Economic News, Savings & Investment, Smart Spending

Bitcoin ETF. Are They Joking?

Apparently not. As you may have heard, the Winklevoss brothers (of Facebook fame-or infamy depending on one’s point of view I guess) are investors in the “crypto” currency Bitcoin. Now, they have an idea that has generated quite a bit of attention: a Bitcoin ETF. At first blush it seems to be a nearly perfect idea. It is generally agreed, even among the coders and gold bugs that seem to dominate the Bitcoin space, that for the currency to really catch on it absolutely must get easier for people to buy, sell and just plain use. I have covered this ground before, so I won’t belabor this point, but it is very difficult for the average person to get into the game, so to speak, of Bitcoin. It’s not so much that you have to be a coder (although it wouldn’t hurt) because you don’t. It’s just that there are trust issues all the way through the process. Not only do you have to trust the exchange (or person) that you are purchasing  Bitcoins from, but once you have them there is the danger of your computer being hacked. Once in, the hacker can simply take your Bitcoin code and quickly transfer all of your money to himself. On top of that, there is no recourse. It’s as if you were robbed of cash in your home. There is no equivalent of a bank or credit card company to reimburse your loss. None of the above are insurmountable problems (and I have truncated the arguments against them to a great degree), but they take the average internet surfer out of the equation. It is actually close to real work to obtain and then protect your Bitcoins.

So then, a Bitcoin ETF is a fabulous idea right? Maybe not. Yes, it will definitely make it easier to “play” the Bitcoin phenomenon. You don’t have to worry about regulators harassing your favorite Bitcoin exchange and you don’t have to get the latest encryption technology every time you want to wade into the market. But, there are definitely downsides.

Let’s start with the irony (and ridiculousness?) that a currency known for its rebellion against the (fiat money) system is now going to be joining the stock market. Huh? That in and of itself is not, of course, a downside necessarily, but it just doesn’t seem to fit its image. But here is one that might get some attention:

It may be illegal now, or in the future, to acquire, own, hold, sell, or use Bitcoins in one or more countries, and ownership of, holding or trading in Shares may also be considered illegal and subject to sanction.”

There’s a sentence that you don’t see every day in your average prospectus. Your investment might soon be illegal! Well, that can certainly drain a bit of a guy’s enthusiasm  for the new issue, couldn’t it? And really we can stop right there for most people. There is most definitely more, including questions like what happens if a hacker hacks the ETF, and where is the liquidity of such a small market. Those are important and, of course, read the whole thing as they say, at the link. But it’s not just average investors that might be scared off by the whole illegality proposition. Bitcoin veterans are watching with dismay as regulators are making more and more waves about this currency. As I covered here, California is fishing around trying to find someone to go after in its bid to scare off anyone associated with Bitcoin. Of course, it is important to point out that it is highly, highly unlikely that Bitcoin itself can ever be shut down as it exists on its own. There is no corporation that “runs” it and therefore it can continue on its own oblivious to any sound and fury surrounding it. But that doesn’t mena governments can’t make it difficult if not impossible to use the currency to purchase anything. A Bitcoin ETF might be more than just a strange fit. It may not be a fit at all. But, if a listing ever happens, it sure will be interesting to watch.