Investment management firm Vaneck has filed with the U.S. Securities and Exchange Commission (SEC) to list and trade a bitcoin ETF. However, the “Vaneck Vectors Bitcoin Strategy ETF” will not hold actual bitcoin. Instead, it will invest up to 25% of its value in U.S. exchange-traded bitcoin derivative instruments.
Leader in Gold Investing to Launch Bitcoin ETF
If approved, the Vaneck Vectors Bitcoin Strategy ETF will be listed on the Nasdaq Stock Market. It will be an actively-managed ETF which does not seek to replicate the performance of any index. Some details are not specified in the filing such as the ticker symbol, the names of the portfolio managers, or the fund’s expenses and fees. According to the filing:
The fund seeks to achieve its investment objective by investing, under normal circumstances, in U.S. exchange-traded bitcoin-linked derivative instruments (“Bitcoin Instruments”) and pooled investment vehicles and exchange-traded products that provide exposure to bitcoin.
“Vaneck has long been considered a thought leader in the gold-related investments, with a track record dating back to 1968,” its website reads. The firm was founded in 1955 and launched the first U.S. gold fund in 1968 called the Vaneck International Investors Gold Fund. In 2006, it launched the Vaneck Vectors Gold Miners ETF (GDX), which was the first U.S. gold-mining ETF. Today, the firm offers more than 50 ETFs across several asset classes.
Vaneck Strategist Says Bitcoin Is a Fad
One day before the firm’s SEC filing, a portfolio manager and strategist for the firm’s flagship International Investors Gold Fund, Joseph Foster, wrote:
Bitcoin and other digital currencies are a fad that has attracted the attention of programmers, speculators, and early adaptors.
In addition, he said the firm believes that digital currencies will never replace gold’s role as a portfolio insurance or a hedge against tail risk. “At best, digital currencies may eventually occupy some middle ground as a niche product,” he described, adding that “at worst, they become a failed experiment that ends in tears.”
The Fund’s Bitcoin Investment Structure
The Vaneck Vectors Bitcoin Strategy ETF will not hold actual bitcoin. The fund’s bitcoin investments will be made entirely through its wholly-owned subsidiary which operates under Cayman Islands law. In addition, the filing revealed that:
The fund’s investment in the subsidiary may not exceed 25% of the value of the fund’s total assets at each quarter-end of the fund’s fiscal year.
The remaining assets will be in traditional investments such as U.S. Treasuries, money market funds, cash and cash equivalents, and repurchase agreements.
According to the filing, “the fund intends to invest (indirectly through the subsidiary) first in exchange-traded bitcoin futures contracts.” Thereafter, given the right conditions and subject to availability, the fund intends to invest in U.S. exchange-traded bitcoin options, swap agreements, and options on bitcoin futures contracts.
Bitcoin Derivatives Market
Tera Exchange, the first U.S. regulated trading platform for bitcoin derivatives, currently offers ‘bitcoin forward,’ which is a short-term, USD-settled forward.
However, more exchange-traded bitcoin derivatives will be launching soon. Last month, Ledgerx received approval from the Commodity Futures Trading Commission (CFTC) to become the first regulated bitcoin derivative exchange and clearinghouse in the U.S. The company plans to start trading physically-settled bitcoin options in the fall.
Earlier this month, the Chicago Board Options Exchange (CBOE) announced that it is also creating bitcoin derivatives products, pending review by the CFTC. Their cash-settled bitcoin futures are expected to be available either later this year or early next year.
The SEC has already rejected proposed rule changes for two bitcoin ETFs; Coin and Solidx Bitcoin Trust. The former is currently under review again as Bats BZX Exchange filed a petition to reverse the SEC’s decision. Last month, the Commission postponed the date on which it was supposed to make a decision regarding Barry Silbert’s Bitcoin Investment Trust (GBTC) to October 7.
What do you think of Vaneck’s bitcoin ETF and do you think the SEC will approve it? Let us know in the comments section below.
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