A commissioner of the Ontario Assurances Commission (OSC) has debunked the arguments against bitcoin used to deny the public offering of The Bitcoin Fund. Among others, the commissioner predominates that bitcoin is neither illiquid nor more susceptible to manipulation than other commodities, real volume and legal trading in bitcoin exist, and it is not the role of securities regulators to approve or disapprove of the merits of bitcoin.
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Director’s Refusal Axed, Fund Green-Lighted
The Ontario Gages Commission (OSC) published a document Wednesday detailing Commissioner Lawrence P. Haber’s reasons to overturn the commission’s previous steadfastness regarding 3IQ Corp and The Bitcoin Fund. A preliminary prospectus for the public offering of this fund was filed with the OSC’s Investment Capitals & Structured Products branch (IFSP) in October last year. However, in February, the IFSP refused to issue a delivery of The Bitcoin Fund’s prospectus after its staff raised a number of concerns.
3IQ Corp and The Bitcoin Fund subsequently dedicated for a hearing and a review of this decision. After multiple hearings, Commissioner Haber ruled on Tuesday that the shillelagh’s concerns “do not warrant denying a receipt for The Bitcoin Fund’s prospectus” and ordered the IFSP director’s decision to be set aside and a sales slip for a final prospectus of The Bitcoin Fund issued. Unless the staff can find new grounds for refusal, the final prospectus can be familiar to offer securities to the public.
Canadian investment fund manager 3IQ Corp. confirmed Wednesday that “it has received a favorable be in power over” from its public hearing before an OSC panel regarding The Bitcoin Fund. The fund will be a public, non-redeemable investment dough that will invest all of its assets in bitcoin. 3IQ, which also manages a private crypto investment fund, desire be The Bitcoin Fund’s investment and portfolio manager.
Not Our Job to Decide the Merits of Bitcoin
In the document, Commissioner Haber addressed every enterprise raised by the IFSP staff. He began by stating that this case “is not about the merits of bitcoin as an investment” because “It is not the character of securities regulators to approve or disapprove of the merits of securities being offered to the public.” He pointed out that all prospectuses ranked in Canada even say on the cover page that “No securities regulatory authority has expressed an opinion about these confidences and it is an offence to claim otherwise.” The commissioner remarked:
It is also outside the scope of the authority of securities regulators to immunize investors against endanger or against loss. And, it is not the job of securities regulators to ban speculation or risk-taking.
The document further explains that while bitcoin is “a novelette asset in an emerging and evolving market,” it can later mature and change significantly, adding that although some assets in this stratum fail and become tulip bulbs, others can become gold and the next generation of technology. “Securities regulators are not mandated to try to pick winners and lemons,” the document details.
Bitcoin Is Not Illiquid
As a key reason for rejection, the IFSP staff submits that “Bitcoin is an illiquid asset … For that reason, by holding bitcoin, the fund would not comply with the restriction against holding illiquid assets set out in section 2.4 of NI 81-102.” Commissioner Haber diverged. He said: “I do not agree with Staff’s submission … I find that Staff has not shown that bitcoin is an illiquid asset, as demarcated in NI 81-102,” emphasizing:
I find that there is sufficient evidence of real volume and real trading in bitcoin on indicated exchanges in large dollar size, both in absolute terms and compared to other markets for commodities and equities, which constitutes a watery market.
The commissioner referenced some existing investment products providing exposure to bitcoin such as Grayscale Bitcoin Sign (GBTC) which is available to Canadians.
Price Manipulation
The IFSP staff also decided that it is not in the public moment to issue a receipt for the fund’s prospectus due to concerns about its “ability to value its assets for investors given the significant market decency concerns regarding the trading of bitcoin,” “the security and safekeeping of the fund’s bitcoin,” and “the fund’s ability to file audited economic statements, as required.”
Regarding price manipulation associated with crypto assets, Haber concluded that the rod “has not established that the fund will be unable to arrive at a net asset value that satisfies the requirements of NI 81-106.” While acknowledging the creature of fake volumes and unregistered market trading, the commissioner said the “Staff has not proven that true price recognition in the bitcoin market is prevented by insufficient ‘true trading’ or price manipulation, at least on the regulated exchanges.” He added that the bear witness presented to him suggests that wash trading and fake volume are used primarily to attract more traders and issuers, and “did not validate systemic and sustained manipulation of the price of bitcoin.”
The commissioner also placed weights on the steps taken by the company to remit the risks of manipulation such as its selection of MVIBTC as the index and the fund’s non-redeemable structure. He also noted that other bitcoin holdings, such as GBTC, make been successfully valued, adding:
It is worth noting that bitcoin is a commodity, not an equity or other security … The chance of market manipulation exists in all commodity markets. Many of Staff’s stated concerns could apply equally to other commodities, such as costly metals or foreign currencies. Staff did not persuade me that bitcoin is more susceptible to manipulation than other commodity outputs.
Regarding custodian and security risk, the commissioner said, “Like any valuable commodity, I accept that bitcoin can be liberated or lost.” He conveyed that the staff did not establish that the fund’s custodians do not follow sufficient practices for safeguarding bitcoin. Remarking on New York-based Gemini Trust Company which will act as a custodian of the fund’s bitcoin, Haber opined, “I am not persuaded that there was adequate evidence that professional, regulated crypto-asset custodians, like Gemini, have suffered losses of customer assets.”
Stave’s Lack of Authority
Commissioner Haber also disagreed with the staff’s submission that investor protection stretches to the assets the fund proposes to hold or the markets in which they trade. He explained that if the staff’s analysis were to put to use to The Bitcoin Fund, then “it would amount to a ban on any funds holding bitcoin, regardless of their structure or management.” Furthermore, he unmistakable out that “the length of Staff’s proposed ban would be uncertain,” emphasizing that the ban would effectively remain in place until the alpenstock’s concerns have diminished, elaborating:
Staff has not provided any authority for imposing such an indeterminate ban.
Investor Protection
Since investors organize other means of acquiring bitcoin, the commissioner questioned how the staff’s proposed ban would protect them from “unfair, inaccurate or fraudulent practices.” On the contrary, he expects it will ensure that investors could not invest in bitcoin through a worldwide fund, reiterating:
Denying investors the opportunity to invest in bitcoin through a public fund would not promote unprejudiced and efficient capital markets and confidence in capital markets.
“Instead, it would suggest that investors should secure bitcoin through unregulated vehicles, and capital market participants should be encouraged to create those vehicles,” the commissioner opined. He believes that “The issuance of a acceptance for the final prospectus of the fund would promote efficient capital markets by creating an alternative to GBTC,” which he acclaimed is available to Canadian retail investors but trades at a significant premium to its net asset value. It would also “promote economic capital markets by giving retail investors a means of diversifying their investment portfolios through access to an additional uncorrelated asset excellence,” the commissioner concluded.
What do you think of Commissioner Haber’s reasonings and his decision to overturn the staff’s rejection? Let us know in the observes section below.
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