With over $1.5 trillion in assets and nearly 1,500 products, many thought that the ETF world had run out of original ideas or that it had reached its saturation point. But the beginning of July saw that theory once again shot down, as a filing rolled in for one of the more controversial ETF ideas for quite some time. The Winklevoss twins, famous for their role in creating Facebook, have filed for a bitcoin product and have taken the financial world by storm.
What Are Bitcoins?
To sum it up, a bitcoin is a peer-to-peer digital currency that can be used for anonymous purchases online from a number of sources. People can mine for the open-source currency using their computers to mine for bitcoins by solving complex mathematical equations. Because anyone can mine for the currency and it is completely anonymous, not only has it been used with reputable dealers, but it has also become a major force in the black market world; users can purchase anything from video games to illicit substances like cocaine.
Each bitcoin amount comes anchored with a complex key, or password, that allows only the holder to spend it. Of course, should that key ever be misplaced or stolen, it would be open season on your investment [see also The Ultimate Guide To Currency ETF Trading].
Bitcoin is advertised it as the future of the currency world, as the money does not need to go through any banks or clearing houses, meaning that fees are lower, the currency can be used in any country around the world and an account cannot be frozen.
Already, several currency exchanges have been set up where users can trade bitcoins in for dollars and euros, among other currencies. Finally, the company advertises its digital darling as a major advantage for small businesses as it does not does not come anchored with chargebacks or fees, and it promotes more business throughout the bitcoin world.
Bitcoins and ETFs
The proposed Winklevoss Bitcoin Trust comes rampant with risks, as it attempts to invest in the surging currency. One of the biggest problems that many have is the ability for a hacker to steal the keys for large amounts of bitcoin. In such a case, the trust would not be responsible for the losses. Sounds far fetched? In early 2011, a user lost 25,000 worth of bitcoin (about $500,000) after a hacker took down a service dubbed InstaWallet.
Below are a few of the phrases that investors have found troubling from the July 1 filing:
▪ “The loss or destruction of a private key required to access a Bitcoin may be irreversible. The Trust’s loss of access to its private keys or its experience of a data loss relating to the Trust’s Bitcoins could adversely affect an investment in the Share.”