Quote from: Vessko on January 07, 2015, 09:37:23 AM

Quote from: jbreher on January 06, 2015, 05:44:16 PM

However, my impression of the average ETF is that it contains a basket of multiple securities, no?

Not necessarily. There are hundreds of different ETFs and they have very different characteristics. COIN will basically be a tracking ETF, tracking the spot price of a single currency/commodity. A good example for this is the GLD ETF, which tracks the spot price of gold.

I'm with you - indeed, that is kind of my point. Note I said 'average ETF'. Granted, it would have been more grammatically correct to state 'typical ETF'.

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If so, why would a single-security ETF (e.g. COIN) be affected by #5 at all?

#5 is true for any security, not just for ETFs. Thinly traded markets are illiquid, easy to manipulate, and cause a lot of slippage (i.e., losses because of the difference between bid and ask).

Thanks. Here is #5 reproduced, as I've lost track:
5. Finally, very new or very small ETFs sometimes trade inefficiently, resulting in wide spreads between their buy and sell prices or failure to track their benchmarks accurately. Wait for an ETF to gather at least $100 million in assets before you invest in it.

Granted, I'm not familiar with ETFs in general. However, I read this essentially as 'your potential ETF may have a low ratio of available management bandwidth to basket market activity -- which may increase the risk that the fund does not accurately track the actual market'.

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The effort required to track a single security (e.g. Bitcoin) should be trivial, and therefore very efficient, should it not?

The effort is trivial - I could probably code it on a PC in a couple of weeks (and most of that time will be spent on getting acquainted with the APIs of the exchanges and on testing). It's not the tracking algorithm that is the problem. It's that if the market is thinly traded (few buyers and sellers), it's easy for an entity to push it in a particular direction with a relatively small amount of money.

Got it. I was focused upon the "failure to track their benchmarks", while you feel the calculus is dominated by "wide spreads between their buy and sell prices". I defer to your apparent greater experience.