The Winklevoss twins, arguably the world’s most ardent bitcoin-ers (and “one” of our 44 Innovators to Watch), this week kicked off an IPO process for a bitcoin investment fund.

The proposed fund, however, is missing a key component: a pricing exchange. Without an exchange, the Winklevoss Bitcoin Trust is like a car being sold without wheels.

The Winklevoss Bitcoin Trust would be a variation of an exchange-traded fund that would hold Bitcoins and issue shares on a secondary exchange. According to Bloomberg, the trust would be the first product in the $2 trillion ETF industry to track a virtual asset, rather than securities such as stocks and bonds or commodities such as gold and oil. It is unclear whether the SEC will allow for such an ETF.

To say this would be a risky ETF is putting it mildly. Besides the fact that all sorts of bitcoin enterprises — and even bitcoins themselves — have been under repeated hack attack, nevermind the anti-money laundering issues, the method of valuing bitcoins is, well, imprecise today. From the Winklevoss IPO filing:

Due to the peer-to-peer framework of the Bitcoin Network and the protocols thereunder, transferors and recipients of Bitcoins are able to determine the value of the Bitcoins transferred by mutual agreement or barter with respect to their transactions. As a result, the most common means of determining the value of a Bitcoin is by surveying one or more Bitcoin Exchanges where Bitcoins are bought, sold and traded (i.e., the Bitcoin Exchange Market). On each Bitcoin Exchange, Bitcoins are traded with publicly disclosed valuations for each transaction, measured by one or more fiat currencies such as the US Dollar or the Chinese Yuan. Although each Bitcoin Exchange has its own market price, it is expected that most Bitcoin Exchanges’ market prices should be relatively consistent with the Bitcoin Exchange Market average since market participants can choose the Bitcoin Exchange on which to buy or sell Bitcoins (i.e., exchange shopping).

We’re not sure these exchanges are going to be representative — or at least that they will always be representative of the true value of a bitcoin. But really this boils down to valuation. Here’s how the twins are going to value the bitcoins:

The Trust values its Bitcoins by using a mathematical formula developed by the Sponsor for such purpose. The formula provides a weighted average market price utilizing trading data from the largest Bitcoin Exchanges by volume on a list of Sponsor-approved Bitcoin Exchanges. Data is gathered by [CALC AGENT], who serves as the calculation agent for the Trust (“Calculation Agent”) and calculates and disseminates the Blended Bitcoin Price as of 3 p.m. New York time on each Evaluation Day. The Calculation Agent gathers and filters transaction data from the prior [_] hours and then measures the average prices for each of the constituent Bitcoin Exchanges using its daily volume to determine the Blended Bitcoin Price for such day.

I don’t know about you, but I’m unsure that given the volume of bitcoins, the diversity of the bitcoin ecosystem, and the vagaries of bitcoins themselves as kind of alt-currencies, that the Winklevosses are going to be able to secure a true valuation for the trust at 3 p.m. New York time everyday. (See the largest bitcoin exchange at Mt. Gox.)  If you think they can, buy the EFT. If not, watch “The Social Network” — great movie.

See other coverage of the Winklevoss effort here, here and here.