BIT, an open-ended private trust, invests exclusively in bitcoin and enables people to gain exposure to the digital currency without having to directly buy and store it.
Shares of BIT, which is the first US-based private investment vehicle to invest exclusively in bitcoin, are being offered exclusively on SecondMarket.
Initially, each BIT share will represent 0.1 bitcoins, but the trust will not generate any income and will regularly sell/distribute bitcoins to pay for on-going expenses, so the amount of bitcoin represented by each share will gradually decline over time.
Registered broker-dealer SecondMarket has made a $2m seed investment in BIT, and its wholly owned subsidiary Alternative Currency Asset Management (ACAM) is sponsoring the trust.
“We incubated the BIT to alleviate the problems of direct bitcoin ownership, including having to wire money to newly established and potentially unregulated entities around the world,” said SecondMarket founder and CEO Barry Silbert.
He went on to say he believes a bitcoin-related investment vehicle is a great fit for SecondMarket as his company’s infrastructure “enables streamlined capital raising, liquidity, and investor communications for funds and companies”.
Silbert said he thinks bitcoin has the potential to make an impact on a number of industries, but noted that digital currency could also encounter problems. He warned:
“Bitcoin … faces regulatory uncertainty and widespread adoption issues that make investing in bitcoin a highly risky endeavour.”
Those who do choose to invest in BIT will have the opportunity to gain liquidity through auctions on SecondMarket, which will start next year. The Net Asset Value (NAV) of the BIT will be calculated daily.
Jon Matonis, executive director of the Bitcoin Foundation and member of ACAM’s advisory board, said: “The bitcoin offering from SecondMarket is a project that has been in development for over a year now. It will set the standard for best practices of bitcoin as an asset class in the US.”
SecondMarket has confirmed that Archibald Cox Jr, former chairman of Barclays America, has also joined the advisory board and invitations have been sent out to other individuals that are anticipated to accept and join over the coming weeks.
Mark Murphy, executive vice president of communications at SecondMarket, said the company had received a number of requests from financial professionals, technology entrepreneurs and even gold enthusiasts relating to investing in bitcoin, which cemented the company’s decision to add BIT.
Murphy said BIT differs from the Tyler and Cameron Winklevoss’ proposed Winklevoss Bitcoin Trust as it is aimed exclusively at institutional and accredited individual investors:
“We believe that the risk profile of bitcoin is not appropriate for retail investors.
We’re obviously excited about the potential upside of bitcoin, but there’s also the real possibility that the value of bitcoin will go down to zero.”
The price of bitcoin is currently sitting at around $122-$126, but it has fluctuated between around $250 and $68 over the past six months. Some of those involved in the space believe the price could reach four-digit numbers by the end of the year or into 2014, but others still protest that digital currency is a passing fad.
What do you think? Let us know in the comments below.
Disclaimer: CoinDesk founder Shakil Khan is an investor in SecondMarket.