
[Federal Register Volume 84, Number 34 (Wednesday, February 20, 2019)]
[Notices]
[Pages 5140-5157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02732]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85119; File No. SR-CboeBZX-2019-004]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To List and Trade Shares of SolidX 
Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust, Under BZX 
Rule 14.11(e)(4), Commodity-Based Trust Shares

February 13, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 30, 2019, Cboe BZX Exchange, Inc. (``BZX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change to list and trade shares of 
SolidX Bitcoin Shares (the ``Fund'') issued by the VanEck SolidX 
Bitcoin Trust (the ``Trust''), under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares. The shares of the Trust are referred to herein as 
the ``Shares.''
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 5141]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(e)(4),\3\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\4\ SolidX Management LLC is the 
sponsor of the Trust (``Sponsor''). The Trust will be responsible for 
custody of the Trust's bitcoin. SolidX Management LLC is a wholly-owned 
subsidiary of SolidX Partners Inc. Delaware Trust Company is the 
trustee (``Trustee''). The Bank of New York Mellon will be the 
administrator (``Administrator''), transfer agent (``Transfer Agent'') 
and the custodian, with respect to cash, (``Cash Custodian'') of the 
Trust. Foreside Fund Services, LLC will be the marketing agent 
(``Marketing Agent'') in connection with the creation and redemption of 
``Baskets'' \5\ of Shares. Van Eck Securities Corporation (``VanEck'') 
provides assistance in the marketing of the Shares.
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    \3\ The Commission approved BZX Rule 14.11(e)(4) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ All statements and representations made in this filing 
regarding (a) the description of the portfolio, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules and surveillance procedures shall constitute 
continued listing requirements for listing the Shares on the 
Exchange.
    \5\ The Trust will issue and redeem ``Baskets'', each equal to a 
block of 5 Shares, only to ``Authorized Participants''. See 
``Creation and Redemption of Shares'' below.
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    The Trust was formed as a Delaware statutory trust on September 15, 
2016 and is operated as a grantor trust for U.S. federal tax purposes. 
The Trust has no fixed termination date.
    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in the Trust's net assets. 
The Trust's assets will consist of bitcoin \6\ held by the Trust 
utilizing a secure process as described below in ``bitcoin Security and 
Storage for the Trust''. The Trust will not normally hold cash or any 
other assets, but may hold a very limited amount of cash in connection 
with the creation and redemption of Baskets and to pay Trust expenses, 
as described below.
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    \6\ A ``bitcoin'' is an asset that can be transferred among 
parties via the internet, but without the use of a central 
administrator or clearing agency (``bitcoin''). The asset, bitcoin, 
is generally written with a lower case ``b''. The asset, bitcoin, is 
differentiated from the computers and software (or the protocol) 
involved in the transfer of bitcoin among users, which constitute 
the ``Bitcoin Network''. The asset, bitcoin, is the intrinsically 
linked unit of account that exists within the Bitcoin Network. See 
``bitcoin and the Bitcoin Industry'' below.
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    According to the Registration Statement, the Trust will invest in 
bitcoin only. The activities of the Trust are limited to: (1) Issuing 
Baskets in exchange for the cash and/or bitcoin deposited with the Cash 
Custodian or Trust, respectively, as consideration; (2) purchasing 
bitcoin from various exchanges and in OTC transactions; (3) selling 
bitcoin (or transferring bitcoin, at the Sponsor's discretion, to pay 
the Management Fee) as necessary to cover the Sponsor's Management Fee, 
bitcoin Insurance Fee, Trust principals' and employees' salaries, 
expenses associated with securing the Trust's bitcoin and Trust 
expenses not assumed by the Sponsor and other liabilities; (4) selling 
bitcoin as necessary in connection with redemptions; (5) delivering 
cash and/or bitcoin in exchange for Baskets surrendered for redemption; 
(6) maintaining insurance coverage for the bitcoin held by the Trust; 
and (7) securing the bitcoin held by the Trust.
    According to the Registration Statement, the Trust is neither an 
investment company registered under the Investment Company Act of 1940, 
as amended,\7\ nor a commodity pool for purposes of the Commodity 
Exchange Act (``CEA''),\8\ and neither the Trust nor the Sponsor is 
subject to regulation as a commodity pool operator or a commodity 
trading adviser in connection with the Shares.
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    \7\ 15 U.S.C. 80a-1.
    \8\ 17 U.S.C. 1.
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Investment Objective
    According to the Registration Statement and as further described 
below, the investment objective of the Trust is for the Shares to 
reflect the performance of the price of bitcoin, less the expenses of 
the Trust's operations. The Trust intends to achieve this objective by 
investing substantially all of its assets in bitcoin traded primarily 
in the over-the-counter (``OTC'') markets, though the Trust may also 
invest in bitcoin traded on domestic and international bitcoin 
exchanges, depending on liquidity and otherwise at the Trust's 
discretion. The Trust is not actively managed. It does not engage in 
any activities designed to obtain a profit from, or to ameliorate 
losses caused by, changes in the price of bitcoin.
    Subject to certain requirements and conditions described below and 
in the Registration Statement, the Trust, under normal market 
conditions,\9\ will use available offering proceeds to purchase bitcoin 
primarily in the OTC markets, without being leveraged or exceeding 
relevant position limits.
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    \9\ Consistent with the definition in Rule 14.11(i)(3)(E), the 
term ``Normal Market Conditions'' includes, but is not limited to, 
the absence of trading halts in the applicable financial markets 
generally; operational issues causing dissemination of inaccurate 
market information or system failures; or force majeure type events 
such as natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
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Trust Issued Receipts--Standard of Review
Section 6(b)(5) and the Applicable Standards
    Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt as laid out under Rule 
14.11(f). The Commission has approved numerous series of Trust Issued 
Receipts, including Commodity-Based Trust Shares, to be listed on U.S. 
national securities exchanges. In order for any proposed rule change 
from an exchange to be approved, the Commission must determine that, 
among other things, the proposal is consistent with the requirements of 
Section 6(b)(5) of the Act and, as is applicable here, the requirement 
that a national securities exchange's rules are designed to prevent 
fraudulent and manipulative acts and practices. In its recent analysis 
of commodity-based exchange-traded products (``Commodity ETPs''), the 
Commission has focused on this particular language of Section 6(b)(5) 
of the Act and states that a proposed rule change must offer record 
evidence to demonstrate that underlying markets are ``regulated 
markets'' ``of significant size.'' The Commission has interpreted the 
terms ``significant market'' and ``market of significant size'' to 
include a market (or group of markets) as to which: (a) There is a 
reasonable likelihood that a person attempting to manipulate the ETP 
would also have to trade on that market to manipulate the ETP, so that 
a surveillance-sharing agreement would assist the listing exchange in 
detecting and deterring misconduct; and (b) it is unlikely that trading 
in the ETP would be the predominant influence on prices in that market.
    Cboe believes that, based on previous application of the standard, 
the market for Bitcoin Futures \10\ is a regulated

[[Page 5142]]

market of significant size with which the Exchange has in place 
comprehensive surveillance sharing agreements and, thus, the Commission 
should approve this proposal.\11\ In addition, the Exchange also 
believes that there are sufficient other means to prevent fraudulent 
and manipulative acts and practices in the Shares, as was presented as 
an alternate means to demonstrate that a proposal is consistent with 
Section 6(b)(5) of the Act in the in the order disapproving SR-CboeBZX-
2018-001 (the ``GraniteShares Disapproval Order'').\12\ Specifically, 
the Exchange believes that the collective effect of the following 
factors are sufficient to prevent fraudulent and manipulative acts and 
practices in the Shares: \13\ (i) The regulated nature of each of the 
firms that make up the MVIS[supreg] Bitcoin OTC Index (the index that 
is used to price the Shares, as further described below) (the 
``MVBTCO''); \14\ (ii) the notional volume of trading \15\ and 
liquidity \16\ available on the OTC Trading Desks; (iii) the principal 
to principal nature of the OTC Trading Desks; and (iv) in addition to 
its standard surveillance procedures, the Exchange will have in place a 
comprehensive surveillance sharing agreement with each of the OTC 
Trading Desks prior to the Shares listing on the Exchange.\17\ Each of 
these points is further discussed below.
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    \10\ Both Cboe Futures Exchange, Inc. (``CFE'') and Chicago 
Mercantile Exchange, Inc. (``CME''), both members of the Intermarket 
Surveillance Group, have offered contracts for bitcoin futures 
products since 2017. While the CFE bitcoin futures contracts and the 
CME bitcoin futures contracts (collectively, the ``Bitcoin 
Futures'') differ in certain of their implementation details, 
Bitcoin Futures generally trade and settle like any other cash-
settled commodity futures contracts.
    \11\ As the Exchange has stated in a number of other public 
documents, it continues to believe that bitcoin itself is 
particularly resistant to price manipulation. The geographically 
diverse and continuous nature of bitcoin trading makes it difficult 
and prohibitively costly to manipulate the price of bitcoin and, in 
many instances, the bitcoin market is generally less susceptible to 
manipulation than the equity, fixed income, and commodity futures 
markets. There are a number of reasons this is the case, including 
that there is not inside information about revenue, earnings, 
corporate activities, or sources of supply, making it particularly 
difficult to disseminate false or misleading information about 
bitcoin in order to manipulate; manipulation of the price on any 
single venue would require manipulation of the global bitcoin price 
in order to be effective; a substantial over-the-counter market 
provides liquidity and shock-absorbing capacity; bitcoin's 24/7/365 
nature provides constant arbitrage opportunities across all trading 
venues; and it is unlikely that any one actor could obtain a 
dominant market share.
    Further, bitcoin is arguably less susceptible to manipulation 
than other commodities that underlie ETPs; there may be inside 
information relating to the supply of the physical commodity such as 
the discovery of new sources of supply or significant disruptions at 
mining facilities that supply the commodity that simply are 
inapplicable as it relates to bitcoin. Further, the Exchange 
believes that the fragmentation across bitcoin platforms, the 
relatively slow speed of transactions, and the capital necessary to 
maintain a significant presence on each trading platform make 
manipulation of bitcoin prices through continuous trading activity 
unlikely. Moreover, the linkage between the bitcoin markets and the 
presence of arbitrageurs in those markets means that the 
manipulation of the price of bitcoin price on any single venue would 
require manipulation of the global bitcoin price in order to be 
effective. Arbitrageurs must have funds distributed across multiple 
trading platforms in order to take advantage of temporary price 
dislocations, thereby making it unlikely that there will be strong 
concentration of funds on any particular bitcoin exchange or OTC 
platform. As a result, the potential for manipulation on a trading 
platform would require overcoming the liquidity supply of such 
arbitrageurs who are effectively eliminating any cross-market 
pricing differences.
    \12\ See Securities Exchange Act Release No. 83913 (August 22, 
2018), 83 FR 43923 (August 28, 2018) at 3.
    \13\ While not directly related to the issue of manipulation, 
the Exchange also notes that the Sponsor expects that the Shares 
will be purchased primarily by institutional and other substantial 
investors (such as hedge funds, family offices, private wealth 
managers and high-net-worth individuals), which will provide 
additional liquidity and transparency to the bitcoin market in a 
regulated vehicle such as the Trust. With an estimated initial per-
share price equivalent to 25 bitcoin, the Shares will be cost-
prohibitive for smaller retail investors while allowing larger and 
generally more sophisticated institutional investors to gain 
exposure to the price of bitcoin through a regulated product while 
eliminating the complications and reducing the risk associated with 
buying and holding bitcoin.
    \14\ As further described below, Genesis Global Trading, Inc. 
(``Genesis'') is a FINRA registered broker-dealer, Cumberland DRW 
LLC (``Cumberland'') is an affiliate of DRW Execution Services, LLC, 
a FINRA registred broker-dealer, and Circle Financial (``Circle'') 
is awaiting FINRA approval of its purchase of SI Securities, LLC, a 
FINRA registered broker-dealer. For purposes of this filing, 
Genesis, Cumberland, and Circle are collectively referred to as the 
``OTC Trading Desks.''
    \15\ The Sponsor has indicated that there are tens of millions 
to hundereds of millions of dollars of bitcoin traded on the OTC 
Trading Desks on a daily basis.
    \16\ Each constituent firm offers and will continue to offer 
firm, executable quotes of at least $250,000 depth on both the bid 
and ask at all times.
    \17\ The Trust maintains crime, excess crime and excess vault 
risk insurance coverage underwritten by various insurance carriers 
that will cover the entirety of the Trust's bitcoin holdings. While 
the Trust remains fully confident in its system for securing its 
bitcoin, insurance coverage of all of the Trust's bitcoin holdings 
eliminates exposure to the risk of loss to investors through fraud 
or theft, which in turn eliminates most of the custodial issues 
associated with a series of Commodity-Based Trust Shares based on 
bitcoin.
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Precedent--Dry Bulk Shipping Futures
    Looking at the limited instances in which the Commission has 
included in the record for an approval order an affirmative statement 
about a ``significant regulated market'' provides some insight, but 
very little specificity as to how the standard is applied to proposals 
that are approved. Of particular interest is the approval order for the 
Breakwave Dry Bulk Shipping ETF (the ``Shipping Futures ETF'') which is 
designed to provide exposure to the daily change in the price of dry 
bulk freight futures: An ETP that provides exposure to a unique 
underlying instrument with no direct precedent for approval. Looking to 
the language in the approval order for the Shipping Futures ETF, the 
order states: ``[t]he Commission notes that the Exchange has 
represented that the Freight Futures trade on well-established, 
regulated markets that are members of the ISG. The Commission finds 
that the Exchange will be able to share surveillance information with a 
significant regulated market for trading futures on dry bulk freight.'' 
\18\ The Approval Order includes no additional analysis that 
specifically discusses whether the markets with which the listing 
exchange will be able to share surveillance information related to 
freight futures, which the Shipping Futures ETF will invest 
substantially all of its assets in,\19\ are significant regulated 
markets. Importantly, the Approval Order included no mention of the 
listing exchange establishing the existence of other means to 
sufficiently prevent fraudulent and manipulative acts and practices.
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    \18\ See Securities Exchange Act Release No. 82390 (December 22, 
2017), 82 FR 61625 (December 28, 2017) (the ``Approval Order'') at 
30.
    \19\ Id at 5.
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    Looking deeper, the Approval Order also states that:

    Freight Futures are financial instruments that trade off-
exchange but then are cleared through an exchange. Market 
participants communicate their buy or sell orders through a network 
of execution brokers mainly through phone or instant messaging 
platforms with specific trading instructions related to price, size, 
and type of order. The execution broker receives such order and then 
attempts to match it with a counterparty. Once there is a match and 
both parties confirm the transaction, the execution broker submits 
the transaction details including trade specifics, counterparty 
details and accounts to the relevant exchange for clearing, thus 
completing a cleared block futures transaction. The exchange will 
then require the relevant member or FCM to submit the necessary 
margin to support the position similar to other futures clearing and 
margin requirements.\20\
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    \20\ See Approval Order at 12.

    That is to say, freight futures trades occur off-exchange and are 
coordinated through a broker network, mostly through phone and instant 
messaging, and it is only post-trade that any information is shared 
with a clearing exchange for the contracts to be cleared and for margin 
requirements to be communicated.
    The Approval Order also notes that the liquidity in freight futures 
has generally been constant over the last five years and open interest 
represents more than $3 billion.\21\ The Approval

[[Page 5143]]

Order didn't include any statistics about the daily market-wide trading 
volume, but the sponsor of the Shipping Futures ETF estimates a daily 
volume of $50-100 million in freight futures.\22\
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    \21\ Id at 14.
    \22\ See page 3 of the slide show available at: http://www.drybulketf.com/assets/ETFMG-BDRY-ETF-Investment-Strategy.pdf.
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    While the Approval Order did include some background about the dry 
bulk freight industry, dry bulk freight charter rates, and the indexes 
designed to track those rates, there is no discussion or additional 
facts included that can be used to infer that the market for freight 
futures is a significant market. There was also no discussion about 
whether the capacity in which exchanges participate in the freight 
futures market constituted a regulated market. Because the Approval 
Order includes no specific mention of the factors used to determine 
that the freight futures market is significant and regulated, the best 
reference is to look to the most obvious factors and where the 
Commission retroactively provided guidance as to the basis for 
determining that the market was a significant, regulated market.\23\
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    \23\ The GraniteShares Disproval Order provided some additional 
insight into the basis for determining that the dry bulk shipping 
futures market was a significant, regulated market than was 
originally included in the Approval Order, as further described 
below.
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    First, it's arguable based on the description in the Approval Order 
that the exchanges' role in the freight futures ecosystem is not even 
that of a ``market,'' but rather as a trade reporting facility and 
clearing venue. The Commission obviously determined that even the 
limited capacity in which the exchanges are involved in freight futures 
constituted a ``market,'' but comparing that capacity where message and 
phone based trades are reported after the fact to an exchange to the 
fully transparent order books in Bitcoin Futures, the regulatory role 
and the information available to surveil for manipulative activity are 
both significantly greater in the Bitcoin Futures markets at CFE and 
CME. As such, the Exchange represents that Bitcoin Futures trade on 
regulated markets that are members of the ISG.
    Second, the statistics related to Bitcoin Futures compare favorably 
to freight futures.\24\ For instance, the notional average daily volume 
for Bitcoin Futures in the third quarter and fourth quarter of 2018 
were more than $150 million and $121 million, respectively,\25\ as 
compared to the estimate of $50-100 million per day for freight 
futures. Moreover, approximately $44.1 billion in Bitcoin Futures 
traded in 2018 \26\ and more than $7.7 billion in Bitcoin Futures 
traded in the fourth quarter of 2018, even as the price of bitcoin 
declined.\27\ Further, open interest in Bitcoin Futures was 
approximately $86 million as of December 31, 2018.\28\ Stated another 
way, approximately 5.8 million bitcoin worth of Bitcoin Futures traded 
in 2018 (more than 30% of the current total bitcoin supply), more than 
1.5 million bitcoin worth traded in the fourth quarter alone (more than 
4% of the current total bitcoin supply), and more than 22,600 bitcoin 
worth of open interest exists in Bitcoin Futures. Looking at these 
numbers, the liquidity in Bitcoin Futures was relatively consistent 
over 2018. Given the favorable comparison to freight futures, the 
Exchange believes that the significant trading volume in Bitcoin 
Futures, especially as it relates to the total bitcoin supply, makes 
the market for Bitcoin Futures a significant market.\29\
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    \24\ As noted above, the GraniteShares Disapproval Order 
provided more detail about the analysis than the Approval Order 
itself, pointing out that the length of time that the futures had 
been trading (``at least a dozen years'') and that the proposal 
included more than just daily volume figures, but also included 
statistics related to open interest, yearly volume, and distribution 
of open interest across contract types and had represented that 
liquidity had remained relatively constant over a five-year period. 
The GraniteShares Disapproval Order also noted that the listing 
exchange had represented that ``the Freight Futures trade on well-
established, regulated markets that are members of the ISG.'' See 
GraniteShares Disapproval Order at 24.
    \25\ All statistics herein are based on publicly available 
statistics from CFE and CME and a bitcoin price of $7107, $6691, 
$6593, $6478, $5452, and $3720, for July through December, 
respectively, and $7558 for 2018, which was the approximate average 
daily price of bitcoin in 2018.
    \26\ Based on publicly available statistics from CFE and CME and 
a bitcoin price of $7558, which was the approximate average daily 
price of bitcoin in 2018.
    \27\ Based on publicly available statistics from CFE and CME and 
a bitcoin price of $6478, $5452, and $3720, for October, November, 
and December, respectively, which were each the approximate average 
daily price of bitcoin during those months.
    \28\ Based on publicly available statistics from CFE and CME and 
a bitcoin price of $3791, which was the approximate price of bitcoin 
on December 31, 2018.
    \29\ The Exchange also notes that there has been a strong 
correlation between the price of Bitcoin Futures and the bitcoin 
spot price over the more than year-long trading history of Bitcoin 
Futures, which is indicative of the easily arbitrageable bitcoin 
spot and Bitcoin Futures prices. See Memorandum to File No. SR-
CboeBZX-2018-040, November 28, 2018, available at: https://www.sec.gov/comments/sr-cboebzx-2018-040/srcboebzx2018040-4691015-176590.pdf.
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Volatility and Manipulation
    The Exchange also takes issue with the implication that the price 
volatility in bitcoin implies that the price of bitcoin is being 
manipulated and, thus, the underlying markets cannot be significant and 
regulated. Looking at the history of the Baltic Dry Index (the 
``BDI''), which is a composite index designed to reflect the broader 
dry bulk shipping industry and which the Approval Order states ``is a 
common industry measure of dry bulk rates'' that ``has reflected the 
volatility of charter rates over the last 15 years,'' the dry bulk 
shipping industry often experiences even greater periods of volatility 
than the price of bitcoin. For instance, the BDI hit a record high of 
11,793 on May 20, 2008 and proceeded to fall to 663 by December 5, 
2008, a decline of nearly 95% over approximately six and a half months. 
While that was the largest decline, it is one of numerous significant 
price declines in the recent history of the BDI. For instance, from 
August 3, 2015 to February 8, 2016, the BDI went from 1200 to 291 (-
74.6% over six months). From December 9, 2013 to July 14, 2014 the BDI 
went from 2330 to 732 (-68.6% over seven months) and further fell to 
513 on February 7, 2015 (total decline of 78% over 14 months).\30\ Even 
since the Approval Order was issued, the BDI dropped from 1702 in 
December 2017 to 948 in April (-44.4% in five months), bounced back to 
1773 in July and dropped to 1008 in November (-43.2% in five months). 
The price of the fund (and investors' returns) reflects this 
volatility. Just like the price of bitcoin, the price of dry bulk 
shipping (and thus the BDI) is dependent on the complex interaction of 
natural market forces, which can result in significant price movement 
over short periods of time as supply or demand adjust.
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    \30\ The BDI is a composite index made up of sub-indices that 
track the Capesize, Panamax, Supramax, and Handysize charter rates. 
According to the Approval Order, the reference indexes for the dry 
bulk shipping fund track the charter rate for only Capesize, 
Panamax, and Supramax, meaning that, the fund in the Approval Order 
excludes Handysize rates. Publicly available information indicates 
that Capesize, Panamax, and Supramax rates have experienced similar, 
if not more pronounced, volatility as the BDI index over the same 
period of review. For example, the Baltic Capesize Index fell from 
18,749 in May 2008 to 838 in November 2008 (96.6%).

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[[Page 5144]]

[GRAPHIC] [TIFF OMITTED] TN20FE19.000

[GRAPHIC] [TIFF OMITTED] TN20FE19.001

    Further to this point, the Exchange emphasizes that the standard 
applicable under Section 6(b)(5) of the Act is not that there must be a 
complete absence of manipulation in the underlying market. In fact, the 
Commodity Futures Trading Commission (the ``CFTC'') significantly 
increased the number of enforcement cases it brought in fiscal year 
2018 related to manipulative conduct and spoofing,\33\ including 
bringing cases involving futures related to gold, silver, and S&P 500 
futures contracts, among others,\34\ each of which are also the 
underlying reference asset for numerous ETPs. As noted in the 
GraniteShares Disapproval Order, such manipulation on regulated markets 
provides regulators, including the listing self-regulatory 
organization, with

[[Page 5145]]

a window into such manipulative trading activity, leaving them better 
able to detect, understand, and deter potential manipulation in the ETP 
and the underlying reference asset. Based on the favorable comparison 
laid out above between the Bitcoin Futures market and the dry bulk 
shipping futures market combined with the Commission's determination 
that the dry bulk shipping market is a significant, regulated market, 
the Exchange believes that the Bitcoin Futures market is similarly 
significant and regulated and would provide the window described above 
into potential manipulation in the Shares. As further described below, 
the Exchange will also be able to obtain information about bitcoin 
transactions, trades and market data from each of the OTC platforms 
that are included in the MVBTCO and from bitcoin exchanges with which 
the Exchange has entered into a comprehensive surveillance sharing 
agreement, as well as certain additional information that is publicly 
available through the Bitcoin blockchain.
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    \31\ Chart sourced from United Nations Conference on Trade and 
Development, Review of Maritime Transport 2018.
    \32\ Chart sourced from cnbc.com.
    \33\ See 2018 Annual Report on the Division of Enforcement at 
the Commodity Futures Trading Commission, available: https://www.cftc.gov/sites/default/files/2018-11/ENFAnnualReport111418_0.pdf.
    \34\ See James M. McDonald, Statement in Connection with 
Manipulation and Spoofing Filings (Jan. 29, 2018). https://www.cftc.gov/PressRoom/SpeechesTestimony/mcdonaldstatement012918.
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Basis for Approval
    This analysis of the Approval Order is not to say that the Approval 
Order should not have been issued--to the contrary, Cboe is only asking 
that this proposal be reviewed through the same lens as similar 
precedent and believes that such an analysis would result in this 
proposal being approved. The Commission's approval of this or any 
proposal to list and trade an ETP is not an endorsement of the 
underlying asset and especially is not a guarantee against the ETP 
being an extremely risky and/or volatile investment. Rather, it 
signifies that the benefits to end investors that want exposure to a 
particular asset class from having a regulated and transparent U.S. 
exchange traded vehicle outweigh the applicable risk of manipulation. 
With this in mind, Cboe believes that the Bitcoin Futures market is a 
significant, regulated market, especially when compared to the dry bulk 
shipping futures market described in the Approval Order, and therefore 
the Commission should approve this proposal. Further, even if the 
Commission were to determine that the Bitcoin Futures market is not a 
significant, regulated market, the Exchange believes that the regulated 
nature of each of the firms that make up the MVIS[supreg] Bitcoin OTC, 
the nature of trading and liquidity available on each of its 
constituents, and the comprehensive surveillance sharing agreements 
that the Exchange will have in place with each of the OTC Trading 
Desks, constitutes sufficient record evidence to demonstrate that there 
are other means to prevent fraudulent and manipulative acts and 
practices in the Shares.
Bitcoin Price Index
    The Fund will use the MVBTCO to calculate the Trust's net asset 
value (``NAV''). The MVBTCO represents the value of one bitcoin in U.S. 
dollars at any point in time based on executable bids and asks derived 
from constituent bitcoin OTC platforms.\35\ The index also generates a 
closing price as of 4:00 p.m., Eastern Time (``E.T.''), each weekday, 
which is the value used to calculate the Trust's NAV. The index price 
and the closing price are calculated using the same methodology. The 
intra-day levels of the MVBTCO incorporate the real-time price of 
bitcoin based on executable bids and asks derived from constituent 
bitcoin OTC platforms that have entered into an agreement with MV Index 
Solutions GmbH (``MVIS'') to provide such information.
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    \35\ As noted above, each OTC Trade Desk offers constant, 
executable bids and offers of at least $250,000 worth of bitcoin. 
The index value is based on these bids and offers, the logic for 
which is further described below. The OTC Trading Desks are the 
three largest participants in the U.S. dollar OTC bitcoin trading 
market. The Exchange will have in place a comprehensive surveillance 
sharing agreement with each of the OTC Trading Desks prior to the 
Shares listing on the Exchange.
---------------------------------------------------------------------------

    The intra-day price and closing level of the MVBTCO are calculated 
using a proprietary methodology collecting executable bid/ask spreads 
and calculating a mid-point price from several U.S.-based bitcoin OTC 
platforms and is published at or after 4:00 p.m., E.T., each weekday. 
The MVBTCO is published to two decimal places rounded on the last 
digit. The MVBTCO has been live since November 20, 2018 and additional 
information about the index can be found on the MVBTCO's website 
(https://www.mvis-indices.com/indices/digital-assets/mvis-bitcoin-us-otc-spot). MVIS is the index sponsor and calculation agent for the 
MVBTCO. The Sponsor has entered into a licensing agreement with MVIS to 
use the MVBTCO. The Trust is entitled to use the MVBTCO pursuant to a 
sub-licensing arrangement with the Sponsor.
    The MVBTCO calculates the intra-day price of bitcoin every 15 
seconds, including the closing price as of 4:00 p.m. E.T. The bitcoin 
OTC platforms included in the MVBTCO are U.S.-based entities. These 
platforms are well established institutions that comply with anti-money 
laundering (``AML'') and know your customer (``KYC'') regulatory 
requirements with respect to trading counterparties and include 
entities that are regulated by the SEC and FINRA as registered broker-
dealers and affiliates of broker-dealers.
    The logic utilized for the derivation of the intra-day and daily 
closing index level for the MVBTCO is intended to analyze actual 
executable bid/ask spread data, verify and refine the data set and 
yield an objective, fair-market value of one bitcoin throughout the day 
and as of 4:00 p.m. E.T. each weekday, priced in U.S. dollars. As 
discussed herein, the MVBTCO intra-day price and the MVBTCO closing 
price are collectively referred to as the MVBTCO price, unless 
otherwise noted.
    The key elements of the algorithm underlying the MVBTCO include:
     Equal Weighting of OTC Platforms: This mitigates the 
impact of spikes at single platforms.
     Using executable bid/ask spreads and the respective mid-
point prices, which are consistently available.
    The Sponsor is not aware of any bitcoin derivatives currently 
trading based on the MVBTCO.
OTC Trading
    OTC trading of bitcoin is generally accomplished via bilateral 
agreements on a principal-to-principal basis. All risks and issues of 
credit are between the parties directly involved in the transaction. 
The OTC market provides a relatively flexible market in terms of 
quotes, price, size and other factors. The OTC market has no formal 
structure and no open-outcry meeting place. Parties engaging in OTC 
transactions will agree upon a price--often via phone or email--and one 
of the two parties would then initiate the transaction. For example, a 
seller of bitcoin could initiate the transaction by sending the bitcoin 
to the buyer's bitcoin address. The buyer would then wire U.S. dollars 
to the seller's bank account. The OTC Trading Desks are the three 
largest participants in the U.S. dollar OTC bitcoin trading market. 
Based on its observations and experience in the market, the Sponsor 
estimates that the U.S. dollar OTC bitcoin trading volume globally 
represents on average approximately 25-50% of the trading volume of 
bitcoin traded globally in U.S. dollars on U.S. dollar-denominated 
bitcoin exchanges.
    According to the Registration Statement, transaction costs in the 
OTC market are negotiable between the parties and therefore vary with 
some participants willing to offer competitive prices for larger 
volumes, although this will vary according to market conditions. Cost 
indicators can be obtained from OTC trading platforms as well as 
various information service providers, such as the bitcoin price

[[Page 5146]]

indexes and bitcoin exchanges. OTC trading tends to be in large blocks 
of bitcoin and between institutions.
    The Trust intends to buy and sell bitcoin in the OTC bitcoin 
market. The Sponsor currently expects that often it will be more cost 
efficient for the Trust to effect large trades (e.g., $500,000 or 
greater) in the OTC market rather than on a bitcoin exchange. The Trust 
therefore expects to conduct most of its trading in the OTC bitcoin 
market, primarily on the OTC platforms that comprise the MVBTCO. As 
noted above, each OTC Trade Desk offers constant, executable bids and 
offers of at least $250,000 worth of bitcoin and offers near real-time 
quotes for tens of millions of dollars of bitcoin and, in most 
circumstances, minimal slippage.
    When buying and selling bitcoin in the OTC market, the Trust will 
consider various market factors, including the total U.S. dollar size 
of the trade, the volume of bitcoin traded across the various U.S. 
dollar-denominated bitcoin exchanges during the preceding 24-hour 
period, available liquidity offered by OTC market participants, and the 
bid and ask quotes offered by OTC market participants. The Trust's goal 
is to fill an order at the best possible price.
    To the extent a Basket creation or redemption order necessitates 
the buying or selling of a large block of bitcoin (e.g., an amount that 
if an order were placed on an exchange would potentially move the price 
of bitcoin), the Sponsor represents that placing such a trade in the 
OTC market may be advantageous to the Trust. OTC trades help avoid 
factors such as potential price slippage (causing the price of bitcoin 
to move as the order is filled on the exchange), while offering speed 
in trade execution and settlement (an OTC trade can be executed 
immediately upon agreement of terms between counterparties) and privacy 
(to avoid other market participants entering trades in advance of a 
large block order). OTC bitcoin trading is typically private and not 
regularly reported. The Trust does not intend to report its OTC 
trading. The Trust has established delivery-versus-payment like 
(``DVP'') and receive-versus-payment like (``RVP'') trading 
arrangements with its trading counterparties pursuant to which the 
Trust will be able to minimize counterparty risk. These arrangements 
are on a trade-by-trade basis and do not bind the Trust to continue to 
trade with any counterparty.
    The Trust expects to take custody of bitcoin within one business 
day of receiving an order from an Authorized Participant to create a 
Basket (as defined in ``Creation and Redemption of Shares'' below).
    The dual elements of principal to principal trading combined with 
the large size at which trades are effected should effectively 
eliminate the ability of market participants to manipulate the market 
with small trades as may be the case on any individual exchange. As 
noted above, the OTC desks that comprise the MVBTCO with which the 
Trust intends to effect transactions are well established institutions 
that comply with AML and KYC regulatory requirements with respect to 
trading counterparties and include entities that are regulated by the 
SEC and FINRA as registered broker-dealers and affiliates of broker-
dealers. It is the Sponsor's position that the OTC desks have a better 
measure of the market than any exchange-specific reference price, 
whether individually or indexed across multiple exchanges.
Bitcoin Trading on Exchanges
    According to the Registration Statement, to the extent the Trust 
conducts bitcoin trading on an exchange, it expects to do so on the 
following U.S. dollar-denominated bitcoin exchanges: Bitstamp (located 
in Slovenia and with an office in the U.K.), Coinbase (located in 
California), Gemini (located in New York), itBit (located in New York), 
bitFlyer (located in New York) and Kraken (located in San Francisco). 
All of these exchanges follow AML and KYC regulatory requirements.
Bitcoin Price Transparency
    In addition to the price transparency of the MVBTCO, with respect 
to the OTC market, and the bitcoin exchange market itself, the Trust 
will provide information regarding the Trust's bitcoin holdings as well 
as additional data regarding the Trust. The Sponsor expects that the 
dissemination of information on the Trust's website, along with 
quotations for and last-sale prices of transactions in the Shares and 
the intra-day indicative value (``IIV'') and NAV of the Trust will help 
to reduce the ability of market participants to manipulate the bitcoin 
market or the price of the Shares and that the Trust's arbitrage 
mechanism will facilitate the correction of price discrepancies in 
bitcoin and the Shares. The Sponsor believes that demand from new, 
larger investors accessing bitcoin through investment in the Shares 
will broaden the investor base in bitcoin, which could further reduce 
the possibility of collusion among market participants to manipulate 
the bitcoin market. The Sponsor expects that the Shares will be 
purchased primarily by institutional and other substantial investors 
(such as hedge funds, family offices, private wealth managers and high-
net-worth individuals), which will provide additional liquidity and 
transparency to the bitcoin market in a regulated vehicle such as the 
Trust.
    According to the Sponsor, the MVBTCO's methodology decreases the 
influence on the MVBTCO of any particular OTC platform that diverges 
from the rest of the data points used by the MVBTCO, which reduces the 
possibility of an attempt to manipulate the price of bitcoin as 
reflected by the MVBTCO.
Bitcoin Security and Storage for the Trust
    According to the Sponsor, given the novelty and unique digital 
characteristics (as set forth above) of bitcoin as an innovative asset 
class, traditional custodians who normally custody assets do not 
currently offer custodial services for bitcoin. Accordingly, the Trust 
will secure bitcoin using multi-signature ``cold storage wallets'', an 
industry best practice. A cold storage wallet is created and stored on 
a computer with no access to a network, i.e., an ``air-gapped'' 
computer with no ability to access the internet. Such a computer is 
isolated from any network, including local or internet connections. A 
multi-signature address is an address associated with more than one 
private key. For example, a ``2 of 3'' address requires two signatures 
(out of three) from two separate private keys (out of three) to move 
bitcoin from a sender address to a receiver address.
    The Trust will utilize bitcoin private keys that are generated and 
stored on air-gapped computers. The movement of bitcoin will require 
physical access to the air-gapped computers and use of multiple 
authorized signers. For backup and disaster recovery purposes, the 
Trust will maintain cold storage wallet backups in locations 
geographically distributed throughout the United States, including in 
the Northeast and Midwest.
    In addition to its security system, the Trust will maintain 
comprehensive insurance coverage underwritten by various insurance 
carriers. The purpose of the insurance is to protect investors against 
loss or theft of the Trust's bitcoin. The insurance will cover loss of 
bitcoin by, among other things, theft, destruction, bitcoin in transit, 
computer fraud and other loss of the private keys that are necessary to 
access the bitcoin held by the Trust. The coverage is subject to 
certain terms, conditions and

[[Page 5147]]

exclusions, as discussed in the Registration Statement. The insurance 
policy will carry initial limits of $25 million in primary coverage and 
$100 million in excess coverage, with the ability to increase coverage 
depending on the value of the bitcoin held by the Trust. To the extent 
the value of the Trust's bitcoin holdings exceeds the total 
$125,000,000 of insurance coverage, the Sponsor has made arrangements 
for additional insurance coverage with the goal of maintaining 
insurance coverage at a one-to-one ratio with the Trust's bitcoin 
holdings valued in U.S. dollars such that for every dollar of bitcoin 
held by the Trust there is an equal amount of insurance coverage.
    The Sponsor expects that the Trust's auditor will verify the 
existence of bitcoin held in custody by the Trust. In addition, the 
Trust's insurance carriers will have inspection rights associated with 
the bitcoin held in custody by the Trust.
Bitcoin Market Price
    In the ordinary course of business, the Administrator will value 
the bitcoin held by the Trust based on the closing price set by the 
MVBTCO or one of the other pricing sources set forth below (each, a 
``bitcoin Market Price'') as of 4:00 p.m. E.T., on the valuation date 
on any day that the Exchange is open for regular trading. For further 
detail, see (i) below. If for any reason, and as determined by the 
Sponsor, the Administrator is unable to value the Trust's bitcoin using 
the procedures described in (i), the Administrator will value the 
Trust's bitcoin using the cascading set of rules set forth in (ii) 
through (iv) below. For the avoidance of doubt, the Administrator will 
employ the below rules sequentially and in the order as presented, 
should the Sponsor determine that one or more specific rule(s) fails. 
The Sponsor may determine that a rule has failed if a pricing source is 
unavailable or, in the judgment of the Sponsor, is deemed unreliable. 
To the extent the Administrator uses any of the cascading set of rules, 
the Sponsor will make public on the Trust's website the rule being 
used.
    (i) Except as further described below, the bitcoin Market Price 
will be: The price set by the MVBTCO as of 4:00 p.m. E.T., on the 
valuation date. The MVBTCO is a real-time U.S. dollar-denominated 
composite reference rate for the price of bitcoin. The MVBTCO 
calculates the intra-day price of bitcoin every 15 seconds, including 
the closing price as of 4:00 p.m. E.T. The intra-day price and closing 
price are based on a methodology that consists of collecting actual 
executable bid/ask spreads and calculating a mid-point price from 
constituent bitcoin OTC platforms that have entered into an agreement 
with MVIS. The logic utilized for the derivation of the daily closing 
index level for the MVBTCO is intended to analyze actual executable 
bid/ask spread data, verify and refine the data set, and yield an 
objective, fair-market value of one bitcoin throughout the day and as 
of 4:00 p.m. E.T. each weekday, priced in U.S. dollars.
    (ii) In the event that rule (i) above fails, the bitcoin Market 
Price will be: the mid-point price between the bid/ask obtained by the 
Sponsor from any one of the bitcoin OTC platforms included within the 
MVBTCO index as of 4:00 p.m. E.T., on the valuation date.
    (iii) In the event that rules (i) and (ii) above fail, the bitcoin 
Market Price will be: the volume weighted average bitcoin price for the 
immediately preceding 24-hour period at 4:00 p.m. E.T. on the valuation 
date as published by an alternative third party's public data feed that 
the Sponsor determines is reasonably reliable, subject to the 
requirement that such data is calculated based upon a volume weighted 
average bitcoin price obtained from the major U.S. dollar-denominated 
bitcoin exchanges (``Second Source''). Subject to the next sentence, if 
the Second Source becomes unavailable (e.g., data sources from the 
Second Source for bitcoin prices become unavailable, unwieldy or 
otherwise impractical for use), or if the Sponsor determines in good 
faith that the Second Source does not reflect an accurate bitcoin 
price, then the Sponsor will, on a best efforts basis, contact the 
Second Source in an attempt to obtain the relevant data. If after such 
contact the Second Source remains unavailable or the Sponsor continues 
to believe in good faith that the Second Source does not reflect an 
accurate bitcoin price, then the Administrator will employ the next 
rule to determine the bitcoin Market Price.
    (iv) In the event that rules (i), (ii), and (iii) above fail, the 
bitcoin Market Price will be: The Sponsor will use its best judgment to 
determine a good faith estimate of the bitcoin Market Price.
The Trust
    According to the Registration Statement, the Trust will invest in 
bitcoin only. The Trust will either (i) cause the Sponsor to receive 
bitcoin from the Trust in such quantity as may be necessary to pay the 
Management Fee or (ii) sell bitcoin in such quantity as may be 
necessary to permit payment in cash of the Management Fee and other 
Trust expenses and liabilities not assumed by the Sponsor, such as the 
bitcoin Insurance Fee, bitcoin storage fees and salaries of Trust 
principals and employees. As a result, the amount of bitcoin sold will 
vary from time to time depending on the level of the Trust's expenses 
and the market price of bitcoin.
    The Trust will pay the Sponsor a management fee as compensation for 
services performed on behalf of the Trust and for services performed in 
connection with maintaining the Trust. The Sponsor's fee will be 
payable monthly in arrears and will be accrued daily. The bitcoin 
Insurance Fee will be payable by the Trust monthly in advance, as 
described in the Registration Statement. Bitcoin storage fees and 
salaries of Trust principals and employees will be payable monthly in 
arrears and will be accrued daily.
    In exchange for the Management Fee, the Sponsor has agreed to 
assume the following administrative and marketing expenses incurred by 
the Trust: Each of the Trustee's, Administrator's, Cash Custodian's, 
Transfer Agent's and Marketing Agent's monthly fee and out-of-pocket 
expenses and expenses reimbursable in connection with such service 
provider's respective agreement; the marketing support fees and 
expenses; exchange listing fees; SEC registration fees; index license 
fees; printing and mailing costs; maintenance expenses for the Trust's 
website; audit fees and expenses; and up to $100,000 per annum in legal 
expenses. The Trust will be responsible for paying, or for reimbursing 
the Sponsor or its affiliates for paying, all the extraordinary fees 
and expenses, if any, of the Trust. The management fee to be paid to 
the Sponsor, the bitcoin Insurance Fee, the salaries of the Trust's 
principals and employees and the expenses associated with custody of 
the Trust's bitcoin are expected to be the only ordinary recurring 
operating expense of the Trust.
Net Asset Value
    The NAV for the Trust will equal the market value of the Trust's 
total assets, including bitcoin and cash, less liabilities of the 
Trust, which include estimated accrued but unpaid fees, expenses and 
other liabilities. Under the Trust's proposed operational procedures, 
the Administrator will calculate the NAV on each business day that the 
Exchange is open for regular trading, as promptly as practicable after 
4:00 p.m. E.T. To calculate the NAV, the Administrator will use the 
closing price set for bitcoin by the MVBTCO or one of the other bitcoin 
Market Prices set forth above. The Administrator will also

[[Page 5148]]

determine the NAV per Share by dividing the NAV of the Trust by the 
number of the Shares outstanding as of the close of trading on Regular 
Trading Hours, i.e., 9:30 a.m. to 4:00 p.m. E.T. (which includes the 
net number of any Shares deemed created or redeemed on such day).
    According to the Registration Statement, Authorized Participants 
(as defined in ``Creation and Redemption of Shares'' below), or their 
clients or customers, may have an opportunity to realize a riskless 
profit if they can create a Basket (as defined in ``Creation and 
Redemption of Shares'' below) at a discount to the public trading price 
of the Shares or can redeem a Basket at a premium over the public 
trading price of the Shares. The Sponsor expects that the exploitation 
of such arbitrage opportunities by Authorized Participants and their 
clients and customers will tend to cause the public trading price to 
track NAV per Share closely over time. Such arbitrage opportunities 
will not be available to holders of Shares who are not Authorized 
Participants.
    While the Trust's investment objective is for the Shares to reflect 
the performance of the price of bitcoin, less expenses of the Trust's 
operations, the Shares may trade in the secondary market at prices that 
are lower or higher relative to their NAV per Share for a number of 
reasons, including price volatility, trading volume, and closing of 
bitcoin trading platforms due to fraud, failure, security breaches or 
otherwise.
    The NAV per Share may fluctuate with changes in the market value of 
the bitcoin held by the Trust. The value of the Shares may be 
influenced by non-concurrent trading hours between the Exchange and the 
various bitcoin OTC platforms comprising the MVBTCO. As a result, there 
will be periods when the Exchange is closed and the bitcoin OTC 
platforms continue to trade. Significant changes in the price of 
bitcoin during such time periods could result in a difference between 
the value of bitcoin as measured by the MVBTCO and the most recent NAV 
per Share or closing trading price. The Exchange, however, expects that 
any meaningful divergence in the intraday price of the Shares and the 
MVTCO will be quickly arbitraged away when trading is available on the 
Exchange because when such a discount or premium exists, Authorized 
Participants will generally be able to create or redeem a Basket of 
Shares at a discount or a premium to the public trading price per 
Share.
Impact on Arbitrage
    Investors and market participants are able throughout the trading 
day to compare the market price of the Shares and the Share's IIV. If 
the market price of the Shares diverges significantly from the IIV, 
Authorized Participants will have strong economic incentive to execute 
arbitrage trades. Because of the potential for arbitrage inherent in 
the structure of the Trust, the Sponsor believes that the Shares will 
not trade at a material discount or premium to the underlying bitcoin 
held by the Trust. If the price of the Shares deviates enough from the 
price of bitcoin to create a material discount or premium, an arbitrage 
opportunity is created. If the Shares are inexpensive compared to the 
bitcoin that underlies them, an arbitrageur may buy the Shares at a 
discount, immediately redeem them in exchange for bitcoin, and sell the 
bitcoin in the cash market at a profit. If the Shares are expensive 
compared to the bitcoin that underlies them, an arbitrageur may sell 
the Shares short, buy enough bitcoin to acquire the number of Shares 
sold short, acquire the Shares through the creation process, and 
deliver the Shares to close out the short position. To facilitate the 
arbitrage process, Authorized Participants may source bitcoin through 
the OTC market or on exchanges; alternatively, Authorized Participants 
may create or redeem for cash and the Trust will source buyers and 
sellers of bitcoin in the OTC market. The arbitrage process, which in 
general provides investors the opportunity to profit from differences 
in prices of assets, increases the efficiency of the markets, serves to 
prevent potentially manipulative efforts, and can be expected to 
operate efficiently in the case of the Shares and bitcoin.
Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue and 
redeem ``Baskets'', each equal to a block of 5 Shares, only to 
``Authorized Participants'' (as described below). The size of a Basket 
is subject to change. The creation and redemption of a Basket require 
the delivery to the Trust, or the distribution by the Trust, of the 
number of whole and fractional bitcoins or the U.S. dollar equivalent 
represented by each Basket being created or redeemed, the number of 
which is determined by dividing the number of bitcoins owned by the 
Trust at such time by the number of Shares outstanding at such time 
(calculated to one one-hundred-millionth of one bitcoin), as adjusted 
for the number of whole and fractional bitcoins constituting accrued 
but unpaid fees and expenses of the Trust and multiplying the quotient 
obtained by 5 (``bitcoin Basket Amount''). The bitcoin Basket Amount 
will gradually decrease over time as the Trust's bitcoin are used to 
pay the Trust's expenses. According to the Registration Statement, as 
of the date of the Registration Statement, each Share currently 
represents approximately 25 bitcoin.
    Orders to create and redeem Baskets may be placed only by 
Authorized Participants.\36\ A transaction fee will be assessed on all 
creation and redemption transactions effected in-kind. In addition, the 
Trust reserves the right to charge a variable transaction fee to the 
Authorized Participants for creations and redemptions effected in cash 
to cover the Trust's expenses related to purchasing and selling bitcoin 
in the OTC market or on bitcoin exchanges if such expenses should 
exceed the fixed $1,000 transaction fee. The variable transaction fee 
would cover actual expenses paid for the purchase and sale of bitcoin 
in order that such expenses do not decrease the NAV of the Trust. Such 
expenses may vary, but the Trust expects such expenses, should they 
occur in the future, to constitute 1% or less of the value of a Basket. 
The creation and redemption of a Basket requires the delivery to the 
Trust, or the distribution by the Trust, of the bitcoin Basket Amount 
(that is, the number of bitcoins represented by each Basket or the U.S. 
dollar equivalent), for each Basket to be created or redeemed. The 
bitcoin Basket Amount multiplied by the number of Baskets being created 
or redeemed is the ``Total bitcoin Basket Amount.''
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    \36\ An Authorized Participant must: (1) Be a registered broker-
dealer and a member in good standing with the Financial Industry 
Regulatory Authority (``FINRA''); (2) be a participant in Depository 
Trust Company (``DTC''). To become an Authorized Participant, a 
person must enter into an ``Authorized Participant Agreement'' with 
the Sponsor and the Transfer Agent. The Authorized Participant 
Agreement provides the procedures for the creation and redemption of 
Baskets and for the delivery of the cash (and, potentially, bitcoin 
in-kind) required for such creations and redemptions.
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Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Transfer Agent to create one or more Baskets. For purposes of 
processing both purchase and redemption orders, a ``business day'' 
means any day other than a day when the Exchange is closed for regular 
trading. Cash purchase orders must be placed by 3:00 p.m. E.T., or the 
close of regular trading on the Exchange, whichever is earlier, and in-
kind purchase orders must be placed by 4:00 p.m. E.T., or the close of 
regular

[[Page 5149]]

trading on the Exchange, whichever is earlier. The day on which the 
Transfer Agent receives a valid purchase order, as approved by the 
Marketing Agent, is the purchase order date. Purchase orders are 
irrevocable. By placing a purchase order, and prior to delivery of such 
Baskets, an Authorized Participant's DTC account will be charged the 
non-refundable transaction fee due for the purchase order.
Determination of Required Payment
    The total payment required to create each Basket is determined by 
calculating the NAV of 5 Shares of the Trust as of the closing time of 
the Exchange on the purchase order date. Baskets are issued as of 2:00 
p.m., E.T., on the business day immediately following the purchase 
order date at the applicable NAV as of the closing time of the Exchange 
on the purchase order date, but only if the required payment has been 
timely received.
    Orders to purchase Baskets for cash must be placed no later than 
3:00 p.m. E.T., or the close of regular trading on the Exchange, 
whichever is earlier, and orders to purchase Baskets in-kind must be 
placed no later than 4:00 p.m. E.T., or the close of regular trading on 
the Exchange, whichever is earlier. For cash creation orders, the total 
cash payment required to create a Basket will not be determined until 
approximately 4:00 p.m., E.T. (the time at which the Trust's NAV for 
that day is expected to be calculated) on the date the purchase order 
is received by the Transfer Agent and approved by the Marketing Agent. 
Authorized Participants therefore will not know the total amount of the 
payment required to create a Basket at the time they submit an 
irrevocable purchase order for the Basket. Valid cash orders to 
purchase Baskets received after 3:00 p.m. E.T., and valid in-kind 
orders to purchase Baskets received after 4:00 p.m. E.T., are 
considered received on the following business day. The NAV of the 
Trust, and thus the total amount of the payment required to create a 
Basket for cash could rise or fall substantially between the time an 
irrevocable purchase order is submitted and the time the amount of the 
purchase price in respect thereof is determined. Changes to the price 
of bitcoin between the time an order is placed and the time the final 
price is determined by the Trust will be borne by the Authorized 
Participant and not by the Trust.
    The Sponsor makes available through the National Securities 
Clearing Corporation (``NSCC'') on each business day, prior to the 
opening of business on the Exchange (a) the amount of cash required for 
a cash creation of a Basket (the ``Cash Basket Amount''), based on 100% 
of the NAV of the Shares per Basket as of the prior business day, which 
amount is applicable in order to effect cash purchases of Baskets until 
such time as the next announced amount is made available and (b) the 
bitcoin Basket Amount.
    The payment required to create a Basket typically will be made in 
cash, but it may also be made partially or wholly in-kind at the 
discretion of the Sponsor if the Authorized Participant requests to 
convey bitcoin directly to the Trust. For a cash order to create, the 
Authorized Participant must deliver the Cash Basket Amount to the Cash 
Custodian on the day the order is placed and accepted and, potentially, 
an amount of cash on the business day after the order is placed and 
approved referred to as the ``Balancing Amount,'' computed as described 
below. Upon delivery of the Cash Basket Amount and the Balancing Amount 
to the Cash Custodian, the Transfer Agent will cause the Trust to issue 
a Basket to the Authorized Participant. Expenses incurred by the Trust 
relating to purchasing bitcoin in assembling a cash creation Basket, 
such as OTC market fees, bitcoin exchange-related fees and/or 
transaction fees, will be borne by Authorized Participants, rather than 
the Trust, through the transaction fee charged by the Trust.
    The Balancing Amount is an amount equal to the difference between 
the NAV of the Shares (per Basket) at the end of the business day the 
order is placed and approved and the Cash Basket Amount. The Balancing 
Amount serves to compensate for any difference between the NAV per 
Basket and the Cash Basket Amount. The Balancing Amount may be positive 
(in which case the Authorized Participant will be required to transfer 
the corresponding amount of cash to the Cash Custodian) or negative (in 
which case the amount of cash required to be transferred by the 
Authorized Participant will be less than the Cash Basket Amount, and if 
the Authorized Participant has already delivered the full Cash Basket 
Amount, the corresponding amount of cash will be returned to the 
Authorized Participant). Authorized Participants will be notified of 
the Balancing Amount that must be paid to the Cash Custodian or 
refunded by the Cash Custodian, if any, by approximately 4:00 p.m., 
E.T. on the business day the order is placed and approved. The 
Balancing Amount must be paid to the Cash Custodian no later than 2:00 
p.m. E.T. on the business day following the date the order was placed 
and approved. Upon delivery of the Cash Basket Amount and Balancing 
Amount to the Cash Custodian, the Transfer Agent will cause the Trust 
to issue a Basket to the Authorized Participant the following business 
day by 2:00 p.m., E.T.
    To the extent the Authorized Participant places an in-kind order to 
create, the Authorized Participant must deliver the Bitcoin Basket 
Amount directly to the Trust (i.e. to the security system that holds 
the Trust's bitcoin) no later than 4:00 p.m. E.T. on the date the 
purchase order is received and approved. Upon delivery of the bitcoin 
to the Trust's security system, the Transfer Agent will cause the Trust 
to issue a Basket to the Authorized Participant the following business 
day by 2:00 p.m., E.T. Payment of any tax or other fees and expenses 
payable upon transfer of bitcoin shall be the sole responsibility of 
the Authorized Participant purchasing a Basket. Expenses incurred by 
Authorized Participants relating to purchasing bitcoin in assembling an 
in-kind creation Basket, such as OTC market fees, bitcoin exchange-
related fees and/or transaction fees, will be borne by Authorized 
Participants.
    The Administrator, by email or telephone correspondence, shall 
notify the Authorized Participant of the NAV of the Trust and the 
corresponding amount of cash (in the case of a cash purchase order) to 
be included in a Balancing Amount by approximately 4:00 p.m. E.T. on 
the day the purchase order is placed and approved.
Redemption Procedures
    The procedures by which an Authorized Participant can redeem one or 
more Baskets mirror the procedures for the creation of Baskets. On any 
business day, an Authorized Participant may place an order with the 
Transfer Agent to redeem one or more Baskets. Cash redemption orders 
must be placed no later than 3:00 p.m. E.T., or the close of regular 
trading on the New York Stock Exchange, whichever is earlier, and 
redemption orders submitted in-kind must be placed by 4:00 p.m. E.T., 
or the close of regular trading on the Exchange, whichever is earlier. 
The day on which the Transfer Agent receives a valid redemption order, 
as approved by the Marketing Agent, is the ``redemption order date.'' 
Redemption orders are irrevocable. The redemption procedures allow only 
Authorized Participants to redeem Baskets. A shareholder may not redeem 
Baskets other than through an Authorized Participant.
    By placing a redemption order, an Authorized Participant agrees to 
deliver the Baskets to be redeemed through

[[Page 5150]]

DTC's book-entry system to the Trust not later than 4:00 p.m. E.T. on 
the business day immediately following the redemption order date. By 
placing a redemption order, and prior to receipt of the redemption 
proceeds, an Authorized Participant's DTC account will be charged the 
non-refundable transaction fee due for the redemption order.
Determination of Redemption Proceeds
    The redemption proceeds from the Trust consist of the ``cash 
redemption amount'' or, if making an in-kind redemption, bitcoin. The 
cash redemption amount is equal to the U.S. dollar equivalent of the 
Total bitcoin Basket Amount requested in the Authorized Participant's 
redemption order as of the end of Regular Trading Hours on the 
redemption order date. The Cash Custodian will distribute the cash 
redemption amount at 4:00 p.m., E.T., on the business day immediately 
following the redemption order date through DTC to the account of the 
Authorized Participant as recorded on DTC's book-entry system. The 
bitcoin redemption amount will be the Total bitcoin Basket Amount. At 
the discretion of the Sponsor and if the Authorized Participant 
requests to receive bitcoin directly, some or all of the redemption 
proceeds may be distributed to the Authorized Participant in-kind by 
the Trust.
    Orders to redeem Baskets must be placed no later than 3:00 p.m. 
E.T. for cash redemption orders and 4:00 p.m. E.T. for in-kind 
redemptions orders, but the total amount of redemption proceeds 
typically will not be determined until after 4:00 p.m. E.T. on the date 
the redemption order is received. Authorized Participants therefore 
will not know the total amount of the redemption proceeds at the time 
they submit an irrevocable redemption order.
Delivery of Redemption Proceeds
    The redemption proceeds due from the Trust are delivered to the 
Authorized Participant at 4:00 p.m. E.T. on the business day 
immediately following the redemption order date if, by such time on 
such business day immediately following the redemption order date, the 
Trust's DTC account has been credited with the Baskets to be redeemed. 
If the Trust's DTC account has not been credited with all of the 
Baskets to be redeemed by such time, the redemption distribution is 
delivered to the extent of whole Baskets received. The Sponsor may, but 
is not obligated to, extend the redemption date with respect to a 
redemption order for which whole Baskets have not been delivered by the 
Authorized Participant. In such event, the Sponsor may charge the 
Authorized Participant a fee for such extension to reimburse the Trust 
for any losses incurred from the Authorized Participant's failure to 
deliver whole Baskets (including, but not limited to, expenses incurred 
in selling bitcoin in respect of the redemption order and/or buying 
bitcoin back following the failure of the Authorized Participant to 
deliver whole Baskets, as well as losses to the Trust from movements in 
the market value of bitcoin between selling the bitcoin and buying it 
back). If the Sponsor extends the redemption date, any remainder of the 
redemption distribution is delivered on the next business day to the 
extent of remaining whole Baskets received if the Sponsor receives the 
fee applicable to the extension of the redemption distribution date and 
the remaining Baskets to be redeemed are credited to the Trust's DTC 
account by 4:00 p.m. E.T. on such next business day. Any further 
outstanding amount of the redemption order shall be cancelled.
    The Sponsor makes available through the NSCC, prior to the opening 
of business on the Exchange on each business day, (a) for in-kind 
redemptions, the amount of bitcoin per Basket and (b) for cash 
redemptions, the amount of cash per Basket that will be applicable to 
redemption requests received in proper form.
    As with creation orders, the NAV of the Shares per Basket as of the 
day on which a redemption request is received and approved will be 
calculated after the deadline for redemption orders. The amount of cash 
payable per Basket for a cash redemption order accordingly will be 
calculated after the redemption order is received. The Administrator, 
by email or telephone correspondence, shall notify the Authorized 
Participant of the NAV of the Trust and the corresponding amount of 
cash (in the case of a cash redemption order) to be payable per Basket 
by approximately 4:00 p.m. E.T. on the day the purchase order is placed 
and approved.
    To the extent the Authorized Participant places an in-kind order to 
redeem a Basket, the Trust will deliver, on the business day 
immediately following the day the redemption order is received, the 
Total bitcoin Basket Amount. Expenses relating to transferring bitcoin 
to an Authorized Participant in a redemption Basket will be borne by 
Authorized Participants via the redemption transaction fee.
Availability of Information
    The Trust's website will provide an IIV per Share updated every 15 
seconds, as calculated by the Exchange or a third party financial data 
provider during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 
p.m. E.T.). The IIV will be calculated by using the prior day's closing 
NAV per Share as a base and updating that value during Regular Trading 
Hours to reflect changes in the value of the Trust's bitcoin holdings 
during the trading day.
    The IIV disseminated during Regular Trading Hours should not be 
viewed as an actual real-time update of the NAV, which will be 
calculated only once at the end of each trading day. The IIV will be 
widely disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Trading Hours by one or more major market data 
vendors. In addition, the IIV will be available through on-line 
information services.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) The current NAV per 
Share daily and the prior business day's NAV and the reported closing 
price; (b) the mid-point of the bid-ask price \37\ in relation to the 
NAV as of the time the NAV is calculated (``Bid-Ask Price'') and a 
calculation of the premium or discount of such price against such NAV; 
(c) data in chart form displaying the frequency distribution of 
discounts and premiums of the Bid-Ask Price against the NAV, within 
appropriate ranges for each of the four previous calendar quarters (or 
for the life of the Trust, if shorter); (d) the prospectus; and (e) 
other applicable quantitative information. The Trust will also 
disseminate the Trust's holdings on a daily basis on the Trust's 
website. The price of bitcoin will be made available by one or more 
major market data vendors, updated at least every 15 seconds during 
Regular Trading Hours. Information about the MVBTCO, including key 
elements of how the MVBTCO is calculated, will be publicly available at 
www.mvis-indices.com/.
---------------------------------------------------------------------------

    \37\ The bid-ask price of the Trust is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. To the extent that the Administrator has utilized the 
cascading set of rules described in ``bitcoin Market Price'' above, the 
Trust's website will note the valuation methodology used and the price 
per bitcoin resulting from such calculation. Quotation and last-sale 
information regarding the Shares will be disseminated through the 
facilities of

[[Page 5151]]

the Consolidated Tape Association (``CTA'').
    Quotation and last sale information for bitcoin is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as the MVBTCO. Information relating to 
trading, including price and volume information, in bitcoin is 
available from major market data vendors and from the exchanges on 
which bitcoin are traded. Depth of book information is also available 
from bitcoin exchanges. The normal trading hours for bitcoin exchanges 
are 24 hours per day, 365 days per year.
    The Trust will provide website disclosure of its bitcoin holdings 
daily. The website disclosure of the Trust's bitcoin holdings will 
occur at the same time as the disclosure by the Sponsor of the bitcoin 
holdings to Authorized Participants so that all market participants are 
provided such portfolio information at the same time. Therefore, the 
same portfolio information will be provided on the public website as 
well as in electronic files provided to Authorized Participants. 
Accordingly, each investor will have access to the current bitcoin 
holdings of the Trust through the Trust's website.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
    The Shares will be subject to BZX Rule 14.11(e)(4), which sets 
forth the initial and continued listing criteria applicable to 
Commodity-Based Trust Shares. The Exchange will obtain a representation 
that the Trust's NAV will be calculated daily and that these values and 
information about the assets of the Trust will be made available to all 
market participants at the same time. The Exchange notes that, as 
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) Issued by a 
trust that holds a specified commodity \38\ deposited with the trust; 
(b) issued by such trust in a specified aggregate minimum number in 
return for a deposit of a quantity of the underlying commodity; and (c) 
when aggregated in the same specified minimum number, may be redeemed 
at a holder's request by such trust which will deliver to the redeeming 
holder the quantity of the underlying commodity. The Exchange notes 
that in addition to the in-kind creation and redemption processes 
described in Rule 14.11(e)(4)(C)(i), the Trust will also offer 
creations and redemptions of Shares for cash in addition to creating 
and redeeming in-kind. The Trust represents that the ability to create 
and redeem for cash will allow APs that may otherwise be unwilling or 
unable to source bitcoin on their own behalf to participate in the 
creation and redemption of Shares.
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    \38\ For purposes of Rule 14.11(e)(4), the term commodity takes 
on the definition of the term as provided in the Commodity Exchange 
Act. The CFTC has opined that Bitcoin is a commodity as defined in 
Section 1a(9) of the Commodity Exchange Act. See ``In the Matter of 
Coinflip, Inc.'' (``Coinflip'') (CFTC Docket 15-29 (September 17, 
2015)) (order instituting proceedings pursuant to Sections 6(c) and 
6(d) of the CEA, making findings and imposing remedial sanctions), 
in which the CFTC stated:
    ``Section 1a(9) of the CEA defines `commodity' to include, among 
other things, `all services, rights, and interests in which 
contracts for future delivery are presently or in the future dealt 
in.' 7 U.S.C. 1a(9). The definition of a `commodity' is broad. See, 
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142 
(7th Cir. 1982). Bitcoin and other virtual currencies are 
encompassed in the definition and properly defined as commodities.''
---------------------------------------------------------------------------

    Upon termination of the Trust, the Shares will be removed from 
listing. The Trustee, Delaware Trust Company, is a trust company having 
substantial capital and surplus and the experience and facilities for 
handling corporate trust business, as required under Rule 
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee 
without prior notice to and approval of the Exchange. The Exchange also 
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor 
any agent of the Exchange shall have any liability for damages, claims, 
losses or expenses caused by any errors, omissions or delays in 
calculating or disseminating any underlying commodity value, the 
current value of the underlying commodity required to be deposited to 
the Trust in connection with issuance of Commodity-Based Trust Shares; 
resulting from any negligent act or omission by the Exchange, or any 
agent of the Exchange, or any act, condition or cause beyond the 
reasonable control of the Exchange, its agent, including, but not 
limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission or delay in the reports of 
transactions in an underlying commodity. Finally, as required in Rule 
14.11(e)(4)(G), the Exchange notes that any registered market maker 
(``Market Maker'') in the Shares must file with the Exchange in a 
manner prescribed by the Exchange and keep current a list identifying 
all accounts for trading in an underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker shall 
trade in an underlying commodity, related commodity futures or options 
on commodity futures, or any other related commodity derivatives, in an 
account in which a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to the Exchange as required 
by this Rule. In addition to the existing obligations under Exchange 
rules regarding the production of books and records (see, e.g., Rule 
4.2), the registered Market Maker in Commodity-Based Trust Shares shall 
make available to the Exchange such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own 
accounts for trading the underlying physical commodity, related 
commodity futures or options on commodity futures, or any other related 
commodity derivatives, as may be requested by the Exchange.
    The Trust currently expects that there will be at least 100 Shares 
outstanding at the time of commencement of trading on the Exchange, 
which the Exchange believes to be sufficient to provide adequate market 
liquidity. Assuming a bitcoin price of $4,000 and approximately 25 
bitcoin per Share, the Shares would be approximately $100,000 each. 
With a minimum of 100 Shares outstanding, the market value of all 
Shares outstanding would be approximately $10,000,000. Rules 
14.11(e)(4)(C)(ii)(b) [sic] and (c) provide that the Exchange will 
commence delisting proceedings for a series of Commodity-Based Trust 
Shares where the applicable trust has fewer than 50,000 receipts or the 
market value of all receipts issued and outstanding is less than 
$1,000,000, respectively, following the initial 12 month period 
following commencement of trading on the Exchange. These rules are 
designed to ensure that there are sufficient shares and market value 
outstanding to facilitate the creation and redemption process and 
ensure that the arbitrage mechanism will keep the price of a series of 
Commodity-Based Trust Shares in line with its NAV and prevent 
manipulation in the shares. The Exchange is proposing that Rule 
14.11(e)(4)(C)(ii)(b) [sic] would not apply to the Shares because the 
Exchange believes that such policy concerns are otherwise mitigated. 
The lower number of Shares is merely a function of price that will have 
no impact on the creation and redemption process and the arbitrage 
mechanism. Whether the Shares are priced equal to

[[Page 5152]]

25 bitcoin with a Basket of 5 Shares or the Shares are priced equal to 
.025 bitcoin with a Basket of 5,000 Shares, the cost to an AP to create 
or redeem will be the exact same and such a creation and redemption 
will have the same proportional impact on Shares and market value 
outstanding. Because the creation units and redemption units for most 
exchange-traded products are between 5,000 and 50,000 shares, it makes 
sense to apply a minimum number of shares outstanding to such products. 
Where a creation unit is 5 shares, the policy concerns that Rule 
14.11(e)(4)(C)(ii)(b) [sic] is designed to address are mitigated even 
where there are significantly fewer shares outstanding. As such, the 
Exchange is proposing that it would not commence delisting proceedings 
for the Shares if the Shares do not satisfy Rule 14.11(e)(4)(C)(ii)(b) 
[sic].
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in BZX Rule 11.18. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. These may include: 
(1) The extent to which trading is not occurring in the bitcoin 
underlying the Shares; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading 
in the Shares may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. BZX will allow 
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a) the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01 where the price is greater than $1.00 
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Commodity-Based Trust 
Shares. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by the Trust or the Shares to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Exchange Act, the Exchange will surveil 
for compliance with the continued listing requirements. If the Trust or 
the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12. The Exchange may obtain information regarding 
trading in the Shares and listed bitcoin derivatives via the 
Intermarket Surveillance Group (``ISG''), from other exchanges who are 
members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.\39\ In 
addition, the Exchange may obtain information about bitcoin 
transactions, trades and market data from each of the OTC platforms 
that are included in the MVBTCO, from bitcoin exchanges with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement, as well as certain additional information that is publicly 
available through the Bitcoin blockchain. The Exchange notes that it 
has entered into a comprehensive surveillance sharing agreement with 
Gemini Exchange and is working to establish similar agreements with 
other bitcoin exchanges and the OTC Trading Desks.
---------------------------------------------------------------------------

    \39\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (i) The procedures for the 
creation and redemption of Baskets (and that the Shares are not 
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (iii) how information 
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks 
involved in trading the Shares during the Pre-Opening \40\ and After 
Hours Trading Sessions \41\ when an updated IIV will not be calculated 
or publicly disseminated; (v) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (vi) trading 
information.
---------------------------------------------------------------------------

    \40\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \41\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Shares. Members purchasing the Shares for resale to 
investors will deliver a prospectus to such investors. The Information 
Circular will also discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act.
Additional Background on the Bitcoin Industry
The Bitcoin Network
    A bitcoin is an asset that can be transferred among parties via the 
internet, but without the use of a central administrator or clearing 
agency. The term ``decentralized'' is often used in descriptions of 
bitcoin, in reference to bitcoin's lack of necessity for administration 
by a central party. The Bitcoin Network (i.e., the network of computers 
running the software protocol underlying bitcoin involved in 
maintaining the database of bitcoin ownership and facilitating the 
transfer of bitcoin among parties) and the asset, bitcoin, are 
intrinsically linked and inseparable. Bitcoin was first described in a 
white paper released in 2008 and published under the name ``Satoshi 
Nakamoto'', and the protocol underlying bitcoin was subsequently 
released in 2009 as open source software.
Bitcoin Ownership and the Blockchain
    To begin using bitcoin, a user may download specialized software 
referred to as a ``bitcoin wallet''. A user's bitcoin wallet can run on 
a computer or smartphone. A bitcoin wallet can be used both to send and 
to receive bitcoin. Within a bitcoin wallet, a user will be able to 
generate one or more ``bitcoin addresses'', which are similar in 
concept to bank account numbers, and each address is unique. Upon 
generating a bitcoin address, a user can begin to transact in bitcoin 
by receiving bitcoin at his or her bitcoin address and sending it from 
his or her address to another

[[Page 5153]]

user's address. Sending bitcoin from one bitcoin address to another is 
similar in concept to sending a bank wire from one person's bank 
account to another person's bank account.
    Balances of the quantity of bitcoin associated with each bitcoin 
address are listed in a database, referred to as the ``blockchain''. 
Copies of the blockchain exist on thousands of computers on the Bitcoin 
Network throughout the internet. A user's bitcoin wallet will either 
contain a copy of the blockchain or be able to connect with another 
computer that holds a copy of the blockchain.
    When a bitcoin user wishes to transfer bitcoin to another user, the 
sender must first request a bitcoin address from the recipient. The 
sender then uses his or her bitcoin wallet software, to create a 
proposed addition to the blockchain. The proposal would decrement the 
sender's address and increment the recipient's address by the amount of 
bitcoin desired to be transferred. The proposal is entirely digital in 
nature, similar to a file on a computer, and it can be sent to other 
computers participating in the Bitcoin Network. Such digital proposals 
are referred to as ``bitcoin transactions''. Bitcoin transactions and 
the process of one user sending bitcoin to another should not be 
confused with buying and selling bitcoin, which is a separate process 
(as discussed below in ``bitcoin Trading On Exchanges'' and ``bitcoin 
Trading Over-the-Counter'').
    A bitcoin transaction is similar in concept to an irreversible 
digital check. The transaction contains the sender's bitcoin address, 
the recipient's bitcoin address, the amount of bitcoin to be sent, a 
confirmation fee and the sender's digital signature. The sender's use 
of his or her digital signature enables participants on the Bitcoin 
Network to verify the authenticity of the bitcoin transaction.
    A user's digital signature is generated via usage of the user's so-
called ``private key'', one of two numbers in a so-called cryptographic 
``key pair''. A key pair consists of a ``public key'' and its 
corresponding private key, both of which are lengthy numerical codes, 
derived together and possessing a unique relationship.
    Public keys are used to create bitcoin addresses. Private keys are 
used to sign transactions that initiate the transfer of bitcoin from a 
sender's bitcoin address to a recipient's bitcoin address. Only the 
holder of the private key associated with a particular bitcoin address 
can digitally sign a transaction proposing a transfer of bitcoin from 
that particular bitcoin address.
    A user's bitcoin address (which is derived from a public key) may 
be safely distributed, but a user's private key must remain known 
solely by its rightful owner. The utilization of a private key is the 
only mechanism by which a bitcoin user can create a digital signature 
to transfer bitcoin from him or herself to another user. Additionally, 
if a malicious third party learns of a user's private key, that third 
party could forge the user's digital signature and send the user's 
bitcoin to any arbitrary bitcoin address (i.e., the third party could 
steal the user's bitcoin).
    When a bitcoin holder sends bitcoin to a destination bitcoin 
address, the transaction is initially considered unconfirmed. 
Confirmation of the validity of the transaction involves verifying the 
signature of the sender, as created by the sender's private key. 
Confirmation also involves verifying that the sender has not ``double 
spent'' the bitcoin (e.g., confirming Party A has not attempted to send 
the same bitcoin both to Party B and to Party C). The confirmation 
process occurs via a process known as ``bitcoin mining''.
    Bitcoin mining utilizes a combination of computer hardware and 
software to accomplish a dual purpose: (i) To verify the authenticity 
and validity of bitcoin transactions (i.e., the movement of bitcoin 
between addresses) and (ii) the creation of new bitcoin. Neither the 
Sponsor nor the Trust intends to engage in bitcoin mining.
    Bitcoin miners do not need permission to participate in verifying 
transactions. Rather, miners compete to solve a prescribed and 
complicated mathematical calculation using computers dedicated to the 
task. Rounds of the competition repeat approximately every ten minutes. 
In any particular round of the competition, the first miner to find the 
solution to the mathematical calculation is the miner who gains the 
privilege of announcing the next block to be added to the blockchain.
    A new block that is added to the blockchain serves to take all of 
the recent-yet-unconfirmed transactions and verify that none are 
fraudulent. The recent-yet-unconfirmed transactions also generally 
contain transaction fees that are awarded to the miner who produces the 
block in which the transactions are inserted, and thereby confirmed. 
The successful miner also earns the so-called ``block reward'', an 
amount of newly created bitcoin. Thus, bitcoin miners are financially 
incentivized to conduct their work. The financial incentives received 
by bitcoin miners are a vital part of the process by which the Bitcoin 
Network functions.
    Upon successfully winning a round of the competition (winning a 
round is referred to as mining a new block), the miner then transmits a 
copy of the newly-formed block to peers on the Bitcoin Network, all of 
which then update their respective copies of the blockchain by 
appending the new block, thereby acknowledging the confirmation of the 
transactions that had previously existed in an unconfirmed state.
    A recipient of bitcoin must wait until a new block is formed in 
order to see the transaction convert from an unconfirmed state to a 
confirmed state. According to the Registration Statement, with new 
rounds won approximately every ten minutes, the average wait time for a 
confirmation is five minutes.
    The protocol underlying bitcoin provides the rules by which all 
users and miners on the Bitcoin Network must operate. A user or miner 
attempting to operate under a different set of rules will be ignored by 
other network participants, thus rendering that user's or miner's 
behavior moot. The protocol also lays out the block reward, the amount 
of bitcoin that a miner earns upon creating a new block. The initial 
block reward when Bitcoin was introduced in 2009 was 50 bitcoin per 
block. That number has and will continue to halve approximately every 
four years until approximately 2140, when it is estimated that block 
rewards will go to zero. The most recent halving occurred on July 9, 
2016, which reduced the block reward from 25 to 12.5 bitcoin. The next 
halving is projected for May 2020, which will reduce the block reward 
to 6.25 bitcoin from its current level of 12.5. The halving thereafter 
will occur in another four years and will reduce the block reward to 
3.125 bitcoin, and so on. As of May 2018, there are approximately 17 
million bitcoin that have been created, a number that will grow with 
certainty to a maximum of 21 million, estimated to occur by the year 
2140. Bitcoin mining should not be confused with buying and selling 
bitcoin, which, as discussed below, is a separate process.
Use of Bitcoin and the Blockchain
    Beyond using bitcoin as a value transfer mechanism, applications 
related to the blockchain technology underlying bitcoin have become 
increasingly prominent.\42\ Blockchain-focused applications take 
advantage of certain unique characteristics of the

[[Page 5154]]

blockchain such as secure time stamping (secure time stamps are on 
newly created blocks), highly redundant storage (copies of the 
blockchain are distributed throughout the internet) and tamper-
resistant data secured by secure digital signatures.
---------------------------------------------------------------------------

    \42\ Additional applications based on blockchain technology--
both the blockchain underlying bitcoin as well as separate public 
blockchains incorporating similar characteristics of the blockchain 
underlying bitcoin--are currently in development by numerous 
entities, including financial institutions like banks.
---------------------------------------------------------------------------

    According to the Registration Statement, blockchain-focused 
applications in usage and under development include, but are not 
limited to asset title transfer, secure timestamping, counterfeit and 
fraud detection systems, secure document and contract signing, 
distributed cloud storage and identity management. Although value 
transfer is not the primary purpose for blockchain-focused 
applications, the usage of bitcoin, the asset, is inherently involved 
in blockchain-focused applications, thus linking the growth and 
adoption of bitcoin to the growth and adoption of blockchain-focused 
applications.
Bitcoin Exchanges
    Bitcoin exchanges operate websites that facilitate the purchase and 
sale of bitcoin for various government-issued currencies, including the 
U.S. dollar, the euro or the Chinese yuan. Activity on bitcoin 
exchanges should not be confused with the process of users sending 
bitcoin from one bitcoin address to another bitcoin address, the latter 
being an activity that is wholly within the confines of the Bitcoin 
Network and the former being an activity that occurs entirely on 
private websites.
    Bitcoin exchanges operate in a manner that is unlike the 
traditional capital markets infrastructure in the U.S. and in other 
developed nations. Bitcoin exchanges combine the process of order 
matching, trade clearing, trade settlement and custody into a single 
entity. For example, a user can send U.S. dollars via wire to a bitcoin 
exchange and then visit the exchange's website to purchase bitcoin. The 
entirety of the transaction--from trade to clearing to settlement to 
custody (at least temporary custody)--is accomplished by the bitcoin 
exchange in a matter of seconds. The user can then withdraw the 
purchased bitcoin into a wallet to take custody of the bitcoin 
directly.
    According to the Registration Statement, there are currently 
several U.S.-based regulated entities that facilitate bitcoin trading 
and that comply with state and/or U.S. AML and KYC regulatory 
requirements. While the CFTC is responsible for regulating the bitcoin 
spot market with respect to fraud and manipulation--in the same way 
that it regulates the spot market for gold, silver or other exempt 
commodities--there is no direct, comprehensive federal oversight of 
bitcoin exchanges or trading platforms in the United States and no U.S. 
exchanges are registered with the Commission or the CFTC.
     Coinbase, which is based in California, is a bitcoin 
exchange that maintains money transmitter licenses in over thirty 
states, the District of Columbia and Puerto Rico. Coinbase is subject 
to the regulations enforced by the various State agencies that issued 
their respective money transmitter licenses to Coinbase. The New York 
Department of Financial Services (``NYDFS'') granted a BitLicense to 
Coinbase in January 2017.
     itBit is a bitcoin exchange that was granted a limited 
purpose trust company charter by the NYDFS in May 2015. Limited purpose 
trusts, according to the NYDFS, are permitted to undertake certain 
activities, such as transfer agency, securities clearance, investment 
management, and custodial services, but without the power to take 
deposits or make loans.
     Gemini is a bitcoin exchange that is also regulated by the 
NYDFS. In October 2015, NYDFS granted Gemini an Authorization 
Certificate, which allows Gemini to operate as a limited purpose trust 
company.
     Genesis Global Trading is a FINRA member firm that makes a 
market in bitcoin by offering two-sided liquidity (``Genesis Global 
Trading''). In May 2018, NYDFS granted Genesis Global Trading a 
BitLicense.
     bitFlyer is a virtual currency exchange that is registered 
in Japan. In November 2017, NYDFS granted Tokyo-based bitFlyer a 
BitLicense.
    Bitcoin are traded with publicly disclosed valuations for each 
transaction, measured by one or more government currencies such as the 
U.S. dollar, the euro or the Chinese yuan. Bitcoin exchanges typically 
report publicly on their site the valuation of each transaction and bid 
and ask prices for the purchase or sale of bitcoin. Although each 
bitcoin exchange has its own market price, it is expected that most 
bitcoin exchanges' market prices should be relatively consistent with 
the bitcoin exchange market average since market participants can 
choose the bitcoin exchange on which to buy or sell bitcoin (i.e., 
exchange shopping).
Additional Bitcoin Trading Products
    In addition to the Bitcoin Futures market described above, certain 
U.S. platforms and non-U.S. based bitcoin exchanges offer derivative 
products on bitcoin such as options, swaps, and futures. According to 
the Registration Statement, BitMex, based in the Republic of 
Seychelles, CryptoFacilites, based in the United Kingdom, 796 Exchange, 
based in China, and OKCoin Exchange China all offer futures contracts 
settled in bitcoin. Coinut, based in Singapore, offers bitcoin binary 
options and vanilla options based on the Coinut index. Deribit, based 
in the Netherlands, offers vanilla options and futures contracts 
settled in bitcoin. IGMarkets, based in the United Kingdom, Avatrade, 
based in Ireland, and Plus500, based in Israel, all offer bitcoin 
derivative products.
    The CFTC has stated that bitcoin and other virtual currencies are 
encompassed in the definition of commodities under the CEA.\43\ In July 
2017, the CFTC issued an order granting LedgerX, LLC (``LedgerX'') 
registration as a derivatives clearing organization under the CEA. 
Under the order, LedgerX is authorized to provide clearing services for 
fully-collateralized digital currency swaps. LedgerX, which was also 
granted an order of registration as a Swap Execution Facility in July 
2017, is the first federally-regulated exchange and clearing house for 
derivatives contracts settling in digital currencies. LedgerX began 
trading options and swaps on its platform in October 2017. While the 
CFTC does not regulate the bitcoin spot market--in the same way that it 
does not regulate the spot market for gold, silver or other exempt 
commodities--it is nevertheless responsible for overseeing and 
enforcing the CEA as it applies to trading in bitcoin derivatives.
---------------------------------------------------------------------------

    \43\ See Coinflip.
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    In May 2015, the Swedish FSA approved the prospectus for ``Bitcoin 
Tracker One'', an open-ended exchange-traded note that tracks the price 
of bitcoin in U.S. dollars. The Bitcoin Tracker One initially traded in 
Swedish krona on the Nasdaq Nordic in Stockholm, but is now also 
available to trade in euro. The Bitcoin Tracker One is available to 
retail investors in the European Union and to those investors in the 
U.S. who maintain brokerage accounts with Interactive Brokers.
    Founded in 2013, Bitcoin Investment Trust, a private, open-ended 
trust available to accredited investors, is another investment vehicle 
that derives its value from the price of bitcoin. Eligible shares of 
the Bitcoin Investment Trust are quoted on the OTCQX marketplace under 
the symbol ``GBTC''.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b)

[[Page 5155]]

of the Act \44\ in general and Section 6(b)(5) of the Act \45\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \44\ 15 U.S.C. 78f.
    \45\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed on the Exchange pursuant to the initial and 
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange 
believes that its surveillance procedures are adequate to properly 
monitor the trading of the Shares on the Exchange during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. Trading of the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Commodity-Based Trust Shares. The issuer 
has represented to the Exchange that it will advise the Exchange of any 
failure by the Trust or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. If the Trust or the Shares are not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12. The Exchange 
may obtain information regarding trading in the Shares and listed 
bitcoin derivatives via the ISG, from other exchanges who are members 
or affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, the Exchange 
may obtain information about bitcoin transactions, trades and market 
data from each of the OTC platforms that are included in the MVBTCO, 
from bitcoin exchanges with which the Exchange has entered into a 
comprehensive surveillance sharing agreement as well as certain 
additional information that is publicly available through the Bitcoin 
blockchain. The Exchange notes that it has entered into a comprehensive 
surveillance sharing agreement with Gemini Exchange and is working to 
establish similar agreements with other bitcoin exchanges and the OTC 
Trading Desks.
    The proposal is designed to perfect the mechanism of a free and 
open market and, in general, to protect investors and the public 
interest in that it will facilitate the listing and trading of 
Commodity-Based Trust Shares based on the price of bitcoin that will 
enhance competition among market participants, to the benefit of 
investors and to the marketplace, and will allow institution and other 
substantial investors access to bitcoin exposure without requiring 
direct access to the bitcoin market and the associated complications. 
Despite the growing investor interest in bitcoin, the primary means for 
investors to gain access to bitcoin exposure remains either through 
direct investment through bitcoin exchanges, over-the-counter trading, 
or bitcoin derivatives contracts. For investors simply wishing to 
express an investment viewpoint in bitcoin, investment through 
derivatives is complex and requires active management and direct 
investment in bitcoin brings with it significant inconvenience, 
complexity, expense, and risk. The Shares would therefore represent a 
significant innovation in the bitcoin market by providing an 
inexpensive and simple vehicle for investors to gain exposure to 
bitcoin in a secure and easily accessible product that is familiar and 
transparent to investors. Such an innovation would help to perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest by improving investor access to 
bitcoin exposure through efficient and transparent exchange-traded 
derivative products.
    As noted above, the Sponsor expects that the Shares will be 
purchased primarily by institutional and other substantial investors 
(such as hedge funds, family offices, private wealth managers and high-
net-worth individuals), which will provide additional liquidity and 
transparency to the bitcoin market in a regulated vehicle such as the 
Trust. With an estimated initial per-share price equivalent to 25 
bitcoin, the Shares will be cost-prohibitive for smaller retail 
investors while allowing larger and generally more sophisticated 
institutional investors to gain exposure to the price of bitcoin 
through a regulated product while eliminating the complications and 
reducing the risk associated with buying and holding bitcoin.
    The Exchange also believes that allowing cash creations and 
redemptions, in addition to the in-kind creations described in Rule 
14.11(e)(4)(C)(i), will allow APs that may otherwise be unwilling or 
unable to source bitcoin on their own behalf to participate in the 
creation and redemption of Shares, further acting to perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest.
    The Exchange also believes that not commencing delisting 
proceedings for the Shares if the Shares do not satisfy Rule 
14.11(e)(4)(C)(ii)(b) [sic] is consistent with the Act because where a 
creation unit is 5 shares because the policy concerns that Rule 
14.11(e)(4)(C)(ii)(b) [sic] is designed to address related to minimum 
receipts outstanding following the 12 month period following 
commencement of trading on the Exchange are mitigated even where there 
are significantly fewer shares outstanding. The Exchange believes that 
the lower number of Shares is merely a function of price and that, in 
this instance, will have no impact on the creation and redemption 
process and the arbitrage mechanism.
    The Exchange also believes that the proposal promotes market 
transparency in that a large amount of information is currently 
available about bitcoin and will be available regarding the Trust and 
the Shares. The Exchange will obtain a representation that the Trust's 
NAV will be calculated daily and that these values and information 
about the assets of the Trust will be made available to all market 
participants at the same time. Quotation and last sale information for 
bitcoin is widely disseminated through a variety of major market data 
vendors, including Bloomberg and Reuters. The spot price of bitcoin is 
available on a 24-hour basis from major market data vendors, including 
Bloomberg and Reuters, as well as the MVBTCO. Information relating to 
trading, including price and volume information, in bitcoin is 
available from major market data vendors and from the exchanges on 
which bitcoin are traded. Depth of book information is also available 
from bitcoin exchanges. The normal trading hours for bitcoin exchanges 
are 24 hours per day, 365 days per year. The Trust will provide website 
disclosure of its bitcoin holdings daily. The website disclosure of the 
Trust's bitcoin holdings will occur at the same time as the disclosure 
by the Sponsor of the bitcoin holdings to Authorized Participants so 
that all market participants are provided such portfolio information at 
the same time. The website for the Trust, which will be publicly 
accessible at no charge, will contain the following information: (a) 
The current NAV per Share daily and the prior business day's NAV and 
the reported closing price; (b) the Bid-Ask

[[Page 5156]]

Price and a calculation of the premium or discount of such price 
against such NAV; (c) data in chart form displaying the frequency 
distribution of discounts and premiums of the Bid-Ask Price against the 
NAV, within appropriate ranges for each of the four previous calendar 
quarters (or for the life of the Trust, if shorter); (d) the 
prospectus; and (e) other applicable quantitative information. The 
Trust will also disseminate the Trust's holdings on a daily basis on 
the Trust's website. The price of bitcoin will be made available by one 
or more major market data vendors, updated at least every 15 seconds 
during Regular Trading Hours. Information about the MVBTCO, including 
key elements of how the MVBTCO is calculated, will be publicly 
available at www.mvis-indices.com/. The IIV will be widely disseminated 
on a per Share basis every 15 seconds during the Exchange's Regular 
Trading Hours by one or more major market data vendors. In addition, 
the IIV will be available through on-line information services.
    As discussed extensively above, Cboe believes that, based on 
previous application of the standard, the market for Bitcoin Futures is 
a regulated market of significant size with which the Exchange has in 
place comprehensive surveillance sharing agreements and, thus, the 
Commission should approve this proposal.\46\ In addition, the Exchange 
also believes that there are sufficient other means to prevent 
fraudulent and manipulative acts and practices in the Shares, as was 
presented as an alternate means to demonstrate that a proposal is 
consistent with Section 6(b)(5) of the Act in the in the GraniteShares 
Disapproval Order. Specifically, the Exchange believes that the 
collective effect of the following factors are sufficient to prevent 
fraudulent and manipulative acts and practices in the Shares: \47\ (i) 
The regulated nature of each of the firms that make up the MVBTCO; (ii) 
the notional volume of trading \48\ and liquidity \49\ available on the 
OTC Trading Desks; (iii) the principal to principal nature of the OTC 
Trading Desks; and (iv) in addition to its standard surveillance 
procedures, the Exchange will have in place a comprehensive 
surveillance sharing agreement with each of these firms prior to the 
Shares listing on the Exchange.\50\
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    \46\ As described above, the Exchange continues to believe that 
bitcoin itself is particularly resistant to price manipulation. The 
geographically diverse and continuous nature of bitcoin trading 
makes it difficult and prohibitively costly to manipulate the price 
of bitcoin and, in many instances, the bitcoin market is generally 
less susceptible to manipulation than the equity, fixed income, and 
commodity futures markets. There are a number of reasons this is the 
case, including that there is not inside information about revenue, 
earnings, corporate activities, or sources of supply, making it 
particularly difficult to disseminate false or misleading 
information about bitcoin in order to manipulate; manipulation of 
the price on any single venue would require manipulation of the 
global bitcoin price in order to be effective; a substantial over-
the-counter market provides liquidity and shock-absorbing capacity; 
bitcoin's 24/7/365 nature provides constant arbitrage opportunities 
across all trading venues; and it is unlikely that any one actor 
could obtain a dominant market share.
    Further, bitcoin is arguably less susceptible to manipulation 
than other commodities that underlie ETPs; there may be inside 
information relating to the supply of the physical commodity such as 
the discovery of new sources of supply or significant disruptions at 
mining facilities that supply the commodity that simply are 
inapplicable as it relates to bitcoin. Further, the Exchange 
believes that the fragmentation across bitcoin platforms, the 
relatively slow speed of transactions, and the capital necessary to 
maintain a significant presence on each trading platform make 
manipulation of bitcoin prices through continuous trading activity 
unlikely. Moreover, the linkage between the bitcoin markets and the 
presence of arbitrageurs in those markets means that the 
manipulation of the price of bitcoin price on any single venue would 
require manipulation of the global bitcoin price in order to be 
effective. Arbitrageurs must have funds distributed across multiple 
trading platforms in order to take advantage of temporary price 
dislocations, thereby making it unlikely that there will be strong 
concentration of funds on any particular bitcoin exchange or OTC 
platform. As a result, the potential for manipulation on a trading 
platform would require overcoming the liquidity supply of such 
arbitrageurs who are effectively eliminating any cross-market 
pricing differences.
    \47\ While not directly related to the issue of manipulation, 
the Exchange also notes that the Sponsor expects that the Shares 
will be purchased primarily by institutional and other substantial 
investors (such as hedge funds, family offices, private wealth 
managers and high-net-worth individuals), which will provide 
additional liquidity and transparency to the bitcoin market in a 
regulated vehicle such as the Trust. With an estimated initial per-
share price equivalent to 25 bitcoin, the Shares will be cost-
prohibitive for smaller retail investors while allowing larger and 
generally more sophisticated institutional investors to gain 
exposure to the price of bitcoin through a regulated product while 
eliminating the complications and reducing the risk associated with 
buying and holding bitcoin.
    \48\ The Sponsor has indicated that there are tens of millions 
to hundreds of millions of dollars of bitcoin traded on the OTC 
Trading Desks on a daily basis.
    \49\ Each constituent firm offers and will continue to offer 
firm, executable quotes of at least $250,000 depth on both the bid 
and ask at all times.
    \50\ The Trust maintains crime, excess crime and excess vault 
risk insurance coverage underwritten by various insurance carriers 
that will cover the entirety of the Trust's bitcoin holdings. While 
the Trust remains fully confident in its system for securing its 
bitcoin, insurance coverage of all of the Trust's bitcoin holdings 
eliminates exposure to the risk of loss to investors through fraud 
or theft, which in turn eliminates most of the custodial issues 
associated with a series of Commodity-Based Trust Shares based on 
bitcoin.
---------------------------------------------------------------------------

    Cboe believes that, if reviewed through the same lens as similar 
precedent, this proposal is consistent with the Act and should be 
approved. The Commission's approval of this or any proposal to list and 
trade an ETP is not an endorsement of the underlying asset and 
especially is not a guarantee against the ETP being an extremely risky 
and/or volatile investment. Rather, it signifies that the benefits to 
end investors that want exposure to a particular asset class from 
having a regulated and transparent U.S. exchange traded vehicle 
outweigh the applicable risk of manipulation. With this in mind, Cboe 
believes that the Bitcoin Futures market is a significant, regulated 
market, especially when compared to the dry bulk shipping futures 
market described in the Approval Order, and therefore the Commission 
should approve this proposal. Further, even if the Commission were to 
determine that the Bitcoin Futures market is not a significant, 
regulated market, the Exchange believes that the regulated nature of 
each of the firms that make up the MVBTCO, the nature of trading and 
liquidity available on each of its constituents, and the comprehensive 
surveillance sharing agreements that the Exchange will have in place 
with each of the OTC Trading Desks constitute sufficient record 
evidence to demonstrate that there are other means to prevent 
fraudulent and manipulative acts and practices in the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
an additional exchange-traded product that will enhance competition 
among both market participants and listing venues, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period

[[Page 5157]]

to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-004 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2019-004. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2019-004, and should be 
submitted on or before March 13, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02732 Filed 2-19-19; 8:45 am]
 BILLING CODE 8011-01-P


