Wednesday, April 10, 2013

Could a Virtual Currency be the Next ETF?

You may have heard a lot about Bitcoin in the past week. For one, the worth of the digital currency has skyrocketed, with values topping $250 today, up from $44 a month ago – and $4.93 a year ago. The staggering run-up has got the InAlternatives team excited – but there’s also talk of a potential bubble in the making, particularly in the wake of a “flash crash” last month that was eventually traced to a technological glitch in the Bitcoin exchange.

Of course, the mishap didn’t temper the appetite for the virtual currency, which is traded on a peer-to-peer network outside the control of central banks. This recent story on Bitcoin reiterates the old adage, the bigger the risk, the more lucrative the reward.

Despite its rock-n-roll beginnings, Bitcoin has claimed a legitimate spot at the table, thanks to global currencies on the verge of a valuation war, according to this story at ETF Trends.

The article poses an interesting question -- could Bitcoin be the backing currency of a ETF?  For now, it is unlikely. That is, until there are securities backed by Bitcoin – and the currency becomes regulated. Bitcoin doesn’t operate like other currencies, because it is in limited supply, making it more akin to a commodity. Bitcoins are also pretty hard to come by, with programmers releasing them at their own discretion.

So, you tell us: Have you ever used Bitcoin? What’s your take on the future of this virtual currency? Could Bitcoing be the backing currency for an ETF or another investment vehicle?

-    The IIR Alternatives team
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