Mar. 30, 2019
Dear Commissioners, My scepticism of these proposals increases by the day when we hear news fresh off the press that a popular bitcoin exchange has just been compromised. If custody was a significant concern, then this news does not engender confidence in both hot and offline cold storage custodial solutions. The news of this event can be found: "Crypto Exchange Bithumb Hacked for $13 Million in Suspected Insider Job" accessed on 03/30/2019 https://www.coindesk.com/crypto-exchange-bithumb-hacked-for-13-million-in-suspected-insider-job and "Crypto Exchange Bithumb Reportedly Hacked" accessed on 03/30/2019 https://cointelegraph.com/news/crypto-exchange-bithumb-reportedly-hacked Why this should be of concern to the ETF applications is that in the VanEck SolidX Bitcoin Trust document https://www.sec.gov/Archives/edgar/data/1668039/000110465918038369/a18-2298_1s1a.htm#THERISKSYOUFACE_081534 on page 25 they state as part of the risks: "The Trust’s bitcoin May Be Lost, Stolen, or Subject to Other Inaccessibility. There is a risk that part or all of the Trust’s bitcoin could be lost, stolen or destroyed. Although the Trust will secure the Trust’s bitcoin to minimise the risk of loss, the Trust cannot guarantee that such a loss will be prevented. Access to the Trust’s bitcoin could also be restricted by natural events (such as a hurricane or earthquake) or human actions (such as a terrorist attack). Any of these events may adversely affect the operations of the Trust and, consequently, an investment in the Shares." and "The Trust’s Computer Infrastructure May be Vulnerable to Security Breaches. Any Such Problems Could Cause Interruptions in the Trust’s Operations and Adversely Affect an Investment in the Shares. The Trust’s computer infrastructure is potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems and security breaches. Any such security breaches could give rise to a halt in the Trust’s operations, and expose the Trust to a risk of financial loss, litigation and other liabilities. In the event of a security breach, the Trust may cease operations, suspend redemptions or suffer a loss of bitcoin or other assets. Any of these events, mainly if they result in a loss of confidence in the Trust’s ability to operate, could have a material adverse effect on an investment in the Shares." also, on page 26: "In addition, certain exclusions, including, but not limited to the following, apply to the Trust’s insurance coverage. See “The Trust’s bitcoin Insurance” below for a complete discussion of the exclusions to the Trust’s bitcoin insurance coverage. · Loss caused or contributed by theft or any other fraudulent, dishonest or criminal act committed by a partner, employee or director of the Trust or Sponsor, controlling more than 25% of the issued share capital of the Sponsor or any of its subsidiaries. · Loss caused by an employee if an elected or appointed official of the Trust or the Sponsor (not in collusion) knows of any act or acts of theft, fraud or dishonesty involving amounts in excess of $5,000 by such employee prior to the Trust’s or Sponsor’s discovery of a loss caused by such act or acts of the employee. · Any and all losses caused by an employee who has access to the private key(s) associated with the Trust’s bitcoin if an elected or appointed official of the Trust or Sponsor becomes aware of any act or acts of theft, fraud or dishonesty by such employee prior to the Trust’s or Sponsor’s discovery of a loss caused by such act or acts. · Loss of the private key(s) associated with the Trust’s bitcoin where such private key(s) is stored or being transmitted between computers or similar electronic devices that are connected to the Internet. · Any and all loss resulting from the network failure of the Bitcoin protocol. The insurance carries a $500,000 deductible; the Trust will be responsible for any losses up to that amount." All of the above points demonstrate that in the event such as the one reported by coindesk.com and cointelegraph.com we the consumers are not very well protected even through insurance, will be affected financially in such an event and at the very least that the trust is declining to accept liability in such a scenario's. In addition cold storage is not entirely safe as the above insurance exclusions suggests. Also see: https://blog.bankofhodlers.com/are-cold-wallets-really-safe/ These points are not acceptable and as such the whole idea of an ETF based on BTC has no mileage. Unfortunately, in my and my fellow crypto enthusiasts interests, I have to say no to this proposal (and also the Bitwise Bitcoin ETF- File No. SR-NYSEArca-2019-01). Kind Regards, John