[Federal Register Volume 87, Number 133 (Wednesday, July 13, 2022)]
[Notices]
[Pages 41755-41771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95218; File No. SR-CboeBZX-2022-035]


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

July 7, 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 June 24, 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

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to list and trade shares of the VanEck Bitcoin Trust (the 
``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares.
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    \3\ The Trust was formed as a Delaware statutory trust on 
December 17, 2020 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 also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
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\ VanEck Digital Assets, LLC is 
the sponsor of the Trust (``Sponsor'').\6\ The Shares will be 
registered with the Commission by means of the Trust's registration 
statement on Form S-1 (the ``Registration Statement'').\7\ A third-
party regulated custodian will be responsible for custody of the 
Trust's bitcoin (the ``Custodian''). 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 to be held.\8\ Prior orders from the Commission have pointed 
out that in every prior approval order for Commodity-Based Trust 
Shares, there has been a derivatives market that represents the 
regulated market of significant size, generally a Commodity

[[Page 41756]]

Futures Trading Commission (the ``CFTC'') regulated futures market.\9\ 
Further to this point, the Commission's prior orders have noted that 
the spot commodities and currency markets for which it has previously 
approved spot ETPs are generally unregulated and that the Commission 
relied on the underlying futures market as the regulated market of 
significant size that formed the basis for approving the series of 
Currency and Commodity-Based Trust Shares, including gold, silver, 
platinum, palladium, copper, and other commodities and currencies. The 
Commission specifically noted in the Winklevoss Order that the First 
Gold Approval Order ``was based on an assumption that the currency 
market and the spot gold market were largely unregulated.'' \10\
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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.
    \6\ The Exchange notes that another proposal to list and trade 
shares of the Trust was previously disapproved pursuant to delegated 
authority and is currently pending Commission Review pursuant to 
Rule 431 of the Commission's Rules of Practice, 17 CFR 201.431. See 
Securities Exchange Act Release No. 93559 (November 12, 2021), 86 FR 
64539 (November 18, 2021). See also Letter from Assistant Secretary 
J. Matthew DeLesDernier to Kyle Murray, Assistant General Counsel, 
Cboe Global Markets, dated November 12, 2021.
    \7\ See Amendment No. 2 to Registration Statement on Form S-1, 
dated June 22, 2022, submitted to the Commission by the Sponsor on 
behalf of the Trust (333-251808). The descriptions of the Trust, the 
Shares, and the Benchmark contained herein are based, in part, on 
information in the Registration Statement. The Registration 
Statement 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 streetTRACKS Gold Shares, Exchange Act Release No. 50603 
(Oct. 28, 2004), 69 FR 64614, 64618-19 (Nov. 5, 2004) (SR-NYSE-2004-
22) (the ``First Gold Approval Order''); 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).
    \10\ See Winklevoss Order at 37592.
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    As such, the regulated market of significant size test does not 
require that the spot bitcoin market be regulated in order for the 
Commission to approve this proposal, and precedent makes clear that an 
underlying market for a spot commodity or currency being a regulated 
market would actually be an exception to the norm. These largely 
unregulated currency and commodity markets do not provide the same 
protections as the markets that are subject to the Commission's 
oversight, but the Commission has consistently looked to surveillance 
sharing agreements with the underlying futures market in order to 
determine whether such products were consistent with the Act. With this 
in mind, the Bitcoin Futures market, as defined below, is the proper 
market to consider in determining whether there is a related regulated 
market of significant size.
    Further to this point, the Exchange notes that the Commission has 
recently approved proposals related to the listing and trading of funds 
that would primarily hold Bitcoin Futures that are registered under the 
Securities Act of 1933 instead of the Investment Company Act of 1940, 
as amended (the ``1940 Act'').\11\ In the Teucrium Approval, the 
Commission found the Bitcoin Futures market to be a regulated market of 
significant size as it relates to Bitcoin Futures, an odd tautological 
truth that is also inconsistent with prior disapproval orders for ETPs 
that would hold actual bitcoin instead of derivatives contracts (``Spot 
Bitcoin ETPs'') that use the exact same pricing methodology as the 
Bitcoin Futures. As further discussed below, both the Exchange and the 
Sponsor believe that this proposal and the included analysis are 
sufficient to establish that the Bitcoin Futures market represents a 
regulated market of significant size as it relates both to the Bitcoin 
Futures

[[Page 41757]]

market and to the spot bitcoin market and that this proposal should be 
approved.
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    \11\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR 
21676 (April 12, 2022) (the ``Teucrium Approval'') and 94853 (May 5, 
2022) (collectively, with the Teucrium Approval, the ``Bitcoin 
Futures Approvals'').
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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\ 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\ Fast forward to today 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, 
including Bitcoin Futures ETFs (as defined below). 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''); \20\ in September 2020, the Staff of 
the Commission released a no-action letter permitting certain broker-
dealers to operate a non-custodial Alternative Trading System (``ATS'') 
for digital asset securities, subject to specified conditions; \21\ 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,\22\ and multiple transfer agents who 
provide services for digital asset securities registered with the 
Commission.\23\
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    \12\ For additional information about bitcoin and the Bitcoin 
Network, see https://bitcoin.org/en/getting-started; https://www.fidelitydigitalassets.com/articles/addressing-bitcoin-criticisms; and https://www.vaneck.com/education/investment-ideas/investing-in-bitcoin-and-digital-assets/.
    \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.
    \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 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).
    \21\ 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.
    \22\ 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.
    \23\ See, e.g., Form TA-1/A filed by Tokensoft Transfer Agent 
LLC (CIK: 0001794142) on January 8, 2021, available at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
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    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, having at one point reached a market cap of over $1 
trillion.\24\ According to the CME Bitcoin Futures Report, from March 
28, 2022 through April 22, 2022, CFTC regulated bitcoin futures 
represented approximately $1.3 billion in notional trading volume on 
Chicago Mercantile Exchange (``CME'') (``Bitcoin Futures'') on a daily 
basis and notional volume was never below $670

[[Page 41758]]

million.\25\ Open interest was over $2 billion for the entirety of the 
period and at one point was over $3 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.\26\ 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.\27\ The OCC recently granted conditional approval of 
two charter conversions by state-chartered trust companies to national 
banks, both of which provide cryptocurrency custody services.\28\ 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,\29\ and has 
proposed rules imposing requirements on entities subject to the BSA 
that are specific to the technological context of virtual 
currencies.\30\ 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.\31\
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    \24\ As of December 1, 2021, the total market cap of all bitcoin 
in circulation was approximately $1.08 trillion.
    \25\ Data sourced from the CME Bitcoin Futures Report: 19 Nov, 
2021, available at: https://www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_Futures_Liquidity_Report.pdf.
    \26\ 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.
    \27\ 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.
    \28\ 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.
    \29\ 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.
    \30\ 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.
    \31\ 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,\32\ asset 
managers,\33\ university endowments,\34\ pension funds,\35\ and even 
historically bitcoin skeptical fund managers \36\ are allocating to 
bitcoin. The largest over-the-counter bitcoin fund previously filed a 
Form 10 registration statement, which the Staff of the Commission 
reviewed and which took effect automatically, and is now a reporting 
company.\37\ Established companies like Tesla, Inc., MicroStrategy 
Incorporated, and Square, Inc., among others, have made substantial 
investments in bitcoin. The foregoing examples demonstrate that bitcoin 
has gained mainstream usage and recognition.
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    \32\ 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.
    \33\ 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.
    \34\ 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.
    \35\ 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.
    \36\ 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.
    \37\ 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.
---------------------------------------------------------------------------

    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) over-the-counter bitcoin funds (``OTC Bitcoin Funds'') 
with high management fees and potentially volatile premiums and 
discounts; \38\ (ii) facing the technical risk, complexity and 
generally high fees associated with buying spot bitcoin; (iii) 
purchasing shares of operating companies that they
---------------------------------------------------------------------------

    \38\ The largest OTC Bitcoin Fund has an AUM of $23 billion. 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.

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[[Page 41759]]

believe will provide proxy exposure to bitcoin with limited disclosure 
about the associated risks; \39\ or (iv) purchasing Bitcoin Futures 
ETFs, as defined below, which represent a sub-optimal structure for 
long-term investors that will cost them significant amounts of money 
every year compared to Spot Bitcoin ETPs, as further discussed below. 
Meanwhile, investors in many other countries, including Canada 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.\40\ 
Additionally, investors in other countries, specifically Canada, 
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 and mutual 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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    \39\ 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.
    \40\ 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.
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Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the 
launch of ETFs registered under the 1940 Act and the recent Bitcoin 
Futures Approvals that provide exposure to bitcoin primarily through 
Bitcoin Futures (``Bitcoin Futures ETFs''). Allowing such products to 
list and trade is a productive first step in providing U.S. investors 
and traders with transparent, exchange-listed tools for expressing a 
view on bitcoin. The Bitcoin Futures Approvals, however, have created a 
logical inconsistency in the application of the standard the Commission 
applies when considering bitcoin ETP proposals.
    As discussed further below, the standard applicable to 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 market that constitutes a regulated market of significant 
size is generally a futures and/or options market based on the 
underlying reference asset rather than the spot commodity markets, 
which are often unregulated.\41\ Leaving aside the analysis of that 
standard until later in this proposal,\42\ the Exchange believes that 
the following rationale that the Commission applied to a Bitcoin 
Futures ETF should result in the Commission approving this and other 
Spot Bitcoin ETP proposals:
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    \41\ 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.
    \42\ As further outlined below, both the Exchange and the 
Sponsor believe that the Bitcoin Futures market represents a 
regulated market of significant size and that this proposal and 
others like it should be approved on this basis.

    The CME ``comprehensively surveils futures market conditions and 
price movements on a real-time and ongoing basis in order to detect 
and prevent price distortions, including price distortions caused by 
manipulative efforts.'' Thus the CME's surveillance can reasonably 
be relied upon to capture the effects on the CME bitcoin futures 
market caused by a person attempting to manipulate the proposed 
futures ETP by manipulating the price of CME bitcoin futures 
contracts, whether that attempt is made by directly trading on the 
CME bitcoin futures market or indirectly by trading outside of the 
CME bitcoin futures market. As such, when the CME shares its 
surveillance information with Arca, the information would assist in 
detecting and deterring fraudulent or manipulative misconduct 
related to the non-cash assets held by the proposed ETP.\43\
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    \43\ See Teucrium Approval at 21679.

Bitcoin Futures pricing is based on pricing from spot bitcoin markets. 
The statement from the Teucrium Approval that ``CME's surveillance can 
reasonably be relied upon to capture the effects on the CME bitcoin 
futures market caused by a person attempting to manipulate the proposed 
futures ETP by manipulating the price of CME bitcoin futures contracts. 
. .indirectly by trading outside of the CME bitcoin futures market,'' 
makes clear that the Commission believes that CME's surveillance can 
capture the effects of trading on the relevant spot markets on the 
pricing of Bitcoin Futures. If CME is able to detect such attempts at 
manipulation in the complex and interconnected spot bitcoin market, how 
would such an ability to detect attempted manipulation and the utility 
in sharing that information with the listing exchange apply only to 
Bitcoin Futures ETFs and not Spot Bitcoin ETPs? Stated a different way, 
given that there is significant trading volume on numerous bitcoin 
exchanges that are not part of the CME CF Bitcoin Reference

[[Page 41760]]

Rate and that arbitrage opportunities across bitcoin exchanges means 
that such trading volume will influence spot bitcoin prices across the 
market and, despite this, the Commission still believes that CME can 
detect attempted manipulation of the Bitcoin Futures through ``trading 
outside of the CME bitcoin futures market,'' it is clear that such 
ability would apply equally to both Bitcoin Futures ETFs and Spot 
Bitcoin ETPs. To take it a step further, such an ability would also 
seem to be a strong indication that the CME Bitcoin Futures market 
represents a regulated market of significant size. To be clear, the 
Exchange agrees with the Commission on this point (and the implications 
of their conclusions) and notes that the pricing mechanism applicable 
to the Shares is similar to the CME CF Bitcoin Reference Rate, as 
further discussed below.
    The Exchange also notes that a Bitcoin Futures ETF may also be more 
susceptible to potential manipulation than a Spot Bitcoin ETP that 
offers only in-kind creation and redemption because Bitcoin Futures 
pricing (and thus the value of the underlying holdings of a Bitcoin 
Futures ETF) is based on a single price derived from spot bitcoin 
pricing, while shares of a Spot Bitcoin ETP would represent interest in 
bitcoin directly and authorized participants for a Spot Bitcoin ETP (as 
proposed herein) would be able to source bitcoin from any exchange and 
create or redeem with the applicable trust regardless of the price of 
the underlying index. As such, the Exchange believes that, in addition 
to the CME Bitcoin Futures market representing a regulated market of 
significant size as it relates to the spot bitcoin market, in-kind Spot 
Bitcoin ETPs are likely less susceptible to manipulation than Bitcoin 
Futures ETFs because of the underlying creation and redemption 
arbitrage mechanism that will operate in the same manner as it does for 
all other ETFs.
    In addition to potentially being more susceptible to manipulation 
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides 
negative outcomes for buy and hold investors as compared to a Spot 
Bitcoin ETP.\44\ Specifically, the cost of rolling Bitcoin Futures 
contracts 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 significant amounts of money on 
an annual basis compared to Spot Bitcoin ETPs. Such rolling costs would 
not be required for Spot Bitcoin ETPs that hold bitcoin. Further, 
Bitcoin Futures ETFs could potentially hit 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 significant amounts of money every year compared to Spot 
Bitcoin ETPs 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.
---------------------------------------------------------------------------

    \44\ 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.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that any 
objective review of the proposals to list Spot Bitcoin ETPs compared to 
the Bitcoin Futures ETFs and the Bitcoin Futures Approvals 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 will continue to lose significant amounts 
of money from holding Bitcoin Futures ETFs as compared to Spot Bitcoin 
ETPs, losses which could be prevented by the Commission approving Spot 
Bitcoin ETPs. 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. While the 1940 Act does offer 
certain investor protections, those protections do not relate to 
mitigating potential manipulation of the holdings of an ETF in a way 
that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin 
ETPs. To be clear, both the Exchange and Sponsor believe that the 
Bitcoin Futures market is a regulated market of significant size and 
that such manipulation concerns are mitigated as described throughout 
this proposal. After issuing the Bitcoin Futures Approvals which 
conclude the CME Bitcoin Futures market is a regulated market of 
significant size as it relates to Bitcoin Futures, the only consistent 
outcome would be approving Spot Bitcoin ETPs on the basis that the 
Bitcoin Futures market is also a regulated market of significant size 
as it relates to the bitcoin spot market. 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.
Spot and Proxy Exposure to Bitcoin
    Exposure to bitcoin through an ETP also presents certain advantages 
for retail investors compared to buying spot bitcoin directly. The most 
notable advantage from the Sponsor's perspective is the elimination of 
the need for an individual retail investor to either manage their own 
private keys or to hold bitcoin through a cryptocurrency exchange that 
lacks sufficient protections. Typically, retail exchanges hold most, if 
not all, retail investors' bitcoin in ``hot'' (internet-connected) 
storage and do not make any commitments to indemnify retail investors 
or to observe any particular cybersecurity standard. Meanwhile, a 
retail investor holding spot bitcoin directly in a self-hosted wallet 
may suffer from inexperience in private key management (e.g., 
insufficient password protection, lost key, etc.), which could cause 
them to lose some or all of their bitcoin holdings. Thus, with respect 
to custody of the Trust's bitcoin assets, the Trust presents advantages 
from an investment protection standpoint for retail investors compared 
to owning spot bitcoin directly.
    Finally, as described in the Background section above, a number of 
operating companies largely engaged in unrelated businesses--such as 
Tesla (a car manufacturer) and MicroStrategy (an enterprise software 
company)--have announced significant investments in bitcoin. Without 
access to bitcoin exchange-traded products, retail investors seeking 
investment exposure

[[Page 41761]]

to bitcoin may end up purchasing shares in these companies in order to 
gain the exposure to bitcoin that they seek.\45\ 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.\46\ Such operating companies, however, are imperfect bitcoin 
proxies and provide investors with partial bitcoin exposure paired with 
a host of additional risks associated with whichever operating company 
they decide to purchase. Additionally, the disclosures provided by the 
aforementioned operating companies with respect to risks relating to 
their bitcoin holdings are generally substantially smaller than the 
registration statement of a bitcoin ETP, including the Registration 
Statement, typically amounting to a few sentences of narrative 
description and a handful of risk factors.\47\ 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.
---------------------------------------------------------------------------

    \45\ In August 2017, the Commission's Office of Investor 
Education and Advocacy warned investors about situations where 
companies were publicly announcing events relating to digital coins 
or tokens in an effort to affect the price of the company's publicly 
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
    \46\ 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.
    \47\ See, e.g., Tesla 10-K for the year ended December 31, 2020, 
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
---------------------------------------------------------------------------

Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each 
contract represents five bitcoin and is based on the CME CF Bitcoin 
Reference Rate.\48\ The contracts trade and settle like other cash-
settled commodity futures contracts. Nearly every measurable metric 
related to Bitcoin Futures has generally trended up since launch, 
although certain notional volume calculations have decreased roughly in 
line with the decrease in the price of bitcoin. For example, there were 
219,089 Bitcoin Futures contracts traded in April 2022 (approximately 
$31.2 billion) compared to 89,852 ($5.4 billion), 118,235 ($4.6b 
billion), and 201,295 ($55.8b billion) contracts traded in April 2019, 
April 2020, and April 2021, respectively.\49\
---------------------------------------------------------------------------

    \48\ The CME CF Bitcoin Reference Rate is based on a publicly 
available calculation methodology based on pricing sourced from 
several crypto exchanges and trading platforms, including Bitstamp, 
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.
    \49\ Source: CME, Bloomberg 4/30/22.
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BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN13JY22.000


[[Page 41762]]


    The number of large open interest holders \50\and unique accounts 
trading Bitcoin Futures have both increased, even in the face of 
heightened Bitcoin price volatility.
---------------------------------------------------------------------------

    \50\ 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 $38,605 per bitcoin on 4/
30/2022, more than 80 firms had outstanding positions of greater 
than $4.8 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN13JY22.001

[GRAPHIC] [TIFF OMITTED] TN13JY22.002

BILLING CODE 8011-01-C
    The Sponsor further believes that publicly available research, 
including research done as part of rule filings proposing to list and 
trade shares of Spot Bitcoin ETPs, corroborates the overall trend 
outlined above and supports the thesis that the Bitcoin Futures pricing 
leads the spot market and, thus, a person attempting to manipulate the 
Shares would also have to trade on that market to manipulate the ETP. 
Specifically, the Sponsor believes that such research indicates

[[Page 41763]]

that bitcoin futures lead the bitcoin spot market in price 
formation.\51\
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    \51\ See Exchange Act Releases No. 94080 (January 27, 2022), 87 
FR 5527 (April 12, 2022) (specifically ``Amendment No. 1 to the 
Proposed Rule Change To List and Trade Shares of the Wise Origin 
Bitcoin Trust Under BZX Rule 14.11(3)(4), Commodity-Based Trust 
Shares''); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844 
(May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28, 
2021), 86 FR 60695 (November 3, 2021). See also 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,\52\ including Commodity-Based Trust Shares,\53\ 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; 
\54\ 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 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 
mitigated to the point that they are outweighed by quantifiable 
investor protection issues that would be resolved by approving this 
proposal.
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    \52\ See Exchange Rule 14.11(f).
    \53\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \54\ 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 \55\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG.\56\ The only remaining 
issue to be addressed is whether the 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.\57\
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    \55\ 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 Securities Exchange Act Release 
No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval'').
    \56\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \57\ 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.\58\
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    \58\ 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) Reasonable Likelihood That a Person Attempting To Manipulate the 
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the 
spot bitcoin market as has been laid out above and in other proposals 
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is 
based on pricing from spot bitcoin markets. As noted above, the 
statement from the Teucrium Approval that ``CME's surveillance can 
reasonably be relied upon to capture the effects on the CME bitcoin 
futures market caused by a person attempting to manipulate the proposed 
futures ETP by manipulating the price of CME bitcoin futures contracts 
. . . indirectly by trading outside of the CME bitcoin futures 
market,'' makes clear that the Commission believes that CME's 
surveillance can capture the effects of trading on the relevant spot 
markets on the pricing of Bitcoin Futures. While the Commission makes 
clear in the Teucrium Approval that the analysis only applies to the 
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin 
Futures as its only non-cash or cash equivalent holding, if CME's 
surveillance is sufficient to mitigate concerns related to trading in 
Bitcoin Futures for which the pricing is based directly on pricing from 
spot

[[Page 41764]]

bitcoin markets, it's not clear how such a conclusion could apply only 
to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more 
susceptible to manipulation than a Spot Bitcoin ETP where the 
underlying trust offers only in-kind creation and redemption. 
Specifically, the pricing of Bitcoin Futures is based on prices from 
spot bitcoin markets, while shares of a Spot Bitcoin ETP would 
represent an interest in bitcoin directly and authorized participants 
for a Spot Bitcoin ETP would be able to source bitcoin from any 
exchange and create or redeem with the applicable trust regardless of 
the price of the underlying index. Potential manipulation of a Bitcoin 
Futures ETF would require manipulation on the spot markets on which the 
pricing for Bitcoin Futures are based while the in-kind creation and 
redemption process and fungibility of bitcoin means that a would be 
manipulator of a Spot Bitcoin ETP would need to manipulate the price 
across all bitcoin markets or risk simply providing arbitrage 
opportunities for authorized participants. Further to this point, this 
arbitrage opportunity also acts to reduce any incentives to manipulate 
the price of a Spot Bitcoin ETP because the underlying trust will 
create and redeem shares at set rates of bitcoin per share without 
regard to the price that the ETP is trading at in the secondary market 
or the price of the underlying index. 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.
(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 Bitcoin Futures 
market or spot market for a number of reasons, including the in-kind 
creation and redemption process, the spot market arbitrage 
opportunities that such in-kind creation and redemption process 
creates, the significant volume in the Bitcoin Futures market, the size 
of bitcoin's market cap, and the significant liquidity available in the 
spot market. In addition to the Bitcoin Futures market data points 
cited above, the spot market for bitcoin is also very liquid. According 
to data from Skew, the cost to buy or sell $5 million worth of bitcoin 
averages roughly 48 basis points with a market impact of $139.08.\59\ 
Stated another way, a market participant could enter a market buy or 
sell order for $5 million of bitcoin and only move the market 0.48%. 
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.
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    \59\ These statistics are based on samples of bitcoin liquidity 
in USD (excluding stablecoins or Euro liquidity) based on executable 
quotes on Coinbase, FTX and Kraken during the one year period ending 
May 2022.
---------------------------------------------------------------------------

    As such, the combination of the in-kind creation and redemption 
process, the 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 Bitcoin 
Futures markets, satisfying part (b) of the test outlined above.
(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. Consistent with prior points 
above, offering only in-kind creation and redemption will provide 
unique protections against potential attempts to manipulate the Shares. 
While the Sponsor believes that the Benchmark 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 
Benchmark 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.\60\ 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 Benchmark 
because there is little financial incentive to do so.
---------------------------------------------------------------------------

    \60\ While the Benchmark will not be particularly important for 
the creation and redemption process, it will be used for calculating 
fees.
---------------------------------------------------------------------------

VanEck Bitcoin Trust
    Delaware Trust Company is the trustee (``Trustee''). The State 
Street Bank and Trust Company will be the administrator 
(``Administrator'') and transfer agent (``Transfer Agent''). Van Eck 
Securities Corporation will be the marketing agent (``Marketing 
Agent'') in connection with the creation and redemption of ``Baskets'' 
of Shares. Van Eck Securities Corporation (``VanEck'') provides 
assistance in the marketing of the Shares. The Custodian will be 
responsible for custody of the Trust's bitcoin.
    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in the Trust's net assets. 
The Trust's assets will consist of bitcoin 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,\61\ 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.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 80a-1.
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    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

[[Page 41765]]

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 for the Shares to 
reflect the performance of the MVIS[supreg] CryptoCompare Bitcoin 
Benchmark Rate less the expenses of the Trust's operations. In seeking 
to achieve its investment objective, the Trust will hold bitcoin and 
will value its Shares daily based on the reported MVIS[supreg] 
CryptoCompare Bitcoin Benchmark Rate and process all creations and 
redemptions in-kind in transactions with authorized participants. The 
Trust is not actively managed.
The Benchmark
    As described in the Registration Statement, the Fund will use the 
Benchmark to calculate the Trust's NAV. The Benchmark is designed to be 
a robust price for bitcoin in USD and there is no component other than 
bitcoin in the index. The underlying exchanges are sourced from the 
industry leading CryptoCompare Exchange Benchmark review report. 
CryptoCompare Exchange Benchmark was established in 2019 as a tool 
designed to bring clarity to the digital asset exchange sector by 
providing a framework for assessing risk and in turn bringing 
transparency and accountability to a complex and rapidly evolving 
market.\62\ The current exchange composition of the Benchmark is 
Bitstamp, Coinbase, Gemini, itBit and Kraken, which are the same 
constituents that compose the CME CF Bitcoin Reference Rate.
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    \62\ The CryptoCompare Exchange Benchmark methodology utilizes a 
combination of qualitative and quantitative metrics to analyze a 
comprehensive data set across eight categories of evaluation legal/
regulation, KYC/transaction risk, data provision, security, team/
exchange, asset quality/diversity, market quality and negative 
events. The CryptoCompare Exchange Benchmark review report assigns a 
grade to each exchange which helps identify what it believes to be 
the lowest risk exchanges in the industry. Based on the 
CryptoCompare Exchange Benchmark, MVIS initially selects the top 
five exchanges by rank for inclusion in the MVIS[supreg] 
CryptoCompare Bitcoin Benchmark Rate. If an eligible exchange is 
downgraded by two or more notches in a semi-annual review and is no 
longer in the top five by rank, it is replaced by the highest ranked 
non-component exchange. Adjustments to exchange coverage are 
announced four business days prior to the first business day of each 
of March and September at 23:00 CET. The MVIS[supreg] CryptoCompare 
Bitcoin Benchmark Rate is rebalanced at 16:00:00 GMT/BST on the last 
business day of each of February and August.
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    In calculating the MVIS[supreg] CryptoCompare Bitcoin Benchmark 
Rate, the methodology captures trade prices and sizes from exchanges 
and examines twenty three-minute periods leading up to 4:00 p.m. EST. 
It then calculates an equal-weighted average of the volume-weighted 
median price of these twenty three-minute periods, removing the highest 
and lowest contributed prices. Using twenty consecutive three-minute 
segments over a sixty-minute period means malicious actors would need 
to sustain efforts to manipulate the market over an extended period of 
time, or would need to replicate efforts multiple times across 
exchanges, potentially triggering review. This extended period also 
supports authorized participant activity by capturing volume over a 
longer time period, rather than forcing authorized participants to mark 
an individual close or auction. The use of a median price reduces the 
ability of outlier prices to impact the NAV, as it systematically 
excludes those prices from the NAV calculation. The use of a volume-
weighted median (as opposed to a traditional median) serves as an 
additional protection against attempts to manipulate the NAV by 
executing a large number of low-dollar trades, because, any 
manipulation attempt would have to involve a majority of global spot 
bitcoin volume in a three-minute window to have any influence on the 
NAV. As discussed in the Registration Statement, removing the highest 
and lowest prices further protects against attempts to manipulate the 
NAV, requiring bad actors to act on multiple exchanges at once to have 
any ability to influence the price.
Availability of Information
    In addition to the price transparency of the Benchmark, 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.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the current NAV per 
Share daily and the prior business day's NAV and the reported closing 
price; (b) the BZX Official Closing Price \63\ 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. 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 Benchmark, including key elements of how the 
Benchmark is calculated, will be publicly available at www.mvis-indices.com/.
---------------------------------------------------------------------------

    \63\ As defined in Rule 11.23(a)(3), the term ``BZX Official 
Closing Price'' shall mean the price disseminated to the 
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    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 Benchmark. Information relating 
to trading, including price and volume

[[Page 41766]]

information, in bitcoin is available from major market data vendors and 
from the exchanges on which bitcoin are traded. Depth of book 
information is also available from bitcoin exchanges. The normal 
trading hours for bitcoin exchanges are 24 hours per day, 365 days per 
year.
The Bitcoin Custodian
    The Custodian's services (i) allow bitcoin to be deposited from a 
public blockchain address to the Trust's bitcoin account and (ii) allow 
bitcoin to be withdrawn from the bitcoin account to a public blockchain 
address as instructed by the Trust. The Custody Agreement requires the 
Custodian to hold the Trust's bitcoin in cold storage, unless required 
to facilitate withdrawals as a temporary measure. The Custodian will 
use segregated cold storage bitcoin addresses for the Trust which are 
separate from the bitcoin addresses that the Custodian uses for its 
other customers and which are directly verifiable via the Bitcoin 
Blockchain. The Custodian will safeguard the private keys to the 
bitcoin associated with the Trust's bitcoin account. The Custodian will 
at all times record and identify in its books and records that such 
bitcoins constitute the property of the Trust. The Custodian will not 
withdraw the Trust's bitcoin from the Trust's account with the 
Custodian, or loan, hypothecate, pledge or otherwise encumber the 
Trust's bitcoin, without the Trust's instruction. If the custody 
agreement terminates, the Sponsor may appoint another custodian and the 
Trust may enter into a custodian agreement with such custodian.
Net Asset Value
    NAV means the total assets of the Trust including, but not limited 
to, all bitcoin and cash, if any, less total liabilities of the Trust, 
each determined on the basis of generally accepted accounting 
principles. The Administrator will determine the NAV of the Trust on 
each day that the Exchange is open for regular trading, as promptly as 
practical after 4:00 p.m. EST. The NAV of the Trust is the aggregate 
value of the Trust's assets less its estimated accrued but unpaid 
liabilities (which include accrued expenses). In determining the 
Trust's NAV, the Administrator values the bitcoin held by the Trust 
based on the price set by the MVIS[supreg] CryptoCompare Bitcoin 
Benchmark Rate as of 4:00 p.m. EST. The Administrator also determines 
the NAV per Share.
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. Each night, 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 50,000. 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 \64\ deposited with the trust; 
(b) issued by such trust in a specified aggregate minimum number in 
return for a deposit of a quantity of the underlying commodity; and (c) 
when aggregated in the same specified minimum number, may be redeemed 
at a holder's request by such trust which will deliver to the redeeming 
holder the quantity of the underlying commodity.
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    \64\ 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

[[Page 41767]]

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 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.\65\
---------------------------------------------------------------------------

    \65\ 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 \66\ 
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.
---------------------------------------------------------------------------

    \66\ Regular Trading Hours is the time between 9:30 a.m. and 
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Shares. Members purchasing the Shares for resale to 
investors will deliver a prospectus to such investors. The Information 
Circular will also discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \67\ in general and Section 6(b)(5) of the Act \68\ 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.
---------------------------------------------------------------------------

    \67\ 15 U.S.C. 78f.
    \68\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts,\69\ including Commodity-Based Trust Shares,\70\ 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; 
\71\ 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 because this filing sufficiently 
demonstrates that the standard that has previously been articulated by 
the Commission applicable to Commodity-

[[Page 41768]]

Based Trust Shares has been met as outlined below.
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    \69\ See Exchange Rule 14.11(f).
    \70\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \71\ 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.
---------------------------------------------------------------------------

Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order for a proposal to list and trade a series of Commodity-
Based Trust Shares to be deemed consistent with the Act, the Commission 
requires that an exchange demonstrate that there is a comprehensive 
surveillance-sharing agreement in place \72\ with a regulated market of 
significant size. Both the Exchange and CME are members of ISG.\73\ As 
such, the only remaining issue to be addressed is whether the Bitcoin 
Futures market constitutes a market of significant size, which the 
Exchange believes 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.\74\
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    \72\ 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.
    \73\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \74\ 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.\75\
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    \75\ 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) Reasonable Likelihood That a Person Attempting To Manipulate the 
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the 
spot bitcoin market as has been laid out above and in other proposals 
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is 
based on pricing from spot bitcoin markets. As noted above, the 
statement from the Teucrium Approval that ``CME's surveillance can 
reasonably be relied upon to capture the effects on the CME bitcoin 
futures market caused by a person attempting to manipulate the proposed 
futures ETP by manipulating the price of CME bitcoin futures contracts 
. . . indirectly by trading outside of the CME bitcoin futures 
market,'' makes clear that the Commission believes that CME's 
surveillance can capture the effects of trading on the relevant spot 
markets on the pricing of Bitcoin Futures. While the Commission makes 
clear in the Teucrium Approval that the analysis only applies to the 
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin 
Futures as its only non-cash or cash equivalent holding, if CME's 
surveillance is sufficient to mitigate concerns related to trading in 
Bitcoin Futures for which the pricing is based directly on pricing from 
spot bitcoin markets, it's not clear how such a conclusion could apply 
only to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin 
ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more 
susceptible to manipulation than a Spot Bitcoin ETP where the 
underlying trust offers only in-kind creation and redemption. 
Specifically, the pricing of Bitcoin Futures is based on prices from 
spot bitcoin markets, while shares of a Spot Bitcoin ETP would 
represent an interest in bitcoin directly and authorized participants 
for a Spot Bitcoin ETP would be able to source bitcoin from any 
exchange and create or redeem with the applicable trust regardless of 
the price of the underlying index. Potential manipulation of a Bitcoin 
Futures ETF would require manipulation on the spot markets on which the 
pricing for Bitcoin Futures are based while the in-kind creation and 
redemption process and fungibility of bitcoin means that a would be 
manipulator of a Spot Bitcoin ETP would need to manipulate the price 
across all bitcoin markets or risk simply providing arbitrage 
opportunities for authorized participants. Further to this point, this 
arbitrage opportunity also acts to reduce any incentives to manipulate 
the price of a Spot Bitcoin ETP because the underlying trust will 
create and redeem shares at set rates of bitcoin per share without 
regard to the price that the ETP is trading at in the secondary market 
or the price of the underlying index. 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.
(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 Bitcoin Futures 
market or spot market for a number of reasons, including the in-kind 
creation and redemption process, the spot market arbitrage 
opportunities that such in-kind creation and redemption process 
creates, the significant volume in the Bitcoin Futures market, the size 
of bitcoin's market cap, and the significant liquidity available in the 
spot market. In addition to the Bitcoin Futures market data points 
cited above, the spot market for bitcoin is also very liquid. According 
to data from Skew, the cost to buy or sell $5 million worth of bitcoin 
averages roughly 48 basis points with a market impact of $139.08.\76\ 
Stated another way, a market participant could enter a market buy or 
sell order for $5 million of bitcoin and only move the market 0.48%. 
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.
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    \76\ These statistics are based on samples of bitcoin liquidity 
in USD (excluding stablecoins or Euro liquidity) based on executable 
quotes on Coinbase, FTX and Kraken during the one year period ending 
May 2022.
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    As such, the combination of the in-kind creation and redemption 
process, the Bitcoin Futures leading price discovery, the overall size 
of the bitcoin market, and the ability for market participants, 
including authorized

[[Page 41769]]

participants creating and redeeming in-kind with the Trust, to buy or 
sell large amounts of bitcoin without significant market impact will 
help prevent the Shares from becoming the predominant force on pricing 
in either the bitcoin spot or Bitcoin Futures markets, satisfying part 
(b) of the test outlined above.
(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. Consistent with prior points 
above, offering only in-kind creation and redemption will provide 
unique protections against potential attempts to manipulate the Shares. 
While the Sponsor believes that the Benchmark 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 
Benchmark 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.\77\ 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 Benchmark 
because there is little financial incentive to do so.
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    \77\ While the Benchmark will not be particularly important for 
the creation and redemption process, it will be used for calculating 
fees.
---------------------------------------------------------------------------

    The Exchange also believes that reviewing this proposal through the 
lens of the Bitcoin Futures Approvals would also lead the Commission to 
approving this proposal. Previous disapproval orders have made clear 
that a market that constitutes a regulated market of significant size 
is generally a futures and/or options market based on the underlying 
reference asset rather than the spot commodity markets, which are often 
unregulated.\78\ The Exchange believes that the following excerpt from 
the Teucrium Approval is particular informative:
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    \78\ 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.

The CME ``comprehensively surveils futures market conditions and price 
movements on a real-time and ongoing basis in order to detect and 
prevent price distortions, including price distortions caused by 
manipulative efforts.'' Thus the CME's surveillance can reasonably be 
relied upon to capture the effects on the CME bitcoin futures market 
caused by a person attempting to manipulate the proposed futures ETP by 
manipulating the price of CME bitcoin futures contracts, whether that 
attempt is made by directly trading on the CME bitcoin futures market 
or indirectly by trading outside of the CME bitcoin futures market. As 
such, when the CME shares its surveillance information with Arca, the 
information would assist in detecting and deterring fraudulent or 
manipulative misconduct related to the non-cash assets held by the 
proposed ETP.\79\
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    \79\ See Teucrium Approval at 21679.

Bitcoin Futures pricing is based on pricing from spot bitcoin markets. 
The statement from the Teucrium Approval that ``CME's surveillance can 
reasonably be relied upon to capture the effects on the CME bitcoin 
futures market caused by a person attempting to manipulate the proposed 
futures ETP by manipulating the price of CME bitcoin futures contracts 
. . . indirectly by trading outside of the CME bitcoin futures 
market,'' makes clear that the Commission believes that CME's 
surveillance can capture the effects of trading on the relevant spot 
markets on the pricing of Bitcoin Futures. If CME is able to detect 
such attempts at manipulation in the complex and interconnected spot 
bitcoin market, how would such an ability to detect attempted 
manipulation and the utility in sharing that information with the 
listing exchange apply only to Bitcoin Futures ETFs and not Spot 
Bitcoin ETPs? Stated a different way, given that there is significant 
trading volume on numerous bitcoin exchanges that are not part of the 
CME CF Bitcoin Reference Rate and that arbitrage opportunities across 
bitcoin exchanges means that such trading volume will influence spot 
bitcoin prices across the market and, despite this, the Commission 
still believes that CME can detect attempted manipulation of the 
Bitcoin Futures through ``trading outside of the CME bitcoin futures 
market,'' it is clear that such ability would apply equally to both 
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further, 
such an ability would also seem to be a strong indication that the CME 
Bitcoin Futures market represents a regulated market of significant 
size. To be clear, the Exchange agrees with the Commission on this 
point (and the implications of their conclusions) and further notes 
that the pricing mechanism applicable to the Shares is similar to the 
CME CF Bitcoin Reference Rate.
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 continued listing 
requirements, and, pursuant to its obligations under

[[Page 41770]]

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 Benchmark, 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 current NAV per 
Share daily and 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. 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 Benchmark, including key elements of how the 
Benchmark is calculated, will be publicly available at www.mvis-indices.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 Benchmark. 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
    In sum, the Exchange believes that this proposal is consistent with 
the requirements of Section 6(b)(5) of the Act, 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 mitigated to the point that they are 
outweighed by investor protection issues that would be resolved by 
approving this proposal.
    The Exchange believes that the proposal is, in particular, designed 
to protect investors and the public interest. Premium and discount 
volatility, high fees, rolling costs, 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 Spot 
Bitcoin ETP. 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) providing an alternative to Bitcoin 
Futures ETFs which will eliminate roll cost; (iv) reducing risks 
associated with investing in operating companies that are imperfect 
proxies for bitcoin exposure; and (v) providing an alternative to 
custodying spot bitcoin. Finally, the Exchange notes that in addition 
to all of the arguments herein which it believes sufficiently 
establishes the Bitcoin Futures market as a regulated market of 
significant size, it is logically inconsistent to find that the CME 
Bitcoin Futures market is a significant market as it relates to the CME 
Bitcoin Futures market, but not a significant market as it relates to 
the bitcoin spot market for the numerous reasons laid out above.
    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.

[[Page 41771]]

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-2022-035 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-2022-035. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2022-035 and should be submitted 
on or before August 3, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
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    \80\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-14884 Filed 7-12-22; 8:45 am]
BILLING CODE 8011-01-P