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July 05, 2013 at 07:28 AM
New products introduced over the last week include the filing of papers for a Bitcoin ETF; the reassignment of portfolio managers for five Vanguard funds; and Thornburg’s Developing World Fund went global.
In addition, publicly traded REIT Chambers Street Properties was added to the Russell 3000 and Russell Global indexes; and Pacific Life launched a fixed-income promotional campaign.
Here are the latest developments of interest to advisors:
1) Virtual Bitcoin Subject of Actual ETF Filing by Facebook’s Winklevoss Twins
Risk-taking investors skilled in understanding abstract concepts may be excited to hear about the fact that the Winklevoss brothers, best known for their Facebook connection, have with the SEC on Monday to launch a Bitcoin ETF.
Bitcoin is a virtual currency “mined” by people carrying out extremely complex mathematical problems. At present, those who can’t do the math pretty much can’t have the currency, but if Cameron and Tyler Winklevoss, popularly known as the Winklevii, have their way, that may change—sort of.
Those familiar with the virtual money may remember that its value has fluctuated rather spectacularly this year, most particularly in April. Much ado was made of it as a means of evading the Cyprus haircuts on large depositors’ accounts, since Bitcoin has nothing to do with governments and everything to do with hackers (it was reportedly invented by one, or more than one, in 2009). Its value soared, then crashed, leaving a lot of empty purses—oh, wait, they were already empty, since Bitcoin is a virtual currency.
And therein lies the rub. With no physical existence, no stable value (well, as stable as any currency can be) and little real utility in the marketplace—since it’s difficult to buy things with Bitcoin, because it’s not widely accepted—the currency might not seem to be the proper target for an ETF. However, Kathleen Moriarty, a lawyer at Katten Muchin and one of the masterminds of gold and silver ETFs, and even the very first ETF, is involved in the proposal filed with the SEC, and that gives the whole issue a bit more, er, substance. (However, the news calls to mind Cyrano Jones’ statement in Star Trek’s “The Trouble with Tribbles”: “Twice nothing is still nothing.”)
Substance or not, the financial press is full of naysayers heaping scorn on the notion, going so far as to say that the very proposal is going to further blacken the eyes of the ETF industry, already under scrutiny to determine whether ETFs accurately tracked their underlying markets during recent volatile trading. After all, Bitcoin is nothing if not volatile.
Bloggers are pointing out numerous drawbacks, such as the fact that the filing takes 12 pages to explain the concept of a Bitcoin (complicated!) and 18 pages to discuss risk factors (scary!). Also, some governments might take the extraordinary step of banning use or ownership of Bitcoin, thereby rendering it less attractive as a freewheeling currency and lessening its draw as a potential investment.
In addition, since one of the attractions of Bitcoin is the ability to avoid taxes, one columnist pointed out that prospective investors in the ETF should realize that any ETF profits, however unlikely they may be to anyone but the Winklevii, would be taxed—thereby negating one of the purposes of Bitcoin.
