Idiot Idea Du Jour: A Winklevoss BitCoin ETF

Tyler Durden's picture

That a BitCoin-based ETF is a horrible idea for those who believe in what BitCoin stands for, i.e., a status-quo regime-remote monetary process which is naturally also independent of existing capital markets, is quite clear. Yet a BitCoin-based ETF prospectus, namely the Winklevoss BitCoin Trust, with a proposed offering of 1 million shares at a price of $20 each, is precisely what the Winklevi filed today with the SEC. We can only assume this idiotic idea is proposed simply to entice the habitual gambling momentum-chasers, who seek a conventional method of pursuing the momentous volatility that only Bitcoin can offer now that regular BitCoin exchanges are being shut down by the US and other governments, as absolutely nobody else would be interested. That, or just another expression of the identical twins' megalomania who enjoy nothing more than seeing their name in lights or in the title of a security. Because once one reads the risk factors, among which we find the following, we doubt even said habitual gamblers will be interested: "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." Well, you have been warned.

We encourage readers to read the full amusing prospectus for their own enlightenment, but for the sake of protecting your capital, here is the full risk factors section, i.e., the only one that matters.

  • The loss or destruction of a private key required to access a Bitcoin may be irreversible. The Trust’s loss of access to its private keys or its experience of a data loss relating to the Trust’s Bitcoins could adversely affect an investment in the Shares.

Bitcoins are controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which the Bitcoins are held, which wallet’s public key or address is reflected in the Bitcoin Network’s public Blockchain. The Trust publishes the public key relating to digital wallets in use by the Trust when it verifies the receipt of Bitcoin transfers and disseminates such information into the Bitcoin Network, but is required to safeguard the private keys relating to such digital wallets using the Security System. To the extent such private keys are lost, destroyed or otherwise compromised, the Trust will be unable to access the related Bitcoins and such private keys will not be capable of being restored by the Bitcoin Network. Any loss of private keys relating to digital wallets used to store the Trust’s Bitcoins could adversely affect an investment in the Shares.

  • Currently, there is relatively small use of Bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in the Shares.

As relatively new products and technologies, Bitcoins and the Bitcoin Network have not been widely adopted as a means of payment for goods and services by major retail and commercial outlets. Conversely, a significant portion of Bitcoin demand is generated by speculators and investors seeking to profit from the short—or long-term holding of Bitcoins. The relative lack of acceptance of Bitcoins in the retail and commercial marketplace limits the ability of end-users to pay for goods and services with Bitcoins. A lack of expansion by Bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the Blended Bitcoin Price, either of which could adversely impact an investment in the Shares.

  • The value of Bitcoins as represented by the Blended Bitcoin Price may be subject to momentum pricing whereby the current Blended Bitcoin Price may account for speculation regarding future appreciation in value. Momentum pricing of Bitcoins may subject the Blended Bitcoin Price to greater volatility and adversely affect an investment in the Shares.

Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. The Blended Bitcoin Price is determined using data from various Bitcoin Exchanges that are selected by the Sponsor. The Sponsor believes that momentum pricing of Bitcoins has resulted, and may continue to result, in speculation regarding future appreciation in the value of Bitcoins, inflating and making more volatile the Blended Bitcoin Price. As a result, Bitcoins may be more likely to fluctuate in value due to changing investor confidence in future appreciation in the Blended Bitcoin Price, which could adversely affect an investment in the Shares.

  • The Bitcoin Exchanges on which Bitcoins trade are relatively new and largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for other products. To the extent that the Bitcoin Exchanges representing a substantial portion of the volume in Bitcoin trading are involved in fraud or experience security failures or other operational issues, such Bitcoin Exchanges’ failures may result in a reduction in the Blended Bitcoin Price and can adversely affect an investment in the Shares.

The Bitcoin Exchanges on which the Bitcoins trade are new and largely unregulated. The Blended Bitcoin Price on which the NAV of the Shares is based utilizes data from Bitcoin Exchanges selected by the Sponsor to determine the weighted average price for Bitcoins. For a further discussion of the Bitcoin Exchange Market and the selection of Bitcoin Exchanges for inclusion in the Blended Bitcoin Price, see “Overview of the Bitcoin Industry and Market—Bitcoin Value” and “—Uses of Bitcoins.”

Over the past three years, many Bitcoin Exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such Bitcoin Exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin Exchanges. While smaller Bitcoin Exchanges are less likely to have the infrastructure and capitalization that make larger Bitcoin Exchanges more stable, larger Bitcoin Exchanges are more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems).

A lack of stability in the Bitcoin Exchange Market and the closure or temporary shutdown of Bitcoin Exchanges due to fraud, business failure, or hackers or malware may reduce confidence in the Bitcoin Network and result in greater volatility in the Blended Bitcoin Price. Furthermore, the closure or temporary shutdown of a constituent Bitcoin Exchange used in calculating the Blended Bitcoin Price may result in a loss of confidence in the Trust’s ability to determine NAV on a daily basis. These potential consequences of a Bitcoin Exchange’s failure could adversely affect an investment in the Shares.

  • A possible “short squeeze” due to a sudden increase in demand for the Shares that largely exceeds supply may lead to price volatility in the Shares.

Investors may purchase Shares to hedge existing Bitcoin or other Digital Math-Based Assets, commodity or currency exposure or to speculate on the price of Bitcoins. Speculation on the price of Bitcoins may involve long and short exposures. To the extent that aggregate short exposure exceeds the number of Shares available for purchase (for example, in the event that large redemption requests by Authorized Participants dramatically affect Share liquidity), investors with short exposure may have to pay a premium to repurchase Shares for delivery to Share lenders. Those repurchases may, in turn, dramatically increase the price of the Shares until additional Shares are created through the creation process. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in the Shares that are not directly correlated to the price of Bitcoins.

  • Political or economic crises may motivate large-scale sales of Bitcoins, which could result in a reduction in the Blended Bitcoin Price and adversely affect an investment in the Shares.

As an alternative to fiat currencies that are backed by central governments, Digital Math-Based Assets such as Bitcoins, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Bitcoins either globally or locally. Large-scale sales of Bitcoins would result in a reduction in the Blended Bitcoin Price and adversely affect an investment in the Shares.

  • The [EXCHANGE] may halt trading in the Shares, which would adversely impact investors’ ability to sell Shares.

To the extent that the [EXCHANGE] halts trading in the Shares, whether on a temporary or permanent basis, investors may not be able to buy or sell Shares, thus adversely affecting an investment in the Shares.

  • If regulatory changes or interpretations of the Trust’s activities require the regulation of the Trust as a money transmitter under the regulations promulgated by FinCEN under the authority of the US Bank Secrecy Act, the Trust may be required to register and comply with such regulations. To the extent that Sponsor decides to continue the Trust, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to the Trust. The Sponsor may also decide to terminate the Trust. Any termination of the Trust in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.

To the extent that the activities of the Trust cause it to be deemed a “money transmitter” under the regulations promulgated by FinCEN under the authority of the US Bank Secrecy Act, the Trust may be required to comply with FinCEN regulations, including those that would mandate the Trust to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records. Such additional regulatory obligations may cause the Trust to incur extraordinary expenses, possibly affecting an investment in the Shares in a material and adverse manner. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will instruct the Trustee to terminate the Trust. Any such termination could result in the liquidation of the Trust’s Bitcoins at a time that is disadvantageous to an investor in the Shares.

and finally:

  • 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.

Although currently Bitcoins are not regulated or are lightly regulated in most countries, including the United States, one or more countries may take regulatory actions in the future that severely restricts the right to acquire, own, hold, sell or use Bitcoins or to exchange Bitcoins for fiat currency. Such an action may also result in the restriction of ownership, holding or trading in the Shares. Such a restriction could result in the termination and liquidation of the Trust at a time that is disadvantageous to Shareholders, or may adversely affect an investment in the Shares.

* * *

Now... where does one sign up for the movie rights to the film that will follow this fiasco, assured to end in yet more Winklelawsuits?

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Zer0head's picture

We have learnd that the world  is a bit safer tonight


10 year old Yemeni killed in Drone strike

otto skorzeny's picture

exactly when are the chickens coming home to roost?

wintermute's picture

A Bitcoin ETF is a great idea. Another stepping-stone on the road to success for Gold 2.0

Xibalba's picture

Same concept as the GLD

knukles's picture

Worse, mayhaps.  At least the other one deals with supposed gold as opposed to supposed electronic digits.  Bitcoin is just another fiat.  Algorithms, et al, but a man made creation.  As was Frankenstein.

Dr Benway's picture

I agree, this is an even worse travesty.

No possible reason for investors to not just buy the underlying asset, as it incurs no storage costs (if they are hellbent on having exposure to the glorified digital trading card scheme known as bitcoin). The whole thing is just an excuse for the twintards to charge fees.

hmmmstrange's picture

... Roth IRA full of bitcoins.

Scarlett's picture

As a holder of bitcoin I wonder what kind of idiot would have btc that can't be sent.  

hmmmstrange's picture

I can't cash out my IRA without penalty for quite a few years anyways. If bitcoin succeeds, it would be nice to not pay any taxes on it when I retire.

SoundMoney45's picture

A Bitcoin ETF is very useful to manipulate the fiat currency value of Bitcoins.  Perhaps this is an admission from TPTB that killing Bitcoin at this point would entail too much collateral damage, so it is best to attempt to control it.  

malikai's picture

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

Read it twice.

0z's picture

Even if you paid 100% taxes, it would make no difference; as someone said earlier,

Bitcoin is Not Backed by any commodity.

They are UNredeemable.

Who is the Issuer anyway?

fonestar's picture

I actually expected something like this to happen, create an ETF or some unrelated vehicle to try and contain the price of Bitcoin.

I don't expect that to have much effect on how many Bitcoins a handgun sells for in the UK on the Silk Road or how much a point of down goes for in Atlanta.

Mt. Gox showing Bitcoin still selling at $90 USD.  Where all the "Bitcoin is dead" haters at?


knukles's picture

This is hilarious.
The finance business is not supposed to be funny by the way, folks.  (Hi Cramer!)
Can't wait to see the take on this on CNBS.

Will they vilify it like Gold?
Will they suggest its a radical idea, just like another currency, a la the Euro or even A Precursor to Stateless NWO Money?
Will they trash it because it's just an underwriting gimmick?
Or will they say BTFD, shit, a la Netflix, Zynga, whatevers turned to poop!

dark pools of soros's picture

Netflix hasn't died - they might come through the woods stronger

These dorks are a sideshow.. It seems they will use this to funnel sales of their piles of BTC. And grab fees while doing it. If the price crashes it isn't because of them.. It is the current ramp up on ASIC mining and quick ROI dumping... BTC is too useful not to survive. Haters can hate all they want

Croesus's picture

Paging Fonestar, paging Fonestar!

Please report to the Bitcoin thread at once!

Fonestar Winklevoss III, please report to the Bitcoin thread!

fonestar's picture

As a Bitcoin owner, all-around general extremist and kook I am still waiting for someone to tell me why I should be worried about these governments supposedly banning Bitcoin?

I actually welcome their banning.  It will just increase my holdings ten fold and make them look as powerless as they actually are.

Some on this forum still have the G-Man from their Dick Tracy mags in their heads.  The reality is that law enforcement and the spooks have spent the last twenty years trying to play catch up to the hackers.

Besides look how well their war on pirating/torrents/drugs/poverty/crime/etc/etc/etc... has worked for them?

Out and out losers.

zorba THE GREEK's picture

For the last time.... Bit coin shit coin, physical gold and silver in your hands is

the only protection you have. Everything else is subject to rehypothecation.

dark pools of soros's picture

It's nap time grandpa. Go back to sleep

aint no fortunate son's picture

when's the first day of trading and is it marginable... just curious of course

GMadScientist's picture

Countdown to "Twin" stock parking convictions in 3..2...1...

otto skorzeny's picture

just keep those duplicitous cheesepopes at arm's length- boys.

vegas's picture

I'm holding my breathe for the options on this baby.

butchtrucks's picture

Winklevi wank. 

HUGE_Gamma's picture

3x leveraged short and long Wrinkledick Bitcoin ETFs coming soon

Catullus's picture

Sounds better than TVIX, which I think owns dragon farts and unicorn bubble gum.

Eally Ucked's picture

That would be end of Bit Coin for sure. Just look what GLD does to price of gold


hmmmstrange's picture

Difference is you will always know 100% that the ETF has the coins.

Prisoners_dilemna's picture

Excellent point. Any and every fund investor can at any time verify the holdings of the fund at and

Imagine we bought GLD, and we are allowed to inspect the vault whenever we want to... thats what we have here.

My only issue is, will the BTC economy continue to grow? Will the free market continue to up vote BTC?
According to the level of business being done by bitpay the answering is a resounding yes!

PT's picture

Eally Ucked :  My thoughts exactly.  If the people here are right, and ETFs can be used to crash the price of gold and silver for a long time, then why wouldn't TPTB do the same for bitcoin?

Maybe we need an ETF for houses and cars, furniture, land etc to crash the price of those things so I can get 'em at a better price.

Seasmoke's picture

Thanks but i get my fix at the racetrack each day  

tmosley's picture

Corzine "lost" the private key.  Sorry, and so long, suckers!

dark pools of soros's picture

Funny that will screw those investors but losing that many coins for good would push the price higher on deflation

FreeMktFisherMN's picture

pfft... I'm waiting for the 3x leveraged BTC ETF. Go big or go home



Mazarin's picture

"Business of trust: transferring Bitcoins as necessary to cover Sponsor’s (Winkelvi) Fee & pay Trust expenses not assumed by Sponsor." Hehheh. 

troubledasset's picture

The fact that they filed the S-1 publicly is telling; they could have filed it privately.

All Out Of Bubblegum's picture

Sounds like the Winkies are unloading by trying to make it look like a biz.

Colonel Klink's picture

Ding, ding, ding! We have a WINNAR!

Scarlett's picture

They're in a tough spot.  Announcing that you have a huge hoard for something in which the value will only be understood in hyperinflations, with a risk of banning, is a bad idea if you ask me.  They should have kept quiet and wait for bonds to explode.  

orangegeek's picture

Reads like the Winklevii can't unload - too funny.

Clever Name's picture

So if they get enough investors to buy every bitcoin in existence...

Then what? They could kill the whole idea in one fell swoop. Funny stuff!

Non Passaran's picture

They wouldn't kill anything, they could lend it, but the higher price would probably motivate people to start using Litecoin and other alternatives.

RideTheWalrus's picture

I'm selling my Facebook stock and buying into this!!! 

holdbuysell's picture

The NWO would love to control a 100% digital, trackable, and traceable currency. What better way than to watch the testing of one on as broad a scale as possible, learn quickly, and then move quickly to dominate the space. That's what they do.

And that's to assume that Bitcoins are truly an independent manifestation from any government-like interference. No opinion here...I don't know.

While I recognize the 'competing currencies' meme is paramount, a digital currency controlled by the Wizard of Oz from who knows where for diverse (and likely increasingly) local economies is a dangerous path.

Prisoners_dilemna's picture

"Those who suffer from the disease of centralization are incapable of creating useful technologies"
Or something like that
All Out of Bubblegum

All Out Of Bubblegum's picture

"I can't get by in this world unless I can suck my own dick."


Tinky's picture

To be fair, I like saying "Winklevoss".