Canadian Company 3iQ to List Bitcoin Fund
Canadian investment fund manager 3iQ Corp has announced that it has received a favourable ruling from the Ontario Securities Commission (OSC) in a public hearing regarding the companies’ proposed Bitcoin fund. As a result of the new decision, the OSC panel and director are now in the process of issuing a receipt towards a final prospectus for what will officially be known as The Bitcoin Fund (the Fund). 3iQ hopes to officially list the close-ended fund in the next two months on a major Canadian exchange. 3iQ is a Canadian investment fund that focuses on the digital asset space and other disruptive technologies.
The new ruling is a reversal of a decision made earlier this year by the OSC after it initially declined to support 3iQ’s prospectus in February. Originally, 3iQ’s prospectus was declined by regulators over concerns about the company’s ability to secure the fund’s digital assets and the firm’s ability to value the assets in the fund properly. 3iQ had initially approached the commission about its proposed Bitcoin fund in November 2016.
In a statement, 3iQ President and CEO Fred Pye said, “Over the past three years, we have worked actively with the OSC’s Investment Funds and Structured Products Branch to create an investment fund that we hope will allow retail investors the benefits of investing in Bitcoin through a regulated, listed fund” adding, “We have addressed the questions of pricing, custody, audit, and public interest issues in a regulated investment fund. We intend to refile the prospectus as soon as possible as the next step in bringing this ground-breaking fund to investors.”
3iQ joins and small and inclusive club of investment fund managers that the Canadian securities regulators currently allow to manage a multi-cryptocurrency fund. When 3iQ’s fund launches, it will be the country’s first regulated Bitcoin investment fund available to retail investors.
3iQ CEO Fred Pye told Betakit, “The investment industry in Canada can now structure products that are securities around different crypto projects. Bitcoin itself may not be regulated, however, my fund is definitely regulated, so it’s definitely a security,” adding, “The fact that [Canada is] the first in the world to approve it is remarkable.”
3iQ first began operations in 2012, employing a focused and disciplined approach towards investing in disruptive technologies. Last year 3iQ, the OSC and Canadian Securities Administrators (CSA) agreed to give 3iQ the responsibility of acting as a portfolio and investment fund manager of a new fund comprised of multiple cryptocurrency assets including Bitcoin, Ether, and Litecoin. The newly created Global Cryptoasset Fund was added to the Toronto Stock Exchange’s mutual fund platform in late 2018. 3iQ also currently manages the 3iQ Bitcoin Trust digital asset fund, a fund that holds Bitcoin assets exclusively. Both the Global Cryptoasset Fund and the 3iQ Bitcoin Trust Fund are eligible for outside investment by accredited investors in Canada.
The news of The Bitcoin Fund’s approval is welcome news to the Canadian cryptocurrency community that is recovering from the collapse of two Canadian exchanges within the last year. In the case of Quadriga, founder Gerald Cotton unexpectedly died on a honeymoon trip in India without a plan in place to recover client assets in the event of his death. Quadriga’s cryptocurrency assets were thought to be held in digital wallets managed by Cotton. He was the only person to have the knowledge needed to access the private keys to open the digital wallets. Currently, regulators are in the process of trying to recover over $200 million of Quadriga’s missing or uncoverable assets.
In the case of the Einstein Exchange, the British Columbia Securities Exchange was granted a court order to shut the Vancouver based exchange after an investigation into the company that began in May 2019. Initially, the BCSC was investigating concerns raised about Einstein being used to launder money and allegations that their customers’ assets were being misused. During the investigation, complaints from Einstein’s customers continued to mount over not being able to access their digital assets held by the exchange. It is estimated that Einstein owes its investors $16.3 million.
3iQ’s Bitcoin fund is fundamentally different from both the Quadriga and Einstein Exchanges. Quadriga and Einstein were cryptocurrency exchanges, platforms for users to buy, sell, or trade Bitcoin, and several other cryptocurrencies. The Bitcoin Fund will be listed as a close-ended fund. A close-ended fund is a portfolio of pooled assets. An initial public offering (IPO) is used to generate capital for the close-ended fund, and then a specified number of shares are listed to trade on a stock exchange.
Close-ended funds also differ from exchanges because close-ended funds are traded like a security. The price and value of the fund are determined by market forces, not from new investments. Capital does not enter or leave a close-ended fund, instead the fund trades in secondary markets similar to traditional securities. The Bitcoin Fund will comply with Anti-Money Laundering and Know Your Customer laws and regulations.
3iQ’s fund will have the security and oversight of a regulated financial custodian. Einstein and Quadriga did not match the definition of a legal custodian, instead being listed as money service providers (MSP). The Gemini Trust Company will act as The Bitcoin Fund’s custodian.
Gemini President Cameron Winklevoss (half of the Winklevoss twins involved in the creation of Facebook) said in a statement that, “3iQ has carefully selected a team of professional partners with expertise in the digital asset industry to construct a safe and secure fund product for the Canadian market, and we are excited to be selected as their custodian,” adding, “As a New York Trust company we are required to store digital assets in a trusted, safe and compliant manner and will employ those principles to help 3iQ manage this innovative fund.”
The Bitcoin Fund is set officially become a close-ended fund and hopes to list on the TSX in December. Once listed, it will be up to the Canadian investment community, brokerages, and retail investors to create and set the demand for this new type of fund.
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