Bitcoin adoption is slowly gaining traction as more institutional investor-focused channels launch to the mainstream. Just last month, NYSE parent company Intercontinental Exchange launched its much-awaited Bitcoin futures platform Bakkt to lackluster reception but still it was an addition to the increasingly competitive landscape long dominated by Chicago-based CME.
US regulators are currently reviewing a few proposals on launching digital asset-based derivatives products such as ETFs and bond options. CME itself has applied for regulatory approval to expand its cash-settled Bitcoin futures with options as early as the first quarter of 2020. Bitwise in conjunction with NYSE Arca has a pending application with the SEC to launch a Bitcoin ETF – a determination for that is due this month.
Now the SEC has a new prospectus application for a Bitcoin derivatives product – NYDIG Bitcoin Strategy Fund – a cash-settled bitcoin futures fund proposed by asset manager Stone Ridge this week. According to the filing with the SEC, Stone Ridge proposes to offer one hundred thousand futures shares each at $10 with no minimum purchases. Investors will be prevented by Stone Ridge in order to comply with regulations.
Stone Ridge acknowledges the volatility inherent with investing in Bitcoin and cryptocurrency-related assets and so proposes the fund with a disclaimer “Bitcoin was developed within the last decade and, as a result, there is little data on its long-term investment potential.” However, this does not stop it from taking advantage of the new technology.
In its fund, the asset manager will track the price of Bitcoin but will not directly invest in any of the coins in circulation. The proposed fund will have an initial cap of $25 million and to support the fund, Stone Ridge will purchasing matching Bitcoin futures of equal value in the ratio of 1:1 against the fund assets.
As detailed in the filing, the asset manager will only invest in cash-settled assets such as those offered by CME and the now-defunct Cboe exchange. As an explainer, the filing states that,
“‘Cash-settled’ means that when the relevant future expires, if the value of the underlying asset exceeds the futures price, the seller pays to the purchaser cash in the amount of that excess, and if the futures price exceeds the value of the underlying asset, the purchaser pays to the seller cash in the amount of that excess.”
It is worth noting that this is a prospectus and therefore, any of the details in the filing are subject to change before the product is launched.
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