Key Takeaways
- • Historic Regulatory Approval: On October 30, 2019, the Ontario Securities Commission (OSC) approved 3iQ Corp.'s application to launch The Bitcoin Fund, establishing the world's first publicly traded bitcoin investment fund and reversing an earlier February 2019 rejection by the OSC's Investment Funds and Structured Products Branch.
- • Initial Public Offering and Capital Raises: The Bitcoin Fund completed its IPO on April 9, 2020, raising approximately US$14 million in total proceeds following a merger with 3iQ Bitcoin Trust, with Class A units trading on the Toronto Stock Exchange under ticker QBTC.U; subsequent offerings in May and June 2020 generated an additional US$48 million and US$10 million in gross proceeds, respectively.
- • Regulatory Differentiation from U.S. Approach: The OSC Panel distinguished its decision from the U.S. Securities and Exchange Commission's historical rejection of bitcoin ETF applications, affirming that Canadian securities regulators do not evaluate the merits of securities themselves but rather ensure compliance with regulatory frameworks.
- • Market Integrity and Custody Framework: The OSC Panel's approval addressed key concerns around market integrity, bitcoin custody and safeguarding standards, and auditing requirements for issuers holding cryptoassets, establishing a regulatory precedent for cryptocurrency investment vehicles in Canada.
Summary
On October 30, 2019, the Ontario Securities Commission approved a landmark application by Canadian investment manager 3iQ Corp. to offer The Bitcoin Fund, the world's first publicly traded bitcoin investment fund. This decision reversed an earlier rejection issued in February 2019 by the OSC's Investment Funds and Structured Products Branch, which had declined to issue a receipt for the Fund's preliminary prospectus. 3iQ exercised its right to seek a hearing and panel review, leading to the OSC's reversal and approval.
The Bitcoin Fund, which 3iQ had been developing since late 2016, was structured as a non-redeemable investment fund designed to invest substantially all of its assets in bitcoin. The OSC Panel's evaluation centered on three core regulatory concerns: market integrity surrounding cryptoassets, custody and safeguarding protocols for bitcoin holdings, and auditing standards applicable to financial statements of issuers holding cryptoassets. In its reasoning, the Panel distinguished its approach from the U.S. Securities and Exchange Commission, which had declined bitcoin ETF applications to that date. The OSC affirmed a foundational principle of Canadian securities regulation: regulators are not tasked with approving or disapproving the investment merits of securities offered to the public, but rather ensuring compliance with regulatory standards.
Following regulatory approval, 3iQ executed the Fund's initial public offering on April 9, 2020, completing a merger with 3iQ Bitcoin Trust and raising approximately US$14 million in total proceeds. The Class A units commenced trading on the Toronto Stock Exchange under the ticker symbol QBTC.U. Investor demand remained strong in subsequent periods: in May 2020, the Fund completed a unit offering generating US$48 million in gross proceeds, followed by an additional June 2020 offering that raised US$10 million. The fund expanded its mandate to include investments in multiple leading cryptoassets, including ether and litecoin alongside bitcoin.
This regulatory approval marked a significant divergence in cryptocurrency investment policy between Canada and the United States, positioning 3iQ as a first-mover in establishing a regulated, publicly traded cryptocurrency investment vehicle on a major global stock exchange. The decision established a framework for addressing custody, market integrity, and auditing concerns that subsequent Canadian cryptocurrency investment products would reference.
The Bitcoin Fund, which 3iQ had been developing since late 2016, was structured as a non-redeemable investment fund designed to invest substantially all of its assets in bitcoin. The OSC Panel's evaluation centered on three core regulatory concerns: market integrity surrounding cryptoassets, custody and safeguarding protocols for bitcoin holdings, and auditing standards applicable to financial statements of issuers holding cryptoassets. In its reasoning, the Panel distinguished its approach from the U.S. Securities and Exchange Commission, which had declined bitcoin ETF applications to that date. The OSC affirmed a foundational principle of Canadian securities regulation: regulators are not tasked with approving or disapproving the investment merits of securities offered to the public, but rather ensuring compliance with regulatory standards.
Following regulatory approval, 3iQ executed the Fund's initial public offering on April 9, 2020, completing a merger with 3iQ Bitcoin Trust and raising approximately US$14 million in total proceeds. The Class A units commenced trading on the Toronto Stock Exchange under the ticker symbol QBTC.U. Investor demand remained strong in subsequent periods: in May 2020, the Fund completed a unit offering generating US$48 million in gross proceeds, followed by an additional June 2020 offering that raised US$10 million. The fund expanded its mandate to include investments in multiple leading cryptoassets, including ether and litecoin alongside bitcoin.
This regulatory approval marked a significant divergence in cryptocurrency investment policy between Canada and the United States, positioning 3iQ as a first-mover in establishing a regulated, publicly traded cryptocurrency investment vehicle on a major global stock exchange. The decision established a framework for addressing custody, market integrity, and auditing concerns that subsequent Canadian cryptocurrency investment products would reference.
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