Exchange traded fund investors might soon be able to tap into the bitcoin digital currency, but potential investors should consider the risks that are unique to this segment of the market.
Bitcoins are extremely volatile, have not caught on as a mainstream form of currency, and have shown vulnerability to hackers and digital heists, reports Rob Curran for Wall Street Journal.
“The main risk of investing in bitcoin is that it’s a financial instrument unlike any other that we’ve ever had,” Gil Luria, an analyst with the brokerage firm Wedbush Securities, said in the article. “It’s more difficult to value, more difficult to understand, and at this point in time, more difficult to buy and sell than any other financial instrument.”
The Bitcoin is a type of decentralized digital currency based on a peer-to-peer network and can be exchanged through computers internationally without a financial intermediary. The system was first introduced by developer Satoshi Nakamoto in 2009.
The cryptocurrency has experienced high volatility over recent years, with the price of a single Bitcoin rising to over $1,100 from $10 in just a few months, and now trades around $475.
The average fund investor should think of bitcoin as a “highly speculative investment, which means that it has a very high potential reward as well as a very high potential risk,” Luria added.
Bitcoins have not caught on as a mainstream means of purchasing goods. However, the SEC acknowledged Bitcoins can be considered currencies and therefore would fall under that agency’s regulatory purview.
Adding to Bitcoins’ claim to legitimacy, EBay (NasdaqGS: EBAY) revealed that PayPal will now allow merchants to accept bitcoin as payment on Monday, Bloomberg reports.
Due to their growing popularity, two firms have been working on Bitcoin-related investment products.
In May, a regulatory filing revealed the Winklevoss Bitcoin Trust will trade on the Nasdaq. An updated filing showed the ETF will trade on the Nasdaq under the ticker “COIN.” [Ticker Announced for Bitcoin ETF]
SecondMarket’s Bitcoin Investment Trust (BIT) has been available to accredited investors. Barry Silbert, founder and chairman of SecondMarket Holdings Inc., aims to convert BIT into a plublicly tradable Bitcoin fund in the fourth quarter of this year. [The Bitcoin ETF You Haven’t Heard About]
For more information on the cryptocurrency, visit our bitcoin category.
Max Chen contributed to this article.