Even as the SEC considers (and delays) a decision related to allowing the first Bitcoin ETFs, an index fund aimed at institutional investors has made its debut in the markets.
The VanEck Solidx Bitcoin Trust 144A shares is an open-ended index fund that aims to track the price of Bitcoin over time. This is the same principle used by ETFs to maximize gains and minimize exposure risk to an asset class. The trust is a collaboration between VanEck Securities Corp. and SolidX Management LLC, two firms that already have a Bitcoin ETF application pending with the SEC.
VanEck’s latest product uses 144A – a rule that that allows firms to make a private offering of shares to institutional investors without registering them as securities. The shares can be held in brokerage accounts and traded between investors in OTC markets. The fund plans to use MVBTCO – a composite reference rate to determine the price of Bitcoin.
According to VanEck’s website, the bitcoin price used in the fund is the “mid price from several bitcoin over-the-counter (OTC) platforms, all of which are U.S. – based entities included within the index.” But names of the platforms are not mentioned on the firm’s website or associated documentation.
In the event that their Bitcoin ETF application is approved, Van Eck’s website states that shares in the trust will be converted to those in the ETF vehicle within 12 months.
A Cute Marketing Tactic?
VanEck and SolidX told the Wall Street Journal that this “limited version” Bitcoin ETF was meant to convince the SEC that a bitcoin ETF can work. Some, however, are calling it a “cute marketing strategy.”
In its structure and design, the Van Eck and SolidX trust resembles a product already available in OTC markets – Grayscale Bitcoin Trust. The Grayscale trust was launched in September 2013 and also tracks the price of Bitcoin. It has a similar fee structure and also promises exposure to Bitcoin as an asset class without the encumbrances of physical ownership. Bitcoin’s price volatility has benefitted the trust’s returns, which are reported to have outperformed the S&P 500 and Gold.
But those returns come with several caveats. Experts from the ETF industry have criticized the product for its unusually high premiums in relation to its NAV. Much like its underlying asset’s price, Grayscale’s product is also prone to volatile price swings.
It is likely that VanEck is aiming to satisfy demand from institutional investors for exposure to profits accruing from bitcoin price volatility. San Francisco-based Bitwise Asset Management also launched two index funds for the same reason last year.