Canada to have ‘World’s first regulated Bitcoin exchange traded product’

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Updated: 03 December 2019

It has been a long 3-year journey, and there still remain a few final steps to complete, but 3iQ Corp., a Canadian investment fund manager that focuses on digital assets, has finally persuaded Canadian regulators to give the go ahead to their closed-end Bitcoin Fund IPO. The fund’s trust will be set up in the province of Ontario, and units will be listed on the Toronto Stock Exchange and, perhaps, be available for trading by retail investors as early as late this month of early January. 3iQ already manages two private crypto-related funds for accredited investors.

The IPO is being touted as the “World’s first regulated closed-end Bitcoin exchange traded product”, certainly beating out the United States for that honor, as the Securities and Exchange Commission (SEC) continues to drag its feet by rejecting every BTC ETF application that comes its way. Canada’s Ontario Securities Commission (OSC) had followed a similar path, rejecting bids by 3iQ, which had been running with this idea since 2016. OSC staff had rejected the firm’s latest submission on several grounds, but their primary claim was that the proposal was not in the best interest of Canadians.

The Canadian process is a bit different than in the U.S. The prospectus for the fund must pass muster from the OSC’s Investment Funds & Structures Projects Branch (IFSP). This group had reviewed the proposal that had been submitted in October of 2018. Its rejection, or “non-receipt” as it is termed in Canada, occurred in February of this year. Canada’s rules require a public hearing to follow, which gave 3iQ a chance to continue the dialogue with additional arguments and evidence.

Fred Pye, the CEO of 3iQ and former VP at Fidelity Investments Canada, had said at the time of the rejection: “Over the past three years, we have worked actively with OSC’s Investment Funds & Structures Projects Branch to create an investment fund that we hope will allow retail investors the benefits in Bitcoin through a regulated listed fund.”

As luck would have it, Lawrence P. Haber, the OSC Commissioner, got involved in the meetings that followed the latest rejection and brought his wisdom to bear on the situation. It is uncertain if he is pro-crypto, but his findings rang true in the crypto-verse. He refuted the notion that the public interests of Canadians would not be served by the fund. His take was that it was not the regulator’s role “to approve or disapprove of the merits of the underlying investment being offered to the public”.

The SEC has often questioned the validity of the Bitcoin market, the potential for price manipulation, and the issue of questionable volume reporting from overseas exchanges. Haber’s comment regarding the Bitcoin market: “There is sufficient evidence of real volume and real trading in bitcoin on registered exchanges in large dollar size.” He then concluded that: “The staff’s concerns do not warrant denying a receipt for The Bitcoin Fund’s prospectus.”

The commissioner then ordered the IFSP to “receive the prospectus” officially and proceed with other details related to price and underwriters. The plan currently is to issue two different unit classes, each for $10 each. Canaccord Genuity Corp. will be leading the IPO, whose mission is “to provide unit holders with exposure to Bitcoin and daily price movements of the cryptocurrency versus the U.S. Dollar.” Custody of owned Bitcoins will be provided by the New York-based crypto exchange of Gemini Trust Company LLC.

Pye is obviously enthusiastic over the recent turn of events. He has expressed all along that retail investors in Canada have shown a great deal of interest in Bitcoin, as these units will qualify for Canadian registered retirement accounts and tax-free savings accounts.

Pye then told reporters at CoinTelegraph that: “We expect to list on the Toronto Stock Exchange in late December or early January. As a part of our next steps, we’re hoping to get Canada’s big banks on board. We’re hoping that two or three of Canada’s biggest banks, specifically ones that want to lead in fintech space, will join the syndicate group.”

Canadian regulators have taken the wise step to let the market determine if a new product is worthy of support, a decision that the SEC in the U.S. seems loath to let happen. For now, Canadian citizens in all provinces will be allowed to buy and sell Bitcoin without having to worry about dealing directly with a crypto exchange or figuring out if a wallet was necessary or how private keys should be stored. Units will sell on a regulated exchange, an easy and straightforward procedure that, unfortunately, will not occur for an undetermined amount of time below the border.