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The Winklevoss Bitcoin Fund

Bitcoin ETF Proposal

By Swagato Chakravorty
Wednesday, July 3rd, 2013

The Bitcoin story has drawn much attention from various sectors over the past few months. Its wildly fluctuating value, speculation as a consequence of international economic instability, and its sheer exotic structure all make for good newsprint.

Now, the Winklevoss twins—of Facebook (NASDAQ: FB) and The Social Network fame—have thrown their weight behind it. Pending the U.S. government’s approval, the Winklevosses would like you to invest in Bitcoin.

winklevoss twinsThe New York Times notes that Cameron and Tyler Winklevoss filed a proposal this Monday with U.S. securities legislators to create a special ETF to hold Bitcoins exclusively. If the proposal receives formal approval, investors would be able to trade Bitcoins just like normal stocks.

It’s an interesting move that could boost Bitcoin’s public visibility even more and perhaps bring it further into the mainstream. Already, Mt. Gox (the largest Bitcoin exchange) has submitted a filing with the Treasury Department to formally register itself as a money service business.

As a side note, the government has been going after several Bitcoin exchanges, largely on money-laundering charges due to lack of appropriate filings, which is what led to Mt. Gox's hastily submission of the appropriate paperwork, among other things.

The Winklevoss twins, obviously, are heavily invested in Bitcoin. Their proposed Winklevoss Bitcoin Trust would see digital currency move from its present niche of a computer-savvy crowd to basically anyone involved in investing and brokerage, thus exponentially expanding Bitcoin’s user base.

From the New York Times:

“The trust brings bitcoin to Main Street and mainstream investors to bitcoin,” said Tyler Winklevoss, co-founder of Math-Based Asset Services, which would operate the proposed fund. “It eliminates the friction of buying and reduces the risks associated with storing bitcoin while offering similar investment attributes to direct ownership.”

There is significant skepticism, however. It has been suggested that the Winklevosses’ move is a somewhat hasty effort to legitimize Bitcoin. Back in April, when one Bitcoin’s value shot up over $250 from $110 before falling precipitously, it was revealed that the Winklevosses hold about $10 million in Bitcoin equivalents.

The proposed ETF would effectively purchase 1 Bitcoin per five shares, meaning one share would equal about one-fifth of a Bitcoin. The Winklevosses’ Bitcoin company would handle Bitcoin storage for a yearly management fee.

While all looks clear on the surface, this is not a good time for digital currencies, as indicated by Liberty Reserve’s recent indictment on money-laundering charges. Mt. Gox has already seen some of its U.S. accounts frozen, and the company actually put a temporary hold on U.S. customers cashing out.

This unfriendly climate is reflected in the language of the Winklevosses’ proposal, which notes a highly speculative environment alongside regulatory uncertainties. That’s why it is unclear whether the Winklevoss ETF proposal will receive full approval.

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Bitcoin's Possible Futures

On the other hand, Bitcoin has never received this kind of prominent attention, and it has never had an ETF proposed. Interestingly enough, the Bitcoin community itself may not turn out to be too enthusiastic about an ETF, since it runs contrary to the kind of free-spirited entrepreneurial ethos Bitcoin professes to be all about.

So we might see the Winklevoss Bitcoin Trust materialize (if approval goes through), and it will sell $20 million in shares at its initial public offering. Should this happen, the positive aspect is it will bring some measure of stability to Bitcoin’s value. And, almost definitely, it’ll attract federal attention in a good way, since it would be a big step toward legitimization.

That is sure to play a major role in the ongoing crisis of regulatory oversight as far as digital currency is concerned. The biggest reason why Bitcoin has come under negative scrutiny is precisely due to its uncontrolled nature. The government has absolutely no oversight over the Bitcoin economy—though this is, of course, a source of pleasure to many.

Bitcoin, for those coming late to the party, is a virtual currency that you can use to buy and sell a lot of things—some a bit more shady than others—online. They are ‘mined’ by computers that solve algorithms of increasing complexity, which today necessitates dedicated, high-power computing units. You aren’t likely to be very effective at mining Bitcoins on your home laptop.

This technological exclusivity and its wholly-virtual nature has made Bitcoin a hit with certain online communities, and it has also attracted government attention thanks to its apparent inscrutability.

 

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