- The SEC has declined a number of applications for a Bitcoin ETF, leaving markets reeling from the negative news, as institutional investors remain distant from the crypto market.
- “[We] wanted to create a seamless process where you could buy bitcoins like you could buy any other stock” said Sean Clark – First Block Capital CEO – in an exclusive interview with BitStarz News.
- By launching the first regulated Bitcoin fund, First Block Capital is helping to lay the groundwork for institutional investors to gain quick and easy access to BTC markets.
When it comes to institutional and accredited investors, it has always been difficult – or impossible – for them to gain access to the cryptocurrency markets. Multiple companies have tried to launch Bitcoin ETFs in a bid to give easy, safe, and quick access to these markets, but to no avail so far. The US Securities and Exchange Commission (SEC) has declined every application so far, with this trend showing no signs of changing. First Block Capital has launched the first regulated Bitcoin mutual fund in a bid to bring vast sums of institutional money to crypto markets in a safe and easy manner.
Alex Meears spoke with Sean Clark – First Block Capital CEO – to get the lowdown on its Bitcoin fund and its current potential to be a market game changer.
AM: Having the first regulated Bitcoin fund is a pretty amazing achievement, what motivated you to create this investment fund and how does it feel to be the first one out there?
SC: The idea actually came from my business partner – Marc Van Der Chjis – who has been in the space for quite a long time. We partnered up back in January 2017 and his vision was to create a Bitcoin fund, where anyone can access bitcoin without having to go out and buy bitcoins. He got the idea because so many of his friends and contacts wanted to buy bitcoins, but didn’t want to sign up for an exchange, wire money overseas, trade it, then get the private keys, and keep them on a computer or an exchange. It was just risky and convoluted process, so he wanted to create a seamless process where you could buy bitcoins like you could buy any other stock.
We just so happened to be in Canada, and Canada actually has very forward-thinking and progressive legislation. Regulators are open to learning about blockchain and cryptocurrencies. Marc and I are both technology entrepreneurs, so we started an asset management company and built it like a tech company – so we basically sprinted in. There were quite a few other financial groups in Canada that were trying to do what we’ve done.
We decided to take a very co-operative and educational approach to dealing with the Securities Commissions in Canada – that’s what set us apart from the other groups. So, many finance companies are adversarial against the commission thinking that they are slowing businesses down etc. Marc and I actually took four months to educated them properly. It involved huge long email threads with questions back and forth, day-long meetings, video conferences, and we brought in experts. We took the time to really educate the commission – and it paid off because we were granted the licenses to be an investment firm in Canada. To be a fiduciary of other people’s money you need a portfolio manager license and an investment fund management license. We were granted those licenses in September of 2017 – in a landmark decision. So, we are – and currently remain – the only investment firm in Canada with these licenses to create cryptocurrency-based financial products.
We actually launched the bitcoin trust in March of 2017 and it looked the same as it does now, except the only difference was that it was hard to buy. We sold it by offering it to random qualified investors, but it was hard to sell due to the fact there was a 30-day redemption on the fund. After selling the fund for about six months, the investment advisers gave us feedback saying that they didn’t want to put their clients in something that had a 30-day redemption – making it only suitable for people who wanted to hold Bitcoin for a long period of time.
The structure of the fund is the same as a mutual fund trust, so after one year of operation – and because we have over 150 unitholders – that fund is now considered a mutual fund. When you own our fund, you can put it into a government-sponsored tax efficient vehicle – in Canada it’s called a tax-free savings account. That means you can buy bitcoin, put it in the fund and let it grow. Later when you come to sell your bitcoin you don’t have to pay any tax. It’s incredible because everybody – no matter what and whether they know it or not – is going to have to pay tax on the Bitcoin. Very soon the Canada Revenue Agency (CRA) is going to learn how to use blockchain.
The main difference between our product and the GBTC in the US is that if you buy $1,000 worth of bitcoin with us, we will go out and buy $1,000 worth of Bitcoin. On the other hand, the Grayscale product actually has a fixed number of Bitcoins and the units that are sold represent fractional ownership in that fixed number of Bitcoins. So, Grayscale isn’t actually going and buying new bitcoin. They have a fixed number of Bitcoin and units are being traded, which is why there’s a premium. For example, if a high net worth or accredited investors comes out and says I’d like to buy $10 million worth of units, we actually take $10 million and buy $10 million worth of bitcoins OTC. When they come to redeem they say I want my $10 million back, we actually sell the Net Asset Value (NAV) worth of Bitcoin and give them that cash. So, it’s effectively a Bitcoin ETF for qualified and accredited investors.
AM: Are you planning on creating a fund that is available to regular investors that are afraid of crypto exchanges?
SC: That that was the original vision and this is a step towards that original goal. In short, First Block Capital is looking to create a Bitcoin ETF in Canada for retail. You have these American companies like VanEck, SolidX, and the Winklevoss Twins pushing in the US to get an ETF through. We’re pushing in Canada to do the exact same thing. The fact that we already have a fund that’s running with assets under management (AUM), plus the fact that there is money going in and out of the fund, puts us at a distinct advantage with the regulators. They would be convinced that we would be able to manage a fund like that because we already have one existence.
AM: Do you think the SEC might banish all Americans from investing in your fund similarly to what they did with the XBT provider ETN?
SC: No we’re not, simply because Americans can easily come into Canada and buy the fund. Canada and the US have very similar equity markets. Due to the fact that the Ontario Securities Commission and the Canadian Securities Administrators have a very good relationship with the SEC. I’m not worried at all. Basically, the SEC will look at it from the point of – if the Canadian securities regulators have them approved it then it’s good enough for us.
AM: What made you decide to list it on NEO rather than another fund exchange network?
SC: it’s now trading on NEO connect email, Connect is a daily trading platform for ETFs in Canada. This means that any accredited investor can go look up the ticker and buy as many units as they want. NEO is great because it settles like an ETF and then it shows up in the investor’s portfolio, thanks to the piping of ETF and equities. By using NEO, our product is now using that same piping to make it really easy to invest into. This means that investors can trade in and out of the fund within minutes, rather than every 30 days like it used to be.
AM: What role do you think funds like this will have on the mass adoption of cryptocurrencies and the long-term price?
SC: It’s all about smoothing the volatility, and that’s what this asset class needs to grow into what Marc and I believe to be a multi-trillion-dollar asset class. In order for mass adoption to occur, bitcoin needs to have institutional grade exchanges, custodian solutions in place, and the volatility needs to be smooth. So, products like an ETF and institutional grade exchanges with derivatives and hedging opportunities need to exist, and institutional custodians like Goldman Sachs or State Street to exist in order for mass adoption to happen. We believe that this fund provides part of that network, which will help smooth the volatility and create an environment fit for the mass adoption of Bitcoin and other cryptocurrencies.
We believe that it will happen in little phases. Bitcoin first needs to become a store of value. If you follow the evolution of gold, gold wasn’t used as a currency until it was a global store of value. We’re of the mind that it’s going to take a similar path and second layer solutions – such as the Lightning Network – will allow the payments to actually occur at the level they need to in terms of transaction volume. Actual bitcoin itself needs to become a potential global currency reserve or store of value. Then and only then will take off the payment, so we’re in the early innings – it’s early days – but it will accelerate it very quickly.
The future is becoming digital and assets are becoming digitized. We now have a vehicle to do it in bitcoin. You can actually put your house, your votes, your insurance certificate, and your stock certificate on a blockchain and there will be an immutable digital record of it. This then allows you to freely trade that asset across the Internet.
AM: Everyone says Malta is the blockchain island. While Canada isn’t really an island, it appears to be home to a lot more blockchain and cryptocurrency related firms than Malta, why do you think that is? Are the Canadians just more ambitious and driven?
SC: Malta is a destination where the jurisdiction is favorable and the laws are favorable. One of its greatest resources is its ability to change regulation. Canada’s greatest resources lie in the fact we have established tech industries and we have a fairly large population – although not quite like the states. I’m in Toronto currently and there’s a wonderful community here – it’s all across Canada in fact. A large portion of the global cryptocurrency community is from here. Vitalik Buterin is from here, you’ve got Ethereum being created here, you’ve got major players from Canada, and you have a regulatory environment that wants to learn. What is it about Canada? I think that it’s always the place where innovation is supported and we have the infrastructure, we have the population, we have the education. Many of the young developers in schools now are getting into blockchain. We also have a great history of entrepreneurs.
I’m 37 now, and for the last 20 years we’ve been hearing about Silicon Valley in the US and all the growth that’s come out of there. Now people are realizing that you don’t have to go to the US to participate in that. You can do it at home, do it where you’re from. Now you don’t need to go to Silicon Valley or Malta to innovate in blockchain, it’s decentralized, you can do it anywhere.
AM: What is your price prediction for BTC at the end of the year?
SC: I don’t think that we’ll see a new all-time high before the end of the year. I think it will be in-between $12,000 and $16,000. Actually, maybe even more conservative around the $10,000 mark. I’m hoping that it’s going to be over $10,000. I think we’re in a bit of an extended bear market from what I’m hearing people say. There’s not enough blood on the streets so to speak. People aren’t hurting enough.
AM: If you could give our readers some sort of advice about the crypto world, what would advice what would you give them?
SC: The digital currency asset class is going to be a multi-trillion-dollar industry. Right now, it’s currently around $200 billion, and at its peak it back in December it was around $800 billion. It’s not too late to get in. This is where all the innovation is going to occur, so just build and create use cases.
If you have big cash to splash – or are an accredited investor – First Block Capital’s new regulated Bitcoin fund could be your key to the crypto market. While it might be a few more months or so until we see a retail product available, you can rest easy knowing that there is one in the works.
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