Bali, T. Does idiosyncratic risk really matter? Journal of Finance, 60 2 , — The intertemporal capital asset pricing model with dynamic conditional correlations. Journal of Monetary Economics, 57 4 , — ECB cuts interest rates to record low. November 7, Bekaert, G. The VIX, the variance premium and stock market volatility. Journal of Econometrics, 2 , — Bessembinder, H. Systematic risk, hedging pressure, and risk premiums in futures markets.
Review of Financial Studies , 5 4 , — Bouoiyour, J. What does Bitcoin look like? Annals of Economics and Finance, 16 2 , — Bouri, E. Bitcoin for energy commodities before and after the December crash: Diversifier, hedge or safe haven? Applied Economics, 49, 1— Virtual currency, tangible return: Portfolio diversification with Bitcoin. Journal of Asset Management, 16 6 , — Campbell, J.
No news is good news: An asymmetric model of changing volatility in stock returns. Journal of Financial Economics, 31 3 , — Ciaian, P. The economics of BitCoin price formation. Applied Economics, 48 19 , — Cryptocurrency market capitalizations. Accessed on October 1, Da, Z.
CAPM for estimating the cost of equity capital: Interpreting the empirical evidence. Journal of Financial Economics, 1 , — Dickey, D. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, — Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49, — Elliott, G. Efficient tests for an autoregressive unit root. Econometrica, 64 4 , — Goyal, A.
Idiosyncratic risk matters! Journal of Finance, 58 3 , — Gregoriou, G. Risk-adjusted performance of funds of hedge funds using a modified Sharpe ratio. Journal of Wealth management, 6 3 , 77— Grinberg, R. Bitcoin: An innovative alternative digital currency. Hastings Science and Technology Law Journal, 4, Hall, A. Testing for a unit root in time series with pretest data-based model selection.
Journal of Business and Economic Statistics, 12 4 , — Hamilton, J. Rational-expectations econometric analysis of changes in regime: An investigation of the term structure of interest rates. Journal of Economic Dynamics and Control, 12 2—3 , — A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57 2 , — Analysis of time series subject to changes in regime. Journal of Econometrics, 45 1—2 , 39— Haubrich, J. Inflation expectations, real rates, and risk premia: Evidence from inflation swaps.
Review of Financial Studies, 25 5 , — Jagannathan, R. The CAPM debate. Kirchler, M. Fat tails and volatility clustering in experimental asset markets. Journal of Economic Dynamics and Control, 31 6 , — Krishnamurthy, A. The aggregate demand for treasury debt. Journal of Political Economy, 2 , — Li, X. The technology and economic determinants of cryptocurrency exchange rates: The case of Bitcoin. Decision Support Systems, 95, 49— Lo, S.
Bitcoin as money? Current policy perspectives no. MacKinnon, J. Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics , 11 , — Mandelbrot, B. The variation of certain speculative prices. Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule under the Securities Act of , check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule b under the Securities Act of , check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule c under the Securities Act of , check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule d under the Securities Act of , check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Check one :. Calculation of Registration Fee. Title of each class of.
Winklevoss Bitcoin Shares. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8 a of the Securities Act of or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8 a , may determine.
Table of Contents The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Preliminary Prospectus dated December 30, The Winklevoss Bitcoin Trust Trust will issue Winklevoss Bitcoin Shares Shares , which represent units of fractional undivided beneficial interest in and ownership of the Trust. The Trust intends to issue additional Shares on a continuous basis. The Shares may be purchased from the Trust only in one or more blocks of [50,] Shares a block of [50,] Shares is called a Basket. The Trust will not issue fractions of a Basket.
Prior to this offering, there has been no public market for the Shares. Investing in the Shares involves significant risks. Neither the Securities and Exchange Commission SEC nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense. The Shares are neither interests in nor obligations of the Sponsor or the Trustee. It is expected that the Shares will be sold to the public at varying prices to be determined by reference to, among other considerations, the price of the bitcoins represented by each Share and the trading price of the Shares on the NASDAQ at the time of each sale.
The Trust received all proceeds from the offering of the initial Baskets in set amounts of bitcoins in an amount equal to the full price for the initial Baskets. The number of bitcoins representing a Share in the initial Baskets was [0.
Purchasers of Shares may be subject to customary brokerage charges. Investors should review the terms of their brokerage accounts for details on applicable charges. Public offering price for the initial Baskets. Statement Regarding Forward-Looking Statements. Prospectus Summary. The Offering. Risk Factors. Use of Proceeds. Business of the Trust. Description of the Trust. The Sponsor. The Trustee.
The Administrator. The Trust Agency Service Provider. The Custodian. Authorized Participants. Description of the Shares. Description of Creation and Redemption of Shares. Expenses; Sales of Bitcoins. Book-Entry-Only Shares. Description of the Trust Documents. Plan of Distribution. Legal Matters. Glossary of Defined Terms. Statement of Financial Condition. This prospectus contains information investors should consider when making an investment decision about the Shares.
Investors may rely on the information contained in this prospectus. The Trust and the Sponsor have not authorized any person to provide you with different information and, if anyone provides an investor with different or inconsistent information, that investor should not rely on it.
This prospectus is not an offer to sell the Shares in any jurisdiction where the offer or sale of the Shares is not permitted. The Shares are not registered for public sale in any jurisdiction other than the United States. These statements are only predictions.
Actual events or results may differ materially. These statements are based upon certain assumptions and analyses the Sponsor made based on its perception of historical trends, current conditions and expected future developments, as well as other factors appropriate in the circumstances. Investors are therefore cautioned against placing undue reliance on forward-looking statements.
Trust Structure. The Trust holds bitcoins, which are a digital commodity that is not issued by any government, bank or central organization. The Bitcoin software source code includes the math-based protocols that govern the creation of bitcoins and the cryptography system that secures and verifies transactions in bitcoins. Bitcoins themselves have no physical existence beyond the record of transactions on the Blockchain.
The Trust is expected from time to time to issue Baskets in exchange for deposits of bitcoins and to distribute bitcoins in connection with redemptions of Baskets. The Sponsor believes that, for many investors, the Shares will represent a cost-effective and convenient means to access exposure to bitcoins. Under the Delaware Limited Liability Company Act and the governing documents of the Sponsor, Winklevoss Capital Management LLC, the sole member of the Sponsor, is not responsible for the debts, obligations and liabilities of the Sponsor solely by reason of being the sole member of the Sponsor.
Winklevoss IP LLC is the owner of and is licensing to the Sponsor such intellectual property for use by the Trust and its service providers in the operation of the Trust. The Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement of Section a of the Delaware Statutory Trust Act that the Trust have at least one trustee with a principal place of business in the State of Delaware.
The duties of the Trustee will be limited to i accepting legal process served on the Trust in the State of Delaware and ii the execution of any certificates required to be filed with the Delaware Secretary of State which the Delaware Trustee is required to execute under the Delaware Statutory Trust Act.
To the extent that, at law or in equity, the Trustee has duties including fiduciary duties and liabilities relating thereto to the Trust or the Shareholders, such duties and liabilities will be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Administrator, Trust Agency Service Provider, Custodian or any other Person.
The Trust Agency Service Provider, among other things, provides transfer agent services with respect to the creation and redemption of Baskets by Authorized Participants. Access to those digital wallets, and the bitcoins they hold, is restricted through the public-private key pair relating to each digital wallet. It will provide public addresses of the Trust to the Administrator. Trust Overview. The Shares are designed for investors seeking a cost-effective and convenient means to gain exposure to bitcoins with minimal credit risk.
The Bitcoin Network is a recent technological innovation, and the bitcoins that are created, transferred, used and stored by entities and individuals have certain features associated with several types of assets, most notably commodities and currencies. The Sponsor believes that, on balance, the important features of bitcoins and other Digital Math-Based Assets are those that are characteristics of commodities and therefore has referred to and discussed these assets as such. It is not known whether all US or foreign regulators will share this view, adopt a single, different view or espouse a variety of differing views.
Since December , regulators in jurisdictions including the United States, the United Kingdom and Switzerland have provided greater regulatory clarity, while Chinese, Russian and Vietnamese government officials have taken steps to limit the participation of their respective financial services sectors from directly interacting with the Bitcoin ecosystem, creating additional regulatory uncertainty in those countries.
In May , the Central Bank of Bolivia banned the use as currency of digital assets including bitcoins, while the government of Ecuador took steps to limit the use of Bitcoin in advance of the issuance of a proposed state-backed Digital Math-Based Asset. The regulatory uncertainty surrounding the treatment of bitcoin creates risks for the Trust and its Shares.
Table of Contents Investing in the Shares does not insulate the investor from certain risks, including price volatility. Emerging Growth Company Status. Principal Offices. Presently, the Sponsor does not intend to waive any of its fees. The Sponsor is not required to assume extraordinary, non-recurring expenses except certain indemnifications amounts that may become owed to the Trustee under the Trust Agreement , therefore the Trust may incur certain extraordinary, non-recurring expenses e.
Under such circumstances, the sale or conversion to fiat currency of bitcoin will occur after such bitcoins have been delivered from the Trust to the Trust Expense Account. In order to ensure the processing of bitcoin transfers to and from the Trust Custody Account, or among digital wallets in the Trust Custody Account or the Trust Expense Account, the Custodian may determine that the payment of a transaction fee to Bitcoin miners is prudent.
It is anticipated that the reimbursement of transaction fees paid to miners shall be more than accounted for by the payment of creation and redemption. Table of Contents. Summary of Financial Condition. You should consider carefully the risks described below before making an investment decision.
The loss or destruction of a private key required to access a bitcoin may be irreversible. Bitcoins are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the bitcoins are held.
The Trust is required by the operation of the Bitcoin Network to publish the public key relating to a digital wallet in use by the Trust when it first verifies a spending transaction from that digital wallet and disseminates such information into the Bitcoin Network. To the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, the Trust will be unable to access the bitcoins held in the related digital wallet and the private key will not be capable of being restored by the Bitcoin Network.
The further development and acceptance of the Bitcoin Network and other Digital Math-Based Asset systems, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of the Bitcoin Network may adversely affect an investment in the Shares. Digital Math-Based Assets such as bitcoins may be used, among other things, to buy and sell goods and services are a new and rapidly evolving industry of which the Bitcoin Network is a prominent, but not unique, part.
The growth of the Digital Math-Based Assets industry in general, and the Bitcoin Network in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the Digital Math-Based Assets industry, as well as the Bitcoin Network, include:. The Trust is not actively managed and will not have any strategy relating to the development of the Bitcoin Network.
Furthermore, the Sponsor cannot be certain as to the impact of the listing of the Trust and the expansion of its bitcoin holdings on the Digital Math-Based Assets industry and the Bitcoin Network. A decline in the popularity or acceptance of the Bitcoin Network would harm the price of the Shares. Currently, there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in the Shares.
As relatively new products and technologies, bitcoins and the Bitcoin Network have only recently become widely accepted as a means of payment for goods and services by many major retail and commercial outlets, and.
Table of Contents use of bitcoins by consumers to pay such retail and commercial outlets remains limited. A lack of expansion by bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the Winkdex spot price, either of which could adversely impact an investment in the Shares.
The Bitcoin Network is based on a math-based protocol that governs the peer-to-peer interactions between computers connected to the Bitcoin Network. The members of the Core Developers evolve over time, largely based on self-determined participation in the resource section dedicated to Bitcoin on Github. Proposals for upgrades and discussions relating thereto take place on online forums including GitHub. To the extent that a significant majority of the users and miners on the Bitcoin Network install such software upgrade s , the Bitcoin Network would be subject to new protocols and software that may adversely affect an investment in the Shares.
The open-source structure of the Bitcoin Network protocol means that the Core Developers and other contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage the Bitcoin Network and an investment in the Shares. The Bitcoin Network operates based on an open-source protocol maintained by the Core Developers and other contributors, largely on the GitHub resource section dedicated to Bitcoin development.
As the Bitcoin Network protocol is not sold and its use does not generate revenues for its development team, the Core Developers are generally not compensated for maintaining and updating the Bitcoin Network protocol. Mike Hearn, a former member of the Core Developers, has criticized the lack of financial incentive for developers to maintain or develop the Bitcoin Network and indicated that the Core Developers may lack the resources to adequately address emerging issues with the Bitcoin Network protocol.
In November , the Bitcoin Foundation announced it would redirect its efforts principally toward assisting in the direction and funding of Core Development of the Bitcoin protocol, rather than political advocacy and educational efforts that were largely focused in North America and Europe.
To the extent that material issues arise with the Bitcoin Network protocol, and the Core Developers and open-source contributor community are unable to address the issues adequately or in a timely manner, the Bitcoin Network and an investment in the Shares may be adversely affected. If a malicious actor or botnet obtains control in excess of 50 percent of the processing power active on the Bitcoin Network, it is possible that such actor or botnet could manipulate the Blockchain in a manner that adversely affects an investment in the Shares or the ability of the Trust to operate.
If a malicious actor or botnet a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers obtains a majority of the processing power dedicated to. Table of Contents mining on the Bitcoin Network, it may be able to alter the Blockchain on which the Bitcoin Network and all Bitcoin transactions rely by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the Bitcoin Network can add valid blocks.
In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new bitcoins or transactions using such control. To the extent that such malicious actor or botnet does not yield its majority control of the processing power on the Bitcoin Network or the Bitcoin community does not reject the fraudulent blocks as malicious, reversing any changes made to the Blockchain may not be possible.
Such changes could adversely affect an investment in the Shares or the ability of the Trust to operate. In late May and early June , a mining pool known as GHash. To the extent that GHash. Furthermore, the processing power in the mining pool appears to have been redirected to other pools on a voluntary basis by participants in the GHash. The approach to and possible crossing of the 50 percent threshold indicate a greater risk that a single mining pool could exert authority over the validation of Bitcoin transactions.
To the extent that the Bitcoin ecosystem, including the Core Developers and the administrators of mining pools, do not act to ensure greater decentralization of Bitcoin mining processing power, the feasibility of a malicious actor obtaining in excess of 50 percent of the processing power on the Bitcoin Network e. If the award of bitcoins for solving blocks and transaction fees for recording transactions are not sufficiently high to incentivize miners, miners may cease expending processing power to solve blocks and confirmations of transactions on the Blockchain could be slowed temporarily.
A reduction in the processing power expended by miners on the Bitcoin Network could increase the likelihood of a malicious actor or botnet obtaining control in excess of 50 percent of the processing power active on the Bitcoin Network or the Blockchain, potentially permitting such actor or botnet to manipulate the Blockchain in a manner that adversely affects an investment in the Shares or the ability of the Trust to operate.
If the award of new bitcoins for solving blocks declines and transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may cease their mining operations. Miners ceasing operations would reduce the collective processing power on the Bitcoin Network, which would adversely affect the confirmation process for transactions i.
On December 2 and December 17, , the Bitcoin Network difficulty for block solutions was adjusted down by 0. During the month of December , confirmation time for block solutions was marginally impacted, with average block solution times based on a seven-day moving average of block solution times climbing from approximately 7. More significant reductions in processing power on the Bitcoin Network could result in material, though temporary, delays in block solution confirmation time.
Any reduction in confidence in the confirmation process or processing power of the Bitcoin Network may adversely impact an investment in the Shares. As the number of bitcoins awarded for solving a block in the Blockchain decreases, the incentive for miners to continue to contribute processing power to the Bitcoin Network will transition from a set reward to transaction fees.
Either the requirement from miners of higher transaction fees in exchange for recording transactions in the Blockchain or a software upgrade that automatically charges fees for all. Table of Contents transactions may decrease demand for bitcoins and prevent the expansion of the Bitcoin Network to retail merchants and commercial businesses, resulting in a reduction in the price of bitcoins that could adversely impact an investment in the Shares.
In order to incentivize miners to continue to contribute processing power to the Bitcoin Network, the Bitcoin Network may either formally or informally transition from a set reward to transaction fees earned upon solving for a block. This transition could be accomplished either by miners independently electing to record in the blocks they solve only those transactions that include payment of a transaction fee or by the Bitcoin Network adopting software upgrades that require the payment of a minimum transaction fee for all transactions.
If transaction fees paid for Bitcoin transactions become too high, the marketplace may be reluctant to accept bitcoins as a means of payment and existing users may be motivated to switch from bitcoins to another Digital Math-Based Asset or back to fiat currency. Decreased use and demand for bitcoins may adversely affect their value and result in a reduction in the Winkdex spot price and the price of the Shares. To the extent that the profit margins of Bitcoin mining operations are not high, operators of Bitcoin mining operations are more likely to immediately sell bitcoins earned by mining in the Bitcoin Exchange Market, resulting in a reduction in the price of bitcoins that could adversely impact an investment in the Shares.
Over the past two years, Bitcoin Network mining operations have evolved from individual users mining with computer processors, graphics processing units and first generation ASIC application-specific integrated circuit machines. They require the investment of significant capital for the acquisition of this hardware, the leasing of operating space often in data centers or warehousing facilities , incurring of electricity costs and the employment of technicians to operate the mining farms.
As a result, professionalized mining operations are of a greater scale than prior Bitcoin Network miners and have more defined, regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to more immediately sell bitcoins earned from mining operations on the Bitcoin Exchange Market, whereas it is believed that individual miners in past years were more likely to hold newly mined bitcoins for more extended periods.
The immediate selling of newly mined bitcoins greatly increases the supply of bitcoins on the Bitcoin Exchange Market, creating downward pressure on the price of bitcoins. The extent to which the value of bitcoins mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation.
In a low profit margin environment, a higher percentage of the 3, to 4, new bitcoins mined each day will be sold into the Bitcoin Exchange Market more rapidly, thereby reducing bitcoin prices. Lower bitcoin prices will result in further tightening of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating a network effect that may further reduce the price of bitcoins until mining operations with higher operating costs become unprofitable and remove mining power from the Bitcoin Network.
The network effect of reduced profit margins resulting in greater sales of newly mined bitcoins could result in a reduction in the price of bitcoins that could adversely impact an investment in the Shares. To the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction fee will not be recorded on the Blockchain until a block is solved by a miner who does not require the payment of transaction fees.
Any widespread delays in the recording of transactions could result in a loss of confidence in the Bitcoin Network, which could adversely impact an investment in the Shares. To the extent that any miners cease to record transaction in solved blocks, such transactions will not be recorded on the Blockchain. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise e.
Table of Contents among miners or one or more mining pools forcing Bitcoin users to pay transaction fees as a substitute for or in addition to the award of new bitcoins upon the solving of a block , actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the Blockchain.
Any systemic delays in the recording and confirmation of transactions on the Blockchain could result in greater exposure to double-spending transactions and a loss of confidence in the Bitcoin Network, which could adversely impact an investment in the Shares.
The temporary or permanent existence of forked Blockchains could adversely impact an investment in the Shares. Bitcoin is an open source project and, although there is an influential group of leaders in the Bitcoin Network community including the Core Developers, there is no official developer or group of developers that formally controls the Bitcoin Network. Any individual can download the Bitcoin Network software and make any desired modifications, which are proposed to users and miners on the Bitcoin Network through software downloads and upgrades, typically posted to the Bitcoin development forum on GitHub.
A substantial majority of miners and Bitcoin users must consent to those software modifications by downloading the altered software or upgrade that implements the changes; otherwise, the changes do not become a part of the Bitcoin Network.
Such a fork in the Blockchain typically would be addressed by community-led efforts to merge the forked Blockchains, and several prior forks have been so merged. Intellectual property rights claims may adversely affect the operation of the Bitcoin Network. Third parties may assert intellectual property claims relating to the holding and transfer of Digital Math-Based Assets and their source code.
As a result, an intellectual property claim against the Trust or other large Bitcoin Network participants could adversely affect an investment in the Shares. The value of the Shares relates directly to the value of the bitcoins held by the Trust and fluctuations in the price of bitcoins could adversely affect an investment in the Shares. The Shares are designed to mirror as closely as possible the performance of the price of bitcoins, as measured by Winkdex, and the value of the Shares relates directly to the value of the bitcoins held by the Trust,.
Winkdex uses US Dollar-denominated trading data from qualified Bitcoin Exchanges with the highest trading volume in bitcoins. The price of bitcoins has fluctuated widely over the past three years. Several factors may affect the Winkdex spot price, including, but not limited to:. Currency exchange rates, including the rates at which bitcoins may be exchanged for fiat currencies;. Fiat currency withdrawal and deposit policies of Bitcoin Exchanges and liquidity on such Bitcoin Exchanges;.
Interruptions in service from or failures of major Bitcoin Exchanges;. Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in bitcoins;. Monetary policies of governments, trade restrictions, currency devaluations and revaluations;. Regulatory measures, if any, that restrict the use of bitcoins as a form of payment or the purchase of bitcoins on the Bitcoin Market;.
The maintenance and development of the open-source software protocol of the Bitcoin Network;. Global or regional political, economic or financial events and situations; and. Expectations among Bitcoin economy participants that the value of bitcoins will soon change. In addition, investors should be aware that there is no assurance that bitcoins will maintain their long-term value in terms of purchasing power in the future or that the acceptance of bitcoin payments by mainstream retail merchants and commercial businesses will continue to grow.
In the event that the price of bitcoins declines, the Sponsor expects the value of an investment in the Shares to decline proportionately. The Winkdex spot price may be subject to momentum pricing whereby the current value of a bitcoin as represented by Winkdex may account for speculation regarding future appreciation in the Winkdex spot price. Momentum pricing of bitcoins may subject the Winkdex spot price to greater volatility and adversely affect an investment in the Shares.
Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. The Sponsor believes that momentum pricing of bitcoins has resulted, and may continue to result, in speculation regarding future appreciation in the value of bitcoins, inflating and making more volatile the value of a bitcoin as represented by Winkdex.
As a result, bitcoins may be more likely to fluctuate in value due to changing investor confidence in future appreciation in the Winkdex spot price, which could adversely affect an investment in the Shares. Table of Contents Winkdex is an exponential moving average calculated using volume weighted trading price data from various Bitcoin Exchanges chosen by the Index Provider.
Pricing on any Bitcoin Exchange in the Bitcoin Exchange Market can be volatile and can adversely affect an investment in the Shares. Winkdex has a limited history and is an exponential moving average index that is based on volume weighted trading price data from various Bitcoin Exchanges chosen by the Index Provider.
The data inputs are drawn from the application programming interface of various Bitcoin Exchanges and includes trade time, price and volume. The Index Provider selects which Bitcoin Exchanges to include in Winkdex based on currency-denomination, trading volume and such other factors as the Index Provider may deem material e. The Index Provider will review the eligibility of Bitcoin Exchanges periodically, and not less frequently than monthly.
Winkdex will be calculated on an ongoing basis and published at Winkdex. The calculation of Winkdex as of p. The price of bitcoins on public Bitcoin Exchanges has a limited, four year history. During such history, bitcoin prices on the Bitcoin Exchange Market as a whole, and on Bitcoin Exchanges individually, have been volatile and subject to influence by many factors including the levels of liquidity on Bitcoin Exchanges.
Even the largest Bitcoin Exchanges have been subject to operational interruption e. Winkdex is designed to have limited exposure to Bitcoin Exchange interruption by utilizing transaction data from the top three eligible Bitcoin Exchanges, measured by volume over the prior hour period. The collected data is blended in a two-hour, volume weighted moving average that gives greater weight to more recent transactions than older ones.
Winkdex is also designed to limit exposure to trading or price distortion on Bitcoin Exchanges experiencing periods of unusual activity or limited liquidity by selecting as constituent Bitcoin Exchanges only the eligible Bitcoin Exchanges with the three highest levels of trading volume over the prior hour period.
The Sponsor believes the Winkdex calculation methodology provides a more accurate picture of bitcoin price movements than a simple average of Bitcoin Exchange prices, and that the inclusion of only the top three Bitcoin Exchanges during the calculation period, by volume, limits the chance of included data being influenced by temporary price dislocations that may result from technical problems or limited liquidity on otherwise eligible exchanges.
The Winkdex calculation methodology calls for the review and periodic updating of the constituent Bitcoin Exchanges based on changes in volume levels among the eligible Bitcoin Exchanges. The price of bitcoins on public Bitcoin Exchanges may also be impacted by policies on or interruptions in the deposit or withdrawal of fiat currency into or out of larger Bitcoin Exchanges.
On large Bitcoin Exchanges, users may buy or sell bitcoins for fiat currency or transfer bitcoins to other wallets. Operational limits including regulatory, exchange policy or technical or operational limits on the size or settlement speed of fiat currency deposits by users into Bitcoin Exchanges may reduce demand on such Bitcoin Exchanges, resulting in a reduction in the bitcoin price on such Bitcoin Exchange.
Operational limits including regulatory, exchange policy or technical or operational limits on the size or settlement speed of fiat currency withdrawals by users into Bitcoin Exchanges may reduce supply on such Bitcoin Exchanges, resulting in an increase in the bitcoin price on such Bitcoin Exchange.
For example, a delay in US Dollar withdrawals on one site may temporarily increase the price on such site by reducing supply i. To the extent that users are able or. Table of Contents willing to utilize or arbitrage prices between more than one Bitcoin Exchange, exchange shopping may mitigate the short term impact on and volatility of bitcoin prices due to operational limits on the deposit or withdrawal of fiat currency into or out of larger Bitcoin Exchanges.
Despite efforts to ensure accurate pricing on a volume weighted basis using an exponential moving average, the Winkdex spot price, and the price of bitcoins generally, remains subject to volatility experienced by the Bitcoin Exchanges. Such volatility can adversely affect an investment in the Shares. The Bitcoin Exchanges on which bitcoins trade are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for other products.
The Bitcoin Exchanges on which the bitcoins trade are new and, in most cases, largely unregulated. Furthermore, many Bitcoin Exchanges including several of the most prominent US Dollar denominated Bitcoin Exchanges do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance.
As a result, the marketplace may lose confidence in, or may experience problems relating to, Bitcoin Exchanges, including prominent exchanges handling a significant portion of the volume of bitcoin trading. The Winkdex spot price on which the NAV of the Shares is determined using the value of a bitcoin as represented by Winkdex at p.
New York time on the date of measurement. Winkdex utilizes data from Bitcoin Exchanges selected by the Index Provider to determine the weighted average price for bitcoins. Over the past four years, many Bitcoin Exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such Bitcoin Exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin Exchanges.
Further, the collapse of Mt. Gox in February indicated that even the largest Bitcoin Exchanges could be subject to abrupt failure with consequences for both users of a Bitcoin Exchange and the Bitcoin industry as a whole. Gox, and the removal of Mt. A lack of stability in the Bitcoin Exchange Market and the closure or temporary shutdown of Bitcoin Exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in the Bitcoin Network and result in greater volatility in the Winkdex spot price.
Table of Contents Since there is no limit on the number of bitcoins that the Trust may acquire, the Trust itself, as it grows, may have an impact on the supply and demand of bitcoins that ultimately may affect the price of the Shares in a manner unrelated to other factors affecting the global market for bitcoins. The Trust Agreement places no limit on the number of bitcoins the Trust may hold.
Moreover, the Trust may issue an unlimited number of Shares, subject to registration requirements, and therefore acquire an unlimited number of bitcoins. The global market for bitcoins is characterized by supply and demand constraints that generally are not present in the markets for commodities or other assets such as gold and silver.
As of December 26, , approximately 13,, bitcoins had been created. If the number of bitcoins acquired by the Trust is large enough relative to global bitcoin supply and demand, further in-kind creations and redemptions of Shares could have an impact on the supply of and demand for bitcoins in a manner unrelated to other factors affecting the global market for bitcoins.
Such an impact could affect the Winkdex spot price, which would directly affect the price at which Shares are traded on the NASDAQ or the price of future Baskets created or redeemed by the Trust. The Trust and the Sponsor cannot provide any assurance that increased bitcoin holdings by the Trust in the future will have no long-term impact on the Winkdex spot price, thereby affecting Share trading prices.
While the NASDAQ is open for trading in the Shares for a limited period each day, the Bitcoin Exchange Market is a hour marketplace; however, trading volume and liquidity on the Bitcoin Exchange Market is not consistent throughout the day and Bitcoin Exchanges, including the larger-volume markets, have been known to shut down temporarily or permanently due to security concerns, directed denial of service attacks and DDoS Attacks and other reasons. As a result, during periods when the NASDAQ is open but large Bitcoin Exchanges or a substantial number of smaller Bitcoin Exchanges are either lightly traded or are closed, trading spreads and the resulting premium or discount on the Shares may widen and, therefore, increase the difference between the price of the Shares and the NAV per Share.
Premiums or discounts may have an adverse effect on an investment in the Shares if a Shareholder sells or acquires its Shares during a period of discount or premium, respectively. During periods when the NASDAQ is closed but Bitcoin Exchanges are open, significant changes in the price of bitcoin on the Exchange Market could result in a difference in performance between the value of bitcoins as measured by Winkdex and the most recent NAV per Share or closing trading price.
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Purchasing activity associated with acquiring bitcoins required for deposit with the Trust in connection with the creation of Baskets may increase the market price of bitcoins on the Bitcoin Exchange Market, which will result in higher prices for the Shares. Increases in the market price of bitcoins may also occur as a result of the purchasing activity of other market participants.
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Political or economic crises may motivate large-scale sales of bitcoins, which could result in a reduction in the Winkdex spot price and adversely affect an investment in the Shares. As an alternative to fiat currencies that are backed by central governments, Digital Math-Based Assets such as bitcoins, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events.
Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of bitcoins either globally or locally. Large-scale sales of bitcoins would result in a reduction in the Winkdex spot price and adversely affect an investment in the Shares. Table of Contents Demand for bitcoins is driven, in part, by its status as the most prominent and secure Digital Math-Based Asset.
It is possible that a Digital Math-Based Asset other than bitcoins could have features that make it more desirable to a material portion of the Digital Math-Based Asset user base, resulting in a reduction in demand for bitcoins, which could have a negative impact on the price of bitcoins and adversely affect an investment in the Shares. This first-to-market advantage is driven in large part by having the largest user base and, more importantly, the largest combined mining power in use to secure the Blockchain and transaction verification system.
According to CoinMarketCap. Furthermore, the mining hashrate of Bitcoin estimated by Blockchain. Bitcoin also enjoys significantly greater acceptance and usage than other altcoin networks in the retail and commercial marketplace, due in large part to the relatively well-funded efforts of payment processing companies including Coinbase, BitPay and GoCoin.
Despite the marked first-mover advantage of the Bitcoin Network over other Digital Math-Based Assets, it is possible than an altcoin could become materially popular due to either a perceived or exposed shortcoming of the Bitcoin Network protocol that is not immediately addressed by the Core Developers or a perceived advantage of an altcoin that includes features not incorporated into Bitcoin.
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The arbitrage mechanism on which the Trust relies to keep the price of the Shares closely linked to the Winkdex spot price may not function properly if Authorized Participants are able to purchase or sell large aggregations of bitcoins in the open market at prices that are materially higher or lower than the Winkdex spot price.
Although Winkdex is designed to accurately capture the market price of bitcoins in the top three, by volume, eligible Bitcoin Exchanges trading in US Dollars, Authorized Participants may purchase bitcoins for creation units or sell bitcoins from creation unit redemptions on public or private markets not included among the constituent Bitcoin Exchanges of Winkdex, and such transactions may take place at prices materially higher or lower than the Winkdex spot price.
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Under either such circumstance, the arbitrage mechanism will function to link the price of the Shares to the prices at which Authorized Participants are able to purchase or sell large aggregations of bitcoins. Table of Contents If the processes of creation and redemption of Baskets encounter any unanticipated difficulties, the opportunities for arbitrage transactions intended to keep the price of the Shares closely linked to the Winkdex spot price may not exist and, as a result, the price of the Shares may fall.
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Bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoins may be irretrievable. As a result, any incorrectly executed Bitcoin transactions could adversely affect an investment in the Shares. Bitcoin transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the Bitcoin Network.
The fact that Bitcoin does not need third-party agencies is one of the reasons for its popularity. This unique characteristic means that the entire system is decentralized Brito and Castilllo The network assumes that most nodes—which are, in fact, individuals—are honest and intercepts all transactions. The Bitcoin system does not have a mediating entity and no third party for managing transactions; therefore, several existing nodes process each transaction.
These nodes are responsible for registering each transaction in a public ledger called a blockchain. Miners perform the calculation needed to record the data and a completed and verified process chooses a miner as the winner to update the blockchain. Each participant has a revised version of the audit, and therefore, the entire system is decentralized Elwell et al, Renato and Dos examined the system type of Bitcoin and concluded that the Bitcoin network is not a complex system with only algorithmic complexity, and that it will probably not enter a chaotic phase.
The advantages of using a blockchain network are: transparency of information, no need for third parties, the possibility of international payments, anonymity of users, irreversible payments, no transaction tax, low transaction costs, and a low risk of theft. As Bitcoin is used by ordinary people and because of its lack of relevance to other assets, Bitcoin has become an attractive option for investors. Therefore, the ability to predict prices would be a great help for investors.
Considering the importance of the topic, many researchers have recently studied Bitcoin price prediction. Almeida et al. The main problem with their method is the requirement of a large amount data for the prediction. Shah and Zhang used the nonparametric classification technique developed by Chen et al. Madan et al. Georgoula et al. The result showed that the amount of Wikipedia hits and hash rates in the network had a positive relationship with the Bitcoin price.
In another study, Matta et al. They examined whether the general feeling that aggregates in a set of Twitter posts could be used to predict changes in the Bitcoin market. Some studies obtained similar results using wavelets Kristoufek ; Vidal For example, Kristoufek found a direct connection between search engine views, hash rates, and bitcoin mining complexity in the long term by analyzing the dependency of the microwaves on the Bitcoin price. Ciaian et al.
They found that market forces and Bitcoin attractiveness are two major factors in determining the Bitcoin price. Bouri et al. Their results showed that Bitcoin could work as a diversifier in this market. Based on these previous studies, it is clear that the Bitcoin price is dependent on many nondeterministic factors, and that predicting the price is not an easy task.
This study proposes grey system theory for predicting the Bitcoin price. The next section introduces a grey model for predicting the Bitcoin price and shows that this method is more suitable and more accurate than existing models. The grey system theory is a non-statistical method of forecasting non-linear time series Cen et al. The grey system theory was introduced by Deng in early and it quickly developed in the field of forecasting concerning—among others—economics, industry, and natural phenomena Deng Black represents unknown information and white represents known information, while grey signifies information that are partially known Deng ; Liu et al.
The GM n, m model is a grey prediction model in which n denotes the degree of differential equation used in the model and m denotes the number of variables. The GM 1,1 model is a classic grey prediction model. The key reasons for researchers using the GM 1,1 model is the simplicity of its modeling, the implementation of the model, and the low need for time data. In this system, four observation points are needed to check for uncertain data and to reduce the error rate Liu and Lin The GM 1,1 model is a first-order grey pattern used to predict a time series.
In this model, a system is easily described by a first-order differential equation and the template is updated whenever new data becomes available. To coincide the randomness of the data, an accumulative generation operator AGO is used. The differential equation GM 1,1 calculates the values associated with n steps ahead of the prediction system. The end goal of using this predicted value and the inverse accumulative generation operator I-AGO is to obtain the main value of the predicted data Liu and Lin The GM 1,1 algorithm is as follows:.
By the discretization of eq. Next, we calculate the values of a and b using an ordinary least squares estimation. In our model, the parameter a is the development index and b is the grey trigger value. The accuracy of the GM 1,1 model depends on the values of a and b as well as the selection of the initial conditions during the modeling process. Thus, selecting the initial values of the parameter is imperative to improve the accuracy of this method Liu et al.
A time window analysis is therefore used to achieve a more accurate prediction Li et al. For this study, the data concerning the Bitcoin price are obtained from the website www. The final Bitcoin price in a day is considered as its closing price.
At first, four initial data points are considered and the fifth data is predicted. We call this procedure a five-days prediction, as the Bitcoin prices for all 5 days are approximated using this method. The mean average percentage error MAPE is used to compare the results and is calculated as follows:. MAPE is the most widely used forecasting accuracy measurement, as it is a unit-free measurement and can be used for all the information concerning the error Christodoulos et al.
This study aimed to investigate the potential application of the grey system theory in Bitcoin price prediction. We consider a period of 5 days and another period of 6 months for the prediction. It is well known fact that the grey system theory prediction works better with small datasets, as the error of prediction will increase when the dataset is larger Wu et al. In other words, for a six-month dataset, the averages of Bitcoin prices are considered in five sequential months and the average of the Bitcoin price for the sixth month is predicted.
Tables 2 , 3 , 4 , 5 , 6 , 7 , 8 and 9 show the prediction of Bitcoin prices for 5 days and 6 months for different dates chosen randomly. Based on Tables 2 , 3 , 4 , 5 , 6 , 7 , 8 and 9 , the 5 days and 6 months predictions show high accuracy and good accuracy, respectively. To illustrate the robustness of the proposed method, predictions are done in a five-day time window, from July 18, to May 27, The error of prediction is shown in Fig.
The average MAPE value is 1. This shows that a single five-day time window is robust and accurate for predicting Bitcoin price. To illustrate the validity of the method, a Lilliefors test is used to investigate the normality of error distribution Abdi and Molin The Lilliefors test is an improvement of the Kolmogorov Smirnov test and is used when the expected value and its variance are unknown.
The 5 days and 6 months data are considered where the end of each period is May 28, The results show that the histogram of errors is not normal for 6 months, but that it is normal for a five-day prediction period with the p -value at 0. The histogram of errors for the five-day prediction period is shown in Fig. The value of skewness for 5 days is - 0.
Therefore, the results show that the error of prediction has normal distribution and is unbiased in the five-day time window prediction. Non-statistical methods are powerful tools for forecasting non-linear time series. ANN and grey system theory are both non-statistical methods that are widely used for forecasting non-linear time series Cen et al.
Bahrammirzaee showed that the ANN method outperforms traditional and statistical approaches in the financial prediction. Therefore, we compare the proposed method with RNN and BNN to show the accuracy and robustness of method proposed in this study. Previous works such as that of Chen et al.
Based on new technologies, economic policies, and cultural behaviors, these inputs may change. Therefore, neural network models are not suitable or stable enough for predicting the Bitcoin price. The main advantage of the grey system theory is that it works well with small samples and poor informations. Therefore, the grey system theory is highly recommended for predicting the Bitcoin price.
In countries such as Japan, Netherlands, Canada and the United States, you can pay Bitcoin at restaurants, malls and other large and small businesses. On the other hand, the prediction of Bitcoin price is not an easy task since it is a new and unstable market. Since the grey system theory can make predictions with a small number of data and incomplete information, we used this method to predict Bitcoin price in next future day.
To the best of our knowledge, this amount of error is clearly less than previously existed results which have been cited in this article. The autocorrelation plot for 5-days prediction errors is depicted in Fig. Therefore, GM 1,1 can be used to predict Bitcoin price and market trends which leads to reduce the risks of investing in cryptocurrencies.
For the future work, one can consider some dependent factors in Bitcoin price and apply GM 1,N to predict Bitcoin price to get longer period prediction. In: Salkind N ed ed Encyclopedia of measurement and statistics, vol 1. Sage, London, pp — Google Scholar. Neural Networks Res J Bus Manag 6 4 — Bahrammirzaee A A comparative survey of artificial intelligence applications in finance: artificial neural networks, expert system and hybrid intelligent systems.
Neural Comput Applic 19 8 — Blau BM Price dynamics and speculative trading in Bitcoin. Res Int Bus Financ — Appl Econ 49 50 — Briere M, Oosterlinck K, Szafarz A Virtual currency, tangible return: port-folio diversication with bitcoins, tangible return: portfolio Diversication with Bitcoins. J Asset Manag 16 6 — Brito J, Castilllo A Bitcoin, a primer for policymakers. Springer, Heidelberg, — In: Advances in neural information processing systems, vol 26, pp — Rev Financ Stud 27 5 — Technol Forecast Soc 78 1 — Appl Econ 48 19 — Inform Economica 19 2 — Deng J Control problems of Grey systems.
Syst Control Lett 1 5 — Deng J Introduction to Grey system theory. J Grey Syst 1 1 :1— El-Abdelouarti Alouaret Z Comparative study of vector autoregression and recurrent neural network applied to Bitcoin forecasting. Franco P Understanding Bitcoin: cryptography, engineering, and economics. Wiley, New York.
Gandal N, Halaburda H Competition in the cryptocurrency market. Roy Soc Open Sci 2 9 Accessed 8 Dec Guo Y, Liang C Blockchain application and outlook in the banking industry. Financ Innov 2 1 Hayes AS Cryptocurrency value formation: an empirical study leading to a cost of production model for valuing bitcoin.
Telemat Inform 34 7 — J Fundam Appl Sci 9 3 — Hitotsub J Econ 60 1 — Springer, London. Jang H, Lee J An empirical study on modeling and prediction of Bitcoin prices with Bayesian neural networks based on Blockchain information. Even though some addresses are already in the dataset while others are not, they are all identified as key addresses related to the ransomware family. We computed an outgoing-relationships graph for each family in the dataset and calculated the metric by applying the above definition.
With the dataset generated through the different steps mentioned above, an assessment of the minimum direct financial impact of each ransomware family is possible. The multiple-input clustering heuristic allowed an expansion of the dataset and the time filtering ensured that the expanded addresses were within the time frame of each ransomware campaign. Also, the method of tracing outgoing relationships found key addresses that received money from the expanded addresses related to a ransomware family.
The key addresses already in the expanded dataset red nodes are filtered out of the expanded dataset for the financial assessment to avoid double-counting ransom payments. Building on the methodology presented in the previous section and the resulting dataset, we can now analyze Bitcoin transactions related to ransomware. In the following section, we report our findings on tracing ransomware monetary flows. Then, we provide a lower bound estimation for the direct financial impact of the Top 15 families in our dataset and give insight into the value and longitudinal development of ransomware payments.
Finally, we present an estimation of the minimum worth of the market for ransomware payments. By computing the outgoing-relationships graph for each ransomware family and applying the condition mentioned above, key addresses for each ransomware family were found. This indicates that ransomware authors do tend to consolidate their money into one or several key addresses.
Intuitively, these key addresses can be considered collectors of a ransomware family. We define a collector as an address used to collect or aggregate payments from several payment addresses. It illustrates that an address that was already in the expanded dataset red node has a high-degree centrality and receives 32 payments of less or equal to 10 BTC. Considering the high-degree centrality, this address can be considered a collector of the Locky ransomware family. That figure also shows that the high-degree centrality address sends 67 Bitcoins to a gray address, which is an address not in the expanded dataset.
Similarly, two other addresses, from the expanded dataset, send 50 Bitcoins to that gray address. At a higher level, this gray address can also be considered a collector of the Locky ransomware family. This is because deciding whether an address is a collector or not depends on the monetary flow in an outgoing-relationships graph related to a ransomware family and has nothing to do with the multiple-input heuristic results, which is based on the author having the private keys of all addresses in the cluster.
Indeed, some collector addresses can rather be part of a larger cluster representing Bitcoin exchange services or gambling sites, which can be used by attackers to convert ransom payments to fiat currencies or to camouflage monetary flows. If a key address belongs to a large known cluster, it could then be considered the end route of tracing ransomware payments.
As explained before in the methodology, such assessment is possible by investigating tags associated with addresses and address clusters. A total of 12 addresses were linked to mixing services, such as BitcoinFog and HelixMixer. These services are specialized intermediaries which mix coins and transactions of different actors and thereby camouflage the digital trace of cryptocurrency transactions.
They play a central role in money laundering and cybercrime-related activities that rely on cryptocurrencies as a payment method. Although our information on real-world actors behind addresses and clusters was limited to the tags we retrieved from external sources and therefore incomplete, we found that some ransomware attackers directly sent their ransom payments to known actors, mostly gambling and exchange services.
We also found that some ransomware families specifically transacted multiple times with the same actor. As extra information, the outgoing-relationships analysis also linked some families together. It illustrated that the Globe and Globev3 families sent money to the same untagged collector address, which was to be expected based on their shared naming features, but was confirmed through our methodology.
Intuitively, we can assume that these two families might be related to the same real-world actors who may run two families of ransomware simultaneously or may launder money on behalf of the two different groups. Besides tracing ransomware monetary flows, we assessed the lower bound financial impact of each ransomware family. The basis for our estimation was the time-filtered expanded ransomware dataset described in Section 3. To avoid double-counting of ransomware payments, we removed known collector addresses from the dataset.
Based on our dataset, these are the three families that created a lower bound direct financial impact of more than one million. Then, SamSam , Cryptolocker , and GlobeImposter generated lower bound direct financial impacts of hundreds of thousands of dollars each. As we go down the ranking, a rapid decline is observed: the ransomware occupying the 15th position, Razy , barely gathered a lower bound of USD Due to the worth of the Bitcoin being highly volatile, we do not consider these amounts as representing ransomware revenue.
Also, when comparing the amounts above with findings reported in other studies, we observe similarities and discrepancies. Yet, the discrepancy seems to come from the addition of a single additional seed address in the Huang, Aliapoulios, Li et al. The differences may arise from the different number of seed addresses used in the Bursztein, McRoberts and Invernizzi [ 16 ] research.
Finally, we identify high or moderate performing ransomware families, such as DMALockerv3 and NoobCrypt , which did not register in the concurrent research. It shows that the incoming transactions of 12 ransomware families range from very low payments up to USD The SamSam ransomware was also known to ask ransoms based on the number of machines infected and the ransom could go from 1.
For the GlobeImposter ransomware, however, we could not find a justification for the relative high mean payment value and mean error rate. We only identified a single address for that ransomware family in our dataset and, therefore, could not compute means across addresses belonging to that family.
For three famous families, CryptoLocker , Locky , and Wannacry , it shows the viral effect of ransomware attacks and ransom payments. It also illustrates that famous ransomware campaigns are likely to be a short-term, one-time deal, in which a ransomware author makes money quickly and then stops, possibly due to various forms of security interventions.
However, the SamSam ransomware seems to behave differently since the cumulative payment curve shows a somewhat linear trend over a whole year, from July to July The difference in this campaign could be related to the different approach used by the ransomware authors, which is known to be more targeted [ 36 ]. These results are similar to the concurrent research reported in Bursztein, McRoberts and Invernizzi [ 16 ] and Huang, Aliapoulios, Li et al.
Overall, we believe that the method presented in this article led to novel insights for each ransomware family. Ransom payment addresses and collectors were differentiated in the dataset, allowing one to assess ransomware lower bound direct financial impacts without double-counting. Plus, we could trace monetary flows of ransomware payments and identify destinations, such as Bitcoin exchanges or gambling services, when contextually related information tags was available.
Our method is reproducible and could be repeated for additional families with an updated seed dataset. Plus, computation of address clusters over the most recent state of the Bitcoin blockchain, along with more identification of clusters belonging to specific groups, could greatly increase the knowledge on exit points of ransomware monetary flows.
We understand our approach has a number of limitations. First, our methodology relies on a set of seed addresses manually collected and the effectiveness of the multiple-input heuristics for uncovering previously unknown addresses linked to this family. Thus, it misses other ransomware families as well as other addresses that might belong to the same family, but cannot be linked to the same cluster.
This study includes 35 ransomware families and to this date, about ransomware families have been reported. We invite other researchers to replicate the analysis with additional ransomware addresses. Indeed, the more addresses from various families become available, the more accurate the picture of the overall market for ransom payments will become. Second, our approach is limited by the extent and quality of the attribution data tags available.
Without this information, clusters remain anonymous and inferences about their real-world nature are impossible. Nevertheless, we believe that such data will increasingly become available in the near future with the growing popularity of cryptocurrencies and analytics tools. Third, tumblers or mixing services, which facilitate the amalgamation of coins belonging to multiple individuals in a single transaction, increase the difficulty of tracing monetary flows in the Bitcoin network cf.
We believe that our methodology is robust to such services because it only considers payments to addresses derived from a manually collected set of ransomware payment addresses and their direct outgoing neighbors in the address graph. Thus, in the worst case, a key address would represent the entry point of a mixing service.
We also note that the transactions we attribute to ransomware families could be part of CoinJoin transactions. However, we argue that matching transactions with those of other users when collecting ransom payments would add an undesirable third party the CoinJoin service dependency in the process. This should hardly be implemented in practice as using CoinJoin services to collect ransoms would also create delays in payments and certainly cause considerable technical efforts for ransomware attackers.
This assumption is somehow confirmed by Huang, Aliapoulios, Li et al. Despite these limitations, we have shown that one can uncover valuable insights into ransomware payments and the market values of these attacks. Through the analysis of 35 ransomware families in the Bitcoin network, we find that there are some clear inequalities in the market, which could be considered as a top-heavy market in which only a few players are responsible for most of the ransom payments.
This is also in line with the concurrent research reported in Huang, Aliapoulios, Li et al. Such finding has implications for law enforcement agencies seeking to disrupt this market: mobilizing their limited resources on a small number of highly capable players could lead to takedowns and have a major negative impact on the ransomware economy.
Moreover, when masking major ransomware families, such as Locky, CryptXXX , and DMALockerv3 , the drop-in ransom amounts is substantial and we find that more than half of the ransomware family in the sample is responsible for less than USD of direct financial impacts. Few of them had actual destructive capabilities and most of them could be easily defeated. This could explain why only few ransomware families succeed at generating ransom payments worth millions.
Such observations do not mean that the ransomware threat should be underestimated. Although the minimum worth of the market for ransom payments, taking into account 35 families, is a relatively modest amount about USD 12 million compared to the hype surrounding the issue, the overall direct and indirect damages they caused to individual and organizational victims are much higher [ 21 ].
Some of the ransomware families in our datasets have decryption tools available on this community website. Although this could explain why some families do not have a large direct financial impact, further analysis should look into the performance changes of a ransomware family once a decryption tool is made available. We present a novel method for identifying and gathering information on Bitcoin transactions related to illicit activity.
We also find that the market is highly skewed, dominated by a few number of players. From these findings, we conclude that the total ransom amounts gathered through ransomware attacks are relatively low compared to the hype surrounding this issue. We believe that our simple data-driven methodology and findings provide valuable insights and carry implications for security companies, government agencies and the public in general.
It could, for instance, be adopted in threat intelligence systems for following ransomware payments associated with new campaigns in real time, and for identifying inflection points such as explosive growth phases and slowdown periods, when the plateau of ransom payments is reached. An evidence-based and more granular longitudinal tracking of the entire ransomware economy would allow government agencies and security companies to fine-tune their intervention efforts and awareness campaigns to focus on the two or three most active and dynamic threats.
For example, an agency confronted with several ransomware attacks and with limited resources to mitigate them could leverage financial revenue streams as presented above to prioritize their resources on the most influential attacks. In other words, by making more reliable, comprehensive, and timely information available on the nature and scope of the ransomware problem, our methodology can help lead the discussion on how best to address the threat at scale and support subsequent decision-making.
One straightforward future work would be to extend our analysis to additional ransomware families. Work in that direction should also take into account the emergence of post-Bitcoin cryptocurrencies, such as Monero, Ethereum, or Zcash, which have advanced privacy features and are gaining popularity in the digital underground [ 1 ].
Kirk is the first ransomware family that has been re-ported to use Monero for ransom payments [ 38 ]. Another possible area of future work lies in the application of this methodology on other illicit activities that channel their financial transactions through the Bitcoin network, such as other extortion cases, trafficking of illicit goods, or money laundering. The results for the 35 families can be reproduced with the scripts and the datasets provided in the Github repositories.
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ISBN: Cryptolock and drop it : stopping Ransomware Attacks on User Data. Shieldfs: a self-healing, ransomware-aware filesystem. Paybreak: defense against cryptographic ransomware. Bitiodine: extracting intelligence from the Bitcoin Network.
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