Key Post Proshares statement of Bitcoin risks

[Duke of Marmalade]

Proshares, regulated by the SEC, have launched an ETF based on bitcoin futures.
Clearly they are supporters of bitcoin which makes the following disclosure of bitcoin risks, which they felt necessary to make, compulsory reading for anyone considering bitcoin as a store of value. This is worthy of a Key Post in my opinion. Note that this not a ritual ticking of statutory warnings, these are the genuine views of a SEC regulated company which is promoting a bitcoin related asset.



Bitcoin Risk – Bitcoin is a relatively new innovation and the market for bitcoin is subject to rapid price swings, changes and uncertainty. The further development of the Bitcoin Network and the acceptance and use of bitcoin are subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development of the Bitcoin Network or the acceptance of bitcoin may adversely affect the price of bitcoin. Bitcoin is subject to the risk of fraud, theft, manipulation or security failures, operational or other problems that impact bitcoin trading venues. Additionally, if one or a coordinated group of miners were to gain control of 51% of the Bitcoin Network, they would have the ability to manipulate transactions, halt payments and fraudulently obtain bitcoin. A significant portion of bitcoin is held by a small number of holders sometimes referred to as “whales”. These holders have the ability to manipulate the price of bitcoin. Unlike the exchanges for more traditional assets, such as equity securities and futures contracts, bitcoin and bitcoin trading venues are largely unregulated. As a result of the lack of regulation, individuals or groups may engage in fraud or market manipulation (including using social media to promote bitcoin in a way that artificially increases the price of bitcoin). Investors may be more exposed to the risk of theft, fraud and market manipulation than when investing in more traditional asset classes. Over the past several years, a number of bitcoin trading venues have been closed due to fraud, failure or security breaches. Investors in bitcoin may have little or no recourse should such theft, fraud or manipulation occur and could suffer significant losses. Legal or regulatory changes may negatively impact the operation of the Bitcoin Network or restrict the use of bitcoin. The realization of any of these risks could result in a decline in the acceptance of bitcoin and consequently a reduction in the value of bitcoin, bitcoin futures, and the Fund. Finally, the creation of a “fork” (as described above) or a substantial giveaway of bitcoin (sometimes referred to as an “air drop”) may result in significant and unexpected declines in the value of bitcoin, bitcoin futures, and the Fund

 

[Brendan Burgess]

Hi Duke

Done.

Brendan

 

[tecate]

@Brendan Burgess
I think there is a misunderstanding here. Insofar as I can see, this is not a warning from the SEC - and so the key post title is likely to mislead.

It's due diligence on behalf of Proshares in making shareholders aware of potential risks (and the info quoted comes from the company's prospectus for its (BITSO) bitcoin futures product) - and not from the SEC. My understanding is that Proshares has a duty of care to acknowledge all known risks - even if the likelihood of those risks adversely affecting the product are low.

It makes complete sense that anyone taking a position in such a product should be aware of all the items listed here and understand them. There may be a couple of items listed that are specific and unique to bitcoin/this bitcoin derivatives product. However, such considerations of risk are normal on any such prospectus - and many of them are shared between various fund products.

As an example, here's a link to the prospectus for the following Proshares funds:

DAT Big Data Refiners ETF
TINY Nanotechnology ETF
OND On-Demand ETF
CTEX S&P Kensho Cleantech ETF
MAKX S&P Kensho Smart Factories ETF
TINT Smart Materials ETF

For each of these funds, Proshares states that there is a risk of market participants engaging in market manipulation. That's as an example - the prospectus discusses a whole host of identified/potential risks.

Bitcoin ( and bitcoin based derivative products) have their own unique risks - and they should all be considered. However, every product has risks and all of those should be considered for each and every product.

 

[jim]

I agree with tecate here. This, to me, seems to be just a listing of known risks associated with bitcoin. Its nothing new.

Anyone buying bitcoin should certainly be aware of these risks in the same way that anyone buying shares should be fully aware of the risks involved.

 

[Duke of Marmalade]

The Proshares prospectus would need approval from the SEC. Their primary motivation is for their product to be a success not to protect investors - that is the role of the SEC. It is disingenuous to argue that this warning has not got the SEC fingerprints.
This forum is called Alternative Assets but has become dominated by crypto and bitcoin in particular. I still get young (smart) people asking me should they invest in bitcoin. The disinformation that the SEC is warning about is very real. And there were other risks such “air drop” and “forks” and 51% capture that give a lie to bitcoin’s central claim to fame that its supply is limited.
A central tenet of this site is that individual shares should not be discussed. If they were they would probably lead to a plethora of similar warnings being required.
In a sense an exception was given for bitcoin and it is right that people who are genuinely asking about money on this site should be warned. Certainly I know where to point the next naive millennial who asks me should s/he invest in bitcoin.

 

[DazedInPontoon]

And there were other risks such “air drop” and “forks” and 51% capture that give a lie to bitcoin’s central claim to fame that its supply is limited.

51% attack ok.

I don't consider forks much of a risk. In the event of a fork you just need to be careful (doing nothing is safe). I actually profited a lot from the last major fork which created the alternative Bitcoin Cash chain as I was confident it would be the minority chain so I got rid of the majority of my coins on that chain at a much higher price than they would cost today. Bitcoin cash remains as an alt-coin today trading at ~275 euro per coin. It currently poses no real threat of challenging Bitcoin.

As for air-drops, not sure what they're really on about other than it might be from some new fork. If someone really wants to give me some of their bitcoin for free I would not consider that a risk to me. In either case you are getting something for nothing.

 

[tecate]

The Proshares prospectus would need approval from the SEC.

You can try and contrive to come at it every which way. However, if this key post stands with the current title, you are misleading people. This is NOT a statement from the SEC. The title suggests that it is and on first read, it would give someone the impression that the SEC went out of its way to especially address this - over and above all other funds/products.

It is disingenuous to argue that this warning has not got the SEC fingerprints.

It's a fraud to pass this off as a direct communication from the SEC when clearly it's not.

I still get young (smart) people asking me should they invest in bitcoin.

And I fear for those young people. I hope that they are smart enough to talk to others beyond you, Duke. Given that both yourself and @Brendan Burgess won't acknowledge that there is a non-zero chance of bitcoin cointinuing to progress, that should be the alarm bell that should tell them to canvass a range of opinions on the subject (or better still, to sit down, do the work and figure it out for themselves).

The disinformation that the SEC is warning about is very real.

Two things: 1. Once again, this is not a communication from the SEC. 2. What disinformation is referred to in the Proshares prospectus that you've quoted from?

And there were other risks such “air drop” and “forks” and 51% capture that give a lie to bitcoin’s central claim to fame that its supply is limited.

So you're suggesting that all of these three terms relate to bitcoin supply? Now who's guilty of disinformation! Either acknowledge that you're leading people astray here - or if not, then lets hear it. Explain one by one how these three terms relate to bitcoin supply.

A central tenet of this site is that individual shares should not be discussed.

Isn't it you that has been taking a deep dive into the Proshares product?

If they were they would probably lead to a plethora of similar warnings being required.

I'm not sure who "they" are but the whole point here is that you have been singling out this product risk notification when every such product (whether bitcoin related or otherwise) comes with similar information and consideration. What you're going on with is disingenuous Duke.

In a sense an exception was given for bitcoin and it is right that people who are genuinely asking about money on this site should be warned.

I have no issue in people being informed re. the strengths/weaknesses/risks/opportunities, etc. - I wouldn't have it any other way. However, a higher standard shouldn't be applied to bitcoin over and above others. As it stands right now, this key post is fraudulent in its claim ( because this is not a communication from the SEC ).

 

[Duke of Marmalade]

@tecate
I have amended the Title and introductory text to make clear the status of the warnings. I leave it for others to decide whether the original was seriously misleading.
The queries put to me were clearly informed by interaction with social media and had instilled a positive FOMO impression on these impressionable millennials. The SEC had indicated that possibility (I won't bother with a long description of the actual SEC involvement, you know what I mean.)
"air drop" sounds like an increase in supply to me, do you think it is blowing air on the miners' super heated equipment?
Forks involve bitcoin offspring and have the same effect on price as a direct increase in supply of the mother. As always you grab on semantic distinctions in desperation as you did with the original title of this Key Post.
I believe you yourself have admitted that a 51% attack could increase the supply presumably just in favour of the attackers.
I am not answering any more nitpicking semantic questions from you. If you have a genuine observation with which a agree or disagree I may make comment.
@DazedInPontoon
I note your reservation with some of the SEC required warnings. Personally some of them seemed a bit OTT to me but then I have got the bulk of my bitcoin education from @tecate

 

[tecate]

@tecate
I have amended the Title and introductory text to make clear the status of the warnings.

Well as we discussed they're not warnings - its a risk statement which forms one part of Proshares obligations in making complete disclosures on their product - but all good, we got there.

The queries put to me were clearly informed by interaction with social media and had instilled a positive FOMO impression on these impressionable millennials.

I've no doubt that people may engage with crypto or whatever else without having a full understanding of it. That being said, you're witnessing a transfer of wealth from the boomer generation to millennials and gen z'ers. I'm sure some of them will get it entirely wrong but on the flipside, many of them have a better chance of understanding this shift better than you or I Duke. Gen Z'ers are crypto native. You may think the notion of carrying around a digital wallet is daft but from their frame of reference, it's already normal.

The SEC had indicated that possibility (I won't bother with a long description of the actual SEC involvement, you know what I mean.)

Except that the SEC hadn't indicated anything - the risk statement you've quoted is the product of Proshares.

"air drop" sounds like an increase in supply to me, do you think it is blowing air on the miners' super heated equipment?

I'm aware of what an air drop is - but I would wonder how that would function in the case of a project like bitcoin given the point its at in its development. If you have any ideas as to how that would be implicated, do tell.

Forks involve bitcoin offspring and have the same effect on price as a direct increase in supply of the mother.

It's no harm to mention it in passing but there isn't a whole lot for people to get concerned about here. We had a contentious hard fork on the bitcoin network back in 2017. Before it, there was a 21 million hard cap on bitcoin - after it, there remained a 21 million hard cap on bitcoin.

As always you grab on semantic distinctions in desperation as you did with the original title of this Key Post.

I'm a definite weirdo, Duke - to the extent that I do kind of think any statement should be attributed to the individual or organisation that it originated with. I mean, I could start a new thread with comments that I attribute to you that originated with Gerry Adams. I'm not quite sure you'd think of it as semantics though We could put it to the test if you'd like.

I believe you yourself have admitted that a 51% attack could increase the supply presumably just in favour of the attackers.

It's certainly worthy of mentioning but there's a major difference between the theoretics of a 51% attack and practical execution of such an attack. It certainly doesn't suggest anything unethical about the design of bitcoin - or the bitcoin supply that has been designed in to it.

 

[Duke of Marmalade]

@tecate Who is responsible for the warnings/risks disclosure on cigarette packets? Is it the Government or by your logic the cigarette manufacturers out of their sense of public duty? Or maybe it is the printers of the packet? You are splitting hairs and hiding behind faux semantic arguments, a typical tactic that you deploy.

I know you do not believe that this is a solo run by Proshares, independent of any SEC involvement. It is disingenuous of you to pretend that,

The purpose of the Key Post is to protect gullible FOMO people from the sort of manipulative techniques that the SEC want them to be warned about. It is also to protect the site.

 

[tecate]

You are splitting hairs and hiding behind faux semantic arguments, a typical tactic that you deploy.

You may consider it splitting hairs to explicitly attribute a statement from Proshares to the SEC and mislead people into believing that they wrote it - but I certainly don't Duke. And that's what you did originally - until I pulled you on it.

I know you do not believe that this is a solo run by Proshares, independent of any SEC involvement. It is disingenuous of you to pretend that,

And in pointing out that you had explicitly attributed that Proshares statement directly to the SEC, I was very clear in what I said - as outlined in post #3 above. The regulator sets out the requirement for the administrators/promoters of ALL ETF products (not just this bitcoin-related product) to provide 'full disclosure' on their respective product offerings - inclusive of a statement of known risks. You can try and claim otherwise all day long but you can't claim that this is ..
A. a requirement solely for this bitcoin-related product
or
B. that they term this anything other than a disclosure. In an enforcement action against the administrators of the USO oil futures ETF product, the SEC took action against them on the basis of insufficient disclosure - related to the product not just going to zero but going into negative pricing - as oil futures did in March 2020.

That's the obligation that it sets out as a regulator. It puts the onus on fund administrators to provide full disclosure. However, these statements are NOT written by the SEC. They are the product of the fund administrators. That's entirely different to what you were claiming.

The purpose of the Key Post is to protect gullible FOMO people from the sort of manipulative techniques that the SEC want them to be warned about. It is also to protect the site.

As I stated from the outset (and as I have always stated in these discussions), people should have access to all the information so as they can make informed decisions. That includes highlighting information that was wrongly attributed to the SEC in this case - when it was and is the product of Proshares as administrators of the BITSO bitcoin futures ETF.

Now if you want to continue to claim that it doesn't matter if a statement is wrongly attributed to another entity entirely that's your business but it most certainly is not something I believe.

"If thought corrupts language, language also corrupts thought".
George Orwell, 1984.

 

[Duke of Marmalade]

Answer me this my dear @tecate
To whom is the warning (apologies, I mean risk disclosure) on cigarette packets attributable?

A. The printers.
B. The cigarette manufacturers.
C. The Government.
D. None of these.

You may phone a friend.
I rest my case.

 

[Sarenco]

I have to side with @tecate on this one.

The SEC can certainly challenge the comprehensiveness of the risk factors in a prospectus but ultimately the risk factors are a matter for the fund company’s directors.

As such, the heading and opening post of this thread are misleading.

There is no parallel with the risk warnings that cigarette manufacturers are required to incorporate into their packaging.

 

[Duke of Marmalade]

The SEC can certainly challenge the comprehensiveness of the risk factors in a prospectus but ultimately the risk factors are a matter for the fund company’s directors.

If your view is that the directors of Proshares would have got this prospectus past the SEC without any of these risk disclosures, if that was what they thought appropriate, then subject to no-one contradicting that view I will consider asking for the Key Post to be deleted.
I accept that the comparison with cigarette warnings is stretched, but comparable with @tecate analogy that these risk warnings are akin to the warnings that aspirin can kill you.

If these risk disclosures are substantially a requirement of the SEC then I stick my my assertion that @tecate is splitting hairs. The support from GG is comforting but I would welcome any more confirmation.

On reflection, if what you say is correct then I will certainly change the Key Post as you are suggesting a much more damning scenario. You are suggesting that these risk warnings (excuse me calling them warnings) are not the mere ticking of SEC boxes in the same vein as aspirin warnings. These are the genuine fears of the directors of Proshares who are engaging in a CYA exercise or, let's give them the benefit of the doubt, are acting out of genuine concern for investors.

I have actually amended the post as it is certainly correct but without prejudice to the correctness of the original suggestion of the SEC being substantially behind these disclosures. It is in fact a more chilling set of warnings given this more precise context.

 

[tecate]

I have actually amended the post as it is certainly correct but without prejudice to the correctness of the original suggestion of the SEC being substantially behind these disclosures. It is in fact a more chilling set of warnings given this more precise context.

Senior counsel for the Dutchy of Marmalade left a message for you. He said that he'll have to bill the 'without prejudice' statement at the higher rate this month and that you're to run any future claims by him in advance of posting in the future.

In better news, Fox News called. They said we don't care what the Daily Mail are offering - we'll double it! Apparently, Jeanine Pirro & Sean Hannity are "very excited" at the prospect of working with you (those aren't their exact words but it's what their contract with Fox would oblige them to say - so close enough *).

The gig is Chief Narrative Officer up on the 21st Floor of the News Corp Building ( Fictional Facts Department).


* I might have gotten that completely wrong but only in a 'without prejudice kind of way

 

[Duke of Marmalade]

Senior counsel for the Dutchy of Marmalade left a message for you. He said that he'll have to bill the 'without prejudice' statement at the higher rate this month and that you're to run any future claims by him in advance of posting in the future.

In better news, Fox News called. They said we don't care what the Daily Mail are offering - we'll double it! Apparently, Jeanine Pirro & Sean Hannity are "very excited" at the prospect of working with you (those aren't their exact words but it's what their contract with Fox would oblige them to say - so close enough *).

The gig is Chief Narrative Officer up on the 21st Floor of the News Corp Building ( Fictional Facts Department).


* I might have gotten that completely wrong but only in a 'without prejudice kind of way

I guess some people would find that razor sharp wit.
On a more serious note I think I have arrived at a quite telling Key Post and I trust you agree.
I was sort of swayed by your argument that this was just aspirin style regulatory box ticking. But thanks to @Sarenco I see that these are in fact very significant warnings (yes, warnings) from institutional supporters of bitcoin. It doesn't look like a long term store of value to me.

 

[Duke of Marmalade]

I think I have arrived at a good Key Post. If it had been the original it would be open to the criticism that it was not Proshares' view at all, simply ticking aspirin like ritual warnings from the SEC. Thanks to @tecate and @Sarenco it is bullet proof against that argument. Thanks guys.

 

[Sarenco]

I think the reality is that the risk factor would have drafted by well paid lawyers with a view to mitigating potential litigation and/or regulatory sanctions due to inadequate disclosure.

None of which is to suggest that the risks of “investing” in crypto as reflected in the risk factor are not very real indeed.

FWIW, I do not have any position in cryptos and have no intention of developing a position in any cryptos.