As bitcoin grazes $50,000, a mad frenzy is underway to create crypto funds. Near the front of this stampede is an entrepreneur who has survived many a wild ride in the most volatile corners of Wall Street. Now is his moment to cash in.
Greg King, 46, is the controlling shareholder in Osprey Funds, manager of what is likely to become the second freely traded pure play bitcoin fund in the U.S. The first one, Grayscale Bitcoin Trust, is coining money. If King can siphon off just a little of the assets pouring into Grayscale, he’s got a hit.
Selling point for the Osprey Bitcoin Trust: a dramatic price cut. Grayscale takes 2% of its trust shareholders’ money every year. Osprey charges just under 0.8%.
It is one of the curiosities of securities law that these trusts even exist. The world yearns for an exchange-traded fund that would hold coins, much as State Street’s SPDR Gold Trust holds bullion. But the Securities & Exchange Commission is fearful that bitcoins might be too risky if wrapped into an ETF, and so far it has slapped down all the bitcoin ETF proposals that have been sent in.
Bitcoins risky? No kidding. But this odd state of regulatory affairs creates an opening for coin trusts—first Grayscale, which was set up in 2013 and now has $31 billion of the coins, and Osprey, in Tarrytown, New York, which was created two years ago and has $79 million worth.
These trusts can sell shares only to accredited investors, meaning ones that clear certain hurdles for net worth or sophistication. Then, once certain waiting periods have passed, those investors can sell to the general public in the over-the-counter market.
The coin trusts are halfway to being ETFs. While ETFs have a mechanism for both the creation and redemption of fund shares in response to investor demand, the trusts let money in but don’t let it out. They cease redeeming when an o-t-c ticker is assigned, at which point an investor can get out only by selling shares in the open market.
Twist my arm, say the original buyers. In a bull market, trust shares tend to trade at a premium to their coin value. Very nice for the sophisticated investors who buy in at net asset value.
If all goes according to plan, shares in Osprey Bitcoin Trust will start trading this morning (February 16) under the ticker OBTC. The shares are aimed at the mass market, at a price that will start out near $16. It’s not easy to stuff bitcoins into an IRA, but acquiring o-t-c shares for a self-directed account should be easy.
If OBTC trades at a premium, King will have no trouble drawing in new assets. Investors (the sophisticated ones) can buy in with either cash or coins, one coin being good for 2,930 shares. So far most of the Osprey trust’s investors have arrived with coins.
What could go wrong? Lots. If coin lovers care more about popularity than price, they will stick with Grayscale and give Osprey a pass. Two other bitcoin trusts, from…
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