SEC Approves Bitcoin Futures Fund | Chief Investment Officer

The SEC has granted approval to a New York investment adviser to launch a closed-end Bitcoin futures fund aimed at institutional investors.

Stone Ridge Asset Management, which manages approximately $15 billion of assets, is launching the NYDIG Bitcoin Strategy Fund, which will invest in cash-settled Bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC).

The fund will seek to purchase Bitcoin futures so that the total value of the Bitcoin underlying the futures held by the fund is as close to 100% of the net assets of the fund as possible. The prospectus also said the fund will not directly invest in Bitcoin or other digital assets.

The fund’s shares are being offered at an initial offering price of $10 per share, and are expected to be offered on a continuous basis thereafter at net asset value per share. The fund will also initially cap its net assets at $25 million. Once this cap is met, the fund will close to new investors and only the reinvestment of dividends by existing investors will be allowed. However, the fund may re-open to new investors and subsequently close again to new investors at any time.

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Besides the investments in Bitcoin futures, the fund expects to have significant holdings of cash, US government securities, and investment grade securities issued by foreign governments, supranational entities, and corporations. The cash and fixed income investments are to provide liquidity, to serve as collateral for the fund’s Bitcoin futures, and to support the fund’s use of leverage.

The prospectus cautioned that an investment in the fund “should be considered speculative and involving a high degree of risk, including the risk of a complete loss of investment.”

Dalia Blass, director of the SEC’s Division of Investment Management, referenced the registration of the fund in a keynote speech in which she discussed fund innovation earlier this month at the ICI Securities Law Developments Conference.

“We welcome and value constructive industry engagement regarding new products and novel investment strategies,” said Blass. “A prime example of such engagement involves registered funds seeking to invest substantially in digital assets and related investments.”

Blass said that because the fund will invest in cash-settled futures it won’t face the challenges presented by direct holdings of digital assets. As it is structured as a closed-end interval fund, she said it will not offer daily redemptions and will not be subject to potentially large, unexpected liquidity demands over short periods.

Additionally, as an unlisted fund, its pricing will not depend on an efficient arbitrage mechanism and the willingness of market makers to make markets in a fund pursuing a digital asset strategy.

“The fund also has taken steps to address issues related to potential manipulation in the digital asset markets,” Blass said. “This includes prominent risk disclosures, offering the product only through registered investment advisers, and limiting the size and future growth of the fund.”