In an interview with BTCManager, the CEO of the New York-based investment firm Wilshire Phoenix Funds LLC. said that their United States Bitcoin and Treasury Investment Trust product is one of the most promising yet. Alongside the rise and fall of the BitWise and VanEck Bitcoin derivative offerings, William Herrmann thinks his team have the winning formula.
The fast-expanding team has also tied up with Coinbase Custody to secure their BTC holdings and will use the Chicago Mercantile Exchange’s (CME) reference rate to spot price the pioneer digital asset.
Thwarting Bitcoin Manipulation
Investors and regulators alike are eager to bring a Bitcoin ETF, ETP or other derivative product to the institutional market. Despite best efforts, however, every few months it appears that industry leads on both sides have failed to deliver.
In the latest comment from the Securities and Exchange Commission (SEC), a primary deterrent for some of the proposed offerings have been based on concerns of manipulation. This, plus two other markers are necessary, according to the regulatory, before they can give the go-ahead.
In an interview with Wilshire Phoenix’s CEO William Herrmann, he outlined how their Bitcoin and Treasury Investment Trust, otherwise known simply as “the Trust,” checks all three boxes. “They want to make sure that bitcoin demonstrates a market of significant size,” said Herrmann. “They are also looking for an Intermarket Sharing Agreement and an awareness of market manipulation, which we have proven is non-existent.”
Regarding the size of the Bitcoin market, the SEC will compare Wilshire’s product with other similar financial solutions. This may include traditional gold ETPs, as bullion and bitcoin share many similar characteristics.
The second marker is something called an Intermarket Sharing Agreement, which Herrmann has already established with the CME. They chose CME primarily because it is one of the only providers for Bitcoin futures along with it’s exposure to other markets of significant size.
Finally, and likely one of the primary reasons that regulators have delayed or annulled most proposals, is due to the threat of market manipulation. This has also been a controversial subject for the crypto community at large. When prices jump or drop in any significant manner, crypto Twitter is quick to draw up narratives based on systematic buy and sell orders from large whales.
The application reads that by pairing with the CME, specifically their Bitcoin Reference Rate (BRR), the Trust can resist any attempts at market manipulation. This, however, is based primarily on a question of semantics. When examining for manipulation, it is critical that one look at which market segment the asset is performing in. One wouldn’t, for instance, compare prices of the gold jewelry or coin market when measuring the value of a gold bullion ETP.
In using the CME’s rate to determine the net asset value (NAV), and examining this value through the correct market segment, the application concludes that price discovery on platforms like Kraken, Bitstamp, and Coinbase was very similar.
Couple this with the difficulty in maintaining enough influence on each of these platforms to manipulate price and Wilshire believes they may have found a reliable discovery model resistant to fraud.
A Strategic Proposal
On top of this, Wilshire has been very strategic in the timing of their proposal. The firm made a few minor adjustments to the proposal last year as they “didn’t want to file something futile,” according to Herrmann. Commenting on moving forward now, he added:
“We wouldn’t have done it if we weren’t sure that [the Trust] wasn’t going to land.”
And if the product delivers on the benefits indicated in the filing, sidelined investors will also profit. As BTCManager reported in November 2018, Herrmann and his team are looking to provide their clients with exposure to the crypto world. Unfortunately, one of the major hindrances has been bitcoin’s infamous volatility.
Bitcoin’s volatility compared to the S&P 500 from 2010 to 2018.
To alleviate some of this risk, Wilshire Phoenix will combine its BTC holdings with “short-term duration United States Treasury Bills (“T-Bills”) in proportions that seek to closely replicate the Bitcoin Treasury Index,” according to the Trust’s filing with the SEC. The Trust then rebalances these assets every month to resolve problematic volatility without the need for “complex derivatives or leverage methods” like some of its counterparts.
Concluding, the SEC will likely make their decision on Wilshire’s offering later this summer. As outlined above and based on the commentary from Herrmann, the Trust would rectify many of the hangups that both Bitwise and VanEck experienced. If the application is accepted, the rest of the industry would quickly follow and with that, a new era of sophisticated crypto-based financial products would emerge.