2020 7:37 pm
EnjoyIt wrote: Sat Sep 12, 2020 3:18 pm
Northern Flicker wrote: Sat Sep 12, 2020 11:08 am
TheTimeLord wrote: Sat Sep 12, 2020 9:31 am
Northern Flicker wrote: Sat Sep 12, 2020 1:33 am
No. Some assets like residential real estate provide you with a place to live independently of what its market value may be. Stocks and bonds are claims on assets (if any) of the issuer.
Would it make you feel better if we change the word from asset to investment.
So that it precludes bitcoin? Residential real estate provides value whether or not it is tou that lives there. It can be an asset or investment because, unlike bitcoin, it provides an intrinsic stream of value.
I think this is where the bitcoin conversation gets lost.
“Intrinsic stream of value”

As an investor we want to invest in an asset that provides an intrinsic stream of value

As a speculator one is buying something with the goal of selling it to someone else for a higher price.

There is a big difference in the above that I feel many bitcoin proponents refuse to recognize.

With regards to this ETF I just don’t see why one would need an ETF to hold something they can do themselves without the ETF fee. Unless of course there is an additional risk in holding bitcoins oneself.
As an investor I just want returns during my investing life. I don’t care if the returns come from stocks, bonds, bitcoin or quick sand. If bitcoin gives me a nice stream of returns during my lifetime then I am happy even if it crashes to 0 later on.
You hit it right there. You are willing to speculate that one day you can sell bitcoin for a higher value to someone else. It is the basis of speculation and honestly to the “greater fool theory.” Seriously, nothing wrong with your decision or your plan the key is to sell before the whole thing implodes on itself and makes a run to $0 which is very likely on such speculations.

Outside of illegal activity, the utility for bitcoin is limited and very rare. The only way bitcoin can possibly go up in value is if bitcoin owners keep convincing others that there is value. I think what keeps it alive the is mostly illegal activity. I know a few people who use bitcoin regularly for just that. Honestly I use bitcoin to pull cash out of online poker sites which is a gray area I guess. Other than that i see no other utility other than speculation.

I just don’t see the SEC approving anything here.
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Re: Fidelity Bitcoin Index Fund

Post by bogivan »

If we were in the 1800s, a lot of people in this forum would be the ones wagging their fingers at those who were heading to the scary, wild west and would be the ones focused solely on the news articles about frontier dangers instead of attempting to understand the possibilities or the reasons why so many people were going west. We're at the point where "old world" established businesses are joining to build out the infrastructure and some still dismiss every progressive piece of news as not really happening.

I don't blame anyone who doesn't want to join the wild west and I won't criticize anyone who details the real risks involved to those thinking about joining, but the amount of cynical misinformation in this thread and claiming that Fidelity's president is just trying to scam their customers to enrich herself is wacky. Really?

Bitcoin and crypto funds for accredited investors like this one from Fidelity already exist: Bitwise has four including one multi-crypto index, Morgan Creek has a crypto index, Grayscale has 10 including an index, there is the Liberty Bitcoin Fund, NYDig has a bunch, etc. Many of these are Regulation D, 506 securities exactly like this Fidelity filing.
EnjoyIt wrote: Sat Sep 12, 2020 10:35 am We still have no proof that such a fund exists or is in the process of existing soon.
nisiprius wrote: Sat Sep 12, 2020 3:30 pm a) The fund does not exist yet. It's been submitted to the SEC for approval... just like the Winklevoss COIN ETF was submitted, back in 2013.
AFAIK this fund does NOT need any kind of active SEC approval and is very likely already taking investor money if they've filed this. It is a Regulation D, rule 506b filing which is a notice to the SEC that they are exempt from most securities filing requirements because they are only selling to sophisticated or accredited investors. SEC's own page says you don't file this notice until "after they first sell their securities". I'm no SEC rule expert, but comparing this filing to the denied S-1 consumer ETF filings that do require active SEC approval for a public market listing is just wrong.

Fidelity has already been building bridges into the crypto space primarily with Fidelity Digital Assets for some time, so acting like this fund is completely unaffiliated or a theoretical concept that they aren't actually pursuing strains credibility.
nisiprius wrote: Sat Sep 12, 2020 3:30 pm d) "Bitcoin?" It probably does not hold any bitcoin at all.
I believe every single one of the above-listed comparable funds do hold bitcoin - often custodied with Coinbase's Custody service, so it is highly likely that this fund will do the same, presumably with their own digital assets custody service in Fidelity Digital Assets.
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Re: Fidelity Bitcoin Index Fund

Post by nisiprius »

I've struck out most of my posting above, bogivan. But am I right that it's not a mutual fund or ETF, therefore not an "index fund" as the forum generally uses the term, and can't be bought through a regular brokerage account via the regular procedure you would use to buy the Total Stock Market Index Fund, or the GLD exchanged-traded product, or the GBTC bitcoin-linked exchange-traded product?

And do you have any insights as to why it does not have Fidelity branding, and what the meaning of "Wise Origin" is?

And exactly what is meant by "index" in this context?
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EnjoyIt
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

bogivan wrote: Sun Sep 13, 2020 10:54 am If we were in the 1800s, a lot of people in this forum would be the ones wagging their fingers at those who were heading to the scary, wild west and would be the ones focused solely on the news articles about frontier dangers instead of attempting to understand the possibilities or the reasons why so many people were going west. We're at the point where "old world" established businesses are joining to build out the infrastructure and some still dismiss every progressive piece of news as not really happening.

I don't blame anyone who doesn't want to join the wild west and I won't criticize anyone who details the real risks involved to those thinking about joining, but the amount of cynical misinformation in this thread and claiming that Fidelity's president is just trying to scam their customers to enrich herself is wacky. Really?

Bitcoin and crypto funds for accredited investors like this one from Fidelity already exist: Bitwise has four including one multi-crypto index, Morgan Creek has a crypto index, Grayscale has 10 including an index, there is the Liberty Bitcoin Fund, NYDig has a bunch, etc. Many of these are Regulation D, 506 securities exactly like this Fidelity filing.
EnjoyIt wrote: Sat Sep 12, 2020 10:35 am We still have no proof that such a fund exists or is in the process of existing soon.
nisiprius wrote: Sat Sep 12, 2020 3:30 pm a) The fund does not exist yet. It's been submitted to the SEC for approval... just like the Winklevoss COIN ETF was submitted, back in 2013.
AFAIK this fund does NOT need any kind of active SEC approval and is very likely already taking investor money if they've filed this. It is a Regulation D, rule 506b filing which is a notice to the SEC that they are exempt from most securities filing requirements because they are only selling to sophisticated or accredited investors. SEC's own page says you don't file this notice until "after they first sell their securities". I'm no SEC rule expert, but comparing this filing to the denied S-1 consumer ETF filings that do require active SEC approval for a public market listing is just wrong.

Fidelity has already been building bridges into the crypto space primarily with Fidelity Digital Assets for some time, so acting like this fund is completely unaffiliated or a theoretical concept that they aren't actually pursuing strains credibility.
nisiprius wrote: Sat Sep 12, 2020 3:30 pm d) "Bitcoin?" It probably does not hold any bitcoin at all.
I believe every single one of the above-listed comparable funds do hold bitcoin - often custodied with Coinbase's Custody service, so it is highly likely that this fund will do the same, presumably with their own digital assets custody service in Fidelity Digital Assets.
RE: Wild West
You can say the same thing about plenty of other bubbles and scams from the past. Not that I think bitcoin itself is a scam. Using terms like “Wild West” and “anonymous” are catch phrases to try and convince others to join the party.

There frankly is very little good reason to own bitcoin other than the hope of selling it to someone else for a profit. Again, this is exactly what the “greater fool theory” describes. In addition all those investing options that are not regulated by the SEC could easily steel or defraud your coins and run just like so many previous companies have done in the past. Coinbase where you say they hold their coins at are not immune from fraud and theft.

What’s possible is that some insider can figure out a hack internally and steel a bunch of coins anonymously and never get caught. There will be no recourse for the original bitcoin owners. I bet there are already people internally who have thought about this already.

There have been so much theft and fraud in the past it is very likely there will be plenty more to come.
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Re: Fidelity Bitcoin Index Fund

Post by w3ldon »

nisiprius wrote: Sun Sep 13, 2020 11:03 am I've struck out most of my posting above, bogivan. But am I right that it's not a mutual fund or ETF, therefore not an "index fund" as the forum generally uses the term, and can't be bought through a regular brokerage account via the regular procedure you would use to buy the Total Stock Market Index Fund, or the GLD exchanged-traded product, or the GBTC bitcoin-linked exchange-traded product?

And do you have any insights as to why it does not have Fidelity branding, and what the meaning of "Wise Origin" is?

And exactly what is meant by "index" in this context?
I agree -- the use of "Index" is what I was trying to decode this whole time.

What I would be interested in is an actual Index that allows you to invest in all, or a set of cryptocurrencies based on market capitalization -- to distribute the risk of putting all the money into just one (BTC). I have moved about 25% to Ethereum because that seems to be the second-largest capitalization -- but having something like the S&P 500 seems like a missing entity in the crypto world. Again, I only have 2% of my portfolio in this, but within an asset class I would still like to diversify as much as possible.
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Re: Fidelity Bitcoin Index Fund

Post by bogivan »

nisiprius wrote: Sun Sep 13, 2020 11:03 am I've struck out most of my posting above, bogivan. But am I right that it's not a mutual fund or ETF, therefore not an "index fund" as the forum generally uses the term, and can't be bought through a regular brokerage account via the regular procedure you would use to buy the Total Stock Market Index Fund, or the GLD exchanged-traded product, or the GBTC bitcoin-linked exchange-traded product?
Right. I believe it could potentially still show up alongside your normal public securities in your Fidelity brokerage account for buying/selling if you jump through the hoops to establish accredited investor status and buy into it, but I don't know how they're handling it.
nisiprius wrote: Sun Sep 13, 2020 11:03 am And do you have any insights as to why it does not have Fidelity branding, and what the meaning of "Wise Origin" is?
No idea what "Wise Origin" is in reference to. My suspicion about the branding is that they wanted to use their Fidelity-branded digital asset custody service for holding the underlying bitcoin so they tried to keep some space between them to prevent a conflict of interest, but this my pure speculation.
nisiprius wrote: Sun Sep 13, 2020 11:03 am And exactly what is meant by "index" in this context?
It doesn't make a lot of sense, but since they call it "bitcoin index" it likely only holds bitcoin (instead of a multi-crypto index) so I agree with someone above that they're probably using "index" to just imply tracking the price of bitcoin. In theory, they could also be investing in private bitcoin companies to make some sort of "index" of the larger bitcoin industry, but I doubt it.

Part of Rule 506b is that they aren't supposed to publicly advertise this fund at all so a lot of these kinds of answers will probably never be officially answered unfortunately (and also probably why they're declining to comment on any of the news articles).
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Re: Fidelity Bitcoin Index Fund

Post by bogivan »

EnjoyIt wrote: Sun Sep 13, 2020 11:12 am In addition all those investing options that are not regulated by the SEC could easily steel or defraud your coins and run just like so many previous companies have done in the past. Coinbase where you say they hold their coins at are not immune from fraud and theft.

What’s possible is that some insider can figure out a hack internally and steel a bunch of coins anonymously and never get caught. There will be no recourse for the original bitcoin owners. I bet there are already people internally who have thought about this already.

There have been so much theft and fraud in the past it is very likely there will be plenty more to come.
All of those funds I listed are absolutely still classified as securities and regulated by the SEC: there is just a lower barrier to entry if you agree to only sell to wealthy investors who are more capable of handling higher levels of risk.

Coinbase's custody service is also regulated by the New York Department of Financial Services and insured. Their insurance policy is up to $255 million. Like a lot of financial insurance, it doesn't fully cover the billions that they hold, but presumably they have various controls in place to limit any kind of exposure like breaking up their "cold" bitcoin holdings into smaller blocks in a distributed way that can't be accessed at the same time. Obviously they don't publicize exactly what those control are, but presumably if all of those of those regulated funds are trusting a regulated Coinbase then they regularly need to audit Coinbase's procedures. Certainly the insurance company has also carefully investigated Coinbase's controls before they'd ever write a $255m insurance contract to cover something like digital assets.

Edit: For insurance comparison, Vanguard has less "excess SIPC" insurance, $200m, on their trillions in assets. Schwab has a $600m excess SIPC policy on $4t of assets. Coinbase has $255m insurance on something like $20b assets. Obviously, there are different threats and traditional securities have a longer history of audits and regulation. If you think that the regulators have been so incompetent that they haven't scrutinized Coinbase carefully, though, then certainly you'd also have to argue that they could be incompetent enough to become complacent in traditional securities audits. If so, Coinbase seems to have a much greater percentage of their potential liabilities covered by insurance than brokers have. I'm not going to argue whether or not that greater percentage (approx 1.2% of Coinbase's assets versus Schwab's 0.015% of assets) compensates for the additional risk of digital asset custody, but we're far from "no recourse" and seems well insured to me relatively.

Why all of the cynical fearmongering? Should you carefully vet any company you're dealing with in the crypto space? Absolutely. To say we're still in the time of every bitcoin website being completely unregulated and where any insider can disappear with funds without recourse is completely false. If you have any actual evidence that somehow these companies are not under regulation or the insurance policy doesn't actually exist, I'd love to see it.
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Re: Fidelity Bitcoin Index Fund

Post by EnjoyIt »

bogivan wrote: Sun Sep 13, 2020 12:36 pm
EnjoyIt wrote: Sun Sep 13, 2020 11:12 am In addition all those investing options that are not regulated by the SEC could easily steel or defraud your coins and run just like so many previous companies have done in the past. Coinbase where you say they hold their coins at are not immune from fraud and theft.

What’s possible is that some insider can figure out a hack internally and steel a bunch of coins anonymously and never get caught. There will be no recourse for the original bitcoin owners. I bet there are already people internally who have thought about this already.

There have been so much theft and fraud in the past it is very likely there will be plenty more to come.
All of those funds I listed are absolutely still classified as securities and regulated by the SEC: there is just a lower barrier to entry if you agree to only sell to wealthy investors who are more capable of handling higher levels of risk.

Coinbase's custody service is also regulated by the New York Department of Financial Services and insured. Their insurance policy is up to $255 million. Like a lot of financial insurance, it doesn't fully cover the billions that they hold, but presumably they have various controls in place to limit any kind of exposure like breaking up their "cold" bitcoin holdings into smaller blocks in a distributed way that can't be accessed at the same time. Obviously they don't publicize exactly what those control are, but presumably if all of those of those regulated funds are trusting a regulated Coinbase then they regularly need to audit Coinbase's procedures. Certainly the insurance company has also carefully investigated Coinbase's controls before they'd ever write a $255m insurance contract to cover something like digital assets.

Edit: For insurance comparison, Vanguard has less "excess SIPC" insurance, $200m, on their trillions in assets. Schwab has a $600m excess SIPC policy on $4t of assets. Coinbase has $255m insurance on something like $20b assets. Obviously, there are different threats and traditional securities have a longer history of audits and regulation. If you think that the regulators have been so incompetent that they haven't scrutinized Coinbase carefully, though, then certainly you'd also have to argue that they could be incompetent enough to become complacent in traditional securities audits. If so, Coinbase seems to have a much greater percentage of their potential liabilities covered by insurance than brokers have. I'm not going to argue whether or not that greater percentage (approx 1.2% of Coinbase's assets versus Schwab's 0.015% of assets) compensates for the additional risk of digital asset custody, but we're far from "no recourse" and seems well insured to me relatively.

Why all of the cynical fearmongering? Should you carefully vet any company you're dealing with in the crypto space? Absolutely. To say we're still in the time of every bitcoin website being completely unregulated and where any insider can disappear with funds without recourse is completely false. If you have any actual evidence that somehow these companies are not under regulation or the insurance policy doesn't actually exist, I'd love to see it.
Thank you for the details. I love how we can have an open discussion. I love learning about the stuff. Let’s see how these safeguards will play out in the years to come.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
Northern Flicker
Posts: 6519
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity Bitcoin Index Fund

Post by Northern Flicker »

bogivan wrote: If we were in the 1800s, a lot of people in this forum would be the ones wagging their fingers at those who were heading to the scary, wild west and would be the ones focused solely on the news articles about frontier dangers instead of attempting to understand the possibilities or the reasons why so many people were going west. We're at the point where "old world" established businesses are joining to build out the infrastructure and some still dismiss every progressive piece of news as not really happening.
People headed west either to homestead (accept a gift of free land in return for taking on certain obligations) or to work for corporations who were developing businesses out west (timber, mining, ranching, farming, railroads, banks, etc.). Those corporate interests were financed by stodgy investors back east who were most likely to be successful when they analyzed and valued their investments according to accepted principles.

Fundamental analysis of an investment involves discounting future revenue streams back to a present value, and is a tried and true method. When the future revenue has a high uncertainty, a risk premium is added to the discount rate, discounting in the risk.

Fundamental analysis seems to fail for cryptocoins (future revenue is zero) but I'd consider homesteading on the blockchain if someone wants to give me free coins.
Risk is not a guarantor of return.
000
Posts: 2805
Joined: Thu Jul 23, 2020 12:04 am

Re: Fidelity Bitcoin Index Fund

Post by 000 »

bogivan wrote: Sun Sep 13, 2020 10:54 am If we were in the 1800s, a lot of people in this forum would be the ones wagging their fingers at those who were heading to the scary, wild west and would be the ones focused solely on the news articles about frontier dangers instead of attempting to understand the possibilities or the reasons why so many people were going west. We're at the point where "old world" established businesses are joining to build out the infrastructure and some still dismiss every progressive piece of news as not really happening.
Not a fair comparison.

Farms, ranches, mines, and the like were already known to have value.

Also the government backed the frontier settlers with troops and other support.
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