This Bitcoin ETF Could Bring Cryptocurrency Mainstream

They may not have invented Facebook (FB), but they’re close to inventing the Bitcoin ETF.

Cameron and Tyler Winklevoss, the twin brothers who famously claimed to have come up with the idea for Facebook only to have it allegedly stolen by Harvard classmate and eventual founder Mark Zuckerberg, are on the brink of gaining SEC approval of an exchange-traded fund that tracks the price of Bitcoin. It’s taken a while: I was in the room four years ago when the Winklevoss brothers presented their idea at the 2013 Value Investing Congress in New York. At the time, Bitcoin was more shadowy rumor than legitimate investing concept. Today, it’s one of the market’s hottest commodities, up more than 700% this year alone (see chart below).

This Bitcoin chart could make a potential Bitcoin ETF appetizing to investors.Still, most people don’t really trust it—and with good reason. As our own Chloe Lutts Jensen wrote in June, Bitcoin is “still a very young market without the (relative) stability and safeguards of the stock market,” and one that equity investors can’t invest in directly. That would change is the SEC signs off on this Bitcoin ETF.

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Count me among the skeptical of all things Bitcoin (and ETFs aren’t really our cup of tea either here at Cabot Wealth Network). But I must admit, the Winklevoss twins made a pretty compelling case four years ago.

They highlighted the fact that, like gold, there is a finite amount of Bitcoin—there will never be more than 21 million bitcoins in circulation at any time. That gives it a leg up on the dollar and other global currencies that are subject to inflation. Tyler Winklevoss referred to it as “a digital gold, or gold 2.0.”

Another advantage of Bitcoin, according to the Winklevoss brothers, was that it allows the owner to bypass the banking system, withdrawing money whenever they want and avoiding the risk of having their money stored in a bank that might not be “too big to fail.” Instead, it’s stored on a USB stick or in a digital “wallet” online.

Valid points all. And they’ve been right on the money (no pun intended) about the digital currency’s investing potential. But the twins haven’t had as much success getting their Bitcoin ETF to see the light of day. The SEC rejected the latest version of it earlier this year. Since then, perhaps due to the currency’s eye-popping rally, Bitcoin has gained mainstream acceptance in other areas of the market. The Chicago Board Options Exchange plans to list Bitcoin futures as early as year’s end. Bitcoin options are also close to gaining approval.

According to Bloomberg Technology analyst Eric Balchunas, the more Bitcoin-friendly environment could prompt the SEC to change its stance on the Bitcoin ETF. If and when that happens, anyone with an investment account will be able to trade it. That would essentially erase any concerns about a lack of market safeguards making the cryptocurrency too unstable or risky.

Whether or not you should invest in Bitcoin is a subject for another day. But it might soon be a lot easier to do, thanks to the Winklevoss twins.

Chris Preston

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