Bitcoin ETF - what you need to know

2 October, 2015

The ways in which one can invest in and participate in the growing bitcoin culture are rapidly increasing. While a Bitcoin ETF is awaiting regulatory approval, it would certainly seem as though it is only a matter of time until that approval is granted.

Recently, South Korea announced that it could soon approve its own Bitcoin ETF. The fund is currently awaiting approval from the Financial Supervisory Service, putting it on an even keel with the Winklevoss Bitcoin Trust, which could be traded on the NASDAQ once it receives approval from the Securities and Exchange Commission.

While the South Korean Bitcoin ETF is anticipated to be launched next year, the Winklevoss ETF is running slightly behind schedule, having already undergone several key revisions. Late last year, yet another amendment was filed to the SEC prospectus, which called for listing one million shares at a cost of $20.00 per shared. If the ETF is approved, that would place the aggregate value of the ETF at $20.09 million.

Even in the United States the Winklevoss ETF is not without competition. SecondMarket is also racing to become the first Bitcoin ETF. At the moment; however, the bitcoin Investment Trust operates only as a hedge fund and is only available to accredited investors. SecondMarket has submitted a filing to receive approval that would make the fund open to all investors. For the moment; however, there has been no word to indicate how close the Trust is to receiving the necessary approval.

Why the need for a Bitcoin ETF?

With the ability to purchase and spend bitcoins in a growing number of ways, some consumers might wonder why there is even a need for a Bitcoin ETF. The ultimate goal of a Bitcoin ETF is to make it as easy as possible to invest in the digital currency without the need to actually buy it directly.

Are there risks sssociated with Bitcoin ETFs?

As is the case with any other prospective investment, there are risks associated with a Bitcoin ETF, and it is important to understand those risks. Potential risks related to the Bitcoin ETF fall under two categories. They include those risks related to the virtual currency itself as well as those related to the proposed ETF.

First, while bitcoin has made tremendous progress as a digital currency, the fact that vulnerabilities exist within the bitcoin network cannot be denied. Digital currencies do not have the benefit of any tangible existence. This naturally increases the risk of cyber attacks. Recovering lost digital currencies can be problematic. In the past, many advocates of digital currency believed that bitcoin was impenetrable to such attacks. The shutdown of Mt Gox; however, proved that not to be the case. Furthermore, while bitcoin can and is certainly used for the purchase of many legitimate products and services, the digital currency has also been allegedly used in the past to purchase illegal goods and services. This has proven to be a sticking point for the digital currency that continues to threaten bitcoin's credibility. The volatility associated with bitcoin prices must also be considered.

When it comes to trading Bitcoin ETF, other risks must also be considered. For now, a number of important factors, including expense ratio, has not yet been officially announced. Liquidity regarding the underlying asset should also be considered. Due to the fact that bitcoin is still relatively new, it could be difficult to determine how stress in the market could affect trading.

While there are obviously risks associated with both bitcoin as well as the ETF, there are also many excellent benefits to consider. Ultimately; however, it will be difficult to determine exactly how the market might respond until the product is actually approved.

Further reading: