NEW YORK (MainStreet)The crypto-currency Bitcoin has inspired a new exchange traded fund filing with the SEC. And the promoters might seem familiar: they are Cameron and Tyler Winklevoss, the twins of Facebook fame, as immortalized in the movie The Social Network.
The Winklevii are seeking to launch an ETF intended to reflect the price performance of Bitcoin, less the expenses of the trust's operations. According to the filing, the shares "are designed for investors seeking a cost-effective and convenient means to gain exposure to Bitcoins with minimal credit risk." The initial filing is for approximately 1 million shares at $20 per share.
The Winklevoss Bitcoin Trust filing states that it is believed to be the first exchange-traded product seeking to track the price of a "Digital Math-Based Asset." Distinguishing features of the trust include directly holding Bitcoins use of the trust's "proprietary Security System," storage of the trust's Bitcoins in various premises located in the United States, the experience of its management team, as well as third-party vault inspection and the use of a security consultant to advise on upgrades to the trust's technology and custody procedures.
According to the prospectus, an investment in the proposed Bitcoin ETF carries some unique risks:
- Limited demand for Bitcoin payment for goods and services by major retail and commercial outlets. Without further expansion into these markets, increased volatility and a reduction in price "could adversely impact an investment in the shares."
- A malicious actor or botnet (a volunteer or hacked collection of computers) could alter the source code on which the Bitcoin Network and all Bitcoin transactions rely.
- If transaction fees paid for the recording of transactions become too high, the marketplace may be reluctant to accept Bitcoins as a means of payment, and existing users may be motivated to switch from Bitcoins to another Digital Math-Based Asset or back to fiat currency.
- And third parties could assert intellectual property claims relating to the operation of Digital Math-Based Assets and the source code relating to the holding and transfer of such assets.
These are certainly not your standard risk factors normally listed in a prospectus. One particularly interesting assessment in the document notes, "As the Sponsor and its management have no history of operating an investment vehicle like the Trust, their experience may be inadequate or unsuitable to manage the Trust."
Seemingly uncharacteristic humility from the Winklevii.
--Written by Hal M. Bundrick for MainStreet