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  What’s more, miners can offer something unique: brand-new, 
  “virgin” coins, which some investors covet. Such coins 
  command a premium of up to 20 percent, according to 
  Travis Kling, founder of the hedge fund Ikigai. It’s 
  easier to prove they’ve not been involved in money-
  laundering operations, he said

Ironic, because that's actually the defacto method for laundering money in Bitcoin land

See this bitcoin laundering method described in this post from a moderator on BitcoinTalk dated August 22, 2013, 02:32:31 AM [ https://bitcointalk.org/index.php?topic=279249.0 ] Payment to miners / mining pool operators for their freshly minted "clean" "virgin" coins in exchange for a 20% markup.. why would anyone want to immediately lose 20% of their investment?...

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> why would anyone want to immediately lose 20% of their investment?...

It's called insurance, just like after you buy a house you immediately insure it by paying a premium of x% of it's value.

In this case, you insure against someone in the future claiming those coins were stolen from him.

The investors want exposure to the bitcoin price, but not to some of the risks, so they factor them out as much as possible.

It's telling that the risk premium is 20%.

This seems very high; have institutional investors ever had problems selling "tainted" coins?

Do you have a source? Sounds like you just made that up.

Investors, especially large institutions will have teams of lawyers who would would have paperwork from the party they purchase from vetting the purchase. Their insurance is the law and an ability to hold the seller responsible for loss in any case where that risk might exist.

No one pays 20% markup on a car, or gold, or a diamond ring under normal circumstances.

Washing illicit money though paying miners for their new Bitcoins is an established method for money laundering.

>>why would anyone want to immediately lose 20% of their investment?...

They are not buying Bitcoin to gain x% a year. That's what Dow Jones or AT&T stock are about. They are buying bitcoin hoping it goes to $100K a coin, and having a coin that has been used to buy/sell drugs or women...well you get it. Feds can take it or no one refuses to buy it.

Most paper currency is contaminated with cocaine. Can the feds seize that too?

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