Jan van Eck Dan Gallancy
CEO, Van Eck CEO, SolidX
The race for the first bitcoin ETF is back on. Yesterday, VanEck and financial technology company SolidX announced they are partnering up to list a physically backed bitcoin ETF on the Cboe BZX Equities Exchange; the VanEck SolidX Bitcoin Trust will trade under the ticker symbol “XBTC.” The two firms had each previously attempted to bring bitcoin ETFs to market unsuccessfully. SolidX’s application for a physically backed bitcoin ETF was rejected by the Securities and Exchange Commission in March 2017, while VanEck withdrew its application for a futures-based bitcoin ETF in January of this year.
Now the two firms are teaming up, hoping that their new product assuages many of the concerns the SEC has had about bitcoin ETFs. To get more insight on the proposed fund, ETF.com spoke with VanEck CEO Jan van Eck and SolidX CEO Dan Gallancy.
ETF.com: Why are VanEck and SolidX teaming up now after each firm attempted to launch bitcoin ETFs on their own in the past?
Jan van Eck: From a VanEck perspective, what we’re doing is teaming up on what I like to call a physical bitcoin ETF. SolidX was very, very early to file for a bitcoin ETF, and we’re joining that effort.
VanEck is the marketing agent for the fund; SolidX remains the sponsor. The other filing we had done was based on futures contracts. But we think, ultimately, investors will like a physical ETF. You don’t have to worry about the shape of the futures curve and things like that. It’s more like a SPDR Gold Trust (GLD) or an iShares Gold Trust (IAU) structure.
ETF.com: What role will each firm play in creating and maintaining the ETF?
Dan Gallancy: SolidX will be doing all the traditional roles that any ETF sponsor would do. The pieces of this that the VanEck team are in charge of are marketing and the index.
The index is absolutely crucial here. Last year, the SEC rejected our application, and the main context behind that rejection was the fact that they had concerns about market structure and the potential for price manipulation in the underlying bitcoin market.
What the folks at VanEck have done, through their index division, is put together an index of over-the-counter bitcoin trading desks. This is not electronic trading, this is voice trading, and therefore, inherently, less susceptible to the type of tomfoolery that the SEC was concerned with.
That’s one of the reasons, among others, we wanted to partner with VanEck.
ETF.com: How is this product different from the previous one SolidX filed for that was denied by the SEC?
Gallancy: The index is a big difference. Additionally, the price of the fund will be around $200,000, which is meant to alleviate any concerns that the SEC may continue to have around retail investors getting involved in bitcoin via an ETF package.
We’re optimistic that, over the long term, the SEC will change their minds about that, but in the short term, what we need to do is provide the SEC with a product that meets all of the specifications they require to get it over the finish line. If they're concerned about retail, we need to address that, and so we’ve done so.
The insurance aspect is something we had in our original filing, but it just wasn’t particularly well-covered. It’s a very important piece of the equation. ETF investors shouldn’t be subject to operational risk. Bitcoin is a bearer asset. If you didn’t have insurance around bitcoin, if something were to go wrong, if your bitcoin were lost or stolen or hacked—whatever it is—you’d have a big problem.
We have a syndicate of A-rated insurers that cover the corpus of the fund. Nobody else is doing that.
It’s this combination of things—the restructured index, the high share price and the insurance—that create a product the SEC will view positively.
ETF.com: Regarding the share price, is there any guarantee you won’t do a reverse split to bring it down?
van Eck: That’s a conversation we need to have with the regulators to see whether or not that’s an effective answer to one of their concerns.
ETF.com: What’s your product’s value proposition for institutional investors compared with some private funds out there that are already offering bitcoin exposure for big investors?
Gallancy: For private, high net worth, accredited investors, there are these limited partnerships available; however, the vast majority of them are not insured.
For larger institutional investors—global macro hedge funds, large family offices and many other institutional investors—buying into a limited partnership format simply doesn’t cut the mustard. Doing so in an uninsured format, again, doesn’t cut the mustard.
What we have is a regulated product that enables institutional investors to take part in this. From their perspective, it’s an important component of portfolio diversification. If you look over the history of bitcoin’s existence, there’s a de minimis correlation with the S&P 500.
It's an asset that has, over the long haul, increased in value, but with no correlation to the rest of the market. Institutional investors are looking for more and more of those sorts of opportunities.
van Eck: I would list three areas where our product is better than the limited partnerships that are out there.
No. 1: You get daily liquidity.
No. 2: The amount you can buy will be very significant. We have some very large ETFs. We see buying in the tens or hundreds of millions of dollars. You can feel comfortably knowing that you're going to be able to trade and have a lot of market makers competing for liquidity, which is the benefit of an ETF, for large-size trades.
No. 3: The custody point that we talked about before, which I would describe as best in class, with that insurance backstop.
ETF.com: How confident are you that you can get approval from the SEC?
van Eck: In the long run, we’re 100% confident. But it’s not our job to speculate on that. What we just want to do is put the best filing forward.
Gallancy: Over the long haul, it certainly looks like this asset is here to stay. And if this asset is here to stay, ultimately, it needs to be packaged into an ETF. Which means, ultimately, the SEC is going to approve one. It could take a long time, but our goal is to expedite that process.
ETF.com: Are you going to file for other cryptocurrency ETFs anytime soon?
Gallancy: Not now. Bitcoin is far and away the most mature of all of the crypto assets out there. It’s been around for nearly 10 years, has significant trading volume and people are aware of it.
There's also a healthy and regulated derivatives market for bitcoin here in the U.S. None of the other cryptocurrencies or crypto assets have that. It’s harder to get insurance on those other things.
I'm not saying the others won’t ever get packaged into an ETF, but they have a longer road to traverse before they reach the point of maturity that bitcoin has already reached.