Back in February, the OSC’s investment funds branch refused to approve the proposed fund’s prospectus, paving the way for a full hearing in which the OSC would consider whether a regulated fund could invest primarily in the fledgling crypto sector.
The hearing focused on two issues: whether Bitcoin should be considered an illiquid asset under securities rules; and whether approving the proposed fund’s prospectus is in the “public interest,” given a variety of concerns, such as the fund’s ability to keep its assets safe and to value its assets accurately.
On both counts, the OSC panel sided with 3iQ, declaring that determining whether an underlying investment is sound is not up to regulators. The panel acknowledged that Bitcoin is risky, but ruled that it is still suitable for investment.
“Bitcoin is a novel asset in an emerging and evolving market,” the panel’s ruling states. “Some novel asset classes and securities products fail. They become tulip bulbs or dot-coms. Others succeed and become gold or the next great technology. Securities regulators are not mandated to try to pick winners and losers.”
The panel also applauded 3iQ’s efforts to provide access to Bitcoin through a regulated fund. Until now, investors seeking exposure to Bitcoin have had to trade it directly through unregulated cryptoasset platforms, via the exempt market or through back-door listings in the venture markets.
The OSC’s ruling notes there now are approximately 10 companies trading on junior exchanges that essentially hold crypto as their only assets, thereby providing shareholders with indirect exposure to the asset class. These companies gained their listings through reverse takeovers (RTOs), which enabled those companies to avoid a regulatory prospectus review, the OSC ruling states.
The hearing panel’s ruling notes that companies that have entered the public markets through this sort of back-door access have given Canadian markets some of their most notorious…