October 8 – 14, 2019 | Canadian Initiatives, Institutional Inflows, and More
3iQ Research Group consolidates the top five cryptoasset stories of interest to investment advisors and our investors.
SEC Rejects Bitwise Bitcoin ETF Proposal, but Canadian Initiatives Still Up in the Air
October 14 – The US Securities and Exchange Commission (SEC) has formally declined the NYSE Arca/Bitwise ETF filing on the same grounds as the Winklevoss rejection, which was a technical issue around the rules of exchanges in the U.S. Exchange Act. There was a great deal of debate about the nature of the underlying bitcoin spot market despite ETFs existing based on gold, commercial real estate and other rates such as LIBOR that do not have regulation on their spot markets. The regulator critiqued the Bitwise research, in at least one case wrongly, based on Bitwise’s detailed research on the state and size of exchange based bitcoin activity. Bitwise had presented that the bitcoin spot prices underlying its ETF were resistant to manipulation, as they are from economic or ‘real’ bitcoin spot markets which consist of 10 leading digital asset exchanges, the majority of which are regulated. The regulator remained unconvinced of Bitwise’s finding despite subsequent independent reports from the Digital Asset Research Group and CryptoCompare agreeing largely with Bitwise and the SEC producing research of their own. While Bitcoin ETFs in the United States have faced rejections from the SEC, Canadian initiatives are still up in the air. 3iQ Corp. is awaiting its decision from the Ontario Securities Commission on “The Bitcoin Fund”, which has a closed-end fund structure differing from the proposed Bitcoin ETFs in the US. “The Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices,” said the order from the SEC. The very narrow, technical issue is a requirement for information sharing between a spot market of material size for bitcoin and the trading venue for the ETF, the NYSE Arca. This requirement for surveillance sharing does not exist in Canada, which has had a history of supporting innovation in the ETF market globally. Read the full order from the SEC here.
Grayscale: Crypto Fund Inflows Doubled in Q2 as Institutions Gained Appetite
October 9 – An executive of the cryptoasset management company Grayscale has announced that institutional investors piled into crypto-related funds in the second quarter of 2019. Grayscale recorded inflows of $85 million USD in its second quarter, doubling its first quarter inflows. Around 80% of the total inflows came from institutional investors, and 25% of these total inflows were directed to altcoins. “You know, it’s really funny, I get asked this a lot – there’s this rhetoric in the media about when are institutional investors going to get involved, when are they going to start investing, and it’s so funny because it’s ironic. We see institutional investors invest with us all the time and that’s been the case for a long time now,” said Rayhaneh Sharif-Askary, the director of sales and business development at Grayscale.
VanEck Market Insights: The Investment Case for Bitcoin
October 8 – The investment management firm VanEck has identified several reasons why bitcoin could help improve a portfolio’s upside. Firstly, VanEck provided a 7-year correlation analysis which compared bitcoin’s returns to those of the S&P 500, US bonds, US real estate, oil, and emerging markets currencies. Unsurprisingly, bitcoin remained largely uncorrelated to all these asset classes over that time period. VanEck claims that an allocation to bitcoin could enhance the risk and reward profile of an investment portfolio, while having minimal impact to the portfolio’s overall volatility. VanEck also provided an asymmetric return profile over the same period, which claims that “a small allocation to bitcoin significantly enhanced the cumulative return of a 60% equity and 40% bonds portfolio allocation mix while only minimally impacting its volatility”. VanEck explained that scarcity and increasing adoption are critical factors in how bitcoin maintains its value. “Bitcoin has “halvings” programmed into it. A halving is defined as a 50% block reward cut to bitcoin production rate, and they occur roughly every four years, with the next halving expected in May 2020. Given the scarcity induced by halvings, the price of bitcoin has historically increased following halvings,” said the market insights report.
Canada’s Blockchain Sector Wants More Clarity From Government
October 10 – A new report by the Canadian Digital Chamber of Commerce (CDCC) says that Canadian blockchain companies want more clarity from the government on where they stand on crypto. The comprehensive report includes a timeline and snapshot of the Canadian blockchain sector, which includes the Canadian crypto fund manager 3iQ Corp. and other companies engaged with Canadian Government. Canadian regulatory bodies have so far been hesitant to deploy crypto regulations and approve of crypto-related financial products. Despite this, data from the report indicates that the Canadian blockchain industry appears to be growing, and blockchain companies are spending more on blockchain and crypto-related initiatives than ever. The biggest winners, according to the report, have been employees of companies in the blockchain space, which make around $98,000 USD per year.
Read the full report from the Canadian Digital Chamber of Commerce (CDCC) here.
Bitcoin Trading Volume in Hong Kong Hits New High as ATMs Run Out of Money
October 6 – The Litecoin Network celebrated its 8th birthday on Thursday, October 13. Litecoin is nearly identical to Bitcoin in its technical aspects, as both use a global blockchain to record all balances and transactions and have an identical mining procedure for the verification of past/current blocks and generation of new coins. Litecoin positions itself as more of a complement rather than a competitor to Bitcoin, this is testament in its common nickname: the silver to Bitcoin’s gold. Today, the valuation of the Litecoin network sits around 3.5 billion USD, making it one of the “large caps” of the cryptocurrency sector. “[The] Litecoin network has been up and running continuously for the past 8 years with zero downtime. And in that span of time, over $500,000,000,000 USD worth of LTC have been transacted. Looking forward to the next 8 years and more,” said Charlie Lee, the creator of Litecoin in a tweet.
Read the full article from the Litecoin Foundation here.
3iQ Bitcoin Trust (Class A) : NAV as at October 11, 2019
3iQ Corp. (“3iQ”) is the first Canadian investment fund manager to agree to terms and conditions with the Canadian securities regulatory authorities which permit 3iQ to manage a multi-cryptoasset investment fund available to Canadian accredited investors. 3iQ provides accredited investors with exposure to bitcoin, ether, and litecoin through its 3iQ Global Cryptoasset Fund.
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