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What Would An ETF Mean For Your Bitcoin Profit Calculator?
- 1. What Would An ETF Mean For Your Bitcoin Profit Calculator?
- 2. Exchange-Traded Funds (ETF, for short) achieved a great popularity in the financial world a little over a decade ago, though they were first introduced in the 1990s. They have something of an Index Fund quality to them.
- 3. Index Funds were premised on John C. Bogle's recognition that most fund managers were not actually able to beat the market on a consistent basis. Once their fees were taken into account, from the perspective of the financial end-consumer, the idea of beating the market was sheer folly.
- 4. There's some irony in that turn of phrase, as "Bolge's folly" was the term of derision used to dismiss his ideas by the Wall Street crowd. Bogle was, though, to have the last laugh: his philosophy, initially implemented through funds established to track the S&P 500, at minimal-to-no fees, proved to be a big time winner.
- 5. Today's ETF represent an attempt to learn these lessons of the Index Funds lessons, supplemented by the further bonus that they were - unlike the original Indexed Funds - very inexpensive to trade. In some cases, ETF can be traded commission-free. Additionally, not being indexed, these ETF can be considerably cheaper, since the lack of ongoing management reduces considerably potential transaction costs.
- 6. There have been movements afoot to create a publicly traded Bitcoin ETF. The most famous efforts in this direction have been those of the infamous Winklevoss twins.
- 7. The Winklevoss brothers, renowned for their battle over claims upon the mega-successful social media site FaceBook, have been early adopters of Bitcoin. Some have estimated that the twins hold something in the area of $11 million in Bitcoin.
- 8. Permission to establish a publicly traded Bitcoin ETF though must be provided by financial regulators. And the effort is already being pooh-poohed by bigwigs in the industry, such as Knight Capital managing director Reggie Browne.
- 9. It is true, of course, with the extreme volatility of Bitcoin of late, such efforts would seem to run counter to the original Index Fund spirit of the early ETF tradition. This might though be a case of not seeing the trees for the forest (or the forest for the trees, perhaps).
- 10. Right off the bat, sweeping claims about the viability of Bitcoin on the ETF market has to be tempered with the realization that in fact such trading opportunities already exist. SecondMarket offers a private Bitcoin Investment Trust (BIT, for short, get it?). BIT is modeled on a well established gold ETF. And, with its $25k minimum investment, it is humming right along, according to its creator, the SecondMarket CEO: the close of 2013 finds it holding $65 million.
- 11. Obviously, then, to claim, as Browne does, that the volatility of potential Bitcoin ETF wouldn't be attractive to potential ETF investors does seem to be assuming a bit too much. There seems to me, though, to be an even more essential point that is too easily overlooked in all of this. That point is simply this: as a currency Bitcoin's raison d'etre is to be a medium of exchange. It may provide an investment opportunity, but the outcome of such investments is ultimately irrelevant to its fate.
- 12. This is not to say that betting on (or against) anything, including a new currency, is perfectly legitimate and speculators and short selling and so on is all a necessary and valuable part of a dynamic and free market. The danger, though, of treating Bitcoin as an investment opportunity is that - unlike gold, for instance - it has been designed specifically to serve as an alternate currency.
- 13. In this regard, it is no different than any other new product on the market. Customers will try it and over time determine their own valuation of its features and benefits. The recent exchange rate volatility of Bitcoin, though, has not been a result of attitudes to its monetary virtues, but a consequence of fickle financial responses.
- 14. Bitcoin pile What would an ETF Mean for Your Bitcoin Profit Calculator? Either, Bitcoin will somehow (and there are many issues to consider here) catch on and become widely used around the world - whether sanctioned by nation-states or not. Or, it will be judged by the consuming public (consumers of currency, you understand) to not provide enough benefits over so- called sovereign currencies, and will lapse into disuse.
- 15. If the former happens, the holdings of the currency will be so extensive (and exempt from the inflationary pressures of fiat currencies) that financial hiccups will cease to cause the kinds of fluctuations recently observed. If that is the result, Bitcoin ETF will indeed become the kind of secure, indexed funds which were the original inspiration behind ETF in general.
- 16. On the other hand, should we see the collapse of the currency, the truth is that it is those who bought into the currency, not for the virtues of its monetary features, but to gather its hoped for financial windfalls, that will be most hurt in the process. The big losers would be the speculators. And speculation offers the prospect of big rewards, because it presents the danger of high risk.
- 17. To be clear, I'm not suggesting that anyone feverishly convinced of Bitcoin's long term future should be discouraged from taking advantage of their knowledge of the product or their conviction in its viability to profit through investment in it. If however ones investment is merely an expression of excitement at rocketing exchange rates: what goes up, must come down. You know the risk you're taking.
- 18. Bitcoin ETF are an interesting prospect worth watching, but, ultimately, whatever their fortunes, they tell us little about the future prospects of Bitcoin as a currency. That story will be told, not by financial, but by monetary, and, even more importantly, by consumer markets.