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Brendan Gundersen
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XBTCZ
VanEck SolidX Bitcoin Trust 144A Shares
Available to Qualified Institutional Buyers (QIBs) only

Description

VanEck SolidX Bitcoin Trust 144A Shares is the first open-end and DTC-eligible bitcoin security that can be held in a brokerage account.1


 
 

  • Quoted On

    OTC Expert Market
  • Sponsor

    SolidX Management LLC
  • Marketing Agent

    Van Eck Securities Corp.

 
as of 11/15/19

  • Total Net Assets

    $539.1k
  • Commencement

    09/04/19
  • Sponsor Fee*

    2.00%
  • Insurance Fee*

    0.90%

*See the Offering Memorandum for a detailed description of fees and expenses.


Description and Overview 

Insurance and Security 

Creation/Redemption of Shares 

Valuation of Net Asset Value (NAV)  

The 144A Offering 



Description and Overview 

What is the VanEck SolidX Bitcoin Trust 144A Shares?

The first open-end and DTC-eligible bitcoinsecurity that can be held in a brokerage account. Key attributes of the offering include:

  • Continuous, open-end creation and redemption of 144A shares allows market prices to track Net Asset Value (NAV) prices closely over time; shares are tradeable through brokerage accounts
  • Institutional level prices from institutional trading firms that are calculated by regulated index firm2
  • Safekeeping bitcoin using multi-factor, cold storage security, plus insurance against loss or theft3

The 144A Shares are being issued pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended. The shares represent units of fractional undivided beneficial interest in and ownership of the Trust. Only Qualified Institutional Buyers (QIBs) may trade the shares.

What is a Qualified Institutional Buyer?

Qualified institutional buyers (QIBs), defined generally as an institution with a portfolio of securities valued at more than $100 million either owned or under its management, a registered broker-dealer with at least $10 million in securities owned or managed, and a bank or savings and loan that both (i) owns, or invests on a discretionary basis in, at least $100 million in third party securities and (ii) has an audited net worth of at least $25 million. Examples of QIBs may include business development companies, corporations, ETFs, hedge funds, insurance company, mutual funds and registered investment advisers. A natural person is not considered a QIB. Brokers trading the 144A Shares are responsible for confirming the buyer’s QIB status.

On what platform will the 144A Shares be quoted?

The 144A Shares will be quoted on OTC Expert Market, an SEC regulated alternative trading system using a fully attributable, network-based model for publishing quotes and negotiating trades. Broker-dealers gain access through the proprietary OTC Dealers® user interface or by using OTC FIX protocol. The 144A Shares can be purchased through and held in traditional brokerage and prime broker accounts.

Where can I see quotes of the 144A Shares?

Quotes of the 144A Shares will be available at approximately 50 market data distributors with whom OTC Markets Group has a formal relationship*. The most common names include Bloomberg, FactSet and ICE Data Services.

How are the 144A Shares settled and cleared?

The 144A Shares are settled based on existing terms broker-to-broker, and are cleared through normal channels (FINRA OFR, DTCC). The 144A Shares will be evidenced by one or more global certificates that the Trust will issue to DTC. The 144A Shares are issued only in book-entry form. Shareholders may hold their Shares through DTC, if they are participants in DTC, or indirectly through entities that are participants in DTC.

What are the Trust’s ordinary expenses?

The Trust’s ordinary recurring operating expenses are expected to be the sponsor fee, bitcoin insurance fee, expenses related to the Trust securing its bitcoin and any legal expenses not assumed by the sponsor.

The Trust will either sell (or at its option transfer) bitcoin solely to raise cash to pay the sponsor fee, the bitcoin insurance fee and any other expenses of the Trust that are not expenses assumed by the Sponsor. Please see the Trust Fees and Expenses section of the Offering Memorandum for more detailed information.

What differentiates the 144A Shares from other methods of bitcoin investment?

Direct bitcoin investment:

  • There is no central clearing mechanism when purchasing bitcoin directly. Purchases and sales inherently entail counterparty risk.
  • There is no traditional custodian for bitcoin. Direct ownership requires either self-custody, which creates operational risk and is impractical for many investors or storage with a third party, creating ongoing counterparty risk (i.e., counterparty risk extending through the entire life of the investment, not just the purchase or sale).
  • Cannot be bought or sold in traditional brokerage or prime broker accounts; requires establishing an account with a bitcoin exchange or OTC counterparty.
  • May be inadequately insured to cover the total value of assets held whereas VanEck SolidX Bitcoin Trust seeks to maintain 1-to-1 coverage of bitcoin held.

Bitcoin futures:

  • Futures need to be rolled; may not be a desirable long-term investment option.
  • Many institutions (endowments, foundations, pension plans) are not equipped to trade futures.
  • Futures are more of a hedging vehicle rather than an instrument for investment.
  • Not tax efficient over the long term.
  • Risk of contango, which is an event where the futures price of a commodity is higher than the spot price, and usually occurs when an asset price is expected to rise overtime.

Closed-end funds:

  • No ability to create and redeem.
  • Have historically experienced steep premiums, which means performance can deviate significantly from the price of bitcoin.
  • Liquidity is inherently limited and cannot easily increase.
  • No insurance.

Crypto hedge funds:

  • Full reliance on the hedge fund to mitigate operational risk, counterparty risk and custody concerns.
  • Performance relates to the ability of the manager.
  • No on-demand redemption.
  • Not an option for most hedge funds and other institutional investors.
  • Complex fee structures which may include performance fees.

Bitcoin ETNs in Europe:

  • Since ETNs are debt instruments, traditionally they are issued by large banks (although some carry the brands of non-bank issuers). ETN holders are subject to the credit risk of the issuing bank. Bitcoin ETNs are not issued by banks, and the issuers do not have meaningful balance sheets, creating significant credit risk that cannot be hedged.
  • At least one bitcoin ETN issuer had a bankruptcy event in its past.
  • Custody concerns.
  • No insurance.

Insurance and Security 

What is covered by the Trust’s bitcoin insurance?

The Trust will be insured against loss or theft of bitcoin held by the Trust. The insurance will cover loss of bitcoin by, among other things, theft, destruction, bitcoin in transit, computer fraud (i.e., hacking attack), and other loss of numerical codes, known as “private keys”, which are necessary to access the bitcoin held by the Trust. Please refer to the Offering Memorandum for details regarding insurance coverage, including certain exclusions not covered.

What are the Trust’s security practices?

The Trust uses best practice multi-signature cold storage to secure its bitcoin private keys:

  • The private keys are stored on air-gapped devices that are locked in a physical vault with 24/7/365 surveillance and manned security throughout the building.
  • The Trust has no need for and never uses a “hot wallet”.
  • The Trust’s bitcoin holdings are subject to on-demand audits by the insurance underwriters.

Creation/Redemption of Shares 

How are 144A Shares created and redeemed?

The Trust issues shares only to Authorized Participants in blocks of 4,000 shares called “Baskets” in exchange for bitcoin. Shares may be redeemed by Authorized Participants in Baskets and redemption proceeds will be in bitcoin. Baskets may be created or redeemed on each trading day. The Trust follows the NYSE trading day calendar. Only “Authorized Participants” may request the creation or redemption of a Basket.

The Trust’s shares may be offered only in transactions that are exempt from registration under the Securities Act pursuant to Rule 144A under the Securities Act (“Rule 144A”). Accordingly, the Trust offers Shares in the U.S. only to “qualified institutional buyers”, as such term is defined in Rule 144A (“QIBs”).

Who can be an Authorized Participant?

Each Authorized Participant must:

  1. be registered with the SEC as a broker-dealer;
  2. be a participant in DTC;
  3. have entered into an agreement with the sponsor, acknowledged by the transfer agent; and
  4. be a QIB.

Each Authorized Participant Agreement provides the procedures for the creation and redemption of Baskets.


What is the basket size for creations and redemptions?

Baskets will be in the range of approximately 4 bitcoin, the equivalent of 4,000 shares.

Valuation of Net Asset Value (NAV) 

How will the 144A Shares be priced?

The Trust administrator will calculate the Net Asset Value (“NAV”) of the Trust (i.e., the total assets of the Trust less total liabilities) each trading day based on the price set by the MVIS® Bitcoin US OTC Spot Index (“MVBTCO”) as of 4:00 p.m. E.T. The Administrator also determines the NAV per Share.

What is the MVBTCO?

MVBTCO is a real-time U.S. dollar-denominated composite reference rate for the price of bitcoin. MVBTCO calculates the intra-day price of bitcoin every 15 seconds, including a “closing price” as of 4:00 p.m. E.T. The intra-day price and closing price are based on a methodology that consists of collecting actual firm bid/ask spreads and calculating a mid price from several bitcoin over-the counter (OTC) platforms, all of which are U.S.-based entities, included within the index.

The logic utilized for the derivation of the daily closing index level for MVBTCO is intended to analyze actual firm bid/ask data, verify and refine the data set, and yield an objective, fair-market value of one bitcoin as of 4:00 p.m. E.T. each weekday, priced in U.S. dollars.

Will the Trust’s bitcoin holdings be audited?

Yes. Market practice for Rule 144A offerings is to follow requirements of a public offering in terms of annual audit and ongoing financial reporting. The VanEck SolidX Bitcoin Trust will be audited and its annual audit will be publicly available on its website. Cohen & Co. is the Trust’s independent auditor.

The 144A Offering 

Under what regulatory framework are the 144A Shares issued and what are its constraints?

The 144A Shares are restricted securities. The Securities Act of 1933, as amended provides a safe harbor from registration requirements for certain resales of restricted securities to QIBs.

The JOBS Act in 2012 amended Rule 144A to allow brokers and dealers to offer Rule 144A securities through general solicitations. General solicitation may also increase liquidity for investors in Rule 144A securities if resale platforms develop for such products.

Who can invest in and trade the 144A Shares?

Only QIBs can invest in and trade the 144A Shares.

Can foreigners invest in and trade the 144A Shares?

Yes, as long as they are a QIB.

Is there a minimum investment size for the 144A Shares?

No, there is no minimum investment size aside from the price of one share.

Is there a minimum holding period for the 144A Shares?

No, there is no minimum holding period for the 144A shares.

Will the 144A Shares be “seasoned”?

No, there is currently no intention to season the 144A Shares.