Robert Cho, VP of SecondMarket described the Bitcoin Investment Trust (BIT) to me during the Inside Bitcoin event in Las Vegas on 12-11-2013. BIT formed for sophisticated investors in September of this year. “The fund is modeled after the SPDRS Gold (GLD) ETF. The BIT, launched as a vehicle for sophisticated investors to get into bitcoin,” Cho said. The fund stood at $61.1m (67,300 BTC) net asset value on Friday the 13^th, this December, 2013.

Shares in the Trust edged along for around two weeks after its inception on September 26th. Following this, they began creeping up, before beginning their meteoric rise on November 4th.  The net asset value (NAV) tracks bitcoins price movement very closely.

“BIT investment has been from a wide demographic, with Interest from technologists and a [traditional] Wall Street audience,” said Cho. The fund is bridging the gap in understanding on these investments. Although institutions are not investing, family offices are investing for their clients. This is the first US based fund to invest in bitcoins. “It benefits the investors who can invest without worrying about cold storage or volatility,” said Cho.  It was Second Market CEO, Barry Silbert who introduced the idea for a bitcoin investment trust to the trading desk. “Silbert saw the opportunity,” said Cho. According to Cho, Silbert helped passed the JOBs Act. The JOBs Act relaxed requirements to advertise the fund to accredited investors. When this portion of the JOBs Act became effective on September 23^rd the BIT fund was ready to launch.

To invest in the fund through a self directed IRA investors are required to be accredited investors.  Some investors use self-directed IRAs to do early-stage investing.   PENSCO, EnTrust, Equity Institutional, and Millennium Trust  list the BIT as an investment option. Clarifying if Fidelity Investments was allowing certain IRA clients to invest in bitcoin, SecondMarket said in a statement: “The Bitcoin Investment Trust was previously approved by Fidelity as an eligible investment for accredited clients in their self-directed IRA accounts and investments began closing last week. We understand that Fidelity has decided to reevaluate this decision.”

The difference from the proposed Winklevoss twins EFT is the private aspect of the BIT fund rather than a public fund like the Winklevoss EFT.  Cho, who also spearheads bitcoin trading for SecondMarket explained that March or April, 2014 will be the redemption period for investors in the trust. Rather than sell them on the public exchanges you could trade the fund shares on Second Market. Second Market is an ATS, an alternative trading system, registered with the SEC. Therefore, the possibility of a large amount of Bitcoin being sold on the public market may be mitigated; so it does not destabilize the market. SecondMarket, Inc. (Member FINRA/SIPC/MSRB) (“SecondMarket”) does not produce in-house research, make recommendations to purchase or sell specific securities, provide investment advisory services, or conduct a general retail business.

They purchase Bitcoin daily on exchanges, but mostly buy from private owners. “People feel more comfortable dealing with SecondMarket which has been around before Bitcoin began,” Cho said.  “The most important factor benefitting SecondMarket being registered is their knowledgeof AML and KYC (anti-money laundering and Know Your Customer)” Cho said. BTC is volatile and a risky play. “With the minimum being $25,000, you could lose all your money or do very well. The risk/return profile is tremendous. The return is uncapped and unforeseen. One thing we do well is work within the proper regulatory guidelines,” said Cho.The interest level from day one was surprising. “When the bitcoin price escalated from $200ish to $600 to $800, along with media coverage, people got excited,” recounted Cho. “It is something we believe in.”