Winklevoss Bitcoin ETF: Crazy, or Crazy Like a Fox?
July 9th 2013 at 9:03am by Tom Lydon
The Winklevoss twins’ plan to launch an exchange traded product holding Bitcoins has been met with some over-the-top negative reactions from many financial journals and bloggers.
However, these commentators won’t be the ones who decide whether the proposed ETF is successful, or if it even launches.
That’s up to two unknown factors: the SEC and the Bitcoin market itself.
Make no mistake, the Winklevoss brothers and their expensive Wall Street attorneys are facing a seemingly uphill struggle with the SEC to get the Bitcoin ETF listed. Of course, they are no stranger to protracted legal battles after their famous lawsuit against Facebook founder Mark Zuckerberg. The eight-year Facebook litigation eventually resulted in a $65 million settlement.
The twins have tapped ETF expert Kathleen Moriarty, a partner at law firm Katten Muchin who has decades of experience getting products through the tricky regulatory process before they can launch. It can sometimes take years for the SEC to declare a product “effective,” so don’t expect an ETF tracking a virtual currency to come out anytime soon.
The future of this opaque and unregulated currency market itself is another wild card for the Winklevoss Bitcoin Trust.
‘Bringing Bitcoins to investors’
“The vision of the exchange traded product is to create a simple solution to the problem of buying Bitcoins if you don’t want to purchase and store them,” said Tyler Winklevoss in a telephone interview. “We want to bring Bitcoins to a broader group of investors that before couldn’t get easy exposure to the asset.”
Winklevoss and his brother Cameron reportedly own about 1% of the Bitcoin market, or roughly $10 million. Of course, that number fluctuates because Bitcoin prices can be extremely volatile.
Bitcoin prices fell to around $70 at one point last week after spiking as high as $266 in April.
When asked whether the brothers’ own Bitcoin stash would back the proposed $20 million trust, Tyler Winklevoss said they haven’t decided yet. Indeed, many of the ETF’s details have yet to be worked out, including the potential listing exchange, market makers and fees.
However, the filing does extensively outline the ETF’s potential risks. “It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoins in one or more countries, and ownership of, holding or trading in Shares may also be considered illegal and subject to sanction,” according to the filing.
“We’re being very transparent on the risk factors,” Tyler Winklevoss said.
Next page: Twin ambitions and SEC hurdles