Canada Crypto Firm Considers Aiding US Spot Bitcoin ETF Hopefuls

key takeaways

3iQ launched Canada’s first bitcoin fund in April 2020 after challenging an initial decision by the Ontario Securities Commission
President of 3iQ’s US business said the company could “throw [its] weight” behind a prospective US issuer’s existing filing

Digital asset manager 3iQ is looking to bring its experience working with Canadian securities regulators to give hopeful US spot bitcoin ETF issuers a leg up.

Though the company isn’t planning to apply for its own ETF in the states, 3iQ is talking to US issuers about potentially “throwing [its] weight” behind their filing, Chris Matta, president of the firm’s US business, told Blockworks.

The SEC has repeatedly denied proposals from fund groups to launch a spot bitcoin product. Rather than adding yet another proposal to the mix, partnering with one or more firms could be a better path to help “move the needle” in the US, according to Matta.

3iQ launched Canada’s first bitcoin fund in April 2020, a closed-end investment vehicle for accredited investors priced in US dollars. It’s listed on the Toronto stock exchange. The firm has experience working with the Ontario Securities Commission (OSC).

“We battled the OSC, and we won using a data-driven approach, and then we’ve managed that product for two years flawlessly,” Matta said. “That’s something that can be really powerful to some of these issuers in the US that are looking to go toe-to-toe with the SEC.”

3iQ had been working with the OSC’s Investment Funds and Structured Products (IFSP) branch for more than two years before the IFSP director concluded in February 2019 that bitcoin was an illiquid asset — essentially nixing the fund. The fund group sought a hearing and review of the director’s decision before a panel of the OSC, and the fund was subsequently approved.

The firm later launched its Ether Fund at the end of 2020. It then launched the 3iQ CoinShares ETF (BTCQ) about a month after Purpose Investments launched the first bitcoin ETF in Canada.

“We pushed the regulators in Canada,” Matta said. “It’s put pressure on the regulators in the US and now more of the asset managers in the US are really pushing the envelope.”

Grayscale Investments has specifically been aggressive in trying to convert its Bitcoin Trust (GBTC) to an ETF — a proposal the SEC is expected to rule on in July.

The world’s largest digital currency asset manager, Grayscale has urged investors to write to the agency supporting its proposal — a campaign that has led to a few thousand letters.

Grayscale CEO Michael Sonnenshein recently doubled down on comments that “all options would be on the table” if the SEC turned it down, including suing the agency.

Though US spot bitcoin ETFs would increase the competition for the Canadian ETFs already available from 3iQ and others, Matta said that it would be an “inflection point” in terms of increasing crypto adoption.

Matta said, however, that he doesn’t expect the SEC to approve a spot bitcoin ETF until the second half of 2023 or 2024. He cited recent comments made by Gary Gensler, the agency’s chair, about ensuring crypto platforms register with the SEC.

“Until they have that oversight, I don’t think they’re necessarily going to be comfortable approving a bitcoin ETF,” Matta said. “The runway is still long.”

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