Twin ambitions
In the interview, he was also very upfront about the fact that if the ETF does eventually launch, it would likely boost the twins’ Bitcoin investment. They also have a stake in Bitcoin payment processor BitInstant.
“We don’t deny that we will rise and fall with the state of Bitcoin,” Winklevoss said, acknowledging they stand to reap monetary rewards if the ETF ever launches. “We put our money where our mouth is. We have skin in the game.”
He said the twins started researching Bitcoins last summer and thought the risks, although they certainly exist, were overstated because people didn’t fully understand the digital currency.
They started buying “in the high single digits” through exchanges, brokers and other avenues, but the process wasn’t easy.
“The media started to wake up to the story, but it was still tough to buy Bitcoins,” he said. “The exchange traded product was the solution we found to solve that problem.”
The market or trading “ecosystem” that lives on top of Bitcoins has to grow and become more user-friendly, he predicts.
“That’s the mission of the ETP. It makes it easier to get involved,” Winklevoss said. “People have said investors could just go out and buy Bitcoins themselves. But how many gold investors actually own a gold bar? This would democratize the ability to buy Bitcoin.”
Of course, if the U.S. government decides to outlaw Bitcoins, then all bets are likely off. But if Bitcoins become more accepted as a currency, the chances probably improve that the ETF could become a reality in a couple years.
Not discouraged by SEC hurdles
Winklevoss said the ETF filing will actually force the government, or in this case the SEC, to explore the idea of Bitcoins as a currency.
“Part of the whole project is to get regulators to come in and give some guidance,” said Moriarty, the Katten Muchin lawyer.
According to the filing, the sponsor and custodian for the proposed trust is Math-Based Asset Services LLC, which is wholly-owned by Winklevoss Capital Management LLC. The firm has a proprietary and patent-pending technology to administer the trust, including how the Bitcoins would be stored and safeguarded from “theft, loss, destruction or other issues relating to hackers and technological attack,” the filings explains.
Winklevoss said an ETP would give investors exposure to Bitcions by holding and trading ETP shares through their brokerage accounts in the same manner and subject to the same regulations as are other listed securities. The product would live on an exchange, and provide high transparency and liquidity, he said. Also, the product could provide price discovery and real-time prices for the currently decentralized Bitcoin market.
Bitcoins are about four years old but the trading system and entrepreneurs are still young. The ETP solves some of the problems, Tyler Winklevoss said.
“We believe that Bitcoin demand is there. We’re focused now on getting the product through the SEC. After that, we have to prove to investors that we have reduced the friction and solved the problems related to buying Bitcoins, and the security risk that keeps them up at night in terms of storage,” he noted.
Going back to the SEC regulatory process for ETFs, the twins may want to prepare for some sleepless nights of their own.
“We’re not discouraged,” Winklevoss said.
John Spence contributed to this story.