Exchange-Traded Funds (ETF, for short) achieved a great popularity in the financial world a little over a decade ago, though they were first introduced in the 1990s. They have something of an Index Fund quality to them.

Index Funds were premised on John C. Bogle’s recognition that most fund managers were not actually able to beat the market on a consistent basis. Once their fees were taken into account, from the perspective of the financial end-consumer, the idea of beating the market was sheer folly.

For those who recall those days, there is an amusing irony in describing the situation in that manner, for this is precisely how those on Wall Street condemned Bolge’s indexed approach: „Bogle’s folly.“ Yet, the truth of the matter is that this approach, which resulted in creation of funds that tracked the S&P 500, at minimal-to-no fees, has turned out to have embodied great wisdom.

Today’s ETF endeavor to learn from Index Funds‘ best practices: avoiding the expense of high volume turnover and vastly reducing operation costs, as steady indexing eliminates labor intensive managerial fees. The one big difference, though, is that whereas Index Funds were difficult and expensive to trade, since their very purpose was to leverage long term advantage, ETF are traded much more easily and far less expensively.

Some of the big news in ETF these days is the prospect of launching publicly traded Bitcoin ETF. The effort receiving the biggest spotlight in this regard has been the initiatives undertaken by the Winklevoss twins.

The brothers, renowned for their struggle over FaceBook, with Mark Zuckerberg, have been early adopters of Bitcoin. Estimates have their holdings in the crypto-currency at around $11 million.

Permission to establish a publicly traded Bitcoin ETF though must be provided by financial regulators. And the effort is already being pooh-poohed by bigwigs in the industry, such as Knight Capital managing director Reggie Browne.

It is true, of course, with the extreme volatility of Bitcoin of late, such efforts would seem to run counter to the original Index Fund spirit of the early ETF tradition. This might though be a case of not seeing the trees for the forest (or the forest for the trees, perhaps).

To begin with, trading of such funds already exists in the form of private funds. SecondMarket’s private Bitcoin Investment Trust (BIT, for short, get it?) is modeled on a successful gold ETF. BIT has a $25,000 minimum investment, but, as testified by its creator, the SecondMarket CEO, at the conclusion of 2013, it held $65 million of investment.

Thus, sweeping, generalized condemnations of Bitcoin’s volatility as too risky for ETF investors, such as claimed by Browne, hardly seem to be prima facie obvious. There’s still a more basic matter involved here, though. It is a huge mistake to lose sight of the fact that any currency, including Bitcoin, earns its mettle (or not) as a medium of exchange, not as an investment opportunity.

Of course I’m not saying that anyone isn’t perfectly entitled to wager on the success (or failure) of any product, including a new currency. Speculators and short sellers alike are a perfectly legitimate and necessary part of a dynamic and free market. The confusion, and the misguidance to which it may give rise, is that treating Bitcoin as an investment opportunity – akin to gold, for instance – fails to take account that, unlike gold, it is designed specifically as an alternate currency. Its ultimate fate lies in its capacity to serve consumer needs in that regard.

Like any other product designed to serve a specific purpose, its features and benefits will only be revealed as tested in time. The recent volatility has been a function of financial, rather than monetary, considerations. I can only see two long term prospects.

Bitcoin pile What would an ETF Mean for Your Bitcoin Profit Calculator? Either, Bitcoin will somehow (and there are many issues to consider here) catch on and become widely used around the world – whether sanctioned by nation-states or not. Or, it will be judged by the consuming public (consumers of currency, you understand) to not provide enough benefits over so-called sovereign currencies, and will lapse into disuse.

If the former happens, the holdings of the currency will be so extensive (and exempt from the inflationary pressures of fiat currencies) that financial hiccups will cease to cause the kinds of fluctuations recently observed. If that is the result, Bitcoin ETF will indeed become the kind of secure, indexed funds which were the original inspiration behind ETF in general.

And, should the other, less pretty, result come to pass, the truth is that the majority of those financially hurt by a collapse in the value of Bitcoin will be the speculators who bought up the currency, not on monetary merits, but rather in hope of financial windfalls. I wish such people no ill-will, but such risk is the very nature of such speculation.

In no way are these observations meant to stigmatize anyone who, persuaded of the viability of Bitcoin, chooses to invest in an ETF. Why shouldn’t such people profit from their knowledge of and conviction in a great product. All financial investments, though, are risky. And anyone who is simply hoping to catch a financial wave needs to know that surfing does often enough lead to dumps in the drink.

Bitcoin ETF are an intriguing development and personally I’ll be keeping a close eye on how that financial market evolves. Regardless of their fortunes, though, ETF in the end will really reveal very little about the prospects of Bitcoin as a currency. Many people will make and lose lots of money along the way, but the story of Bitcoin will be told, not in the financial markets, but in the consumer markets.

To keep track of the rollercoaster ride of Bitcoin, follow our Bitcoin Profit Calculator . Wallace Eddington is staff writer at our website, providing a practical and unique treatment of monetary and financial issues concerning Bitcoin. His recent article explaining the role of Bitcoin address and private key is a must read for those who want to take advantage of the exciting new digital currency.