A commissioner from the Ontario Securities Commission (OSC) has debunked arguments against Bitcoin used to deny the public offering of The Bitcoin Fund. Among other things, the Commissioner states that bitcoin is neither illiquid nor more likely to be manipulated than other products; the actual volume and trade of bitcoin exists, and it is not up to securities regulators to approve or disapprove the merits of bitcoin.
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The director's refusal is focused on the fund, a green light
The Ontario Securities Commission (OSC) on Tuesday released a paper detailing the reasons why Commissioner Lawrence P. Haber overturned the Commission's earlier decision regarding 3IQ Corp. and the Bitcoin Fund. A preliminary prospectus for the public offering of this fund was filed with the OSC's Investment Funds and Structured Products Division (IFSP) last October. However, in February, the IFSP refused to issue a receipt for the Bitcoin Fund's prospectus after its staff raised a number of concerns.
3IQ Corp and The Bitcoin Fund subsequently requested a hearing and a review of this decision. After several hearings, Commissioner Haber said on Tuesday that the staff's concerns "do not justify refusing a receipt for the prospectus of the Bitcoin Fund" and ordered the cancellation of the decision of the director of the IFSP and an acknowledgment of receipt of the final prospectus of the "Bitcoin Fund". Unless staff can find new grounds for refusal, the final prospectus can be used to offer values to the public.
Canadian Investment Fund Manager 3IQ Corp. confirmed Wednesday that he "had received a favorable decision" during his public hearing before an OSC Panel regarding the Bitcoin Fund. The fund will be a non-redeemable public investment fund that will invest all of its assets in bitcoins. 3IQ, which also manages a private crypto investment fund, will be the portfolio and investment manager of the Bitcoin Fund.
Not our job to decide the merits of Bitcoin
In the document, Commissioner Haber responded to all concerns expressed by the staff of the IFSP. He began by saying that this case "does not address the merits of bitcoin as an investment" because "it is not up to the securities regulators to approve or disapprove the merits of the values offered to the public ". The prospectuses filed in Canada even state on the cover page that "no securities regulatory authority has expressed an opinion about these securities and that it is illegal to claim opposite".
Securities regulators also do not have the power to immunize investors against risk or loss. In addition, it is not the responsibility of securities regulators to prohibit speculation or risk-taking.
The document further explains that although bitcoin is "a new asset in an emerging and evolving market", it can evolve and evolve significantly, adding that even if some assets in this category fail and become tulip bulbs, others can become gold and the next generation. of technology. "Securities regulators are not forced to try to pick winners and losers," the document explains.
Bitcoin is not illiquid
According to the staff of the IFSP, one of the main reasons for rejection, "the bitcoin is an illiquid asset … Therefore, by holding bitcoin, the fund would not respect the restriction to the possession of the bitcoin. illiquid assets set out in section 2.4 of NI 81-102. "Commissioner Haber was not in agreement. He stated, "I do not agree with staff comments … I conclude that staff did not demonstrate that bitcoin is an illiquid asset, as defined in NI 81-102" , underlining:
I find that there is sufficient evidence of actual volume and actual transactions in bitcoins on stock exchanges in large dollars, both in absolute terms and in relation to other commodities and equity markets which constitute a liquid market.
The Commissioner referred to some investment products offering bitcoin exposure, such as Grayscale Bitcoin Trust (GBTC), available to Canadians.
Manipulation of prices
The IFSP staff also decided that it was not in the public interest to issue a receipt for the fund prospectus due to concerns about its "ability to value its assets for investors, given the significant concerns related to the integrity of the marketplace with respect to bitcoin trading". and the preservation of the fund's bitcoins "and" the fund's ability to file audited financial statements, as required ".
With respect to price manipulation associated with cryptographic assets, Haber concluded that staff "have not established that the fund would not be able to achieve a net asset value that meets the requirements of NI 81-106." While acknowledging the existence of false and unregistered volumes According to the commissioner, "the staff did not prove that the discovery of real prices on the bitcoin market is prevented by the inadequacy of "real transactions" or price manipulations, at least on regulated exchanges. " He added that the evidence presented to him suggested that wash trading and false volume are mainly used to attract more traders and issuers and "have not established any systemic and sustained manipulation of the price of the traders. bitcoin. "
The auditor also attributed a weight to the company's actions to mitigate manipulation risks, such as the choice of MVIBTC as an index and the non-redeemable structure of the fund. He also noted that other bitcoin holdings, such as GBTC, had been successfully evaluated, adding:
It should be noted that bitcoin is a commodity, not a capital or other security … The risk of market manipulation exists in all commodity markets. Many of the concerns expressed by staff could apply equally to other products, such as precious metals or foreign currencies. Staff have not persuaded me that bitcoin is more likely to be handled than other commodities.
With respect to custodial and security risks, the Commissioner stated: "Like any valuable commodity, I accept bitcoin that can be stolen or lost." He indicated that staff did not establish that the fund's custodians did not follow enough bitcoin protection practices. Commenting on the New York-based Gemini Trust Company that will act as the depositary of the fund's bitcoin, Haber said, "I'm not convinced that there was enough evidence that professional and regulated custodians, like Gemini, have suffered losses of customers. assets."
Lack of staff authority
Commissioner Haber also agreed with the staff's statement that investor protection extends to the assets the fund proposes to hold or the markets in which they operate. He explained that if the staff analysis applied to the Bitcoin Fund, then "that would be tantamount to a ban on any bitcoin-holding fund, regardless of their structure or direction." In addition, he pointed out that "the duration of the ban proposed by the staff would be uncertain", stressing that the prohibition would remain in force until the staff's concerns had diminished, stating that :
Staff gave no authority to impose such a ban for an indefinite period.
Given that investors have other ways of acquiring bitcoins, the commissioner wondered how the ban proposed by staff would protect them against "unfair, abusive or fraudulent practices". . On the contrary, it expects this to guarantee that investors will not be able to invest in bitcoins via a public fund. , reiterating:
Denying investors the opportunity to invest in bitcoin through a public fund would not promote fair and efficient financial markets, nor confidence in the financial markets.
"On the contrary, it would suggest that investors buy bitcoin via unregulated vehicles and that capital market participants are encouraged to create these vehicles," said the commissioner. He believes that "the issuing of a receipt for the final prospectus of the fund would promote the efficiency of the financial markets by creating an alternative to the GBTC", which, he noted, is available to investors. individual Canadian investors, but is trading at a price well above its net asset value. It would also "promote efficient financial markets by giving retail investors a way to diversify their investment portfolios by giving them access to an additional, uncorrelated asset class," concluded the Commissioner.
What do you think of Commissioner Haber's reasoning and his decision to cancel the dismissal of staff? Let us know in the comments section below.
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