[Federal Register Volume 87, Number 30 (Monday, February 14, 2022)]
[Notices]
[Pages 8318-8335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03019]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94184; File No. SR-CboeBZX-2022-006]


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

February 8, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 25, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes rule change to list and trade shares of the 
WisdomTree Bitcoin Trust (the ``Trust''),\3\ under BZX Rule 
14.11(e)(4), Commodity-Based Trust Shares. The shares of the Trust are 
referred to herein as the ``Shares.''
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    \3\ The Trust was formed as a Delaware statutory trust on March 
8, 2021 and is operated as a grantor trust for U.S. federal tax 
purposes. The Trust has no fixed termination date.
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    The text of the proposed rule change is available on the Exchange's 
website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.5 6 WisdomTree

[[Page 8319]]

Digital Commodity Services, LLC is the sponsor of the Trust (the 
``Sponsor''). The Shares will be registered with the Commission by 
means of the Trust's registration statement on Form S-1 (the 
``Registration Statement'').\7\ As further discussed below, the 
Commission has historically approved or disapproved exchange filings to 
list and trade series of Trust Issued Receipts, including spot-based 
Commodity-Based Trust Shares, on the basis of whether the listing 
exchange has in place a comprehensive surveillance sharing agreement 
with a regulated market of significant size related to the underlying 
commodity.\8\ A survey of previously approved series of Commodity-Based 
Trust Shares and Currency Trust Shares makes clear that the spot 
markets for commodities and currencies held in such ETPs are generally 
unregulated. In fact, the Commission specifically noted in the 
Winklevoss Order that the first gold ETP approval order, which was also 
the first commodity-trust ETP, ``was based on an assumption that the 
currency market and the spot gold market were largely unregulated.'' 
\9\ This makes clear that the applicable standard is not whether the 
underlying commodity market itself is regulated. Further to this point, 
prior orders have also emphasized that in every prior approval order 
for Commodity-Based Trust Shares there was a regulated derivatives 
market of significant size, generally a Commodity Futures Trading 
Commission (the ``CFTC'') regulated futures market.\10\ Despite the 
lack of regulation of the underlying spot commodity and currency 
markets, the Commission approved series of Currency and Commodity-Based 
Trust Shares, including those that held gold, silver,

[[Page 8320]]

platinum, palladium, copper, and other commodities and currencies, 
because it determined that the futures markets for these commodities 
and currencies represented regulated markets of significant size and 
that the listing exchange had a surveillance sharing agreement in place 
with that market.\11\
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    \4\ The Commission approved BZX Rule 14.11(e)(4) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \5\ All statements and representations made in this filing 
regarding (a) the description of the portfolio, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules and surveillance procedures shall constitute 
continued listing requirements for listing the Shares on the 
Exchange.
    The Exchange notes that a different proposal to list and trade 
shares of the WisdomTree Bitcoin Trust was disapproved by the 
Commission on December 1, 2021. See Exchange Act Release No. 93700 
(December 1, 2021), 86 FR 69322 (December 7, 2021). The Sponsor has 
subsequently submitted an amended Registration Statement that 
includes a number of additional voluntary disclosures and 
shareholder protections that the Sponsor intends to undertake. This 
proposal is also significantly different than the previously 
disapproved proposal in that it includes additional information 
related to such voluntary disclosures and protections, additional 
information related to Bitcoin Futures ETFs, as defined below, and 
additional statistical and statutory analysis that seeks to respond 
to the concerns of the Commission.
    \7\ The Trust has filed an amended registration statement on 
Form S-1 under the Securities Act of 1933, dated December 8, 2021 
(File No. 333-254134) (``Registration Statement''). The description 
of the Trust and the Shares contained herein are based on the 
Registration Statement. The Registration Statement for the Trust is 
not yet effective and the Shares will not trade on the Exchange 
until such time that the Registration Statement is effective.
    \8\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently 
disapproved by the Commission. See Securities Exchange Act Release 
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the 
``Winklevoss Order'').
    \9\ See Winklevoss Order at 37592 and Exchange Act Release No. 
50603 (Oct. 28, 2004), 69 FR 64614 (Nov. 5, 2004) (SR-NYSE-2004-22) 
(order approving the listing and trading of streetTRACKS Gold 
Shares) (the ``First Gold Approval Order'').
    \10\ See Winklevoss Order at 37592. See also the First Gold 
Approval Order at 64618-19; iShares COMEX Gold Trust, Exchange Act 
Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751, 3754-55 (Jan. 
26, 2005) (SR-Amex-2004-38); iShares Silver Trust, Exchange Act 
Release No. 53521 (Mar. 20, 2006), 71 FR 14967, 14968, 14973-74 
(Mar. 24, 2006) (SR-Amex-2005-072); ETFS Gold Trust, Exchange Act 
Release No. 59895 (May 8, 2009), 74 FR 22993, 22994-95, 22998, 23000 
(May 15, 2009) (SR-NYSEArca-2009-40); ETFS Silver Trust, Exchange 
Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771, 18772, 18775-77 
(Apr. 24, 2009) (SR-NYSEArca-2009-28); ETFS Palladium Trust, 
Exchange Act Release No. 61220 (Dec. 22, 2009), 74 FR 68895, 68896 
(Dec. 29, 2009) (SR-NYSEArca-2009-94) (notice of proposed rule 
change included NYSE Arca's representation that ``[t]he most 
significant palladium futures exchanges are the NYMEX and the Tokyo 
Commodity Exchange,'' that ``NYMEX is the largest exchange in the 
world for trading precious metals futures and options,'' and that 
NYSE Arca ``may obtain trading information via the Intermarket 
Surveillance Group,'' of which NYMEX is a member, Exchange Act 
Release No. 60971 (Nov. 9, 2009), 74 FR 59283, 59285-86, 59291 (Nov. 
17, 2009)); ETFS Platinum Trust, Exchange Act Release No. 61219 
(Dec. 22, 2009), 74 FR 68886, 68887-88 (Dec. 29, 2009) (SR-NYSEArca-
2009-95) (notice of proposed rule change included NYSE Arca's 
representation that ``[t]he most significant platinum futures 
exchanges are the NYMEX and the Tokyo Commodity Exchange,'' that 
``NYMEX is the largest exchange in the world for trading precious 
metals futures and options,'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' of 
which NYMEX is a member, Exchange Act Release No. 60970 (Nov. 9, 
2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); Sprott Physical 
Gold Trust, Exchange Act Release No. 61496 (Feb. 4, 2010), 75 FR 
6758, 6760 (Feb. 10, 2010) (SR-NYSEArca-2009-113) (notice of 
proposed rule change included NYSE Arca's representation that the 
COMEX is one of the ``major world gold markets,'' that NYSE Arca 
``may obtain trading information via the Intermarket Surveillance 
Group,'' and that NYMEX, of which COMEX is a division, is a member 
of the Intermarket Surveillance Group, Exchange Act Release No. 
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4, 2010)); Sprott 
Physical Silver Trust, Exchange Act Release No. 63043 (Oct. 5, 
2010), 75 FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR-
NYSEArca-2010-84); ETFS Precious Metals Basket Trust, Exchange Act 
Release No. 62692 (Aug. 11, 2010), 75 FR 50789, 50790 (Aug. 17, 
2010) (SR-NYSEArca-2010-56) (notice of proposed rule change included 
NYSE Arca's representation that ``the most significant gold, silver, 
platinum and palladium futures exchanges are the COMEX and the 
TOCOM'' and that NYSE Arca ``may obtain trading information via the 
Intermarket Surveillance Group,'' of which COMEX is a member, 
Exchange Act Release No. 62402 (Jun. 29, 2010), 75 FR 39292, 39295, 
39298 (July 8, 2010)); ETFS White Metals Basket Trust, Exchange Act 
Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 56158 (Sept. 15, 
2010) (SR-NYSEArca-2010-71) (notice of proposed rule change included 
NYSE Arca's representation that ``the most significant silver, 
platinum and palladium futures exchanges are the COMEX and the 
TOCOM'' and that NYSE Arca ``may obtain trading information via the 
Intermarket Surveillance Group,'' of which COMEX is a member, 
Exchange Act Release No. 62620 (July 30, 2010), 75 FR 47655, 47657, 
47660 (Aug. 6, 2010)); ETFS Asian Gold Trust, Exchange Act Release 
No. 63464 (Dec. 8, 2010), 75 FR 77926, 77928 (Dec. 14, 2010) (SR-
NYSEArca-2010-95) (notice of proposed rule change included NYSE 
Arca's representation that ``the most significant gold futures 
exchanges are the COMEX and the Tokyo Commodity Exchange,'' that 
``COMEX is the largest exchange in the world for trading precious 
metals futures and options,'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' of 
which COMEX is a member, Exchange Act Release No. 63267 (Nov. 8, 
2010), 75 FR 69494, 69496, 69500-01 (Nov. 12, 2010)); Sprott 
Physical Platinum and Palladium Trust, Exchange Act Release No. 
68430 (Dec. 13, 2012), 77 FR 75239, 75240-41 (Dec. 19, 2012) (SR-
NYSEArca-2012-111) (notice of proposed rule change included NYSE 
Arca's representation that ``[f]utures on platinum and palladium are 
traded on two major exchanges: The New York Mercantile Exchange ... 
and Tokyo Commodities Exchange'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' of 
which COMEX is a member, Exchange Act Release No. 68101 (Oct. 24, 
2012), 77 FR 65732, 65733, 65739 (Oct. 30, 2012)); APMEX Physical--1 
oz. Gold Redeemable Trust, Exchange Act Release No. 66930 (May 7, 
2012), 77 FR 27817, 27818 (May 11, 2012) (SR-NYSEArca-2012-18) 
(notice of proposed rule change included NYSE Arca's representation 
that NYSE Arca ``may obtain trading information via the Intermarket 
Surveillance Group,'' of which COMEX is a member, and that gold 
futures are traded on COMEX and the Tokyo Commodity Exchange, with a 
cross-reference to the proposed rule change to list and trade shares 
of the ETFS Gold Trust, in which NYSE Arca represented that COMEX is 
one of the ``major world gold markets,'' Exchange Act Release No. 
66627 (Mar. 20, 2012), 77 FR 17539, 17542-43, 17547 (Mar. 26, 
2012)); JPM XF Physical Copper Trust, Exchange Act Release No. 68440 
(Dec. 14, 2012), 77 FR 75468, 75469-70, 75472, 75485-86 (Dec. 20, 
2012) (SR-NYSEArca-2012-28); iShares Copper Trust, Exchange Act 
Release No. 68973 (Feb. 22, 2013), 78 FR 13726, 13727, 13729-30, 
13739-40 (Feb. 28, 2013) (SR-NYSEArca-2012-66); First Trust Gold 
Trust, Exchange Act Release No. 70195 (Aug. 14, 2013), 78 FR 51239, 
51240 (Aug. 20, 2013) (SR-NYSEArca-2013-61) (notice of proposed rule 
change included NYSE Arca's representation that FINRA, on behalf of 
the exchange, may obtain trading information regarding gold futures 
and options on gold futures from members of the Intermarket 
Surveillance Group, including COMEX, or from markets ``with which 
[NYSE Arca] has in place a comprehensive surveillance sharing 
agreement,'' and that gold futures are traded on COMEX and the Tokyo 
Commodity Exchange, with a cross-reference to the proposed rule 
change to list and trade shares of the ETFS Gold Trust, in which 
NYSE Arca represented that COMEX is one of the ``major world gold 
markets,'' Exchange Act Release No. 69847 (June 25, 2013), 78 FR 
39399, 39400, 39405 (July 1, 2013)); Merk Gold Trust, Exchange Act 
Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 4786-87 (Jan. 29, 
2014) (SR-NYSEArca-2013-137) (notice of proposed rule change 
included NYSE Arca's representation that ``COMEX is the largest gold 
futures and options exchange'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' 
including with respect to transactions occurring on COMEX pursuant 
to CME and NYMEX's membership, or from exchanges ``with which [NYSE 
Arca] has in place a comprehensive surveillance sharing agreement,'' 
Exchange Act Release No. 71038 (Dec. 11, 2013), 78 FR 76367, 76369, 
76374 (Dec. 17, 2013)); Long Dollar Gold Trust, Exchange Act Release 
No. 79518 (Dec. 9, 2016), 81 FR 90876, 90881, 90886, 90888 (Dec. 15, 
2016) (SR-NYSEArca-2016-84).
    \11\ Id.
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    The Exchange acknowledges that largely unregulated currency and 
spot commodity markets do not provide the same protections as the 
markets that are subject to the Commission's oversight. However, the 
Commission has consistently looked to surveillance sharing agreements 
with an underlying futures market to determine whether ETPs holding 
currency or commodities were consistent with the Act, as established 
above. As such, the Commission's regulated market of significant size 
test does not require that the spot bitcoin market be regulated to 
approve this proposal. To the contrary, precedent makes clear that any 
requirement that the spot bitcoin market be a ``regulated market'' 
prior to approval would be incongruous with all prior spot commodity 
and currency approval orders. With this in mind, the CME Bitcoin 
Futures market is the proper market for the Commission to consider in 
determining whether this proposal is consistent with the Act. The 
Exchange has a comprehensive surveillance sharing agreement in place 
with CME, which operates a bitcoin futures market that, as established 
by the included analysis below, represents a regulated market of 
significant size related to the underlying commodity (bitcoin) to be 
held by the Trust. Therefore, both the Exchange and the Sponsor believe 
that the CME Bitcoin Futures market satisfies the standard that the 
Commission has applied to all previously approved series of Commodity-
Based Trust Shares and that this proposal should be approved.
Background
    Bitcoin is a digital asset based on the decentralized, open source 
protocol of 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's 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.\12\
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    \12\ For additional information about bitcoin and the Bitcoin 
Network, see https://bitcoin.org/en/getting-started; https://www.wisdomtree.com/strategies/crypto; https://www.fidelitydigitalassets.com/articles/addressing-bitcoin-criticisms; and https://www.vaneck.com/education/investment-ideas/investing-in-bitcoin-and-digital-assets/.
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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 
Exchange on June 30, 2016.\13\ 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.\14\ Similarly, regulated U.S. bitcoin futures 
contracts did not exist. The CFTC had determined that bitcoin is a 
commodity,\15\ 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.\16\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and 
the fund had only $60 million in assets.\17\ 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.\18\
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    \13\ See Winklevoss Order.
    \14\ 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.
    \15\ 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.''
    \16\ 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.
    \17\ Data as of March 31, 2016 according to publicly available 
filings. See Bitcoin Investment Trust Form S-1, dated May 27, 2016, 
available: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm.
    \18\ 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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    Fast forward to the fourth quarter of 2021 and 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 \19\ and 
shares in investment vehicles holding bitcoin futures.\20\ 
Additionally, licensed and regulated service providers have emerged to 
provide fund custodial services for digital assets, among other 
services. For example, in May 2021, the Staff of the Commission 
released a statement permitting open-end mutual funds to invest in 
cash-settled bitcoin futures; 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 (the ``Custody Statement''); \21\ in September 
2020, the Staff of the Commission released a no-

[[Page 8321]]

action letter permitting certain broker-dealers to operate a non-
custodial Alternative Trading System (``ATS'') for digital asset 
securities, subject to specified conditions; \22\ and 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,\23\ and multiple transfer agents who provide services for 
digital asset securities registered with the Commission.\24\
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    \19\ 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.
    \20\ 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.
    \21\ 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).
    \22\ 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.
    \23\ 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.
    \24\ See, e.g., Form TA-1/A filed by Securrency Transfers, Inc. 
(CIK: 0001846640) on August 13, 2021, available at https://www.sec.gov/Archives/edgar/data/0001846640/000184664021000006/xslFTA1X01/primary_doc.xml; and 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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    Outside the Commission's purview, the regulatory landscape has 
changed significantly since 2016, and cryptocurrency markets have grown 
and evolved as well. The market for bitcoin is approximately 100 times 
larger, with a market cap of over $1 trillion.\25\ According to the CME 
Bitcoin Futures Report, from October 25, 2021 through November 19, 
2021, CFTC regulated bitcoin futures represented approximately $2.9 
billion in notional trading volume on Chicago Mercantile Exchange 
(``CME'') (``CME Bitcoin Futures'') on a daily basis and notional 
volume was never below $1.2 billion per day.\26\ Open interest was over 
$4 billion for the entirety of the period and at one point reached $5.5 
billion. 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.\27\ 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 \28\ and major U.S. banks 
that currently serve as asset custodians for investment companies 
registered under the Investment Company Act of 1940, as amended (``1940 
Act''), are now serving, or have expressed an intention of serving, as 
bitcoin custodians.\29\ One such bank, U.S. Bank, N.A., will be serving 
as the custodian of the Trust (the ``Custodian''). The OCC has also 
recently granted conditional approval of two charter conversions by 
state-chartered trust companies to national banks, both of which 
provide cryptocurrency custody services.\30\ 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,\31\ and has proposed rules 
imposing requirements on entities subject to the BSA that are specific 
to the technological context of virtual currencies.\32\ 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.\33\
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    \25\ As of December 1, 2021, the total market cap of all bitcoin 
in circulation was approximately $1.08 trillion.
    \26\ Data sourced from the CME Bitcoin Futures Report: 19 Nov, 
2021, available at: https://www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_Futures_Liquidity_Report.pdf.
    \27\ 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.
    \28\ 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.
    \29\ See U.S. Bank Announces New Cryptocurrenty Custodian 
Services for Institutional Investment Managers (October 5, 2021) 
available at: https://ir.usbank.com/news-releases/news-release-details/us-bank-announces-new-cryptocurrency-custody-services.
    \30\ 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.
    \31\ 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.
    \32\ 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.
    \33\ 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 have embraced and continue to 
embrace cryptocurrency: Large insurance companies,\34\ asset 
managers,\35\ university endowments,\36\ pension funds,\37\ and even 
historically bitcoin skeptical fund managers \38\ 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

[[Page 8322]]

reporting company.\39\ Established companies like Tesla, Inc.,\40\ 
MicroStrategy Incorporated,\41\ and Square, Inc.,\42\ among others, 
have recently announced substantial investments in bitcoin in amounts 
as large as 43,200 BTC,\43\ worth around $2.5 billion (Tesla) valued at 
a BTCUSD price of $60,000 and 121,043 BTC worth $7.2 billion 
(MicroStrategy). The foregoing examples demonstrate that bitcoin has 
gained mainstream usage and recognition.
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    \34\ 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.
    \35\ 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.
    \36\ 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.
    \37\ 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.
    \38\ 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.
    \39\ 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) https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
    \40\ 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.
    \41\ 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.
    \42\ 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.
    \43\ Amount obtained from https://bitcointreasuries.net as of 
December 3, 2021.
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    Despite these developments, access for U.S. retail investors to 
gain exposure to bitcoin via a transparent and U.S. regulated, U.S. 
exchange-traded vehicle remains limited. Instead current options 
include: (i) Paying a potentially high premium (and high management 
fees) to buy over-the-counter bitcoin funds (``OTC Bitcoin Funds''), to 
the advantage of more sophisticated investors that are able to create 
shares at net asset value (``NAV'') directly with the issuing trust; 
\44\ (ii) facing the technical risk, complexity and generally high fees 
associated with buying spot bitcoin; (iii) purchasing shares of 
operating companies that they believe will provide proxy exposure to 
bitcoin with limited disclosure about the associated risks; \45\ or 
(iv) through the purchase of CME Bitcoin Futures ETFs, which represent 
a sub-optimal structure for long-term investors that will cost them 
collectively tens of millions of dollars every year, as further 
discussed below. Meanwhile, investors in many other countries, 
including Canada \46\ and Brazil, are able to use more traditional 
exchange listed and traded products (including exchange-traded funds 
holding physical bitcoin) to gain exposure to bitcoin, disadvantaging 
U.S. investors and leaving them with more risky means of getting 
bitcoin exposure.\47\ Additionally, investors in other countries and 
regions, specifically Canada and Europe, generally pay lower fees than 
U.S. retail investors that invest in OTC Bitcoin Funds due to the fee 
pressure that results from increased competition among available 
bitcoin investment options. Without an approved and regulated spot 
bitcoin ETP in the U.S. as a viable alternative, U.S. investors could 
seek to purchase shares of non-U.S. bitcoin vehicles in order to get 
access to bitcoin exposure. 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. Further to this point, the lack of a U.S.-listed spot 
bitcoin ETP is not preventing U.S. funds from gaining exposure to 
bitcoin--several U.S. exchange-traded funds are using Canadian bitcoin 
ETPs to gain exposure to spot bitcoin. In addition to the benefits to 
U.S. investors articulated throughout this proposal, approving this 
proposal (and others like it) would provide U.S. exchange-traded funds 
with a U.S.-listed and regulated product to provide such access rather 
than relying on either flawed products or products listed and primarily 
regulated in other countries.
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    \44\ The largest OTC Bitcoin Fund has grown its AUM from 
approximately $2.6 billion on February 26, 2020, the date on which 
the Commission issued the disapproval order for the United States 
Bitcoin and Treasury Investment Trust, to $37.1 billion on December 
1, 2021, according to Grayscale's website. See Securities Exchange 
Act Release No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 
2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval''). 
While the price of one bitcoin has increased approximately 690% in 
the intervening period, the total AUM has increased by approximately 
1540%, indicating that the increase in AUM was created beyond just 
price appreciation in bitcoin. The premium and discount for OTC 
Bitcoin Funds is known to move rapidly. For example, over the period 
of 12/21/20 to 1/21/20, the premium for the largest OTC Bitcoin Fund 
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%. This means that 
investors are buying shares of a fund that experiences significant 
volatility in its premium and discount outside of the fluctuations 
in price of the underlying asset. Even operating within the normal 
premium and discount range, it's 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 excluding 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. As more investment 
vehicles, including mutual funds and ETFs, seek to gain exposure to 
bitcoin, the easiest option for a buy and hold strategy for such 
vehicles 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. Trading at a 
premium (or a discount) is not unique to OTC Bitcoin Funds and is 
not in itself problematic, but the Commission has recognized the 
risks that are posed by a persistent premium or discount and 
accordingly mandated website disclosure for ETFs under Rule 6c-11. 
That mandate was in the context of a persistent 2% premium or 
discount, whereas OTC Bitcoin Funds have had persistent premiums or 
discounts at least 10 times that percentage.
    \45\ Recently a number of operating companies engaged in 
unrelated businesses--such as Tesla (a car manufacturer) and 
MicroStrategy (an enterprise software company)--have announced 
investments as large as $5.3 billion in bitcoin. 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. 
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. 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. 
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 such 
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. In other words, investors seeking bitcoin 
exposure through publicly traded companies are gaining only partial 
exposure to bitcoin and are not fully benefitting from the risk 
disclosures and associated investor protections that come from the 
securities registration process.
    \46\ The Exchange notes that the Purpose Bitcoin ETF, a retail 
physical bitcoin ETP launched in Canada, reportedly reached $1.2 
billion in assets under management as of October 15, 2021 (``AUM''), 
demonstrating the demand for a North American market listed bitcoin 
exchange-traded product (``ETP''). The Purpose Bitcoin ETF also 
offers a class of units that is U.S. dollar denominated, which could 
appeal to U.S. investors.
    \47\ The Exchange notes that securities regulators in a number 
of other countries have either approved or otherwise allowed the 
listing and trading of bitcoin ETPs. Specifically, these funds 
include the Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors Bitcoin 
ETN, WisdomTree Bitcoin ETP, Bitcoin Tracker One, BTCetc bitcoin 
ETP, Amun Bitcoin ETP, Amun Bitcoin Suisse ETP, 21Shares Short 
Bitcoin ETP, CoinShares Physical Bitcoin ETP.
---------------------------------------------------------------------------

Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the 
recent launch of several ETFs registered under the Investment Company 
Act of 1940, as amended (the ``1940 Act''), that provide exposure to 
bitcoin through CME Bitcoin Futures (``Bitcoin Futures ETFs''). 
Allowing such products to list

[[Page 8323]]

and trade is a productive first step in providing transparent, 
exchange-listed tools for expressing a view on bitcoin for U.S. 
investors and traders. However, as has been reported by numerous 
outlets, the structure of such products provides negative outcomes for 
buy and hold investors as compared to an ETP that would hold actual 
bitcoin instead of derivatives contracts (``Spot Bitcoin ETPs'').\48\ 
Specifically, the cost of rolling CME Bitcoin Futures contracts (which 
has reached as high as 17% annually \49\ excluding a fund's management 
fees and borrowing costs, if any) will cause the Bitcoin Futures ETFs 
to lag the performance of bitcoin itself and, at over a billion dollars 
in assets under management, would cost U.S. investors hundreds of 
millions of dollars on an annual basis. Such rolling costs would not be 
required for Spot Bitcoin ETPs that hold bitcoin. Further, Bitcoin 
Futures ETFs have grown so rapidly that they face potentially running 
into CME position limits, which would force a Bitcoin Futures ETF to 
invest in non-futures assets for bitcoin exposure and cause potential 
investor confusion and lack of certainty about what such Bitcoin 
Futures ETFs are actually holding to try to get exposure to bitcoin, 
not to mention completely changing the risk profile associated with 
such an ETF. While Bitcoin Futures ETFs represent a useful trading 
tool, they are clearly a sub-optimal structure for U.S. investors that 
are looking for long-term exposure to bitcoin that will, based on the 
calculations above, unnecessarily cost U.S. investors millions of 
dollars every year and the Exchange believes that any proposal to list 
and trade a Spot Bitcoin ETP should be reviewed by the Commission with 
this important investor protection context in mind.
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    \48\ See e.g., ``Bitcoin ETF's Success Could Come at 
Fundholders' Expense,'' Wall Street Journal (October 24, 2021), 
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin 
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available 
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&__cf_chl_jschl_tk__=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
    \49\ Id.
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    As discussed further below, the Commission's primary test in 
determining whether to approve or disapprove a series of Commodity-
Based Trust Shares, a product type which includes Spot Bitcoin ETPs, is 
whether the listing exchange has in place a comprehensive surveillance 
sharing agreement with a regulated market of significant size in the 
underlying asset. Previous disapproval orders have made clear that a 
regulated market of significant size is generally a futures and/or 
options market rather than the spot commodity markets, which are often 
unregulated.\50\ Leaving aside the analysis of that standard for 
now,\51\ Cboe believes it would be inconsistent to allow the listing 
and trading of Bitcoin Futures ETFs that hold primarily CME Bitcoin 
Futures while simultaneously disapproving Spot Bitcoin ETPs on the 
basis that the CME Bitcoin Futures market is not a regulated market of 
significant size. If the CME Bitcoin Futures market were not, in the 
opinion of the Commission, a regulated market of significant size, 
permitting Bitcoin Futures ETFs that trade on such market would seem to 
be inconsistent with the requirement under the Act of being designed to 
``prevent fraudulent and manipulative acts and practices.'' \52\ This 
is particularly true for the Trust, which will use the CF Bitcoin US 
Settlement Price (the ``Reference Rate'') as its price source to 
calculate its daily net asset value (``NAV''), with inputs from the 
same bitcoin trading platforms (``Constituent Platform'') and 
materially the same methodology as is used to price CME Bitcoin 
Futures.\53\ Hence, to qualify as part of the bitcoin pricing input for 
the Trust, as well as CME Bitcoin Futures, a Constituent Platform must:
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    \50\ See Winklevoss Order at 37593, specifically footnote 202, 
which includes the language from numerous approval orders for which 
the underlying futures markets formed the basis for approving series 
of ETPs that hold physical metals, including gold, silver, 
palladium, platinum, and precious metals more broadly; and 37600, 
specifically where the Commission provides that ``when the spot 
market is unregulated--the requirement of preventing fraudulent and 
manipulative acts may possibly be satisfied by showing that the ETP 
listing market has entered into a surveillance-sharing agreement 
with a regulated market of significant size in derivatives related 
to the underlying asset.'' As noted above, the Exchange believes 
that these citations are particularly helpful in making clear that 
the spot market for a spot commodity ETP need not be ``regulated'' 
in order for a spot commodity ETP to be approved by the Commission, 
and in fact that it's been the common historical practice of the 
Commission to rely on such derivatives markets as the regulated 
market of significant size because such spot commodities markets are 
largely unregulated.
    \51\ As further outlined below, both the Exchange and the 
Sponsor believe that the CME Bitcoin Futures market represents a 
regulated market of significant size and that this proposal and 
others like it should be approved on this basis.
    \52\ 15 U.S.C. 78f(b)(5). For additional detail, see Winklevoss 
Order at 37600.
    \53\ For a further description of the Reference Rate methodology 
and relevance to the requirements of Section 6(b)(5) of the Act, 
please see the comment letter from CF Benchmarks at https://www.sec.gov/comments/sr-cboebzx-2021-024/srcboebzx2021024-8771282-237582.pdf.
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    Have policies to ensure fair and transparent market conditions at 
all times and has processes in place to identify and impede illegal, 
unfair or manipulative trading practices, comply with applicable law 
and regulation, including, but not limited to capital markets 
regulations, money transmission regulations, client money custody 
regulations, know-your-client (KYC) regulations and anti-money 
laundering (AML) regulations.
    Hence, not only are the Constituent Exchanges' pricing inputs and 
methodology (except for the calculation time) the same with respect to 
the Trust and CME Bitcoin Futures, but the Sponsor has represented that 
the Trust will qualify as an investment company under Accounting 
Standards Update 2013-08, which is the same accounting standards for 
Bitcoin Futures ETFs under the 1940 Act. As such, the Sponsor will 
ensure that the Trust's financial statements will be audited at least 
annually by an independent registered public accounting firm and as 
part of such audit, the auditor will be expected to perform procedures 
similar to those used for ETFs registered under the 1940 Act, 
including:
    (i) Applying the accounting and reporting guidance for investment 
companies; and
    (ii) testing and evaluating processes for determining bitcoin 
valuation and evaluate the reasonableness and consistency of 
assumptions, models, and calculations used, as well as the 
completeness, accuracy, and relevance of underlying data used.
    In addition, the Sponsor will facilitate the Trust's compliance 
with the financial record keeping and reporting requirements under the 
Sarbanes-Oxley Act of 2002.
Additional 1940 Act Considerations \54\
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    \54\ We note that the largest OTC Bitcoin Funds holding spot 
Bitcoin today are not 1940 Act Funds and in any event do not provide 
the type of transparency and other protections described herein.
---------------------------------------------------------------------------

    In addition to the foregoing, the Sponsor has taken 1940 Act 
considerations into account in structuring the Trust's operations in 
seeking ``to protect investors and the public interest.''
    First, the Trust will use U.S. Bank as the Custodian, which 
qualifies as a ``custodian'' under the 1940 Act and serves as the 
custodian for a significant number of ETFs registered under the 1940 
Act. Similar to an engagement for an ETF registered under the 1940 Act, 
the Sponsor has represented that U.S. Bank is expected to agree to 
exercise reasonable care, prudence, and diligence such as a person 
having

[[Page 8324]]

responsibility for the safekeeping of property of the Trust would 
exercise.\55\
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    \55\ To the extent the Commission may view differential 
treatment of Bitcoin Futures ETFs and Spot Bitcoin ETPs as warranted 
based on the Commission's concerns about the custody of physical 
Bitcoin that a Spot Bitcoin ETP would hold (compared to cash-settled 
futures contracts), the Sponsor believes this concern is mitigated 
by such custodial arrangements, whether directly through the 
Custodian or through a subcustodial relationship overseen by the 
Custodian.
---------------------------------------------------------------------------

    Second, the Sponsor has represented that the Trust will be subject 
to the transparency requirements of Rule 6c-11 under the 1940 Act, 
which is commonly referred to as the ``ETF Rule.'' In particular, the 
Trust will disclose prominently on the Trust's website on a daily 
basis, which shall be publicly accessible and free of charge:
    (i) The Trust's portfolio holdings (i.e., bitcoin);
    (ii) NAV per share, market price, and premium or discount, each as 
of the end of the prior business day;
    (iii) a table showing the number of days the Trust's shares traded 
at a premium or discount during the most recently completed calendar 
year and calendar quarters since that year (or the life of the Trust, 
if shorter);
    (iv) a line graph showing the Trust's premiums or discounts for the 
most recently completed calendar year and the most recently completely 
calendar quarters since that year (or the life of the Trust, if 
shorter);
    (v) the Trust's median bid-ask spread, expressed as a percentage 
rounded to the nearest hundredth, in the manner computed under Rule 6c-
11(c)(1)(v); and
    (vi) if the Trust's premium or discount is greater than 2% for more 
than seven consecutive trading days, a statement that the Trust's 
premium or discount, as applicable, was greater than 2% and a 
discussion of the factors that are reasonably believed to have 
materially contributed to the premium or discount.
    In addition, the Sponsor has represented: (i) That it will adopt 
procedures to ensure there are no transactions with affiliated persons 
that would be prohibited by the Section 17 of 1940 Act and the 
applicable rules and regulations thereunder; (ii) that the Trust will 
maintain a fidelity bond for the benefit of the Trust in the maximum 
amount required per Rule 17g-1 of the 1940 Act; and (iii) the Sponsor 
or applicable service provider of the Trust will maintain the books and 
records of the Trust in satisfaction of the requirements of Section 31 
of the 1940 Act.
    Part of the analysis of the regulated market of significant size 
test is whether an underlying market is sufficiently large to support 
an ETP is whether trading in the ETP is likely to be the predominant 
influence on prices in the market of significant size.\56\ According to 
publicly available data, the largest Bitcoin Futures ETF represents 
3,803 contracts \57\ of the total 9,625 contracts of open interest in 
December CME Bitcoin Futures \58\ as of 12/2/21 (roughly 40% of open 
interest). This seems to directly contradict the previously articulated 
standards by the Commission in the disapproval orders issued for Spot 
Bitcoin ETPs related to whether the trading in the ETP would be the 
predominant influence on prices in that market.\59\ As further 
discussed below, research indicates that the CME Bitcoin Futures market 
is a regulated market of significant size with a predominant influence 
on prices in USD-based trading in bitcoin futures and spot markets 
globally.
---------------------------------------------------------------------------

    \56\ See Winklevoss Order at 37594.
    \57\ See Fund Holdings Information available at https://www.proshares.com/funds/bito.html.
    \58\ See Volume and Open Interest data available at https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.html.
    \59\ See Winklevoss Order at 37594-37595.
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    Based on the foregoing, the Exchange and Sponsor believe that any 
objective review of the proposals to list Spot Bitcoin ETPs compared to 
the already listed and traded Bitcoin Futures ETFs would lead to the 
conclusion that Spot Bitcoin ETPs should be available to U.S. investors 
and, as such, this proposal and other comparable proposals to list and 
trade Spot Bitcoin ETPs should be approved by the Commission. Stated 
simply, U.S. investors stand to lose hundreds of millions of dollars 
from holding Bitcoin Futures ETFs, losses which could be prevented by 
the Commission approving Spot Bitcoin ETPs. This is particularly 
evident as demonstrated by the chart on the next page, which shows the 
dramatic underperformance of Bitcoin Futures as compared to the 
WisdomTree Bitcoin exchange traded product (``WisdomTree Europe Bitcoin 
Fund'') (BTCW) in Europe that holds spot bitcoin (not Bitcoin Futures) 
and is listed and traded on the Swiss Stock Exchange (``SIX''). BTCW 
also uses the Reference Rate (London Time) as its price source.
BILLING CODE 8011-01-P

[[Page 8325]]

[GRAPHIC] [TIFF OMITTED] TN14FE22.007

    Additionally, any concerns related to preventing fraudulent and 
manipulative acts and practices related to Spot Bitcoin ETPs would 
apply equally to the spot markets underlying the futures contracts held 
by a Bitcoin Futures ETF. The Sponsor has structured the Trust's 
operations to operate as if certain 1940 Act provisions apply, 
providing transparency and investor protections such that a distinction 
between Bitcoin Futures ETFs and Spot Bitcoin ETPs is unwarranted. To 
be clear, both the Exchange and Sponsor believe that the CME Bitcoin 
Futures market is a regulated market of significant size and that such 
manipulation concerns are mitigated, as described extensively below. 
After allowing the listing and trading of Bitcoin Futures ETFs that 
hold primarily CME Bitcoin Futures, however, the only consistent 
outcome would be approving Spot Bitcoin ETPs on the basis that the CME 
Bitcoin Futures market is a regulated market of significant size. 
Including in the analysis the significant and preventable losses to 
U.S. investors that comes with Bitcoin Futures ETFs, disapproving Spot 
Bitcoin ETPs seems even more arbitrary and capricious. Given the 
current landscape, approving this proposal (and others like it) and 
allowing Spot Bitcoin ETPs to be listed and traded alongside Bitcoin 
Futures ETFs would establish a consistent regulatory approach, provide 
U.S. investors with choice in product structures for bitcoin exposure, 
and offer flexibility in the means of gaining exposure to bitcoin 
through transparent, regulated, U.S. exchange-listed vehicles.
Bitcoin Futures
    CME began offering trading in CME Bitcoin Futures in December 2017. 
Each contract represents five bitcoin and is based on the CME CF 
Bitcoin Reference Rate.\60\ The contracts trade and settle like other 
cash-settled commodity futures contracts. Nearly every measurable 
metric related to CME Bitcoin Futures has trended consistently up since 
launch and/or accelerated upward in the past year. For example, there 
was approximately $12 billion in trading in Bitcoin Futures in August 
2021 compared to $3.9 billion, $4.5b billion, and $9b billion in total 
trading in August 2017, August 2018, and August 2019, respectively. 
Bitcoin Futures traded over $500m and represented $1.5 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. (Source: CME, Bloomberg 8/31/21)
---------------------------------------------------------------------------

    \60\ 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 8326]]

[GRAPHIC] [TIFF OMITTED] TN14FE22.008

    Similarly, the number of large open interest holders \61\ 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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    \61\ 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 $46,996 per bitcoin on 8/
31/21, more than 80 firms had outstanding positions of greater than 
$5.8 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN14FE22.009


[[Page 8327]]


[GRAPHIC] [TIFF OMITTED] TN14FE22.010

BILLING CODE 8011-01-C
    The Sponsor further believes that academic research corroborates 
this overall trend and supports the thesis that bitcoin futures, and 
more particularly CME Bitcoin Futures given the recent significant 
growth in that market, is a predominant influence in bitcoin price 
formation.\62\
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    \62\ See Amendment No. 1 to SR-CboeBZX-2021-051, filed December 
9, 2021 (proposal to list and trade shares of the ARK 21Shares 
Bitcoin ETF) (the ``ARK 21Shares Proposal''); Securities Exchange 
Act Release No. 91994 (May 25, 2021), 86 FR 29321 (June 1, 2021) 
(proposal to list and trade shares of the Wise Origin Bitcoin Trust) 
(the ``Wise Origin Bitcoin Trust Filing''); Staff Memorandum re: 
Meeting with Representatives of Fidelity Digital Assets, et al. on 
September 8th, 2021 regarding the Wise Origin Bitcoin Trust Filing 
(the ``Wise Origin Bitcoin Trust Presentation''); and Hu, Y., Hou, 
Y. and Oxley, L. (2019). ``What role do futures markets play in 
Bitcoin pricing? Causality, cointegration and price discovery from a 
time-varying perspective'' (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic 
research paper concludes that ``There exist no episodes where the 
Bitcoin spot markets dominates the price discovery processes with 
regard to Bitcoin futures. This points to a conclusion that the 
price formation originates solely in the Bitcoin futures market. We 
can, therefore, conclude that the Bitcoin futures markets dominate 
the dynamic price discovery process based upon time-varying 
information share measures. Overall, price discovery seems to occur 
in the Bitcoin futures markets rather than the underlying spot 
market based upon a time-varying perspective.''
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Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued 
Receipts,\63\ including Commodity-Based Trust Shares,\64\ to be listed 
on U.S. national securities exchanges. In order for any proposed rule 
change from an exchange to be approved, the Commission must determine 
that, among other things, the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, specifically including: (i) 
The requirement that a national securities exchange's rules are 
designed to prevent fraudulent and manipulative acts and practices; 
\65\ and (ii) the requirement that an exchange proposal be designed, in 
general, to protect investors and the public interest. The Exchange 
believes that this proposal is consistent with the requirements of 
Section 6(b)(5) of the Act and that this filing sufficiently 
demonstrates that the CME Bitcoin Futures market represents a regulated 
market of significant size and that, on the whole, the manipulation 
concerns previously articulated by the Commission are sufficiently 
addressed to warrant approval. Specifically, the Exchange believes that 
the significant increase in trading volume in CME Bitcoin Futures and 
the growing body of evidence that the CME Bitcoin Futures market 
represents a regulated market of significant size as such a market has 
previously been described by the Commission, the growth of liquidity at 
the inside in the spot market for bitcoin, and certain features of the 
Shares and the Reference Rate (as defined below) mitigate potential 
manipulation concerns to the point that it is consistent with the 
requirements of Section 6(b)(5) of the Act and therefore provides a 
basis for the Commission to approve this proposal.
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    \63\ See Exchange Rule 14.11(f).
    \64\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \65\ As the Exchange has stated in a number of other public 
documents, it continues to believe that bitcoin is resistant to 
price manipulation and that ``other means to prevent fraudulent and 
manipulative acts and practices'' exist to justify dispensing with 
the requisite surveillance sharing agreement. The geographically 
diverse and continuous nature of bitcoin trading render it difficult 
and prohibitively costly to manipulate the price of bitcoin. The 
fragmentation across bitcoin platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of bitcoin 
prices through continuous trading activity challenging. To the 
extent that there are bitcoin exchanges engaged in or allowing wash 
trading or other activity intended to manipulate the price of 
bitcoin on other markets, such pricing does not normally impact 
prices on other exchange because participants will generally ignore 
markets with quotes that they deem non-executable. Moreover, the 
linkage between the bitcoin markets and the presence of arbitrageurs 
in those markets means that the manipulation of the price of bitcoin 
price on any single venue would require manipulation of the global 
bitcoin price in order to be effective. Arbitrageurs must have funds 
distributed across multiple trading platforms in order to take 
advantage of temporary price dislocations, thereby making it 
unlikely that there will be strong concentration of funds on any 
particular bitcoin exchange or OTC platform. As a result, the 
potential for manipulation on a trading platform would require 
overcoming the liquidity supply of such arbitrageurs who are 
effectively eliminating any cross-market pricing differences.
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(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a 
series of Commodity-Based Trust Shares, the Commission requires that an 
exchange demonstrate that there is a comprehensive surveillance-sharing 
agreement in place \66\ with a regulated

[[Page 8328]]

market of significant size.\67\ Both the Exchange and CME are members 
of ISG.\68\ The only remaining issue to be addressed is whether the CME 
Bitcoin Futures market constitutes a market of significant size, which 
both the Exchange and the Sponsor believe that it does. 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 manipulate the ETP, so that a 
surveillance-sharing agreement would assist the listing exchange in 
detecting and deterring misconduct; and (b) it is unlikely that trading 
in the ETP would be the predominant influence on prices in that 
market.\69\
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    \66\ As previously articulated by the Commission, ``The standard 
requires such surveillance-sharing agreements since ``they provide a 
necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a 
manipulation if it were to occur.'' The Commission has emphasized 
that it is essential for an exchange listing a derivative securities 
product to enter into a surveillance-sharing agreement with markets 
trading underlying securities for the listing exchange to have the 
ability to obtain information necessary to detect, investigate, and 
deter fraud and market manipulation, as well as violations of 
exchange rules and applicable federal securities laws and rules. The 
hallmarks of a surveillance-sharing agreement are that the agreement 
provides for the sharing of information about market trading 
activity, clearing activity, and customer identity; that the parties 
to the agreement have reasonable ability to obtain access to and 
produce requested information; and that no existing rules, laws, or 
practices would impede one party to the agreement from obtaining 
this information from, or producing it to, the other party.'' The 
Commission has historically held that joint membership in the 
Intermarket Surveillance Group (``ISG'') constitutes such a 
surveillance sharing agreement. See Wilshire Phoenix Disapproval.
    \67\ As described above, the precedent makes clear that the spot 
market for a series of Commodity-Based Trust Shares need not be 
``regulated'' in order to be consistent with the requirement under 
the Act that the exchange proposal be designed to ``prevent 
fraudulent and manipulative acts and practices,'' and in fact that 
it's been the common historical practice of the Commission to rely 
on such derivatives markets as the regulated market of significant 
size because such spot commodities markets are largely unregulated. 
Specifically, the precedent includes language from numerous approval 
orders for which the underlying futures markets formed the basis for 
approving series of ETPs that hold commodities including physical 
metals, including gold, silver, palladium, platinum, and precious 
metals more broadly. The Commission also provides that ``when the 
spot market is unregulated--the requirement of preventing fraudulent 
and manipulative acts may possibly be satisfied by showing that the 
ETP listing market has entered into a surveillance-sharing agreement 
with a regulated market of significant size in derivatives related 
to the underlying asset.'' The precedent indicates that common 
historical practice of the Commission is to rely on such derivatives 
markets as the regulated market of significant size because such 
spot commodities markets are largely unregulated. See supra note 10.
    \68\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \69\ See Wilshire Phoenix Disapproval.
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    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the Act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the requisite surveillance-sharing agreement.\70\
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    \70\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a ``cannot be 
manipulated'' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met. 
Id. at 37582.
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(a) Manipulation of the ETP
    The significant growth in CME Bitcoin Futures across each of 
trading volumes, open interest, large open interest holders, and total 
market participants over the last two years are reflective of that 
market's growing influence on the spot price.\71\ Where CME Bitcoin 
Futures act as a predominant influence on the price in the spot market, 
such that a potential manipulator of the bitcoin spot market (beyond 
just the constituents of the Reference Rate \72\) would have to 
participate in the CME Bitcoin Futures market, it follows that a 
potential manipulator of the Shares would similarly have to transact in 
the CME Bitcoin Futures market because the Reference Rate is based on 
spot prices. Further, the Trust only allows for in-kind creation and 
redemption, which, as further described below, reduces the potential 
for manipulation of the Shares through manipulation of the Reference 
Rate or any of its individual constituents, again emphasizing that a 
potential manipulator of the Shares would have to manipulate the 
entirety of the bitcoin spot market, of which the CME Bitcoin Futures 
market appears to be a predominant influence. As such, the Exchange 
believes that part (a) of the significant market test outlined above is 
satisfied and that common membership in ISG between the Exchange and 
CME would assist the listing exchange in detecting and deterring 
misconduct in the Shares.
---------------------------------------------------------------------------

    \71\ See ARK 21Shares Proposal and the Wise Origin Bitcoin Trust 
Presentation for additional analysis on this point.
    \72\ As further described below, the Reference Rate for the Fund 
is based on materially the same methodology (except calculation 
time) as the Administrator's BRR, which is the rate on which bitcoin 
futures contracts are cash-settled in U.S. dollars at the CME.
---------------------------------------------------------------------------

(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the CME Bitcoin Futures 
market (or spot market) for a number of reasons, including the 
significant volume in the CME Bitcoin Futures market, the size of 
bitcoin's market cap, and the significant liquidity available in the 
spot market. Moreover, the Shares should trade close to NAV given that 
market participants would arbitrage any significant price deviations 
between the price of the Shares and prices in the spot market.\73\ In 
addition to the CME Bitcoin Futures market data points cited above, 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.\74\ 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. As such, the combination of CME Bitcoin Futures 
acting as a predominant influence on price discovery, the overall size 
of the bitcoin market, and the ability for 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 CME Bitcoin 
Futures markets, satisfying part (b) of the test outlined above.
---------------------------------------------------------------------------

    \73\ See supra footnote 44 for an example of an ETP trading 
close to NAV, which is just one example of bitcoin ETPs trading in 
other global markets today that trade close to NAV.
    \74\ 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.
---------------------------------------------------------------------------

(c) 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 Exchange and Sponsor 
believe that such conditions are present. Specifically, the significant 
liquidity in the spot market and the impact of market orders on the 
overall price of bitcoin mean that attempting to move the price of 
bitcoin is costly and has grown more expensive over the past year. In 
January 2020, for example, the cost to buy or sell $5 million worth of 
bitcoin averaged roughly 30 basis points (compared to 10

[[Page 8329]]

basis points in 2/2021) with a market impact of 50 basis points 
(compared to 30 basis points in 2/2021).\75\ For a $10 million market 
order, the cost to buy or sell was roughly 50 basis points (compared to 
20 basis points in 2/2021) with a market impact of 80 basis points 
(compared to 50 basis points in 2/2021). 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.
---------------------------------------------------------------------------

    \75\ 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.
---------------------------------------------------------------------------

(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past 1.5 years, U.S. 
investor exposure to bitcoin through OTC Bitcoin Funds has grown into 
the tens of billions of dollars and more than a billion dollars of 
exposure through Bitcoin Futures ETFs. With that growth, so too has 
grown the quantifiable investor protection issues to U.S. investors 
through roll costs for Bitcoin Futures ETFs and premium/discount 
volatility and management fees for OTC Bitcoin Funds. The Exchange 
believes that the concerns related to the prevention of fraudulent and 
manipulative acts and practices have been sufficiently addressed to be 
consistent with the Act. As such, the Exchange believes that approving 
this proposal (and comparable proposals) provides the Commission with 
the opportunity to allow U.S. investors with access to bitcoin in a 
regulated and transparent exchange-traded vehicle that would act to 
limit risk to U.S. investors by: (i) Reducing premium and discount 
volatility; (ii) reducing management fees through meaningful 
competition; (iii) reducing risks and costs associated with investing 
in Bitcoin Futures ETFs and operating companies that are imperfect 
proxies for bitcoin exposure; and (iv) providing an alternative for 
investors to self-custodying spot bitcoin.
WisdomTree Bitcoin Trust
    Delaware Trust Company is the trustee (``Trustee''). U.S. Bancorp 
Fund Services, LLC dba U.S. Bank Global Fund Services will be the 
administrator (``Administrator'') and transfer agent (``Transfer 
Agent''), with U.S. Bank, N.A. serving as Custodian. Foreside Fund 
Services LLC will be the marketing agent (``Marketing Agent'') in 
connection with the creation and redemption of ``Baskets'' of Shares.
    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in and ownership of the 
Trust. The Trust's assets will consist of bitcoin held by the Custodian 
on behalf of the Trust. The Trust generally does not intend to hold 
cash or cash equivalents. However, there may be situations where the 
Trust will unexpectedly hold cash on a temporary basis.
    According to the Registration Statement, the Trust is neither an 
investment company registered under the Investment Company Act of 1940, 
as amended,\76\ nor a commodity pool for purposes of the Commodity 
Exchange Act (``CEA''), and neither the Trust nor the Sponsor is 
subject to regulation as a commodity pool operator or a commodity 
trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 80a-1. However, as previously stated, the Trust 
has undertaken to comply with certain provisions of the Investment 
Company Act of 1940.
---------------------------------------------------------------------------

    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 50,000 Shares (a ``Creation Basket'') 
at the Trust's NAV. Authorized participants will deliver, or facilitate 
the delivery of, bitcoin to the Trust's account with the Custodian in 
exchange for Shares when they purchase Shares, and the Trust, through 
the Custodian, will deliver bitcoin to such authorized participants 
when they redeem Shares with the Trust. Authorized participants may 
then offer Shares to the public at prices that depend on various 
factors, including the supply and demand for Shares, the value of the 
Trust's assets, and market conditions at the time of a transaction. 
Shareholders who buy or sell Shares during the day from their broker 
may do so at a premium or discount relative to the NAV of the Shares of 
the Trust.
Investment Objective
    According to the Registration Statement and as further described 
below, the investment objective of the Trust is to gain exposure to the 
price of bitcoin, less expenses and liabilities of the Trust's 
operation. In seeking to achieve its investment objective, the Trust 
will hold bitcoin and value its Shares daily based on the value of 
bitcoin as reflected by the CF Bitcoin US Settlement Price (the 
``Reference Rate''), which is an independently calculated value based 
on an aggregation of executed trade flow of major bitcoin spot 
exchanges. The Trust will process all creations and redemptions in-kind 
in transactions with authorized participants. The Trust is not actively 
managed.
The Reference Rate
    As described in the Registration Statement, the Fund will use 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 ``Benchmark 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 p.m. Eastern time. The 
Reference Rate is based on materially the same methodology (except 
calculation time) \77\ as the Benchmark Administrator's CME CF Bitcoin 
Reference Rate (``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. Eastern time into the U.S. dollar price 
of one bitcoin at 4:00 p.m. Eastern time. The current constituent 
bitcoin exchanges of the Reference Rate are Bitstamp, Coinbase, Gemini, 
itBit and Kraken (the ``Constituent Bitcoin Exchanges'').
---------------------------------------------------------------------------

    \77\ The Reference Rate is calculated as of 4 p.m. Eastern Time, 
whereas the BRR is calculated as of 4 p.m. London Time.
---------------------------------------------------------------------------

    The Reference Rate is calculated based on the ``Relevant 
Transactions'' \78\ of all of its Constituent Bitcoin Exchanges, as 
follows:
---------------------------------------------------------------------------

    \78\ 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. Eastern time on a Constituent 
Bitcoin Exchange in the BTC/USD pair that is reported and 
disseminated by a Constituent Bitcoin Exchange through its publicly 
available API and observed by the Benchmark Administrator, CF 
Benchmarks Ltd.
---------------------------------------------------------------------------

     All Relevant Transactions are added to a joint list, 
recording the time of execution, trade price and size for each 
transaction.
     The list is partitioned by timestamp into 12 equally-sized 
time intervals of 5 (five) minute length.
     For each partition separately, the volume-weighted median 
trade price is calculated from the trade prices and sizes of all 
Relevant Transactions, i.e., across all Constituent Bitcoin Exchanges. 
A volume-weighted median differs from a standard median in that a 
weighting factor, in this case trade size, is factored into the 
calculation.

[[Page 8330]]

     The Reference Rate is then determined by the arithmetic 
mean of the volume-weighted medians of all partitions.
    By employing the foregoing steps, the Reference Rate thereby seeks 
to ensure that transactions in bitcoin conducted at outlying prices do 
not have an undue effect on the value of a specific partition, large 
trades or clusters of trades transacted over a short period of time 
will not have an undue influence on the index level, and the effect of 
large trades at prices that deviate from the prevailing price are 
mitigated from having an undue influence on the benchmark level. In 
addition, the Sponsor notes that an oversight function is implemented 
by the Benchmark Administrator in seeking to ensure that the Reference 
Rate is administered through codified policies for Reference Rate 
integrity.
Availability of Information
    In addition to the price transparency of the Reference Rate, the 
Trust will provide information regarding the Trust's bitcoin holdings 
as well as additional data regarding the Trust. The Trust will provide 
an Intraday 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 Regular Trading Hours (9:30 a.m. to 4:00 
p.m. E.T.). The IIV will be calculated by using the prior day's closing 
NAV per Share as a base and updating that value during Regular Trading 
Hours to reflect changes in the value of the Trust's bitcoin holdings 
during the trading day.
    The IIV disseminated during Regular Trading Hours should not be 
viewed as an actual real-time update of the NAV, which will be 
calculated only once at the end of each trading day. The IIV will be 
widely disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Trading Hours by one or more major market data 
vendors. In addition, the IIV will be available through on-line 
information services.
    As noted above, the website for the Trust, which will be publicly 
accessible at no charge, will contain information consistent with the 
disclosure requirements of Rule 6c-11 under the 1940 Act. The price of 
bitcoin will be made available by one or more major market data 
vendors, updated at least every 15 seconds during Regular Trading 
Hours. Information about the Reference Rate, including key elements of 
how the Reference Rate is calculated, will be publicly available at 
https://www.cfbenchmarks.com.
    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. 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 is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as the Reference Rate. Information 
relating to trading, including price and volume information, in bitcoin 
is available from major market data vendors and from the exchanges on 
which bitcoin are traded. Depth of book information is also available 
from bitcoin exchanges. The normal trading hours for bitcoin exchanges 
are 24 hours per day, 365 days per year.
Net Asset Value
    NAV means the total assets of the Trust including, but not limited 
to, all bitcoin cash or other assets, less total liabilities of the 
Trust, each determined on the basis of generally accepted accounting 
principles. In determining the Trust's NAV, the administrator values 
the bitcoin held by the Trust based on the price set by the Reference 
Rate as of 4:00 p.m. Eastern Time. The administrator will determine the 
NAV of the Trust on each day that the Exchange is open for regular 
trading. The NAV for a normal trading day will be released after 4:00 
p.m. Eastern Time. However, NAVs are not officially struck until later 
in the day (often by 5:30 p.m. Eastern Time and almost always by 8:00 
p.m. Eastern Time). The pause between 4:00 p.m. Eastern Time and 5:30 
p.m. Eastern Time (or later) provides an opportunity for the Trust, 
Benchmark Administrator or administrator to detect, flag, investigate, 
and correct unusual pricing should it occur. The Sponsor anticipates 
that the Reference Rate will be reflective of a reasonable valuation of 
the average spot price of bitcoin. However, in the event the Reference 
Rate was not available or determined by the Sponsor to not be reliable, 
the Sponsor would ``fair value'' the Trust's bitcoin holdings. The 
Sponsor does not anticipate that the need to ``fair value'' bitcoin 
will be a common occurrence. The Sponsor will publish the NAV and NAV 
per Share at www.wisdomtree.com as soon as practicable after their 
determination and availability.
Creation and Redemption of Shares
    According to the Registration Statement, on any business day, an 
authorized participant may place an order to create one or more 
baskets. Purchase orders must be placed by 4:00 p.m. Eastern Time, or 
the close of regular trading on the Exchange, whichever is earlier. The 
day on which an order is received is considered the purchase order 
date. The total deposit of bitcoin required is an amount of bitcoin 
that is in the same proportion to the total assets of the Trust, net of 
accrued expenses and other liabilities, on the date the order to 
purchase is properly received, as the number of Shares to be created 
under the purchase order is in proportion to the total number of Shares 
outstanding on the date the order is received. Prior to market open 
each day, the Sponsor will publish the amount of bitcoin that will be 
required in exchange for each creation order. The Administrator 
determines the required deposit for a given day by dividing the number 
of bitcoin held by the Trust as of the opening of business on that 
business day, adjusted for the amount of bitcoin constituting estimated 
accrued but unpaid fees and expenses of the Trust as of the opening of 
business on that business day, by the quotient of the number of Shares 
outstanding at the opening of business divided by the aggregation of 
shares (i.e., 50,000) associated with a creation unit. The procedures 
by which an authorized participant can redeem one or more Creation 
Baskets mirror the procedures for the creation of Creation Baskets.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
    The Shares will be subject to BZX Rule 14.11(e)(4), which sets 
forth the initial and continued listing criteria applicable to 
Commodity-Based Trust Shares. The Exchange will obtain a representation 
that the Trust's NAV will be calculated daily and that these values and 
information about the assets of the Trust will be made available to all 
market participants at the same time. The Exchange notes that, as 
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) Issued by a 
trust that holds a specified commodity \79\ deposited with the trust; 
(b) issued by such trust in a specified aggregate minimum number in 
return for a deposit of a quantity of the underlying commodity; and (c) 
when

[[Page 8331]]

aggregated in the same specified minimum number, may be redeemed at a 
holder's request by such trust which will deliver to the redeeming 
holder the quantity of the underlying commodity.
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    \79\ For purposes of Rule 14.11(e)(4), the term commodity takes 
on the definition of the term as provided in the Commodity Exchange 
Act. As noted above, the CFTC has opined that bitcoin is a commodity 
as defined in Section 1a(9) of the Commodity Exchange Act. See 
Coinflip.
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    Upon termination of the Trust, the Shares will be removed from 
listing. The Trustee, Delaware Trust Company, is a trust company having 
substantial capital and surplus and the experience and facilities for 
handling corporate trust business, as required under Rule 
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee 
without prior notice to and approval of the Exchange. The Exchange also 
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor 
any agent of the Exchange shall have any liability for damages, claims, 
losses or expenses caused by any errors, omissions or delays in 
calculating or disseminating any underlying commodity value, the 
current value of the underlying commodity required to be deposited to 
the Trust in connection with issuance of Commodity-Based Trust Shares; 
resulting from any negligent act or omission by the Exchange, or any 
agent of the Exchange, or any act, condition or cause beyond the 
reasonable control of the Exchange, its agent, including, but not 
limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission or delay in the reports of 
transactions in an underlying commodity. Finally, as required in Rule 
14.11(e)(4)(G), the Exchange notes that any registered market maker 
(``Market Maker'') in the Shares must file with the Exchange in a 
manner prescribed by the Exchange and keep current a list identifying 
all accounts for trading in an underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker shall 
trade in an underlying commodity, related commodity futures or options 
on commodity futures, or any other related commodity derivatives, in an 
account in which a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to the Exchange as required 
by this Rule. In addition to the existing obligations under Exchange 
rules regarding the production of books and records (see, e.g., Rule 
4.2), the registered Market Maker in Commodity-Based Trust Shares shall 
make available to the Exchange such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own 
accounts for trading the underlying physical commodity, related 
commodity futures or options on commodity futures, or any other related 
commodity derivatives, as may be requested by the Exchange.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in BZX Rule 11.18. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. These may include: 
(1) The extent to which trading is not occurring in the bitcoin 
underlying the Shares; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading 
in the Shares may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. BZX will allow 
trading in the Shares during all trading sessions on the Exchange. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a) the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01 where the price is greater than $1.00 
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Commodity-Based Trust 
Shares. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by the Trust or the Shares to comply with 
the continued listing requirements, and, pursuant to its obligations 
under Section 19(g)(1) of the Exchange Act, the Exchange will surveil 
for compliance with the continued listing requirements. If the Trust or 
the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12. The Exchange may obtain information regarding 
trading in the Shares and CME Bitcoin Futures via ISG, from other 
exchanges who are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement.\80\
---------------------------------------------------------------------------

    \80\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (i) The procedures for the 
creation and redemption of Baskets (and that the Shares are not 
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (iii) how information 
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks 
involved in trading the Shares outside of Regular Trading Hours \81\ 
when an updated IIV will not be calculated or publicly disseminated; 
(v) the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (vi) trading information.
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    \81\ Regular Trading Hours is the time between 9:30 a.m. and 
4:00 p.m. Eastern Time.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Shares. Members purchasing the Shares for resale to 
investors will deliver a prospectus to such investors. The Information 
Circular will also discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \82\ in general and Section

[[Page 8332]]

6(b)(5) of the Act \83\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \82\ 15 U.S.C. 78f.
    \83\ 15 U.S.C. 78f(b)(5).
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    The Commission has approved numerous series of Trust Issued 
Receipts,\84\ including Commodity-Based Trust Shares,\85\ to be listed 
on U.S. national securities exchanges. In order for any proposed rule 
change from an exchange to be approved, the Commission must determine 
that, among other things, the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, specifically including: (i) 
The requirement that a national securities exchange's rules are 
designed to prevent fraudulent and manipulative acts and practices; 
\86\ and (ii) the requirement that an exchange proposal be designed, in 
general, to protect investors and the public interest.
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    \84\ See Exchange Rule 14.11(f).
    \85\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \86\ As the Exchange has stated in a number of other public 
documents, it continues to believe that bitcoin is resistant to 
price manipulation and that ``other means to prevent fraudulent and 
manipulative acts and practices'' exist to justify dispensing with 
the requisite surveillance sharing agreement. The geographically 
diverse and continuous nature of bitcoin trading render it difficult 
and prohibitively costly to manipulate the price of bitcoin. The 
fragmentation across bitcoin platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of bitcoin 
prices through continuous trading activity challenging. To the 
extent that there are bitcoin exchanges engaged in or allowing wash 
trading or other activity intended to manipulate the price of 
bitcoin on other markets, such pricing does not normally impact 
prices on other exchanges because participants will generally ignore 
markets with quotes that they deem non-executable. Moreover, the 
linkage between the bitcoin markets and the presence of arbitrageurs 
in those markets means that the manipulation of the price of bitcoin 
price on any single venue would require manipulation of the global 
bitcoin price in order to be effective. Arbitrageurs must have funds 
distributed across multiple trading platforms in order to take 
advantage of temporary price dislocations, thereby making it 
unlikely that there will be strong concentration of funds on any 
particular bitcoin exchange or OTC platform. As a result, the 
potential for manipulation on a trading platform would require 
overcoming the liquidity supply of such arbitrageurs who are 
effectively eliminating any cross-market pricing differences.
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    The Exchange believes that the proposal is, in particular, designed 
to protect investors and the public interest. Over the past 1.5 years, 
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. Premium and discount 
volatility, high fees, insufficient disclosures, and technical hurdles 
are putting U.S. investor money at risk on a daily basis that could 
potentially be eliminated through access to a bitcoin ETP. The Exchange 
understands the Commission's previous focus on potential manipulation 
of a bitcoin ETP in prior disapproval orders, but now believes that 
such concerns have been sufficiently mitigated and that the growing and 
quantifiable investor protection concerns should be a central 
consideration as the Commission reviews this proposal. As such, the 
Exchange believes that this proposal acts to limit the risk to U.S. 
investors that are increasingly seeking exposure to bitcoin by 
providing direct, 1-for-1 exposure to bitcoin in a regulated, 
transparent, exchange-traded vehicle, specifically by: (i) Reducing 
premium 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.
    The Exchange also believes that this proposal is consistent with 
the requirements of Section 6(b)(5) of the Act and that it has 
sufficiently demonstrated that, on the whole, the manipulation concerns 
previously articulated by the Commission are sufficiently addressed to 
warrant approval. Specifically, the Exchange believes that the 
significant increase in trading volume in Bitcoin Futures, the growth 
of liquidity at the inside in the spot market for bitcoin, and certain 
features of the Shares and the Reference Rate mitigate potential 
manipulation concerns to the point that it is consistent with the 
requirements of Section 6(b)(5) of the Act and therefore provides a 
basis for the Commission to approve this proposal.
(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a 
series of Commodity-Based Trust Shares, the Commission requires that an 
exchange demonstrate that there is a comprehensive surveillance-sharing 
agreement in place \87\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG.\88\ The only remaining 
issue to be addressed is whether the CME Bitcoin Futures market 
constitutes a market of significant size, which both the Exchange and 
the Sponsor believe that it does. 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 manipulate the ETP, so that a surveillance-sharing agreement 
would assist the listing exchange in detecting and deterring 
misconduct; and (b) it is unlikely that trading in the ETP would be the 
predominant influence on prices in that market.\89\
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    \87\ As previously articulated by the Commission, ``The standard 
requires such surveillance-sharing agreements since ``they provide a 
necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a 
manipulation if it were to occur.'' The Commission has emphasized 
that it is essential for an exchange listing a derivative securities 
product to enter into a surveillance-sharing agreement with markets 
trading underlying securities for the listing exchange to have the 
ability to obtain information necessary to detect, investigate, and 
deter fraud and market manipulation, as well as violations of 
exchange rules and applicable federal securities laws and rules. The 
hallmarks of a surveillance-sharing agreement are that the agreement 
provides for the sharing of information about market trading 
activity, clearing activity, and customer identity; that the parties 
to the agreement have reasonable ability to obtain access to and 
produce requested information; and that no existing rules, laws, or 
practices would impede one party to the agreement from obtaining 
this information from, or producing it to, the other party.'' The 
Commission has historically held that joint membership in ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \88\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \89\ See Wilshire Phoenix Disapproval.
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    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the requisite surveillance-sharing agreement.\90\
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    \90\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a `cannot be 
manipulated' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met.'' 
Id. at 37582.
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(a) Manipulation of the ETP
    The significant growth in CME Bitcoin Futures across each of 
trading volumes, open interest, large open interest holders, and total 
market participants since the Wilshire Phoenix

[[Page 8333]]

Disapproval was issued are reflective of that market's growing 
influence on the spot price, which according to the academic research 
cited above, was already leading the spot price in 2018 and 2019. Where 
Bitcoin Futures act as a predominant influence on the price in the spot 
market such that a potential manipulator of the bitcoin spot market 
(beyond just the constituents of the Reference Rate \91\) would have to 
participate in the Bitcoin Futures market, it follows that a potential 
manipulator of the Shares would similarly have to transact in the 
Bitcoin Futures market because the Reference Rate is based on spot 
prices. Further, the Trust only allows for in-kind creation and 
redemption, which, as further described below, reduces the potential 
for manipulation of the Shares through manipulation of the Reference 
Rate or any of its individual constituents, again emphasizing that a 
potential manipulator of the Shares would have to manipulate the 
entirety of the bitcoin spot market, which is led by the CME Bitcoin 
Futures market. As such, the Exchange believes that part (a) of the 
significant market test outlined above is satisfied and that common 
membership in ISG between the Exchange and CME would assist the listing 
exchange in detecting and deterring misconduct in the Shares.
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    \91\ As noted above, the Constituent Bitcoin Exchanges are 
Bitstamp, Coinbase, Gemini, itBit and Kraken.
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(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the CME Bitcoin Futures 
market (or spot market) for a number of reasons, including the 
significant volume in the CME Bitcoin Futures market, the size of 
bitcoin's market cap, and the significant liquidity available in the 
spot market. Moreover, the Shares should trade close to NAV given that 
market participants would arbitrage any significant price deviations 
between the price of the Shares and prices in the spot market. In 
addition to the CME Bitcoin Futures market data points cited above, 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.\92\ 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. As such, the combination of CME Bitcoin Futures 
leading price discovery, the overall size of the bitcoin market, and 
the ability for 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 CME Bitcoin Futures markets, satisfying part (b) of the 
test outlined above.
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    \92\ 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.
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(c) 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 Exchange believes that 
such conditions are present. Specifically, the significant liquidity in 
the spot market and the impact of market orders on the overall price of 
bitcoin mean that attempting to move the price of bitcoin is costly and 
has grown more expensive over the past year. 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 2/2021) with a 
market impact of 50 basis points (compared to 30 basis points in 2/
2021).\93\ For a $10 million market order, the cost to buy or sell was 
roughly 50 basis points (compared to 20 basis points in 2/2021) with a 
market impact of 80 basis points (compared to 50 basis points in 2/
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.
---------------------------------------------------------------------------

    \93\ 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, offering only in-kind creation and redemption will 
provide unique protections against potential attempts to manipulate the 
Shares. While the Sponsor believes that the independently maintained 
and administered Reference Rate which it uses to value the Trust's 
bitcoin is itself resistant to manipulation based on the methodology 
further described below, 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 new shares or, barring a 
forced redemption of the Trust or under other extraordinary 
circumstances, be forced to sell bitcoin to pay cash for redeemed 
shares, the price that the Sponsor uses to value the Trust's bitcoin is 
not particularly important.\94\ When authorized participants are 
creating with the Trust, they need to deliver a certain number of 
bitcoin per share (regardless of the valuation used) and when they're 
redeeming, they can similarly expect to receive a certain number of 
bitcoin per share. As such, even if the price used to value the Trust's 
bitcoin is manipulated (which the Sponsor believes that its methodology 
is resistant to), 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 
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.
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    \94\ While the Reference Rate will not be particularly important 
for the creation and redemption process, it will be used for 
calculating fees.
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Commodity-Based Trust Shares
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed on the Exchange pursuant to the initial and 
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange 
believes that its surveillance procedures are adequate to properly 
monitor the trading of the Shares on the Exchange during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. Trading of the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Commodity-Based Trust Shares. The issuer 
has represented to the Exchange that it will advise the Exchange of any 
failure by the Trust or the Shares to comply with the

[[Page 8334]]

continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for 
compliance with the continued listing requirements. If the Trust or the 
Shares are not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Exchange Rule 
14.12. The Exchange may obtain information regarding trading in the 
Shares and listed bitcoin derivatives via the ISG, from other exchanges 
who are members or affiliates of the ISG, or with which the Exchange 
has entered into a comprehensive surveillance sharing agreement.
Availability of Information
    The Exchange also believes that the proposal promotes market 
transparency in that a large amount of information is currently 
available about bitcoin and will be available regarding the Trust and 
the Shares. In addition to the price transparency of the Reference 
Rate, the Trust will provide information regarding the Trust's bitcoin 
holdings as well as additional data regarding the Trust. The Trust will 
provide an IIV per Share updated every 15 seconds, as calculated by the 
Exchange or a third-party financial data provider during the Exchange's 
Regular Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be 
calculated by using the prior day's closing NAV per Share as a base and 
updating that value during Regular Trading Hours to reflect changes in 
the value of the Trust's bitcoin holdings during the trading day.
    The IIV disseminated during Regular Trading Hours should not be 
viewed as an actual real-time update of the NAV, which will be 
calculated only once at the end of each trading day. The IIV will be 
widely disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Trading Hours by one or more major market data 
vendors. In addition, the IIV will be available through on-line 
information services.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) The prior business 
day's NAV and the reported closing price; (b) the BZX Official Closing 
Price in relation to the NAV as of the time the NAV is calculated and a 
calculation of the premium or discount of such price against such NAV; 
(c) data in chart form displaying the frequency distribution of 
discounts and premiums of the Official Closing Price against the NAV, 
within appropriate ranges for each of the four previous calendar 
quarters (or for the life of the Trust, if shorter); (d) the 
prospectus; and (e) other applicable quantitative information, 
including the information noted with respect to Rule 6c-11 under the 
1940 Act. The Trust will also disseminate the Trust's holdings on a 
daily basis on the Trust's website. The price of bitcoin will be made 
available by one or more major market data vendors, updated at least 
every 15 seconds during Regular Trading Hours. Information about the 
Reference Rate, including key elements of how the Reference Rate is 
calculated, will be publicly available at https://www.cfbenchmarks.com.
    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA.
    Quotation and last sale information for bitcoin is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as the Reference Rate. Information 
relating to trading, including price and volume information, in bitcoin 
is available from major market data vendors and from the exchanges on 
which bitcoin are traded. Depth of book information is also available 
from bitcoin exchanges. The normal trading hours for bitcoin exchanges 
are 24 hours per day, 365 days per year.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2022-006 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2022-006. 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

[[Page 8335]]

inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CboeBZX-2022-006 and should 
be submitted on or before March 7, 2022.
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    \95\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\95\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03019 Filed 2-11-22; 8:45 am]
BILLING CODE 8011-01-P


