[Federal Register Volume 86, Number 101 (Thursday, May 27, 2021)]
[Notices]
[Pages 28646-28662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-11172]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91962; File No. SR-NYSEArca-2021-37]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the First Trust 
SkyBridge Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E

May 21, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on May 6, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 to list and trade shares of the following 
under NYSE Arca Rule 8.201-E: First Trust SkyBridge Bitcoin ETF Trust 
(the ``Trust''). The proposed change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges ``Commodity-Based 
Trust Shares.'' \4\ The Exchange proposes to list and trade shares of 
the Trust (the ``Shares'') pursuant to NYSE Arca Rule 8.201-E.\5\
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    \4\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
    \5\ On March 19, 2021, the Trust filed a registration statement 
on Form S-1 under the Securities Act of 1933 (15 U.S.C. 77a) (the 
``Securities Act'') (File No. 333-254529) and amended such 
registration statement on May 6, 2021 (the ``Registration 
Statement'').
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    The sponsor of the Trust is First Trust Advisors L.P. (the 
``Sponsor'' or ``Advisor''). The sub-adviser for the trust is SkyBridge 
Capital II, LLC (the ``Sub-Advisor''). The trustee for the Trust is 
Delaware Trust Company (the ``Trustee''). The Bank of New York Mellon 
is the transfer agent of the Trust (in such capacity, the ``Transfer 
Agent'') and the administrator of the Trust (in such capacity, the 
``Administrator''). The bitcoin custodian for the Trust is NYDIG Trust 
Company LLC (the ``Bitcoin Custodian'').
    The Trust is a Delaware statutory trust, organized on March 12, 
2021, that operates pursuant to a trust agreement between the Advisor 
and the Trustee (the ``Trust Agreement''). The Trust has no fixed 
termination date.
Background
    As discussed in further detail below,\6\ bitcoin is a digital asset 
based on the decentralized, open source protocol of

[[Page 28647]]

the peer-to-peer computer network launched in 2009 that governs the 
creation, movement, and ownership of bitcoin and hosts the public 
ledger, or ``blockchain,'' on which all bitcoin transactions are 
recorded (the ``Bitcoin Network'' or ``Bitcoin''). The decentralized 
nature of the Bitcoin Network allows parties to transact directly with 
one another based on cryptographic proof instead of relying on a 
trusted third party. The protocol also lays out the rate of issuance of 
new bitcoin within the Bitcoin Network, a rate that is reduced by half 
approximately every four years with an eventual hard cap of 21 million. 
It is generally understood that the combination of these two features--
a systemic hard cap of 21 million bitcoin and the ability to transact 
trustlessly with anyone connected to the Bitcoin Network--gives bitcoin 
its value.\7\
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    \6\ See ``The Bitcoin Industry and Market,'' infra.
    \7\ For additional information about bitcoin and the Bitcoin 
Network, see https://bitcoin.org/en/getting started.
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    The first rule filing proposing to list an exchange-traded product 
to provide exposure to bitcoin in the U.S. was submitted by the Cboe 
BZX Exchange, Inc. on June 30, 2016.\8\ At that time, blockchain 
technology, and digital assets that utilized it, were relatively new to 
the broader public. The market cap of all bitcoin in existence at that 
time was approximately $10 billion. No registered offering of digital 
asset securities or shares in an investment vehicle with exposure to 
bitcoin or any other cryptocurrency had yet been conducted, and the 
regulated infrastructure for conducting a digital asset securities 
offering had not begun to develop.\9\ Similarly, regulated U.S. bitcoin 
futures contracts did not exist. The Commodity Futures Trading 
Commission (the ``CFTC'') had determined that bitcoin is a 
commodity,\10\ but had not engaged in significant enforcement actions 
in the space. The New York Department of Financial Services (``NYDFS'') 
adopted its final BitLicense regulatory framework in 2015, but had only 
approved four entities to engage in activities relating to virtual 
currencies (whether through granting a BitLicense or a limited-purpose 
trust charter) as of June 30, 2016.\11\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and 
the fund had only $60 million in assets.\12\ There were very few, if 
any, traditional financial institutions engaged in the space, whether 
through investment or providing services to digital asset companies. In 
January 2018, the Staff of the Commission noted in a letter to the 
Investment Company Institute and SIFMA that it was not aware, at that 
time, of a single custodian providing fund custodial services for 
digital assets.\13\
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    \8\ See Order Setting Aside Action by Delegated Authority and 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, to List and Trade Shares of the Winklevoss Bitcoin Trust, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (August 1, 2018) (the ``Winklevoss II Order''). This proposal 
was subsequently disapproved by the Commission. See id.
    \9\ Digital assets that are securities under U.S. law are 
referred to throughout this proposal as ``digital asset 
securities.'' All other digital assets, including bitcoin, are 
referred to interchangeably as ``cryptocurrencies'' or ``virtual 
currencies.'' The term ``digital assets'' refers to all digital 
assets, including both digital asset securities and 
cryptocurrencies, together.
    \10\ 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.''
    \11\ A list of virtual currency businesses that are entities 
regulated by the NYDFS is available on the NYDFS website. See 
https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/regulated_entities.
    \12\ See Bitcoin Investment Trust Form S-1, dated May 27, 2016, 
available at: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm (data as of March 31, 2016 
according to publicly available filings).
    \13\ See Letter from Dalia Blass, Director, Division of 
Investment Management, U.S. Securities and Exchange Commission to 
Paul Schott Stevens, President & CEO, Investment Company Institute 
and Timothy W. Cameron, Asset Management Group--Head, Securities 
Industry and Financial Markets Association (January 18, 2018), 
available at: https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
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    As of the first quarter of 2021, the digital assets financial 
ecosystem, including bitcoin, has progressed significantly. The 
development of a regulated market for digital asset securities has 
significantly evolved, with market participants having conducted 
registered public offerings of both digital asset securities \14\ and 
shares in investment vehicles holding bitcoin futures.\15\ 
Additionally, licensed and regulated service providers have emerged to 
provide fund custodial services for digital assets, among other 
services. For example, in December 2020, the Commission adopted a 
conditional no-action position permitting certain special purpose 
broker-dealers to custody digital asset securities under Rule 15c3-3 
under the Exchange Act; \16\ in September 2020, the Staff of the 
Commission released a no-action letter permitting certain broker-
dealers to operate a non-custodial Alternative Trading System (``ATS'') 
for digital asset securities, subject to specified conditions; \17\ in 
October 2019, the Staff of the Commission granted temporary relief from 
the clearing agency registration requirement to an entity seeking to 
establish a securities clearance and settlement system based on 
distributed ledger technology; \18\ and multiple transfer agents who 
provide services for digital asset securities have registered with the 
Commission.\19\
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    \14\ See Prospectus Supplement filed pursuant to Rule 424(b)(1) 
for INX Tokens (Registration No. 333-233363), available at: https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm.
    \15\ See Prospectus filed by Stone Ridge Trust VI on behalf of 
NYDIG Bitcoin Strategy Fund Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
    \16\ See Securities Exchange Act Release No. 90788, 86 FR 11627 
(February 26, 2021) (File Number S7-25-20) (Custody of Digital Asset 
Securities by Special Purpose Broker-Dealers).
    \17\ See Letter from Elizabeth Baird, Deputy Director, Division 
of Trading and Markets, U.S. Securities and Exchange Commission to 
Kris Dailey, Vice President, Risk Oversight & Operational 
Regulation, Financial Industry Regulatory Authority (September 25, 
2020), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.
    \18\ See Letter from Jeffrey S. Mooney, Associate Director, 
Division of Trading and Markets, U.S. Securities and Exchange 
Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos 
Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
    \19\ See, e.g., Form TA-1/A filed by Tokensoft Transfer Agent 
LLC (CIK: 0001794142) on January 8, 2021, available at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
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    Beyond the Commission's purview, the regulatory landscape has also 
changed significantly since 2016, and cryptocurrency markets have grown 
and evolved as well. The market for bitcoin is approximately 100 times 
larger, having recently reached a market cap of over $1 trillion. As of 
February 27, 2021, bitcoin's market cap is greater than companies such 
as Facebook, Inc., Berkshire Hathaway Inc., and JP Morgan Chase & Co. 
The number of verified users at Coinbase, the largest U.S.-based 
bitcoin exchange, has grown to over 56 million.\20\ CFTC-regulated 
bitcoin futures (``Bitcoin Futures'') represented approximately $28 
billion in notional trading volume on the Chicago

[[Page 28648]]

Mercantile Exchange (the ``CME'') in December 2020 compared to $737 
million, $1.4 billion, and $3.9 billion in total trading in December 
2017, December 2018, and December 2019, respectively. Bitcoin Futures 
traded over $1.2 billion per day in December 2020 and represented $1.6 
billion in open interest compared to $115 million in December 2019.\21\ 
The CFTC has exercised its regulatory jurisdiction in bringing a number 
of enforcement actions related to bitcoin and against trading platforms 
that offer cryptocurrency trading.\22\ The U.S. Office of the 
Comptroller of the Currency (the ``OCC'') has made clear that 
federally-chartered banks are able to provide custody services for 
cryptocurrencies and other digital assets.\23\ The OCC recently granted 
conditional approval of two charter conversions by state-chartered 
trust companies to national banks, both of which provide cryptocurrency 
custody services.\24\ NYDFS has granted no fewer than twenty-five 
BitLicenses, including to established public payment companies like 
PayPal Holdings, Inc. and Square, Inc., and limited purpose trust 
charters to entities providing cryptocurrency custody services. The 
U.S. Treasury Financial Crimes Enforcement Network (``FinCEN'') has 
released extensive guidance regarding the applicability of the Bank 
Secrecy Act (``BSA'') and implementing regulations to virtual currency 
businesses,\25\ and has proposed rules imposing requirements on 
entities subject to the BSA that are specific to the technological 
context of virtual currencies.\26\ In addition, the Treasury's Office 
of Foreign Assets Control (``OFAC'') has brought enforcement actions 
over apparent violations of the sanctions laws in connection with the 
provision of wallet management services for digital assets.\27\
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    \20\ See, e.g., ``Riding Bitcoin Surge, Coinbase Active Users 
Grew by 117% in Q1 2021; Revenue Tops $1.8B'' (April 6, 2021), 
available at: https://www.coindesk.com/coinbase-q1-earnings-report-monthly-active-users.
    \21\ All statistics and charts included in this proposal with 
respect to the CME are sourced from https://www.cmegroup.com/trading/bitcoin-futures.html. In addition, as further discussed 
below, the Sponsor believes the CME represents a regulated market of 
significant size for purposes of addressing the Commission's 
concerns about potential manipulation of the bitcoin market.
    \22\ The CFTC's annual report for Fiscal Year 2020 (which ended 
on September 30, 2020) noted that the CFTC ``continued to 
aggressively prosecute misconduct involving digital assets that fit 
within the CEA's definition of commodity'' and ``brought a record 
setting seven cases involving digital assets.'' See CFTC FY2020 
Division of Enforcement Annual Report, available at: https://www.cftc.gov/media/5321/DOE_FY2020_AnnualReport_120120/download. 
Additionally, the CFTC filed on October 1, 2020, a civil enforcement 
action against the owner/operators of the BitMEX trading platform, 
which was one of the largest bitcoin derivative exchanges. See CFTC 
Release No. 8270-20 (October 1, 2020), available at: https://www.cftc.gov/PressRoom/PressReleases/8270-20.
    \23\ See OCC News Release 2021-2 (January 4, 2021), available 
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.
    \24\ See OCC News Release 2021-6 (January 13, 2021), available 
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-6.html and OCC News Release 2021-19 (February 5, 2021), 
available at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-19.html.
    \25\ See FinCEN Guidance FIN-2019-G001 (May 9, 2019) 
(Application of FinCEN's Regulations to Certain Business Models 
Involving Convertible Virtual Currencies), available at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf.
    \26\ See U.S. Department of the Treasury Press Release: ``The 
Financial Crimes Enforcement Network Proposes Rule Aimed at Closing 
Anti-Money Laundering Regulatory Gaps for Certain Convertible 
Virtual Currency and Digital Asset Transactions'' (December 18, 
2020), available at: https://home.treasury.gov/news/press-releases/sm1216.
    \27\ See U.S. Department of the Treasury Enforcement Release: 
``OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent 
Violations of Multiple Sanctions Programs Related to Digital 
Currency Transactions'' (December 30, 2020), available at: https://home.treasury.gov/system/files/126/20201230_bitgo.pdf.
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    In addition to the regulatory developments laid out above, more 
traditional financial market participants appear to be embracing 
cryptocurrency: Large insurance companies,\28\ investment banks,\29\ 
asset managers,\30\ credit card companies,\31\ university 
endowments,\32\ pension funds,\33\ and even historically bitcoin 
skeptical fund managers \34\ are allocating to bitcoin. The largest 
over-the-counter bitcoin fund previously filed a Form 10 registration 
statement, which the Staff of the Commission reviewed and which took 
effect automatically, and is now a reporting company.\35\ Established 
companies like Tesla, Inc.,\36\ MicroStrategy Incorporated,\37\ and 
Square, Inc.,\38\ among others, have recently announced substantial 
investments in bitcoin in amounts as large as $1.5 billion (Tesla) and 
$425 million (MicroStrategy).
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    \28\ On December 10, 2020, Massachusetts Mutual Life Insurance 
Company (MassMutual) announced that it had purchased $100 million in 
bitcoin for its general investment account. See MassMutual Press 
Release ``Institutional Bitcoin provider NYDIG announces minority 
stake purchase by MassMutual'' (December 10, 2020), available at: 
https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2020/12/institutional-bitcoin-provider-nydig-announces- 
minority-stake-purchase-by-massmutual.
    \29\ See, e.g., ``Morgan Stanley to Offer Rich Clients Access to 
Bitcoin Funds'' (March 17, 2021) available at: https://www.bloomberg.com/news/articles/2021-03-17/morgan-stanley-to-offer-rich-clients-access-to-bitcoin-funds.
    \30\ See, e.g., ``BlackRock's Rick Rieder says the world's 
largest asset manager has `started to dabble' in bitcoin'' (February 
17, 2021), available at: https://www.cnbc.com/2021/02/17/blackrock-has-started-to-dabble-in-bitcoin-says-rick-rieder.html and 
``Guggenheim's Scott Minerd Says Bitcoin Should Be Worth $400,000'' 
(December 16, 2020), available at: https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott- minerd-says-bitcoin-should-
be-worth-400-000.
    \31\ See, e.g., ``Visa Moves to Allow Payment Settlements Using 
Cryptocurrency'' (March 29, 2021), available at: https://www.reuters.com/business/autos-transportation/exclusive-visa-moves-allow-payment-settlements-using-cryptocurrency-2021-03-29/.
    \32\ See, e.g., ``Harvard and Yale Endowments Among Those 
Reportedly Buying Crypto'' (January 25, 2021), available at: https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yale- 
endowments-among-those-reportedly-buying-crypto.
    \33\ See, e.g., ``Virginia Police Department Reveals Why its 
Pension Fund is Betting on Bitcoin'' (February 14, 2019), available 
at: https://finance.yahoo.com/news/virginia-police-department-reveals-why-194558505.html.
    \34\ See, e.g., ``Bridgewater: Our Thoughts on Bitcoin'' 
(January 28, 2021) available at: https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin and ``Paul Tudor Jones 
says he likes bitcoin even more now, rally still in the `first 
inning''' (October 22, 2020), available at: https://www.cnbc.com/2020/10/22/-paul-tudor-jones-says-he-likes-bitcoin-even-more-now-rally-still-in-the-first-inning.html.
    \35\ See Letter from Division of Corporation Finance, Office of 
Real Estate & Construction to Barry E. Silbert, Chief Executive 
Officer, Grayscale Bitcoin Trust (January 31, 2020), available at: 
https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
    \36\ See Form 10-K submitted by Tesla, Inc. for the fiscal year 
ended December 31, 2020 at 23: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
    \37\ See Form 10-Q submitted by MicroStrategy Incorporated for 
the quarterly period ended September 30, 2020 at 8: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q_20200930.htm.
    \38\ See Form 10-Q submitted by Square, Inc. for the quarterly 
period ended September 30, 2020 at 51: https://www.sec.gov/ix?doc=/Archives/edgar/data/1512673/000151267320000012/sq-20200930.htm.
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    Despite these developments, access for U.S. retail investors to 
gain exposure to bitcoin via a transparent and regulated exchange-
traded vehicle remains limited. As investors and advisors increasingly 
utilize exchange-traded product (``ETP'') to manage diversified 
portfolios (including equities, fixed income securities, commodities, 
and currencies) quickly, easily, relatively inexpensively, tax-
efficiently, and without having to hold directly any of the underlying 
assets, options for bitcoin exposure for U.S. investors remain limited 
to: (i) Investing in over-the-counter bitcoin funds (``OTC Bitcoin 
Funds'') that are subject to high premium/discount volatility (and high 
management fees) to the advantage of more sophisticated investors that 
are able to purchase shares at net asset value (``NAV'') directly with 
the issuing trust; (ii) facing the technical risk, complexity, and 
generally high fees associated with buying and storing bitcoin 
directly; or (iii) purchasing shares of operating companies that they 
believe will provide proxy exposure to

[[Page 28649]]

bitcoin with limited disclosure about the associated risks. Meanwhile, 
investors in many other countries, including Canada, are able to use 
more traditional exchange listed and traded products to gain exposure 
to bitcoin, disadvantaging U.S. investors and leaving them with 
riskier, more expensive, and less regulated means of getting bitcoin 
exposure.\39\
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    \39\ Securities regulators in a number of other countries have 
either approved or otherwise allowed the listing and trading of 
bitcoin ETPs. Specifically, these funds (with their respective 
approximate AUMs as of April 14, 2021) include the Purpose Bitcoin 
ETF ($993,000,000), VanEck Vectors Bitcoin ETN ($209,000,000), 
WisdomTree Bitcoin ETP ($407,000,000), Bitcoin Tracker One 
($1,380,000,000), BTCetc bitcoin ETP ($1,410,000,000), 21Shares 
Bitcoin ETP ($362,000,000), 21Shares Bitcoin Suisse ETP 
($30,000,000), CoinShares Physical Bitcoin ETP ($396,000,000).
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    For example, the Purpose Bitcoin ETF, a retail physical bitcoin ETP 
recently launched in Canada, reportedly reached $421.8 million in 
assets under management (``AUM'') in two days, and has achieved $993 
million in assets as of April 14, 2021, demonstrating the demand for a 
North American market listed bitcoin ETP. The Sponsor believes that the 
demand for the Purpose Bitcoin ETF is driven primarily by investors' 
desire to have a regulated and accessible means of exposure to bitcoin. 
The Purpose Bitcoin ETF also offers a class of units that is U.S. 
dollar denominated, which could appeal to U.S. investors. Without an 
approved bitcoin ETP in the U.S. as a viable alternative, the Sponsor 
believes U.S. investors will seek to purchase these shares in order to 
get access to bitcoin exposure, leaving them without the protections of 
U.S. securities laws. Given the separate regulatory regime and the 
potential difficulties associated with any international litigation, 
such an arrangement would create more risk exposure for U.S. investors 
than they would otherwise have with a U.S. exchange listed ETP. With 
the addition of more bitcoin ETPs in non-U.S. jurisdictions expected to 
grow, the Sponsor anticipates that such risks will only continue to 
grow.
    In addition, several funds registered under the Investment Company 
Act of 1940 (the ``1940 Act'') have effective registration statements 
that contemplate bitcoin exposure through a variety of means, including 
through investments in bitcoin futures contacts \40\ and through OTC 
Bitcoin Funds.\41\ As of the date of this filing, it is anticipated 
that other 1940 Act funds will soon begin to pursue bitcoin through 
other means, including through put options on bitcoin futures contracts 
and investments in privately offered pooled investment vehicles that 
invest in bitcoin.\42\ In previous statements, the Staff of the 
Commission has acknowledged how such funds can satisfy their concerns 
regarding custody, valuation, and manipulation.\43\ The funds that have 
already invested in bitcoin instruments have no reported issues 
regarding custody, valuation, or manipulation of the instruments held 
by these funds. While these funds do offer investors some means of 
exposure to bitcoin, the current offerings fall short of giving 
investors an accessible, regulated product that provides concentrated 
exposure to bitcoin.
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    \40\ See, e.g., Stone Ridge Trust VI (File No. 333-234055); 
BlackRock Global Allocation Fund, Inc. (File No. 33-22462); and 
BlackRock Funds V (File No. 333-224371).
    \41\ See, e.g., Amplify Transformational Data Sharing ETF (File 
No. 333-207937); and ARK Innovation ETF (File No. 333-191019).
    \42\ See Stone Ridge Trust, Post-Effective Amendment No. 74 to 
Registration Statement on Form N-1A (File No. 333-184477), available 
at: https://www.sec.gov/Archives/edgar/data/1559992/000119312521072856/d129263d485apos.htm.
    \43\ See Dalia Blass, ``Keynote Address--2019 ICI Securities Law 
Developments Conference'' (December 3, 2019), available at: https://www.sec.gov/news/speech/blass-keynote-address-2019-ici-securities-law-developments-conference.
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OTC Bitcoin Funds and Investor Protection
    Recently, U.S. investor exposure to bitcoin through OTC Bitcoin 
Funds has grown into the tens of billions of dollars. With that growth, 
so too has grown the potential risk to U.S. investors. As described 
below, premium and discount volatility, high fees, insufficient 
disclosures, and technical hurdles are exposing U.S. investors to risks 
that could potentially be eliminated through access to a bitcoin ETP. 
The Sponsor understands the Commission's previous focus on potential 
manipulation of a bitcoin ETP in prior disapproval orders, but believes 
that such concerns have been sufficiently mitigated and may be 
outweighed by the growing and quantifiable investor protection concerns 
related to OTC Bitcoin Funds. Accordingly, the Sponsor believes that 
this proposal (and other comparable proposals) represents an 
opportunity for U.S. investors to gain exposure to bitcoin in a 
regulated and transparent exchange-traded vehicle that limits risks by: 
(i) Reducing premium and discount volatility; (ii) reducing management 
fees through meaningful competition; (iii) reducing risks associated 
with investing in operating companies that are imperfect proxies for 
bitcoin exposure; and (iv) providing an alternative to custodying spot 
bitcoin.
OTC Bitcoin Funds and Premium/Discount Volatility
    OTC Bitcoin Funds are generally designed to provide exposure to 
bitcoin in a manner similar to the Shares. However, unlike the Shares, 
OTC Bitcoin Funds are unable to freely offer creation and redemption in 
a way that incentivizes market participants to keep their shares 
trading in line with their NAV \44\ and, as a result, shares of OTC 
Bitcoin Funds frequently trade at a price that is out of line with the 
value of their assets held. Historically, OTC Bitcoin Funds have traded 
at a significant premium to NAV.\45\
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    \44\ Because OTC Bitcoin Funds are not listed on an exchange, 
they are also not subject to the same transparency and regulatory 
oversight by a listing exchange as the Shares would be. In the case 
of the Trust, the existence of a surveillance-sharing agreement 
between the Exchange and the Bitcoin Futures market results in 
increased investor protections as compared to OTC Bitcoin Funds.
    \45\ The inability to trade in line with NAV may at some point 
result in OTC Bitcoin Funds trading at a discount to their NAV, 
which has occurred more recently with respect to one prominent OTC 
Bitcoin Fund. While that has not historically been the case, and it 
is not clear whether such discounts will continue, such a prolonged, 
significant discount scenario would give rise to nearly identical 
potential issues related to trading at a premium.
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    Trading at a premium or a discount is not unique to OTC Bitcoin 
Funds and is not in itself problematic, but the size of such premiums/
discounts and volatility thereof highlight the key differences in 
operations and market structure of OTC Bitcoin Funds as compared to 
ETPs. Combined with the significant increase in AUM for OTC Bitcoin 
Funds over the past year, the size and volatility of premiums and 
discounts for OTC Bitcoin Funds have given rise to significant and 
quantifiable investor protection issues, as further described below. In 
fact, the largest OTC Bitcoin Fund has grown to $35.0 billion in AUM as 
of February 19, 2021 \46\ and has historically traded at a premium of 
between roughly five and forty percent,

[[Page 28650]]

though it has seen premiums at times above one hundred percent.\47\ 
Recently, however, it has traded at a discount. As of March 24, 2021, 
the discount was approximately 14%,\48\ representing around $4.9 
billion less in market value than the bitcoin actually held by the 
fund. If premium/discount numbers move back to the middle of its 
historical range to a 20% premium (which historically could occur at 
any time and overnight), it would represent a swing of approximately 
$11.9 billion in value unrelated to the value of bitcoin held by the 
fund and if the premium returns to the upper end of its typical range, 
that number increases to $18.9 billion. These numbers are only 
associated with a single OTC Bitcoin Fund--as more and more OTC Bitcoin 
Funds come to market and more investor assets flood into them to get 
access to bitcoin exposure, the potential dollars at risk will only 
increase.
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    \46\ Compare to an AUM of approximately $2.6 billion on February 
26, 2020, the date on which the Commission issued the most recent 
disapproval order for a bitcoin ETP. See Order Disapproving a 
Proposed Rule Change, as Modified by Amendment No. 1, to Amend NYSE 
Arca Rule 8.201-E (Commodity-Based Trust Shares) and to List and 
Trade Shares of the United States Bitcoin and Treasury Investment 
Trust Under NYSE Arca Rule 8.201-E, Securities Exchange Act Release 
No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Order''). While the price 
of one bitcoin has increased approximately 400% in the intervening 
period, the total AUM has increased by approximately 1240%, 
indicating that the increase in AUM is attributable to more than 
just price appreciation in bitcoin.
    \47\ See ``Traders Piling Into Overvalued Crypto Funds Risk a 
Painful Exit'' (February 4, 2021), available at: https://www.bloomberg.com/news/articles/2021-02-04/bitcoin-one-big-risk-when-investing-in-crypto-funds.
    \48\ This discount is compared to another OTC Bitcoin Product 
which had a premium of over 60% on the same day, with a premium of 
over 200% a few days earlier.
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    The risks associated with volatile premiums/discounts for OTC 
Bitcoin Funds raise significant investor protection issues in several 
ways. First, investors may be buying shares of a fund for a price that 
is not reflective of the per share value of the fund's underlying 
assets. Even operating within the normal premium range, it is possible 
for an investor to buy shares of an OTC Bitcoin Fund only to have those 
shares quickly lose 10% or more in dollar value without any movement of 
the price of bitcoin. That is to say--the price of bitcoin could have 
stayed exactly the same from market close on one day to market open the 
next, yet the value of the shares held by the investor decreased only 
because of the fluctuation of the premium/discount. As more investment 
vehicles, including mutual funds and ETFs, seek to gain exposure to 
bitcoin, the easiest option for a buy and hold strategy is often an OTC 
Bitcoin Fund, meaning that even investors that do not directly buy OTC 
Bitcoin Funds can be disadvantaged by extreme premiums (or discounts) 
and premium volatility.
    The second issue is related to the first and explains how the 
premium in OTC Bitcoin Funds essentially creates a transfer of value 
from retail investors to more sophisticated investors. Generally 
speaking, only accredited investors are able to purchase shares from 
the issuing fund, which means that they are able to purchase shares 
directly with the fund at NAV (in exchange for either cash or bitcoin) 
without having to pay the premium or sell into the discount. While 
there are often minimum holding periods for shares required by law, an 
investor that is allowed to purchase directly from the fund is able to 
hedge their bitcoin exposure as needed to satisfy the holding 
requirements and collect on the premium or discount opportunity.
    As noted above, the existence of a premium or discount and the 
premium/discount collection opportunity is not unique to OTC Bitcoin 
Funds and does not in itself warrant the approval of an exchange traded 
product.\49\ What makes this situation unique is that such significant 
and persistent premiums and discounts can exist in a product with over 
$35 billion in assets under management,\50\ that billions of retail 
investor dollars are constantly under threat of premium/discount 
volatility,\51\ and that premium/discount volatility is generally 
captured by more sophisticated investors on a riskless basis. While the 
Sponsor appreciates the Commission's focus on potential manipulation of 
a bitcoin ETP in prior disapproval orders and believes those concerns 
are adequately addressed in this filing, the Sponsor submits that 
current circumstances warrant that the Commission also consider the 
direct, quantifiable investor protection issue in determining whether 
to approve this proposal, particularly when the Trust, as a bitcoin 
ETP, is designed to reduce the likelihood of significant and prolonged 
premiums and discounts with its open-ended nature as well as the 
ability of market participants (i.e., market makers and authorized 
participants) to create and redeem on a daily basis. Furthermore, the 
risk of manipulation of a bitcoin ETP is also present in and 
potentially magnified by OTC Bitcoin Funds.
---------------------------------------------------------------------------

    \49\ For example, similar premiums/discounts and premium/
discount volatility exist for other non-bitcoin cryptocurrency 
related over-the-counter funds, but the size and investor interest 
in those funds does not give rise to the same investor protection 
concerns that exist for OTC Bitcoin Funds.
    \50\ At $35 billion in AUM, the largest OTC Bitcoin Fund would 
be among the top 40 largest out of roughly 2,400 U.S. listed ETPs.
    \51\ In two recent incidents, the premium dropped from 28.28% to 
12.29% from the close on 3/19/20 to the close on 3/20/20 and from 
38.40% to 21.05% from the close on 5/13/19 to the close on 5/14/19. 
Similarly, over the period of 12/21/20 to 1/21/20, the premium went 
from 40.18% to 2.79%. While the price of bitcoin appreciated 
significantly during this period and NAV per share increased by 
41.25%, the price per share increased by only 3.58%.
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Spot and Proxy Exposure
    Exposure to bitcoin through an ETP also presents certain advantages 
for retail investors compared to buying spot bitcoin directly. The most 
notable advantage is the use of the Bitcoin Custodian to custody the 
Trust's bitcoin assets. The Sponsor has carefully selected the Bitcoin 
Custodian, a third-party custodian that carries insurance covering both 
hot and cold storage and is chartered as a limited purpose trust 
company under the New York Banking Law,\52\ due to its manner of 
holding the Trust's bitcoin. Among other things, the Bitcoin Custodian 
will use ``cold'' (offline) storage to hold private keys and meet a 
certain degree of cybersecurity measures and operational best 
practices.\53\ By contrast, an individual retail investor holding 
bitcoin through a cryptocurrency exchange lacks these protections. 
Typically, retail exchanges hold most, if not all, retail investors' 
bitcoin in ``hot'' (internet-connected) storage and do not make any 
commitments to indemnify retail investors or to observe any particular 
cybersecurity standard. Meanwhile, a retail investor holding spot 
bitcoin directly in a self-hosted wallet may suffer from inexperience 
in private key management (e.g., insufficient password protection, lost 
key, etc.), which could cause them to lose some or all of their bitcoin 
holdings. In the Bitcoin Custodian, the Trust has engaged a regulated 
and licensed entity highly experienced in bitcoin custody, with 
dedicated, trained employees and procedures to manage the private keys 
to the Trust's bitcoin, and which is

[[Page 28651]]

accountable for failures.\54\ In addition, retail investors will be 
able to hold the Shares in traditional brokerage accounts which provide 
SIPC protection if a brokerage firm fails. Thus, with respect to 
custody of the Trust's bitcoin assets, the Trust presents advantages 
from an investment protection standpoint for retail investors compared 
to owning spot bitcoin directly.
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    \52\ New York state trust companies are subject to rigorous 
oversight similar to other types of entities, such as nationally 
chartered banking entities, that hold customer assets. Like national 
banks, they must obtain specific approval of their primary regulator 
for the exercise of their fiduciary powers. Moreover, limited 
purpose trust companies engaged in the custody of digital assets are 
subject to even more stringent requirements than national banks 
which, following initial approval of trust powers, generally can 
exercise those powers broadly without further approval of the OCC. 
In contrast, NYDFS requires in their approval orders that limited 
purpose trust companies obtain separate approval for all material 
changes in business.
    \53\ In addition to enforcing specific regulatory reporting 
requirements, NYDFS consistently exercises its broad authority to 
examine trust companies for compliance with law, risk management and 
general safety and soundness considerations, including to assess 
items such as the internal controls, client records and segregation 
of assets topics that are typically important to the ability of an 
entity to act as a qualified custodian. In this regard, the Bitcoin 
Custodian is subject to annual examination, with specific attention 
to its internal controls and risk management systems.
    \54\ The Sponsor notes that the Sub-Advisor of the Trust advises 
a 1940 Act-registered fund that invests substantially in a private 
bitcoin fund to which NYDIG Trust Company LLC serves as bitcoin 
custodian. Pursuant to that investment, the Sub-Advisor has 
previously conducted substantial due diligence on the capabilities 
of the Bitcoin Custodian. See SkyBridge Multi-Adviser Hedge Fund 
Portfolios LLC (File No. 333-232584).
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    Finally, as described in the Background section above, a number of 
operating companies engaged in unrelated businesses--such as Tesla (a 
car manufacturer) and MicroStrategy (an enterprise software company)--
have recently announced investments as large as $1.5 billion in 
bitcoin.\55\ Without access to bitcoin exchange-traded products, retail 
investors seeking investment exposure to bitcoin may end up purchasing 
shares in these companies in order to gain the exposure to bitcoin that 
they seek.\56\ In fact, mainstream financial news networks have written 
a number of articles providing investors with guidance for obtaining 
bitcoin exposure through publicly traded companies (such as 
MicroStrategy, Tesla, and bitcoin mining companies, among others) 
instead of dealing with the complications associated with buying spot 
bitcoin in the absence of a bitcoin ETP.\57\ Such operating companies, 
however, are imperfect bitcoin proxies and provide investors with 
partial bitcoin exposure paired with a host of additional risks 
associated with whichever operating company they decide to purchase. 
Additionally, the disclosures provided by the aforementioned operating 
companies with respect to risks relating to their bitcoin holdings are 
generally substantially smaller than the registration statement of a 
bitcoin ETP, including the Registration Statement, typically amounting 
to a few sentences of narrative description and a handful of risk 
factors.\58\ In other words, investors seeking bitcoin exposure through 
publicly traded companies are gaining only partial exposure to bitcoin, 
without the full benefit of the risk disclosures and associated 
investor protections that come from the securities registration 
process.
---------------------------------------------------------------------------

    \55\ See notes 35-37 [sic], supra. MicroStrategy recently 
completed a $900 million convertible note offering for the purpose 
of acquiring bitcoin. See https://www.microstrategy.com/en/investor-relations/press/microstrategy-announces-pricing-of-offering-of-convertible-senior-notes_02-17-2021.
    \56\ In August 2017, the Commission's Office of Investor 
Education and Advocacy warned investors about situations where 
companies were publicly announcing events relating to digital coins 
or tokens in an effort to affect the price of the company's publicly 
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims
    \57\ See, e.g., ``7 public companies with exposure to bitcoin'' 
(February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want 
to get in the crypto trade without holding bitcoin yourself? Here 
are some investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \58\ See, e.g., Tesla 10-K for the year ended December 31, 2020, 
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
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Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each 
contract represents five bitcoin and is based on the CME CF Bitcoin 
Reference Rate (the ``CME CF BRR'').\59\ The contracts trade and settle 
like other cash-settled commodity futures contracts. Nearly every 
measurable metric related to Bitcoin Futures has trended consistently 
up since launch and/or accelerated upward in the past year. For 
example, there was approximately $28 billion in trading in Bitcoin 
Futures in December 2020 compared to $737 million, $1.4 billion, and 
$3.9 billion in total trading in December 2017, December 2018, and 
December 2019, respectively. Bitcoin Futures traded over $1.2 billion 
per day on the CME in December 2020 and represented $1.6 billion in 
open interest compared to $115 million in December 2019. This general 
upward trend in trading volume and open interest is captured in the 
following chart.
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    \59\ According to CME, the CME CF Bitcoin Reference Rate 
aggregates the trade flow of major bitcoin spot exchanges during a 
specific calculation window into a once-a-day reference rate of the 
U.S. dollar price of bitcoin. Calculation rules are geared toward 
maximum transparency and real-time replicability in underlying spot 
markets, including Bitstamp, Coinbase, Gemini, itBit, and Kraken. 
For additional information, refer to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.

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[[Page 28652]]

[GRAPHIC] [TIFF OMITTED] TN27MY21.000

    Similarly, the number of large open interest holders \60\ has 
continued to increase even as the price of bitcoin has risen, as have 
the number of unique accounts trading Bitcoin Futures.
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    \60\ A large open interest holder in Bitcoin Futures is an 
entity that holds at least 25 contracts, which is the equivalent of 
125 bitcoin. At a price of approximately $30,000 per bitcoin on 12/
31/20, more than 80 firms had outstanding positions of greater than 
$3.8 million in Bitcoin Futures.
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Operation of the Trust
    According to the Registration Statement, the Trust will hold only 
bitcoins and is expected from time to time to issue Creation Units (as 
defined below) in exchange for deposits of bitcoins and to distribute 
bitcoins in connection with redemptions of Creation Units. The Shares 
represent units of fractional undivided beneficial interest in, and 
ownership of, the Trust.
    The activities of the Trust will be limited to (1) issuing Creation 
Units in exchange for bitcoins deposited by the Authorized Participants 
(as defined below) with the Bitcoin Custodian as consideration, (2) 
transferring actual bitcoins as necessary to cover the Advisor's 
investment management fee and selling bitcoins as necessary to pay 
Trust expenses, (3) transferring actual bitcoins in exchange for 
Creation Units surrendered for redemption by the Authorized 
Participants, (4) causing the Advisor to sell bitcoins on the 
termination of the Trust, and (5) engaging in all administrative and 
custodial procedures necessary to accomplish such activities in 
accordance with the provisions of the Trust Agreement.
    The Trust will not be actively managed. It will not engage in any 
activities designed to obtain a profit from, or to ameliorate losses 
caused by, changes in the market prices of bitcoins.
Investment Objective
    According to the Registration Statement, the investment objective 
of the Trust is for the Shares to reflect the performance of the value 
of bitcoin less the Trust's liabilities and expenses. The Trust will 
not seek to reflect the performance of any benchmark or index. In order 
to pursue its investment objective, the Trust will seek to purchase and 
sell such number of bitcoin so that the total value of the bitcoin held 
by the Trust is as close to 100% of the net assets of the Trust, as is 
reasonably practicable to achieve.
The Bitcoin Industry and Market
Bitcoin
    Bitcoin is the digital asset that is native to, and created and 
transmitted through the operations of, the peer-to-peer Bitcoin 
Network, a decentralized network of computers that operates on 
cryptographic protocols. No single entity owns or operates the Bitcoin 
Network, the infrastructure of which is collectively maintained by a 
decentralized user base. The Bitcoin Network allows people to exchange 
tokens of value, called bitcoin, which are recorded on a public 
transaction ledger known as the Blockchain. Bitcoin can be used to pay 
for goods and services, or it can be converted to fiat currencies, such 
as the U.S. dollar, at rates determined on bitcoin trading platforms or 
in individual end-user-to-end-user transactions under a barter system. 
Although nascent in use, bitcoin may be used as a medium of exchange, 
unit of account or store of value.
    The Bitcoin Network is decentralized and does not require 
governmental authorities or financial institution intermediaries to 
create, transmit, or determine the value of bitcoin. In addition, no 
party may easily censor transactions on the Bitcoin Network. As a 
result, the Bitcoin Network is often referred to as decentralized and 
censorship resistant.
    The value of bitcoin is determined by the supply of and demand for 
bitcoin. New bitcoin are created and rewarded to the parties providing 
the Bitcoin Network's infrastructure (``miners'') in exchange for their 
expending computational power to verify transactions and add them to 
the Blockchain. The Blockchain is effectively a decentralized database 
that includes all blocks that have been solved by miners, and it is 
updated to include new blocks as they are solved. Each bitcoin 
transaction is broadcast to the Bitcoin Network and, when included in a 
block, recorded in the Blockchain. As each new block records 
outstanding bitcoin transactions, and outstanding transactions are 
settled and validated through such recording, the Blockchain represents 
a complete, transparent, and unbroken history of all transactions of 
the Bitcoin Network.
Bitcoin Network
    The first step in directly using the Bitcoin Network for 
transactions is to

[[Page 28653]]

download specialized software referred to as a ``bitcoin wallet.'' A 
user's bitcoin wallet can run on a computer or smartphone and can be 
used both to send and to receive bitcoin. Within a bitcoin wallet, a 
user can generate one or more unique ``bitcoin addresses,'' which are 
conceptually similar to bank account numbers. After establishing a 
bitcoin address, a user can send or receive bitcoin from his or her 
bitcoin address to another 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, 
provided, however, that such transactions are not managed by an 
intermediary and erroneous transactions generally may not be reversed 
or remedied once sent.
    The amount of bitcoin associated with each bitcoin address, as well 
as each bitcoin transaction to or from such address, is transparently 
reflected in the Blockchain and can be viewed by websites that operate 
as ``blockchain explorers.'' Copies of the Blockchain exist on 
thousands of computers on the Bitcoin Network. 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. The innovative 
design of the Bitcoin Network protocol allows each Bitcoin user to 
trust that their copy of the Blockchain will generally be updated 
consistent with each other user's copy.
    When a Bitcoin user wishes to transfer bitcoin to another user, the 
sender must first have the recipient's Bitcoin address. The sender then 
uses his or her Bitcoin wallet software to create a proposed 
transaction to be added to the Blockchain. The proposal would reduce 
the amount of bitcoin allocated to the sender's address and increase 
the amount allocated recipient's address, in each case by the amount of 
bitcoin desired to be transferred. The proposal is completely digital 
in nature, similar to a file on a computer, and it can be sent to other 
computers participating in the Bitcoin Network; however, the use of 
``unspent transaction outputs'' that are verified cryptographically 
prevents the ability to duplicate or counterfeit bitcoin.
Bitcoin Transactions
    A bitcoin transaction contains the sender's bitcoin address, the 
recipient's bitcoin address, the amount of bitcoin to be sent, a 
transaction fee, and the sender's digital signature. Bitcoin 
transactions are secured by cryptography known as public-private key 
cryptography, represented by the bitcoin addresses and digital 
signature in a transaction's data file. Each Bitcoin Network address, 
or wallet, is associated with a unique ``public key'' and ``private 
key'' pair, both of which are lengthy alphanumeric codes, derived 
together and possessing a unique relationship.
    The public key is visible to the public and analogous to the 
Bitcoin Network address. The private key is a secret and may be used to 
digitally sign a transaction in a way that proves the transaction has 
been signed by the holder of the public-private key pair, without 
having to reveal the private key. A user's private key must be kept in 
accordance with appropriate controls and procedures to ensure it is 
used only for legitimate and intended transactions. If an unauthorized 
third person learns of a user's private key, that third person could 
forge the user's digital signature and send the user's bitcoin to any 
arbitrary bitcoin address, thereby stealing the user's bitcoin. 
Similarly, if a user loses his private key and cannot restore such 
access (e.g., through a backup), the user may permanently lose access 
to the bitcoin contained in the associated address.
    The Bitcoin Network incorporates a system to prevent double-
spending of a single bitcoin. To prevent the possibility of double-
spending a single bitcoin, each validated transaction is recorded, time 
stamped and publicly displayed in a ``block'' in the Blockchain, which 
is publicly available. Thus, the Bitcoin Network provides confirmation 
against double-spending by memorializing every transaction in the 
Blockchain, which is publicly accessible and downloaded in part or in 
whole by all users of the Bitcoin Network software program. Any user 
may validate, through their Bitcoin wallet or a blockchain explorer, 
that each transaction in the Bitcoin Network was authorized by the 
holder of the applicable private key, and Bitcoin Network mining 
software consistent with reference software requirements typically 
validates each such transaction before including it in the Blockchain. 
This cryptographic security ensures that bitcoin transactions may not 
generally be counterfeited, although it does not protect against the 
``real world'' theft or coercion of use of a Bitcoin user's private 
key, including the hacking of a Bitcoin user's computer or a service 
provider's systems.
    A Bitcoin transaction between two parties is settled when recorded 
in a block added to the Blockchain. Validation of a block is achieved 
by confirming the cryptographic hash value included in the block's 
solution and by the block's addition to the longest confirmed 
Blockchain on the Bitcoin Network. For a transaction, inclusion in a 
block on the Blockchain constitutes a ``confirmation'' of a Bitcoin 
transaction. As each block contains a reference to the immediately 
preceding block, additional blocks appended to and incorporated into 
the Blockchain constitute additional confirmations of the transactions 
in such prior blocks, and a transaction included in a block for the 
first time is confirmed once against double-spending. The layered 
confirmation process makes changing historical blocks (and reversing 
transactions) exponentially more difficult the further back one goes in 
the Blockchain.
    To undo past transactions in a block recorded on the Blockchain, a 
malicious actor would have to exert tremendous computer power in re-
solving each block in the Blockchain starting with and after the target 
block and broadcasting all such blocks to the Bitcoin Network. The 
Bitcoin Network is generally programmed to consider the longest 
Blockchain containing solved and valid blocks to be the most accurate 
Blockchain. In order to undo multiple layers of confirmation and alter 
the Blockchain, a malicious actor must re-solve all of the old blocks 
sought to be regenerated and be able to continuously add new blocks to 
the Blockchain at a speed that would have to outpace that of all of the 
other miners on the Bitcoin Network, who would be continuously solving 
for and adding new blocks to the Blockchain.
Custody of the Trust's Bitcoins
    According to the Registration Statement, all bitcoins exist and are 
stored on the Blockchain, the decentralized transaction ledger of the 
Bitcoin Network. The Blockchain records most transactions (including 
mining of new bitcoins) for all bitcoins in existence, and in doing so 
verifies the location of each bitcoin (or fraction thereof) in a 
particular digital wallet. The Trust's Bitcoin Account \61\ will be 
maintained by the Bitcoin Custodian, and cold storage mechanisms are 
used for the Vault Account by the Bitcoin Custodian. Each digital 
wallet of the Trust may be accessed using its corresponding private 
key. The Bitcoin Custodian's custodial operations will

[[Page 28654]]

maintain custody of the private keys that have been deposited in cold 
storage at its various vaulting premises. The locations of the vaulting 
premises may change regularly and will be kept confidential by the 
Bitcoin Custodian for security purposes.
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    \61\ According to the Registration Statement, the ``Bitcoin 
Account'' is defined as the Vault Account and Wallet Account and any 
associated subaccounts of either. The ``Vault Account'' is defined 
as one or more cold storage accounts in the name of the Advisor and 
of the Trust held for the safekeeping of the Trust's bitcoins. The 
``Wallet Account'' is defined as one or more wallets in the name of 
the Advisor and of the Trust held for deposit and withdrawal of 
bitcoins.
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    The term ``cold storage'' refers to a safeguarding method by which 
the private keys corresponding to bitcoins stored on a digital wallet 
are removed from any computers actively connected to the internet. Cold 
storage of private keys may involve keeping such wallet on a non-
networked computer or electronic device or storing the public key and 
private keys relating to the digital wallet on a storage device (for 
example, a USB thumb drive) or printed medium (for example, papyrus or 
paper) and deleting the digital wallet from all computers. A digital 
wallet may receive deposits of bitcoins but may not send bitcoins 
without use of the bitcoins' corresponding private keys. In order to 
send bitcoin from a digital wallet in which the private keys are kept 
in cold storage, either the private keys must be retrieved from cold 
storage and entered them into a bitcoin software program to sign the 
transaction, or the unsigned transaction must be sent to the ``cold'' 
server in which the private keys are held for signature by the private 
keys. At that point, the user of the digital wallet can transfer its 
bitcoins.
    The Trust's Bitcoin Custodian will custody of all of the Trust's 
bitcoin. Custody of bitcoin typically involves the generation, storage, 
and utilization of private keys. These private keys are used to effect 
transfer transactions, i.e., transfers of bitcoin from an address 
associated with the private key to another address. While private keys 
must be used to send bitcoin, private keys do not need to be used or 
shared in order to receive a bitcoin transfer; every private key has an 
associated public key, and an address derived from that public key that 
can be freely shared, to which counterparties can transfer bitcoin. The 
Bitcoin Network has a public ledger, meaning that anybody with access 
to the address can see the balance of digital assets in that address.
    The Bitcoin Custodian will carefully consider the design of the 
physical, operational, and cryptographic systems for secure storage of 
the Trust's private keys in an effort to lower the risk of loss or 
theft.
    The Bitcoin Custodian will use a multi-factor security system under 
which actions by multiple individuals working together are required to 
access the private keys necessary to transfer such digital assets and 
ensure the Trust's exclusive ownership. The multifactor security system 
generates private keys using a FIPS 140-2-certified random number 
generator to ensure the keys' uniqueness.
    Before these keys are used, the Bitcoin Custodian will validate 
that the public addresses associated with these keys have no associated 
digital asset balances. The software used for key generation and 
verification will be tested by the Bitcoin Custodian and reviewed by 
third-party advisors from the security community with specific 
expertise in computer security and applied cryptography. The private 
keys will be stored in an encrypted manner using a FIPS 140-2-certified 
security module held in redundant secure, geographically dispersed 
locations with high levels of physical security, including robust 
physical barriers to entry, electronic surveillance, and continuously 
roving patrols. The operational procedures of these facilities and of 
the Bitcoin Custodian will be reviewed by third-party advisors with 
specific expertise in physical security. The devices that store the 
keys will never be connected to the internet or any other public or 
private distributed network (colloquially known as ``cold storage''). 
Only specific individuals will be authorized to participate in the 
custody process, and no individual acting alone will be able to access 
or use any of the private keys. In addition, no combination of the 
executive officers of the Advisor, the Sub-Advisor, or the investment 
professionals managing the Trust, acting alone or together, will be 
able to access or use any of the private keys that hold the Trust's 
bitcoin.
    The Trust may engage third-party custodians or vendors besides the 
Bitcoin Custodian to provide custody and security services for all or a 
portion of its bitcoin and/or cash, and the Advisor will pay the 
custody fees and any other expenses associated with any such third-
party custodian or vendor.
    The Bitcoin Custodian will be authorized to accept, on behalf of 
the Trust, deposits of bitcoins from Authorized Participant Self-
Administered Accounts (as defined below) held with the Bitcoin 
Custodian and transfer such bitcoins into the Bitcoin Account. Deposits 
of bitcoins will be immediately available to the Trust to the extent 
such bitcoins have not already been transferred to the Vault Account. 
Generally, bitcoins transferred to the Bitcoin Account will be directly 
deposited into digital wallets for which the keys are already in cold 
storage.
    The process of accessing and withdrawing bitcoins from the Trust 
for a redemption of a Creation Unit will follow the same general 
procedure as depositing bitcoins with the Trust for a creation of a 
Creation Unit, only in reverse.
    The Trust generally will not hold cash or cash equivalents. 
However, the Trust may hold cash and cash equivalents on a temporary 
basis to pay extraordinary expenses. The Trust has entered into a cash 
custody agreement with the Bank of New York Mellon under which the Bank 
of New York Mellon acts as custodian of the Trust's cash and cash 
equivalents.
Calculation of the Trust's NAV
    According to the Registration Statement, the net asset value 
(``NAV'') of the Trust will be determined in accordance with Generally 
Accepted Accounting Principles (``GAAP'') as the total value of bitcoin 
held by the Trust, plus any cash or other assets, less any liabilities 
including accrued but unpaid expenses. The NAV per Share will be 
determined by dividing the NAV of the Trust by the number of Shares 
outstanding.
    The NAV of the Trust will be determined as of 4:00 p.m. Eastern 
time (``E.T.'') on each Business Day.\62\ The Trust's daily activities 
will generally not be reflected in the NAV determined for the Business 
Day on which the transactions are effected (the trade date), but rather 
on the following Business Day.
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    \62\ ``Business Day'' is defined as each day that the Shares 
trade on the Exchange.
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    According to the Registration Statement, under normal 
circumstances, the Trust will use the CF Bitcoin US Settlement Price 
(the ``Reference Rate'') to calculate the Trust's NAV. The Reference 
Rate is not affiliated with the Sponsor and was created and is 
administered by CF Benchmarks Ltd. (the ``BRR Administrator''), an 
independent entity, to facilitate financial products based on bitcoin. 
The Reference Rate is designed based on the IOSCO Principals for 
Financial Benchmarks and serves as a once-a-day benchmark rate of the 
U.S. dollar price of bitcoin (USD/BTC), calculated as of 4:00 p.m. E.T. 
The Reference Rate is based on materially the same methodology (except 
calculation time) as the CME CF BRR, which was first introduced on 
November 14, 2016 and is the rate on which bitcoin futures contracts 
are cash-settled in U.S. dollars at the CME. The Reference Rate 
aggregates the trade flow of several bitcoin exchanges, during an 
observation window between 3:00 p.m. and 4:00 p.m. E.T. into the U.S. 
dollar price of one bitcoin at 4:00 p.m. E.T. The current constituent 
bitcoin

[[Page 28655]]

exchanges of the Reference Rate are Bitstamp, Coinbase, Gemini, itBit, 
and Kraken (the ``Constituent Platforms'').
    The Reference Rate is calculated based on the ``Relevant 
Transactions'' (as defined below) of all Constituent Platforms, as 
follows: \63\
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    \63\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Reference+Rates+Methodology.pdf.
---------------------------------------------------------------------------

    1. All Relevant Transactions are added to a joint list, recording 
the trade price and size for each transaction.
    2. The list is partitioned into a number of equally-sized time 
intervals.
    3. For each partition separately, the volume-weighted median \64\ 
trade price is calculated from the trade prices and sizes of all 
Relevant Transactions, i.e., across all Constituent Platforms.
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    \64\ A volume-weighted median differs from a standard median in 
that a weighting factor, in this case trade size, is factored into 
the calculation.
---------------------------------------------------------------------------

    4. The Reference Rate is then determined by the equally-weighted 
average of the volume-weighted medians of all partitions.
    The Reference Rate does not include any futures prices in its 
methodology. A ``Relevant Transaction'' is any cryptocurrency versus 
U.S. dollar spot trade that occurs during the observation window 
between 3:00 p.m. and 4:00 p.m. E.T. on a Constituent Platform in the 
BTC/USD pair that is reported and disseminated by a Constituent 
Platform through its publicly available API and observed by the 
Benchmark Administrator, CF Benchmarks Ltd.
    If the Reference Rate is unavailable, the Trust's bitcoin will be 
valued as determined in good faith pursuant to policies and procedures 
approved by the Advisor's valuation committee (``fair value pricing''). 
In these circumstances, the Trust will determine fair value in a manner 
that seeks to reflect the market value of the investment at the time of 
valuation based on consideration of any information or factors the 
Advisor's valuation committee deems appropriate, as further described 
below. The Advisor's valuation committee will be responsible for 
overseeing the implementation of the Trust's valuation procedures and 
fair value determinations. For purposes of determining the fair value 
of bitcoin, the valuation committee may consider, without limitation: 
(i) Indications or quotes from brokers; (ii) valuations provided by a 
third-party pricing agent; (iii) internal models that take into 
consideration different factors determined to be relevant by the 
Advisor; or (iv) any combination of the above.
    The Advisor has adopted a policy pursuant to which the Trust will 
value its assets other than bitcoin and liabilities. Under this policy, 
the Advisor will use fair value standards according to GAAP. Generally, 
the fair value of an asset that is traded on a market is measured by 
reference to the orderly transactions on an active market. Among all 
active markets with orderly transactions, the market that is used to 
determine the fair value of an asset is the principal market (with 
exceptions described in more detail below), which is either the market 
on which the Trust actually transacts, or if there is sufficient 
evidence, the market with the most trading volume and level of activity 
for the asset. Where there is no active market with orderly 
transactions for an asset, the Advisor's valuation committee will 
follow policies and procedures described in more detail below to 
determine the fair value.
    While the Trust will publish its NAV every day the Exchange is 
open, the Trust's operations will not rely to any significant extent on 
its valuation procedures. The Trust's only regular recurring expense is 
the Investment Management Fee, which is both calculated by reference to 
and paid in bitcoin. Payment for Creation Units by Authorized 
Participants may only be made in-kind in bitcoin, and redemption 
proceeds are similarly only paid in bitcoin. While the Trust may from 
time to time incur certain extraordinary, non-recurring expenses that 
must be paid in U.S. Dollars or other fiat currency, such events would 
only impact the amount of bitcoin represented by a Share of the Trust. 
Accordingly, while other proposed bitcoin ETPs rely on a benchmark or 
other reference rate to value their assets and liabilities and 
determine the amount of cash necessary to purchase or redeem Creation 
Units (or their equivalent), the Trust will not rely on any such 
conversion rate, as it is designed to transact only in bitcoin in 
nearly all circumstances. The Trust's calculation of its NAV is 
intended to assist investors in valuing their Shares, and the Trust's 
ability to transact only in bitcoin further insulates the Trust from 
activities designed to manipulate the price of the bitcoin held by the 
Trust.
The Structure and Operation of the Trust Satisfies Commission 
Requirements for Bitcoin-Based Exchange Traded Products
    In disapproving prior proposals to list and trade shares of various 
bitcoin trusts and bitcoin-based trust issued receipts, the Commission 
noted that such proposals did not adequately demonstrate that they were 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest, consistent with Section 
6(b)(5) of the Act.\65\ The Commission does not apply a ``cannot be 
manipulated'' standard, but instead seeks to examine whether a proposal 
meets the requirements of the Act.\66\ The Commission has explained 
that a proposal could satisfy the requirements of the Act in the first 
instance by demonstrating that the listing exchange has entered into a 
comprehensive surveillance-sharing agreement (``CSSA'') with a 
regulated market of significant size relating to the underlying 
assets.\67\ The Commission has also recognized that a listing exchange 
would not necessarily need to enter into a CSSA with a regulated 
significant market if the underlying commodity market inherently 
possessed a unique resistance to manipulation beyond the protections 
that are utilized by traditional commodity or securities markets or if 
the listing exchange could demonstrate that there were sufficient 
``other means to prevent fraudulent and manipulative acts and 
practices.'' \68\
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    \65\ See, e.g., Order Disapproving a Proposed Rule Change, as 
Modified by Amendments No. 1 and 2, to BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares, To List and Trade Shares Issued by the 
Winklevoss Bitcoin Trust, Securities Exchange Act Release No. 80206 
(March 10, 2017), 82 FR 14076 (March 16, 2017) (SR-BatsBZX-2016-30) 
(the ``Winklevoss I Order''); the Winklevoss II Order; Order 
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the Listing and Trading of Shares of the Bitwise Bitcoin 
ETF Trust Under NYSE Arca Rule 8.201-E, Securities Exchange Act 
Release No. 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019) 
(SR-NYSEArca-2019-01) (the ``Bitwise Order''); the Wilshire Phoenix 
Order; Order Disapproving a Proposed Rule Change to List and Trade 
the Shares of the ProShares Bitcoin ETF and the ProShares Short 
Bitcoin ETF, Securities Exchange Act Release No. 83904 (August 22, 
2018), 83 FR 43934 (August 28, 2018) (SR-NYSEArca-2017-139); Order 
Disapproving a Proposed Rule Change Relating to Listing and Trading 
of the Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 
1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion 
Daily Bitcoin 2X Bull Shares, and Direxion Daily Bitcoin 2X Bear 
Shares Under NYSE Arca Rule 8.200-E, Securities Exchange Act Release 
No. 83912 (August 22, 2018), 83 FR 43912 (August 28, 2018) (SR-
NYSEArca-2018-02); Order Disapproving a Proposed Rule Change to List 
and Trade the Shares of the GraniteShares Bitcoin ETF and the 
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No. 
83913 (August 22, 2018), 83 FR 43923 (August 28, 2018) (SR-CboeBZX-
2018-01) (the ``GraniteShares Order'').
    \66\ See Winklevoss II Order, 84 FR 37582.
    \67\ See Wilshire Phoenix Order, 85 FR 12596-97.
    \68\ See Winklevoss II Order, 84 FR 37580, 37582-91; Bitwise 
Order, 84 FR 55383, 55385-406; Wilshire Phoenix Order, 85 FR 12597.
---------------------------------------------------------------------------

    As described below, the Sponsor believes the structure and 
operation of the Trust are designed to prevent fraudulent and 
manipulative acts and practices, to protect investors and the

[[Page 28656]]

public interest, and to respond to the specific concerns that the 
Commission has identified with respect to potential fraud and 
manipulation in the context of a bitcoin ETP. Further, as the 
Commission has previously acknowledged, trading in a bitcoin-based ETP 
on a national securities exchange, as compared to trading in an 
unregulated bitcoin spot market, may provide additional protection to 
investors.\69\ The Sponsor also believes that listing of the Trust's 
Shares on the Exchange will provide investors with such an opportunity 
to obtain exposure to bitcoin within a regulated environment.
---------------------------------------------------------------------------

    \69\ See GraniteShares Order, 83 FR 43931. See also Hester M. 
Peirce, U.S. Sec. Exch. Comm'n, Dissent of Commissioner Hester M. 
Peirce to Release No. 34-83723 (July 26, 2018), available at: 
https://www.sec.gov/news/public-statement/peirce-dissent-34-83723 
(``An ETP based on bitcoin would offer investors indirect exposure 
to bitcoin through a product that trades on a regulated securities 
market and in a manner that eliminates some of the frictions and 
worries of buying and holding bitcoin directly. If we were to 
approve the ETP at issue here, investors could choose whether to buy 
it or avoid it.'').
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Surveillance Sharing Agreements With a Market of Significant Size
1. The Presence of Surveillance Sharing Agreements
    In previous orders rejecting the listing of Bitcoin ETFs, the 
Commission noted its concerns that the bitcoin market could be subject 
to manipulation.\70\ In these orders, the Commission cited numerous 
precedents \71\ in which listing proposals were approved based on 
findings that the particular market was either inherently resistant to 
manipulation or that the listing exchange had entered into a 
surveillance sharing agreement with a market of significant size.\72\ 
The Commission noted that, for commodity-trust ETPs ``there has been in 
every case at least one significant, regulated market for trading 
futures in the underlying commodity--whether gold, silver, platinum, 
palladium or copper--and the ETP listing exchange has entered into 
surveillance-sharing agreements with, or held Intermarket Surveillance 
Group (the ``ISG'') membership in common with, that market.'' \73\
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    \70\ See Winklevoss I Order and Winklevoss II Order. The Sponsor 
represents that some of the concerns raised are that a significant 
portion of bitcoin trading occurs on unregulated platforms and that 
there is a concentration of a significant number of bitcoin in the 
hands of a small number of holders. However, these facts are not 
unique to bitcoin and are true of a number of commodity and other 
markets. For instance, some gold bullion trading takes place on 
unregulated OTC markets and a significant percentage of gold is held 
by a relative few (according to estimates of the World Gold Council, 
approximately 22% of total above ground gold stocks are held by 
private investors and 17% are held by foreign governments; by 
comparison, 13.61% of bitcoin are held by the 86 largest bitcoin 
addresses, some of which are known to be cold storage addresses of 
large centralized cryptocurrency trading platforms). See https://www.gold.org/goldhub/data/above-ground-stocks for gold data cited in 
this note and https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html for Bitcoin data.
    \71\ For an extensive listing of such precedents, see Winklevoss 
I Order, 82 FR 14083 n. 96.
    \72\ The Exchange to date has not entered into surveillance 
sharing agreements with any cryptocurrency platform. However, the 
CME, which calculates the CME CF BRR, and which has offered 
contracts for bitcoin futures products since 2017, is, as noted 
below, a member of the ISG. In addition, each Constituent Platform 
has entered into a data sharing agreement with CME. See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges+Criteria.pdf.
    \73\ See Winklevoss II Order, 84 FR 37594.
---------------------------------------------------------------------------

    The CME \74\ is a member of the ISG, the purpose of which is ``to 
provide a framework for the sharing of information and the coordination 
of regulatory efforts among exchanges trading securities and related 
products to address potential intermarket manipulations and trading 
abuses.'' \75\ Membership of a relevant futures exchange in ISG is 
sufficient to meet the surveillance-sharing requirement.\76\
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    \74\ The CME is regulated by the CFTC, which has broad reaching 
anti-fraud and anti-manipulation authority including with respect to 
the bitcoin market since bitcoin has been designated as a commodity 
by the CFTC. See A CFTC Primer on Virtual Currencies (October 17, 
2017), available at: https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf (the 
``CFTC Primer on Virtual Currencies'') (``The CFTC's jurisdiction is 
implicated when a virtual currency is used in a derivatives contract 
or if there is fraud or manipulation involving a virtual currency 
traded in interstate commerce.''). See also 7 U.S.C. 7(d)(3) (``The 
board of trade shall list on the contract market only contracts that 
are not readily susceptible to manipulation.'').
    \75\ See https://isgportal.org/overview.
    \76\ See, e.g., Winklevoss II Order, 84 FR 37594.
---------------------------------------------------------------------------

    The Commission has previously noted that the existence of a 
surveillance-sharing agreement by itself is not sufficient for purposes 
of meeting the requirements of Section 6(b)(5); the surveillance-
sharing agreement must be with a market of significant size.\77\ The 
Commission has also provided an example of how it interprets the terms 
``significant market'' and ``market of significant size,'' though that 
definition is meant to be illustrative and not exclusive: ``the terms 
`significant market' and `market of significant size' . . . 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 successfully manipulate the ETP so that 
a surveillance sharing agreement would assist the ETP listing market 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.'' \78\
---------------------------------------------------------------------------

    \77\ See, e.g., id. at 37589-90.
    \78\ Id. at 37594; see also GraniteShares Order, 83 FR 43930 n. 
85 and accompanying text.
---------------------------------------------------------------------------

    For the following reasons, the Sponsor maintains that the CME, 
either alone as the sole market for bitcoin futures or as a group of 
markets together with the Constituent Platforms, is a ``market of 
significant size'' that satisfies both elements of the example provided 
by the Commission.
(a) Reasonable Likelihood That a Person Manipulating the ETP Would Have 
To Trade on the Market
    The first element of a ``significant market'' or ``market of 
significant size'' is a reasonable likelihood that a person attempting 
to manipulate the ETP would also have to trade on that market (or group 
of markets) to successfully manipulate the ETP, such that a 
surveillance sharing agreement would assist the ETP listing market in 
detecting and deterring misconduct. The Commission has stated that 
establishing a lead-lag relationship between the bitcoin futures market 
and the spot market is central to understanding whether it is 
reasonably likely that a would-be manipulator of the ETP would need to 
trade on the bitcoin futures market to successfully manipulate prices 
on those spot platforms that feed into the proposed ETP's pricing 
mechanism.\79\
---------------------------------------------------------------------------

    \79\ See Wilshire Phoenix Order, 85 FR 12612.
---------------------------------------------------------------------------

    The Sponsor believes that the CME meets the first element in 
several ways. First, it is the primary market for bitcoin futures, and 
compares favorably with other markets that were deemed to be markets of 
significant size in precedents. One particularly salient group of 
precedents are prior orders approving the listing of ETPs that invest 
in gold bullion, since the gold market exhibits a number of 
similarities with the market for bitcoin. The Sponsor maintains that, 
like bitcoin, the primary markets for gold bullion are unstructured OTC 
markets \80\ and the futures market.
---------------------------------------------------------------------------

    \80\ ``The OTC market has no formal structure and no open-outcry 
meeting place.'' Order Granting Approval of Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval to 
Amendments No. 1 and No. 2 Thereto to the Proposed Rule Change by 
the New York Stock Exchange, Inc. Regarding Listing and Trading of 
streetTRACKS[supreg] Gold Shares, Securities Exchange Act Release 
No. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004) (SR-
NYSE-2004-22) (the ``streetTRACKS Order'').
---------------------------------------------------------------------------

    Specifically, the Sponsor notes that the CME is similarly situated 
to the COMEX division of NYMEX with

[[Page 28657]]

respect to gold ETPs.\81\ As with the OTC gold market, it is not 
possible to enter into an information sharing agreement with the OTC 
bitcoin market.\82\ When the Commission has approved the listing of 
gold ETPs and other commodity-trust ETPs, rather than requiring 
surveillance sharing agreements with the relevant OTC markets, it has 
recognized surveillance sharing agreements between the listing exchange 
and ``regulated markets for trading futures on the underlying 
commodity,'' \83\ given the understanding that the manipulation of the 
market for a commodity often involves the futures market for that 
commodity.\84\
---------------------------------------------------------------------------

    \81\ Other applicants have made similar arguments in their 
respective filings. See 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, Securities Exchange Act Release No. 85119 (February 13, 
2019), 84 FR 5140 (February 20, 2019) (SRCboeBZX-2019-004), n. 11.
    \82\ ``It is not possible, however, to enter into an information 
sharing agreement with the OTC gold market.'' streetTRACKS Order, 69 
FR 64619. See also Order Granting Approval of Proposed Rule Change 
and Amendment Nos. 2, 3 and 4 and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 5 by the American 
Stock Exchange LLC Relating to the Listing and Trading of the 
iShares[supreg] COMEX Gold Trust, Securities Exchange Act Release 
No. 51058 (January 19, 2005), 70 FR 3749 (January 26, 2005) (SR-
Amex-2004-38); Notice of Filing of Proposed Rule Change Relating to 
Listing and Trading of Shares of ETFS Palladium Trust, Securities 
Exchange Act Release No. 60971 (November 9, 2009), 74 FR 59283 
(November 17, 2009) (SRNYSEArca-2009-94).
    \83\ See Winklevoss II Order, 84 FR 37591.
    \84\ See, e.g., Frank Easterbrook, Monopoly, Manipulation, and 
the Regulation of Futures Markets, 59 J. of Bus. S103, S103-S127 
(1986); William D. Harrington, The Manipulation of Commodity Futures 
Prices, 55 St. Johns L. Rev. 240, 240-275 (2012); Robert C. Lower, 
Disruptions of the Futures Market: A Comment on Dealing With Market 
Manipulation, 8 Yale J. on Reg. 391, 391-402 (1991).
---------------------------------------------------------------------------

    The Sponsor also believes that the CME meets the first element 
because its Bitcoin Futures are cash settled by reference to a final 
settlement price based on the CME CF BRR. Anyone attempting to 
manipulate the CME CF BRR would need to place numerous large sized 
trades on any of the Constituent Platforms that are used to calculate 
the CME CF BRR,\85\ and the resulting manipulative trading patterns 
would be detectable by the BRR Administrator and the CME.\86\ In 
addition, any platform that is accepted by the CME to become part of 
the constituent trading platforms that are used to calculate the CME CF 
BRR, including the Constituent Platforms, (1) must enter into a data 
sharing agreement with the CME, (2) must cooperate with inquiries and 
investigations of regulators and the BRR Administrator and (3) must 
submit each of its clients to its Know-Your-Customer procedures.\87\ As 
a result, the CME and the Exchange would be able, in the case of any 
suspicious trades, to discover all material trade information, 
including the identities of the customers placing the trades.
---------------------------------------------------------------------------

    \85\ Because the CME CF BRR is based solely on the price data 
from the Constituent Platforms, manipulating the CME CF BRR must 
necessarily entail manipulating the price data at one or more 
Constituent Platforms.
    \86\ The BRR Calculation Agent receives trading data from the 
Constituent Platforms through its Automatic Programming Interface. 
See CME-CF Practice Standards, available at: https://www.cfbenchmarks.com/indices/BRR.
    \87\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges+Criteria.pdf.
---------------------------------------------------------------------------

    The Sponsor also maintains that any would-be manipulator of bitcoin 
prices would be reasonably likely to do so through the Bitcoin Futures 
market in order to take advantage of the leverage inherent in trading 
futures contracts. The inherent leverage in Bitcoin Futures would allow 
a potential manipulator to attempt a manipulation scheme with far less 
upfront capital than it would need to achieve the same results in the 
spot market. As the spot bitcoin market has grown tremendously since 
the issuance of the Wilshire Phoenix Order, it would be critical for a 
would-be manipulator to efficiently use its capital to have the desired 
effect, and a would-be manipulator would certainly recognize that the 
chances of successfully deploying its scheme are increased 
exponentially if it can affect the Bitcoin Futures market (and thus the 
bitcoin spot market) by posting only the minimum margin required the 
Bitcoin Futures exchange.\88\ Accordingly, because the Bitcoin Futures 
market is in effect the ``cheapest'' route to manipulate bitcoin, it is 
highly likely such manipulators would attempt to do so there rather 
than any spot market.
---------------------------------------------------------------------------

    \88\ As of April 12, 2021, the initial margin required in 
connection with CME Bitcoin Futures for the April 2021 contract 
ranges from 42% to 38%.
---------------------------------------------------------------------------

    Finally, the Sponsor maintains that a would-be manipulator of 
bitcoin would be required to execute trades on multiple exchanges 
simultaneously in order to successful move the global price of bitcoin 
due to the decentralized nature of the Bitcoin Network. The Sponsor 
thus believes that bitcoin manipulators would be much more likely to 
attempt to manipulate a limited number of futures markets rather than 
attempt simultaneous executions on potentially dozens of different 
exchanges. Even if a would-be manipulator does attempt to manipulate 
bitcoin across platforms, such a scheme would also necessarily include 
some attempt to manipulate the price of bitcoin futures, including the 
CME.
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The second feature of a ``significant market'' or ``market of 
significant size'' in the Commission's example is that the market is 
one in which it is unlikely that trading in the ETP would be the 
predominant influence on prices in that market. The Sponsor believes 
that trading in the Shares would not be the predominant force on prices 
in the Bitcoin Futures market (or spot market) for a number of reasons, 
including the significant volume in the Bitcoin Futures market, the 
size of bitcoin's market cap (approximately $1 trillion), and the 
significant liquidity available in the spot market.
    Since the Wilshire Phoenix Order was issued, there has been 
significant growth in Bitcoin Futures across each of trading volumes 
and open interest as reflected in the chart below:

                                   Chicago Mercantile Exchange Bitcoin Futures
----------------------------------------------------------------------------------------------------------------
                                                                   February 26, 2020          April 7, 2021
----------------------------------------------------------------------------------------------------------------
Trading Volume................................................             $433,000,000           $4,321,000,000
Open Interest.................................................              238,000,000            2,582,000,000
----------------------------------------------------------------------------------------------------------------

    The growth of the Bitcoin Futures has coincided with similar growth 
in the bitcoin spot market. The market for Bitcoin Futures is rapidly 
approaching the size of markets for other commodity interests, 
including interests in metals, agricultural and petroleum products. 
Accordingly, as the Bitcoin Futures market continues to develop and 
more closely resemble other commodity futures markets, it can be 
reasonably expected that the relationship between the Bitcoin Futures 
market and bitcoin spot market will behave similarly to other future/
spot market relationships,

[[Page 28658]]

including periods where a lead-lag relationship between the Bitcoin 
Futures market and bitcoin spot market exists.
    In addition, the spot market for bitcoin is also very liquid. 
According to data from CoinRoutes from February 2021, the cost to buy 
or sell $5 million worth of bitcoin averages roughly 10 basis points 
with a market impact of 30 basis points.\89\ For a $10 million market 
order, the cost to buy or sell is roughly 20 basis points with a market 
impact of 50 basis points. Stated another way, a market participant 
could enter a market buy or sell order for $10 million of bitcoin and 
only move the market 0.5%. More strategic purchases or sales (such as 
using limit orders and executing through OTC bitcoin trade desks) would 
likely have less obvious impact on the market--which is consistent with 
MicroStrategy, Tesla, and Square being able to collectively purchase 
billions of dollars in bitcoin. The Sponsor believes that the 
combination of Bitcoin Futures' important role in price discovery, the 
overall size of the bitcoin market, and the ability of market 
participants, including authorized participants creating and redeeming 
in-kind with the Trust, to buy or sell large amounts of bitcoin without 
significant market impact will help prevent the Shares from becoming 
the predominant force on pricing in either the bitcoin spot or Bitcoin 
Futures markets.
---------------------------------------------------------------------------

    \89\ These statistics are based on samples of bitcoin liquidity 
in USD (excluding stablecoins or Euro liquidity) based on executable 
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

    The results from a study conducted by CF Benchmarks simulating to 
determine the extent of ``slippage'' (i.e., the difference between the 
expected price of a trade and the price at which the trade was actually 
executed) offer further evidence that trading in the Shares is unlikely 
to be the predominant influence in the bitcoin spot market.\90\ The CF 
Benchmarks Analysis simulated the purchase of 50 bitcoins a day for 686 
days (an amount chosen specifically to replicate hypothetical trades by 
an ETP) and found that the maximum amount of slippage on a particular 
day was 0.3%, with the remainder of values between 0% and 0.15%. Thus, 
according to CF Benchmarks, the slippage in this study could be 
described as having been largely negligible or, at most, minor during 
the observation period.
---------------------------------------------------------------------------

    \90\ See CF Benchmarks, ``An Analysis of the Suitability of the 
CME CF BRR for the Creation of Regulated Financial Products,'' 
December 2020 (the ``CF Benchmarks Analysis''), available at: 
https://docsend.com/view/kizk7rarzaba6jxf.
---------------------------------------------------------------------------

Other Means To Prevent Fraudulent and Manipulative Acts and Practices
    As noted above, the Commission also permits a listing exchange to 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices'' are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement. The Sponsor believes that the 
significant liquidity in the spot market and the impact of market 
orders on the overall price of bitcoin have made attempts to move the 
price of bitcoin increasingly expensive over the past year, curtailing 
potential fraud or manipulation in connection with bitcoin pricing. In 
January 2020, for example, the cost to buy or sell $5 million worth of 
bitcoin averaged roughly 30 basis points (compared to 10 basis points 
in February 2021) with a market impact of 50 basis points (compared to 
30 basis points in February 2021).\91\ For a $10 million market order, 
the cost to buy or sell was roughly 50 basis points (compared to 20 
basis points in February 2021) with a market impact of 80 basis points 
(compared to 50 basis points in February 2021). As the liquidity in the 
bitcoin spot market increases, it follows that the impact of $5 million 
and $10 million orders will continue to decrease the overall impact in 
spot price.
---------------------------------------------------------------------------

    \91\ These statistics are based on samples of bitcoin liquidity 
in USD (excluding stablecoins or Euro liquidity) based on executable 
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

    Additionally, the Sponsor believes that offering only in-kind 
creation and redemption will provide unique protections against 
potential attempts to manipulate the Shares. While the Sponsor believes 
that the Reference Rate used to value the Trust's bitcoin is itself 
resistant to manipulation based on the methodology described above, the 
fact that creations and redemptions are only available in-kind makes 
the manipulability of the Reference Rate significantly less important. 
Specifically, because the Trust will not accept cash to buy bitcoin in 
order to create or redeem Shares, the price that the Sponsor uses to 
value the Trust's bitcoin is not particularly important.\92\ When 
authorized participants create Shares with the Trust, they need to 
deliver a certain number of bitcoin per Share (regardless of the 
valuation used) and when they redeem Shares, they can similarly expect 
to receive a certain number of bitcoin per Share. As a result, even if 
the price used to value the Trust's bitcoin has been manipulated (which 
the Sponsor believes is unlikely given the resistance afforded by the 
independent Reference Rate methodology), the ratio of bitcoin per Share 
does not change and the Trust will either accept (for creations) or 
distribute (for redemptions) the same number of bitcoin regardless of 
the value. This structure not only mitigates the risk associated with 
potential manipulation, but also discourages and disincentivizes 
manipulation of the Reference Rate because there is little financial 
incentive to do so.
---------------------------------------------------------------------------

    \92\ The Investment Management Fee, which is the Trust's only 
normal recurring expense is both paid and calculated in bitcoin.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue and 
redeem Shares on an ongoing basis in one or more Creation Units. A 
Creation Unit will consist of a block of 50,000 Shares. The creation 
and redemption of Creation Units will be effected in in-kind 
transactions based on the quantity of bitcoin attributable to each 
Share.
    The quantity of bitcoin required to create each Creation Unit (the 
``Creation Unit Deposit'') may change from day to day. On each day that 
the Exchange is open for regular trading, the Administrator will 
determine the quantity of bitcoin constituting the Creation Unit 
Deposit and may make adjustments as appropriate to reflect accrued 
expenses. Each Business Day, the Administrator will communicate the 
final Creation Unit Deposit for that same Business Day and an estimated 
Creation Unit Deposit for the next Business Day.
    The number of outstanding Shares is expected to increase and 
decrease from time to time as a result of the creation and redemption 
of Creation Units. The creation and redemption of Creation Units 
require the delivery to the Trust, or the distribution by the Trust, of 
the number of bitcoins represented by the Creation Units being created 
or redeemed. The creation and redemption of a Creation Unit will be 
made only in exchange for the delivery to the Trust, or the 
distribution by the Trust, of the number of whole and fractional 
bitcoins represented by each Creation Unit being created or redeemed, 
the number of which is determined by dividing the number of bitcoins 
owned by the Trust at 4:00 p.m. E.T on the trade date of a creation or 
redemption order, as adjusted for the number of whole and fractional 
bitcoins constituting accrued but unpaid fees and expenses of the 
Trust, by the number of Shares outstanding at such time and multiplying 
such quotient by 50,000.
    Authorized Participants are the only persons that may place orders 
to create and redeem Creation Units. An

[[Page 28659]]

Authorized Participant must (i) be a registered broker-dealer, (ii) 
enter into a Participant Agreement with the Advisor and the Bitcoin 
Custodian, and (iii) own a bitcoin wallet address that is recognized by 
the Bitcoin Custodian as belonging to the Authorized Participant (an 
``Authorized Participant Self-Administered Account''). Authorized 
Participants may act for their own accounts or as agents for broker-
dealers, custodians, and other securities market participants that wish 
to create or redeem Creation Units. Shareholders who are not Authorized 
Participants will only be able to redeem their Common Shares through an 
Authorized Participant.
Creation Procedures
    On any Business Day, an Authorized Participant may place an order 
with the Transfer Agent to create one or more Creation Units. Purchase 
orders must be placed prior to 4:00 p.m. E.T. or the close of regular 
trading on the Exchange, whichever is earlier. The day on which a valid 
order is received by the Transfer Agent is considered the purchase 
order date.
    By placing a purchase order, an Authorized Participant agrees to 
facilitate the deposit of bitcoin with the Trust. The total deposit of 
bitcoin required to create each Creation Unit is an amount of bitcoin 
that is in the same proportion to the total assets of the Trust (net of 
accrued but unpaid fees and expenses) on the date the purchase order is 
properly received as the number of Shares to be created under the 
purchase order is to the total number of Shares outstanding on the date 
the order is received.
    Following an Authorized Participant's purchase order, the Bitcoin 
Account must be credited with the required bitcoin by the end of the 
Business Day following the purchase order date. Upon receipt of the 
bitcoin deposit amount in the Trust's Bitcoin Account, the Bitcoin 
Custodian will notify the Transfer Agent, the Authorized Participant, 
and the Advisor that the bitcoin has been deposited. The Transfer Agent 
will then direct the Depository Trust Company (``DTC'') to credit the 
number of Shares created to the Authorized Participant's DTC account.
Redemption Procedures
    According to the Registration Statement, on any Business Day, an 
Authorized Participant may place an order with the Transfer Agent to 
redeem one or more Creation Units. Authorized Participants may only 
redeem Creation Units and cannot redeem any Shares in an amount less 
than a Creation Unit. Redemption orders must be placed prior to 4:00 
p.m. E.T. or the close of regular trading on the Exchange, whichever is 
earlier. A redemption order will be effective on the date it is 
received by the Transfer Agent (``Redemption Order Date'').
    The redemption distribution from the Trust consists of a transfer 
of bitcoin to the redeeming Authorized Participant corresponding to the 
number of Shares being redeemed. The redemption distribution due from 
the Trust will be delivered once the Transfer Agent notifies the 
Bitcoin Custodian and the Advisor that the Authorized Participant has 
delivered the Shares represented by the Creation Units to be redeemed 
to the Transfer Agent's DTC account. If the Transfer Agent's DTC 
account has not been credited with all of the Shares of the Creation 
Units to be redeemed, the redemption distribution will be delayed until 
such time as the Transfer Agent confirms receipt of all such Shares.
    Once the Transfer Agent notifies the Bitcoin Custodian and the 
Advisor that the Shares have been received in the Transfer Agent's DTC 
account, the Advisor will instruct the Bitcoin Custodian to transfer 
the redemption distribution from the Trust's Bitcoin Account to the 
Authorized Participant.
    The redemption distribution from the Trust will consist of a 
transfer to the redeeming Authorized Participant of an amount of 
bitcoin that is determined in the same manner as the determination of 
Creation Unit Deposits, as discussed above. The redemption distribution 
due from the Trust will be delivered to the Authorized Participant on 
the first Business Day following the Redemption Order Date if, by 9:00 
a.m. E.T. on such Business Day, the Transfer Agent's DTC account has 
been credited with the Creation Units to be redeemed. If the Transfer 
Agent's DTC account has not been credited with all of the Creation 
Units to be redeemed by such time, the redemption distribution will 
also be delayed.
Availability of Information
    The Trust's website (https://www.ftportfolios.com) will include 
quantitative information on a per Share basis updated on a daily basis, 
including (i) the current NAV per Share daily and the prior business 
day's NAV and the reported closing price; (ii) the mid-point of the 
bid-ask price \93\ 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; and (iii) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily 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). In addition, on each business day the Trust's 
website will provide pricing information for the Shares.
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    \93\ 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.
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    The Trust's website, as well as one or more major market data 
vendors, will provide an intra-day indicative value (``IIV'') per Share 
updated every 15 seconds, as calculated by the Exchange or a third 
party financial data provider during the Exchange's Core Trading 
Session (9:30 a.m. to 4:00 p.m., E.T.).\94\ The IIV will be calculated 
by using the prior day's closing NAV per Share as a base and updating 
that value during the NYSE Arca Core Trading Session to reflect changes 
in the value of the Trust's NAV during the trading day.
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    \94\ The IIV on a per Share basis disseminated during the Core 
Trading Session should not be viewed as a real-time update of the 
NAV, which is calculated once a day.
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    The IIV disseminated during the NYSE Arca Core Trading Session 
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 NYSE Arca Core Trading Session by one or more major market 
data vendors. In addition, the IIV will be available through on-line 
information services.
    The NAV for the Trust will be calculated by the Sponsor once a day 
and will be disseminated daily to all market participants at the same 
time. Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the Consolidated Tape 
Association (``CTA'').
    Quotation and last sale information for bitcoin will be widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. In addition, the complete real-time price (and 
volume) data for bitcoin is available by subscription from Reuters and 
Bloomberg. The spot price of bitcoin is available on a 24-hour basis 
from major market data vendors, including Bloomberg and Reuters. 
Information relating to trading, including price and volume 
information, in bitcoin will be available from major market data 
vendors and from the exchanges on which bitcoin are traded. The normal 
trading hours for

[[Page 28660]]

bitcoin exchanges are 24-hours per day, 365-days per year.
    The Sponsor will publish the NAV per Share on the Trust's website 
as soon as practicable after its determination. The Trust will provide 
website disclosure of its NAV daily. The website disclosure of the 
Trust's NAV will occur at the same time as the disclosure by the 
Sponsor of the NAV to Authorized Participants so that all market 
participants are provided such information at the same time. Therefore, 
the same 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 NAV of the Trust through 
the Trust's website, as well as from one or more major market data 
vendors.
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. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m., E.T. in 
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting 
and entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00, for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting 
as registered Market Makers in Commodity-Based Trust Shares to 
facilitate surveillance. The Exchange represents that, for initial and 
continued listing, the Trust will be in compliance with Rule 10A-3 \95\ 
under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 
100,000 Shares of the Trust will be outstanding at the commencement of 
trading on the Exchange.
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    \95\ 17 CFR 240.10A-3.
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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 of the Trust.\96\ Trading in Shares of the Trust 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
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    \96\ See NYSE Arca Rule 7.12-E.
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    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IIV occurs. If the 
interruption to the dissemination of the IIV persists past the trading 
day in which it occurred, the Exchange will halt trading no later than 
the beginning of the trading day following the interruption. In 
addition, if the Exchange becomes aware that the NAV with respect to 
the Shares is not disseminated to all market participants at the same 
time, it will halt trading in the Shares until such time as the NAV is 
available to all market participants.
Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\97\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
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    \97\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a CSSA.\98\ 
The Exchange is also able to obtain information regarding trading in 
the Shares in connection with such ETP Holders' proprietary or customer 
trades which they effect through ETP Holders on any relevant market.
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    \98\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Trust may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolios of the Trust, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange listing rules specified in this rule filing shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) that an exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to, and perfect the mechanism of a free and open market and, in 
general, to protect investors and the public interest.\99\
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    \99\ 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 and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities

[[Page 28661]]

laws. The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets that are members of the ISG, and the Exchange or FINRA, on 
behalf of the Exchange, or both, may obtain trading information 
regarding trading in the Shares from such markets. In addition, the 
Exchange may obtain information regarding trading in the Shares from 
markets that are members of ISG or with which the Exchange has in place 
a CSSA. Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is 
able to obtain information regarding trading in the Shares and the 
underlying bitcoin or any bitcoin derivative through ETP Holders acting 
as registered Market Makers, in connection with such ETP Holders' 
proprietary or customer trades through ETP Holders which they effect on 
any relevant market.
    The Exchange also believes that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest because investing in the 
Trust will provide investors with exposure to bitcoin in a manner that 
is more efficient and convenient than the purchase of stand-alone 
bitcoin, while also mitigating some of the volatility risk typically 
associated with the purchase of stand-alone bitcoin. As discussed 
above, the Trust will use the Reference Rate to determine the value of 
its bitcoin assets and its NAV. While bitcoin is listed and traded on a 
number of markets and platforms, the Reference Rate is determined 
exclusively based on its Constituent Platforms, and therefore, use of 
the Reference Rate would mitigate the effects of potential manipulation 
of the bitcoin market. Additionally, the capital necessary to maintain 
a significant presence on any Constituent Platform would make 
manipulation of the Reference Rate unlikely. Bitcoin trades in a well-
arbitraged and distributed market. The linkage between the bitcoin 
markets and the presence of arbitrageurs in those markets means that 
the manipulation of the price of bitcoin on any Constituent Platform 
would likely require overcoming the liquidity supply of such 
arbitrageurs who are potentially eliminating any cross-market pricing 
differences. The proposed rule change is also designed to prevent 
fraudulent and manipulative acts and practices based on the function of 
the CME, either alone as the sole market for bitcoin futures or as a 
group of markets together with the Constituent Platforms, as a ``market 
of significant size'' consistent with the Commission's guidance with 
respect to surveillance sharing agreements. As discussed above, the CME 
is the primary market for bitcoin futures, is designed to detect and 
resist potentially manipulative trading activity, and, as a member of 
ISG, can provide the Exchange with information to assist in detecting 
and deterring potential fraud or manipulation.
    The proposed rule change is also designed to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that there is a considerable amount of bitcoin price and 
market information available on public websites and through 
professional and subscription services. Investors may obtain, on a 24-
hour basis, bitcoin pricing information based on the spot price for 
bitcoin from various financial information service providers. The 
closing price and settlement prices of bitcoin are readily available 
from the bitcoin exchanges and other publicly available websites. In 
addition, such prices are published in public sources, or on-line 
information services such as Bloomberg and Reuters. The NAV per Share 
will be calculated daily and made available to all market participants 
at the same time. The Trust will provide website disclosure of its NAV 
daily. One or more major market data vendors will disseminate for the 
Trust on a daily basis information with respect to the most recent NAV 
per Share and Shares outstanding. In addition, if the Exchange becomes 
aware that the NAV with respect to the Shares is not disseminated to 
all market participants at the same time, it will halt trading in the 
Shares until such time as the NAV is available to all market 
participants. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA. The IIV will be 
widely disseminated on a per Share basis every 15 seconds during the 
NYSE Arca Core Trading Session (normally 9:30 a.m., E.T., to 4:00 p.m., 
E.T.) by one or more major market data vendors. In addition, the IIV 
will be available on the Trust's website and through on-line 
information services. The Exchange represents that the Exchange may 
halt trading during the day in which an interruption to the 
dissemination of the IIV occurs. If the interruption to the 
dissemination of the IIV persists past the trading day in which it 
occurred, the Exchange will halt trading no later than the beginning of 
the trading day following the interruption.
    The proposed rule change 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 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a CSSA. In addition, as noted above, 
investors will have ready access to information regarding the Trust's 
NAV, IIV, and quotation and last sale information for the Shares.

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 purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product, which will enhance 
competition among market participants, 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

    No written comments were solicited or received with respect to 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 up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the 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:

[[Page 28662]]

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-NYSEArca-2021-37 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-NYSEArca-2021-37. 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-NYSEArca-2021-37 and should be submitted 
on or before June 17, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\100\
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    \100\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-11172 Filed 5-26-21; 8:45 am]
BILLING CODE 8011-01-P


