SolidX Bitcoin Trust, filed with SEC, to trade on the NYSE

New York-based Blockchain service company, SolidX Partners Inc., recently filed a Registration Statement with the Securities and Exchange Commission (SEC) to list their new Bitcoin Trust on the New York Stock Exchange (NYSE).

Founded in 2014, SolidX Partners Inc. develops blockchain products and services focusing on software applications and capital markets. The company provides software for recording digital records, transfer of assets, and identity.

The new Trust will be called SolidX Bitcoin Trust, listed under the symbol XBTC. Formed this year, the Trust is classified as an “emerging growth company,” as defined in the JOBS Act, and is eligible for some reporting requirement exemptions. According to the filing, the Trust is not actively managed.

“The Trust will seek to provide shareholders with exposure to the daily change in the U.S. dollar price of bitcoin, before expenses and liabilities of the Trust, as measured by the TradeBlock XBX Index (“XBX”).”
— – SolidX

The XBX is a real-time, U.S. dollar-denominated, composite reference rate for the price of bitcoin. The sponsor and calculation agent for the XBX is Schvey, Inc., better known in the community as TradeBlock.

“As of June 30, 2016, the eligible bitcoin exchanges selected by TradeBlock include Bitfinex, Bitstamp, Coinbase, itBit and OKCoin International,” the company wrote in its SEC filing.

Each share of the SolidX bitcoin Trust will represent a unit of ownership in the trust, but not in the company running it. They’re offering a “fractional undivided beneficial interest in and ownership of the Trust,” according to the filing.“The Shares are neither interests in nor obligations of the Sponsor or the Trustee or any of their respective affiliates.”

The Trust Sponsor is a wholly-owned subsidiary of SolidX Partners Inc, SolidX Management LLC. The administrator and custodian is the Bank of New York Mellon, who will be responsible for day-to-day administration.

In order to achieve its objective, the Trust will be “investing substantially all of its assets in bitcoin traded on various domestic and international bitcoin exchanges and over-the-counter (‘OTC’) markets depending on liquidity and otherwise at the Sponsor’s discretion.”

The Trust has identified seven major exchanges that they’ll use; Bitfinex, Bitstamp, Coinbase, Gemini, ItBit, Kraken, and OKCoin. BTC-E was specifically excluded.

“BTC-e is another U.S. dollar-denominated bitcoin exchange with significant trading volume. BTC-e does not comply with any regulations (e.g., AML and KYC) of which the Sponsor is aware, and the Sponsor will not transact with BTC-e.”
— – SolidX

However, the Sponsor “expects to conduct most of its trading in the OTC bitcoin market,” the filing states. OTC trading is typically done between institutions, in large volumes, and could be cost efficient.

SolidX Management, as the Sponsor, will be responsible for the purchase and custody of the Trust’s bitcoin, which will be the Trust’s main asset. Trust can occasionally hold cash for a short period of time, when in the process of purchasing and selling bitcoin or paying expenses such as the Sponsor’s management fee.

The Sponsor’s management fee will be calculated as a percentage of the net asset value of the Trust. The actual percentage was not disclosed in the filing.

To safeguard the trust’s underlying assets, bitcoin, SolidX has listed a security plan using multi-signature wallets in cold storage. These will be air-gapped USB flash drives that are physically secured. The Sponsor also uses multi-signature transactions when transferring bitcoin.

“In order for a multi-signature transaction to be valid and accepted into a block by a miner, the transaction must be digitally signed using more than one private key from within a set of pre-established valid private keys.”
— – SolidX

As part of their disaster recovery plans, the cold storage will be wholly duplicated off-site in multiple locations, “geographically distributed throughout the United States, including in the Northeast and Midwest.”

SolidX has also precured private insurance on the funds, to protect against theft, destruction, computer fraud, loss of private keys, hacking attacks, and any kind of loss while bitcoins are in transit. There is no FDIC guarantee on any of the funds.

There are, of course, terms and conditions with the insurance policy. It starts out with a $25 million primary crime insurance policy, while “Excess Vault Risk Insurance” protects private keys from loss up to a maximum of $100 million more, with a catch; It requires the cold wallets be stored in a particular way, such as in a safety deposit box.

SolidX is not the first company to file with the SEC seeking to list a bitcoin exchange-traded product. Cameron and Tyler Winklevoss first filed their Winklevoss Bitcoin Trust with the SEC three years ago. There has since been little progress, until very recently.

On June 29th the Winklevoss twins lodged their 6th amendment to the original SEC filing. The amendment switched the nominated exchange from Nasdaq to BATS, which is the largest ETF exchange in the US and Europe. The SEC has recently opened the proposal for public comment and says that a decision will be made by August 22.

“The registration statement relating to these securities has been filed with the SEC but has not yet been declared effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.”
— – SolidX

There are similar bitcoin exchange-traded products that did not go through the arduous processing of listing with the SEC. Bitcoin Tracker One and Bitcoin Tracker EUR managed by Swedish XBT Provider, for example, are exchange-traded notes (ETNs) traded on the Nasdaq Nordic. Another similar product is Barry Silbert’s Bitcoin Investment Trust (BIT), a private, open-ended trust available to accredited investors, quoted on the OTCQX marketplace.

If SolidX’s registration is approved by the SEC soon, there is a chance that its Trust could beat the Winklevoss investment Trust as first to the market, despite the Winklevoss’ three years head start.