Eaglebrook has launched the first Bitcoin Separately Managed Account (SMA). Eaglebrook’s Bitcoin SMA allows advisors to seamlessly add bitcoin to their clients’ portfolios in a simple, secure and compliant investment vehicle. Eaglebrook eliminates the complexity of investing in bitcoin by taking care of client onboarding, account setup, trade execution, position reporting, rebalancing, technology integration, and tax documents. Eaglebrook’s SMA platform works with Gemini Trust Company (“Gemini”) as our liquidity partner and custodian.
The client’s funds are never commingled. The client owns the bitcoin directly in an offline cold storage custody account in their name at Gemini. The client is the sole legal owner of their bitcoin. Gemini is a fiduciary and qualified custodian under New York Banking Law and is licensed by the State of New York to custody digital assets. Gemini Custody is regularly audited and subject to the capital reserve requirements and compliance standards of a traditional financial institution.
Gemini’s offline storage systems use multi-signature technology, role-based governance protocols, and multiple layers of biometric access controls and physical security to safeguard customer assets. Mandatory whitelisting enhances account-level security.
The custody infrastructure at Gemini’s geographically distributed, 24/7 access-controlled secured facilities cannot be accessed by anyone without the proper credentials.The hardware security modules (HSMs) storing private keys are never connected to the internet, and are kept air-gapped inside safes in locked cages. Gemini’s HSMs have achieved the highest levels of the U.S. government’s security ratings. More information available at www.gemini.com/custody.
Eaglebrook has designed the Bitcoin SMAs to have the same permissions and internal controls as an SMA on a traditional custodial platform such as Fidelity or Charles Schwab.
Below is a description of what Eaglebrook has permissions to do as an SMA Manager:
1) Eaglebrook can create exchange and custody accounts in the client’s name.
2) Eaglebrook can provide investment management services to clients.
3) Eaglebrook can execute trades in the client’s exchange account from USD to Bitcoin and from Bitcoin to USD (when the client withdraws or terminates the account).
4) Eaglebrook can move the client’s bitcoin ONLY between the client’s exchange account and the client’s custody account.
5) Eaglebrook can send the client’s USD back to their bank account.
Below is what Eaglebrook is restricted from doing as an SMA Manager:
1) Eaglebrook cannot move the client’s bitcoin outside of Gemini. The client’s bitcoin will always be in their custodial account or exchange account in the client’s name and the client is the sole legal owner.
2) Eaglebrook cannot move the client’s bitcoin to any other account within Gemini other than the client’s custody account and exchange account in their name.
The client’s bitcoin will always be in a custody or exchange account in their name. All Eaglebrook has permission to do is executes trades in the client’s exchange account and move bitcoin between the client’s exchange account and custody account.
Eaglebrook offers daily liquidity with their clients. Once a withdraw is processed, Eaglebrook executes trades from bitcoin to USD and the USD is sent back to the client’s bank account.
The client will request a withdraw on the Eaglebrook Platform. This requires two-factor authentication.
Once Eaglebrook sees the withdraw was requested, an authorized person on the client’s account withdraws from the client’s custody account for the amount requested. The client’s bitcoin is then traded back to USD and send to the original bank account that the client sent the wire from when they funded the account.
Eaglebrook has built an optimal trade execution strategy that has the objective of avoiding slippage and reducing trading fees. The optimal trade execution strategy uses the continuous order book, block trading and auction in this trading strategy. Eaglebrook utilizes this execution strategy when moving clients in and out of the bitcoin market.
When the client initially funds the account, the trading strategy executes the USD to bitcoin trade and the bitcoin is then moved into the client’s custody account. For accounts over $250,000, Eaglebrook uses OTC to execute trades in and out of the bitcoin market. These OTC trades are executed and settled on Gemini’s platform.
There are no account minimums for Eaglebrook’s Bitcoin SMAs.
For the Passive Bitcoin SMA, Eaglebrook charges a 1.00% management fee annually.
The client also pays a 0.30% custody fee to Gemini annually. The custody fee will decrease as Eaglebrook scales assets on Gemini. The client pays trading fees of between 0.00-0.10% to Gemini when they move in and out of the market.
The client would be paying 1.30% annually if they make no withdraws. In a year where the client moves funds into or out of the Passive Bitcoin SMA, the client would pay between 1.40-1.50% to include the trading fees into the fee calculation.