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Investors are getting tired of waiting for the Winklevoss Bitcoin ETF (Nasdaq: COIN).
The initial U.S. Securities and Exchange Commission (SEC) S-1 filing for the Winklevoss Bitcoin Trust (the fund's official name) was made in July 2013, nearly three years ago.
The Winklevoss Bitcoin ETF proposal outlines an exchange-traded fund more or less modeled on the popular SPDR Gold Trust ETF (NYSE Arca: GLD).
Twins Cameron and Tyler Winklevoss set out to create the fund to make investing in Bitcoin as easy as buying a stock. People can buy actual bitcoins of course, but for many that remains a technically intimidating option. So theoretically the Winklevoss Bitcoin ETF will open up Bitcoin to a much wider pool of investors.
But there's been no news on the regulatory progress of the Winklevoss Bitcoin Trust for more than a year. Last January the Winklevoss Bitcoin ETF filed an amendment to its prospectus of its intent to list 1 million shares at $20.09 a share.
Since then, nada. The long news drought has left many would-be investors discouraged.
"Can we officially declare the Winklevoss ETF dead?" Gunni2000 asked in a Bitcoin thread on Reddit in February.
"I totally forgot about this ETF, it's been that long. I was pumped last year. Not anymore," added hellobitcoinworld.
It's a fair question to ask. Why hasn't the Winklevoss Bitcoin ETF gone live yet?
It must be said that only the SEC knows for sure what's holding up approval. But regulations forbid the SEC, Nasdaq, or the Winklevoss twins from discussing it.
Still, we can infer a lot from what we do know.
We can start with the nature of Bitcoin itself…
The Winklevoss Bitcoin ETF Is a Puzzle for the SEC
One of the tasks before the SEC in evaluating the Winklevoss Bitcoin Trust is how to classify Bitcoin as an asset. It's an important question, because it will determine how the ETF is regulated, how it's taxed, and the degree of protection for shareholders.
It's also a very difficult question to answer, as U.S. regulators already have come up with several different answers. The Internal Revenue Service declared Bitcoin "property" in 2014. The Commodities Futures Trading Commission (CFTC) classifies Bitcoin as a commodity. The Financial Crimes Enforcement Network (FinCEN) views Bitcoin as a currency. The SEC in the past has called Bitcoin a security, or money.
But that's not the biggest roadblock the SEC is dealing with right now…
You see, the Winklevoss Bitcoin ETF is unlike anything the SEC has ever dealt with before. And it has approved a diverse range of ETFs, from basic stock-based ETFs, to ETFs based on commodities like gold and silver, to derivative-based ETFs.
But a digital currency is a new animal in the financial world. Bitcoin has only existed since 2009, and has only been on the radar of the mainstream financial world for about two years. The SEC is understandably very anxious about approving an ETF based on such a new and untested asset.
"The problem isn't when the price of Bitcoin is going up – everybody will be happy then," said Money Morning Capital Wave Strategist Shah Gilani, a former hedge fund manager. "But what happens when some really bad news sets off panic selling?"
Gilani pointed out that ETF managers need to buy and sell a fund's underlying assets to match each day's trading. Buying more Bitcoin on the way up would not be an issue, but selling a large amount of Bitcoin in the event of mass redemptions very well could be.
"What happens if there's no bidders, no trading?" said Gilani. "How would you get out if it all goes horribly wrong? Bitcoin doesn't have a long enough history for the SEC to be able to tell what would happen."
This is a major concern for the SEC. Last August's stock market crash caused hiccups in the trading of hundreds of stock-based ETFs. For many ETFs, trading had to be halted.
The incident put all ETFs under the SEC's microscope – bad news for the approval of an ETF based on an asset as new as Bitcoin.
And that "newness" creates still another complication…
A Bitcoin ETF Will Require New Rules
Because Bitcoin is such a distinct type of asset, the SEC can't approve an ETF based on it using the same rules it has used for other assets such as commodities.
That means approval of any Bitcoin ETF first requires a national securities exchange (Nasdaq in this case) to file a proposed rule change with the SEC. That has not happened yet.
Until it does, the Winklevoss Bitcoin Trust will remain in limbo. And even when a proposed rule change lands, it won't necessarily mean approval is imminent.
"A rule change is huge," Gilani said. "Not only would it give the Winklevoss ETF their 'stamp of approval,' but it would allow others to create their own Bitcoin ETFs, or ETFs based on other cryptocurrencies."
This is why the SEC would be very, very careful (and slow) with the Winklevoss Bitcoin Trust.
As a regulator, the SEC is a guardian against undue investor risk. The last thing it wants is to open the door to cryptocurrency-based ETFs and then have some sort of meltdown in which investors are left holding the bag – and blaming the SEC.
Nasdaq also may have reservations about going forward with the Winklevoss Bitcoin ETF – hence the delay in filing for the proposed rule change.
It's maddening, but investors are just going to have to wait – and wait – for the Winklevoss Bitcoin Trust. This could take a while.
The Bottom Line: It's been nearly three years since the first SEC filing for the Winklevoss Bitcoin Trust, and we're still waiting for the ETF to go live. Unfortunately, the unusual nature of Bitcoin as an asset, as well as the fact that it's new and unproven in the financial world, means the SEC must be very, very careful as it moves through the approval process. The Winklevoss ETF probably will get approved, but not for a while longer.
Follow me on Twitter @DavidGZeiler or like Money Morning on Facebook.
Bitcoin's Resilience: Time and time again, whenever the Bitcoin price suffers a significant fall, its critics are quick to write obits for the digital currency. In fact, Bitcoin has been declared "dead" more than 50 times since the beginning of 2015 alone. And yet the price of Bitcoin has recently jumped higher, and has actually doubled over the past twelve months. Here's why Bitcoin refuses to go away…
About the Author
Dave 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.
GBTC seemed to manage it. Their ratio is horrible though. More likely there is another, deeper issue, involving the twins relationship with Gemini as a potential conflict of interest. It would be like CBOE releasing a corn ETF – something that is just not done.
GBTC did not need SEC approval, as it is not an ETF (it trades OTC) and is available only to accredited investors. Gemini is a completely separate issue.
It should be noted that the first commodities ETF (and the first to be based on derivatives) only took six months for approval.
There is already a Bitcoin ETF. Bitcoin Tracker One from XBT Provider. It tracks bitcoin 1:1, unlike GBTC that is trading at a premium.
I think its been around for more than a year and have over 20 000 bitcoins under management
Yes, but…
The Bitcoin XBT tracker is an exchange-traded note that trades on the Stockholm Nasdaq exchange. So US investors might be a bit skittish about buying it. And if they're willing to give it a try, the Bitcoin XBT tracker will be a bit more challenging to buy being based outside the US.
Still, it's worth noting. Here's the website: http://www.xbtprovider.com/lang#links
-Dave Zeiler
Bit coin has no real value, Other than the ponzie effect. It depends on a greater fool!!!!
.Unfortunatley there are some among us with would fall for,
[THE Great (TULIP) SCAM ALL OVER AGAIN.
.History repeats itself if we do not stay in touch with the past .
So much for bussiness schools curriculum.
The Winklefoss scam will be a( Good entry to the future history of Ponzie's.)
Why not buy some just in case you can get to be oneof the first in line.
Bernard,
Thanks for reading Money Morning. Here's a story I wrote a while back that addresses your concerns about Bitcoin:
http://moneymorning.com/2015/07/31/is-bitcoin-a-ponzi-scheme/