Why the Winklevoss Brothers Are Still Waiting for a Bitcoin ETF

Update: The Securities and Exchange Commission has extended the deadline to make a decision regarding the Winklevoss Bitcoin Trust to 12th October 2016.

The Winklevoss Bitcoin Trust may be inching closer to becoming the first bitcoin ETF listed on a major stock exchange, but that potentially historic date could be further off than some might think.

Announced three years ago by investors Tyler and Cameron Winklevoss, the Winklevoss Bitcoin Trust continues to draw attention, despite delays. As it would trade baskets of shares tied to real bitcoins, retail investors have long seen its approval as a boon for the price of bitcoin and the ecosystem as a whole.

It turns out, though, that even in spite of imminent deadlines that suggest approval may be forthcoming, a real decision could still be months away.

After spending two years trying to get listed on Nasdaq, the effort picked up momentum in June when the Winklevoss brothers filed to move their application to the BATS exchange. Within two weeks of that change, SEC assistant secretary Jill Peterson opened a comment period as part of the approval process.

A 45-day period that started with that filing is set to elapse at the end of this week.

But according to analysts, the publication of the form on the Federal Register didn't kick off a 45 day "clock," but a 240-day countdown during which the SEC has any number of options.

ARK Invest analyst Chris Burniske told CoinDesk:

According to the notice, the SEC had an initial period of 45 days to approve or disapprove the filing. At this point, the financial regulator has the option to expand the period another 45 days, and after that, another 90 days.

At any time during this total 180-day period, the SEC staff have the authority to approve the rule-change that would lead to the trust's formal listing. But that’s just the beginning of the "clock" analysts say is ticking.

If the SEC staff are unable to reach a decision by the end of the 180-day period, there’s another 60-day extension during which the request may still be approved by the commissioners themselves.

In this case, that’s exactly what Burniske expects will happen, contrary to the sense on social media that the decision was imminent.

Speculation about the approval date first emerged on Reddit shortly after the initial filing. In the post, the commenters suggested a decision on the ETF itself should have happened as early as yesterday, 22nd August.

However, since the form wasn't actually filed with the Federal Register until 14th July – six days after the SEC filing — the actual first deadline is 28th August.

If the SEC is unable to reach a decision by that date, it could extend this particular deadline to 12th October.

But Burniske says he expects the clock will tick down to a commissioner decision months from now. The decision is just too "contentions," he says, given the newness of blockchain-based assets.

The fact that the SEC is currently reviewing multiple digital currency applications, and the uncertainty following Bitfinex’s decision to try to recoup the losses of a $65m hack by selling securities, he said, will also likely influence the decision.

"The SEC will allow this to go forward when they feel comfortable and not a second before," he said. "It would be a gold seal of approval for the birth of bitcoin as a new asset class."

Some may question the importance of the ETF, as technically, anyone who wants to invest in bitcoin already can.

But for institutional investors, there's frequently restrictions that they can only buy registered investment securities, according to Spencer Bogart, a bitcoin researcher at Needham & Company and a former analyst at ETF.com.

Bogart told CoinDesk that a bitcoin ETF would let institutional investors buy bitcoin while still complying with mandates that prohibit non-registered securities.

Two things are worth noting about this advantage. First, another key differentiator is that unlike other OTC investment opportunities, ETF investors don't need to be accredited. Second, unlike those OTC investments a bitcoin ETF wouldn't have a lengthy time commitment, and the premiums would likely be lower.

The "knock-on effects" of the presence of those new potential investors could include increased liquidity, which when coupled with a more diversified investor base, could reduce day-to-day volatility.

Bogart said:

Potential risks associated with a bitcoin ETF include trust in a third-party to manage private keys, in the case the ETF custodian, according to Bogart.

"Of course, that in itself would not be new," he added.

Comments closed

Other concerns related to the potential bitcoin ETF were expressed during a comments period that officially ended on 8th August.

In total, five comments were submitted, none of which called for an outright refusal of the Winklevoss application. But, each presented its own concerns.

Senior Bloomberg LP software engineer and Hyperledger project contributor, Erik Aronesty, proposed that the SEC either require the assets be insured or that the public be allowed to give daily audits of the funds.

Other comments expressed concerns about the auditability of the trust; compared it to penny stock and Ponzi schemes; and inquired as to whether it will be insured.

But those comments aren't the only reservation still being expressed by market observers.

The head of technology research at Wedbush Securites, Gil Luria, acknowledges with a strong hint of skepticism that the ETF could "broaden the addressable market for buying bitcoin". Yet, he sees additional waiting ahead.

He told CoinDesk:

A representative of Winklevoss Capital declined comment when reached about the timing of the SEC's decision, citing regulatory restrictions. The SEC and BATS did not immediately respond to a request for comment.

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