ChuckJaffe

Over the years, fund-industry watchers have laughed about a lot of wild investment ideas.

Sometimes they laughed first. Sometimes they have gotten the last laugh.

So when the fund observers started laughing last week after seeing the registration papers for the Winklevoss Bitcoin Trust — a new exchange-traded product that faces a lengthy vetting process from the U.S. Securities and Exchange Commission — the question was which laugh, first or last, will be the better one here, and who will get the final guffaw.

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If the Winklevoss name rings a bell, that means you probably saw the movie “The Social Network,” or know enough about the origins of Facebook FB, -0.34% to know that Cameron and Tyler Winklevoss — twins who attended Harvard and rowed in the 2008 Olympic Games in Beijing — claimed that Mark Zuckerberg essentially stole their idea for the business. The twins walked away with a settlement worth $20 million in cash, and Facebook shares worth, conservatively, 10 times more.

If bitcoin rings a bell. then you are versed in what some people believe is the next great step in Internet and global commerce, a digital currency without borders or central bank, run by the people who use it. The value of bitcoins — today mostly used for anonymous online purchases — is determined by the marketplace; whatever someone will take for them is what they are worth, though their value has surged at times of international currency strife over the past two years, as happened during the Cyprus crisis in early 2013.

Now let’s go back to the laughs for a moment.

Industry watchers laughed when the first specialty Internet fund was launched back in the late 1990s, right up until the early iterations of those funds became a huge success (then those observers rushed into Net funds, only to see them crater).

They also laughed just over a decade ago, at the first gold exchange-traded funds, saying funds backed by hard assets were a gimmick; today gold ETFs, combined, are the world’s fourth largest holder of gold, behind only the United States, Germany and the International Monetary Fund.

Those are two good comparisons for the Winklevoss Bitcoin Trust.

Early Internet funds seemed unique but were really just buying businesses that had big online components to what they were doing. By comparison, the Bitcoin Trust could be looked at as just another currency fund, just with the unique — some would call it imaginary — currency of the bitcoin behind it.

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Gold funds were unique because they were backed by hard assets. The bitcoin fund can’t do that because, well, bitcoins are digital. But the registration papers show that the twins claim a proprietary method for storing bitcoin holdings — they’ll charge a yet-to-be-specified management fee for maintaining this virtual storage — which would, in turn, make bitcoin holdings more liquid.

Liquidity is important here because bitcoins have a volatile history. In the last year alone, they’ve traded between $13 and $266; Mt. Gox, the largest bitcoin exchange, had them trading in the $80-to-$90 range last week.

Until you can cash them, however, that value is both speculative and ephemeral.

If you can’t actually spend bitcoins without converting them into conventional currency, one could argue that they aren’t so much a currency as a form of scrip.

The Winklevoss filing noted, accurately, that bitcoins have little use in real-world retail and commercial markets compared with their “relatively large use by speculators.”

If you can’t actually spend bitcoins without converting them into conventional currency, one could argue that they aren’t so much a currency as a form of scrip, a temporary money that has some value but that could become worthless overnight due to any number of structural, economic or market conditions.

Another oddity of the Winklevoss Trust is that the brothers themselves have been buying up bitcoins, and their own stash may serve as the seed coins for the fund. Even if they truly believe in the future of bitcoin — and every interview or statement they’ve given suggests they think bitcoin is revolutionary — an investor can’t help but feel that the ETF is a way for them to backstop their own investment. (Relative to reported family fortunes or the Facebook settlement, the brothers’ bitcoin investment — reportedly $11 million as of April — is small potatoes.)

Ultimately, if the Bitcoin Trust helps people interested in the currency to access and trade it, it’s a plus even if it’s not a commercial success. If bitcoin proves durable and lives up to the potential its supporters say it has, then the Winklevoss boys will cash in big time and be heavily imitated.

As an investor, however, you probably don’t want to bet on that. The twins face a long, uphill battle just to get this fund to market; from there, chances are good it will still be viewed for years as a granular, niche fund — more like a fund that specializes in stocks from Bulgaria than one that has mainstream applications.

Said Morningstar analyst Steven Pikelny: “I’d say this is a total gimmick. Bitcoins are very illiquid, and the current trading infrastructure is riddled with security/efficiency problems. … If you actually want exposure to bitcoins, it’s probably a better idea to buy them directly. And if you can’t figure out how to do that, you probably don’t have any business owning bitcoins in the first place.”