For the ETF business, there might be such a thing as bad publicity.
From a PR standpoint, the $1.5 trillion industry is already somewhat on its heels in the wake of recent media stories questioning the internal “plumbing” behind ETFs.
For example, BlackRock’s iShares unit and other ETF providers are trying to get the message out that their products held up relatively well during the recent market turmoil.
So the last thing they need is another story popping up causing investors to question the integrity of the business.
Enter the Bitcoin ETF.
On Monday, the Winklevoss twins known for their legal feud with Facebook (NasdaqGS: FB) founder Mark Zuckerberg filed a registration statement with the SEC to launch Winklevoss Bitcoin Trust. [A Bitcoin ETF May Become a Reality]
The exchange-listed product would give investors “a cost-effective and convenient means to access exposure to Bitcoins.”
The Bitcoin ETF filing was met with immediate scorn by many financial bloggers. For example, Josh Brown at The Reformed Broker tweeted the idea is the “[m]ost ridiculous investment product of all time.”
Reports also note the Winklevoss twins are big Bitcoin holders and have a stake in BitCoin payment processor BitInstant.
The sponsor for the proposed Bitcoin ETF is Math-Based Asset Services LLC, which is wholly-owned by Winklevoss Capital Management LLC.
The brothers do appear sincere about their intent to bring the product to the market.
Kathleen Moriarty, a partner at law firm Katten Muchin, is named in the Winklevoss Bitcoin Trust filing. She has “extensive experience representing investment companies with the creation, structuring and development of new exchange-traded products,” according to her profile on the firm’s website. She was actively involved in the development of State Street’s SPDRs and has since advised on the creation of many more ETFs including products from iShares, Vanguard, ProShares, WisdomTree and IndexIQ.
“The trust brings bitcoin to Main Street and mainstream investors to Bitcoin,” said Tyler Winklevoss in a report from NYTimes.com DealBook. “It eliminates the friction of buying and reduces the risks associated with storing bitcoin while offering similar investment attributes to direct ownership.”
Next page: ‘Firmly believe in the chances of success’
“We have assembled a team that has successfully launched novel products before, and we firmly believe in the chances of success for this product,” added Cameron Winklevoss.
Still, it’s not clear whether the product will ever see the light of day. Since the Bitcoin market is unregulated and no futures exist, an ETF may not be possible, said Chris Hempstead, director of ETF execution services at WallachBeth Capital LLC.
And as Evan Soltas writes for Bloomberg, the lengthy risk factors section of the Winklevoss Bitcoin Trust filing actually makes the best arguments against treating Bitcoin as an investment asset.
“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.
And that’s just one of many risk factors, not to mention the volatility of Bitcoin prices, which were trading around $90 on Monday after surging as high as $266 in April, according to DealBook.
So the Bitcoin product filing has fed the perception that ETFs encourage speculation and are dangerous for unsuspecting individual investors.
And for an ETF business trying to explain that its products faithfully tracked their underlying markets during the recent volatility, the filing probably couldn’t have come at a worse time, from a PR perspective at least.