Thursday, September 26, 2013

The JOBS Act Meets Bitcoins

No sooner had the advertising provision of the JOBS Act become effective than someone decided to raise a bitcoin fund.  While the fund will be limited to accredited investors[1], the sponsor, Secondmarket, has launched a media campaign to help raise the private fund.  Barry Silbert, the CEO of Secondmarket[2], told The New York Times, “We want to make it [bitcoins] an accessible asset class.[3]

Secondmarket isn’t the first firm to market a bitcoin fund.    Cameron and Tyler Winklevoss, who battled Mark Zuckerberg over the ownership of Facebook, filed to launch an Exchange Traded Fund that would hold bitcoins.  See, “ETF Speculation Taken to Another Level: Bitcoins [July 4, 2013].”  Whether bitcoins are held in a mutual fund, ETF, or private fund, this is an inherently bad investment product.

Whether currency is created by government fiat or computer algorithm, it isn’t an asset class.  As I’ve explained in previous posts, an asset classes either have to generate income or have the potential to generate an income stream in the future.  Currency doesn’t fit within the definition.  Currency can be held as a hedge, to fund purchases, or as a long-term speculation.  The Bitcoin Investment Trust fits into the last category; a long-term speculation.

Job creation and capital formation were the avowed purposes of the JOBS Act.    There’s nothing about investing in bitcoins that will promote either objective.  I’m impressed that it only took three days to demonstrate that the Act was about giving Wall Street yet another chance to do what it does best: market.

[1] An accredited investor has $1 million in assets, excluding principal residence or a person whose income exceeded $200,000 in the last two years.
[2] Secondmarket is a firm that makes markets in private securities such as Twitter.  The idea is to allow founders to sell and sophisticated investors to buy securities before the company goes public.

No comments:

Post a Comment