Canadian retail investors will be the first in the world to be able to buy exposure to bitcoin through a regulated, publicly traded closed-end fund after Toronto-based investment fund manager 3iQ won approval from the Ontario Securities Commission on Wednesday to launch such a product.
The firm plans to list Bitcoin Fund on a major Canadian stock exchange and make it available to retail investors by the end of the year, 3iQ chief executive Fred Pye said in an interview.
“It wasn’t easy,” he told the Financial Post. “The OSC did three years of due diligence on this product.”
Canada’s largest capital markets regulator first rejected the proposal in February due, in part, to concerns about the suitability of the investment for less sophisticated investors. But the decision was appealed by 3iQ, which focuses on disruptive technology and digital assets and has so far concentrated on sophisticated investors in the exempt market.
The investment fund manager argued that the custody, audit, and pricing of its fund and the bitcoin it purchases would be secure and compliant with existing regulations. Gemini Trust Company LLC, the regulated digital currency exchange and custodian founded by early bitcoin owners Cameron and Tyler Winklevoss, will act as custodian of the fund’s bitcoin.
In a statement this summer, Pye said his fund would be disciplined, and would stand in contrast to “events” in the cryto space such as global hacking incidents, and the bankruptcy of crypto exchange QuadringaCX following the death of its co-founder Gerald Cotten.
During hearings in front of an OSC panel in June and July, staff of the regulator argued that the OSC’s initial rejection should remain in place, and noted that the U.S. Securities and Exchange Commission had rejected a rule change that would have allowed for the listing and trading of bitcoin-based ETFs.
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But on Wednesday, the OSC panel chaired by commissioner Lawrence P. Haber ruled that the cases were different, and that the Canadian regulator’s staff had not demonstrated that bitcoin was an illiquid asset that would render it non-compliant with existing regulations. Nor had OSC staff proved that it would not be in the public interest to allow the fund to issue a prospectus due to concerns “regarding the integrity of the bitcoin markets” and the fund’s ability to safeguard the bitcoin its holds, Haber ruled.
The panel rejected placing conditions on the bitcoin fund, such as restricting the entities with whom the fund could purchase and sell bitcoin, and addressing insurance requirements for the fund’s bitcoin held in wallets. Haber concluded that 3iQ had taken “reasonable steps to mitigate the risks associated with the Fund and the bitcoin markets through the structure of the Fund and the use of professional and qualified third-party service providers.”
The net asset value of Bitcoin Fund’s units would be published daily, and would reflect the changing value of the bitcoin held by the fund, said Pye, who previously worked as senior vice-president and national sales manager at Fidelity Investments Canada and at Guardian Trust Co., which listed the first gold, silver and platinum certificates on the Montreal Exchange.
Retail investors would be able to buy and sell the bitcoin fund through traditional and discount brokers, and the investments would be eligible for RRSPs and tax-free savings accounts, he said.