It offers liquid BTC exposure on a trusted platform.
There are more investors and market makers with deeper pockets on stock than Bitcoin exchanges. They prefer trading there because of there is a lower chance of one's balance vaporising at JPMorgan than at Mt Gox.
so I'll say it here -- yes, an exchange-traded derivative of bitcoin would certainly benefit from higher liquidity. But why would its liquidity there necessarily be any different (or quicker to get your money in/out for amateurs) from the existing BTC exchanges? The interest in the BTC ETF depends on demand to trade in BTC in general, already captured on exchange sites.
Or is there some reason market makers would find it attractive to provide the liquidity?
Gold was traded in spot commodity markets long before GLD came along, yet there is demand for GLD apart from gold. Similarly, demand for Bitcoin on BTC exchanges is constrained by (1) trust issues regarding the exchanges, (2) the energy it takes to connect to those exchanges, and (3) fund mandates limiting their assets to listed securities.
(1) Counterparty risk. The probability of the U.S. equities clearing system collapsing is infintesimal compared to the odds of (a) a dick at Mt Gox running away with the money, (b) a dick hacking Mt Gox and running away with the money, or (c) any number of technical or personnel problems that could limit the ability of a customer to withdraw their funds in a timely manner. This is still my #1 concern regarding setting up a Bitcoin market making operation.
(2) Barriers to entry. Everyone in finance is already plugged into the majour stock exchanges. Connecting to a new exchange involves investments of time and technology.
(3) Mandates. Many funds are required to trade only listed products).
A Bitcoin ETP would require active hedging in the Bitcoin spot markets. Thus, think of the ETP as a liquidity gate. I do not believe the BTC markets are ready for the flood gates yet.
Edit: I see that you edited your response. I guess the selling point is the trust factor and that is certainly attractive. How much trust do you think is placed in JPM that is not due to regulatory oversight?
There are more investors and market makers with deeper pockets on stock than Bitcoin exchanges. They prefer trading there because of there is a lower chance of one's balance vaporising at JPMorgan than at Mt Gox.