What's in a name? Musings on VanEck's plan to offer a new way for investors to buy bitcoin

What's in a name? 

In covering the crypto space, this Shakespearean prose sits top of mind as semantic games swirl unabated. 

Take yesterday's announcement that VanEck would launch a so-called "limited ETF." Indeed, The Block fell victim to the positioning of the new product, which will offer a certain type of sophisticated investor a way to purchase shares that reflect the price of bitcoin. VanEck and its partner SolidX have been trying to get a bitcoin exchange-traded fund off the ground since they jointly filed in 2018. 

Still, this new product, dubbed The VanEck SolidX Bitcoin Trust, is not the same as an ETF. For one, it won't be listed on any securities exchanges (NYSE, Nasdaq, et al.), as noted in its memorandum. VanEck, to be clear, does intend to have the shares eligible for quotation on alternative markets. Unlike an ETF, which is open to all types of investors, the new product is limited to so-called Qualified Institution Buyers (QIBs) — namely, institutions with "a portfolio of securities valued at more than $100 million." 

As many market participants noted on Tuesday, the product best resembles Grayscale's Bitcoin Trust (GBTC). But there is one key difference in that Grayscale's product is open to a much larger pool of accredited investors (individuals with an income that exceeds $200,000). Retail investors can also purchase GBTC shares on secondary markets. Still, unlike GBTC, The VanEck SolidX Bitcoin Trust will allow for continuous, open-end creation and redemption of shares, which means that the price will track Net Asset Value more closely. Still, it won't be perfect. 

"NAV May Not Always Correspond to the Market Price of bitcoin and, as a Result, Baskets May Be Created or Redeemed at a Value that Differs From the Market Price of the Shares," VanEck notes in the product's memorandum.

Putting the differences aside, the roll-out of the trust, in my opinion, raises questions about the likelihood of ETF approval this year, or even for the first half of next year. VanEck has put a fair amount of energy into its bitcoin efforts, making tons of headlines in financial media along the way. But you can only play the SEC waiting game so long before you realize you need to do something that makes money. 

It won't be easy to lure investors to such a product, either. Dealing with $100 million-plus investors requires a fair amount of resources, including an investor relations infrastructure to properly serve every client. You also have to verify that those investors are who they claim to be. 

The next question is whether VanEck's product will be successful. At first glance, it might appear that the VanEck name, which is fairly well-known among the upper echelons of Wall Street, is superior. But Grayscale has been around since 2013 and has earned its own strong reputation. Managing more than $2.5 billion in cryptocurrency and not experiencing any hiccups over the past six years lends itself a degree of credibility VanEck could only dream of. But the name can only go so far. What matters more to most investors are fees. On that front, Grayscale's 2% per year management fee undercuts VanEck's combined sponsor fee and insurance fee, which comes out to 2.9% a year.

Of course, VanEck's destiny is not in the stars, but with VanEck.