SEC rejects Bitcoin trade fund proposal
The US SEC has rejected a proposal by Tyler and Cameron Winklevoss, who sought to create an exchange traded fund based on prices of the Bitcoin. The SEC said the current markets that the Bitcoin is traded on are highly unregulated and hence rejected the proposal. After the announcement, the prices of the Bitcoin plunged 15% to $1060.
What are Bitcoins?
Bitcoins are basically digital currency, which is stored as a code in your computer in your Bitcoin wallet (in your phone/computer database). Bitcoins can be used for acceptant transactions or can be stored until their value appreciates or depreciates. Unlike regular currency, Bitcoins are un-collateraled, unregulated, and are un-insured. One Bitcoin is currently valued at $1231.
Bitcoins are virtually counterfeit-proof
Bitcoins are essentially forgery resistant. This is because the process of coding and creating a verifiable Bitcoin is so painstaking and coding-intensive that there is no real value in counterfeiting it.
Modalities of monitoring Bitcoins
Oversight is required to ensure fraudulent transactions are not made using Bitcoins. Bitcoins are overseen and regulated by "miners". Miners are individuals who allow their computer to be used to constantly track Bitcoin transactions in value and quantum. It is a sort-of virtual ledger book spread across thousands of users. Miners receive Bitcoins in exchange for their accounting services on a weekly basis.
Vulnerabilities of the Bitcoin
Several controversies abound over the use of Bitcoins. Due to its unregulated nature, Bitcoins became the currency of choice for illicit transactions involving child-pornography, prostitution, human trafficking and illicit weapons trade on the dark web. Between 2011 and 2013 Bitcoins were used widely around the world for money-laundering purposes. For these reasons, regulators are wary of using the Bitcoin as formal currency.
Verifying Bitcoin transfers: A terminal problem?
With growing use of the Bitcoins, the verification process for Bitcoin transfers has now increased to 43 minutes. They are verified by the Bitcoin miner network, which is overwhelmed with the increasing frequency of transaction. The verification delay led several businesses to stop accepting Bitcoins.
What is an Exchange-traded fund?
An exchange traded fund, is a marketable security that tracks indices, commodities, bonds, or assets like an index fund and trades them like a stock exchange. The ETF owns the underlying assets, in this case Bitcoins, and then divides the ownership into shares. Shareholders then indirectly own these assets and are entitled to a portion of profit (interest/dividends) based on the trades.
Winklevoss Brothers release Winkdex for Bitcoins
In February 2014, Tyler and Cameron Winklevoss (of Facebook fame) publicly released the Winkdex, an index that provides a regularly updated price of the Bitcoin. They said they sought to provide an easy way to predict the price-movement of the Bitcoins. They added that Winkdex could be a precursor linked to a Bitcoin ETF that they had proposed earlier, to regulate the Bitcoin.
SEC gives a ray of hope?
While the SEC rejected the proposal, they wrote that the Bitcoin system was "still in the relatively early stages of its development and that, over time, regulated Bitcoin-related markets of significant size may develop."
