The Winklevoss twins have become among the highest profile supporters of Bitcoin with such initiatives like investing in (now disgraced) Bitinstant and their active participation in the recent virtual currency hearings in New York.
In an unprecedented move, it was at those hearings where they announced plans to launch a Bitcoin ETF.
In what’s dated as “Subject to Completion February 19, 2014”, they have registered their WINKLEVOSS BITCOIN TRUST with the Securities and Exchange Commission. The registration document can be viewed here.
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The value of the fund is set to track the “Winkdex”, an indexed value of Bitcoin averaged from a number of exchanges meeting eligibility criteria. In the document, this is formalized as follows:
The Trust values its bitcoins by reference to the Winkdex spot price. The Winkdex spot price is the value of Winkdex calculated at 4:00 p.m. New York time on each Evaluation Day. Math-Based Asset Index, LLC (“Index Provider”) developed, calculates and publishes Winkdex on a continuous basis using a patent-pending mathematical formula developed for such purpose. The formula provides a volume-weighted, exponential moving average market price by blending trading data from the largest Bitcoin Exchanges by volume on a list of Sponsor-approved Bitcoin Exchanges. Bitcoin Exchange criteria for inclusion as a Winkdex constituent include (i) trading denominated in US Dollar, (ii) availability of trading data, (iii) volume criteria and (iv) lack of recent trading halts. The Index Provider maintains a monitoring system that tests for these criteria on an ongoing basis.
If launched, the ETF can become of the most volatile stocks traded, as swings in excess of 10% are a near-daily occurrence. Then again, the chicken-before-the-egg argument will tell you that the advent of such a fund will provide the legitimacy and liquidity necessary to stabilize its value.
If successful, the precedent set by such a fund can well set the stage for new funds that include other coins like Litecoin and Dogecoin. The possibilities can be endless. Also, some coins endeavor to permanently change the landscape of how securities are transferred. Their potential inclusion can make for an interesting collision course between the two approaches.