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This episode aired on Bloomberg TV on Jul 9, 2013

Bitcoin ETF

Q. OK, the Winkelrosses have file as sponsors of a Bitcoin ETF…which, to say the least, is an intriguing idea. How’s this gonna work?

A. Yep, feels like a sequel to The Social Network already. So, as we’ve just been discussing lately, ETFs hold baskets of assets, usually stocks but sometimes other assets, like high yield bonds or gold or other currencies; now, maybe, bitcoins. The Winklevoss would dump their bitcoins into a trust in exchange for shares in that trust, list the shares n an exchange, and then sell them to investors who could then trade them freely.

Q. Lots of folks still having trouble with the bitcoin concept. We did a whole buzzword on this several months back but can we have a quick refresher?

A. Bitcoins are digital currency generated at a predetermined pace by what even their detractors would have to admit is a brilliant set of algorithms. The trick is there is no central authority or government in control… the algorithms reside on thousands of computers that constantly communicate with each other, recording all bitcoing generation and transfers… a continuously updated, highly dispersed registry.

Q. So… I guess the argument is that a bitcoin ETF would not be conceptually so terribly different from, say, other currency ETFs?

A. At the most abstract level, that that’s probably correct… and, after all, the lawyers and other folks behind this effort are serious people. But frankly I don’t see the SEC approving this one for a lot of practical reasons…

Q. Like, for example, the completely unclear regulatory environment for bitcoins?

A. That’s a minor one, yes. But just the mechanics here raise some questions. We already know that there’s been a lot of tracking error in ETFs holding less liquid markets like for high yield debt. So imagine the possibilities when you’ve got at a tiny, thinly traded ETF on the one side and a very unproven market mechanism for trading bitcoins at volume on the other.

Q. So, you’re not buying…

A. I do think digital currencies have a future, but this not sure how this first round of “Bitcoin Meets Wall Street” is gonna work out…