Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

First Bitcoin investment fund launches

September 25, 2013: 8:00 PM ET

SecondMarket launching first U.S.-based investment vehicle exclusively devoted to Bitcoin.

bitcoin-620xa
FORTUNE -- Bitcoin has gotten all sorts of attention this year, both from the media and regulators. For investors, however, it has often proven difficult to purchase meaningful amounts of the crypto-currency, let alone to safely store it. SecondMarket is planning to offer a solution, beginning Thursday morning.

The New York-based firm is launching the first U.S.-based investment vehicle dedicated exclusively to Bitcoin, called The Bitcoin Investment Trust. It's structured as an open-ended private trust whose shares only will be available to accredited investors via the SecondMarket platform. SecondMarket is seeding the trust with a $2 million investment, and also has named Jon Matonis (executive director of The Bitcoin Foundation) and Archibald Cox Jr. (ex-chairman of Barclays America) to the trust's advisory board.

"We have decided that Bitcoin is the next asset class that we want to use our resources and tech platform to make more acceptable to a broader group of investors," explains SecondMarket founder and CEO Barry Silbert. "To me, this is reminiscent of the early days of the Internet, when you look at all of the really interesting companies getting formed and the VCs who are investing in them."

Silbert also has been investing in Bitcoin-related startups off his personal balance sheet, but says that those deals are being kept separate from The Bitcoin Investment Trust.

MORE: The gray art of not quite insider trading

Earlier this summer, the Winklevoss twins -- of Facebook (FB) fame/infamy -- filed to raise a $20 million ETF that would invest exclusively in Bitcoin. But the vehicle has not yet taken off, in part because it remains mired in the SEC review process (something SecondMarket doesn't need to worry as much about, since it only is selling to accredited investors on a private exchange). There also is a private Bitcoin fund based in Malta.

"It's a lot like a currency ETF, but a private one that isn't going to be traded by retail investors," Silbert says. "The risk profile is more similar to an investment in a seed-stage company, in that there is potential for massive upside and also the potential for total principle loss."

On that last point, there continues to be significant worry that U.S. regulators will put some sort of kibosh on the entire Bitcoin market. But Mark Murphy, SecondMarket's vice president of public affairs, isn't too concerned:

"I was firmly in the skeptic camp when Barry started talking to me about this a year ago, and so were a lot of Congressional staffers I spoke with. But now I'm getting a different impression from those same staffers. They are beginning to recognize that some form of digital currency is going to be very successful. It's not going to replace the dollar or the euro, but it will step into the void for being a stored currency and for digital payments. So the discussion now isn't about survival, but rather things like how to enforce money laundering and how it's going to be taxed. People really want to handle regulation careful and comprehensively rather than in a fragmented manner, and rather than just pretending like Bitcoin will just go away."

Bitcoin Investment Trust plans to spend the first several months in asset-gathering mode, and will open up the secondary markets for trading six months after launch. Sidley Austin is serving as legal counsel, while Ernst & Young has signed on as auditor.

Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com

Posted in: ,
Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.