What is QBTC?
3iQ is a Canadian investment fund that was founded in 2012. It’s primary objective was to help investors gain exposure to digital assets, disruptive technologies, and blockchain products. 3iQ saw the need for a more straightforward approach to investing in the Bitcoin space during the time of its inception. After meeting the Canadian securities regulatory authorities’ compliance requirements, 3iQ released class A shares of QBTC in the spring of 2020 to be traded publicly on the Toronto Stock Exchange (TSX). QBTC tracks the price of Bitcoin for investors who do not want to own the asset directly.
What is the difference between QBTC and Bitcoin?
QBTC is very similar to Grayscale’s GBTC investment trust as it provides the same convenience of ownership for investors who do not wish to directly own Bitcoin. Bitcoin is a decentralized network that cannot be controlled by one entity, and requires consensus from all participants in order to make changes or upgrades. In contrast to this system, there are institutions or companies that provide centralized services that are not transparent or accessible to the entire public. Open source networks are not better or worse than commercial networks because they each fulfill their own use cases. For example, QBTC would be considered a commercial product for a decentralized asset. Although the fund is unavailable to most people outside of Canada, anyone around the world with internet connection can access bitcoin. Certain advantages and disadvantages come with owning one over the other, and it is important to understand which option works best for your own portfolio.
How is QBTC structured and what type of Bitcoin exposure does it have?
QBTC is structured as a closed-end fund that issues a fixed amount of shares. A closed-end fund is similar to a mutual fund, where there is an asset manager who manages the fund’s investment allocation. Like a stock, a closed-end fund participates in an initial public offering (IPO) in order to raise capital that can either be reinvested in the fund or delegated for other expenses to keep the business running. According to their prospectus, they were able to raise about 25 million dollars with 1.75 million going towards fees and expenses, while 23.2 million dollars were used for net proceeds. Each share of QBTC is backed by 0.00112387 BTC and may change as more shares are issued. QBTC may have multiple offerings and can reopen as they see fit. This means that if needed, the fund has the ability to issue more shares to new investors. Private placements may also be utilized with the fund and these shares are only offered to a select group of private investors.
Advantages of QBTC
- Gain exposure to Bitcoin through a brokerage account, TFSA, or RRSP account.
- The tax incentives for purchasing QBTC within one’s TFSA or RRSP are something to consider if an investor is contributing regularly.
- For those who are less tech savvy and want access to customer support, purchasing QBTC through a broker allows investors to contact support directly in case they need help with anything.
- QBTC may be bought with Canadian dollars.
Disadvantages of QBTC
- 3iQ and the broker through which you choose to purchase QBTC will control the bitcoin. It cannot be sent or sold without a third party.
- You are unable to send or receive bitcoin from anyone at any time of the day.
- Your brokerage account may be frozen or inaccessible at inconvenient times and without your consent.
- Reimbursement for lost funds or the timeline for a reimbursement for its customers is not guaranteed.
- 3iQ and your provider may change their terms of agreement at any time and without your consent.
- Historically QBTC has sold at a premium to the Bitcoin price. This is an advantage for the fund, but not necessarily for the investor. After the release of the Canadian ETFs (BTCC and EBIT), QBTC has seen a discount in its trading price as other investment options are now available.
- It is not offered in the United States.
- There is an annual management fee of 1.95%.
How do I buy QBTC?
You must be a resident of Canada and have access to a brokerage account, TFSA, or RRSP. QBTC is traded publicly on the Toronto Stock Exchange (TSX). Before signing up, be sure to contact your broker or check to see if there is a provider that allows for purchases of QBTC. Be aware that fees may apply for the purchase and sale of QBTC along with taxes on capital gains and the annual management fee that 3iQ charges.
Does QBTC make sense for me to own?
Some of the main reasons for investing in QBTC include:
- If you are already contributing to a TFSA or RRSP, and QBTC is offered by your provider, it may make sense for you to allocate a certain percentage of your contributions.
- You are aware of your sphere of competence and would rather have access to a service that will store and manage your bitcoin funds.
- You are beginning to understand bitcoin and want to gain exposure quickly.
- You are aware of the risks that are involved with a third party managing bitcoin, but you prefer the convenience of purchasing QBTC through an account you already have set up.
- You wish to diversify your Bitcoin exposure by owning QBTC and other investments that are affected by the bitcoin price.
It is always important to do your own research and reach out to those you know who have more experience or knowledge on the subject of Bitcoin.