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ETF Specialist

Does the World Need a Bitcoin ETF?

The short answer: No.


Earlier this week, Math-Based Asset Services LLC submitted paperwork to the SEC seeking permission to create a bitcoin exchange-traded fund, perhaps setting the record for one of the most outlandish ETF filings to date. The proposed fund would hold bitcoins in a trust structure similar to those used by gold ETFs, and it would protect its assets using a proprietary security system. The fund is being proposed by Tyler and Cameron Winklevoss, who are best known for their multiple lawsuits against  Facebook (FB). Notably, the filing has the support of Kathleen Moriarty of Katten Muchin Rosenman LLP; she was involved in the creation of early physical commodity ETFs. Although the bitcoin is an interesting concept, the asset is riddled with risks that prevent it from having any investment merit in its current state.

Bitcoins are a digital commodity generated and governed by an open-source algorithm. In simplified language, new bitcoins are created upon the completion of complex math problems and are intended to function as an alternative to fiat currency by operating independently from governments and central banks. In a nod to a long history of gold-backed currencies, the act of generating new bitcoins is called "mining." Unsurprisingly, bitcoins initially only attracted the interest of libertarian-leaning technocrati, but are quickly becoming noticed by more mainstream market participants.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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