Quote from: scarletham on July 02, 2013, 03:11:26 AM

Quote from: Bobabouey on July 02, 2013, 03:08:41 AM

Quote from: scarletham on July 02, 2013, 03:00:31 AM

Quote from: DeathAndTaxes on July 02, 2013, 02:58:45 AM

Quote from: Bobabouey on July 02, 2013, 02:53:26 AM

Thanks. I guess the basket is part of the initial issuance, and thereafter individual shares will trade.

Not just initial issuance, subsequent issuance and redemption too. This is pretty standard for any "physical" ETF. Take a physical bullion trust. Most people just trade existing shares but if you look at the prospectus there will be a method for institutional investors to deposit x oz of bullion and receive one basket of shares or redeem one basket of shares and take delivery of x oz of bullion.

That being said for 99.99999999999999999999999% of non-institutional investors they will simply trade shares through a brokerage.

Institutional investors as well as market makers.

That all generally makes sense, thanks. One more question since you both seem to understand ETFs fairly well. I thought many ETFs had to rebalance their investments based on demand. Is that where the additional baskets / redemptions might kick in? So at some "normal" level of demand, the shares that trade are part of the initial issuance, but if demand heats up, then additional baskets may be purchased, which increases the available shares, and vice versa if the demand wanes?

Sure. If the shares outstanding are no longer sufficient to maintain liquidity, APs or market makers may go and create shares (typically 50,000 or 100,000 depending on the ETF) by paying CUSize * NAV to the provider, which they will then have available to trade in the open market. The fund in turn has to go out and buy the appropriate amount of underlying (in this case BTC) to compensate for the new shares. That would be a cash creation - or, the APs could deliver the BTC to the provider and receive the shares in turn. A redemption is also possible, which is just vice versa.

Thanks and good night.

Bobabouey

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