ETF Edge

An exclusive bitcoin ETF-like product just hit the market—here's how it works

An exclusive, bitcoin ETF-like product just hit the market
An exclusive, bitcoin ETF-like product just hit the market

Big firms are buying into bitcoin.

A new fund from investment giant VanEck and financial technology player SolidX Management gives big-money buyers a way to invest in bitcoin, a significant step for the largely unregulated and highly scrutinized cryptocurrency market.

The exclusive over-the-counter product, which began trading last week on an alternative trading system regulated by the Securities and Exchange Commission, shares similarities with exchange-traded funds, but is not technically considered to be an ETF because it is not traded on a national exchange.

And, if you ask Jan Van Eck, CEO of Van Eck Associates and president and CEO of the VanEck Vectors ETF Trust, this move is a way to bridge the gap between run-of-the-mill investing and the burgeoning world of crypto.

"The big [cryptocurrency] exchanges are completely unregulated, and the traditional world has sort of said, 'I don't want to look at this. I'm not going to touch it,' even though CoinBase has 20 [million] to 30 million client accounts," Van Eck said Wednesday on CNBC's "ETF Edge." "So, these two worlds are completely separated, and we're trying to do a little bit of an overlap and we'll see if it works."

Named the VanEck SolidX Bitcoin Trust 144A Shares and available only to "qualified institutional buyers," the product has drawn more than $40,000 worth of investment since its launch.

But "we're not directly or indirectly trying to sell to retail [investors]. That's not what this game is," Van Eck said. "Any individual, no matter how rich, can't buy it. It has to be an institution. It has to be a corporation [or] a bank, but a hedge fund can buy it, a mutual fund can buy it, and an ETF can buy it. So ... even a $20 million ETF could buy this fund and get some bitcoin exposure."

And, with the SEC still harboring concerns about approving retail-investor-facing bitcoin ETFs, this incremental step is still key to the progress of bitcoin as an officially regulated, tradeable asset, ETF consultant Chris Hempstead said in the same "ETF Edge" interview.

"This is a step in the right direction," said Hempstead, formerly head of ETF sales at Deutsche Bank. "We've had this kind of thing happen in the ETF world over and over again for the last 25 years. What you have here is a new idea that's making progress towards something that people are very familiar with."

This occurred with traditional ETFs, is currently underway with nontransparent ETFs and is now starting with the introduction of this bitcoin-based fund, Hempstead said, adding that he'd still like to see "proof of concept" for VanEck and SolidX's product.

"I think the SEC and the regulators will recognize that it works for institutional buyers and it might get them to take a step towards making it available to retail [investors]," he said. "Remember, the word is comfort. The SEC and the regulators, as well as retail investors, need to be comfortable in the product that they're investing in, and this is the closest thing we have right now to getting there."

Bitcoin prices were nearly 2% higher in Thursday afternoon trading, according to CoinBase.