Exchange-traded fund issuer VanEck has partnered with blockchain company SolidX to launch a physically-backed index-linked bitcoin investment product that is intended to function similar to an ETF but be available only to qualifying institutional investors.
Jan van Eck, CEO of VanEck.
Shares in the VanEck SolidX Bitcoin Trust will start trading on 5 September 2019 and be available through traditional and prime brokerage accounts.
“Institutional demand for bitcoin exposure is uncertain because institutional quality vehicles simply have not, to this point, been readily available,” said Jan van Eck, Chief Executive Officer of VanEck.
“We’re introducing a solution for institutions that fits within their operational processes and the current regulatory framework.”
The product provides the same exposure as that of the proposed bitcoin ETF sponsored by VanEck and SolidX which has had approval pending by the Securities and Exchange Commission since June 2018.
It holds physical bitcoin keys in cold storage, and holdings are insured in case of theft or loss. The NAV of the trust will be based on the MVIS Bitcoin US OTC Spot Index, which is designed to track price feeds from major over-the-counter (OTC) bitcoin liquidity providers. The MVIS index launched in November last year.
“Utilizing OTC prices to value bitcoin enhances price transparency and the institutional quality of the offering,” added van Eck. “The OTC desks in the MVIS Bitcoin US OTC Spot Index have efficient price discovery mechanisms, systems, policies, and procedures for correcting pricing anomalies, abnormalities, and extremities and are overseen by regulators.”
Importantly, the product features an open-ended creation-and-redemption process – a crucial characteristic of ETFs – that allows authorized participants to create or cancel fund shares based on investor demand.
BNY Mellon will facilitate investor creation and redemption activity.
“As the first bitcoin product in the US with standard ETF creation and redemption and established clearing and settlement processes, institutional investors can finally gain exposure to bitcoin within a familiar context,” said Daniel H. Gallancy, Chief Executive Officer of SolidX.
“We are heavily focused on supporting innovation in asset management, including in the delivery of digital currency strategies and investment options to investors,” added Jeff McCarthy, Global Head of Exchange Traded Products at BNY Mellon. “We are excited to leverage our firm’s focus on digital and alternative asset classes with aspects of ETF-servicing through the creation and redemption process to facilitate investor access into this first-of-a-kind offering access to bitcoin.”
The product does, however, bear some notable differences to bona fide ETFs.
First and foremost, it will not be listed on an exchange with trading instead conducted over the counter. Second, retail investors will not be able to access invest in it. According to Rule 144A under the Securities Act of 1933, shares may only be purchased by Qualified Institutional Buyers (QIBs) such as banks, insurance companies, and pension funds.
Restricting retail access is likely to have been the deciding factor that opened the door to the product’s approval by the SEC. The regulator has previously rejected applications for the introduction of bitcoin ETFs, citing concerns that bitcoin exchanges were “still in the early stages of development” and not proven to be “resistant to manipulation”.
This consideration aside, VanEck and SolidX are understood to be continuing efforts towards the eventual launch of a bitcoin ETF.