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100 sats \ 6 replies \ @siggy47 6 Apr
Are there any finance guys here who can explain to me Authorized Participants (AP)? From what it sounds like, this seems like a vehicle to create paper bitcoin:
Then :
Create and redeem etf shares in response to market demand, without any requirement that the issuer holds bitcoin matching the paper produced?
It sounds like the federal reserve. I could be misreading this. Can someone help me out?
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75 sats \ 5 replies \ @BitcoinIsTheFuture OP 6 Apr
To my knowledge these are common with commodities. I’ve heard examples with wheat on some podcasts.
An Authorized Participant (AP) is an entity that acquires the underlying assets of an ETF (such as bitcoin in this context) to create its shares, providing the liquidity of the ETF market. U.S.-listed ETFs have, on average, 24 “contracted” APs and five “active” APs, BlackRock's website shows.
https://www.ishares.com/us/resources/institutional-investors/insights/aps-by-the-numbers
Notice the term “acquire” for the assets, no paper there.
Source: https://www.theblock.co/post/286737/blackrock-bitcoin-etf-citi-citadel-goldman-sachs-ap
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10 sats \ 4 replies \ @siggy47 6 Apr
How does this relate to what you are saying:
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75 sats \ 3 replies \ @BitcoinIsTheFuture OP 6 Apr
They have an agreement with 3rd party custodians for checks and balances outside of a few of them.
"Most spot Bitcoin ETFs rely on a third-party custodian to actually store the Bitcoin they hold — much like how spot gold ETFs often keep their physical gold holdings in the vault of a third-party custodian.
Eight out of the 10 currently-trading spot Bitcoin ETFs use Coinbase (COIN) as their Bitcoin custodian. The only exceptions are the Fidelity Wise Origin Bitcoin Fund (FBTC), which uses Fidelity itself as a custodian, and the VanEck Bitcoin Trust (HODL), which uses Gemini. "
source - https://www.nerdwallet.com/article/investing/spot-bitcoin-etf#:~:text=Most%20spot%20Bitcoin%20ETFs%20rely,COIN)%20as%20their%20Bitcoin%20custodian.
Next this article jumps in the the APs and Custodian relationships:
"When comparing the ‘In Kind’ and ‘In Cash’ redemption models for ETFs, various differences come to light. In the "In-Kind Redemption" model, APs can redeem ETF shares by directly receiving the underlying assets, typically Bitcoin, instead of cash. This process involves transferring a matching portfolio of securities to the ETF issuer, who then creates new ETF shares based on this portfolio, thereby avoiding immediate selling for cash. The benefits of this model include tax efficiency, liquidity maintenance, avoidance of market impact, creation/redemption flexibility, and transparency. However, considerations such as logistics, custodial challenges, and feasibility during extreme market conditions must be acknowledged."
source - https://www.coinbureau.com/education/how-bitcoin-etfs-work/
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10 sats \ 2 replies \ @siggy47 6 Apr
Yes. I understand the first part of your response. What confuses me regarding the APs is they can create shares of the etf with cash, without actually buying bitcoin. That seems clear. What is the mechanism ensuring that some entity (presumably BlackRock?) purchases actual bitcoin with that cash, and when? Can the price be manipulated in the interim? Moreover, how can BlackRock be sure about the number of shares created or redeemed by the AP? It seems like it would be easy if the AP was directly acquiring and selling the bitcoin to match the shares.
Maybe I'm just overly suspicious since I still don't like the ETFs to begin with.
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75 sats \ 0 replies \ @BitcoinIsTheFuture OP 6 Apr
Yeah it’s confusing. I remember listening to a podcast with Preston Pysch I believe when he was questioning the structure and the 1-2 days to settle the transactions. It was complex. I can’t find it now though as I don’t see it under The Investors Podcast. He must have been on another one.
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0 sats \ 0 replies \ @BitcoinIsTheFuture OP 7 Apr
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