By: T. Steel Rose, CPA | This past September, the investment firm SecondMarket created the Bitcoin Investment Trust (BIT) to participate in the biggest bitcoin explosion in history. Bitcoin4biz spoke with Robert Cho, vice president of SecondMarket and the one who spearheads their bitcoin trading efforts.
“The fund is modeled after the SPDRS Gold (GLD) ETF. The BIT, launched as a vehicle for institutional investors to get into bitcoin,” Cho said.
Shares in the Trust edged along for around two weeks after its inception on 26th September. Following this, they began creeping up, before beginning their meteoric rise on November 4th. The net asset value (NAV) per share peaked a month later, before falling back. In short, the NAV of the BIT has tracked bitcoin’s own price movements very closely. The fund stood at $61.1m (67,300 BTC) net asset value on Friday the 13th, this December, 2013.
“BIT investment has been from a wide demographic, with interest from technologists and the [traditional] Wall Street audience,” said Cho.
The fund is bridging the gap in understanding on these investments. Although institutions are not investing, family offices are investing for their clients. BIT is the first US based fund to invest in bitcoins.
“It [the BIT] benefits the investors who can invest without worrying about cold storage or volatility,” said Cho.
The CEO of SecondMarket, Barry Silbert, introduced the idea of a bitcoin investment trust to the trading desk. The JOBS Act, which Silbert helped get passed according to Cho, relaxed requirements to advertise BIT to accredited investors. When this portion of the JOBS Act became effective on September 23, the BIT fund was ready to launch.
“Silbert saw the opportunity,” said Cho.
Investors are required to be accredited to invest in the fund through a self directed IRA. Some investors use self-directed IRAs to do early-stage investing. PENSCO, EnTrust, Equity Institutional, and Millennium Trust, list the BIT as an investment option. Clarifying the Fidelity Investments was allowing certain IRA clients to invest in bitcoin, SecondMarket said in a statement:
“The Bitcoin Investment Trust was previously approved by Fidelity as an eligible investment for accredited clients in their self-directed IRA accounts and investments began closing last week. We understand that Fidelity has decided to reevaluate this decision.”
The private aspect is what differentiates the BIT from the proposed Winklevoss twins’ EFT which is a public fund. Cho explained that March or April 2014 will be the redemption period for investors in the trust. Rather than sell them on the public exchanges, you could trade the fund shares on SecondMarket. SecondMarket is an alternative trading system (ATS) registered with the SEC. Therefore, the possibility of a large amount of bitcoin being sold on the public market may be mitigated; so it does not destabilize the market any more than it has been of late.
“SecondMarket is one of the largest liquidity providers for bitcoin which purchases bitcoin daily on exchanges, but mostly from private owners. People feel more comfortable dealing with SecondMarket which has been around before bitcoin began,” Cho said. “The most important factor benefitting SecondMarket being registered is their knowledge of AML and KYC (anti-money laundering and Know Your Customer).”
However, the BTC is volatile and a risky play. With the minimum investment being $25,000, you could either lose all your money or do very well. The risk/return profile is tremendous. The return is uncapped and unforeseen.
“One thing we do well is work within the proper regulatory guidelines,” said Cho.
The interest level from day one was surprising.
“When the bitcoin price escalated from $200ish to $600 to $800, along with media coverage, people got excited,” recounted Cho. “It is something we believe in.”
SecondMarket, Inc. (member FINRA/SIPC/MSRB) (SecondMarket) does not accept time sensitive, action-oriented messages or transaction orders, including orders to purchase or sell securities, via e-mail. SecondMarket does not produce in-house research, make recommendations to purchase or sell specific securities, provide investment advisory services, or conduct a general retail business.
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