However, should the SEC approve the public ETF offering, creations will be halted for the Rule 144A shares. Investors will be allowed to either redeem or sell their private shares into the public market (read: "Should You Own A Bitcoin ETF?").
After 12 months, the private shares would convert automatically to the public offering—assuming the SEC approves the conversions, of course.
Motivated By Institutional Demand
According to the press release announcing the move, the issuers' motivation behind launching the 144A shares was to define, as much as to satisfy, institutional demand.
"Institutional demand for bitcoin exposure is uncertain, because institutional quality vehicles simply have not, to this point, been readily available," said Jan van Eck, CEO of VanEck, in the press release.
However, there is good indication that this institutional demand exists. Notably, Grayscale recently reported that ownership in its products, which include the Greyscale Bitcoin Trust (GBTC), is currently 84% institutional.
Notably, registered investment companies also fall under the classification of QIBs, meaning that would-be bitcoin mutual funds and ETFs could potentially hold shares of this product in order to offer bitcoin exposure to retail investors.
That could potentially skirt an SEC that has been extremely reluctant to approve a bitcoin exchange-traded product, and that has rejected or delayed every proposal that has come across its desk thus far.
ARK has used this exact method since 2015 to gain exposure to bitcoin via GBTC. However, the IRS imposes a strict 10% limit on how much of an ETF's gross profit may come from unqualified sources, such as bitcoin, so the company has had to periodically divest its bitcoin holdings (read: "ARK Funds Disrupting ETF Industry") .
Contact Lara Crigger at [email protected]