Bitcoin by Bitcoin, the Winklevii ETF Inches Closer to Reality

It looks increasingly like the Winklevoss Bitcoin Trust (COIN) will actually launch.

If it hits the market later this year, it will come a decade after the inception of the world's largest gold fund, SPDR Gold Shares (GLD ). COIN was modeled on GLD and in some ways is trying to be a new generation's version of gold. The cyptocurrency would move closer to the mainstream in an exchange-traded fund wrapper.

There's still no guarantee COIN will be approved by the Securities and Exchange Commission. There are more than a thousand prospectuses for ETFs sitting with the SEC, and hundreds of reserved tickers sitting with stock exchanges. And this approval would be the first of its kind -- a virtual asset.

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That said, the latest updates to the prospectus show two positive signs. First, the ticker, COIN, suggests the Winklevii are serious about making this about bitcoin and not about them. These are the people that gave an index tracking the price of bitcoin the name "Winkdex," so they might have chosen a gimmicky, self-referential ticker like VOSS or WNKL for their ETF.

Second, there were several very specific changes added to the risk section of the prospectus. That's worth noting, since plenty of ETFs are filed with the SEC but don't get updated (or reserve tickers). One change warns that core developers could stop maintaining the bitcoin protocol unless they're paid. Another notes that bitcoin is banned by the Bolivian central bank -- not a risk most people worry about, granted, but a risk. This looks a lot like somebody working closely with the SEC to dot their i’s.

The twins' choice of lawyer, Kathleen Moriarty, works in COIN's favor. She's helped just about every issuer from iShares to WisdomTree bring new and different ETFs to market. She worked with the SEC and drafted the prospectus to get the SPDR S&P 500 Trust (SPY) launched in the early ‘90s.

There's some talk that the Winklevoss ETF could be beaten to market. A company called SecondMarket runs a bitcoin private trust for accredited investors. ETF Trends reports that SecondMarket wants to create an over-the-counter listing and eventually an actual exchange listing.

An OTC listing shouldn't be much of a threat to COIN, since the vast majority of investors use a major stock exchange to buy and sell ETFs. And it would be very surprising if the SEC allowed SecondMarket to cut in line and not do all the legwork necessary for approval to list on a major exchange. If something like that happened, it would be like Facebook all over again for the twins. Rough.

To judge from the coverage of the filing over the past year, COIN is likely to make a cannonball-level splash if and when it launches. For it to make as big a splash as GLD, though, would take a minor miracle. GLD holds the ETF record for reaching $1 billion in assets the fastest. It did that in three days flat.

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Eric Balchunas is an exchange-traded-fund analyst at Bloomberg. More ETF data is available here, and weekly ETF podcasts can be found here.

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