[Federal Register Volume 89, Number 11 (Wednesday, January 17, 2024)]
[Notices]
[Pages 3008-3014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00743]



[[Page 3008]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99306; File Nos. SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-
44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-CboeBZX-
2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072]


Self-Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock 
Market LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated 
Approval of Proposed Rule Changes, as Modified by Amendments Thereto, 
To List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust 
Units

January 10, 2024.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ each of NYSE Arca, 
Inc. (``NYSE Arca''), The Nasdaq Stock Market LLC (``Nasdaq''), and 
Cboe BZX Exchange, Inc. (``BZX''; and together with NYSE Arca and 
Nasdaq, the ``Exchanges'') filed with the Securities and Exchange 
Commission (``Commission'') proposed rule changes to list and trade 
shares of the following. NYSE Arca proposes to list and trade shares of 
(1) the Grayscale Bitcoin Trust \3\ and (2) the Bitwise Bitcoin ETF \4\ 
under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), and (3) 
the Hashdex Bitcoin ETF \5\ under NYSE Arca Rule 8.500-E (Trust Units); 
Nasdaq proposes to list and trade shares of (4) the iShares Bitcoin 
Trust \6\ and (5) the Valkyrie Bitcoin Fund \7\ under Nasdaq Rule 
5711(d) (Commodity-Based Trust Shares); and BZX proposes to list and 
trade shares of (6) the ARK 21Shares Bitcoin ETF,\8\ (7) the Invesco 
Galaxy Bitcoin ETF,\9\ (8) the VanEck Bitcoin Trust,\10\ (9) the 
WisdomTree Bitcoin Fund,\11\ (10) the Fidelity Wise Origin Bitcoin 
Fund,\12\ and (11) the Franklin Bitcoin ETF \13\ under BZX Rule 
14.11(e)(4) (Commodity-Based Trust Shares). Each filing was subject to 
notice and comment.\14\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Grayscale Bitcoin Trust (BTC) under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (SR-NYSEARCA-2021-90), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-358659-884182.pdf (``Grayscale 
Amendment'').
    \4\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the Bitwise Bitcoin ETF under NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares) (SR-NYSEARCA-2023-44), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344-358800-884322.pdf (``Bitwise Amendment'').
    \5\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E 
(Trust Units) (SR-NYSEARCA-2023-58), filed Jan. 5, 2024, available 
at https://www.sec.gov/comments/sr-nysearca-2023-58/srnysearca202358-358819-884342.pdf (``Hashdex Amendment'').
    \6\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), 
Commodity-Based Trust Shares (SR-NASDAQ-2023-016), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016-357659-883042.pdf (``iShares Amendment'').
    \7\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the Valkyrie Bitcoin Fund under Nasdaq Rule 5711(d), 
Commodity-Based Trust Shares (SR-NASDAQ-2023-019), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-nasdaq-2023-019/srnasdaq2023019-358120-883602.pdf (``Valkyrie Amendment'').
    \8\ See Amendment No. 5 to Proposed Rule Change to List and 
Trade Shares of the ARK 21Shares Bitcoin ETF under BZX Rule 
14.11(e)(4), Commodity-Based Trust Shares (SR-CboeBZX-2023-028), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028-358679-884202.pdf (``ARK 
Amendment'').
    \9\ See Amendment No. 2 to 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 (SR-CboeBZX-2023-038), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-038/srcboebzx2023038-358719-884222.pdf (``Invesco 
Amendment'').
    \10\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the VanEck Bitcoin Trust under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares (SR-CboeBZX-2023-040), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-040/srcboebzx2023040-366299-893383.pdf (``VanEck Amendment'').
    \11\ See Amendment No. 2 to Proposed Rule Change to List and 
Trade Shares of the WisdomTree Bitcoin Fund under BZX Rule 
14.11(e)(4), Commodity-Based Trust Shares (SR-CboeBZX-2023-042), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-042/srcboebzx2023042-366319-893402.pdf (``WisdomTree 
Amendment'').
    \12\ See Amendment No. 3 to Proposed Rule Change to List and 
Trade Shares of the Fidelity Wise Origin Bitcoin Fund under BZX Rule 
14.11(e)(4), Commodity-Based Trust Shares (SR-CboeBZX-2023-044), 
filed Jan. 5, 2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044-358759-884163.pdf (``Wise Origin 
Amendment'').
    \13\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the Franklin Bitcoin ETF under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares (SR-CboeBZX-2023-072), filed Jan. 5, 
2024, available at https://www.sec.gov/comments/sr-cboebzx-2023-072/srcboebzx2023072-358799-884282.pdf (``Franklin Amendment'').
    \14\ Comments received on SR-NYSEARCA-2021-90 are available at 
https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm. Comments received on SR-NYSEARCA-2023-44 are 
available at https://www.sec.gov/comments/sr-nysearca-2023-44/srnysearca202344.htm. Comments received on SR-NYSEARCA-2023-58 are 
available at https://www.sec.gov/comments/sr-nysearca-2023-58/srnysearca202358.htm. Comments received on SR-NASDAQ-2023-016 are 
available at https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016.htm. Comments received on SR-NASDAQ-2023-019 are 
available at https://www.sec.gov/comments/sr-nasdaq-2023-019/srnasdaq2023019.htm. Comments received on SR-CboeBZX-2023-028 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-028/srcboebzx2023028.htm. Comments received on SR-CboeBZX-2023-038 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-038/srcboebzx2023038.htm. Comments received on SR-CboeBZX-2023-040 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-040/srcboebzx2023040.htm. Comments received on SR-CboeBZX-2023-042 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-042/srcboebzx2023042.htm. Comments received on SR-CboeBZX-2023-044 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044.htm. Comments received on SR-CboeBZX-2023-072 are 
available at https://www.sec.gov/comments/sr-cboebzx-2023-072/srcboebzx2023072.htm.
---------------------------------------------------------------------------

    Each of the foregoing proposed rule changes, as modified by their 
respective amendments, is referred to herein as a ``Proposal'' and 
collectively as the ``Proposals.'' Each trust (or series of a trust) 
described in a Proposal is referred to herein as a ``Trust'' and 
collectively as the ``Trusts.'' As described in more detail in the 
Proposals' respective amended filings,\15\ each Proposal seeks to list 
and trade shares of a Trust that would hold spot bitcoin,\16\ in whole 
or in part.\17\ This order approves the Proposals on an accelerated 
basis.\18\
---------------------------------------------------------------------------

    \15\ See supra notes 3-13.
    \16\ Bitcoins are digital assets that are issued and transferred 
via a distributed, open-source protocol used by a peer-to-peer 
computer network through which transactions are recorded on a public 
transaction ledger known as the ``Bitcoin blockchain.'' The Bitcoin 
protocol governs the creation of new bitcoins and the cryptographic 
system that secures and verifies bitcoin transactions.
    \17\ The Trust described in the Hashdex Amendment currently 
holds, and could continue to hold, bitcoin futures contracts traded 
on the Chicago Mercantile Exchange. See Hashdex Amendment at 37. 
Most of the Trusts could also hold cash, and some Trusts could also 
hold cash equivalents, as described in their respective amended 
filings. See Bitwise Amendment at 5; Hashdex Amendment at 37; 
iShares Amendment at 4; Valkyrie Amendment at 5; ARK Amendment at 
43; Invesco Amendment at 28; VanEck Amendment at 30; WisdomTree 
Amendment at 28; Wise Origin Amendment at 68; Franklin Amendment at 
29.
    \18\ See infra Section III.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    After careful review, the Commission finds that the Proposals are 
consistent with the Exchange Act and rules and regulations thereunder 
applicable to a national securities exchange.\19\ In

[[Page 3009]]

particular, the Commission finds that the Proposals are consistent with 
Section 6(b)(5) of the Exchange Act,\20\ which requires, among other 
things, that the Exchanges' rules be designed to ``prevent fraudulent 
and manipulative acts and practices'' and, ``in general, to protect 
investors and the public interest;'' and with Section 11A(a)(1)(C)(iii) 
of the Exchange Act,\21\ which sets forth Congress' finding that it is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities.
---------------------------------------------------------------------------

    \19\ In approving the Proposals, the Commission has considered 
the Proposals' impacts on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f). See also infra note 51 and 
accompanying text, discussing comments received regarding the 
efficiency of spot bitcoin ETPs; Letter from Michael McGinley, dated 
July 18, 2023, regarding SR-CboeBZX-2023-044 (``McGinley Letter''), 
stating that approving a spot bitcoin ETP ``under stringent 
regulation . . . aids the formation of new capital in this 
increasingly relevant market sector.''
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

A. Exchange Act Section 6(b)(5)

    When considering previous proposals to list bitcoin-based commodity 
trusts and bitcoin-based trust issued receipts,\22\ the Commission has 
explained that one way an exchange that lists bitcoin-based exchange-
traded products (``ETPs'') can meet the obligation under Exchange Act 
Section 6(b)(5) that its rules be designed to prevent fraudulent and 
manipulative acts and practices is by demonstrating that the exchange 
has a comprehensive surveillance-sharing agreement with a regulated 
market of significant size related to the underlying or reference 
bitcoin assets.\23\ Such an agreement would assist in detecting and 
deterring fraud and manipulation related to that underlying asset. 
While past proposals to list spot bitcoin-based ETPs have argued that 
the bitcoin futures market of the Chicago Mercantile Exchange (``CME'') 
is a market of ``significant size'' related to spot bitcoin, for 
reasons discussed in the orders disapproving each such proposal, the 
Commission was unable to make such a finding.\24\
---------------------------------------------------------------------------

    \22\ See Order Disapproving a Proposed Rule Change To List and 
Trade Shares of the VanEck Bitcoin Trust Under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
97102 (Mar. 10, 2023), 88 FR 16055 (Mar. 15, 2023) (SR-CboeBZX-2022-
035) (``VanEck Order II'') and n.11 therein for the complete list of 
previous proposals. The Grayscale order referenced therein 
(``Grayscale Order'') is discussed below.
    \23\ See, e.g., VanEck Order II at 16056. The Commission has 
provided an illustrative definition for ``market of significant 
size'' to include a market (or group of markets) as to which (a) 
there is a reasonable likelihood that a person attempting to 
manipulate the ETP would also have to trade on that market to 
successfully manipulate the ETP, so that a surveillance-sharing 
agreement would assist 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. See Order Setting Aside Action 
by Delegated Authority and Disapproving a Proposed Rule Change, as 
Modified by Amendments No. 1 and 2, To List and Trade Shares of the 
Winklevoss Bitcoin Trust, Securities Exchange Act Release No. 83723 
(July 26, 2018), 83 FR 37579, 37594 (Aug. 1, 2018) (SR-BatsBZX-2016-
30) (``Winklevoss Order'').
    \24\ See, e.g., VanEck Order II at 16064-67 and the disapproval 
orders listed at n.11 therein.
---------------------------------------------------------------------------

    The Commission also has consistently recognized, however, that 
having a comprehensive surveillance-sharing agreement with a regulated 
market of significant size related to the underlying or reference 
bitcoin assets is not the exclusive means by which an ETP listing 
exchange can meet this statutory obligation under Exchange Act Section 
6(b)(5).\25\ A listing exchange could, alternatively, demonstrate that 
``other means to prevent fraudulent and manipulative acts and practices 
will be sufficient'' to justify dispensing with a surveillance-sharing 
agreement with a regulated market of significant size.\26\
---------------------------------------------------------------------------

    \25\ See, e.g., Winklevoss Order at 37580; VanEck Order II at 
16059 n.43 and accompanying text.
    \26\ See Winklevoss Order at 37580.
---------------------------------------------------------------------------

    In the Grayscale Order,\27\ the Commission determined that the 
proposing Exchange had not established that the CME bitcoin futures 
market was a market of significant size related to spot bitcoin, or 
that the ``other means'' asserted were sufficient to satisfy the 
statutory standard. On review of the Grayscale Order, the U.S. Court of 
Appeals for the D.C. Circuit held that the Commission failed to 
adequately explain its reasoning. The court therefore vacated the 
Grayscale Order and remanded the matter to the Commission.\28\
---------------------------------------------------------------------------

    \27\ See supra note 22.
    \28\ See Grayscale Investments, LLC v. SEC, 82 F.4th 1239 (D.C. 
Cir. 2023).
---------------------------------------------------------------------------

    The Commission is considering in this order the remand of the 
Grayscale Order and the other Proposals referenced above. For the 
reasons discussed below, based on the record before the Commission and 
the Commission's analysis of available data and information, the 
Commission finds that sufficient ``other means'' of preventing fraud 
and manipulation in this context have been demonstrated.
    Each Exchange has a comprehensive surveillance-sharing agreement 
with the CME via their common membership in the Intermarket 
Surveillance Group.\29\ This facilitates the sharing of information 
that is available to the CME through its surveillance of its markets, 
including its surveillance of the CME bitcoin futures market.
---------------------------------------------------------------------------

    \29\ See, e.g., VanEck Order II at 16064.
---------------------------------------------------------------------------

    Spot bitcoin, however, does not trade on the CME and the CME does 
not engage in surveillance of spot bitcoin markets. As with prior 
proposals, this raises questions regarding the sufficiency of a 
surveillance-sharing agreement with the CME in preventing fraud and 
manipulation when the proposed ETPs hold spot bitcoin. If a would-be 
manipulator of a spot bitcoin ETP engages in misconduct (such as fraud, 
manipulation, or other trading abuses) on the CME itself, the CME's 
surveillance can be reasonably expected to detect such misconduct. But 
if the would-be manipulator is not transacting on the CME itself, the 
impacts of its misconduct would not necessarily be surveilled by the 
CME unless the misconduct also impacts the CME bitcoin futures market. 
Thus, when assessing the sufficiency of a surveillance-sharing 
agreement with the CME, it is critical to establish whether, and to 
what extent, fraud or manipulation that impacts the spot bitcoin market 
also impacts the CME bitcoin futures market.
    In making that assessment, the Commission begins with a correlation 
analysis provided in one Proposal (the ``ARK Analysis'') that examines 
the relationship between prices in the CME bitcoin futures market and 
the spot bitcoin market.\30\ The ARK Analysis

[[Page 3010]]

calculates Pearson correlation statistics \31\ using time series of 
price returns data \32\ that were compiled at the hour- and minute-
levels, which account for intra-day movements in prices, and over a 
lengthy sample period (January 20, 2021, through February 1, 2023). The 
ARK Analysis claims \33\ that price changes in its selected spot 
bitcoin markets and the CME bitcoin futures market are ``highly 
correlated.'' Using hourly data, the correlation results are ``no less 
than 92%''. Using minute-by-minute data, the results are ``no less than 
78%''. Importantly, however, the analysis does not assess whether any 
of the results are consistent across the sample period.
---------------------------------------------------------------------------

    \30\ See ARK Amendment at 24-27. A commenter to another Proposal 
also conducted a correlation analysis and found a 99.9 percent 
correlation between a ``daily'' spot bitcoin price and a ``daily'' 
CME bitcoin futures price over a four-month sample period (Nov. 4, 
2021, through Feb. 23, 2022). See Letter from Paul Grewal, Chief 
Legal Officer, Coinbase Global, Inc., dated Mar. 3, 2022, regarding 
SR-NYSEARCA-2021-90. However, based on the commenter's description 
of its correlation analysis at Figure 6 therein, it appears that 
this correlation was calculated using time series of price levels. 
Time series of price levels are often non-stationary, which leads to 
results that indicate relationships that do not actually exist. In 
addition, calculating correlation using only daily price 
observations provides no information on how prices in the two 
markets are associated--if at all--throughout the trading day. 
Moreover, correlation over a single four-month sample period does 
not provide evidence of a consistently high correlation over time. 
Several other commenters also assert a relationship between spot 
bitcoin prices and futures prices, but provide no evidence to 
support their assertions. See, e.g., Letter from James J. Angel, 
Georgetown University, dated Aug. 11, 2023, regarding SR-CboeBZX-
2023-028, SR-CboeBZX-2023-038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-
019, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-
044 (``Angel Letter''), at 2 (asserting that spot and futures 
markets are ``closely locked together through arbitrage, and the 
difference in market prices between the spot bitcoin price and the 
futures price is negligible''); Letter from Mike Spotto, dated Aug. 
23, 2023, regarding SR-CboeBZX-2023-028 (``Spotto Letter'') 
(asserting that the price of a futures-based exchange-traded vehicle 
``is derived from'' the spot market); Letter from Michael Es, dated 
Aug. 27, 2023, regarding SR-CboeBZX-2023-028 (``Es Letter'') 
(asserting that ``the price of futures are correlated with spot'').
    \31\ See ARK Amendment at 24 n.54 (explaining that Pearson 
correlation is a measure of linear association between two variables 
and indicates the magnitude as well as direction of this 
relationship, and that the value can range between -1 (suggesting a 
strong negative association) and 1 (suggesting a strong positive 
association)).
    \32\ Price returns data are typically stationary and thus less 
prone to misleading results than price levels data. See also supra 
note 30.
    \33\ Several aspects of the ARK Analysis are unclear based on 
the description in the ARK Amendment. For example, the description 
does not indicate the particular time series that were used for the 
correlation analysis (e.g., last trade price, bid price, ask price, 
midpoint of bid-ask). The ARK Analysis also computed correlations 
among several spot bitcoin markets, in addition to between the CME 
bitcoin futures market and those spot markets. However, the ARK 
Amendment does not present the individual numerical results for each 
correlation, and thus the results that are specific to the CME 
bitcoin futures market are unknown.
---------------------------------------------------------------------------

    The Commission undertook to verify the ARK Analysis' correlation 
results for a subset of its selected spot bitcoin markets, as well as 
to supplement the analysis by assessing the consistency of the results 
across the sample period. For robust \34\ results, the Commission used 
stationary time series of price returns data at hourly, five-minute, 
and one-minute intervals for the spot BTC/USD trading pair on Coinbase 
and Kraken, as well as for the closest-to-maturity CME bitcoin futures 
contract, over a similarly lengthy sample period (March 1, 2021, 
through October 20, 2023).\35\ Pearson correlation statistics were 
calculated for the full sample period as well as for rolling three-
month segments within the sample period. The Commission's correlation 
analysis utilized frequent intra-day trading data over the lengthy 
sample period on this subset of spot bitcoin platforms \36\ and--
crucially--on the CME bitcoin futures market as well.\37\
---------------------------------------------------------------------------

    \34\ See also infra note 38.
    \35\ Data were sourced from the CME via the SEC's Market 
Information Data Analytics System (``MIDAS'') for the closest-to-
maturity CME bitcoin futures contract price and from Kaiko for the 
BTC/USD prices on Coinbase and Kraken. All data sets used in the 
Commission's analysis are publicly available (although some require 
subscriptions). One-minute, five-minute, and hourly price level time 
series were created using the last trade price over the given 
interval for the spot BTC/USD pairs and the closest-to-maturity CME 
bitcoin futures contract. Each price level time series was then log 
differenced to create price returns time series. The stationarity of 
each price returns time series was confirmed through Augmented 
Dickey-Fuller tests.
    \36\ The spot bitcoin market has grown since 2009 into a 24-
hour, global marketplace. However, due to the unregulated and 
fragmented nature of the spot bitcoin market, there are no 
authoritative published figures for spot bitcoin trading. 
Nonetheless, multiple sources of pricing information for the spot 
bitcoin market are available 24 hours per day on public websites and 
through subscription services. See, e.g., Grayscale Amendment at 41 
(stating that real-time price and volume data for bitcoin is 
available by subscription from Reuters and Bloomberg).
    \37\ The CME bitcoin futures market, which is regulated by the 
U.S. Commodity Futures Trading Commission (``CFTC''), has developed 
since its inception in Dec. 2017 into an active market, growing from 
498 open BTC contracts on Dec. 31, 2017, to 16,281 open BTC 
contracts and 6,409 open MBT contracts on Oct. 31, 2023 (source: 
Refinitiv). Real-time trade information, including prices, for the 
CME bitcoin futures market is made available through CME at: https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.quotes.html#venue=globex and https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/micro-bitcoin.quotes.html#venue=globex.
---------------------------------------------------------------------------

    The results of the Commission's analysis confirm that the CME 
bitcoin futures market has been consistently highly correlated with 
this subset of the spot bitcoin market throughout the past 2.5 years. 
The correlation between the CME bitcoin futures market and this subset 
of spot bitcoin platforms for the full sample period is no less than 
98.4 percent using data at an hourly interval, 94.2 percent using data 
at a five-minute interval, and 76.9 percent using data at a one-minute 
interval. The rolling three-month correlation results are similar: 
ranging between 95.0 and 99.2 percent using data at an hourly interval, 
84.0 and 94.5 percent using data at a five-minute interval, and 67.9 
and 83.2 percent using data at a one-minute interval.

              Correlations Between Certain Spot Bitcoin Markets and the CME Bitcoin Futures Market
----------------------------------------------------------------------------------------------------------------
                                                   Coinbase                                Kraken
                                   -----------------------------------------------------------------------------
                                       Hourly     5 Minutes     1 Minute      Hourly     5 Minutes     1 Minute
----------------------------------------------------------------------------------------------------------------
Full Sample: 03/01/21 to 10/20/23.         98.4         94.6         77.1         98.4         94.2         76.9
Rolling Three-Month Correlations
 Over the Full Sample Period:
    Maximum.......................         99.2         94.3         83.2         99.1         94.5         82.4
    Minimum.......................         95.0         87.6         69.5         95.0         84.0         67.9
----------------------------------------------------------------------------------------------------------------

    Moreover, the results of the Commission's robust correlation 
analysis \38\ provide empirical evidence supporting the ARK Analysis' 
conclusion that prices generally move in close (although not perfect) 
alignment between the spot bitcoin market and the CME bitcoin futures 
market.\39\ As such, in contrast to previous proposals,\40\ based on 
the record before the Commission and the improved quality of the 
correlation analysis in the record, including the Commission's own 
analysis, the Commission is able to conclude that fraud or manipulation 
that impacts prices in spot bitcoin markets would likely similarly 
impact CME bitcoin futures prices. And because the CME's surveillance 
can assist in detecting those impacts on CME bitcoin futures prices, 
the Exchanges' comprehensive surveillance-sharing agreement with the 
CME--a U.S. regulated market whose bitcoin

[[Page 3011]]

futures market is consistently highly correlated to spot bitcoin, 
albeit not of ``significant size'' related to spot bitcoin--can be 
reasonably expected to assist in surveilling for fraudulent and 
manipulative acts and practices in the specific context of the 
Proposals.\41\
---------------------------------------------------------------------------

    \38\ The robustness of the Commission's correlation analysis 
rests on the pre-requisites of (1) the correlations being calculated 
with respect to bitcoin futures that trade on the CME, a U.S. market 
regulated by the CFTC, (2) the lengthy sample period of price 
returns for both the CME bitcoin futures market and the spot bitcoin 
market, (3) the frequent intra-day trading data in both the CME 
bitcoin futures market and the spot bitcoin market over that lengthy 
sample period, and (4) the consistency of the correlation results 
throughout the lengthy sample period.
    \39\ Correlation should not be interpreted as an indicator of a 
causal relationship or whether one variable leads or lags the other.
    \40\ The Commission years ago, in analyzing previous proposals, 
recognized that there may be a change in conditions or available 
information that affects the Exchange Act analysis, and that the 
Commission would then have the opportunity to consider whether a 
spot bitcoin ETP would be consistent with the requirements of the 
Exchange Act. See Winklevoss Order at 37580.
    \41\ In the original filings of their respective Proposals, 
Nasdaq and BZX had each stated that they expected to enter into a 
bilateral surveillance-sharing agreement with Coinbase, Inc. 
(``Coinbase'') that would provide supplemental access to certain 
data regarding spot bitcoin trades on Coinbase. The Commission 
received comments regarding such potential agreements. Some 
commenters state that such agreements would adequately address the 
Commission's concerns around market manipulation with respect to the 
operation of spot bitcoin ETPs (see, e.g., Letter from Simpson 
Thacher & Bartlett LLP on behalf of Skybridge Capital LLC, dated 
Aug. 14, 2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, 
SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, SR-
CboeBZX-2023-042, and SR-CboeBZX-2023-044, at 2-3; Letter from Jason 
Grunstra, dated Aug. 15, 2023, regarding SR-CboeBZX-2023-028, SR-
CboeBZX-2023-038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-
CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044), 
would help to protect against attempted manipulation (see Letter 
from Joe Stevens, dated Nov. 29, 2023, regarding SR-CboeBZX-2023-
072), and would significantly enhance the Exchanges' market 
monitoring capabilities (see Letter from Julian Schettler, dated 
Dec. 2, 2023, regarding SR-CboeBZX-2023-072 (``Schettler Letter'')). 
Other commenters disagree that such agreements would add much value, 
citing, among other reasons, Coinbase's small portion of overall, 
global spot bitcoin trading; its lack of registration with either 
the SEC or CFTC; and that utilizing just Coinbase for surveillance 
purposes could introduce a single point of failure. See, e.g., 
Letter from Stephen W. Hall, Legal Director and Securities 
Specialist, and Scott Farnin, Legal Counsel, Better Markets, Inc., 
dated Aug. 8, 2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-
038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, 
SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044 (``Better Markets 
Letter I''), at 6-7; Letter from Dennis M. Kelleher, Co-Founder, 
President, and CEO, and Stephen W. Hall, Legal Director and 
Securities Specialist, Better Markets, Inc., dated Jan. 5, 2024, 
regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, SR-NASDAQ-2023-
016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, 
and SR-CboeBZX-2023-044 (``Better Markets Letter II''), at 9-10; 
Letter from Occupy the SEC, dated Aug. 30, 2023, regarding SR-
CboeBZX-2023-028, SR-CboeBZX-2023-038, SR-NASDAQ-2023-016, SR-
NASDAQ-2023-019, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, SR-
CboeBZX-2023-044, and SR-NYSEARCA-2023-44 (``Occupy Letter''), at 2-
3; Letter from Travis Kling, dated Aug. 14, 2023, regarding SR-
CboeBZX-2023-028 (``Kling Letter''). Another commenter contends that 
the Commission may not require that an Exchange enter into such an 
agreement to satisfy Exchange Act Section 6(b)(5). See Letter from 
Davis Polk & Wardwell LLP on behalf of Grayscale Investments, LLC, 
dated July 27, 2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-
038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, 
SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044. Nasdaq's and BZX's 
amended filings (see supra notes 6-13) removed any statements 
regarding such potential agreements. Because those amended filings 
no longer reference these agreements, and because the Commission 
finds that other means have been demonstrated to satisfy the 
Exchange Act Section 6(b)(5) statutory obligation that an exchange's 
rules be designed to prevent fraudulent and manipulative acts and 
practices, the surveillance-sharing agreements with Coinbase are not 
a basis for approval.
---------------------------------------------------------------------------

B. Exchange Act Section 11A(a)(1)(C)(iii)

    Each Proposal sets forth aspects of its proposed ETP, including the 
availability of pricing information, transparency of portfolio 
holdings, and types of surveillance procedures, that are consistent 
with other spot commodity ETPs that the Commission has approved.\42\ 
This includes commitments regarding: the availability via the relevant 
securities information processor of quotation and last-sale information 
for the shares of each Trust; the availability on the websites of each 
Trust of certain information related to the Trusts' intra-day 
indicative values (``IIV'') and net asset values; the dissemination of 
IIV by one or more major market data vendors, updated every 15 seconds 
throughout the Exchanges' regular trading hours; the Exchanges' 
surveillance procedures and ability to obtain information regarding 
trading in the shares of the Trusts; the conditions under which the 
Exchanges would implement trading halts and suspensions; and the 
requirements of registered market makers in the shares of each 
Trust.\43\ In addition, in each Proposal, the applicable Exchange deems 
the shares of the applicable Trust to be equity securities, thus 
rendering trading in such shares subject to that Exchange's existing 
rules governing the trading of equity securities.\44\ Further, the 
applicable listing rules of each Exchange require that all statements 
and representations made in its filing regarding, among others, the 
description of the applicable Trust's holdings, limitations on such 
holdings, and the applicability of that Exchange's listing rules 
specified in the filing, will constitute continued listing 
requirements.\45\ Moreover, each Proposal states that: its issuer has 
represented to the applicable Exchange that it will advise that 
Exchange of any failure to comply with the applicable continued listing 
requirements; pursuant to obligations under Section 19(g)(1) of the 
Exchange Act, that Exchange will monitor for compliance with the 
continued listing requirements; and if the applicable Trust is not in 
compliance with the applicable listing requirements, that Exchange will 
commence delisting procedures.\46\
---------------------------------------------------------------------------

    \42\ See, e.g., Securities Exchange Act Release No. 61220 (Dec. 
22, 2009), 74 FR 68895 (Dec. 29, 2009) (SR-NYSEARCA-2009-94) (Order 
Granting Approval of Proposed Rule Change Relating To Listing and 
Trading Shares of the ETFS Palladium Trust); Securities Exchange Act 
Release No. 94518 (Mar. 25, 2022), 87 FR 18837 (Mar. 31, 2022) (SR-
NYSEARCA-2021-65) (Notice of Filing of Amendment No. 1 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 1, To List and Trade Shares of the Sprott ESG Gold 
ETF Under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares)).
    \43\ See Grayscale Amendment at 40-45; Bitwise Amendment at 54-
58; Hashdex Amendment at 50-55; iShares Amendment at 41-47, 55-57; 
Valkyrie Amendment at 32-40, 44-48; ARK Amendment at 51-53, 56-62; 
Invesco Amendment at 32-34, 37-43; VanEck Amendment at 34-36, 39-45; 
WisdomTree Amendment at 32-35, 37-44; Wise Origin Amendment at 71-
74, 77-83; Franklin Amendment at 34-36, 38-45.
    \44\ See Grayscale Amendment at 42; Bitwise Amendment at 55; 
Hashdex Amendment at 52; iShares Amendment at 44; Valkyrie Amendment 
at 37; ARK Amendment at 59; Invesco Amendment at 40; VanEck 
Amendment at 43; WisdomTree Amendment at 41; Wise Origin Amendment 
at 80; Franklin Amendment at 42.
    \45\ See Nasdaq Rule 5711(d)(iii); NYSE Arca Rule 8.201-
E(e)(2)(vii); NYSE Arca Rule 8.500-E(d)(2)(i)(C); BZX Rule 14.11(a).
    \46\ See Grayscale Amendment at 44; Bitwise Amendment at 57; 
Hashdex Amendment at 54; iShares Amendment at 40; Valkyrie Amendment 
at 39; ARK Amendment at 61; Invesco Amendment at 41-42; VanEck 
Amendment at 44; WisdomTree Amendment at 42-43; Wise Origin 
Amendment at 82; Franklin Amendment at 43-44.
---------------------------------------------------------------------------

    The Commission therefore believes that the Proposals, as with the 
other spot commodity ETPs that the Commission has approved,\47\ are 
reasonably designed to promote fair disclosure of information that may 
be necessary to price the shares of the Trusts appropriately, to 
prevent trading when a reasonable degree of transparency cannot be 
assured, to safeguard material non-public information relating to the 
Trusts' portfolios, and to ensure fair and orderly markets for the 
shares of the Trusts.
---------------------------------------------------------------------------

    \47\ See supra note 42.
---------------------------------------------------------------------------

C. Other Comments Related to Bitcoin ETPs

    Some commenters assert that the Commission must approve the 
Proposals because exchange-traded funds (``ETFs'') and ETPs holding CME 
bitcoin futures, including leveraged ETFs, are already trading on 
national securities exchanges.\48\ Other commenters state that the 
Commission should approve the Proposals because ETFs/ETPs holding CME 
bitcoin futures and spot bitcoin ETPs ultimately track the same 
underlying asset.\49\ These

[[Page 3012]]

commenters, however, do not provide any empirical evidence to support 
these claims.
---------------------------------------------------------------------------

    \48\ See, e.g., Letter from Chris, dated Aug. 11, 2023, 
regarding SR-CboeBZX-2023-028; Letter from Rocket Academic Services, 
LLC, dated July 23, 2023, regarding SR-NASDAQ-2023-019.
    \49\ See, e.g., Angel Letter at 2; Letter from Douglas A. Cifu, 
Chief Executive Officer, Virtu Financial, Inc., regarding SR-
CboeBZX-2023-028, SR-CboeBZX-2023-038, SR-CboeBZX-2023-040, SR-
CboeBZX-2023-042, SR-CboeBZX-2023-044, SR-NASDAQ-2023-016, SR-
NASDAQ-2023-019, and SR-NYSEARCA-2023-44 (``Virtu Letter''), at 2; 
Letter from Erica Woods, dated July 18, 2023, regarding SR-CboeBZX-
2023-044 (``Woods Letter''); Letter from John Rundle, dated July 18, 
2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, and SR-
CboeBZX-2023-044.
---------------------------------------------------------------------------

    The Commission has considered and, for the reasons described above, 
is approving the Proposals on their own merits and under the standards 
applicable to them; namely, the standards provided by Section 6(b)(5) 
and Section 11A(a)(1)(C)(iii) of the Exchange Act.\50\ As described 
above, based on the record before the Commission and the Commission's 
own correlation analysis, the Commission concludes that fraud or 
manipulation that impacts prices in spot bitcoin markets would likely 
similarly impact CME bitcoin futures prices, such that a surveillance-
sharing agreement with the CME can be reasonably expected to assist in 
surveilling for fraud and manipulation that may impact the proposed 
spot bitcoin ETPs.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Some commenters state that the Commission should approve the 
Proposals for a variety of investor protection reasons, including that 
spot bitcoin ETPs would offer a less costly and more efficient way to 
gain exposure to bitcoin,\51\ would be more convenient and secure 
relative to directly holding bitcoin,\52\ and would be more 
regulated.\53\ Other commenters state that the Commission should 
disapprove the Proposals on investor protection grounds, citing 
concerns that certain market players would take advantage of retail 
investors.\54\
---------------------------------------------------------------------------

    \51\ See, e.g., Spotto Letter; Letter from John Smith, dated 
July 18, 2023, regarding SR-CboeBZX-2023-040 (``John Smith 
Letter''); Letters from Peter L. Briger, Jr., Chairman, Fortress 
Investment Group LLC, dated Sept. 29, 2023, regarding SR-CboeBZX-
2023-028, and dated Oct. 20, 2023, regarding SR-NASDAQ-2023-016 
(``Fortress Letters''), at 2.
    \52\ See, e.g., Virtu Letter at 1 and 3; Fortress Letters at 1; 
McGinley Letter; Letter from Nick, dated July 18, 2023, regarding 
SR-NASDAQ-2023-016; Letter from Patrick Brogan, dated July 17, 2023, 
regarding SR-NASDAQ-2023-016 (``Brogan Letter''); Letter from 
Parthiban Rathinaswamy, dated July 21, 2023, regarding SR-CboeBZX-
2023-044; Letter from Richard Sapp, dated July 17, 2023, regarding 
SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044 
(``Sapp Letter''); Letter from Eric Murphy, dated Aug. 31, 2023, 
regarding SR-CboeBZX-2023-028; Letter from Dave Lester, dated Aug. 
11, 2023, regarding SR-CboeBZX-2023-028 (``Lester Letter''); Letter 
from Anonymous, dated Nov. 28, 2023, regarding SR-CboeBZX-2023-028, 
SR-CboeBZX-2023-038, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, SR-
CboeBZX-2023-044, SR-CboeBZX-2023-072, SR-NASDAQ-2023-016, SR-
NASDAQ-2023-019, SR-NYSEARCA-2023-44, and SR-NYSEARCA-2023-58.
    \53\ See, e.g., Fortress Letters at 1-2; Es Letter; Woods 
Letter; Brogan Letter; Letter from Mark S. Abner, dated July 17, 
2023, regarding SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-
CboeBZX-2023-044; Letter from Peter Bouraphael, dated Aug. 13, 2023, 
regarding SR-CboeBZX-2023-028 (``Bouraphael Letter''). The Trust 
described in the Hashdex Amendment would purchase and sell spot 
bitcoin exclusively through Exchange for Physical (``EFP'') 
transactions, which NYSE Arca describes as a ``CME-regulated, 
bilaterally negotiated block trade'' in which both parties engage in 
a composite transaction that involves both a CME bitcoin futures leg 
and a spot bitcoin leg. See Hashdex Amendment at 6, 17. Some 
commenters assert that such EFP transactions involve ``enhanced 
regulatory standards.'' See, e.g., Letter from Philippe Bekhazi, 
Chief Executive Officer, XBTO Global Ltd., dated Dec. 27, 2023, 
regarding SR-NYSEARCA-2023-58, at 2 (``The proposal's commitment to 
transparency is actively demonstrated through the reporting of EFPs 
to CME, subjecting prices to ongoing surveillance and review.''); 
Letter from David Vizsolyi, CEO, DV Chain, LLC, dated Dec. 22, 2023, 
regarding SR-NYSEARCA-2023-58, at 2 (efforts to affect the price of 
the Trust's shares could involve a CME participant influencing the 
EFP prices, but ``[p]resumably, such attempted manipulation would be 
strictly monitored, prevented, and if need be, sanctioned by CME'').
    \54\ See, e.g., Occupy Letter at 3 (stating that the Trusts 
would be ``fertile ground for high-pressure brokers exploiting the 
hype and volatility to take advantage of unsophisticated 
investors''); Letter from Tally.xyz, dated Dec. 4, 2023, regarding 
SR-NASDAQ-2023-016 (stating that certain spot bitcoin ETP sponsors 
have ``accumulated huge positions to dump on an excited retail 
market''); Letter from Daniel P.B. Smith, dated Aug. 12, 2023, 
regarding SR-CboeBZX-2023-028 (``Daniel Smith Letter'') (stating 
that spot bitcoin ETP sponsors ``just see money flowing from mark to 
con artist and figure if people are being conned anyway, they might 
as well divert a little bit of that flow to themselves.''); Letter 
from Public Citizen, dated Dec. 28, 2023, regarding SR-NYSEARCA-
2021-90, at 1 and 4 (stating that ``[b]itcoin specifically, and 
cryptocurrencies generally, do not serve the public interest and 
are, in fact, a trap for vulnerable investors'' and that ``[s]ome 
cryptocurrency sponsors may be exploiting those who believe they've 
been shut out of the traditional financial system''). See also infra 
note 60 and accompanying text.
---------------------------------------------------------------------------

    The Commission has considered these potential benefits and concerns 
in the broader context of whether the Proposals meet each of the 
applicable requirements of the Exchange Act,\55\ including the 
requirement in Section 6(b)(5) \56\ that the Exchanges' rules be 
designed to ``prevent fraudulent and manipulative acts and practices.'' 
For the reasons described above, the Commission has determined that the 
Proposals meet such requirement. The Commission also finds that the 
Proposals are consistent with the Section 6(b)(5) requirement that the 
Exchanges' rules be designed to protect investors and the public 
interest because, in addition to the factors discussed in Section II.A 
and II.B above, existing rules and standards of conduct would apply to 
recommending and advising investments in the shares of the Trusts. For 
example, when broker-dealers recommend ETPs to retail customers, 
Regulation Best Interest (``Reg BI'') would apply.\57\ Reg BI requires 
broker-dealers to, among other things, exercise reasonable diligence, 
care, and skill when making a recommendation to a retail customer to: 
(1) understand potential risks, rewards, and costs associated with the 
recommendation and have a reasonable basis to believe that the 
recommendation could be in the best interest of at least some retail 
customers; and (2) have a reasonable basis to believe the 
recommendation is in the best interest of a particular retail customer 
based on that retail customer's investment profile.\58\ In addition, 
investment advisers have a fiduciary duty under the Investment Advisers 
Act of 1940 comprised of a duty of care and a duty of loyalty. These 
obligations require the adviser to act in the best interest of its 
client and not subordinate its client's interest to its own.\59\
---------------------------------------------------------------------------

    \55\ See also Winklevoss Order at 37602.
    \56\ 15 U.S.C. 78f(b)(5).
    \57\ Exchange Act rule 15l-1(a).
    \58\ Exchange Act rules 15l-1(a)(2)(ii)(A) and (B). Separately, 
under Reg BI's Conflict of Interest Obligation, broker-dealers must 
establish, maintain, and enforce written policies and procedures 
reasonably designed to, among other things, identify and disclose or 
eliminate all conflicts of interest associated with a recommendation 
and mitigate conflicts of interest at the associated person level. 
See Exchange Act rules 15l-1(a)(2)(iii)(A) and (B). To the extent 
that broker-dealers recommend ETPs to customers who are not retail 
customers covered by Reg BI, FINRA Rule 2111 requires, in part, that 
a member broker-dealer or associated person ``have a reasonable 
basis to believe that a recommended transaction or investment 
strategy involving a security or securities is suitable for the 
customer, based on the information obtained through the reasonable 
diligence of the [broker-dealer] or associated person to ascertain 
the customer's investment profile.''
    \59\ See Commission Interpretation Regarding Standard of Conduct 
for Investment Advisers, Investment Advisers Act Release No. 5248 
(June 5, 2019), 84 FR 33669 (July 12, 2019), at 33671; Investment 
Company Act Release No. 34084 (Nov. 2, 2020), 85 FR 83162 (Dec. 21, 
2020), at 83217 (discussing the best interest standard of conduct 
for broker-dealers and the fiduciary obligations of investment 
advisers in the context of all ETPs).
---------------------------------------------------------------------------

    Some commenters contend that the Commission should disapprove the 
Proposals because the bitcoin market has been, is being, and/or will 
likely continue to be, manipulated.\60\ The

[[Page 3013]]

Commission acknowledges these concerns. Pursuant to Section 19(b)(2) of 
the Exchange Act, however, the Commission must approve a proposed rule 
change filed by a national securities exchange if it finds that the 
proposed rule change is consistent with the applicable requirements of 
the Exchange Act.\61\ For the reasons described above, the Commission 
finds that the Proposals satisfy the requirements of the Exchange Act, 
including the requirement in Section 6(b)(5) \62\ that the Exchanges' 
rules be designed to ``prevent fraudulent and manipulative acts and 
practices.''
---------------------------------------------------------------------------

    \60\ See, e.g., Kling Letter (stating that the bitcoin futures 
price is beholden to the spot price, and the spot price has always 
been, and continues to be, manipulated by bad actors); Better 
Markets Letter I at 2 and 4-9 and Better Markets Letter II at 4-6 
(stating that spot bitcoin ETPs are extremely vulnerable to 
manipulation by bad actors because spot bitcoin markets (1) have a 
history of artificially inflated trading volumes due to rampant 
manipulation and wash trading, (2) are highly concentrated, and (3) 
rely on a select group of individuals and entities to maintain the 
bitcoin network); Letter from John Palmer, dated Aug. 11, 2023, 
regarding SR-CboeBZX-2023-028 (stating that 75% of the bitcoin in 
circulation is controlled by a small minority who use market makers 
to pump and dump); Daniel Smith Letter (``[t]he history of crypto is 
a never-ending history of frauds and scams''); Letter from Billy 
Jensen, dated Sept. 5, 2023, regarding SR-CboeBZX-2023-028 (stating 
that bitcoin is a digital Ponzi, and that approving a spot ETF 
``will bring greater unsuspecting fools into the pyramid scheme''); 
Letter from The Registered Principal, dated Aug. 9, 2023, regarding 
SR-CboeBZX-2023-038, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, SR-
CboeBZX-2023-044, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, and SR-
NYSEARCA-2023-44 (``[t]here are no verifiable entities or persons as 
points of ultimate origin of [b]itcoin which makes it very likely to 
be a major fraud operation''); Letter from Joseph, dated July 18, 
2023, regarding SR-CboeBZX-2023-044 (``[a] cartel of organized crime 
and money-launders [sic] actively manipulate the price of [b]itcoin 
through the use of Tether and other crypto-ponzi schemes''); Letter 
from Avinash Shenoy, dated Oct. 18, 2023, regarding SR-NASDAQ-2023-
016 (stating that manipulation in the bitcoin marketplace has not 
gone away); Letter from Winston Wood, dated Oct. 19, 2023, regarding 
SR-NASDAQ-2023-016 (stating that the bitcoin market is manipulated 
and has a history rife with scams and criminal activity); Letter 
from Greg Steven, dated Oct. 19, 2023, regarding SR-NASDAQ-2023-016 
(``Steven Letter'') (stating that bitcoin is wash traded on 
platforms outside of U.S. jurisdiction); Letter from Neil Fulton, 
dated Oct. 20, 2023, regarding SR-NASDAQ-2023-016 (recommending that 
spot bitcoin ETPs be disapproved until bitcoin wash trading is 
minimized); Letters from Micah Warren, Associate Professor of 
Mathematics, University of Oregon, dated Oct. 27, 2023, regarding 
SR-NASDAQ-2023-016, and dated Dec. 15, 2023, regarding SR-CboeBZX-
2023-072 (``Warren Letters'') (explaining how the bitcoin ledger, 
which is maintained by for-profit mining entities, could become 
significantly less diverse and less costly to manipulate). Some 
commenters also assert that the bitcoin asset itself is a 
manipulation or fraud. One commenter states that ``the complete lack 
of knowledge of who the operators of the bitcoin network are means 
that it is impossible to implement sufficient control measures to 
ensure a fair market that is free from manipulation of both token 
trades, actions of the operators, or even the fundamental properties 
of the asset itself.'' See Letter from Brandon B., dated Oct. 25, 
2023, regarding SR-NASDAQ-2023-016 (``Brandon Letter''), at 4. 
Another commenter asserts that the questions the Commission has been 
asking about fraud and manipulation are misguided because ``they are 
predicated on the idea that [b]itcoin is something legitimate which 
could possibly serve the public interest.'' This commenter claims 
that ``[b]itcoin is, and has always been, a form of investment 
fraud'' that should be banned, not regulated. See Letter from Sal 
Bayat, dated Oct. 24, 2023, regarding SR-CboeBZX-2023-028, SR-
CboeBZX-2023-038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-
CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044 
(``Bayat Letter''), at 11-14.
    \61\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C). The Commission does not apply a ``cannot be 
manipulated'' standard; rather, the Commission examines whether a 
proposal meets the requirements of the Exchange Act. See, e.g., 
Winklevoss Order at 37582; VanEck Order II at 16059 n.43. The 
Commission does not understand the Exchange Act to require that a 
particular product or market be immune from manipulation. Rather, 
the inquiry into whether the rules of an exchange are designed to 
prevent fraudulent and manipulative acts and practices and, in 
general, to protect investors and the public interest, has long 
focused on the mechanisms in place for the detection and deterrence 
of fraud and manipulation.
    \62\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Commenters also raise concerns regarding the custody of spot 
bitcoin. Some commenters express concern that the Bitcoin blockchain is 
susceptible to hacking and that the Trusts' bitcoin could be 
susceptible to ``reverse hacking.'' \63\ Other commenters express 
concern that a Trust could become ``uncovered'' if it issues shares 
that are not backed by adequate amounts of bitcoin held on behalf of 
the Trust by its bitcoin custodian. These commenters recommend various 
verification methods, such as publicly sharing the relevant wallet 
addresses.\64\ Another commenter states that a bitcoin custodian is not 
a ``true custodian,'' but merely a ``pass-through custodian'' because 
it would only hold keys rather than directly possessing the underlying 
bitcoin balance.\65\ According to this commenter, the bitcoin ``network 
of strangers'' is the true custodian, undermining the safety and 
security investors have come to expect for exchange-traded 
securities.\66\
---------------------------------------------------------------------------

    \63\ See, e.g., Better Markets Letter at 2 (``[t]he concentrated 
nature of the spot bitcoin market and the heavy reliance on a select 
group of individuals and entities to maintain its network threatens 
a myriad of harms, such as hacking''); Letter from Nathaniel Parton, 
dated Nov. 14, 2023, regarding SR-NASDAQ-2023-016 (stating that 
hacking losses have occurred on bitcoin and ether decentralized 
platforms, centralized platforms, and when spot crypto is in 
transit; and that a Trust and its shareholders may have ``huge 
unresolvable loss'' from court-ordered ``reverse hacking'' if the 
bitcoin held by the Trust is itself the product of a prior alleged 
hack).
    \64\ See, e.g., Letter from Alexander Rohner, dated Nov. 30, 
2023, regarding SR-CboeBZX-2023-072; Letter from Burak Aktas, dated 
Nov. 30, 2023, regarding SR-CboeBZX-2023-072; Letter from Michael 
Fuhrmann, dated Nov. 30, 2023, regarding SR-CboeBZX-2023-072; Letter 
from Marius, dated Nov. 30, 2023, regarding SR-CboeBZX-2023-072; 
Letter from Anonymous, dated Nov. 30, 2023, regarding SR-CboeBZX-
2023-072.
    \65\ See Brandon Letter at 1.
    \66\ See id. at 4.
---------------------------------------------------------------------------

    Conversely, some commenters consider the transparency of the 
Bitcoin blockchain to be an advantage over traditional asset classes, 
because it could enable the real-time tracking of the Trusts' bitcoin 
holdings.\67\ And as stated above,\68\ some commenters consider custody 
by the Trusts' bitcoin custodians to be more secure than the self-
custody of bitcoin.
---------------------------------------------------------------------------

    \67\ See, e.g., Schettler Letter.
    \68\ See supra note 52.
---------------------------------------------------------------------------

    The Commission acknowledges that the aggregation of bitcoin under 
the Trusts' control, and the fact that bitcoin custodians only hold 
keys to such bitcoin and not the bitcoin itself, could introduce risks. 
As noted above, however, the Commission must approve a proposed rule 
change filed by a national securities exchange if it finds that the 
proposed rule change is consistent with the applicable requirements of 
the Exchange Act.\69\ The Commission has considered the risks raised by 
commenters, but for the reasons set forth in Section II.A and II.B 
above, it finds that the Proposals satisfy the requirements of the 
Exchange Act. With respect to ``uncovered'' shares, the potential for a 
gap between issued shares and underlying holdings is a risk pertinent 
to ETPs in general and is not unique to those that would hold bitcoin. 
Any such gap could constitute a potential violation of Exchange rules 
and grounds for suspension and the commencement of delisting 
proceedings.\70\ More generally, a failure to maintain good ownership 
and control of sufficient bitcoin to cover issued ETP shares could, 
depending on the facts and circumstances, create potential violations 
of the Exchange Act, the Securities Act of 1933, and/or the Commodity 
Exchange Act.
---------------------------------------------------------------------------

    \69\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C).
    \70\ See BZX Rule 14.11(e)(4)(E)(ii); Nasdaq Rule 
5711(d)(vi)(B); NYSE Arca Rule 8.201-E(e)(2); NYSE Arca Rule 8.500-
E(d)(2)(i).
---------------------------------------------------------------------------

    Commenters also address, among other things: the nature, uses, 
merits, and drawbacks of bitcoin, other crypto assets, and blockchain 
technology; \71\ the merits and drawbacks of an investment

[[Page 3014]]

in bitcoin and/or bitcoin ETPs; \72\ the nature of the bitcoin mining 
network and its environmental impacts; \73\ the potential impact of 
Commission approval of spot bitcoin ETPs on the economy, jobs, U.S. 
innovation, and/or U.S. geopolitical position; \74\ the potential 
impact of Commission approval of spot bitcoin ETPs on the bitcoin 
market itself; \75\ suggestions for improving regulation of crypto 
asset markets \76\ and criticisms of the current regulatory approach; 
\77\ suggestions for the Commission's allocation of its resources; \78\ 
and specific concerns relating to a sponsor of one of the Trusts.\79\ 
Ultimately, however, the Commission has considered and, for the reasons 
discussed above, is approving the Proposals under the standards 
applicable to them; namely, the standards provided by Section 6(b)(5) 
and Section 11A(a)(1)(C)(iii) of the Exchange Act.\80\
---------------------------------------------------------------------------

    \71\ See, e.g., Bouraphael Letter; Lester Letter; Bayat Letter; 
Letter from Shady Attia, dated July 20, 2023, regarding SR-NASDAQ-
2023-016; Letter from Maria Fernanda, dated July 19, 2023, regarding 
SR-CboeBZX-2023-038 (``Fernanda Letter''); Letter from Joseph B. 
Dart, dated July 18, 2023, regarding SR-CboeBZX-2023-038, SR-
CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044; 
Letter from Leeor Shapira, dated Sept. 28, 2023, regarding SR-
CboeBZX-2023-028; Letter from Miller McGee, dated Sept. 8, 2023, 
regarding SR-CboeBZX-2023-028; Letter from The Due Diligence, dated 
July 31, 2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, 
SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, SR-
CboeBZX-2023-042, SR-CboeBZX-2023-044, and SR-NYSEARCA-2023-44 
(``TDD Letter''); Letter from Randy Donnelly, dated Oct. 24, 2023, 
regarding SR-CboeBZX-2023-028; Letter from N. Vittal, dated July 23, 
2023, regarding SR-CboeBZX-2023-038; Letter from Adam R. Smith, 
dated Oct. 18, 2023, regarding SR-NASDAQ-2023-016; Letter from 
Jethro Davies, dated Oct. 19, 2023, regarding SR-NASDAQ-2023-016; 
Letter from Dylan Henderson, dated Nov. 28, 2023, regarding SR-
CboeBZX-2023-072.
    \72\ See, e.g., Spotto Letter; Lester Letter; Bayat Letter; 
Occupy Letter at 2; Letter from James Erbe, dated July 17, 2023, 
regarding SR-NASDAQ-2023-016; Letter from Keith Boyd, dated Oct. 24, 
2023, regarding SR-CboeBZX-2023-028; Letter from Michael H., dated 
Nov. 29, 2023, regarding SR-CboeBZX-2023-028.
    \73\ See, e.g., TDD Letter; Steven Letter; Bayat Letter; 
Schettler Letter; Warren Letters; Letter from Mandy DeRoche of 
Earthjustice, Scott Faber and Jessica Hernandez of the Environmental 
Working Group, and Josh Archer and Erik Kojola of Greenpeace, dated 
Aug. 30, 2023, regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, 
SR-CboeBZX-2023-042, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-
NYSEARCA-2023-44; Letter from Marcus AE, dated Nov. 8, 2023, 
regarding SR-CboeBZX-2023-028.
    \74\ See, e.g., Woods Letter; Fernanda Letter; John Smith 
Letter; Sapp Letter; Letter from David Alden, dated Aug. 14, 2023, 
regarding SR-CboeBZX-2023-028; Letter from Dennis Smith, dated Oct. 
24, 2023, regarding SR-NASDAQ-2023-016; McGinley Letter; Letter from 
Berkshire, dated Aug. 7, 2023, regarding SR-CboeBZX-2023-038; Letter 
from Omar Ibrahim, dated July 15, 2023, regarding SR-CboeBZX-2023-
040, SR-CboeBZX-2023-044, and SR-NASDAQ-2023-016; Letter from Paul 
Knight, dated July 18, 2023, regarding SR-CboeBZX-2023-028, SR-
CboeBZX-2023-038, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-
CboeBZX-2023-044; Letter from Jeff Calhoun, dated Dec. 12, 2023, 
regarding SR-CboeBZX-2023-028.
    \75\ See, e.g., Occupy Letter at 2; Brogan Letter.
    \76\ See, e.g., Angel Letter at 3-6.
    \77\ See, e.g., Letter from Naceur Hussein, dated July 18, 2023, 
regarding SR-CboeBZX-2023-044; Letter from Axel Hoogland, dated Aug. 
15, 2023, regarding SR-CboeBZX-2023-028. A commenter discusses the 
benefits of in-kind creation and redemption mechanisms for spot 
bitcoin ETPs, and the drawbacks to having only cash creation and 
redemption mechanisms for such ETPs. See Letter from James J. Angel, 
Georgetown University, dated Dec. 12, 2023, regarding SR-NYSEARCA-
2021-90, SR-NYSEARCA-2023-44, SR-NYSEARCA-2023-58, SR-NASDAQ-2023-
016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, 
SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, SR-CboeBZX-2023-044, and 
SR-CboeBZX-2023-072. The Proposals under consideration by the 
Commission in this order only contemplate cash creation and 
redemption by authorized participants. Accordingly, in-kind creation 
and redemption processes by authorized participants, and their 
relative benefits or drawbacks, are outside the scope of this order.
    \78\ See, e.g., Angel Letter at 3.
    \79\ See, e.g., Letters from Marie-Lise Lipchik, dated Aug. 11, 
2023, and Aug. 15, 2023, regarding SR-CboeBZX-2023-028; Letter from 
William C. Piontek, dated Aug. 12, 2023, regarding SR-CboeBZX-2023-
028.
    \80\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

III. Accelerated Approval of the Proposals

    The Commission finds good cause to approve the Proposals prior to 
the 30th day after the date of publication of notice of the Exchanges' 
amended filings \81\ in the Federal Register. The amended filings 
clarified the descriptions of the Trusts; further described the terms 
of the Trusts; and conformed various representations in the amended 
filings to the applicable Exchange's listing standards and to 
representations that the Exchanges have made for other spot commodity 
ETPs that the Commission has approved.\82\ These changes do not raise 
any novel regulatory issues. Further, the changes assist the Commission 
in evaluating the Proposals and in determining that they are consistent 
with the Exchange Act and the rules and regulations thereunder 
applicable to a national securities exchange, as discussed above. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\83\ to approve the Proposals on an 
accelerated basis.
---------------------------------------------------------------------------

    \81\ See supra notes 3-13.
    \82\ See also supra Section II.B.
    \83\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

IV. Conclusion

    This approval order is based on all of the Exchanges' 
representations and descriptions in their respective amended filings, 
which the Commission has carefully evaluated as discussed above.\84\ 
For the reasons set forth above, including the Commission's correlation 
analysis, the Commission finds, pursuant to Section 19(b)(2) of the 
Exchange Act,\85\ that the Proposals are consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the 
Exchange Act.\86\
---------------------------------------------------------------------------

    \84\ See supra notes 3-13. In addition, the shares of the Trusts 
in SR-NYSEARCA-2021-90 and NYSEARCA-2023-44 must comply with the 
requirements of NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) to be listed and traded on NYSE Arca on an initial and 
continuing basis; the shares of the Trust in SR-NYSEARCA-2023-58 
must comply with the requirements of NYSE Arca Rule 8.500-E (Trust 
Units) to be listed and traded on NYSE Arca on an initial and 
continuing basis; the shares of the Trusts in SR-NASDAQ-2023-016 and 
SR-NASDAQ-2023-019 must comply with the requirements of Nasdaq Rule 
5711(d) (Commodity-Based Trust Shares) to be listed and traded on 
Nasdaq on an initial and continuing basis; and the shares of the 
Trusts in SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, SR-CboeBZX-2023-
040, SR-CboeBZX-2023-042, SR-CboeBZX-2023-044, and SR-CboeBZX-2023-
072 must comply with the requirements of BZX Rule 14.11(e)(4) 
(Commodity-Based Trust Shares) to be listed and traded on BZX on an 
initial and continuing basis.
    \85\ 15 U.S.C. 78f(b)(2).
    \86\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\87\ that the Proposals (SR-NYSEARCA-2021-90; SR-NYSEARCA-
2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; 
SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) be, and 
hereby are, approved on an accelerated basis.
---------------------------------------------------------------------------

    \87\ 15 U.S.C. 78f(b)(2).

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-00743 Filed 1-16-24; 8:45 am]
BILLING CODE 8011-01-P