SecondMarket Will Open Up Private Bitcoin Fund to All Investors

Nermin Hajdarbegovic
Mar 20, 2014 at 11:44 UTC
Updated Mar 20, 2014 at 11:51 UTC

SecondMarket is planning to open up its private bitcoin investment fund to ordinary investors. The change should be in place by the fourth quarter of 2014, the Wall Street Journal reports.

SecondMarket launched its Bitcoin Investment Trust (BIT) last September, but it was reserved for private investors with $1m in assets and incomes above $200,000.

The trust buys and sells bitcoins and allows investors to place bets on the value of bitcoin without owning any coins directly. The company currently has $54m in assets under management.

SecondMarket now seems to be looking to expand the fund by opening it up to all investors – a move probably brought on by impending competition.

The Winklevoss effect

Tech entrepreneurs Tyler and Cameron Winklevoss filed a bitcoin investment fund with the US Securities and Exchange Commission (SEC) in July 2013. However, the trust is not yet up and running.

The Winklevoss Bitcoin Trust is likely to be an exchange-traded fund (ETF) open to all investors.

The Winklevoss twins also recently launched a new blended bitcoin price index. Called the ‘Winkdex’, this will be used to determine the value of bitcoins in their trust.

Winklevoss chief legal counsel Kathleen H. Moriarty told CoinDesk that the ETF should be approved by the end of the year.

Different approach

This deadline gives SecondMarket plenty of time to play with. However, instead of creating an all-new ETF, the firm has decided to transform the BIT into an open fund available to ordinary investors.

SecondMarket plans to enlist the support of OTC Markets and trade the fund on an electronic marketplace operated by them. To bring all this about, SecondMarket needs approval from OTC Markets, as well as the Financial Industry Regulatory Authority (FINRA).

If the proposal is approved, the fund could become publically available as early as the fourth quarter of 2014, so it could start trading before the Winklevoss Bitcoin Trust.

One way of circumventing the SEC’s preapproval process is simply to publically list the fund’s existing investors after a 12-month lockup expires this September. This move should save significant time and make the fund publically available as soon as the process is complete – that is, in the early fourth quarter of this year.

The Winklevoss twins might not be so quick to the finishing line, as the ETF process takes slightly longer. Therefore SecondMarket believes it will be the first firm to publically offer a regulated bitcoin fund.

Tyler Winklevoss believes his fund will be a safer option, though, as it will trade on a fully regulated exchange and it will have to jump through more hoops to meet regulatory standards.

Going public

So far ordinary investors have been unable to make bitcoin investments on the regulated, open market. Their only way of investing in bitcoin was directly, through bitcoin exchanges.

This approach, though, favours speculators and tends to keep many investors away, especially institutional investors who cannot invest in unregulated markets.

However, in recent weeks several investment firms have moved to enter the bitcoin space and bring bitcoin investments to a much wider audience – namely ordinary investors who would rather not deal with bitcoin exchanges.

Just this week, Pantera Capital teamed with Fortress Investment Group, Benchmark Capital and Ribbit Capital to launch the Pantera Bitcoin Partners investment fund. Pantera Capital says it is shifting its investment focus solely to bitcoin ventures.

And, earlier this month, Perseus Telecom announced the launch of a globally integrated bitcoin exchange and the Digital Currency Initiative, which aims to bring financial industry-grade security to bitcoin trading. The company has teamed up with Atlas ATS to integrate multi-tiered security into its platform.

Investment image via Shutterstock