Bob's Daily Buzzword: `Bitcoin ETF'

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July 2 (Bloomberg) -- Bob Rice, general managing partner with Tangent Capital Partners LLC, explains "Bitcoin ETF." (Source: Bloomberg)

Bob, we are talking about the bitcoin etf.

We all saw the movie "the social network" and we know who the winklevoss twins are.

They are sponsoring a bitcoin etf.

I think it is primarily to get a sequel to "the social network.

" the weighted etf's work, someone creates a trust, and they create an asset in the trust.

In this case, $20 million worth of bitcoins.

They drop those in a trust.

The trust lists on an exchange after they get approval to do so, and then people can buy and sell shares within the trust.

To remind everyone, this is a digital currency, and it is peer-to-peer.

There is no bank, central floating.

It is pegged to the dollar.

Bitcoins are generated at a predetermined rate.

All the computers that are doing that are in communication with each other, so the rate of generation is tightly controlled.

And importantly, what people do not understand, there is a distributed registry from all of the bitcoins that have ever been created, and the transactions related to the ownership of these bitcoins.

Because of this registry, the system is actually pretty hard to hack.

It is probably more secure than many people understand.

Although there are some that would bit -- differ on that point, but you say it is not true?

The market can be manipulated, but the system is tough to be hacked.

I think it is pretty well thought out.

The markets in cells marketing and selling the bitcoins, thinly traded, real ups and downs.

Getting down to the etf, conceptually, it is not so different from other etf's. that is right.

When you step back and think about it, what is really the difference between this etf and another holding physical assets?

There are serious people behind this.

On an abstract level, it is hard to argue with.

On the other hand, when you get down into the practicality of how etf's actually were, there are some problems here which made the sec say, no thanks.

So this unclear regulatory environment, a series overhang be done so there is also the idea that the bitcoins market itself has been pretty illiquid and volatile.

We have already seen in regular etf's, holding things by high- yield bonds, more widely accepted dan bitcoins, a lot of tracking error.

That is because of the way that these underlying basket of securities work.

Therefore, when you talk about a tiny etf, and a thinly-traded digital currency on the other without a liquid market, you can see there might be a lot of trouble ahead.

Thank you as always, bob.

This text has been automatically generated. It may not be 100% accurate.

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