The Winklevoss Bitcoin ETF: Another Step Closer To Public Listing

| About: Winklevoss Bitcoin (COIN)

Summary

Winklevoss Capital continues to make progress in launching the first bitcoin ETF in the U.S.

The Bitcoin Trust/ETF structure promises to provide investors with easy exposure to the nascent cryptocurrency.

Others are laying the groundwork to follow quickly, so there will be competitive ETFs in the market, once regulators approve.

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Private investors Tyler and Cameron Winklevoss, who famously received $65 million in cash and stock as part of a 2008 settlement from Facebook (NASDAQ:FB), are making progress in their attempt to create the first Bitcoin ETF in the U.S.

The twins originally filed a registration statement with the SEC in July 2013 to create the Winklevoss Bitcoin Trust to be traded as an ETF under the symbol COIN.

Bitcoin, or BTC, is a digital cryptocurrency that utilizes distributed general ledger technology called "blockchain" to help insure security for trading of the currency between anonymous parties.

The Trust & The ETF

The Trust would be the actual purchaser of bitcoin and issue bitcoin shares, "which represent units of fractional undivided beneficial interest in and ownership of the Trust."

COIN ETF originally intended to float 1 million shares at a price of $20 per share to purchase that ownership interest in the Trust.

Since that original filing in 2013 when each bitcoin was valued at under $100, the proposed share price has risen to its current $65, with BTC currently trading around $626.

The purpose of the ETF is to enable the general public, hedge funds and other traders to obtain exposure to the BTC currency, similar in Gold ETFs, as the Winklevoss brothers have stated:

People who believe that- for example, people who like gold as a store of value. If you like gold, there's many reasons why you should like Bitcoin. If you sort of go across the board, Bitcoin's more durable. It's more portable. It's more divisible. It's more storable. So really, the question you have to ask yourself is, Do I believe Bitcoin is the future of payments? If the answer is yes, then you can own a piece of that, just like you can own a piece of Google or Amazon back 10, 15 years ago.

Gemini

While the Bitcoin ETF has been laboriously proceeding through regulatory hurdles, the Winklevoss twins haven't been sitting idly by.

In January 2015, the brothers invested in and launched a U.S.-based online bitcoin exchange, Gemini.

The fully regulated exchange enables users to trade bitcoin, US dollars and now ether, a competing cryptocurrency from the Ethereum project.

The exchange operates similarly to a foreign exchange service, but traders are incentivized with lower trading commission rates based on whether they participate in "liquidity-making" transactions, as well as overall transaction volume discounts.

The promise of the Gemini exchange is that by enabling U.S.-based users to trade in bitcoin, the result will be lower volatility of the digital currency.

Volatility has been a source of suspicion in the nascent store of value, so U.S. exchanges such as Gemini, Coinbase, itBit and others promise to reduce that volatility as trading in the currency becomes widespread.

Gemini has also recently expanded to provide daily auction services for BTC. The 4 pm price determined by auction will be used to price the NAV of the ETF.

The exchange continues to expand its trading venues, adding Canada, the U.K., Hong Kong and Singapore in 2016.

Commentary

Recent moves by the Winklevoss brothers on the ETF front indicate they are gearing up for a launch after several years in development.

They recently selected State Street (NYSE:STT) as the fund administrator and changed the proposed listing from Nasdaq to Chicago-based BATS Global Exchange.

Also, the ETF has made internal changes to ensure accurate auditing of the underlying Trust's BTC balances, which it says are "air gapped" and stored offline in the interest of security.

One important aspect of the ETF not mentioned is what the expenses will be. The promise of bitcoin is reduced transaction costs, but it will be quite interesting to see whether this low-cost structure will be passed through to the ETF's shareholders.

The Winklevoss ETF is not the only player intending to provide public trading access to bitcoin, though it may be the most visible so far.

New York-based SolidX has also filed S-1 registration statements on its plan to create a similar trust and tradeable fund (XBTC), though with a much lower proposed offering of $1 million.

If and when these Trust/ETFs successfully launch into the marketplace, expect additional copycats taking advantage of the potential for significant fee income from ETF management.

As ETFs continue to increase in popularity with the general public, the wind is at the backs of these bitcoin ETF pioneers.


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