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Winklevoss Twins File For Bitcoin ETF


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Yes, you read that correctly. The Olympic rowers from Harvard are now making waves in the stock market. As they continue to jump from one venture to the next, they have been active in the Bitcoin market for the past few months. Now, it’s apparent they had bigger plans for Bitcoin; submitting a S-1 filing to the SEC late Monday for the Bitcoin ETF. They hope to enter the exchange transfer funds market with the latest craze in virtual currency. The announcement though was met with skepticism as Bitcoin’s past is filled with volatile highs and lows. While the Winklevoss twins await approval from the SEC let’s take a look at why so many of the market’s influencers are discrediting this launch.

Image via Julien M. Hekimian/Getty Images

Image via Julien M. Hekimian/Getty Images

Why is There So Much Backlash to the Bitcoin ETF?

There is a reason why so many investors and financial groups are staying away from Bitcoin and the Winklevoss’ plan. For one, while the Bitcoin network may not be controlled or managed by groups like the Federal Reserve, increasing regulation and the stability of the major markets still greatly influence the price of Bitcoin. Like most other commodities, when it is difficult to keep something in circulation the price will increase, and vice versa. Bitcoins are the same way, as the prices fluctuate on how many Bitcoins are in circulation and how easily it is to be mined.  Mining is the term for the creation of a Bitcoin. As mining has evolved, the cost and complexity of the processors required has increased.

In their S-1 filing, the Winklevoss twins state that the share price for Bitcoins in their Bitcoin ETF will be a fifth of a Bitcoin’s value. This means that for every five shares purchased, the Winklevoss twins have to purchase a Bitcoin. Furthermore, overall value for the shares will be determined through what they call a “Bitcoin blend.” For this the price will reflect the daily average of the share’s high point and low point which can be extremely risky for any investor. Did I mention that the twins also launched Math Based Asset Services, the company who will be managing the portfolio? Or how about the fact that they will also be “storing” all of the Bitcoin virtual currency on their own proprietary system? Of course they will be requesting a fee for storing your Bitcoin, though the transaction fee is still undisclosed at this point.

If you thought these points were the worst of it, continue reading. There are plenty of surprises still waiting for you to uncover!

Regulators Concerned With Bitcoin ETF

Any person who has exchanged Bitcoin knows about the certain risks involved. While the virtual currency has been around since 2009, it’s history and past use should definitely pose concern to market regulators. Besides the apprehension of a rapidly growing intangible currency, regulators are also concerned with the potential money laundering abuse that can occur through a Bitcoin ETF. Even before the twins filed with the SEC Bitcoin has seen it’s fair share of publicity though it was usually infamously rather than any substantial worth. It was only a few months ago that money service group Liberty Reserve was shut down being reported as one of the biggest money laundering services ever uncovered. What is really stopping a hacker from hijacking the exchange for money laundering down the road? The largest exchange service, Mt. Gox, even recently filed to be considered a money service business as an assurance to authorities that they are fine with being subjected to the same regulations more established currencies exchanges abide by.  What should be more disconcerting for all “potential investors” are the key points the twins address in their 74 page filing. For starters, they address that if bitcoins were ever outlawed in the future, your shares would also be considered illegal and could be sanctioned. They continue by clarifying that neither twin has any history managing or operating an investment vehicle and state that their experience could be “inadequate or unsuitable to manage the Trust.”-(Bloomberg News) Well, if that doesn’t make you feel much better about investing in Bitcoin I don’t know what will! Moving on they also point out that because the currency is fairly anonymous, investors with brokers must trust that they will be honest with any Bitcoin EFT trades they manage. Then of course they go on about the “blending” pricing method for a ridiculously volatile currency. Basically, they’re letting you know that you will always get the average of the high and low, while they are reaping the benefits from higher share amounts and transaction fees for storage. Plus, what is stopping a hacker from getting into the exchange and manipulating the Bitcoin price to extreme levels? Saving the best for last the Winklevoss twins also mention how the Bitcoin ETF share prices can drastically drop IF the cap on mining was lifted. I’m not sure how this filing is even still being entertained, as this is probably one of the riskiest markets to invest into. Just look at all of the provisions and the potential for disaster. It could do a complete 180 turn, but there is nothing promising that you will find success in this market.

Going back to the Winklevoss’ experience, by digging deeper into their background you can see this is just another one of their trends.

What Have the Winklevoss Twins Done in the Past

They definitely have been busy since attending Harvard with their adversary Mark Zuckerberg, the founder of Facebook, Inc. You are probably more than familiar with the conflict between the three, as the twins claim to have contributed key elements that led to the creation of Facebook. After receiving a small settlement, the twins began to hop from one venture to another. Their latest ventures include an e-Commerce site Hukkster and a money manager online community called SunZero. In April they had purchased 1% of all outstanding Bitcoins, which are currently valued at approximately $10 million.  From there they filed with the SEC late on Monday for an IPO of $20 million offering to exchange their holdings for shares. Their claim to the press is to make Bitcoin more mainstream using Bitcoin ETF to make it more cost efficient for people to purchase Bitcoins. As mentioned earlier, every five shares totals one full Bitcoin.

On a positive note, there are certain advantages Bitcoin can have if given the green light.

Bitcoin ETF Reshaping Currency

While Bitcoin has been used in the past for gambling, money laundering, and other illegal activities it holds an abundant amount of potential. If the Bitcoin ETF platform is approved, it will gain a multitude of exposure by the general public. Bitcoin holds all the necessary potential and skills to revolutionize payments, it just needs that initial spark. This can only happen if Bitcoin becomes widely used. Since being created by an anonymous hacker (going by the psuedonym “Satoshi Nakamoto”) Bitcoin’s use has definitely grown. There are many online websites that accept Bitcoin as easily as Paypal, including a few brick and mortar establishments accepting it.  Kickstarter even has a project titled “Life On Bitcoin,”  a documentary following a couple living in a rural community and only use Bitcoin for transactions. The anonymity and security that made Bitcoin so valuable also has its appeal although it works against the virtual currency in regards to the stock market.

Wrap-Up: What’s the Verdict on Bitcoin ETF?

As the SEC has yet to approve or deny the twins’ filing there are still many undisclosed details that would help brokers, traders, and groups alike make a more intelligent decision. Before making any decisions though, you need to conduct your own research as well. While digging for information consider this:  The Winklevoss twins are known for jumping from one investment to the other. In this case, it seems they are looking for a quick, lucrative way to increase their initial $10 million investment. How would they do so? By creating a lot of hype around a controversial currency, one that has the potential to be amazing. They’ll stand by it as advocates while profiting from the increase in value and the systems they’ve created to store the virtual currencies. If approved by the SEC, you need to make sure this investment is worth the risk. So far, evidence has shown this may be one IPO to ignore. We will have to wait and see what the SEC decides.

In the meantime, what are your thoughts? Do you think Bitcoin ETF can be successful? Or do you think this will lead to a lot of disappointed investors, brokers and financial groups? Let us know!

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Posted in ETF, IPOComments Off on Winklevoss Twins File For Bitcoin ETF


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