Custom Search

The Winklevoss Bitcoin ETF: How it works

Posted by

The Winklevoss Bitcoin Trust issues Winklevoss Bitcoin Shares, which represent fractional ownership in the trust. The trust itself owns bitcoins and will try to match the ETF’s market cap with an equivalent fractional holding in bitcoin. Per the revised prospectus in October, each share in the initial baskets will represent 0.2 bitcoins (BTC). That means each basket of 50,000 shares will hold 10,000 bitcoins. That’s subject to change.

Security is a major concern for the trust, and the plan is to store the trust’s digital wallet private keys in segregated vaults. I presume that means a few private keys per vault spread across the U.S. to lower the risk of loss, damage or theft of all of the private keys at once.

The trust’s net asset value (NAV) will be published on the trust’s website at the conclusion of each trading day. Fees for managing the fund haven’t been published yet. In the event that the trust were ever shut down, the trust’s liabilities would be paid and cash proceeds would be distributed to shareholders.

Top 10 risks of investing in the Winklevoss Bitcoin Trust:

1) The trust could lose it’s private keys (and therefore lose access to its bitcoin).

2) Governmental regulation.

3) Bitcoin could get shut down or usurped by another virtual currency.

4) Bitcoin speculation can lead to wild price swings that could impact the trust’s share price.

5) The source code for the Bitcoin Network could get amended, changed or “forked” by the bitcoin community.

6) Bitcoins could get manipulated.

7) Miners could stop mining bitcoin (particularly if it doesn’t make economic sense to do so).

8) Bitcoin miners could start charging higher transaction fees, which would make bitcoin less attractive.

9) If the trust grows too large it could impact the global market for bitcoin.

10) The trust’s bitcoin could get stolen.

As of August 31, 2013, approximately 11,636,000 bitcoins have been created. The plan is to create no more than 21,000,000 bitcoins, so more than half of the world’s global supply is already on the market.

Here’s a copy of the full amended Winklevoss S-1 filing from October:

If there’s anything that could create a true bitcoin mania, I think it will be the launch of the Winklevoss ETF. There are just too many “cool” factors going for it:

1) The intrigue around the Winklevoss twins themselves.

2) General excitement over bitcoin.

3) The use of bitcoin as an inflation hedge (one that works even better than gold or silver).

On top of that, daytraders won’t care about the underlying commodity. They’ll pile into both up and down trades, which will make bitcoin even more headline-worthy. That’s part of the reason I’m hoping this ETF doesn’t come to market anytime soon. I’d like to see everyday Americans using bitcoin before it becomes the trade-of-the-day for wall street bankers and bots.

Get our investing news by email

[wysija_form id=”1″]



Powered by Facebook Comments

Tags: , ,

Leave a Reply

Name and Email Address are required fields. Your email will not be published or shared with third parties.

Killer Articles

Top 10 best gold and silver ETF funds

Here’s a look at the Top 10 best gold and silver ETFs that trade on major U.S. exchanges. We’ve ranked them by volume, as some of the niche ETFs in the precious metals market are so... Read on.

3 reasons NOT to invest in Groupon’s IPO

An IPO date hasn’t been set, but here are three big warning signs you might want to consider before investing in Groupon’s stock... Read on.

From start-up to titan: The unofficial tech IPO calendar for 2012

From Facebook to Twitter to Groupon, the planned tech IPOs in 2012 could be among the most exciting string of new public companies... Read on.

How to invest in water stocks

Often overlooked as a commodity, water supplies could become increasingly critical as emerging economies around the world improve their diets and demand more agricultural resources for the production of meat... Read on.

World’s largest economies in 2050 will look very different

India’s rapid ascent to economic supremacy will be driven by a surging working age population, which will grow more than 40 percent between now and 2050... Read on.

How to invest in cotton stocks

If you’d like exposure to cotton markets without delving into futures and options contracts, a handful of cotton ETNs and cotton-related stocks are available... Read on.

How to buy Chinese Yuan

The Chinese yuan or renminbi has risen about 5 percent a year over the past five years, and some investors argue that China’s currency is still undervalued by 40 percent. If the dollar suffers ... Read on.

Five cheap franchises to start with less than $10,000

Franchises are so ubiquitous we often don’t realize we’re shopping at one. From McDonald’s to Hampton Inns and doggie day cares to campgrounds, they’re literally everywhere. All told, franchises account for 10.5 percent of all businesses in the U.S, and they... Read on.

Why invest in silver?

Ask 10 people why you should invest in gold and silver, and you’ll probably get 10 different answers – many of which will be accompanied by a shrug. Most investors don’t understand the motivation for holding gold or silver bullion. Nonetheless, it’s been difficult to ignore... Read on.

How to Invest in Copper

Copper isn’t as glitzy or glamorous as gold or silver, but in many ways it feels safer. Since copper is regularly used in electronics, it’s consumption per person (particularly in the developed world) has been on the rise for decades. So how does one invest in copper? Read on.