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With the price of Bitcoin surging past $600 for the first time since March, the notion that the digital currency will persevere and continue to increase in value doesn't seem quite so crazy.
One of the best ways to invest in Bitcoin will be via the Winklevoss Bitcoin Trust exchange-traded fund (ETF), which is currently awaiting regulatory approval by the U.S. Securities and Exchange Commission (SEC).
The fund is the brainchild of twins Cameron and Tyler Winklevoss, who gained notoriety by successfully suing Facebook Inc. (Nasdaq: FB) founder Mark Zuckerberg for $140 million for taking their idea for a social network.
The initial filing with the SEC was made last July.
As an ETF, the Winklevoss Bitcoin Trust will make it easy for retail investors to bet on the success of Bitcoin.
Still, because the Winklevoss Bitcoin ETF will be based on a digital currency, there will be some quirks unique to this investment.
That means people are bound to have a lot of questions about this ETF.
Here are the answers to some frequently asked questions about the Winklevoss Bitcoin Trust:
What You Need to Know About the Winklevoss Bitcoin Trust
Q: How can I buy shares of the Winklevoss Bitcoin Trust?
A: Investors will be able to buy shares of the fund through their broker like any other stock or, mutual fund, or ETF.
Q: On which exchange will the Winklevoss Bitcoin ETF trade?
A: A recent amendment to their SEC filing says the fund will trade on the Nasdaq exchange.
Q: Will there be a minimum investment requirement?
A: There will be no minimum, and investors will not need to be accredited.
Q: What ticker symbol will the Winklevoss Bitcoin Trust trade under?
A: A ticker symbol has not yet been selected, but some possibilities are the fund's abbreviation (WBT), a combination of the widely used abbreviation of Bitcoin with an "F" for fund (BTCF), or, if they want something whimsical, MOON, which ties into the optimistic catchphrase "to the moon" (based on a meme of an astronaut standing on the moon with a flag bearing the Bitcoin symbol), typically uttered by digital currency enthusiasts when prices are rising.
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Q: Will I need to buy any bitcoins to purchase shares?
A: No. The Winklevoss Bitcoin ETF will buy the actual bitcoins underlying the fund, while investors will buy shares of the fund with dollars. The Winklevoss ETF currently possesses 200,000 bitcoins and initially plans to offer 1 million shares for sale. The structure is intended to duplicate that of the SPDR Gold Trust ETF (NYSE Arca: GLD), which provides an investment vehicle that tracks the price of gold. GLD buys and sells the physical gold underlying the ETF.
Q: How much will each share cost? How will the price be set?
A: The plan is for five shares of the Winklevoss Bitcoin Trust to represent one bitcoin. With the Bitcoin price at $600, one share would cost $120. (In other words, to get the share price, just divide the current price of Bitcoin by five.)
Q: When will I be able to invest in the Winklevoss Bitcoin Trust?
A: The availability of the fund hinges on when - and if - the SEC approves it. Given its progress so far, most observers believe the SEC will give the fund the green light before the end of 2014, although there is no set deadline.
Q: I've heard a lot of scary things about Bitcoin. Didn't people lose everything when the Mt. Gox exchange went bankrupt? Does that mean my investment in the Winklevoss Bitcoin ETF could be lost or stolen?
A: Since investors in the fund won't actually own the bitcoins, they are not at risk for losing them. What's more, the fund plans to hold most of its bitcoins in "cold wallets," which means they won't be connected to the Internet where hackers might be able to access them. Removing that vulnerability will prevent a Mt. Gox-like collapse from happening to the Winklevoss Bitcoin ETF.
Q: What if the world loses interest in Bitcoin and the price plunges?
A: If that happens, the share price of the Winklevoss Bitcoin Trust would indeed plunge. But it's not likely. The Bitcoin price is up nearly 70% from its 2014 low of $360 on April 10. Venture capital investments are expected to double this year from last year, to $200 million. The number of businesses that accept Bitcoin is up to 60,000 and growing daily. Just this week DISH Network Corp. (Nasdaq: DISH) announced it would accept payments in Bitcoin from customers. Right now, the Bitcoin economy is in its infancy and growing rapidly.
Q: What about taxes? Will the IRS treat investments in the Winklevoss Bitcoin ETF differently?
A: The IRS earlier this year declared Bitcoin a commodity, not a currency, but none of that should matter to investors buying shares of any Bitcoin ETF. The Winklevoss Bitcoin Trust will have to be treated like any other stock or ETF by the IRS, taxed according to the usual capital gains rules.
Q: How would new Bitcoin regulations affect the Winklevoss Bitcoin ETF?
A: Any changes in how Bitcoin is regulated by the SEC or other federal agencies should not affect individual investors, although such changes could affect how the fund itself operates.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.