3iQ, a Canadian investment fund manager for the digital asset space, got the regulatory nod from the Ontario Securities Commission (OSC) earlier this week for their closed-end bitcoin fund, which is expected to be listed for trading on a major Canadian stock exchange.
It’s not that Canada has given the overall greenlight to every half-baked cryptocurrency idea that’s floated its way, but at least lately we’ve proven to be a bit more open-minded than our American cousins when it comes to blockchain and cryptocurrency.
“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. 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,” said Fred Pye, president & CEO of 3iQ.
The OSC rejected the proposal in February on the suitability grounds for less sophisticated investors. The decision was turned over on appeal, as 3iQ successfully pointed out that they have so far concentrated on sophisticated investors in the exempt market. The management argued that the custody, audit and pricing of its fund and bitcoin would be secure and compliant with existing regulations.
During hearings in front of an OSC panel in the summer, the regulator argued that the OSC’s original rejection should stand, and noted the U.S. Securities and Exchange Commission (SEC) rejection of a rule change that would have permitted the listing and trading of bitcoin-based ETF’s.
But the cases were different, according to the OSC panel chaired by commissioner Lawrence P. Haber. The regulator’s staff had failed to demonstrate that Bitcoin’s presumed illiquidity would render it noncompliant with existing regulations.
Gemini Trust Company, the New York based crypto-exchange owned and operated by Tyler and Cameron Winklevoss, will act as the fund’s bitcoin custodian.
“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. 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,” said Cameron Winklevoss, president of Gemini.
Divergent thinking
The curious bit about this new addition is that it’s one of the rare times in Canadian and American relations where we seem to be at cross purposes. Normally, we either walk in lockstep or more than often, follow behind.
Earlier this month, the TSX welcomed its first cryptocurrency mining operation to trade on their platform, and now we’ve allowed an exchange and potentially the first bitcoin ETF. The United States, by contrast, hasn’t just been hesitant towards the idea of cryptocurrency, but instead outright hostile—taking stands against initial coin offers (ICO), both legitimate and questionable—for not following SEC designated rules for securities. For example, their recent action against Telegram Group for their unregistered ICO, and the ongoing tiff with Mark Zuckerberg over Facebook’s Libra project.
—Joseph Morton