Jacobi Asset Management is set to launch Europe’s first bitcoin exchange-traded fund (ETF) this month thanks to its decision to domicile in Guernsey instead of other European jurisdictions which have not yet greenlighted the structure.
The Jacobi Bitcoin ETF (BCOIN) will list on Euronext Amsterdam with an annual management fee of 1.5% after receiving regulatory approval from the Guernsey Financial Services Commission (GFSC) in October 2021.
BCOIN will initially target institutional and professional investors in the UK and the Netherlands with a required minimum initial investment of $100,000.
Jamie Khurshid, CEO of Jacobi AM, said: “BCOIN will enable investors to access the underlying performance of this exciting asset class via a well-established investment structure.”
Edd Carlton, institutional digital assets trader at Flow Traders, which is one of the market makers on BCOIN, added: “This is aligned with the growing demand from institutional investors who are looking to diversify their portfolios by adding bitcoin and other digital assets.”
In Europe, issuers such as 21Shares, ETC Group and Invesco have launched cryptocurrency exchange-traded notes (ETNs), which are legally structured as debt instruments and physically backed by the underlying asset.
“We do not want to be confused the hundreds of debt instruments on the market which have far less regulatory scrutiny, if any at all,” Peter Lane, co-founder and COO at Jacobi AM, stressed. “The key difference is that if someone were to invest in BCOIN, they would own the units in the fund and the units own the underlying asset.
“Goldman Sachs told us this is the structure they have been waiting for because their institutional clients do not want the counterparty risk associated with debt structures like ETNs and ETCs.”
Through working with the GFSC and domiciling in Guernsey, Jacobi AM has been able to label its product an ETF under what is known as a protected cell company (PCC) structure.
In Guernsey, this structure acts as an umbrella fund which enables ETF issuers to create sub-fund equivalents known as “cells”. BCOIN will be one such cell of Jacobi Investment Funds PCC Limited.
Through this structure, BCOIN will be 100% collateralised by bitcoin and will not take part in any lending of the underlying asset.
According to Shane Coveney, partner at Dillon Eustace, the GFSC changed its requirements in order to facilitate the launch.
Usually, the regulator requires the custodian to be based in Guernsey, he said, however, this is not the case for Fidelity Digital Assets which is providing custody for BCOIN.
“The GFSC changed its requirements to facilitate the launch,” Coveney explained. “Guernsey is looking to corner itself a market in cryptocurrencies.”
Currently, the majority of ETFs in Europe are either domiciled in Ireland or Luxembourg, however, the Central Bank of Ireland and the Commission de Surveillance du Secteur Financier (CSSF) do not allow crypto assets to be wrapped in ETF format.
As it is not under the UCITS structure, BCOIN will not benefit from EU passporting unlike many of its ETF peers.
As Adrian Whelan, global head of regulatory intelligence at Brown Brothers Harriman, told Ignites Europe: “Despite its naming convention and the EU listing, BCOIN…enjoys none of the distribution passporting, investor protection or investor eligibility benefits of a UCITS within the EU.
“It will therefore need to tiptoe its way through various EU eligibility and suitability regulations…and national private placement regimes as it engages with EU-based investors.”