NEW YORK (TheStreet) -- This weekend Barron's ran several articles that combined to make an ETF special report, but there were gaps in some of the ideas expressed that should be clarified to promote better understanding of the product.
In an article titled "No Magic Solution Here," Barron's said that the ETF industry was "jumping the shark" with the proposed Bitcoin ETF that the Winklevoss twins are trying to launch. "Jumping the shark" refers to an episode of the 1970s television Happy Days when Fonzie jumped over a shark tank on water skis. The term has become synonomous with being gimmicky.
Although there aren't too many people who will make an investment case for Bitcoins, Barron's suggested that because they have little or no investment merit, an ETF based on them shouldn't trade. This is misguided.
Segments of the capital market can be investment-worthy, such as blue-chip stocks; worthy of speculation, such as options purchased shortly before expiration but ahead of an earnings report; or both, such as the SPDR S&P 500 (SPY), an index ETF held as a long-term investment and used in many short-term speculative strategies.As Barron's points out, Bitcoins are a virtual currency. They came into existence in 2008 and can be transferred without a financial institution acting as an intermediary. The Bitcoin's value can and does fluctuate against other currencies including the dollar, and at times has been very volatile. In the last two months the Bitcoin is down by about one-third against the greenback. Whether there is any value as an investment, there is volatility, and people like to speculate on volatile trading instruments. This is true of the various ETFs and ETNs that track the CBOE Volatility Index in one form or another. The iPath S&P 500 VIX Short Term Futures ETN (VXX) is down 96% since its inception, which did not stop it from trading 29 million shares on Friday or 30 million shares the day before. Something built for speculation, like a Bitcoin ETF, will either find a trading audience and succeed or will fail to do so, close and cost its backers their investment in starting up the fund.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV