A commissioner of the Ontario Securities Commission (OSC) has debunked the arguments against bitcoin used to deny the public offering of The Bitcoin Fund. Among others, the commissioner rules that bitcoin is neither illiquid nor more susceptible to manipulation than other commodities, real volume and real trading in bitcoin exist, and it is not the role of securities regulators to approve or disapprove of the merits of bitcoin.
irector’s Refusal Axed, Fund Green-Lighted
The Ontario Securities Commission (OSC) published a document Tuesday detailing Commissioner Lawrence P. Haber’s reasons to overturn the commission’s previous 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 & Structured Products branch (IFSP) in October last year. However, in February, the IFSP refused to issue a receipt of The Bitcoin Fund’s prospectus after its staff raised a number of concerns.
3IQ Corp and The Bitcoin Fund subsequently applied for a hearing and a review of this decision. After multiple hearings, Commissioner Haber ruled on Tuesday that the staff’s concerns “do not warrant denying a receipt for The Bitcoin Fund’s prospectus” and ordered the IFSP director’s decision to be set aside and a receipt for a final prospectus of The Bitcoin Fund issued. Unless the staff can find new grounds for refusal, the final prospectus can be used to offer securities to the public.
Bitcoin Is Not Illiquid
As a key reason for rejection, the IFSP staff submits that “Bitcoin is an illiquid asset … Therefore, by holding bitcoin, the fund would not comply with the restriction against holding illiquid assets set out in section 2.4 of NI 81-102.” Commissioner Haber disagreed. He said: “I do not agree with Staff’s submission … I find that Staff has not shown that bitcoin is an illiquid asset, as defined in NI 81-102,” emphasizing:
I find that there is sufficient evidence of real volume and real trading in bitcoin on registered exchanges in large dollar size, both in absolute terms and compared to other markets for commodities and equities, which constitutes a liquid market.
The commissioner referenced some existing investment products providing exposure to bitcoin such as Grayscale Bitcoin Trust (GBTC) which is available to Canadians.
The IFSP staff also decided that it is not in the public interest to issue a receipt for the fund’s prospectus due to concerns about its “ability to value its assets for investors given the significant market integrity concerns regarding the trading of bitcoin,” “the security and safekeeping of the fund’s bitcoin,” and “the fund’s ability to file audited financial statements, as required.”
Regarding price manipulation associated with crypto assets, Haber concluded that the staff “has not established that the fund will be unable to arrive at a net asset value that satisfies the requirements of NI 81-106.” While acknowledging the existence of fake volumes and unregistered market trading, the commissioner said the “Staff has not proven that true price discovery in the bitcoin market is prevented by insufficient ‘true trading’ or price manipulation, at least on the regulated exchanges.” He added that the evidence presented to him suggests that wash trading and fake volume are used primarily to attract more traders and issuers, and “did not establish systemic and sustained manipulation of the price of bitcoin.