Barry Silbert's BIT wins the race to become the first publicly traded bitcoin investment vehicle
Even for those investors interested in finding exposure to bitcoin, you could forgive them for feeling skeptical about even the most high profile of exchanges within the category. Bitcoin exchanges have proven a high profile target for hackers and internal fraud, with many of the most widely traded platforms falling victim to such attacks. But thanks to a new investment vehicle hitting a major US stock exchange, these bitcoin-specific exchanges are no longer an investor’s only option.
Bitcoin Investment Trust (BIT), which launched in 2013 as a private investment fund for accredited investors, is poised to become the world's first publicly traded bitcoin fund. FINRA, the financial industry regulatory body, has approved the company’s listing on the OTCQX, the most heavily regulated of over-the-counter exchanges (formerly known as the “Bulletin Boards”) and assigned the stock a ticker symbol of “GBTC.” The Merriman Capital will be BIT’s exclusive market maker for the fund’s first 30 days of trading.
BIT is currently trading under a temporary symbol, “BTCV, on the OTC Markets (aka, “Pink Sheet’), but founder Barry Silbert says he expects the official listing to begin shortly. Each BIT share is worth approximately one tenth of a bitcoin and unlike when BIT was raising capital privately, there will be no minimum purchase for its publicly traded shares. BIT is an open-ended trust, meaning that it sells new shares – still privately, pending SEC approval – as it purchases new bitcoin.
Silbert, who also co-founded Second Market, is not counting his chickens, however, telling Coindesk, “No assurances can be given as to when or if such trading will commence, or that an active public secondary market for BIT shares will develop or be maintained." Silbert stepped down from his duties as CEO of Second Market to run a crypto-currency-focused spinout called Digital Currency Group.
BIT isn’t the only bitcoin fund aiming to see its shares traded on one of Wall Street’s main exchanges. The Winklevoss brothers, of Facebook lawsuit fame, are in the throes of a Security and Exchange Commission (SEC) review of their aptly named Winklevoss Bitcoin Trust (WBT), which has been given the preliminary symbol “COIN.” The brothers are also seeking to launch a regulated bitcoin exchange, dubbed Gemeni in reference to the fact that they’re twins, as well as the NASA moon landing.
BIT won the listing race, in part because it has investors who have held positions in the fund for more then 12 months, a fact that allows them to sell shares publicly with far less FINRA scrutiny. Once the listing goes live, the buyers of those shares can, for the first time ever, come from any income and net worth bracket. But, given that it’s taken this shortcut, BIT cannot be officially classified as an ETF – a designation that it and WBT will both only obtain following full SEC approval. Further, the OTC Markets exchanges are still viewed as a step down in terms of legitimacy from Nasdaq and the NYSE (aka, “the Big Board”).
One downside of this approach is that Silbert and Digital Currency Group can’t control how many long-term BIT investors choose to sell their shares, and thus the size of the secondary float and the liquidity in the security. One would presume, however, that before reaching this stage the company concluded that there would be adequate interest. As an early investor itself, Digital Currency Group is also able to sell a limited number of its own shares in BIT.
Consider that when many BIT holders first invested in late 2013, bitcoin was priced around $100 – then again, it has been as high as $1,140 in the year-and-a-half since. The Coinbase Bitcoin Price Index currently sits at $260 – the highest level it has seen in several weeks.
Holders of BIT shares won’t actually hold bitcoin in their names, but rather will hold shares of a fund (as opposed to an operating company, like Apple) that itself holds bitcoin – similar to the way gold ETFs work today. This offers a more accessible path toward bitcoin exposure for the average retail investor, who can now buy GBTC with their existing brokerage account (Fidelity, Schwab, etc.), rather than having to create and fund a separate account with a bitcoin exchange. Retail investors now even have the option of making bitcoin investments with their tax-advantaged retirement accounts like IRAs and 401Ks (pending individual plan terms and conditions). There are $6 trillion sitting in American retirement accounts, alone, making this a potentially enormous pool of new capital now available to the bitcoin markets.
The hope within the bitcoin community, is that BIT and future publicly traded bitcoin investment vehicles will improve liquidity and thus help smooth out some of the price volatility that has plagued bitcoin in its early years. The fact that BIT is also now a regulated entity should help calm the (justified) fears of many prospective bitcoin investors. A more stable bitcoin market is seen as being a necessary pre-condition for widespread adoption as a payment vehicle.
The listing of BIT is a welcome bit of good news amid an otherwise brutal period of bitcoin headlines. In addition to plummeting prices, bitcoin headlines over the first two months of this year have been dominated by the trial of convicted Silk Road kingpin Ross Ulbricht, the ongoing bankruptcy proceedings of Mt. Gox, ponzi schemes, a string of exchange and wallet platform hacks, and ineptitude at the industry’s main leadership body. (You wonder why a regulated bitcoin investment, available on a US public exchange is a big deal?) On the brighter side, earlier this year, Coinbase became the first company to launch a regulated bitcoin exchange, doing so in conjunction with the NYSE, which participated in its $75 million mega-round announced just weeks earlier.
Bitcoin may still be in its angst-ridden teenage years, but the digital currency and the community of enthusiasts that have embraced it are beginning to show signs of maturity. With countless global fiat currencies in sad shape and the global payments and remittance markets operating on decades-old technology, this development couldn’t come at a better time.