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You remember the Winklevoss twins. They are the guys to whom Mark Zuckerberg paid $65 million in combined cash and equity in Facebook to settle the lawsuit in which they alleged that Zuckerberg had stolen their social networking idea. Today, under the sponsorship of Math-Based Asset Services LLC (a Winklevoss company), Cameron and Tyler filed an S-1 with the U.S. Securities and Exchange Commission to initiate the IPO for the Winklevoss Bitcoin Trust.
Although it is likely that many people have heard of Bitcoin, it is less likely that they can explain what it is, and even less likely that they have used it. It is, after all, a cashless currency system designed to operate far above street level, operating in digital cyberspace. Neither time nor space allow us – nor is it our purpose – to explain how Bitcoin works. For information on what Bitcoin is and how it works, I recommend “Bitcoin – What You Need to Know” and “Bitcoins: A New Currency on the Rise,” both of which are available in the ADVFN Financial News. Simply click on the article titles in the preceding sentence to read these recent, timely explanations of the Bitcoin system.
Bitcoin was created in 2009 by a still anonymous programmer (probably Al Gore) in an attempt to establish a virtual currency that was outside of the control of banks and financial institutions. Although the value of Bitcoins can – and has – fluctuate, even dramatically so, the eventually supply is not supposed to exceed a total of 21 million. That’s coins, not dollars, pounds, yen, or euros. That eliminates Quantitative Easing. In 2013 alone, Bitcoins have been valued as low as $15 each and as much as $260 each. That kind of range in any currency is called V-O-L-A-T-I-L-I-T-Y.
By submitting the SEC filing, the Winklevoss twins are, in effect, making Bitcoins a commodity, because investing in or divesting of Bitcoin shares will inevitably be based on investor speculation about the potential rise or decline in the value of individual Bitcoins. In my opinion, this will only increase the present state of the “currency’s” instability. I could be wrong. I have been before. (In 1998 I thought that I had made a typographical error, but I hadn’t, so I was wrong.)
The reality is, however, that Bitcoins are being used for nearly any kind of on-line, virtual transactions. And who is to say that the Winklevoss twins have not unlocked the door to the kind of cashless society that the European Union and other governments have envisioned for some time now. As more and more transactions become virtual, we are heading toward unfamiliar territory where money may actually become extinct. That also means that we are heading into unexplored territory. Logic and experience tell us that that means at least two other things exist: unknown dangers and potential corruption and control in high places by those who have the both unique knowledge and the power to use it to their own benefit.
The Risk Factor section of the Bitcoin filing alluded to this, citing 59 specific risks relative to the scheme, including unforeseen circumstances, unintended consequences, potential security breaches, fraudulent activity, and inadequate technology and/or technological support. On the other hand, as time plays out and the financial world evolves, there is the distinct possibility that the Winklevoss twins could end up holding all the marbles, including yours, mine, and Mark Zuckerberg’s.
To see the complete SEC S-1 filing click here.
