Vaneck And SolidX To Offer Limited Bitcoin “ETF” For Institutions Via Exemption (#GotBitcoin?)
Following another delay on Bitcoin exchange-traded funds (ETFs), asset managers VanEck and SolidX plan to offer a limited version of their Bitcoin ETF to institutional investors. Vaneck And SolidX To Offer Limited Bitcoin ETF For Institutions Via Exemption (#GotBitcoin?)
VanEck Securities and SolidX Management want to start selling shares in a limited version of a Bitcoin ETF, using a rule that exempts the shares from securities registration, under which shares can be sold only to certain institutional investors, The Wall Street Journal reported on Sept. 3.
Vaneck, Solidx Bitcoin Etf Launching Sept. 5
According to the report, the investment management firms are planning to start selling on Sept. 5 under the United States Securities and Exchange Commission’s (SEC) Rule 144A, which allows the sale of privately placed securities to “qualified institutional buyers.”
By using the SEC’s exemption, VanEck and Solid will be able to offer shares of their VanEck SolidX Bitcoin Trust to institutions such as banks and hedge funds, but not retail investors, the report notes.
Since VanEck and SolidX Partners requested the SEC to list a Bitcoin ETF in 2018, the regulator has delayed the decision on the matter multiple times, having approved zero Bitcoin ETFs to date.
On Aug. 12, the SEC again delayed its decision on three Bitcoin ETFs, including VanEck SolidX, Bitwise Asset Management and Wilshire Phoenix.
VanEck’s New Bitcoin Trust Assets Total Just $41K In First Week
Investment management firm VanEck has issued just 4 Bitcoins (BTC) via its new trust focused on institutional investors.
VanEck: One Week, One Bitcoin Basket
Data from the company, spotted by economist and cryptocurrency commentator Alex Krüger on Sept. 10, showed that since its launch at the start of the month, VanEck SolidX Bitcoin Trust 144A Shares total net assets are only $41,400.
The product, which caused a buzz after VanEck described it as being akin to an exchange-traded fund (ETF), caters strictly to so-called qualified institutional buyers, or QIBs.
“VanEck SolidX Bitcoin Trust 144A Shares… looks and feels like a traditional ETF,” its official description reads.
Critics reacted coyly after news of the unveiling hit, with industry lawyer, Jake Chervinsky, arguing the product did not represent a legal ETF, something which remains outlawed by United States regulators.
“This is misleading. The VanEck SolidX Bitcoin Trust is *not* an ETF. It looks exactly like the Grayscale Bitcoin Trust, which was launched almost six years ago,” he warned Twitter followers at the time.
VanEck Had “A Bad Launch”
Now, the Trust’s slow progress at gaining traction has seen the lack of confidence continue. For Krüger, it has become proof that institutional investors do not want such limited Bitcoin-related instruments.
“This trust is just a bad launch of a product for which there’s not much demand,” he summarized.
October will see regulators deliver a final judgement on whether two ETFs can begin trading, one of which is sponsored by VanEck.
“I believe the Bitcoin ecosystem is slowly maturing toward supporting institutional quality products,” the company’s digital asset strategist and director, Gabor Gurbacs, said in comments on the events on Monday.
On Monday, institutional trading platform Bakkt announced its warehouse for physically-delivered Bitcoin futures was now active, having opened for deposits last week.
US SEC Rejects Bitwise Bitcoin ETF Proposal
The United States Securities and Exchange Commission (SEC) has rejected a proposal to list a Bitcoin (BTC) exchange-traded fund (ETF).
In an announcement on Oct. 9, the Commission stated that the ETF filing from Bitwise Asset Management and NYSE Arca did not meet the necessary requirements.
Specifically, regulators stated that the applicants did not meet the necessary requirements regarding possible market manipulation and illicit activities. The SEC wrote:
“Rather, theCommission is disapproving this proposed rule change because, as discussed below, NYSE Arcahas not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.'”
Bitcoin ETF “closer than ever?”
Today’s decision by the SEC seems to fly in the face of recent comments from Matt Hougan, managing director and global head of research at Bitwise, who on CNBC on Oct. 7 said, “We’re closer than we’ve ever been before to getting a Bitcoin ETF approved.”
Hougan had been optimistic about the firm’s chances to land approval for a physically-held Bitcoin ETF. He noted the significant growth that has transpired in the crypto space in recent years, stating:
“Two years ago, there were no regulated, insured custodians in the Bitcoin market. Today, … there are big names like Fidelity and CoinBase [with] hundreds of millions of dollars of insurance from firms like Lloyd’s of London.”
The rejection of Bitwise’s proposal follows a circuitous series of delays and requests for comment from the SEC. In August, the regulator postponed its decision on the proposal — together with two other crypto ETF applications — until Oct. 13.
Bitwise initially filed its application for a rule change to U.S. securities laws in January.
Crypto Market Hardly Needs A Bitcoin ETF At This Time, Says BKCM CEO
Founder and CEO of crypto investment firm BKCM Brian Kelly has said that Bitcoin (BTC) exchange-traded funds (ETF) are hardly needed for the ecosystem’s development, given that the coin is already available on regulated platforms such as Fidelity and TD Ameritrade.
Kelly made his remarks during an interview with CNBC published on Oct. 11, explaining:
“You have companies like Fidelity and TD Ameritrade starting to push into this space.
So ultimately you’re going to be able to buy Bitcoin in a regular brokerage account, or it’s going to look like a regular brokerage account. So I’m less concerned that you need a bitcoin ETF at this point in time.”
He also pointed out that the United States Commodity Futures Trading Commission’s (CFTC) decision to define Ethereum as a commodity made a significant impact on the space, adding:
“The CFTC saying that Ethereum is a commodity is huge for the space. It gives us regulatory clarity. […] That opens the door for institutions to come in. […] Everybody is concerned, what if they ban it? […] The CFTC said ‘we’re not banning it yet, we’re gonna regulate it,’ and now investors can say ‘Put them in my commodity bucket.’”
General Hope For The Market
In May, Kelly has also said that the upcoming supply cut — brought by the next halving of the block reward — could help Bitcoin prices rise further in the coming months.
As Cointelegraph reported on Oct. 9, the United States Securities and Exchange Commission rejected Bitwise Asset Management’s proposal to list a Bitcoin ETF.
New Bitcoin ETF Proposal Filed With SEC by Gold Fund Veteran
Delaware-based asset manager Kryptoin Investment Advisors applied with the United States Securities and Exchange Commission (SEC) to launch a Bitcoin (BTC) Exchange Traded Fund (ETF) on Oct. 15.
A Bitcoin ETF On The New York Stock Exchange
According to the filing document published by the SEC, the Kryptoin Bitcoin ETF Trust is meant to be traded on the New York Stock Exchange Arca. Notably, the ETF product is designed:
“[…] To provide exposure to bitcoin at a price that is reflective of the actual bitcoin market where investors can purchase and sell Bitcoin, less the expenses of the Trust’s operations.”
The company plans to hold Bitcoin and value the shares of the trust according to the Chicago Mercantile Exchange Bitcoin Reference Rate. The cryptocurrency will be held at an unspecified third-party insured custodian that is also regulated under the Investment Advisers Act of 1940.
The SEC filing also details that the Trust will hold Bitcoin “in seeking to ensure that the price of the Trust’s shares is reflective of the actual bitcoin market.”
However, the Trust will not purchase or sell bitcoin directly but will acquire it via shares called “baskets.” The report continues:
“Instead, when it sells or redeems its Shares, it will do so in ‘in-kind’ transactions in blocks of 100,000 Shares called ‘Baskets’ at the Trust’s net asset value (‘NAV’). Only Authorized Purchasers may purchase or redeem Shares with the Trust, and they will do so by delivering bitcoin to the Trust in exchange for Shares when they purchase Shares.”
A Notable Executive
Another notable detail is that the head of exchange-traded product at Kryptoin is Jason Toussaint, former managing director at the World Gold Council and ex asset manager of SPDR Gold Shares, one of the largest Gold ETFs in the world.
Meanwhile, the race to launch the first regulated Bitcoin ETF is becoming increasingly competitive.
Earlier this month, documents revealed that the Wilshire Phoenix Fund has updated its own Bitcoin ETF proposal filed with the SEC. Also this month, asset manager Bitwise alongside NYSE Arca confirmed the intention to refile their application for a Bitcoin ETF after the latest SEC rejection.
The SEC Does Not Want Crypto ETFs — What Will It Take to Get Approval?
October has been a busy month in the race to register the first crypto exchange-traded fund compliant with the requirements of United States regulators. Following the Chicago Board Options Exchange withdrawing its proposal for VanEck/SolidX Bitcoin ETF earlier in September, the ETF filing from Bitwise Asset Management and NYSE Arca was turned down by the Securities and Exchange Commission on Oct. 9. The regulatory authority remained unconvinced of the applicants’ ability to prevent manipulative practices to the extent required by a national securities exchange.
For a brief moment, the only standing Bitcoin ETF application has been a bid by the investment management firm Wilshire Phoenix — a proposal that its sponsors amended in early October to include updated custody rules. It wasn’t too long, however, before a new contender entered the race.
Investment management firm Kryptoin Investment Advisors, with the former World Gold Council executive Jason Toussaint at the helm of the effort, turned in an initial registration statement to the SEC for a Bitcoin ETF. This latest submission may prove to be the latest in a series of fruitful attempts to convince the regulator to accept an ETF — or will it? What will it take for the commission to finally give the go-ahead for a crypto ETF, and is the new proposal up to par?
The new gold
The new proposal’s sponsor, Kryptoin Investment Advisors LLC, is a Delaware-domiciled subsidiary of the fintech company Kryptoin ETF Systems, which is registered in the Cayman Islands. The firm specializes in developing AI-driven products for crypto financial markets.
Donnie Kim is the firm’s founder and CEO, while Toussaint — an industry veteran with more than 20 years of experience with exchange-traded instruments — holds the position of head of exchange-traded products at Kryptoin Investment Advisors.
As CEO of World Gold Trust Services, Toussaint was instrumental in the creation of one of the first commodity-based ETFs — the SPDR Gold Shares (GLD), which was first listed on the New York Stock Exchange in November 2004 and had once been the world’s largest ETF.
Toussaint’s involvement with gold-backed financial instruments is no coincidence as far as his new assignment goes. In serving as assets underlying ETFs, both Bitcoin (BTC) and gold differ from stocks of publicly traded companies, as they place additional regulatory scrutiny in terms of price discovery on the spot exchanges where they are traded. Indeed, the regulatory challenges faced by ETFs backed by gold and Bitcoin are in many ways similar: In both cases, the SEC first wants to get a solid grasp of what is going on in the underlying markets.
What The SEC Wants
One of the regulator’s major concerns when evaluating new commodity-based ETFs is establishing whether the underlying market is resistant to manipulation, in accordance with Section 6(b)(5) of the Securities Exchange Act. So far, no proposal filed with the SEC has been able to demonstrate such in regard to Bitcoin markets.
Yet, the act outlines an alternative route by which an ETF can win approval: Showing that the listing exchange has entered a “comprehensive surveillance-sharing agreement with a regulated market of significant size.”
Such agreements between exchanges and underlying markets — by facilitating the exchange of granular trading data — are supposed to provide additional transparency and enable regulators to investigate suspicious trading behavior should the need arise.
In the 122-page order disapproving the Bitwise application, the SEC commissioners deemed that the evidence brought by the proposal’s sponsor insufficiently supported the claim that the “real” spot market for Bitcoin, when “fake and/or non-economic data is removed,” is sufficiently resistant to manipulation.
Demonstrating that a “surveillance-sharing agreement with a regulated market of significant size” exists is a heavy burden as well. Even if there is an arrangement in place, the sponsor has to convince the regulator that the entity on the other side of it qualifies as a “significant, regulated market.”
In the Bitwise case, NYSE Arca — the proposal’s sponsor — tried to leverage the respectability of Bitcoin futures traded on the Chicago Mercantile Exchange, yet failed to show that the market was “significant.”
The Kryptoin Investment Advisors’ hope to clear this hurdle rests with using the CME CF Bitcoin Reference Rate, which captures transaction information from five major trading platforms: Bitstamp, Coinbase Pro, itBit, Kraken and Gemini. The applicants argue that this aggregated index “provides an accurate reference to the average spot price of Bitcoin,” and is more resistant to manipulation than other measurement strategies.
What Are The Odds?
Most of the crypto finance professionals who have spoken to Cointelegraph on the matter were skeptical that any of Bitcoin ETF’s short-term prospects would win the SEC’s approval. However, many sounded more optimistic when talking about medium to long-term prospects. Michael Ou, CEO of the fintech security firm CoolBitX, expects that the latest proposal will share the fate of its predecessors:
“It would seem that the cryptocurrency industry just doesn’t meet the SEC’s expectations of a well-behaved and well-regulated industry. This comes as no real surprise, as previously unregulated — and sometimes still unregulated —exchanges have been seen to be influential in manipulating market prices within the cryptocurrency sector.”
Charles Lu, CEO of the confidential ledger protocol Findora, also noted issues with price manipulation at the hands of exchange platforms:
“Though Bitwise is well known for analyzing ‘real’ exchange volume, the SEC noted that many of the exchanges used by the proposed Bitwise ETF are not regulated in the US. For instance, Binance, the largest platform identified by Bitwise as real, with 39% of the ‘real’ volume, is not registered with either FinCEN or NYSDFS.”
Christophe de Courson, co-founder and CEO of crypto investment firm Olymp Capital, mentioned unregulated exchanges as a major hurdle as well, adding insufficient liquidity to the list of concerns:
“Firstly, there is not enough liquidity on spot and derivative markets for institutional-grade investors to enter. This comes with a high level of volatility, making it difficult to manage in a portfolio. Secondly, operating in this market comes hand in hand with a lot of regulatory issues and unregulated cryptocurrency exchanges operating outside the US also play a crucial role in Bitcoin price movements.”
As such, it appears that there is no single most important component to ensuring a successful crypto ETF. In addition to the points already raised, experts note that custody is an important precursor for any of the regulated crypto-based financial instruments, as evidenced, for example, by the Bakkt futures saga. Tyler Gallagher, CEO of investment firm Regal Assets, observed that there are three key pieces that must be in place before the first ETF is approved:
“A regulated market for reliable pricing, proper market surveillance of exchanges to avoid market manipulation, and exceptional qualified custodians to ensure proper security and storage of the assets. The market has matured significantly over the past few years and is reaching a tipping point that should allow investors to see the approval of a Crypto ETF as early as next year.”
Others believe that the progress on the Bitcoin ETF front will be commensurate with general regulatory advancements of the crypto industry. Nick Cowan, Managing Director and Founder of the Gibraltar Stock Exchange Group, commented:
“Approval stems from a combination of two factors; time and understanding. Once the regulator has gotten to grips with the realities of this newly emerging asset class, only then will they become comfortable allowing such products into the market. This process will likely be a protracted one.”
Tara Bogard, senior vice president of business development at the independent qualified custodian Kingdom Trust, said that it can take some time for an ETF to be approved, since, “Before the SEC can or will approve a crypto ETF, the need to first focus on generalized cryptocurrency regulation is necessary.”
With regard to the realistic timeline for the first crypto ETF approval, Lu is doubtful that the process will be expeditious: “For a bitcoin ETF proposal to gain SEC approval, the sponsor will need to prove that real price discovery is happening as opposed to market manipulation.” Lu does not believe this will happen in the near future, adding:
“The SEC will require surveillance-sharing agreements with significant cryptocurrency exchanges — a requirement that few foreign-domiciled exchanges will agree to.”
The general sentiment among industry professionals seems to be that of reserved optimism: Hardly anyone expects a breakthrough to occur very soon, yet most admit that it is only a matter of time.
It could be the Kryptoin Investment Advisors’ proposal that will blaze the trail for crypto ETFs, or perhaps another one that is yet to be filed — at some point, the crypto industry will get its coveted prize, but not just yet.
The SEC Has Rejected Every Bitcoin ETF. This Firm Thinks It Has a Solution
One company thinks it knows how to get a bitcoin exchange-traded fund (ETF) approved by U.S. regulators.
Wilshire Phoenix, a relatively young financial firm in New York, filed to launch the United States Bitcoin & Treasury Investment Trust ETF in May with NYSE Arca. At that point, a dozen bitcoin ETF proposals had already been swatted down by the U.S. Securities and Exchange Commission (SEC) – including nine in one day. But unlike other ETF applications, Wilshire Phoenix’s ETF will invest in both bitcoin and U.S. Treasury securities, commonly referred to as T-bills.
The SEC is currently reviewing the application.
“Our proposed bitcoin-related ETF is quite different from those that have previously been submitted to the Commission for approval,” Wilshire Phoenix founder and managing partner William Herrmann said in a phone interview. “To name just a few distinctions, the composition of the Trust is very different. Our Trust is a multi-asset trust (bitcoin and T-Bills), as opposed to just bitcoin.”
The SEC has long been hesitant to approve an ETF with exposure to digital assets, citing the market’s relatively young age and the possible risks to investors. The agency has rejected a number of proposals, while other applicants have proactively withdrawn their filings.
Herrmann says the Wilshire ETF has several mechanisms to address these concerns.
The Trust itself will automatically rebalance itself monthly to address possible concerns about bitcoin’s price volatility, Herrmann explained. Essentially, if bitcoin’s price volatility increases, the index will reduce its exposure to the cryptocurrency and instead increase its exposure to Treasury bills. As bitcoin’s volatility falls, the opposite occurs.
The weighting will be transparent, with the index being shown on Bloomberg and Thomson Reuters portals, he said.
The CME’s Bitcoin Reference Rate will provide the data for bitcoin’s price in the Trust, rather than use an in-house price method “or one from any related party,” he added.
Wilshire Phoenix is also hoping to address SEC concerns about market manipulation by using a surveillance sharing agreement, one component the regulator stressed was needed when rejecting a recent bitcoin ETF application. Herrmann said:
“The CME has surveillance sharing agreements with both the CME futures market as well as the relevant portion of the spot market that forms the basis for the Trust’s bitcoin values. This addresses the SEC concerns about the lack of surveillance sharing agreements with the relevant spot market, which is something previous applicants have not been able to address.”
Most recently, the SEC denied Bitwise Asset Management’s fund. In a whopping 112-page order published Oct. 9, the regulator said surveillance-sharing agreements were necessary and market manipulation remains a real concern.
As recently as September, SEC Chairman Jay Clayton said that while progress has been made in the space, the market manipulation question had not been resolved.
For Wilshire Phoenix’s proposal, the SEC began accepting comments on the proposal in June, though a final decision is still months away. The agency is currently accepting comments on the proposal through Nov. 12, 2019.
Herrmann is optimistic about the ETF proposal’s chances, saying “we developed the ETF consistent with investor protection as well as fair, orderly and efficient markets.”
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