[Federal Register Volume 89, Number 9 (Friday, January 12, 2024)]
[Notices]
[Pages 2263-2278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00501]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99283; File No. SR-CboeBZX-2023-038]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 to a Proposed Rule Change To List and Trade 
Shares of the Invesco Galaxy Bitcoin ETF Under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares

January 8, 2024.
    On June 30, 2023, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the Invesco Galaxy Bitcoin ETF 
(``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. 
On July 11, 2023, the Exchange filed Amendment No. 1 to the proposed 
rule change, which amended and replaced the proposed rule change in its 
entirety. The proposed rule change, as modified by Amendment No. 1, was 
published for comment in the Federal

[[Page 2264]]

Register on July 19, 2023.\3\ On August 31, 2023, pursuant to section 
19(b)(2) of the Act,\4\ the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change, as modified by Amendment No. 1.\5\ 
On September 18, 2003, the Commission instituted proceedings to 
determine whether to disapprove the proposed rule change, as modified 
by Amendment No. 1.\6\ On January 5, 2024, the Exchange filed Amendment 
No. 2 to the proposed rule change as described in Items I and II below, 
which Items have been prepared by the Exchange. Amendment No. 2 amended 
and replaced the proposed rule change, as modified by Amendment No. 1, 
in its entirety. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 2, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 97900 (July 13, 
2023), 88 FR 46235. Comments on the proposed rule change are 
available at: https://www.sec.gov/comments/sr-cboebzx-2023-038/srcboebzx2023038.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98266, 88 FR 61658 
(Sept. 7, 2023).
    \6\ See Securities Exchange Act Release No. 98613, 88 FR 68849 
(Oct. 4, 2023).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to list and trade shares of the Invesco Galaxy 
Bitcoin ETF (the ``Trust''),\7\ under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares.
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    \7\ 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
    This Amendment No. 2 to SR-CboeBZX-2023-038 amends and replaces in 
its entirety the proposal as originally submitted on June 30, 2023, and 
as amended by Amendment No. 1 on July 11, 2023. The Exchange submits 
this Amendment No. 2 in order to clarify certain points and add 
additional details to the proposal.
    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(e)(4),\8\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\9\ Invesco Capital Management LLC 
is the sponsor of the Trust (``Sponsor''). The Shares will be 
registered with the Commission by means of the Trust's registration 
statement on Form S-1 (the ``Registration Statement'').\10\
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    \8\ 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).
    \9\ Any of the statements or representations regarding the index 
composition, the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of index, reference asset, intraday indicative 
values, and, or the applicability of Exchange listing rules 
specified in this filing to list a series of Other Securities 
(collectively, ``Continued Listing Representations'') shall 
constitute continued listing requirements for the Shares listed on 
the Exchange.
    \10\ See Pre-Effective Amendment No. 4 to Form S-1 Registration 
Statement filed on December 29, 2023 (Registration No. 333-255175). 
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.

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[[Page 2265]]

    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.\11\ 
Prior orders from the Commission have pointed out that in every prior 
approval order for Commodity-Based Trust Shares,\12\ there has been a 
derivatives market that represents the regulated market of significant 
size, generally a Commodity Futures Trading Commission (the ``CFTC'') 
regulated futures market.\13\ 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 exchange-traded products 
(``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 \14\ 
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.'' \15\
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    \11\ 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'').
    \12\ See Exchange Rule 14.11(f)(1).
    \13\ 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).
    \14\ See Exchange Rule 14.11(e)(5).
    \15\ 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 Chicago Mercantile Exchange (``CME'') bitcoin futures 
(``Bitcoin Futures'') market 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 
approved proposals related to the listing and

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trading of funds that would primarily hold CME Bitcoin Futures that are 
registered under the Securities Act of 1933.\16\ In the Teucrium 
Approval, the Commission found the CME Bitcoin Futures market to be a 
regulated market of significant size as it relates to CME 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 CME 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 CME Bitcoin 
Futures market represents a regulated market of significant size as it 
relates both to the CME Bitcoin Futures market and to the spot bitcoin 
market and that this proposal should be approved.
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    \16\ 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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    Finally, as discussed in greater detail below, by using 
professional custodians and other service providers, the Trust provides 
investors interested in exposure to bitcoin with important protections 
that are not always available to investors that invest directly in 
bitcoin, including protection against insolvency, cyber attacks, and 
other risks. If U.S. investors had access to vehicles such as the Trust 
for their bitcoin investments, instead of directing their bitcoin 
investments into loosely regulated offshore vehicles (such as loosely 
regulated centralized trading platforms that have since faced 
bankruptcy proceedings or other insolvencies), then countless investors 
would have protected their principal investments in bitcoin and thus 
benefited.
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. The first rule filing proposing to list an ETP to provide 
exposure to bitcoin in the U.S. was submitted by the Exchange on June 
30, 2016.\17\ 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.\18\ Similarly, regulated U.S. Bitcoin Futures contracts did 
not exist. The CFTC had determined that bitcoin is a commodity,\19\ 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.\20\ While the first over-the-counter 
bitcoin fund launched in 2013, public trading was limited and the fund 
had only $60 million in assets.\21\ 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 (``ICI'') and Securities Industry and 
Financial Markets Association (``SIFMA'') that it was not aware, at 
that time, of a single custodian providing fund custodial services for 
digital assets.\22\ 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 \23\ and 
shares in investment vehicles holding Bitcoin Futures.\24\ 
Additionally, licensed and regulated service providers have emerged to 
provide fund custodial services for digital assets, among other 
services, including the Custodian.\25\ For example, in February 2023, 
the Commission proposed to amend Rule 206(4)-2 under the Advisers Act 
of 1940 (the ``custody rule'') to expand the scope beyond client funds 
and securities to include all crypto assets, among other assets; \26\ 
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''); \27\ in September 2020, the

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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; \28\ 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,\29\ and multiple 
transfer agents who provide services for digital asset securities 
registered with the Commission.\30\
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    \17\ See Winklevoss Order.
    \18\ 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.
    \19\ 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.''
    \20\ 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.
    \21\ 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.
    \22\ 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.
    \23\ 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.
    \24\ See Prospectus filed by Stone Ridge Trust VI on behalf of 
NYDIG bitcoin Strategy Fund Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
    \25\ The ``Custodian'' is Coinbase Trust Company, LLC.
    \26\ See Investment Advisers Act Release No. 6240 88 FR 14672 
(March 9, 2023) (Safeguarding Advisory Client Assets).
    \27\ 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).
    \28\ 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.
    \29\ 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.
    \30\ 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.\31\ According to the CME Bitcoin Futures Report, from 
February 13, 2023 through March 27, 2023, CFTC regulated Bitcoin 
Futures represented between $750 million and $3.2 billion in notional 
trading volume on the CME Bitcoin Futures market on a daily basis.\32\ 
Open interest was over $1.4 billion for the entirety of the period and 
at one point was over $2 billion. ETPs that primarily hold CME Bitcoin 
Futures have raised over $1 billion dollars in assets. 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.\33\ As of February 14, 2023 the 
NYDFS has granted no fewer than thirty-four BitLicenses,\34\ including 
to established public payment companies like PayPal Holdings, Inc. and 
Square, Inc., and limited purpose trust charters to entities providing 
cryptocurrency custody services. 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.\35\
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    \31\ As of December 1, 2021, the total market cap of all bitcoin 
in circulation was approximately $1.08 trillion.
    \32\ Data sourced from the CME Bitcoin Futures Report: 30 March, 
2023, available at: https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.htm.
    \33\ The CFTC's annual report for Fiscal Year 2022 (which ended 
on September 30, 2022) noted that the CFTC completed the fiscal year 
with 18 enforcement filings related to digital assets. ``Digital 
asset actions included manipulation, a $1.7 billion fraudulent 
scheme, and a decentralized autonomous organization (DAO) failing to 
register as a SEF or FCM or to seek DCM designation.'' See CFTC FY 
2022 Agency Financial Report, available at: https://www.cftc.gov/media/7941/2022afr/download. Additionally, the CFTC filed on March 
27, 2023, a civil enforcement action against the owner/operators of 
the Binance centralized digital asset trading platform, which is one 
of the largest bitcoin derivative exchanges. See CFTC Release No. 
8680-23 (March 27, 2023), available at: https://www.cftc.gov/PressRoom/PressReleases/8680-23.
    \34\ See https://www.dfs.ny.gov/virtual_currency_businesses.
    \35\ 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. See also U.S. 
Department of the Treasury Enforcement Release: ``Treasury Announces 
Two Enforcement Actions for over $24M and $29M Against Virtual 
Currency Exchange, Bittrex, Inc.'' (October 11, 2022) available at: 
https://home.treasury.gov/news/press-releases/jy1006. See also U.S. 
Department of Treasure Enforcement Release ``OFAC Settles with 
Virtual Currency Exchange Kraken for $362,158.70 Related to Apparent 
Violations of the Iranian Transactions and Sanctions Regulations'' 
(November 28, 2022) available at: https://home.treasury.gov/system/files/126/20221128_kraken.pdf.
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    In addition to the regulatory developments laid out above, more 
traditional financial market participants become more active in 
cryptocurrency: large insurance companies, asset managers, university 
endowments, pension funds, and even historically bitcoin skeptical fund 
managers have allocated to bitcoin. As noted in the Financial Stability 
Oversight Council (``FSOC'') Report on Digital Asset Financial 
Stability Risks and Regulation, ``[i]ndustry surveys suggest that the 
scale of these investments grew quickly during the boom in crypto-asset 
markets through late 2021. In June 2022, PwC estimated that the number 
of crypto-specialist hedge funds was more than 300 globally, with $4.1 
billion in assets under management. In addition, in a survey PwC found 
that 38 percent of surveyed traditional hedge funds were currently 
investing in `digital assets,' compared to 21 percent the year prior.'' 
\36\ 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 announced 
substantial investments in bitcoin in amounts as large as $1.5 billion 
(Tesla) and $425 million (MicroStrategy). The foregoing examples 
demonstrate that bitcoin has gained mainstream usage and recognition.
---------------------------------------------------------------------------

    \36\ See the FSOC ``Report on Digital Asset Financial Stability 
Risks and Regulation 2022'' (October 3, 2022) (at footnote 26) at 
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf.
    \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.
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    Despite these developments, access for U.S. retail investors to 
gain exposure to bitcoin via a transparent and U.S. regulated, U.S. 
exchange-traded vehicle remains limited. Instead current options 
include: (i) facing the counter-party risk, legal uncertainty, 
technical risk, and complexity associated with accessing spot bitcoin; 
(ii) over-the-counter bitcoin funds (``OTC Bitcoin Funds'') with high 
management fees and potentially volatile premiums and discounts; \38\ 
(iii) purchasing shares of operating companies that they believe will 
provide proxy exposure to bitcoin with limited disclosure about the 
associated risks; \39\ or (iv) purchasing

[[Page 2268]]

Bitcoin Futures exchange-traded funds (``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 ETFs holding 
physical bitcoin) to gain exposure to bitcoin. Similarly, investors in 
Switzerland and across Europe have access to Exchange Traded Products 
which trade on regulated exchanges and provide exposure to a broad 
array of spot crypto assets. U.S. investors, by contrast, are left with 
fewer and more risky means of getting bitcoin exposure, as described 
above.\40\
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    \38\ The premium and discount for OTC Bitcoin Funds is known to 
move rapidly. For example, over the period of 12/21/20 to 1/21/21, 
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.
    \39\ 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.
    \40\ The Exchange notes that the list of countries above is not 
exhaustive and that securities regulators in a number of additional 
countries have either approved or otherwise allowed the listing and 
trading of Spot Bitcoin ETPs.
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    To this point, the lack of a Spot Bitcoin ETP exposes U.S. investor 
assets to significant risk because investors that would otherwise seek 
crypto asset exposure through a Spot Bitcoin ETP are forced to find 
alternative exposure through generally riskier means. For instance, 
many U.S. investors that held their digital assets in accounts at 
FTX,\41\ Celsius Network LLC,\42\ BlockFi Inc.\43\ and Voyager Digital 
Holdings, Inc.\44\ have become unsecured creditors in the insolvencies 
of those entities. If a Spot Bitcoin ETP was available, it is likely 
that at least a portion of the billions of dollars tied up in those 
proceedings would still reside in the brokerage accounts of U.S. 
investors, having instead been invested in a transparent, regulated, 
and well-understood structure--a Spot Bitcoin ETP. To this point, 
approval of a Spot Bitcoin ETP would represent a major win for the 
protection of U.S. investors in the crypto asset space. As further 
described below, the Trust, like all other series of Commodity-Based 
Trust Shares, is designed to protect investors against the risk of 
losses through fraud and insolvency that arise by holding digital 
assets, including bitcoin, on centralized platforms.
---------------------------------------------------------------------------

    \41\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \42\ See Celsius Network LLC, et al., Case No. 22-10964.
    \43\ See BlockFi Inc., Case No. 22-19361.
    \44\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
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    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. In addition to the benefits to U.S. 
investors articulated throughout this proposal, approving this proposal 
(and others like it) would provide U.S. ETFs 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.
Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the 
launch of ETFs registered under the Investment Company Act of 1940, as 
amended (the ``1940 Act'') and the Bitcoin Futures Approvals that 
provide exposure to bitcoin primarily through CME 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.\45\ Leaving aside the analysis of that 
standard until later in this proposal,\46\ the Exchange believes that 
the following rationale the Commission applied to a Bitcoin Futures ETF 
should result in the Commission approving this and other Spot Bitcoin 
ETP proposals:
---------------------------------------------------------------------------

    \45\ 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.
    \46\ 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.\47\
---------------------------------------------------------------------------

    \47\ See Teucrium Approval at 21679.

    CME 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

[[Page 2269]]

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 CME Bitcoin Futures. This was further 
acknowledged in the ``Grayscale lawsuit'' \48\ when Judge Rao stated 
``. . . the Commission in the Teucrium order recognizes that the 
futures prices are influenced by the spot prices, and the Commission 
concludes in approving futures ETPs that any fraud on the spot market 
can be adequately addressed by the fact that the futures market is a 
regulated one . . .'' The Exchange agrees with the Commission on this 
point and notes that the pricing mechanism applicable to the Shares is 
similar to that of the CME Bitcoin Futures.
---------------------------------------------------------------------------

    \48\ Grayscale Investments, LLC v. Securities and Exchange 
Commission, et al., Case No. 22-1142.
---------------------------------------------------------------------------

    The structure of Bitcoin Futures ETFs provides negative outcomes 
for buy and hold investors as compared to a Spot Bitcoin ETP.\49\ 
Specifically, the cost of rolling CME Bitcoin Futures contracts will 
cause the Bitcoin Futures ETFs to lag the performance of bitcoin itself 
and 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.
---------------------------------------------------------------------------

    \49\ 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.
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    Based on the foregoing, the Exchange and Sponsor believe that any 
objective review of the proposals to list Spot Bitcoin ETPs compared to 
the 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. Both the Exchange and Sponsor 
believe that the CME Bitcoin Futures market is a regulated market of 
significant size and that such manipulation concerns are mitigated, as 
described extensively below. After allowing and approving the listing 
and trading of Bitcoin Futures ETFs that hold primarily CME Bitcoin 
Futures, however, the only consistent outcome would be approving Spot 
Bitcoin ETPs on the basis that the CME Bitcoin Futures market is a 
regulated market of significant size.
    Given the current landscape, approving this proposal (and others 
like it) and allowing Spot Bitcoin ETPs to be listed and traded 
alongside Bitcoin Futures ETFs would establish a consistent regulatory 
approach, provide U.S. investors with choice in product structures for 
bitcoin exposure, and offer flexibility in the means of gaining 
exposure to bitcoin through transparent, regulated, U.S. exchange-
listed vehicles.
Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each 
contract represents five bitcoin and is based on the CME CF Bitcoin 
Reference Rate.\50\ 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 
143,215 Bitcoin Futures contracts traded in April 2023 (approximately 
$20.7 billion) compared to 193,182 ($5 billion), 104,713 ($3.9 
billion), 118,714 ($42.7 billion), and 111,964 ($23.2 billion) 
contracts traded in April 2019, April 2020, April 2021, and April 2022, 
respectively.\51\
---------------------------------------------------------------------------

    \50\ The CME CF Bitcoin Reference Rate is based on a publicly 
available calculation methodology based on pricing sourced from 
several crypto trading platforms, including Bitstamp, Coinbase, 
Gemini, itBit, Kraken, and LMAX Digital.
    \51\ Source: CME, Yahoo Finance 4/30/23.
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BILLING CODE 8011-01-P

[[Page 2270]]

[GRAPHIC] [TIFF OMITTED] TN12JA24.021

    The number of large open interest holders \52\ and unique accounts 
trading Bitcoin Futures have both increased, even in the face of 
heightened bitcoin price volatility.
---------------------------------------------------------------------------

    \52\ 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 $29,268.81 per bitcoin on 
4/30/2023, more than 100 firms had outstanding positions of greater 
than $3.65 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN12JA24.022


[[Page 2271]]


[GRAPHIC] [TIFF OMITTED] TN12JA24.023

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 that 
Bitcoin Futures lead the bitcoin spot market in price formation.\53\
---------------------------------------------------------------------------

    \53\ 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.''
---------------------------------------------------------------------------

Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued 
Receipts,\54\ including Commodity-Based Trust Shares,\55\ 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; 
\56\ and (ii) the requirement that an exchange proposal be designed, in 
general, to protect investors and the public interest. The Exchange 
believes that this proposal is consistent with the requirements of 
section 6(b)(5) of the Act and that this filing sufficiently 
demonstrates that the CME Bitcoin Futures market represents a regulated 
market of significant size and that, on the whole, the manipulation 
concerns previously articulated by the Commission are sufficiently 
mitigated to the point that they are outweighed by quantifiable 
investor protection issues that would be resolved by approving this 
proposal.
---------------------------------------------------------------------------

    \54\ See Exchange Rule 14.11(f).
    \55\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \56\ 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 trading platforms 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 trading platforms 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 trading platform 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.
---------------------------------------------------------------------------

(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 \57\ with a regulated

[[Page 2272]]

market of significant size. Both the Exchange and CME are members of 
the Intermarket Surveillance Group (``ISG'').\58\ 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.\59\
---------------------------------------------------------------------------

    \57\ 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'').
    \58\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \59\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    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.\60\
---------------------------------------------------------------------------

    \60\ 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.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    According to the research and analysis presented above, the Bitcoin 
Futures market is the leading market for bitcoin price formation. Where 
Bitcoin Futures lead the price in the spot market such that a potential 
manipulator of the bitcoin spot market (beyond just the constituents of 
the Index \61\) would have to participate in the Bitcoin Futures 
market, it follows that a potential manipulator of the Shares would 
similarly have to transact in the Bitcoin Futures market because the 
Index is based on spot prices. 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.
---------------------------------------------------------------------------

    \61\ As further described below, the ``Index'' for the Fund is 
the Bloomberg Galaxy Bitcoin Index.
---------------------------------------------------------------------------

(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 
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.
(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.
(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to bitcoin through OTC Bitcoin Funds has grown into 
the tens of billions of dollars, including through Bitcoin Futures 
ETFs. With that growth, so too has grown the quantifiable investor 
protection issues to U.S. investors through roll costs for Bitcoin 
Futures ETFs and premium/discount volatility and management fees for 
OTC Bitcoin Funds. The Exchange believes that the concerns related to 
the prevention of fraudulent and manipulative acts and practices have 
been sufficiently addressed to be consistent with the Act and, to the 
extent that the Commission disagrees with that assertion, such concerns 
are now outweighed by investor protection concerns. As such, the 
Exchange believes that approving this proposal (and comparable 
proposals) provides the Commission with the opportunity to allow U.S. 
investors with access to bitcoin in a regulated and transparent 
exchange-traded vehicle that would act to limit risk to U.S. investors 
by: (i) reducing premium and discount volatility; (ii) reducing 
management fees through meaningful competition; (iii) reducing risks 
and costs associated with investing in Bitcoin Futures ETFs and 
operating companies that are imperfect proxies for bitcoin exposure; 
and (iv) providing an alternative to custodying spot bitcoin.
Invesco Galaxy Bitcoin ETF
    Delaware Trust Company is the trustee (``Trustee''). The Bank of 
New York Mellon will be the administrator (``Administrator'') and 
transfer agent (``Transfer Agent''). As noted above, Coinbase Custody 
Trust Company, LLC, is the Custodian and will be responsible for 
custody of the Trust's bitcoin. The Bank of New York Mellon (the ``Cash 
Custodian'') will act as custodian of the Trust's cash and cash 
equivalents.\62\
---------------------------------------------------------------------------

    \62\ Cash equivalents are short-term instruments with maturities 
of less than 3 months.
---------------------------------------------------------------------------

    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest and ownership in the Trust. 
The Trust's assets will consist only of bitcoin, cash, and cash 
equivalents.
    According to the Registration Statement, the Trust is neither an 
investment company registered under the Investment Company Act of 1940, 
as amended,\63\ 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.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 80a-1.
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    When the Trust sells or redeems its Shares, it will do so in cash 
transactions in blocks of 5,000 Shares (a ``Creation Basket'') at the 
Trust's net asset value (``NAV''). Authorized participants will 
deliver, or facilitate the delivery of, cash to the Trust's account 
with the Cash Custodian (which will then be used to purchase bitcoin 
for the Trust) in exchange for Shares when they purchase Shares, and 
the Trust, through the Cash Custodian, will deliver cash to such 
authorized participants when they redeem Shares with the Trust. A third 
party will use cash to buy and deliver bitcoin to create Shares or 
withdraw and sell bitcoin for cash to redeem Shares, on behalf of 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

[[Page 2273]]

premium or discount relative to the NAV of the Shares of the Trust.
Investment Objective
    According to the Registration Statement and as further described 
below, the investment objective of the Trust is to reflect the 
performance as measured using Lukka Prime Bitcoin Reference Rate (the 
``Index''), less the Trust's expenses and other liabilities. In seeking 
to achieve its investment objective, the Trust will hold only bitcoin, 
cash, and cash equivalents. The Trust will value its Shares daily based 
on the value of the Index as of 4:00 p.m. ET, which is calculated based 
on the fair market value price for bitcoin, reflecting the execution 
price of bitcoin on its principal market as determined by Lukka Inc., 
an independent third-party digital asset company (the ``Index 
Provider''). The Trust will process all creations and redemptions in 
cash transactions with authorized participants. The Trust is not 
actively managed.
The Index
    As described in the Registration Statement, the Fund will use the 
Index to calculate the Trust's NAV. The Index is designed to provide an 
estimated fair market value for bitcoin. In determining the value of 
bitcoin, the Index Provider applies a five-step weighting process for 
identifying the principal trading platform for bitcoin and the last 
price on that trading platform. Currently, the Index includes the 
following trading platforms: Binance, Bitfinex, Bitflyer, Bitstamp, 
Coinbase Pro, Crypto.com, Gemini, HitBTC, Huobi, Kraken, KuCoin, OKEx 
and Poloniex. In identifying the principal trading platform for 
bitcoin, the Index Provider considers a variety of different criteria, 
including the trading platforms' oversight and governance frameworks, 
microstructure efficiency (i.e., effective bid-ask spread), trading 
volume, data transparency and data integrity. A ``base exchange score'' 
(``BES'') that takes into account this criteria is assigned to each 
Index pricing source in order to select the most appropriate primary 
trading platform and then an executed trading platform price is 
determined at 4:00 p.m. ET., although the Index Provider performs this 
calculation every second each day.
    Step 1: Assign each trading platform for bitcoin and U.S. Dollars a 
BES reflecting static trading platform characteristics such as 
oversight, microstructure and technology.
    Step 2: Adjust the BES based on the relative monthly volume each 
trading platform services. This new score is the Volume Adjusted Score 
(``VAS'').
    Step 3: Decay the adjusted score based on the time passed since 
last trade on trading platform, assessing the level of activity in the 
market by considering the frequency (volume) of trades. The decay 
factor reflects the time since the last trade on the trading platform. 
This is the final Decayed Volume Adjusted Score (``DVAS''), which 
reflects the freshness of data by tracking most recent trades.
    Step 4: Rank the trading platforms by the DVAS score and designate 
the highest-ranking trading platform as the principal market for that 
point in time--the principal market is the trading platform with 
highest DVAS.
    Step 5: An executed trading platform price is used to represent the 
fair market value at 4:00 p.m. ET.
    Index data and the description of the Index are based on 
information made publicly available by the Index Provider on its 
website at https://lukka.tech.
Net Asset Value
    The Trust's NAV is calculated by (1) taking the current market 
value of its bitcoin (calculated by the Index Provider) and any other 
assets; (2) subtracting any liabilities (including accrued by unpaid 
expenses); and (3) dividing that total by the total number of 
outstanding Shares. The Administrator calculates the NAV of the Trust 
on each day that the Exchange is open for regular trading, using the 
execution price of bitcoin on the principal market selected by the 
Index Provider as of 4:00 p.m. ET. However, NAVs are not officially 
struck until later in the day (often by 5:30 p.m. ET and almost always 
by 8:00 p.m. ET).
    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.
    In the event that the Index is unavailable or if the Sponsor or 
Administrator determines that the price provided by the Index does not 
reflect an accurate bitcoin price, the Sponsor's pricing team will 
evaluate the prices of other similar benchmarks in an effort to ensure 
that the Trust's NAV is determined based on consistent, accurate 
pricing that the Sponsor believes is reflective of the value of the 
Trust's bitcoin, and also a transparent index methodology and process. 
The pricing team will recommend the price to be used to the Sponsor's 
valuation committee who will then review the recommendation and approve 
it for use by the Trust if found appropriate.\64\
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    \64\ Such alternative method will only be employed on an ad hoc 
basis. Any permanent change to the calculation of the NAV would 
require a proposed rule change under Rule 19b-4.
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Availability of Information
    In addition to the price transparency of the Index, the Trust will 
provide information regarding the Trust's bitcoin holdings as well as 
additional data regarding the Trust. 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 \65\ 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 its holdings on a daily basis on its 
website. The aforementioned information will be published as of the 
close of business available on the Sponsor's website at 
www.invesco.com/etfs, or any successor thereto.
---------------------------------------------------------------------------

    \65\ 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.
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    The Intraday Indicative Value (``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 most recently 
reported price of bitcoin as reported by the Index Provider or another 
reporting service. 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 
may differ from the NAV due to the differences in the time window of 
trades used to calculate each price. 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 the facilities 
of the consolidated tape association (CTA) and Consolidated Quotation 
System (CQS) high speed lines. In addition, the IIV will be available 
through on-line information services such as Bloomberg and Reuters.
    The price of bitcoin will be made available by one or more major 
market

[[Page 2274]]

data vendors, updated at least every 15 seconds during Regular Trading 
Hours.
    As noted above, the Index is designed to provide an estimated fair 
market value for bitcoin. Information about the Index and Index value, 
including key elements of how the Index is calculated, will be publicly 
available at https://lukka.tech.
    Quotation and last sale information for bitcoin is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information, in bitcoin is available from major market data 
vendors and from the trading platforms on which bitcoin are traded. 
Depth of book information is also available from bitcoin trading 
platforms. The normal trading hours for bitcoin trading platforms are 
24 hours per day, 365 days per year.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last-sale information regarding 
the Shares will be disseminated through the facilities of the 
Consolidated Tape Association (``CTA'').
The Bitcoin Custodian
    The Custodian carefully considers the design of the physical, 
operational and cryptographic systems for secure storage of the Trust's 
private keys in an effort to lower the risk of loss or theft. The 
Custodian utilizes a variety of security measures to ensure that 
private keys necessary to transfer digital assets remain uncompromised 
and that the Trust maintains exclusive ownership of its assets. The 
operational procedures of the Custodian are reviewed by third-party 
advisors with specific expertise in physical security. The devices that 
store the keys will never be connected to the internet or any other 
public or private distributed network--this is colloquially known as 
``cold storage.'' Only specific individuals are authorized to 
participate in the custody process, and no individual acting alone will 
be able to access or use any of the private keys. In addition, no 
combination of the executive officers of the Sponsor or the investment 
professionals managing the Trust, acting alone or together, will be 
able to access or use any of the private keys that hold the Trust's 
bitcoin.
Creation and Redemption of Shares
    When the Trust sells or redeems its Shares, it will do so in cash 
transactions in blocks of 5,000 Shares that are based on the quantity 
of bitcoin attributable to each Share of the Trust (e.g., a Creation 
Basket) at the Trust's NAV. According to the Registration Statement, on 
any business day, an authorized participant may place an order to 
create one or more Creation 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 cash 
required is an amount of cash sufficient to purchase such amount of 
bitcoin, the amount of which is equal to the combined NAV of the number 
of Shares included in the Creation Baskets being created determined as 
of 4:00 ET on the date the order to purchase is properly received. The 
Administrator determines the required deposit for a given day by 
multiplying the NAV per share by the number of Shares in each Creation 
Basket (5,000) and dividing the product by that day's bitcoin price as 
determined by the Index. The procedures by which an authorized 
participant can redeem one or more Creation Baskets mirror the 
procedures for the creation of Creation Baskets.
    The authorized participants will deliver only cash to create shares 
and will receive only cash when redeeming shares. Further, authorized 
participants will not directly or indirectly purchase, hold, deliver, 
or receive bitcoin as part of the creation or redemption process or 
otherwise direct the Trust or a third party with respect to purchasing, 
holding, delivering, or receiving bitcoin as part of the creation or 
redemption process.
    The Trust will create shares by receiving bitcoin from a third 
party that is not the authorized participant and the Trust (through an 
execution agent that is acting in an agency capacity)--not the 
authorized participant--is responsible for selecting the third party to 
deliver the bitcoin. Further, the third party will not be acting as an 
agent of the authorized participant with respect to the delivery of the 
bitcoin to the Trust or acting at the direction of the authorized 
participant with respect to the delivery of the bitcoin to the Trust. 
The Trust will redeem shares by delivering bitcoin to a third party 
that is not the authorized participant and the Trust--not the 
authorized participant--is responsible for selecting the third party to 
receive the bitcoin. Further, the third party will not be acting as an 
agent of the authorized participant with respect to the receipt of the 
bitcoin from the Trust or acting at the direction of the authorized 
participant with respect to the receipt of the bitcoin from the Trust.
    A third party, that is unaffiliated with the Trust and the Sponsor, 
will use cash to buy and deliver bitcoin to create Shares or withdraw 
and sell bitcoin for cash to redeem Shares, on behalf of the Trust.
    The Sponsor will maintain ownership and control of bitcoin in a 
manner consistent with good delivery requirements for spot commodity 
transactions.
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 represents that, for initial 
and continued listing, the Trust must be in compliance with Rule 10A-3 
under the Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of listing on the Exchange. The Exchange will obtain a 
representation that the Trust's NAV will be calculated daily and the 
NAV 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 (1) a specified commodity \66\ 
deposited with the trust, or (2) a specified commodity and, in addition 
to such specified commodity, cash; (b) issued by such trust in a 
specified aggregate minimum number in return for a deposit of a 
quantity of the underlying commodity and/or cash; 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 and/or cash.
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    \66\ 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

[[Page 2275]]

Exchange nor any agent of the Exchange shall have any liability for 
damages, claims, losses or expenses caused by any errors, omissions or 
delays in calculating or disseminating any underlying commodity value, 
the current value of the underlying commodity required to be deposited 
to the Trust in connection with issuance of Commodity-Based Trust 
Shares; resulting from any negligent act or omission by the Exchange, 
or any agent of the Exchange, or any act, condition or cause beyond the 
reasonable control of the Exchange, its agent, including, but not 
limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission or delay in the reports of 
transactions in an underlying commodity. Finally, as required in Rule 
14.11(e)(4)(G), the Exchange notes that any registered market maker 
(``Market Maker'') in the Shares must file with the Exchange in a 
manner prescribed by the Exchange and keep current a list identifying 
all accounts for trading in an underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker shall 
trade in an underlying commodity, related commodity futures or options 
on commodity futures, or any other related commodity derivatives, in an 
account in which a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to the Exchange as required 
by this Rule. In addition to the existing obligations under Exchange 
rules regarding the production of books and records (see, e.g., Rule 
4.2), the registered Market Maker in Commodity-Based Trust Shares shall 
make available to the Exchange such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own 
accounts for trading the underlying physical commodity, related 
commodity futures or options on commodity futures, or any other related 
commodity derivatives, as may be requested by the Exchange.
    The Exchange is able to obtain information regarding trading in the 
Shares and the underlying bitcoin, Bitcoin Futures contracts, options 
on Bitcoin Futures, or any other bitcoin derivative through members 
acting as registered Market Makers, in connection with their 
proprietary or customer trades.
    As a general matter, the Exchange has regulatory jurisdiction over 
its members, and their associated persons. The Exchange also has 
regulatory jurisdiction over any person or entity controlling a member, 
as well as a subsidiary or affiliate of a member that is in the 
securities business. A subsidiary or affiliate of a member organization 
that does business only in commodities would not be subject to Exchange 
jurisdiction, but the Exchange could obtain information regarding the 
activities of such subsidiary or affiliate through surveillance sharing 
agreements with regulatory organizations of which such subsidiary or 
affiliate is a member.
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.
    If the IIV or the value of the Index is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the IIV or the value of the Index 
occurs. If the interruption to the dissemination of the IIV or the 
value of the Index persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption.
    In addition, if the Exchange becomes aware that the NAV with 
respect to the Shares is not disseminated to all market participants at 
the same time, it will halt trading in the Shares until such time as 
the NAV is available to all market participants.
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. The 
Shares of the Trust will conform to the initial and continued listing 
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
    The Exchange represents 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. FINRA conducts certain cross-market surveillances 
on behalf of the Exchange pursuant to a regulatory services agreement. 
The Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
    The Exchange, or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and Bitcoin 
Futures with other markets and other entities that are members of the 
ISG, and the Exchange, or FINRA, on behalf of the Exchange, or both, 
may obtain trading information regarding trading in the Shares and 
Bitcoin Futures from such markets and other entities.\67\ 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.
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    \67\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    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.

[[Page 2276]]

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.
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 \68\ 
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. The 
Information Circular will also reference the fact that there is no 
regulated source of last sale information regarding bitcoin, that the 
Commission has no jurisdiction over the trading of bitcoin as a 
commodity, and that the CFTC has regulatory jurisdiction over the 
trading of Bitcoin Futures contracts and options on Bitcoin Futures 
contracts.
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    \68\ 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 \69\ in general and section 6(b)(5) of the Act \70\ 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.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f.
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts, including Commodity-Based Trust Shares, to be listed on U.S. 
national securities exchanges. In order for any proposed rule change 
from an exchange to be approved, the Commission must determine that, 
among other things, the proposal is consistent with the requirements of 
section 6(b)(5) of the Act, 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 and that this filing sufficiently demonstrates that the CME 
Bitcoin Futures market represents a regulated market of significant 
size and that, on the whole, the manipulation concerns previously 
articulated by the Commission are sufficiently 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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    \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 trading platforms 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 trading platform 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 trading platform 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 \72\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG. 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.\73\
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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 the ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval).
    \73\ Id.
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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.\74\
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    \74\ 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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[[Page 2277]]

(a) Manipulation of the ETP
    According to the research and analysis presented above, the Bitcoin 
Futures market is the leading market for bitcoin price formation. Where 
Bitcoin Futures lead the price in the spot market such that a potential 
manipulator of the bitcoin spot market (beyond just the constituents of 
the Index) would have to participate in the Bitcoin Futures market, it 
follows that a potential manipulator of the Shares would similarly have 
to transact in the Bitcoin Futures market because the Index is based on 
spot prices. 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 
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.
(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.
(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to bitcoin through OTC Bitcoin Funds has grown into 
the tens of billions of dollars, including through Bitcoin Futures 
ETFs. With that growth, so too has grown the quantifiable investor 
protection issues to U.S. investors through roll costs for Bitcoin 
Futures ETFs and premium/discount volatility and management fees for 
OTC Bitcoin Funds. The Exchange believes that the concerns related to 
the prevention of fraudulent and manipulative acts and practices have 
been sufficiently addressed to be consistent with the Act and, to the 
extent that the Commission disagrees with that assertion, such concerns 
are now outweighed by investor protection concerns. As such, the 
Exchange believes that approving this proposal (and comparable 
proposals) provides the Commission with the opportunity to allow U.S. 
investors with access to bitcoin in a regulated and transparent 
exchange-traded vehicle that would act to limit risk to U.S. investors 
by: (i) reducing premium and discount volatility; (ii) reducing 
management fees through meaningful competition; (iii) reducing risks 
and costs associated with investing in Bitcoin Futures ETFs and 
operating companies that are imperfect proxies for bitcoin exposure; 
and (iv) providing an alternative to custodying spot bitcoin.
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 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 Index, the Trust will 
provide information regarding the Trust's bitcoin holdings as well as 
additional data regarding the Trust. 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 \75\ 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 its holdings on a daily basis on its 
website. The aforementioned information will be published as of the 
close of business available on the Sponsor's website at 
www.invesco.com/etfs, or any successor thereto.
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    \75\ 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.
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    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 most recently reported price of bitcoin as 
reported by the Index Provider or another reporting service. 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 may differ from the NAV due to 
the differences in the time window of trades used to calculate each 
price. 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 the facilities of the consolidated tape association (CTA) and 
Consolidated Quotation System (CQS)

[[Page 2278]]

high speed lines. In addition, the IIV will be available through on-
line information services such as Bloomberg and Reuters.
    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.
    As noted above, the Index is designed to provide an estimated fair 
market value for bitcoin. Information about the Index and Index value, 
including key elements of how the Index is calculated, will be publicly 
available at https://lukka.tech.
    Quotation and last sale information for bitcoin is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information, in bitcoin is available from major market data 
vendors and from the trading platforms on which bitcoin are traded. 
Depth of book information is also available from bitcoin trading 
platforms. The normal trading hours for bitcoin trading platforms are 
24 hours per day, 365 days per year.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last-sale information regarding 
the Shares will be disseminated through the facilities of the CTA.
    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. The investor protection 
issues for U.S. investors has grown significantly over the last several 
years, through roll costs for Bitcoin Futures ETFs and premium/discount 
volatility and management fees for OTC Bitcoin Funds. As discussed 
throughout, this growth investor protection concerns need to be 
reevaluated and rebalanced with the prevention of fraudulent and 
manipulative acts and practices concerns that previous disapproval 
orders have relied upon. Finally, the Exchange notes that in addition 
to all of the arguments herein which it believes sufficiently establish 
the CME 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 neither solicited nor received comments on the 
proposed rule change.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2023-038 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-2023-038. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2023-038 and should 
be submitted on or before February 2, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\76\
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    \76\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00501 Filed 1-11-24; 8:45 am]
BILLING CODE 8011-01-P