Revisiting the VanEck SolidX BTC Trust

I did not believe it was likely that “VanEck SolidX’ Bitcoin Trust 144A Shares” would pave the way for a bitcoin ETF in terms of regulation. While the trust was active and was being observed by the SEC, it had received low support since its launch. The trust’s total net assets were only around $41,400 late 2019 – approximately 4.5 Bitcoins at the current approximate price of USD$9,122. However, the trust's net assets as of June 2020 are approximately $577,300 - a more than 10x increase. Due to the trust’s lack of support and three ETFs that the SEC had made decisions on their approval in October 2019, I did not believe that the trust offered a valid enough use case for the SEC to base its decisions on. Also, to note, VanEck SolidX is one of the three companies that had proposed ETFs to the SEC.

The main difference between the VanEck SolidX Trust and a Bitcoin ETF is that the trust is set up to avoid the regulatory issues that an ETF has to adhere to. The trust uses the SEC’s exemption for 144A shares, which are shares that can only be offered to qualified institutional buyers rather than the retail investors that would normally have access to the ETF and in which an institution can also invest in.

Since the VanEck ETF was denied, we are unsure if they will file a new one. Seeing as how VanEck SolidX decided to move forward with a Bitcoin trust to avoid the regulatory issues, this may give them the flexibility to file another ETF application as they have the trust to use in the meantime. Though I don’t see why that would be more likely to succeed unless there is a new use case for it.

Since the trust uses 144A shares offered only to qualified institutional investors, I do not believe that the SEC will have any issues apart from the manipulation concerns that it always has. However, SEC Chairman Jay Clayton has said that the SEC is closer to approving a Bitcoin ETF which would be offered to retail investors through brokerage accounts, and since the trust uses the SEC-registered OTC Link ATS, which is a quotation and trading system, it may have a good standing with the SEC. As long as the trust can satisfactorily address the concerns about manipulation, which it has to anyway for their ETF, the trust should continue to operate but should also expect to continue to receive low levels of support from qualified institutional investors.

I doubt the trust will receive the same level or volume that an ETF would receive from institutional investors, especially when it cuts off access to a potentially large pool of retail investors. Since the trust’s launch, it has only accumulated $577,300 which is roughly worth more than 63 Bitcoins at the current approximate price. Due to this volume, an ETF that is approved by the SEC could receive a larger volume; especially since the ETF will have officially been approved by the SEC providing the necessary safeguard to institutions to begin investing their money without the possibility of it getting shut down and attract the retail investor pool.

Due to the significant developments in this industry from the SEC and Congress, we are certainly closer to a Bitcoin ETF than we were a year ago. The SEC still has questions regarding price manipulation and custody. However, with these two questions still up in the air, the SEC is made their decisions on three Bitcoin ETFs; Wilshire Pheonix’s Bitcoin ETF, Bitwise Asset Management’s ETF, and for VanEck SolidX’ ETF. Bitwise Asset Management’s Bitcoin ETF had gained support from over 30 different individuals in the industry and was thought to have the best chance at becoming the first SEC-approved Bitcoin ETF. However, all three were denied as none were able to give a satisfactory solution to those two issues the SEC raised.

With the SEC’s decisions on the three Bitcoin ETF proposals, along with Chairman Clayton’s views that the SEC is close to approving a bitcoin ETF, we may still have a chance at the first SEC-approved Bitcoin ETF in the future. However, I believe this will only occur if the SEC has received satisfactory answers regarding the potential of price manipulation and custody options.