How will a bitcoin ETF be any different from a bitcoin exchange? The W.Twins bitcoin ETF/trust stock can be converted to real bitcoins. This means that we can buy $100 worth of stock and convert it to maybe 0.5 BTC depending on the current rate. And we can buy 0.5 BTC and convert it to maybe $100 worth of stock depending on the current rate.

Doesn't that make the bitcoin ETF yet another bitcoin exchange like MtGox, BitStamp, etc?

What is the difference between a bitcoin ETF and a bitcoin exchange then?

W.Twins claimed that the ETF shares will reflect the performance of a weighted average price of Bitcoins in the other markets. 

Now we all know that's not going to happen. Being yet another exchange, it is subject to supply and demand, which in turn is dependent on the popularity and the ease of deposit / withdrawal of USD among other factors.

We can't say that BitStamp (or MtGox or BTC-e) rate is the weighted average of all the other exchanges can we? It simply has it's own unique rate, due to it's own unique supply and it's own unique demand. Similarly, the bitcoin ETF/trust will have it's own unique rate, due to it's own unique supply and it's own unique demand.

In fact, if we imagine that MtGox has a subsidiary called "MtGox-Trust", and each of our bitcoin in our MtGox account is a "MtGox-Trust" stock that we can sell and buy, then MtGox is effectively now a bitcoin ETF isn't it?

Can someone explain how will a bitcoin ETF be any different from a bitcoin exchange?
You don't get the bitcoins themselves.  Your investment fluctuates in response to the exchange rate.  From the brothers W:


  The investment objective of the Trust is for the Shares to reflect the
  *performance* of a weighted average price of Bitcoins, less the Trust’s
  expenses.


In other words, if the average exchange rate USD/BTC is $230, and you buy $230 worth of the ETF, when the average rate goes to $250, you could sell the ETF shares for around $250 ("less the Trust's expenses").  All of your transactions would have taken place on a US stock exchange, using US dollars.

You could do this yourself, by buying and selling BTC on a variety of exchanges, but your profits would be more than eaten up with the commissions for buying and selling.  

The ETF, on the other hand, would presumably have the benefit of volume, and may not even have to invest all incoming funds when there are outgoing funds (from redemptions) at the same time.