And for every additional 50K units the trust issues, it has to buy 10K BTC on the open market. Once this works, resulting demand for BTC will be absolutely unimaginable for anyone involved in BTC trading right now.
where does it say that they have to keep buying BTC in the open market?
They don't have to but institutional investors will exploit it for arbitrage. Say demand exceeds supply and while 1 share = 0.2 BTC the price rises above NAV and is trading at say 0.22 BTC per share (in USD equivelent). An institutional investor would short 50,000 shares and deliver 10,000 BTC to the trustee. The trustee would then add the 10,000 BTC to the trust, issue 50,000 new shares. The investor then uses the new shares to cover the short and pockets 0.02 BTC per share * 50,000 = 100 BTC in a 0 risk arbitrage.
IT doesn't matter who buys the underlying asset, someone will if demand for the ETF shares exceeds supply. This isn't a new concept. For example physical bullion trusts have existed for over a decade. The best known one is GLD. The trust proposed by the W twins is functionally identical to GLD except the underlying asset is Bitcoins not Gold Bullion.