68862 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 97884 

(July 12, 2023), 88 FR 45947. Comments on the 

proposed rule change are available at: https://

www.sec.gov/comments/sr-nysearca-2023-44/

srnysearca202344.htm. 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 98268, 

88 FR 61647 (Sept. 7, 2023). The Commission 

designated October 16, 2023, as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

7The Trust is a Delaware statutory trust that was 

formerly known as the Bitwise Bitcoin ETF Trust. 

On October 14, 2021, the Trust filed with the 

Commission an initial registration statement (the 

‘‘Registration Statement’’) on Form S–1 under the 

Securities Act of 1933 (15 U.S.C. 77a). The 

description of the operation of the Trust herein is 

based, in part, on the Registration Statement. 

8Commodity-Based Trust Shares are securities 

issued by a trust that represents investors’ discrete 

identifiable and undivided beneficial ownership 

interest in the commodities deposited into the trust. 

9 15 U.S.C. 80a–1. 

10 17 U.S.C. 1. 

11With respect to the application of Rule 10A– 

3 (17 CFR 240.10A–3) under the Act, the Trust 

relies on the exemption contained in Rule 10A– 

3(c)(7). 

12The description of the operation of the Trust, 

the Shares and the bitcoin market contained herein 

are based, in part, on the Registration Statement. 

See note 7, supra. 

13When capitalized, references to ‘‘Bitcoin’’ are 

to the Bitcoin network or the Bitcoin protocol. 

When lowercase, references to ‘‘bitcoin’’ are to the 

digital asset native to the Bitcoin network, which 

asset is the underlying commodity held by the 

Trust. 

14The CME US Reference Rate is a daily reference 

rate of the US Dollar price of one bitcoin, calculated 

at 4:00 p.m. E.T. The CME US Reference Rate 

utilizes the same methodology as the CME CF 

Bitcoin Reference Rate (the ‘‘CME UK Reference 

Rate’’), which is calculated at 4:00 p.m. London 

time and was designed by the CME Group and 

Crypto Facilities Ltd to facilitate the development 

of financial products, including the cash settlement 

of bitcoin futures traded on the Chicago Mercantile 

Exchange (‘‘CME’’). Andrew Paine and William J. 

Knottenbelt, ‘‘Analysis of the CME CF Bitcoin 

Reference Rate and CME CF Bitcoin Real Time 

Index,’’ Imperial College Centre for Cryptocurrency 

Research and Engineering, November 14, 2016, 

available at https://www.cmegroup.com/trading/ 

files/bitcoin-white-paper.pdf. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98607; File No. SR– 

NYSEARCA–2023–44] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of 

Amendment No. 1 to, and Order 

Instituting Proceedings To Determine 

Whether To Approve or Disapprove, a 

Proposed Rule Change To List and 

Trade Shares of the Bitwise Bitcoin 

ETP Trust Under NYSE Arca Rule 

8.201–E (Commodity-Based Trust 

Shares) 

September 28, 2023. 

On June 28, 2023, NYSE Arca, Inc. 

(‘‘NYSE Arca’’ 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 Bitwise Bitcoin ETP 

Trust (‘‘Trust’’) under NYSE Arca Rule 

8.201–E (Commodity-Based Trust 

Shares). The proposed rule change was 

published for comment in the Federal 

Register on July 18, 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.5 On September 

25, 2023, the Exchange filed 

Amendment No. 1 to the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. Amendment No. 1 

amended and replaced the proposed 

rule change as originally filed and 

superseded such filing in its entirety. 

The Commission is publishing this 

notice and order to solicit comments on 

the proposed rule change, as modified 

by Amendment No. 1, from interested 

persons and to institute proceedings 

under Section 19(b)(2)(B) of the Act 6 to 

determine whether to approve or 

disapprove the proposed rule change, as 

modified by Amendment No. 1. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to list and 

trade shares of the Bitwise Bitcoin ETP 

Trust under NYSE Arca Rule 8.201–E 

(Commodity-Based Trust Shares). This 

Amendment No. 1 to SR–NYSEArca– 

2023–44 replaces SR–NYSEArca–2023– 

44 as originally filed and supersedes 

such filing in its entirety. The proposed 

rule change is available on the 

Exchange’s website at www.nyse.com, at 

the principal office of the Exchange, and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade shares (‘‘Shares’’) of the Bitwise 

Bitcoin ETP Trust (the ‘‘Trust’’),7 under 

NYSE Arca Rule 8.201–E, which 

governs the listing and trading of 

Commodity-Based Trust Shares.8

According to the Registration 

Statement, the Trust will not be 

registered as an investment company 

under the Investment Company Act of 

1940,9 and is not required to register 

thereunder. The Trust is not a 

commodity pool for purposes of the 

Commodity Exchange Act.10

The Exchange represents that the 

Shares satisfy the requirements of NYSE 

Arca Rule 8.201–E and thereby qualify 

for listing on the Exchange.11

Bitwise Bitcoin ETP Trust 

Operation of the Trust 12

The Trust will issue the Shares, 

which represent units of undivided 

beneficial ownership of the Trust. The 

Trust is a Delaware statutory trust and 

will operate pursuant to a trust 

agreement (the ‘‘Trust Agreement’’) 

between Bitwise Investment Advisers, 

LLC (the ‘‘Sponsor’’ or ‘‘Bitwise’’) and 

Delaware Trust Company, as the Trust’s 

trustee (the ‘‘Trustee’’). The Trust will 

engage a third party custodian to act as 

the bitcoin custodian for the Trust (the 

‘‘Bitcoin Custodian’’) to maintain 

custody of the Trust’s bitcoin assets.13

The Trust will engage a third party 

service provider to serve as the 

administrator, transfer agent, and cash 

custodian (in such capacities, the 

‘‘Administrator,’’ the ‘‘Transfer Agent,’’ 

and the ‘‘Cash Custodian,’’ 

respectively). 

According to the Registration 

Statement, the investment objective of 

the Trust is to seek to provide exposure 

to the value of bitcoin held by the Trust, 

less the expenses of the Trust’s 

operations. In seeking to achieve its 

investment objective, the Trust will 

hold bitcoin and establish its Net Asset 

Value (‘‘NAV’’) at the end of every 

business day by reference to the CME 

CF Bitcoin Reference Rate—New York 

Variant (‘‘CME US Reference Rate’’).14

Under normal circumstances, the 

Trust’s only asset will be bitcoin, and, 


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15The Trust may sell bitcoin and temporarily 

hold cash as part of a liquidation of the Trust or 

to pay certain extraordinary expenses not assumed 

by the Sponsor. Under the Trust Agreement, the 

Sponsor has agreed to assume the normal operating 

expenses of the Trust, subject to certain limitations. 

For example, the Trust will bear any 

indemnification or litigation liabilities as 

extraordinary expenses. In addition, the Trust may, 

from time to time, passively receive, by virtue of 

holding bitcoin, certain additional digital assets 

(‘‘IR Assets’’) or rights to receive IR Assets 

(‘‘Incidental Rights’’) through a fork of the 

Blockchain or an airdrop of assets. The Trust 

Agreement requires that the Sponsor analyze as 

soon as possible whether or not such Incidental 

Rights and IR Assets should be disclaimed. In the 

event the Sponsor instructs the Bitcoin Custodian 

to claim such Incidental Rights and IR Assets, it 

will immediately distribute such Incidental Rights 

and IR Assets to shareholders of record. 

under limited circumstances, cash. The 

Trust will not use derivatives that may 

subject the Trust to counterparty and 

credit risks.15 The Trust will process 

creations and redemptions in-kind and 

in exchange for cash, and accrue all 

ordinary fees (generally management 

fees) in USD. However, management fee 

will be paid monthly in bitcoin based 

on the last business day of the month’s 

CME US Reference Rate. The Trust will 

purchase or sell bitcoin in response to 

creations and redemptions and may also 

sell bitcoin if the Trust liquidates or 

must pay expenses not contractually 

assumed by the Sponsor. Financial 

institutions authorized to create and 

redeem Shares (each, an ‘‘Authorized 

Participant’’) will deliver, or cause to be 

delivered, bitcoin to the Trust (or an 

equivalent amount of cash) in exchange 

for Shares of the Trust, and the Trust 

will deliver bitcoin (or an equivalent 

amount of cash) to Authorized 

Participants when those Authorized 

Participants redeem Shares of the Trust. 

Bitcoin, Bitcoin Market, Bitcoin Trading 

Platforms and Regulation of Bitcoin 

The following sections, drawn from 

the Registration Statement, describe 

bitcoin, including the historical 

development of bitcoin and the Bitcoin 

network, how a person holds bitcoin, 

how to use bitcoin in transactions, the 

‘‘exchange’’ market where bitcoin can be 

bought, held and sold, and the bitcoin 

‘‘over-the-counter’’ (‘‘OTC’’) market. 

Bitcoin 

Bitcoin was first described in a white 

paper released in 2008 and published 

under the name ‘‘Satoshi Nakamoto.’’ 

The protocol underlying Bitcoin was 

subsequently released in 2009 as open 

source software and currently operates 

on a worldwide network of computers. 

The Bitcoin network utilizes a digital 

asset known as ‘‘bitcoin,’’ which can be 

transferred among parties via the 

internet. Unlike other means of 

electronic payments such as credit card 

transactions, one of the advantages of 

bitcoin is that it can be transferred 

without the use of a central 

administrator or clearing agency. As a 

central party is not necessary to 

administer bitcoin transactions or 

maintain the bitcoin ledger, the term 

decentralized is often used in 

descriptions of bitcoin. Unless it is 

using a third party service provider, a 

party transacting in bitcoin is generally 

not afforded some of the protections that 

may be offered by intermediaries. 

The first step in using the Bitcoin 

network for transactions is to download 

specialized software referred to as a 

‘‘bitcoin wallet.’’ A user’s bitcoin wallet 

can run on a computer or smartphone, 

and can be used both to send and to 

receive bitcoin. Within a bitcoin wallet, 

a user can generate one or more unique 

‘‘bitcoin addresses,’’ which are 

conceptually similar to bank account 

numbers. After establishing a bitcoin 

address, a user can send or receive 

bitcoin from his or her bitcoin address 

to another user’s bitcoin address. 

Sending bitcoin from one bitcoin 

address to another is similar in concept 

to sending a bank wire from one 

person’s bank account to another 

person’s bank account; however, such 

transactions are not managed by an 

intermediary and erroneous transactions 

generally may not be reversed or 

remedied once sent. 

The amount of bitcoin associated with 

each bitcoin address, as well as each 

bitcoin transaction to or from such 

bitcoin address, is transparently 

reflected in the Bitcoin network’s 

distributed ledger (‘‘Blockchain’’) and 

can be viewed by websites that operate 

as ‘‘Blockchain explorers.’’ Copies of the 

Blockchain exist on thousands of 

computers on the Bitcoin network 

throughout the internet. A user’s bitcoin 

wallet will either contain a copy of the 

Blockchain or be able to connect with 

another computer that holds a copy of 

the Blockchain. The innovative design 

of the Bitcoin network protocol allows 

each Bitcoin user to trust that their copy 

of the Blockchain will generally be 

updated consistent with each other 

user’s copy. 

When a Bitcoin user wishes to 

transfer bitcoin to another user, the 

sender must first request a Bitcoin 

address from the recipient. The sender 

then uses his or her Bitcoin wallet 

software to create a proposed 

transaction that is confirmed and settles 

when included in the Blockchain. The 

transaction would reduce the amount of 

bitcoin allocated to the sender’s address 

and increase the amount allocated to the 

recipient’s address, in each case by the 

amount of bitcoin desired to be 

transferred. The transaction is 

completely digital in nature, similar to 

a file on a computer, and it can be sent 

to other computers participating in the 

Bitcoin network; however, the use of 

cryptographic verification is believed to 

prevent the ability to duplicate or 

counterfeit bitcoin. 

Bitcoin Protocol 

The Bitcoin protocol is built using 

open source software allowing for any 

developer to review the underlying code 

and suggest changes. There is no official 

company or group responsible for 

making modifications to Bitcoin. There 

are, however, a number of individual 

developers that regularly contribute to 

the reference software known as 

‘‘Bitcoin Core,’’ a specific distribution of 

Bitcoin software that provides the defacto standard for the Bitcoin protocol. 

Significant changes to the Bitcoin 

protocol are typically accomplished 

through a so-called ‘‘Bitcoin 

Improvement Proposal’’ or BIP. Such 

proposals are generally posted on 

websites, and the proposals explain 

technical requirements for the protocol 

change as well as reasons why the 

change should be accepted by users. 

Because Bitcoin has no central 

authority, updating the reference 

software’s Bitcoin protocol will not 

immediately change the Bitcoin 

network’s operations. Instead, the 

implementation of a change is achieved 

by users (including transaction 

validators known as ‘‘miners’’) 

downloading and running the updated 

versions of Bitcoin Core or other Bitcoin 

software that abides by the new Bitcoin 

protocol. Users and miners must accept 

any changes made to the Bitcoin source 

code by downloading a version of their 

Bitcoin software that incorporates the 

proposed modification of the Bitcoin 

network’s source code. A modification 

of the Bitcoin network’s source code or 

protocol is only effective with respect to 

those Bitcoin users and miners who 

download it. If an incompatible 

modification is accepted by a less than 

overwhelming percentage of users and 

miners, a division in the Bitcoin 

network will occur such that one 

network will run the pre-modification 

source code and the other network will 

run the modified source code. Such a 

division is known as a ‘‘fork’’ in the 

Bitcoin network. 

Bitcoin Transactions 

A bitcoin transaction is similar in 

concept to an irreversible digital check. 

The transaction contains the sender’s 

bitcoin address, the recipient’s bitcoin 

address, the amount of bitcoin to be 


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sent, a transaction fee and the sender’s 

digital signature. Bitcoin transactions 

are secured by cryptography known as 

‘‘public-private key cryptography,’’ 

represented by the bitcoin addresses 

and digital signature in a transaction’s 

data file. Each Bitcoin network address, 

or wallet, is associated with a unique 

‘‘public key’’ and ‘‘private key’’ pair, 

both of which are lengthy alphanumeric 

codes, derived together and possessing 

a unique relationship. 

The use of key pairs is a cornerstone 

of the Bitcoin network technology. This 

is because the use of a private key is the 

only mechanism by which a bitcoin 

transaction can be signed. If a private 

key is lost, the corresponding bitcoin is 

thereafter permanently non-transferable. 

Moreover, the theft of a private key 

provides the thief immediate and 

unfettered access to the corresponding 

bitcoin. Bitcoin users must therefore 

understand that in this regard, bitcoin is 

similar to cash: that is, the person or 

entity in control of the private key 

corresponding to a particular quantity of 

bitcoin has de facto control of the 

bitcoin. 

The public key is visible to the public 

and analogous to the Bitcoin network 

address. The private key is a secret and 

is used to digitally sign a transaction in 

a way that proves the transaction has 

been signed by the holder of the publicprivate key pair, and without having to 

reveal the private key. A user’s private 

key must be kept safe in accordance 

with appropriate controls and 

procedures to ensure it is used only for 

legitimate and intended transactions. If 

an unauthorized third person learns of 

a user’s private key, that third person 

could apply the user’s digital signature 

without authorization and send the 

user’s bitcoin to their or another bitcoin 

address, thereby stealing the user’s 

bitcoin. Similarly, if a user loses his 

private key and cannot restore such 

access (e.g., through a backup), the user 

may permanently lose access to the 

bitcoin associated with that private key 

and bitcoin address. 

To prevent the possibility of doublespending of bitcoin, each validated 

transaction is recorded, time stamped 

and publicly displayed in a ‘‘block’’ in 

the Blockchain, which is publicly 

available. Thus, the Bitcoin network 

provides confirmation against doublespending by memorializing every 

transaction in the Blockchain, which is 

publicly accessible and downloaded in 

part or in whole by all users of the 

Bitcoin network software program. Any 

user may validate, through their Bitcoin 

wallet or a Blockchain explorer, that 

each transaction in the Bitcoin network 

was authorized by the holder of the 

applicable private key, and Bitcoin 

network mining software consistent 

with reference software requirements 

validates each such transaction before 

including it in the Blockchain. This 

cryptographic security ensures that 

bitcoin transactions may not generally 

be counterfeited, although it does not 

protect against the ‘‘real world’’ theft or 

coercion of use of a Bitcoin user’s 

private key, including the hacking of a 

Bitcoin user’s computer or a service 

provider’s systems. 

A Bitcoin transaction between two 

parties is recorded if included in a valid 

block added to the Blockchain, when 

that block is accepted as valid through 

consensus formation among Bitcoin 

network participants. A block is 

validated by confirming the 

cryptographic hash value included in 

the block’s data and by the block’s 

addition to the longest confirmed 

Blockchain on the Bitcoin network. For 

a transaction, inclusion in a block in the 

Blockchain constitutes a ‘‘confirmation’’ 

of validity. As each block contains a 

reference to the immediately preceding 

block, additional blocks appended to 

and incorporated into the Blockchain 

constitute additional confirmations of 

the transactions in such prior blocks, 

and a transaction included in a block for 

the first time is confirmed once against 

double-spending. This layered 

confirmation process makes changing 

historical blocks (and reversing 

transactions) exponentially more 

difficult the further back one goes in the 

Blockchain. 

The process by which bitcoin are 

created and bitcoin transactions are 

verified is called ‘‘mining.’’ To begin 

mining, a user, or ‘‘miner,’’ can 

download and run a mining ‘‘client,’’ 

which, like regular Bitcoin network 

software programs, turns the user’s 

computer into a ‘‘node’’ on the Bitcoin 

network, and in this case has the ability 

to validate transactions and add new 

blocks of transactions to the Blockchain. 

Miners, through the use of the bitcoin 

software program, engage in a set of 

prescribed, complex mathematical 

calculations in order to verify 

transactions and compete for the right to 

add a block of verified transactions to 

the Blockchain and thereby confirm 

bitcoin transactions included in that 

block’s data. The miner who 

successfully ‘‘solves’’ the complex 

mathematical calculations has the right 

to add a block of transactions to the 

Blockchain and is then rewarded by a 

grant of bitcoin, known as a ‘‘coinbase,’’ 

plus any transaction fees paid for the 

transactions included in such block. 

Bitcoin is created and allocated by the 

Bitcoin network protocol and 

distributed through mining, subject to a 

strict, well-known issuance schedule. 

The supply of bitcoin is 

programmatically limited to 21 million 

bitcoin in total. As of June 16, 2023, 

approximately 19,401,000 bitcoin had 

been mined. 

Confirmed and validated bitcoin 

transactions are recorded in blocks 

added to the Blockchain. Each block 

contains the details of some or all of the 

most recent transactions that are not 

memorialized in prior blocks, as well as 

a record of the award of bitcoin to the 

miner who added the new block. Each 

unique block can only be solved and 

added to the Blockchain by one miner, 

therefore, all individual miners and 

mining pools on the Bitcoin network 

must engage in a competitive process of 

constantly increasing their computing 

power to improve their likelihood of 

solving for new blocks. As more miners 

join the Bitcoin network and its 

processing power increases, the Bitcoin 

network adjusts the complexity of a 

block-solving equation to maintain a 

predetermined pace of adding a new 

block to the Blockchain approximately 

every ten minutes. 

The Bitcoin Market and Bitcoin Trading 

Platforms 

In addition to using bitcoin to engage 

in transactions, investors may purchase 

and sell bitcoin to speculate as to the 

value of bitcoin in the bitcoin market, or 

as a long-term investment to diversify 

their portfolio. The value of bitcoin 

within the market is determined, in 

part, by (i) the supply of and demand for 

bitcoin in the bitcoin market, (ii) market 

expectations for the expansion of 

investor interest in bitcoin and the 

adoption of bitcoin by users, (iii) the 

number of merchants that accept bitcoin 

as a form of payment, and (iv) the 

volume of private end-user-to-end-user 

transactions. 

Although the value of bitcoin is 

determined by the value that two 

transacting market participants place on 

bitcoin through their transaction, the 

most common means of determining a 

reference value is by surveying one or 

more trading platforms where secondary 

markets for bitcoin exist. The most 

prominent bitcoin trading platforms are 

often referred to as ‘‘exchanges,’’ 

although they neither report trade 

information nor are they regulated in 

the same way as a national securities 

exchange. As such, there is some 

difference in the form, transparency and 

reliability of trading data from bitcoin 

trading platforms. Generally speaking, 

bitcoin data is available from these 

trading platforms with publicly 

disclosed valuations for each executed 


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16See note 34 [sic], infra. 

17See ‘‘CME Group Announces Launch of Bitcoin 

Futures,’’ October 31, 2017, available at https://

www.cmegroup.com/media-room/press-releases/ 

2017/10/31/cme_group_announceslaunchof

bitcoinfutures.html. At the same time as the launch 

of the CME Market, the Cboe Futures Exchange, 

LLC announced and subsequently launched Cboe 

bitcoin futures. See ‘‘CFE to Commence Trading in 

Cboe Bitcoin (USD) Futures Soon,’’ December 01, 

2017, available at cdn.cboe.com/resources/release_

notes/2017/Cboe-Bitcoin-USD-Futures-LaunchNotification.pdf. Each future was cash settled, with 

the CME Market tracking the CME UK Reference 

Rate and the Cboe bitcoin futures tracking a bitcoin 

trading platform daily auction price. The Cboe 

Futures Exchange, LLC subsequently discontinued 

its bitcoin futures market effective June 2019. ‘‘Cboe 

put the brakes on bitcoin futures,’’ March 15, 2019, 

available at https://www.reuters.com/article/uscboe-bitcoin/cboe-puts-the-brakes-on-bitcoinfutures-idUSKCN1QW261. The Trust uses the CME 

US Reference Rate to calculate its NAV. 

18 Data from CME Volume and Average Daily 

Volume Reports, available at https://

www.cmegroup.com/market-data/volume-openinterest.html#volumeTotals. 

trade, measured against a fiat currency 

such as the US Dollar or Euro, or against 

another digital asset (for example, 

bitcoin trades against the US Dollar are 

reflected in the ‘‘USD–BTC Pair’’). 

Currently, there are many bitcoin 

trading platforms operating worldwide 

and trading platforms represent a 

substantial percentage of bitcoin buying 

and selling activity, and, therefore, 

provide large data sets for the market 

valuation of bitcoin. A bitcoin trading 

platform provides investors with a way 

to purchase and sell bitcoin, similar to 

stock exchanges like the New York 

Stock Exchange or NASDAQ, which 

provide ways for investors to buy stocks 

and bonds in the so-called ‘‘secondary 

market.’’ Unlike stock exchanges, which 

are regulated to monitor securities 

trading activity, bitcoin trading 

platforms are largely regulated as money 

services businesses (or a foreign 

regulatory equivalent) and are required 

to monitor for and detect moneylaundering and other illicit financing 

activities that may take place on their 

platform. Bitcoin trading platforms 

operate websites designed to permit 

investors to open accounts with the 

trading platform and then purchase and 

sell bitcoin. 

As with conventional stock 

exchanges, an investor opening a 

trading account and wishing to transact 

at a bitcoin trading platform must 

deposit an accepted government-issued 

currency into their account, or a 

previously acquired digital asset. The 

process of establishing an account with 

a bitcoin trading platform and trading 

bitcoin is different from, and should not 

be confused with, the process of users 

sending bitcoin from one bitcoin 

address to another bitcoin address, such 

as to pay for goods and services. This 

latter process is an activity that occurs 

wholly within the confines of the 

Bitcoin network, while the former is an 

activity that occurs largely on private 

websites and databases owned by the 

trading platform. 

In addition to the bitcoin trading 

platforms that provide spot markets for 

bitcoin, an OTC trading market has 

emerged for digital assets. The bitcoin 

OTC market demonstrates flexibility in 

terms of quotes, price, size, and other 

factors. The OTC market has no formal 

structure and no open-outcry meeting 

place, and typically involves bilateral 

agreements on a principal-to-principal 

basis. Parties engaging in OTC 

transactions will agree upon a price— 

often via phone, email, or chat—and 

then one of the two parties will initiate 

the transaction. For example, a seller of 

bitcoin could initiate the transaction by 

sending the bitcoin to the buyer’s 

bitcoin address. The buyer would then 

wire US Dollars to the seller’s bank 

account. OTC trading tends to occur in 

large blocks of bitcoin. All risks and 

issues related to creditworthiness are 

between the parties directly involved in 

the transaction. OTC market 

participants include institutional 

entities, such as hedge funds, family 

offices, private wealth managers, highnet-worth individuals that trade bitcoin 

on a proprietary basis, and brokers that 

offer two-sided liquidity for bitcoin. 

Beyond the spot bitcoin trading 

platforms and the OTC market, a 

number of unregulated bitcoin 

derivatives trading platforms exist that 

offer traders the ability to gain leveraged 

and/or short exposure to the price of 

bitcoin through perpetual futures, 

quarterly futures, and other derivative 

contracts. 

Finally, the trading of regulated 

bitcoin futures contracts launched on 

the CME in December 2017.16 A further 

discussion of the CME bitcoin futures 

market (‘‘CME Market’’) is included in 

the section entitled ‘‘The CME Bitcoin 

Futures Market,’’ below. 

Authorized Participants may have the 

option of purchasing and selling bitcoin 

used in Creation Unit transactions with 

the Trust either on bitcoin trading 

platforms, in the OTC markets, in direct 

bilateral transactions, or may deliver 

cash to the Trust in exchange for 

Creation Units (or may take receipt of 

cash from the Trust in exchange for the 

redemption of Creation Units) in which 

case the Trust will acquire or liquidate 

the requisite amount of bitcoin with 

approved bitcoin trading counterparties. 

In addition, Authorized Participants 

may utilize futures to hedge bitcoin 

exposure relating to the purchase and 

redemption of Creation Units. 

The CME Bitcoin Futures Market 

The CME Group announced the 

planned launch of bitcoin futures on 

October 31, 2017. Trading began on 

December 17, 2017.17 Each contract 

represents five bitcoin and is based on 

the CME CF Bitcoin Reference Rate. 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. For example, 

there were 264,323 bitcoin futures 

contracts traded in June 2023 

(approximately $39.8 billion) compared 

to 267,495 ($25.1 billion) contracts, 

182,369 contracts ($31.7 billion), 

131,419 contracts ($6.0 billion), and 

167,362 contracts ($9.8 billion) traded 

in June 2022, June 2021, June 2020, and 

June 2019, respectively.18


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19 Data from CME Open Interest Reports, available 

at https://www.cmegroup.com/market-data/volumeopen-interest.html#openInterestTools. 

20A large open interest holder in Bitcoin Futures 

is an entity that holds at least 25 contracts, which 

is the equivalent of 125 bitcoin. At a price of 

approximately $30,705.00 per bitcoin on 6/27/2023, 

more than 120 firms had outstanding positions of 

greater than $3.83 million in Bitcoin Futures. Data 

from The Block, available at https://

www.theblock.co/data/crypto-markets/cme-cots/ 

large-open-interest-holders-of-cme-bitcoin-futures. 

Open interest was 18,264 bitcoin 

futures contracts in June 2023 

(approximately $2.8 billion) compared 

to 14,108 contracts ($1.3 billion), 6,817 

contracts ($1.2 billion), 7,675 contracts 

($0.4 billion), and 5,991 contracts ($0.4 

billion) in June 2022, June 2021, June 

2020, and June 2019, respectively.19

The number of large open interest 

holders 20 has increased as well, even in 

the face of heightened bitcoin price volatility, as demonstrated in the figure 

that follows. 


lotter on DSK11XQN23PROD with NOTICES1EN04OC23.015</GPH> EN04OC23.016</GPH>

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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68867 

21See Bitwise Order, 84 FR at 55410, n. 456 (‘‘the 

Commission recognizes that the CFTC 

comprehensively regulates CME . . .’’). See also 

Winklevoss Order, 83 FR at 37594 & at note 202; 

GraniteShares Order 83 FR at 43929; and USBT 

Order, 85 FR at 12597. 

22See Bitwise Order, 84 FR at 55410, n.456. A list 

of the current ISG members is available at https:// 

www.isgportal.org. 

23This summary does not represent a complete 

description of the CME US Reference Rate, the CME 

UK Reference Rate and CME Bitcoin Real Time 

Price. Additional information on administration 

and methodologies, may be found at CF 

Benchmarks’ website, available at https://

www.cfbenchmarks.com/data/indices/BRRNY, 

https://www.cfbenchmarks.com/indices/BRR, and 

https://www.cfbenchmarks.com/indices/BRTI. The 

CME US Reference Rate, the CME UK Reference 

Rate and CME Bitcoin Real Time Price are 

registered benchmarks under the European 

Benchmarks Regulation. 

The Commission has previously 

recognized that the CME bitcoin futures 

market qualifies as a regulated market 21

and that common membership between 

a listing exchange and a futures market 

such as the CME in the Intermarket 

Surveillance Group (‘‘ISG’’) functions as 

‘‘the equivalent of a comprehensive 

surveillance sharing agreement.’’ 22

Valuation of the Trust’s Bitcoin 

The CME US Reference Rate, CME UK 

Reference Rate and CME Bitcoin Real 

Time Price 

According to the Registration 

Statement, the CME UK Reference Rate 

was established by the CME Group and 

Crypto Facilities Ltd. to be used in the 

creation of financial products tied to 

bitcoin. The CME UK Reference Rate is 

fixed once per day at 4:00 p.m. London 

time, based on the methodology set 

forth below and applying data from 

constituent trading platforms 

(‘‘Constituent Platforms’’). The CME US 

Reference Rate was introduced in 

February 2021 and is designed to apply 

the CME UK Reference Rate 

methodology, but with a fix once per 

day at 4:00 p.m. Eastern time (‘‘E.T.’’). 

Although the CME UK Reference Rate 

has a longer history and is used to settle 

bitcoin futures on the CME Market, the 

Trust has determined to utilize the CME 

US Reference Rate to establish the NAV 

because the CME US Reference Rate is 

calculated as of the same time as the 

NAV and is based on the same 

methodology and data sources as the 

CME UK Reference Rate. 

The CME Group and Crypto Facilities 

Ltd. also publish a continuous real-time 

bitcoin price index, known as the ‘‘CME 

Bitcoin Real Time Price,’’ using data 

from the Constituent Platforms. 

The CME US Reference Rate, CME UK 

Reference Rate and CME Bitcoin Real 

Time Price are administered by Crypto 

Facilities Ltd., with the selection of 

Constituent Platforms performed by an 

oversight committee.23 A trading 

platform is eligible to be selected as a 

Constituent Platform if it facilitates spot 

trading of bitcoin against the USD–BTC 

Pair and makes trade data and order 

data available through an Automatic 

Programming Interface with sufficient 

reliability, detail and timeliness. 

Additional initial and continuing 

eligibility requirements apply to the 

Constituent Platforms. 

Each of the CME US Reference Rate, 

which has been calculated and 

published since February 2022, and 

CME UK Reference Rate, which has 

been calculated and published since 

November 2016, aggregates during a 

calculation window the trade flow of 

several spot bitcoin trading platforms 

into the US Dollar price of one bitcoin 

as of their respective calculation time. 

Specifically, the CME US Reference Rate 

is calculated based on the ‘‘Relevant 

Transactions’’ (as defined below) of 

each of its Constituent Platforms, which 

are currently Bitstamp, Coinbase, 

Gemini, itBit, Kraken and LMAX, as 

follows: 

1. All Relevant Transactions are 

added to a joint list, recording the trade 

price and size for each transaction. 

2. The list is partitioned into a 

number of equally-sized time intervals. 

3. For each partition separately, the 

volume-weighted median trade price is 

calculated from the trade prices and 

sizes of all Relevant Transactions. A 

volume-weighted median differs from a 

standard median in that a weighting 

factor, in this case trade size, is factored 

into the calculation. 

4. The CME US Reference Rate or 

CME UK Reference Rate, as applicable, 

is then determined by the equallyweighted average of the volumeweighted medians of all partitions. 

The CME Bitcoin Real Time Price 

uses similar data sources, but is 

calculated once per second based on the 

weighted mid-price-volume curve, 

which is a measure of the active bid and 

ask volume present on a Constituent 

Platform’s order book. 

The CME US Reference Rate, CME UK 

Reference Rate, and CME Bitcoin Real 

Time Price do not include any bitcoin 

futures prices in their respective 

methodologies. A ‘‘Relevant 

Transaction’’ is any ‘‘cryptocurrency 

versus legal tender spot trade that 

occurs during the TWAP [Time 


lotter on DSK11XQN23PROD with NOTICES1EN04OC23.017</GPH>

CME Bitcoin Futures Large Open Interest Holders (LOIH) 

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2018 2019 2020 2021 2022 2023 
68868 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

Weighted Average Price] Period’’ on a 

Constituent Platform in the USD–BTC 

Pair that is reported and disseminated 

by Crypto Facilities Ltd., as calculation 

agent for the CME US Reference Rate, 

CME UK Reference Rate and CME 

Bitcoin Real Time Price. 

Net Asset Value 

Under normal circumstances, the 

Trust’s only asset will be bitcoin. The 

Trust’s bitcoin are carried, for financial 

statement purposes, at fair value, as 

required by the U.S. generally accepted 

accounting principles (‘‘GAAP’’). The 

Trust’s NAV and NAV per Share will be 

determined by the Administrator once 

each Exchange trading day as of 4:00 

p.m. E.T., or as soon thereafter as 

practicable. The Administrator will 

calculate the NAV by multiplying the 

number of bitcoin held by the Trust by 

the CME US Reference Rate for such 

day, adding any additional receivables 

and subtracting the accrued but unpaid 

liabilities of the Trust. The NAV per 

Share is calculated by dividing the NAV 

by the number of Shares then 

outstanding. The Administrator will 

determine the price of the Trust’s 

bitcoin by reference to the CME US 

Reference Rate, which is published and 

calculated as set forth above. 

Intraday Trust Value 

In order to provide updated pricing 

information relating to the Shares for 

use by investors and market 

professionals throughout the domestic 

trading day, the Exchange will calculate 

and disseminate throughout the core 

trading session, every 15 seconds each 

trading day, an intraday trust value 

(‘‘ITV’’). The ITV will be calculated 

throughout the trading day by using the 

prior day’s holdings at close of business 

and the most recently reported price 

level of the CME Bitcoin Real Time 

Price as reported by Bloomberg, L.P. or 

another reporting service, or another 

price of bitcoin derived from updated 

bids and offers indicative of the spot 

price of bitcoin. The ITV will be widely 

disseminated by one or more major 

market data vendors during the NYSE 

Arca Core Trading Session. 

Creation and Redemption of Shares 

The Trust Shares 

According to the Registration 

Statement, the Shares shall represent 

undivided beneficial ownership of the 

Trust. The Trust creates and redeems 

Shares from time to time, but only in 

one or more Creation Units. A Creation 

Unit is only made in exchange for 

delivery to the Trust or the distribution 

by the Trust of the amount of bitcoin 

represented by the Creation Unit being 

created or redeemed, or an equivalent 

amount of cash, the amount of which is 

representative of the combined NAV of 

the number of Shares included in the 

Creation Units being created or 

redeemed determined as of 4:00 p.m. 

E.T. on the day the order to create or 

redeem Creation Units is properly 

received. Except when aggregated in 

Creation Units or under extraordinary 

circumstances permitted under the 

Trust Agreement, the Shares are not 

redeemable securities. A Creation Unit 

will initially consist of at least 25,000 

Shares, but may be subject to change. 

Authorized Participants are the only 

persons that may place orders to create 

and redeem Creation Units. Authorized 

Participants must be (i) registered 

broker-dealers or other securities market 

participants, such as banks and other 

financial institutions, that are not 

required to register as broker-dealers to 

engage in securities transactions 

described below, and (ii) Depository 

Trust Company (‘‘DTC’’) Participants. 

To become an Authorized Participant, a 

person must enter into an Authorized 

Participant Agreement with the Trust 

and/or the Trust’s marketing agent (the 

‘‘Marketing Agent’’). 

Creation Procedures 

According to the Registration 

Statement, on any business day, an 

Authorized Participant may create 

Shares by placing an order to purchase 

one or more Creation Units with the 

Transfer Agent through the Marketing 

Agent. Such orders are subject to 

approval by the Marketing Agent and 

the Transfer Agent. For purposes of 

processing creation and redemption 

orders, a ‘‘business day’’ means any day 

other than a day when the Exchange is 

closed for regular trading. To be 

processed on the date submitted, 

creation orders generally must be placed 

before 4 p.m. E.T. or the close of regular 

trading on the Exchange, whichever is 

earlier, for in-kind orders, but may be 

required to be placed earlier for cash 

orders, at the discretion of the Sponsor. 

The day on which an order is received 

by the Transfer Agent and approved by 

the Marketing Agent, is considered the 

creation order date. 

Creation Units are processed either inkind or in cash. By placing a creation 

order, an Authorized Participant agrees 

to deposit, or cause to be deposited, 

bitcoin with the Trust by initiating a 

Bitcoin transaction to a Bitcoin network 

address identified by the Trust or by 

depositing an equivalent amount of cash 

as determined by the product of the 

amount of bitcoin that is in the same 

proportion to the total assets of the 

Trust, net of accrued expenses and other 

liabilities on the date the order to 

purchase is properly received, and the 

CME US Reference Rate price on the 

creation order date, plus any fees or 

expenses associated with the acquisition 

of the bitcoin by the Trust. Prior to the 

delivery of Creation Units for an in-kind 

creation order, the Authorized 

Participant must also have wired to the 

Transfer Agent the nonrefundable 

transaction fee due for the creation 

order. Authorized Participants may not 

withdraw a creation request. If an 

Authorized Participant fails to 

consummate the foregoing, the order 

may be cancelled. 

The total creation deposit amount 

required to create each Creation Unit is 

an amount of bitcoin, or an equivalent 

amount of cash, that is in the same 

proportion to the total assets of the 

Trust, net of accrued expenses and other 

liabilities, on the date the order to 

purchase is properly received, as the 

number of Shares to be created under 

the creation order is in proportion to the 

total number of Shares outstanding on 

the date the order is received. The 

Sponsor causes to be published each 

business day, prior to the 

commencement of trading on the 

Exchange, the amount of bitcoin that 

will be required to be deposited in 

exchange for one Creation Unit for such 

business day. 

Redemption Procedures 

According to the Registration 

Statement, the procedures by which an 

Authorized Participant can redeem one 

or more Creation Units mirror the 

procedures for the creation of Creation 

Units. On any business day, an 

Authorized Participant may place an 

order with the Transfer Agent through 

the Marketing Agent to redeem one or 

more Creation Units. To be processed on 

the date submitted, redemption orders 

generally must be placed before 4 p.m. 

E.T. or the close of regular trading on 

the Exchange, whichever is earlier, or 

earlier if the redemption order is for 

cash, as determined by the Sponsor. A 

redemption order will be effective on 

the date it is received by the Transfer 

Agent and approved by the Marketing 

Agent (‘‘Redemption Order Date’’). The 

redemption procedures allow 

Authorized Participants to redeem 

Creation Units and do not entitle an 

individual shareholder to redeem any 

Shares in an amount less than a 

Creation Unit, or to redeem Creation 

Units other than through an Authorized 

Participant. 

The redemption distribution from the 

Trust will consist of a transfer to the 

redeeming Authorized Participant, or its 

agent, of an amount of bitcoin 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68869 

24See, e.g., Securities Exchange Act Release No. 

80206 (Mar. 10, 2017), 82 FR 14076 (March 16, 

2017) (SR–BatsBZX–2016–30) (Order Disapproving 

a Proposed Rule Change, as Modified by 

Amendments No. 1 and 2, to BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares, to List and Trade 

Shares Issued by the Winklevoss Bitcoin Trust); 

Securities Exchange Act Release No. 80319 (Mar. 

28, 2017), 82 FR 16247 (April 3, 2017) (SR– 

NYSEArca–2016–101) (Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

No. 1, Relating to the Listing and Trading of Shares 

of the SolidX Bitcoin Trust under NYSE Arca 

Equities Rule 8.201; Securities Exchange Act 

Release No. 83723 (July 26, 2018), 83 FR 37579 

(August 1, 2018) (SR–BatsBZX–2016–30) (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) 

(‘‘Winklevoss Order’’); Securities Exchange Act 

Release No. 83904 (Aug. 22, 2018), 83 FR 43934 

(August 28, 2018) (SR–NYSEArca–2017–139) 

(Order Disapproving a Proposed Rule Change to List 

and Trade the Shares of the ProShares Bitcoin ETF 

and the ProShares Short Bitcoin ETF); Securities 

Exchange Act Release No. 83912 (Aug. 22, 2018), 

83 FR 43912 (August 28, 2018) (SR–NYSEArca– 

2018–02) (Order Disapproving a Proposed Rule 

Change Relating to Listing and Trading of the 

Direxion Daily Bitcoin Bear 1X Shares, Direxion 

Daily Bitcoin 1.25X Bull Shares, Direxion Daily 

Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X 

Bull Shares, and Direxion Daily Bitcoin 2X Bear 

Shares Under NYSE Arca Rule 8.200–E); Securities 

Exchange Act Release No. 83913 (Aug. 22, 2018), 

83 FR 43923 (August 28, 2018) (SR–CboeBZX– 

2018–001) (Order Disapproving a Proposed Rule 

Change to List and Trade the Shares of the 

GraniteShares Bitcoin ETF and the GraniteShares 

Short Bitcoin ETF (‘‘GraniteShares Order’’); 

Securities Exchange Act Release No. 88284 

(February 26, 2020), 85 FR 12595 (March 3, 2020) 

(Sr–NYSEArca–2019–39) (Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

No. 1, to Amend NYSE Arca Rule 8.201–E 

(Commodity-Based Trust Shares) and to List and 

Trade Shares of the United States Bitcoin and 

Treasury Investment Trust Under NYSE Arca Rule 

8.201–E) (‘‘USBT Order’’); Securities Exchange Act 

Release No. 93559 (Nov. 12, 2021), 86 FR 64539 

(Nov. 18, 2021) (SR–CboeBZX–2021–019) (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) (‘‘VanEck Order’’); 

Securities Exchange Act Release No. 93700 (Dec. 1, 

2021), 86 FR 69322 (Dec. 7, 2021) (SR–CboeBZX– 

2021–024) (Order Disapproving a Proposed Rule 

Change To List and Trade Shares of the 

WisdomTree Bitcoin Trust Under BZX Rule 

14.11(e)(4), Commodity-Based Trust Shares) 

(‘‘WisdomTree Order’’); Securities Exchange Act 

Release No. 93859 (Dec. 22, 2021), 86 FR 74156 

(Dec. 29, 2021) (SR–NYSEArca–2021–31) (Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the Valkyrie Bitcoin Fund Under 

NYSE Arca Rule 8.201–E (Commodity-Based Trust 

Shares)) (‘‘Valkyrie Order’’); Securities Exchange 

Act Release No. 93860 (Dec. 22, 2021), 86 FR 74166 

(Dec. 29, 2021) (SR–CboeBZX–2021–029) (Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the Kryptoin Bitcoin ETF Trust 

Under BZX Rule 14.11(e)(4), Commodity-Based 

Trust Shares) (‘‘Kryptoin Order’’); Securities 

Exchange Act Release No. 94006 (Jan. 20, 2022), 87 

FR 3869 (Jan. 25, 2022) (SR–NYSEArca–2021–37) 

(Order Disapproving a Proposed Rule Change To 

List and Trade Shares of the First Trust SkyBridge 

Bitcoin ETF Trust Under NYSE Arca Rule 8.201– 

E) (‘‘SkyBridge Order’’); Securities Exchange Act 

Release No. 94080 (Jan. 27, 2022), 87 FR 5527 (Feb. 

1, 2022) (SR–CboeBZX–2021–039) (Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the Wise Origin Bitcoin Trust 

Under BZX Rule 14.11(e)(4), Commodity-Based 

Trust Shares) (‘‘Wise Origin Order’’); Securities 

Exchange Act Release No. 94395 (Mar. 10, 2022), 87 

FR 14932 (Mar. 16, 2022) (SR–NYSEArca–2021–57) 

(Order Disapproving a Proposed Rule Change To 

List and Trade Shares of the NYDIG Bitcoin ETF 

Under NYSE Arca Rule 8.201–E (Commodity-Based 

Trust Shares)) (‘‘NYDIG Order’’); Securities 

Exchange Act Release No. 94396 (Mar. 10, 2022), 87 

FR 14912 (Mar. 16, 2022) (SR–CboeBZX–2021–052) 

(Order Disapproving a Proposed Rule Change To 

List and Trade Shares of the Global X Bitcoin Trust 

Under BZX Rule 14.11(e)(4), Commodity-Based 

Trust Shares) (‘‘Global X Order’’); Securities 

Exchange Act Release No. 94571 (Mar. 31, 2022), 87 

FR 20014 (Apr. 6, 2022) (SR–CboeBZX–2021–051) 

(Order Disapproving a Proposed Rule Change, as 

Modified by Amendment No. 1, To List and Trade 

Shares of the ARK 21Shares Bitcoin ETF Under 

BZX Rule 14.11(e)(4), Commodity-Based Trust 

Shares) (‘‘ARK 21Shares Order’’); Securities 

Exchange Act Release No. 94999 (May 27, 2022), 87 

FR 33548 (June 2, 2022) (SR–NYSEArca–2021–67) 

(Order Disapproving a Proposed Rule Change To 

List and Trade Shares of the One River Carbon 

Neutral Bitcoin Trust Under NYSE Arca Rule 

8.201–E (Commodity-Based Trust Shares)) (‘‘One 

River Order’’); Securities Exchange Act Release No. 

95180 (June 29, 2022), 87 FR 40299 (July 6, 2022) 

(SR–NYSEArca–2021–90) (Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

No. 1, To List and Trade Shares of Grayscale Bitcoin 

Trust under NYSE Arca Rule 8.201–E (CommodityBased Trust Shares)) (‘‘Grayscale Order’’); Securities 

Excnnage Act Release No. 96011 (Oct. 11, 2022), 87 

FR 62466 (Oct. 14, 2022) (SR–CboeBZX–2022–006) 

(Order Disapproving a Proposed Rule Change To 

List and Trade Shares of the WisdomTree Bitcoin 

Trust Under BZX Rule 14.11(e)(4), CommodityBased Trust Shares) (‘‘WisdomTree Order II’’); 

Securities Exchange Act Release No. 96751 (Jan. 26, 

2023), 88 FR 6328 (Jan. 31, 2023) (SR–CboeBZX– 

2021–031) (Order Disapproving a 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) (‘‘ARK 21Shares 

Order II’’); Securities Exchange Act Release No. 

97102 (Mar. 10, 2023), 88 FR 16055 (Mar. 15, 2023) 

(SR–CboeBZX–2022–035) (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)) 

(‘‘VanEck Order II’’). 

25See Securities Exchange Act Release No. 87267 

(Oct. 9, 2019), 84 FR 55382 (October 16, 2019) (SR– 

NYSEArca–2019–01) (Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

No. 1, Relating to the Listing and Trading of Shares 

of the Bitwise Bitcoin ETF Trust Under NYSE Arca 

Rule 8.201–E) (‘‘Bitwise Order’’) (withdrawn on Jan. 

13, 2020 while delegated action was under review 

by the Commission, see Release No. 90431 (Nov. 13, 

2020), 85 FR 73819 (November 19, 2020)); 

Securities Exchange Act Release No. 95179 (June 

29, 2022), 87 FR 40282 (July 6, 2022) (SR– 

NYSEArca–2021–89) (Order Disapproving a 

Proposed Rule Change To List and Trade Shares of 

the Bitwise Bitcoin ETP Trust Under NYSE Arca 

Rule 8.201–E (Commodity-Based Trust Shares)) 

((‘‘Bitwise Order II’’). 

26 15 U.S.C. 78f(b)(5). 

representing the amount of bitcoin held 

by the Trust evidenced by the Shares 

being redeemed, or an equivalent 

amount of cash. The redemption 

distribution amount is determined in 

the same manner as the determination 

of the bitcoin deposit amount discussed 

above. The Sponsor causes to be 

published each business day, prior to 

the commencement of trading on the 

Exchange, the redemption distribution 

amount relating to a Creation Unit 

applicable for such business day. 

The redemption distribution due from 

the Trust will be delivered once the 

Transfer Agent notifies the Bitcoin 

Custodian and the Sponsor that the 

Authorized Participant has delivered 

the Shares represented by the Creation 

Units to be redeemed to the Trust’s DTC 

account, in the case of an in-kind order. 

If the Trust’s DTC account has not been 

credited with all of the Shares of the 

Creation Units to be redeemed, the 

redemption distribution will be delayed 

until such time as the Transfer Agent 

confirms receipt of all such Shares. In 

the case of a cash redemption order, the 

Bitcoin Custodian will not transfer the 

requisite amount of bitcoin as described 

above to the bitcoin trading 

counterparty unless and until the 

requisite amount of cash has been 

received at the Cash Custodian to fully 

settle the sale of bitcoin to the bitcoin 

trading counterparty. 

Once the Transfer Agent notifies the 

Bitcoin Custodian and the Sponsor that 

the Shares have been received in the 

Trust’s DTC account, the Sponsor will 

instruct the Bitcoin Custodian to 

transfer the redemption bitcoin amount 

from the Trust Bitcoin Account to the 

Authorized Participant’s bitcoin custody 

account in the case of an in-kind order. 

By placing a redemption order, an 

Authorized Participant agrees to receive 

bitcoin, or an equivalent amount of 

cash, as described above, less the 

expenses incurred by the Trust as a 

result of liquidating the Trust’s bitcoin 

in a sale to an approve bitcoin trading 

counterparty. If an Authorized 

Participant fails to consummate the 

foregoing, the order may be cancelled. 

Fee Accrual 

According to the Registration 

Statement, the only ordinary expense of 

the Trust is expected to be the Sponsor’s 

fee, which shall accrue daily in USD 

and be payable monthly in bitcoin. 

Standard for Approval 

Background 

To date, the Commission has 

considered numerous proposed spot 

bitcoin ETPs,24 including prior proposals with respect to the Trust.25 In 

each case, the Commission determined 

that the filing failed to demonstrate that 

the proposal was consistent with the 

requirements of Section 6(b)(5) of the 

Act 26 and, in particular, the 

requirement that the rules of a national 

securities exchange be designed to 


lotter on DSK11XQN23PROD with NOTICES1
68870 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

27The Commission has described a 

comprehensive surveillance sharing agreement as 

including an agreement under which a selfregulatory organization may expressly obtain 

information on (i) market trading activity, (ii) 

clearing activity and (iii) customer identity, and 

where existing rules, laws or practices would not 

impede access to such information. See Letter from 

Brandon Becker, Director, Division of Market 

Regulation, Commission, to Gerard D. O’Connell, 

Chairman, Intermarket Surveillance Group (June 3, 

1994), available at https://www.sec.gov/divisions/ 

marketreg/mr-noaction/isg060394.htm (‘‘ISG 

Letter’’). The Commission has emphasized the 

importance of surveillance sharing agreements, 

noting that ‘‘[s]uch agreements provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

investigate a manipulation if it were to occur.’’ 

Securities Exchange Act Release No. 40761 (Dec. 8, 

1998), 63 FR 70952, 70954, 70959 (Dec. 22, 1998) 

(File No. S7–13–98) (Amendment to Rule Filing 

Requirements for Self-Regulatory Organizations 

Regarding New Derivative Securities Products) 

(‘‘NDSP Adopting Release’’). 

28See Winklevoss Order, 83 FR at 37580. In the 

Winklevoss Order as well as the Bitwise Order and 

USBT Order, the Commission determined that the 

proposing exchange had not established that bitcoin 

markets were uniquely resistant to fraud or 

manipulation, which unique resistance might 

provide protections such that the proposing 

exchange ‘‘would not necessarily need to enter into 

a surveillance sharing agreement with a regulated 

significant market.’’ See Winklevoss Order 83 FR at 

37591; Bitwise Order 84 FR at 55386; and USBT 

Order 85 FR at 12597. In all instances, the 

Commission determined that, while the existing, 

regulated derivatives markets (including the CME 

bitcoin futures market) was a regulated market, the 

proposing exchanges had not demonstrated that the 

regulated derivatives markets had achieved 

significant size. See Winklevoss Order, 83 FR at 

37601; Bitwise Order 84 FR at 55410; and USBT 

Order 85 FR at 12597. In short, the Commission 

determined that a proposing exchange had 

established neither that it had a surveillance 

sharing agreement with a group of underlying 

bitcoin trading platforms, nor that such bitcoin 

trading platforms constituted regulated markets of 

significant size with respect to bitcoin. See 

Winklevoss Order 83 FR 37590–37591; Bitwise 

Order 84 FR at 55407; and USBT Order 85 FR at 

12615. 

29See Winklevoss Order, 83 FR 37594. 30 Id. The Commission further noted that ‘‘[t]here 

could be other types of ‘‘significant markets’’ and 

‘‘markets of significant size,’’ but this definition is 

an example that will provide guidance to market 

participants.’’ See id. This two-prong definition of 

the term ‘‘significant market’’ will be referred to 

herein as the ‘‘significant market test’’ with ‘‘first 

prong’’ referring to the ‘‘reasonable likelihood’’ 

clause (a) and ‘‘second prong’’ referring to the 

‘‘predominant influence’’ clause (b). 

31See Securities Exchange Act Release No. 85093 

(Feb. 11, 2019), 84 FR 4589 (Feb. 15, 2019) ) (SR– 

NYSEArca–2019–01) (Notice of Filing of Proposed 

Rule Change Relating to the Listing and Trading of 

Shares of the Bitwise Bitcoin ETF Trust Under 

NYSE Arca Rule 8.201–E). 

32See Bitwise Asset Management, Presentation to 

the U.S. Securities and Exchange Commission, 

dated March 19, 2019, attached to Memorandum 

from the Division of Trading and Markets regarding 

a March 19, 2019 meeting with representatives of 

Bitwise Asset Management, Inc., NYSE Arca, Inc., 

and Vedder Price P.C., available at https://

www.sec.gov/comments/sr-nysearca-2019-01/

srnysearca201901-5164833-183434.pdf. 

33See Bitwise Order, 84 FR at 55410. 

34See id. at 55411. See also USBT Order, 85 FR 

at 12612. 

35See Securities Exchange Act Release No. 86195 

(June 25, 2019), 84 FR 31373 (July 1, 2019) (SR– 

NYSEArca–2019–39) (Notice of Filing of Proposed 

Rule Change To Amend NYSE Arca Rule 8.201–E 

(Commodity-Based Trust Shares) and To List and 

Trade Shares of the United States Bitcoin and 

Treasury Investment Trust Under NYSE Arca Rule 

8.201–E) (‘‘USBT Proposal’’). 

36See USBT Order, 85 FR at 12612. 

prevent fraudulent and manipulative 

acts and practices. 

Specifically, although comprehensive 

surveillance-sharing agreements 27 are 

not the exclusive means by which a 

listing exchange can meet its obligations 

under Section 6(b)(5) of the Act, the 

Commission has determined that, where 

a listing exchange cannot establish that 

other means to prevent fraudulent and 

manipulative acts and practices are 

sufficient, the listing exchange must 

enter into a surveillance-sharing 

agreement with a regulated market of 

significant size because ‘‘[s]uch 

agreements provide a necessary 

deterrent to manipulation because they 

facilitate the availability of information 

needed to fully investigate a 

manipulation if it were to occur.’’ 28

In the Winklevoss Order, the 

Commission set forth both the 

importance and definition of a 

surveilled, regulated market of 

significant size, explaining that: 

[For all] commodity-trust ETPs approved to 

date for listing and trading, there has been in 

every case at least one significant, regulated 

market for trading futures on the underlying 

commodity—whether gold, silver, platinum, 

palladium, or copper—and the ETP listing 

exchange has entered into surveillancesharing agreements with, or held Intermarket 

Surveillance Group membership in common 

with, that market.29

On an illustrative and not exclusive basis, 

the Commission further defined: 

[T]he terms ‘significant market’ and 

‘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 surveillancesharing agreement would assist the ETP 

listing market in detecting and deterring 

misconduct, and (b) it is unlikely that trading 

in the ETP would be the predominant 

influence on prices in that market.30

In support of the Sponsor’s first 

attempt to satisfy the significant market 

test in 2019,31 the Sponsor conducted 

and presented extensive research into 

the bitcoin market and published a 226- 

slide study of its findings.32 The study 

asserted that the relative size of the CME 

bitcoin futures market compared to real 

size of bitcoin spot markets 

demonstrated that the CME bitcoin 

futures market was a market of 

significant size. 

The Commission disagreed, 

explaining that: 

the evidence that the Sponsor presents 

regarding the relative size of the bitcoin 

futures market and the relationship in prices 

between the spot and futures markets does 

not . . . establish the interrelationship 

between the futures market and the proposed 

ETP, or directionality of that 

interrelationship, that would make the 

bitcoin futures market a ‘‘market of 

significant size’’ in the context of the 

proposed ETP.33

The Commission highlighted the 

central importance of knowing the 

directionality (‘‘lead-lag’’) of the 

interrelationship between the two 

venues when determining if a market 

qualifies as ‘‘significant’’: 

[T]he lead-lag relationship between the 

bitcoin futures market and the spot market 

. . . is central to understanding whether it is 

reasonably likely that a would-be 

manipulator of the ETP would need to trade 

on the bitcoin futures market to successfully 

manipulate prices on those spot platforms 

that feed into the proposed ETP’s pricing 

mechanism. In particular, if the spot market 

leads the futures market, this would indicate 

that it would not be necessary to trade on the 

futures market to manipulate the proposed 

ETP, even if arbitrage worked efficiently, 

because the futures price would move to 

meet the spot price.34

In a subsequent application to trade 

and list the United States Bitcoin and 

Treasury Investment (USBT), the 

Commission rejected a different 

sponsor’s attempt to establish through 

statistical analysis that the CME bitcoin 

futures market led the bitcoin spot 

market from a price discovery 

perspective,35 noting, among other 

things, that: 

[T]he Sponsor has not provided 

sufficient details supporting this 

conclusion, and unquestioning reliance 

by the Commission on representations 

in the record is an insufficient basis for 

approving a proposed rule change in 

circumstances where, as here, the 

proponent’s assertion would form such 

an integral role in the Commission’s 

analysis and the assertion is subject to 

several challenges. For example, the 

[s]ponsor has not provided sufficient 

information explaining its underlying 

analysis, including detailed information 

on the analytic methodology used, the 

specific time period analyzed, or any 

information that would enable the 

Commission to evaluate whether the 

findings are statistically significant or 

time varying.36

In an effort to conduct comprehensive 

research demonstrating the lead-lag 

relationship between the CME bitcoin 

futures market and the spot market 

while providing sufficient information 

to the Commission on the data and 

methodology underlying its analysis, 

the Sponsor met with the Commission 


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37See Matthew Hougan, Hong Kim and Satyajeet 

Pal, ‘‘Price discovery in the modern bitcoin market: 

Examining lead-lag relationships between the 

bitcoin spot and bitcoin futures market,’’ June 11, 

2021, available at https://static.bitwiseinvestments

.com/Bitwise-Bitcoin-ETP-White-Paper-1.pdf. 

38See Matthew Hougan, Hong Kim and Satyajeet 

Pal, ‘‘Is it likely that a US bitcoin ETP, if approved, 

will become the predominant influence on prices in 

the CME bitcoin futures market?,’’ June 11, 2021, 

available at https://static.bitwiseinvestments.com/ 

Bitwise-Bitcoin-ETP-White-Paper-2.pdf. 

39See Bitwise Order II, 87 FR at 40288. 

40See Securities Exchange Act Release No. 94620 

(Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) (SR– 

NYSEArca–2021–53) (Order Granting Approval of a 

Proposed Rule Change, as Modified by Amendment 

No. 2, To List and Trade Shares of the Teucrium 

Bitcoin Futures Fund Under NYSE Arca Rule 

8.200–E, Commentary .02 (Trust Issued Receipts)) 

(‘‘Teucrium Order’’); Securities Exchange Act 

Release No. 94853 (May 5, 2022), 87 FR 28848 (May 

11, 2022) (SR–NASDAQ- 2021–066) (Order 

Granting Approval of a Proposed Rule Change, as 

Modified by Amendment Nos. 1 and 2, To List and 

Trade Shares of the Valkyrie XBTO Bitcoin Futures 

Fund Under Nasdaq Rule 5711(g)) (‘‘Valkyrie XBTO 

Order’’). 

41The ProShares Bitcoin Strategy ETF (‘‘BITO’’) 

launched on October 18, 2021. The Valkyrie Bitcoin 

Strategy ETF (‘‘BTF’’) launched on October 21, 

2021. The VanEck Bitcoin Strategy ETF (‘‘XBTF’’) 

launched on November 15, 2021. 

42See Grayscale Investments, LLC v. SEC, No. 22– 

1142 (D.C. Cir. Aug. 29, 2023), at 10–11. 

43See, e.g., Bitwise Order II, 87 FR at 40289. 

44See Grayscale Investments, LLC v. SEC, No. 22– 

1142 (D.C. Cir. Aug. 29, 2023), at 9–10. 

Staff 14 times between January 2020 and 

August 2021, including members from 

the divisions of Trading and Markets, 

Economic Risk and Analysis, and 

Corporate Finance, to discuss a 

comprehensive approach to conducting 

lead-lag analysis. As a result, in October 

2021, the Exchange filed another rule 

proposal including a 107-page white 

paper from the Sponsor which 

presented the results of this research. 

The research explored the lead-lag 

relationship between the CME bitcoin 

futures market, bitcoin spot market and 

unregulated bitcoin futures market, and 

evidenced that the CME bitcoin futures 

market led the spot market and 

unregulated bitcoin futures market 

(‘‘Bitwise Prong One Paper’’).37 The 

Sponsor also submitted a 24-page white 

paper demonstrating that a new bitcoin 

ETP is unlikely to become the 

predominant influence on prices in the 

CME bitcoin futures market (‘‘Bitwise 

Prong Two Paper’’).38

The Bitwise Prong One Paper 

included a survey and validation of 

bitcoin data sources, a detailed review 

of existing academic literature on the 

topic of lead-lag relationships between 

bitcoin markets, and a rigorous 

statistical analysis using both 

Information Share (IS)/Component 

Share (CS) and Time-Shift Lead-Lag 

(TSLL) metrics comparing the CME 

bitcoin futures market against both spot 

bitcoin platforms and unregulated 

bitcoin futures platforms. The Bitwise 

Prong Two paper included an 

estimation of potential inflows into a 

spot bitcoin ETP and a statistical 

evaluation of the impact of historical 

inflows into other bitcoin investment 

products on the bitcoin market. In 

disapproving the Sponsor’s proposal for 

a second time, the Commission noted 

that: 

even accepting at face value the results of 

Bitwise’s statistical analysis of the 

relationship between the CME bitcoin futures 

market and the spot market, such results are 

only part of the ‘‘mixed’’ record on the topic 

of bitcoin price discovery.39

In light of the foregoing, the following 

discussion will demonstrate that the 

CME bitcoin futures market is a 

regulated market of significant size and 

meets the both prongs of the significant 

market test. Given the stated limitations 

on what the Sponsor’s analysis alone 

can demonstrate, the discussion focuses 

on resolving the ‘‘mixed record’’ in the 

broad academic literature before turning 

to the questions the Commission raised 

regarding the Sponsor’s statistical 

analysis. 

The Approval of Bitcoin Futures ETPs 

Registered Under the Securities Act of 

1933 Demonstrates That the CME 

Bitcoin Futures Market Is a Regulated 

Market of Significant Size Related to 

Spot Bitcoin for the Purposes of 

Satisfying Section 6(b)(5) of the Act 

In 2022, the Commission approved 

rule changes to list and trade shares of 

two CME bitcoin futures-based ETPs 

registered under the Securities Act of 

1933 (the ‘‘Bitcoin Futures ETPs’’).40

Unlike the CME bitcoin futures-based 

ETFs that began trading in 2021,41

which are regulated under the 

Investment Company Act of 1940, the 

listing exchanges for the Bitcoin Futures 

ETPs had to satisfy the requirements of 

Section 6(b)(5) by demonstrating that 

listing markets had in place a 

comprehensive surveillance sharing 

agreement with a regulated market of 

significant size related to CME bitcoin 

futures contracts. In approving the 

applications, the Commission 

concluded that the CME’s surveillances 

could 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.42

While the Commission rejected the 

view that this logic extended to spot 

bitcoin ETPs,43 this view was recently 

rejected by the Court of Appeals for the 

D.C. Circuit. In Grayscale Investments 

LLC v. Securities and Exchange 

Commission (‘‘Grayscale’’), the Court 

observed: 

Grayscale’s proposed bitcoin ETP and the 

approved bitcoin futures ETPs all track the 

bitcoin market price, i.e., the spot market 

price. . . Grayscale presented uncontested 

evidence that there is a 99.9 percent 

correlation between bitcoin’s spot market and 

CME futures contract prices. . . Because the 

spot and futures markets for bitcoin are 

highly related, it stands to reason that 

manipulation in either market will affect the 

price of bitcoin futures. . . To the extent that 

the price of bitcoin futures might be affected 

by trading in both the futures and spot 

markets, the Commission concluded fraud in 

either market could be detected by 

surveillance of the CME futures market.44

The same reasoning applies to the 

instant application. Bitcoin futures 

pricing is based on pricing from spot 

bitcoin markets. If CME’s surveillances 

can capture the effects of trading on the 

relevant spot markets on the pricing of 

bitcoin futures, CME should equally be 

able to capture the effects of trading on 

the relevant spot markets on the pricing 

of spot bitcoin ETPs. The fact that 

bitcoin futures trade on the CME but 

spot bitcoin does not is a distinction 

without difference regarding the matter 

of whether surveillance of the CME 

futures market can be relied upon to 

detect manipulation occurring in the 

spot market. It follows that the CME 

bitcoin futures market is a regulated 

market of significant size related to spot 

bitcoin. 

The Academic Record Demonstrates 

that the CME Bitcoin Futures Market 

Meets the First Prong of the Significant 

Market Test 

The first prong in establishing 

whether the CME bitcoin futures market 

constitutes a ‘‘market of significant size’’ 

is the determination that there is a 

reasonable likelihood that a person 

attempting to manipulate the proposed 

ETP would have to trade on the CME 

bitcoin futures market to successfully 

manipulate the ETP. As detailed in the 

‘‘Background’’ section above, the 

Commission explained in previous 

orders that the lead-lag relationship 

between the bitcoin futures market and 

the spot market is ‘‘central’’ to 

understanding this first prong and 

making this determination. 

The Mixed Academic Record as 

Presented by the Commission 

The Commission has repeatedly cited 

the ‘‘mixed’’ or ‘‘inconclusive’’ 

academic record regarding the lead-lag 

relationship between spot and futures 

markets as a core reason it believed that 


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45See VanEck Order II, 88 FR at 16065. 

46See USBT Order, 85 FR 12613; VanEck Order, 

86 FR at 64547–48; WisdomTree Order, 86 FR at 

69330–32; Kryptoin Order, 86 FR at 74176; Wise 

Origin Order, 87 FR at 5535–36; NYDIG Order, 87 

FR 14939; Global X Order, 87 FR at 14920; ARK 

21Shares Order, 87 FR at 20024. 

47B. Kapar & J. Olmo (2019), ‘‘An analysis of 

price discovery between Bitcoin futures and spot 

markets,’’ Economics Letters, Elsevier, vol. 174(C), 

pages 62–64. (‘‘Kapar and Olmo 2019’’). 

48 Y. Hu, Y. Hou & L. Oxley (2020), ‘‘What role 

do futures markets play in Bitcoin pricing? 

Causality, cointegration and price discovery from a 

time-varying perspective,’’ 72 Int’l Rev. of Fin. 

Analysis 101569 (‘‘Hu et al. 2020’’). 

49See USBT Order, 85 FR at 12613. 

50See id. 

51See Bitwise Order II, 87 FR at 40288. 

the first prong was not met in past 

disapproval orders. For instance, in the 

most recent spot bitcoin ETP 

disapproval order, the Commission 

provided a long list of disapproval 

orders where the Commission has 

commented on this matter: 

As the academic literature and listing 

exchanges’ analyses pertaining to the pricing 

relationship between the CME bitcoin futures 

market and spot bitcoin market have 

developed, the Commission has critically 

reviewed those materials. See WisdomTree 

Order II, 87 FR at 62476–77; Grayscale Order, 

87 FR at 40311–13; Bitwise Order, 87 FR at 

40286–89; ARK 21Shares Order, 87 FR at 

20024; Global X Order, 87 FR at 14920; Wise 

Origin Order, 87 FR at 5535–36, 5539–40; 

Kryptoin Order, 86 FR at 74176; WisdomTree 

Order, 86 FR at 69330–32; Previous VanEck 

Order, 86 FR at 64547–48; USBT Order, 85 

FR at 12613.45

In order to address all of the 

Commission’s critical questions 

regarding the mixed academic record, 

the Sponsor reviewed all eleven 

disapproval orders referenced above and 

summarized the critical questions the 

Commission has raised regarding the 

mixed academic record across these 

orders, as follows. 

In the USBT Order, VanEck Order, 

WisdomTree Order, Kryptoin Order, 

Wise Origin Order, NYDIG Order, 

Global X Order, and ARK 21Shares 

Order, the Commission listed out nine 

academic studies that have evaluated 

the lead-lag relationship between the 

bitcoin futures market and the spot 

market, and provided one-line 

summaries of the key findings of each 

paper, as a means of illustrating the 

mixed nature of the academic record.46

The text below is drawn from Global X 

Order, but is repeated in other Orders as 

well. The studies that found either that 

the spot market led the futures market 

or that the leadership was mixed are set 

forth in bold text. Both paragraph 

spacing and numbering have been 

added for clarity. The Commission’s 

one-line summary of the key findings 

appears in parentheses. 

1. D. Baur & T. Dimpfl, Price discovery 

in bitcoin spot or futures?, 39 J. 

Futures Mkts. 803 (2019) (finding 

that the bitcoin spot market leads 

price discovery). 

2. O. Entrop, B. Frijns & M. Seruset, The 

determinants of price discovery on 

bitcoin markets, 40 J. Futures Mkts. 

816 (2020) (finding that price 

discovery measures vary 

significantly over time without one 

market being clearly dominant over 

the other). 

3. J. Hung, H. Liu & J. Yang, Trading 

activity and price discovery in 

Bitcoin futures markets, 62 J. 

Empirical Finance 107 (2021) 

(finding that the bitcoin spot market 

dominates price discovery). 

4. B. Kapar & J. Olmo, An analysis of 

price discovery between Bitcoin 

futures and spot markets, 174 Econ. 

Letters 62 (2019) (finding that 

bitcoin futures dominate price 

discovery). 

5. E. Akyildirim, S. Corbet, P. 

Katsiampa, N. Kellard & A. Sensoy, 

The development of Bitcoin futures: 

Exploring the interactions between 

cryptocurrency derivatives, 34 Fin. 

Res. Letters 101234 (2020) (finding 

that bitcoin futures dominate price 

discovery). 

6. A. Fassas, S. Papadamou, & A. Koulis, 

Price discovery in bitcoin futures, 

52 Res. Int’l Bus. Fin. 101116 (2020) 

(finding that bitcoin futures play a 

more important role in price 

discovery). 

7. S. Aleti & B. Mizrach, Bitcoin spot 

and futures market microstructure, 

41 J. Futures Mkts. 194 (2021) 

(finding that relatively more price 

discovery occurs on the CME as 

compared to four spot exchanges). 

8. J. Wu, K. Xu, X. Zheng & J. Chen, 

Fractional cointegration in bitcoin 

spot and futures markets, 41 J. 

Futures Mkts. 1478 (2021) (finding 

that CME bitcoin futures dominate 

price discovery). 

9. C. Alexander & D. Heck, Price 

discovery in Bitcoin: The impact of 

unregulated markets, 50 J. Financial 

Stability 100776 (2020) (finding 

that, in a multi-dimensional setting, 

including the main price leaders 

within futures, perpetuals, and spot 

markets, CME bitcoin futures have 

a very minor effect on price 

discovery; and that faster speed of 

adjustment and information 

absorption occurs on the 

unregulated spot and derivatives 

platforms than on CME bitcoin 

futures). 

The Commission has also repeatedly 

raised doubts about the methodology of 

two studies finding that the futures 

market leads the spot market, Kapar and 

Olmo (2019) 47 and Hu et al. (2020),48

writing in the USBT Order: 

The Commission notes that two other 

papers cited by the Sponsor utilize daily spot 

market prices, as opposed to intraday prices. 

See Kapar & Olmo; Hu et al. In seeking to 

draw conclusions regarding which market 

leads price discovery, studies based on daily 

price data may not be able to distinguish 

which market incorporates new information 

faster, because the time gap between two 

consecutive observations in the data samples 

could be longer than the typical information 

processing time in such markets. The 

Sponsor has not provided evidence to 

support the assertion that daily price data is 

sufficiently able to capture information flows 

in the bitcoin market.49

Furthermore, regarding Hu et al. 

(2020), the Commission also noted that 

the analysis included time varying 

results: 

[F]or a period of time spanning over 20% 

of the study, prices in the bitcoin spot market 

led futures market prices. Such time 

inconsistency in the direction of price 

discovery could suggest that the market has 

not yet found its natural equilibrium. 

Moreover, this period spanned the end of the 

study period and the record does not include 

evidence to explain why this would not 

indicate a shift towards prices in the spot 

market leading the futures market that would 

be expected to persist into the future.50

Lastly, in Bitwise Order II, the 

Commission raised the question as to 

whether classic price discovery metrics 

like IS/CS could be trusted at all if, as 

the Sponsor claimed, referencing 

Robertson and Zhang (2022) and 

Buccheri et al. (2021), these metrics 

could produce biased results when the 

price data used has a high level of 

sparsity: 

[Bitwise does not] discuss these 10 IS/CS 

studies in light of Bitwise’s acknowledgment 

that ‘‘classic’’ price discovery metrics like IS/ 

CS could be misspecified, with potentially 

biased results, when price data have a high 

level of sparsity.51

The following section aims to 

comprehensively address all of the 

above critical questions raised by the 

Commission. 

The Sponsor’s Response to the 

Questions Raised by the Commission 

Regarding the ‘‘Mixed’’ Academic 

Record 

The Sponsor’s prior research (Bitwise 

Prong One Paper) included a detailed 

literature review wherein the Sponsor 

examined 10 academic studies 

exploring the lead-lag relationship 

between bitcoin futures and spot 

markets, writing about each study in 


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52 D. Baur & T. Dimpfl (2019), ‘‘Price discovery in 

bitcoin spot or futures?,’’ Journal of Futures 

Markets, 39(7): 803–817 (‘‘Baur and Dimpfl 2019’’). 

53C. Alexander & D. Heck (2019), Price Discovery, 

High-Frequency Trading and Jumps in Bitcoin 

Markets (‘‘Alexander and Heck 2019’’). 

54See Alexander and Heck 2019. 

55See O. Entrop, B. Frijns & M. Seruset (2020), 

‘‘The Determinants of Price Discovery on Bitcoin 

Markets,’’ 40 J. Futures Mkts. 816 (‘‘Entrop et al. 

2020’’). 

56See USBT Order, 85 FR at 12613. 

57See Entrop et al. 2020. 

58See CME bitcoin futures contract specs, 

available at https://www.cmegroup.com/markets/

cryptocurrencies/bitcoin/

bitcoin.contractSpecs.html. 

59See Bitstamp tick sizes before changes made in 

2022, available at https://blog.bitstamp.net/post/ 

changes-to-tick-sizes/. 

detail, and will be referred to as ‘‘prior 

literature review’’ in this proposal. 

Baur and Dimpfl (2019) 52

As the Sponsor detailed in the prior 

literature review, Baur and Dimpfl 

(2019) has a severe methodological flaw 

that led the CME bitcoin futures 

market’s contribution to price discovery 

to appear artificially low: The authors 

conduct their price discovery analysis 

on a per-lifetime-of-each-contract basis, 

rather than a standard rolling-frontmonth-contract basis. 

An independent study, Alexander and 

Heck (2019), explored this issue 

extensively. The paper begins by using 

a standard rolling-front-month-contract 

approach to compare the futures market 

with the spot market, and concludes 

that there is a ‘‘greater contribution to 

price discovery from the futures market 

than the spot market.’’ 53

The paper specifically notes that this 

finding contradicts the findings in Baur 

and Dimpfl (2019), and the authors set 

about resolving this discrepancy by 

repeating their original study using Baur 

and Dimpfl (2019)’s per-lifetime-ofeach-contract approach. The authors 

show that this methodological change 

reverses their original finding and 

shows the spot market leading price 

discovery. The authors conclude by 

explaining why the per-lifetime-of-eachcontract approach is flawed and should 

not be relied on: 

This apparently leading role of the spot 

market [using the per-lifetime-of-eachcontract approach] is not surprising since, 

during the first few months after the 

introduction of a contract, there is always 

another contract with a nearer maturity 

where almost all trading activity occurs. So 

any finding that the spot market dominates 

the price discovery process is merely an 

artifact of very low trading volumes when the 

contract is first issued.54

As regards the first prong, the 

question is not whether each individual 

futures contract leads the spot market, 

but rather, whether the futures market 

as a whole leads the spot market. Given 

this, the rolling-front-month-contract 

approach, which focuses attention on 

the contract that attracts the bulk of 

trading activity at any given time, is the 

correct approach. 

Entrop et al. (2020) 55

Entrop et al. (2020) evaluates price 

discovery in the bitcoin market by 

comparing the CME futures market and 

Bitstamp, a spot market, from December 

2017 to March 2019. The paper finds 

that the CME futures market led price 

discovery for the majority of the time 

period studied. 

Despite the fact that the paper finds 

generally in favor of the futures market 

leading, the Commission calls out 

Entrop et al. (2020) in multiple 

disapproval orders, noting for instance 

in the USBT Order the paper ‘‘finding 

that price discovery measures vary 

significantly over time without one 

market being clearly dominant over the 

other.’’ 56 The Commission’s point 

draws on the fact that, for the last five 

months of the 16 month study, the spot 

market led the futures market in IS/CS 

measures, and that, for the last two 

months of the study, it did so in a 

statistically significant way. The authors 

of the paper note the significant time 

variation in market leadership as well. 

As with Baur and Dimpfl (2019), this 

finding is driven by a methodological 

choice in the study design that 

introduces an artificial bias against the 

CME bitcoin futures market: Whereas 

the vast majority of studies evaluating 

price discovery in the bitcoin market 

use actual transaction prices to conduct 

their analysis, Entrop et al. (2020) uses 

‘‘midquotes’’ (or midpoint of the bid-ask 

spread) in each market. As explored 

further below, the bias introduced by 

this methodological decision is 

exaggerated specifically in the period 

where leadership swings to the spot 

market. 

The authors justify their non-standard 

choice to use midquotes instead of 

transaction prices by pointing to four 

academic studies, itemizing three 

specific advantages: 

First, quotes can be updated in the absence 

of transactions. Second, midquotes mitigate 

the problem of infrequent trading, which is 

normally observed in transaction prices. 

Third, midquotes are not affected by the bidask bounce.57

These theoretical advantages, 

however, must be considered in light of 

the specific microstructure of the 

bitcoin markets, and specifically, the 

sizable difference in ‘‘tick size’’ (or the 

minimum price change) in the CME 

bitcoin market compared to the spot 

market. For CME bitcoin futures 

contracts, the tick size per contract is 

$25.00,58 which equates to $5.00 per 

bitcoin, while for spot platforms like 

Bitstamp (the spot platform used in this 

study), the tick size is typically $0.01.59

In a low volatility environment, 

where the price of bitcoin may trade 

within a single $5.00 range for a period 

of time, the midquote on a spot market 

can update on a tick-by-tick basis as the 

market price of bitcoin moves up or 

down within the range. Meanwhile, the 

midquote on the CME bitcoin futures 

market will not change at all. 

Importantly, this does not mean the 

CME bitcoin futures market has forfeited 

price discovery or that it cannot 

transmit information to other markets. 

Transactions may occur on the CME 

bitcoin futures market at either the ask 

or the bid even as the midquote remains 

static, depending on whether traders 

believe the market is likely to rise or 

fall. By electing to ignore these 

transactions, Entrop et al. (2020) renders 

it significantly harder for the CME 

bitcoin futures market to demonstrate 

price leadership during low volatility 

environments. One cannot measure 

what the eye refuses to see. 

There is strong reason to believe that 

the methodological choice to use 

midquotes biased the time varying 

results of this study. The last two 

months of the study (February and 

March 2019), where the study showed 

the spot market leading the futures 

market in a statistically significant 

manner, occurred during the depth of 

the bitcoin bear market. During this 

period, bitcoin’s price hovered below 

the $4000 mark, rendering the $5 tick 

size particularly large on a percentage 

basis, and bitcoin’s price volatility was 

exceptionally low, as observed in Table 

3 of the study. The impact is clear: 

Midquotes were sampled at a 1 minute 

interval in the study, and amongst the 

22,788 and 29,962 CME midquotes 

sampled for the months of February and 

March 2019, 80.82% and 84.76% of the 

data points represented zero change, as 

observed in Table 4. This was by far the 

highest ratio of zero change samples in 

the study. By comparison, in the first 

two months of the study, only 8.66% 

and 12.32% of the midquotes sampled 

at 1 minute intervals from the CME 

represented zero change. 

The Sponsor believes that the results 

of the last two months, where the 

percentage of sampled midquotes 


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60This paper was published after the Sponsor 

completed the academic literature review in the 

Bitwise Prong One Paper, and therefore was not 

captured or analyzed in that white paper. See J. 

Hung, H. Liu & J. Yang, ‘‘Trading activity and price 

discovery in Bitcoin futures markets,’’ 62 J. 

Empirical Finance 107 (2021) (‘‘Hung et al. 2021’’). 

61See C. Alexander & D. Heck (2020), ‘‘Price 

Discovery in Bitcoin: The Impact of Unregulated 

Markets,’’ Journal of Financial Stability, Volume 50, 

October 2020, Article Number 100776 (‘‘Alexander 

and Heck 2020’’). 

62See Bitwise Order II, 87 FR at 40289. 

63See id. at 40289. 

representing zero change were so high, 

cannot be relied upon to draw the 

conclusion that price discovery 

leadership changed from the futures 

market to the spot market during that 

time, and that the academic record 

should reflect Entrop et al. (2020)’s 

overall finding that the futures market 

leads the spot market. 

Hung et al. (2021) 60

Hung et al. (2021) does not focus on 

price discovery between the bitcoin 

futures market and the spot market. In 

fact, the word ‘‘spot’’ does not appear in 

the paper’s abstract. Instead, the paper 

is primarily focused on investigating the 

relative contributions of different types 

of traders (e.g. hedgers, retailers, etc.) on 

price discovery in the bitcoin futures 

markets, both CME and CBOE, using the 

Commitments of Traders (COT) data 

from the CFTC. Its secondary focus is on 

analyzing price discovery competition 

between the CME and CBOE bitcoin 

futures markets, as a way of exploring 

CBOE’s decision to suspend further 

listings of their bitcoin futures contracts 

in 2019. 

The ancillary nature of the spot vs. 

futures investigation is worth noting 

because it may explain why the 

mathematical oddities in the results of 

that investigation went unexplored by 

the authors. 

Those results are presented in Table 

4 of the paper. The authors use modified 

information share (MIS), a variant of 

classic IS, to evaluate price leadership 

between a single spot platform 

(Bitstamp) and both the CME and CBOE 

futures exchanges, for the period 

between April 10, 2018 and April 30, 

2019. The authors divide this period 

into 56 weeks, and independently 

calculate the MIS for each week, before 

presenting it on an average, minimum, 

and maximum basis. The results show 

that the spot market led the CME futures 

market over this time period with an 

average MIS value of 0.654. 

The table, however, also shows a 

minimum spot market MIS value 

amongst the 56 data points of 0.000 (a 

finding that the CME futures market 

completely led the spot market for at 

least one entire week) and a maximum 

value of 0.999 (a finding that the spot 

market completely led the CME futures 

market for at least one entire week). 

These maximum and minimum 

values are extremely unlikely. Price 

discovery analyses such as MIS are 

statistical analyses where even a slight 

bit of randomness in an otherwise 

clearly lagging price series would still 

produce some contribution to price 

discovery. A 0.000 and 0.999 result is an 

unexplained mathematical oddity hard 

to comprehend, and even more so as 

results come at both ends of the 

spectrum. Amongst all the price 

discovery academic literature the 

Sponsor has reviewed—as well as all 

the papers cited by the Commission— 

there are no other examples where a full 

week’s worth of data between two time 

series has resulted in such extreme 

values. The unprecedented results are 

both so statistically improbable and so 

out-of-line with results from other 

papers that the most likely explanation 

is that some amount of data errors 

existed in the price data that went into 

the analysis. 

Unfortunately, the study’s spot data 

provider (bitcoincharts.com) is no 

longer accessible, and so, it is not 

possible to check the data. In addition, 

the paper does not provide any charts or 

visualizations that would permit the 

Sponsor to visually inspect price 

discovery trends over time and attempt 

to infer some other explanation for these 

highly unusual results. 

Given the anomalous and statistically 

unlikely nature of the results, the 

Sponsor believes that the paper’s 

ancillary findings about price discovery 

between spot and futures markets 

cannot be relied upon and should be 

dismissed. 

Alexander and Heck (2020) 61

Alexander and Heck (2020) stands 

alone from all other academic papers 

cited by the Commission in its review 

of the academic literature by using a 

‘‘multidimensional’’ approach to 

evaluate the source of price discovery 

leadership in the bitcoin market. That 

is, rather than using the classic 

‘‘pairwise’’ approach to IS/CS price 

discovery analysis—comparing 

Exchange A against Exchange B, and 

then comparing Exchange A against 

Exchange C, and so on—Alexander and 

Heck (2020) uses a statistical technique 

that attempts to compare multiple 

exchanges simultaneously. 

The Commission commented on the 

findings of Alexander and Heck (2020) 

in Bitwise Order II, noting that: 

[Alexander & Heck] finds that CME bitcoin 

futures ‘‘have a very minor effect on price 

discovery,’’ and that ‘‘a faster speed of 

adjustment and information absorption 

[occurs] on the unregulated spot and 

derivatives [platforms] than on CME bitcoin 

futures.’’ Specifically, Alexander & Heck’s 

multidimensional analysis—which 

simultaneously includes unregulated futures, 

regulated futures, perpetual futures, and spot 

markets—finds that CME bitcoin futures have 

never accounted for more than 9% of price 

discovery (and unregulated markets 

collectively account for more than 91% of 

price discovery), and have always 

contributed the least to price discovery 

among all venues considered, except during 

July 2019.62

Expanding beyond the specific 

finding, the Commission used 

commentary from this paper to question 

in general the validity of pairwise, twodimensional analysis—the type of 

analysis employed by every other paper 

the Commission references, as well as 

the Sponsor’s own statistical IS and CS 

analysis. 

Quoting a critique from the paper and 

adding its own color, the Commission 

notes: 

[From Alexander and Heck (2020):] 

‘‘omitting substantial information flows from 

other markets can produce misleading 

results. . . .[I]n a two-dimensional model 

one or other of the instruments must 

necessarily be identified as price leader.’’ In 

other words, a two-dimensional model might 

erroneously attribute information share or 

component share of omitted platforms to one 

of the two platforms included in the pairwise 

estimate, because the two shares must 

necessarily sum up to 100%.63

The Sponsor disagrees. To the 

contrary, the Sponsor believes that the 

multidimensional study design 

employed by Alexander and Heck 

introduces a strong bias against the CME 

bitcoin futures market that renders the 

results invalid. 

The core issue with multidimensional 

price discovery analysis, and possibly 

the reason Alexander and Heck (2020) is 

the only study to employ it in this 

context that the Sponsor is aware of, is 

that when comparing price discovery 

amongst different category of markets 

(as in here, regulated futures, 

unregulated futures, and spot), the 

question of which markets appear to 

contribute more to price discovery can 

be biased by the number of constituent 

markets from each category. 

The reason for this bias is that IS/CS 

price discovery measures are based on 

the computation of an implicit 

‘‘common price’’ that is derived from 

the collection of inputted price series. 

The statistical measures track the shares 

of contribution made to changes in the 


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64 In the paper, Alexander and Heck disaggregate 

unregulated futures and perpetuals into separate 

market categories. The Sponsor has grouped them 

here because the two markets are extremely similar: 

Both offer derivative exposure to bitcoin and are 

characterized by their offshore and highly leveraged 

nature (unregulated derivatives markets often offer 

traders 10–100X leverage, while regulated futures 

markets limit leverage to roughly 2–3X). In 

addition, because all three unregulated derivatives 

platforms (Huobi, OKEx, Bitmex) have both 

instruments (futures and perpetuals), it is 

reasonable to assume that the two instruments 

likely share a similar base of traders who can easily 

arbitrage across positions in the two instrument 

types using shared margin, keeping prices closely 

aligned. 

65Huobi futures and OKEx perpetuals did not 

exist in Q2 2019, so the multidimensional analysis 

starts with just 6 markets: 3 spot markets, 2 

unregulated futures markets, and 1 regulated 

futures market. 66See USBT Order, 85 FR at 12613. 

common price by each price series. In 

a multidimensional context, as more 

alike markets are added, those markets 

can artificially appear to contribute 

more to changes in the common price 

because the common price itself 

changes with the addition of more 

markets. For example, if market A 

objectively leads both market B and and 

market C, but market B and market C 

have very similar price series, a 

multidimensional analysis amongst all 

three markets can erroneously conclude 

that market A’s movements contributed 

less to changes in the common price 

than market B and C, simply because 

the latter two markets were similar. 

Looking at Alexander and Heck (2020) 

with this understanding, the Sponsor 

notes that the paper’s final analysis 

compares eight markets in its 

multidimensional format, and that these 

eight markets fit into three broad 

categories: Regulated futures (CME), 

unregulated futures (Huobi futures, 

OKEx futures, OKEx perpetuals, and 

Bitmex perpetuals), and spot (Coinbase, 

Bitfinex, Bitstamp).64

Given these inputs, it is 

unsurprising—and perhaps even 

predetermined—that the results of the 

multidimensional analysis showed that 

the unregulated futures markets (with 

four markets included in the analysis) 

were found to dominate price discovery, 

with the three spot markets following, 

and the one regulated futures market 

coming in last. 

The Sponsor’s conclusion that the 

results of Alexander and Heck (2020) 

are driven by study design, rather than 

accurately reflecting the true source of 

price discovery in the markets, is 

supported by a paper published by the 

same authors in the prior year. 

Alexander and Heck (2019) uses a 

classic, pairwise, two-dimensional price 

discovery analysis to compare the CME 

futures market and the bitcoin spot 

market (represented by a reconstructed 

version of BRR which includes 

transactions from Coinbase and 

Bitstamp). The study finds that the CME 

futures market led the spot market. 

The two studies generally focus on 

different time periods, but they overlap 

for one quarter: Q2 2019. Notably, in the 

2019 paper, Alexander and Heck call 

out the significant leadership 

demonstrated by the CME market during 

Q2 2019. Specifically, they note that the 

Generalized Information Share (GIS) 

attributed to the CME grew from 56% 

for the period from December 2017 to 

March 2019, to 65% when Q2 2019 was 

added to the analysis. The authors do 

not provide a discrete GIS value for Q2 

2019, but the rise in overall GIS after 

including the quarter indicates that the 

GIS for Q2 2019 was likely above 75%. 

By comparison, in Alexander and 

Heck (2020), CME’s GIS ranged from 

3.23% to 5.83% in Q2 2019, while the 

combined GIS of the three included spot 

markets (Coinbase, Bitfinex, Bitstamp) 

ranged from 41.60% to 50.20%, (the 

remainder was attributed to unregulated 

futures markets).65

How could the results be so different? 

CME dominated price discovery in Q2 

2019 when compared on a pairwise 

basis with spot markets, but spot 

markets had a much larger share of price 

discovery than the CME when analyzed 

on a multidimensional basis. The most 

likely explanation is that the 

multidimensional analytical approach 

created a bias in the ‘‘common price’’ by 

adding three spot markets into the mix 

compared to just one regulated futures 

market. 

Lastly, Alexander and Heck’s critique 

(and the Commission’s concern) that 

two-dimensional analysis omits 

information flows from other markets 

and thereby may generate spurious 

results is misleading. It is, of course, 

axiomatically true in isolation that 

omitting a market from consideration 

could lead to spurious results. But as 

long as the two-dimensional analysis 

includes all potential leading markets, 

an exhaustive pairwise analysis will 

ultimately find the market that is 

leading overall. Put differently, if you 

can show that Market A leads Market B 

and also that Market A leads Market C, 

you can feel confident that Market A 

leads both Markets B and C. 

Unfortunately, the same cannot be said 

for multidimensional analysis, where, as 

demonstrated by comparing the 2019 

and 2020 papers, adding additional 

‘‘like markets’’ can influence the 

‘‘common price’’ and create spurious 

results. 

The Sponsor believes that the 

traditional, pairwise approach to price 

discovery analysis—the dominant 

approach in the academic literature—is 

the correct approach for exploring the 

lead-lag relationship between the 

bitcoin futures market and the spot 

market, and the multidimensional 

approach is mis-specified. 

Kapar and Olmo (2019) 

Kalpar and Olmo (2019) finds that the 

CME futures market dominates price 

discovery when compared to the spot 

market. The Commission, however, 

raises a concern about this study’s 

choice to use a daily price sampling 

period rather than a more frequent 

sampling period, and questions the 

validity of the results. This concern also 

applies to Hu et al. (2020). 

The Commission writes in the USBT 

Order: 

[S]tudies based on daily price data may not 

be able to distinguish which market 

incorporates new information faster, because 

the time gap between two consecutive 

observations in the data samples could be 

longer than the typical information 

processing time in such markets.66

The Sponsor believes that the 

requirement that the ‘‘the time gap 

between two consecutive observations’’ 

be shorter than the ‘‘information 

processing time’’ of the market in 

question is not supported by the 

academic literature and is, in fact, 

directly in contrast to the standard used 

in all nine academic studies listed by 

the Commission, as well as all studies 

that the Sponsor is aware of. 

In the Bitwise Prong One Paper, the 

Sponsor conducted a comprehensive 

study of bitcoin spot markets and the 

CME bitcoin futures market using timeshift lead-lag (TSLL) analysis, wherein 

you shift one time series against another 

to find the amount of shift that creates 

the highest correlation between the two 

series. Using this well-established 

technique, the Sponsor estimated that 

the average ‘‘lead-lag time’’ between the 

CME bitcoin futures market and 

Coinbase, a spot market, from April 

2019 to September 2020, was 2.94 

seconds. This can be considered as the 

time it took, on average, for information 

to travel between the CME and 

Coinbase. 

If it takes only 2.94 seconds on 

average for information to travel 

between the CME and Coinbase, is all 

price discovery analysis that uses 

sampling intervals longer than 2.94 

seconds unequipped to explore which 

market leads? 

For the nine studies noted by the 

Commission as constituting the ‘‘Mixed 

Academic Record,’’ the sampling 


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67See Bitwise Order II, 87 FR at 40288. 

68S. Shi, P. C. Phillips, & S. Hurn (2018), ‘‘Change 

Detection and the Causal Impact of the Yield 

Curve,’’ Journal of Time Series Analysis, 39(6), 966– 

987 (‘‘Shi et al. 2018’’). 

69See id. at 1. 

70See Hu et al. 2020 at 9. 

71 K. Robertson & J. Zhang (2022), Suitable Price 

Discovery Measurement of Bitcoin Spot and Futures 

Markets (‘‘Robertson and Zhang 2022’’). 

72 G. Buccheri, G. Bormetti, F. Corsi & F. Lillo 

(2021), ‘‘Comment on: Price Discovery in High 

Resolution,’’ Journal of Financial Econometrics, 

Volume 19, Issue 3, Summer 2021, Pages 439–451, 

(‘‘Buccheri et al. 2021’’). 

73The sponsor submitted a comment letter that 

discusses Robertson and Zhang 2022. See Letter 

from Katherine Dowling, Matt Hougan, and Paul 

Fusaro, Bitwise, dated Feb. 25, 2022 (‘‘Bitwise 

Letter I’’). 

74See Bitwise Letter I, at 3. 

75See Bitwise Order II, 87 FR at 40288. 

76See id. 

intervals were (in the order in which the 

papers were cited) 15 minutes, 1 

minute, 15 minutes, 1 day, between 1 

and 60 minutes, 60 minutes, 5 minute, 

1 minute, and 1 minute. This is a wide 

range of values, ranging from 1 minute 

to 1 day, but all of them are at least 20X 

longer than the average lead-lag time 

that the Sponsor found between the 

CME futures market and Coinbase. 

The record is similar in the broader, 

non-crypto-related price discovery 

literature, where minutely, hourly, or 

daily analyses are common. 

Academics still find daily analysis 

useful, even in markets with fast 

information processing time, for a 

reason: Even if the sampling period is 

longer than the information processing 

time, at each sampling point, there will 

still likely be a gap between two 

markets’ prices, and analyzing 

statistically whether market A’s prices 

move to meet market B’s prices or vice 

versa and which market’s price as a 

result contributes more to the ‘‘common 

price’’ is still useful in determining 

which market leads price discovery. 

The Sponsor believes that price 

leadership at a daily interval still 

illustrates which market bends to meet 

the other market, and should not be 

removed from the academic record 

under consideration. 

Hu et al. (2020) 

Hu et al (2020) strongly supports the 

notion that the futures market leads the 

spot market. Indeed, the abstract of the 

paper finds that: 

. . . futures prices Granger cause spot prices 

and that futures prices dominate the price 

discovery process. 

In Bitwise Order II, however, the 

Commission wrote that the: 

Hu, Hou & Oxley paper found inconclusive 

evidence that futures prices lead spot bitcoin 

prices—in particular, that the months at the 

end of the paper’s sample period showed, 

using Granger causality methodology, that 

the spot market was the leading market—and 

that the record did not include evidence to 

explain why this would not indicate a shift 

towards prices in the spot market leading the 

futures market that would be expected to 

persist into the future.67

The Sponsor believes this is a 

misreading of the results of the paper. 

The primary objective of Hu et al. 

(2020) is to explore the time-varying 

nature of the lead-lag relationship 

between the bitcoin futures market and 

spot market. In order to do that, the 

authors use a time-varying version of 

the Granger causality test developed in 

Shi et al. (2018).68 The time-varying 

Granger causality test has two main 

variants: the rolling window approach 

and the recursive evolving approach. 

Hu et al. (2020) references that the 

authors of Shi et al. (2018) explicitly 

note that the recursive evolving 

approach is the more accurate approach: 

Simulation experiments compare the 

efficacy of the proposed test with two other 

commonly used tests, the forward recursive 

and the rolling window tests. The results 

indicate that the recursive evolving approach 

offers the best finite sample performance, 

followed by the rolling window algorithm.69

Under the lesser of the two 

approaches—the rolling window 

algorithm—it is true that CME futures 

prices are not found to Granger cause 

spot prices for the last five months of 

the study. However, under the recursive 

evolving approach, CME futures prices 

are found to Granger cause spot prices 

for the entire study period, and do so 

with increasing strength towards the 

end of the study, as shown in Figure 6 

of the study. How do you resolve the 

conflict? The authors reference Shi et al. 

(2018)’s perspective that ‘‘the recursive 

evolving window algorithm provides 

the most reliable results’’ and therefore 

choose to interpret the results based on 

this method. Indeed, they write 

conclusively about this topic to avoid 

any doubt, saying: 

More importantly, given the duration of the 

Granger-causal episodes and the magnitude 

of the test statistics in Fig. 5 and Fig. 6, it 

was found that the strength of Granger 

causality from the futures prices to spot 

prices is stronger than vice-versa. From this 

we conclude that Granger causality runs from 

the futures market to the spot market. This 

result further suggests that the CME Bitcoin 

futures market leads the spot since the former 

embeds the new information faster than the 

latter.70

The authors’ conclusion—based on a 

deep understanding of the analytical 

methods used—is that the CME futures 

prices Granger caused spot prices for the 

entire period of the study and that the 

CME futures market conclusively leads 

the spot market even when examined 

using time-varying analytical 

approaches, and the Sponsor finds no 

reason to question the conclusivity of 

the study. 

Robertson and Zhang (2022) 71 and 

Buccheri et al. (2021) 72

In Bitwise Order II, the Commission 

raised questions regarding a statement 

the Sponsor made in a February 25, 

2022 Comment Letter,73 discussing two 

academic papers: Robertson and Zhang 

(2022) and Buccheri et al. (2021). 

The Sponsor’s letter noted that the 

papers raised questions about the 

accuracy of traditional price discovery 

metrics like IS and CS, writing: 

[Robertson and Zhang] note that classic 

price discovery metrics like Information 

Share (IS) and Component Share (CS) ‘‘face 

difficulties based on the model assumptions 

of VECM [the Vector Error Correction Model] 

when the prices under consideration are 

asynchronous and/or infrequent.’’ Citing 

Buccheri et al. (2019), they note that ‘‘when 

prices have a high level of sparsity, the 

VECM is clearly misspecified and the 

estimates are potentially biased.’’ 74

Given the Sponsor’s 

acknowledgement that classic price 

discovery metrics like IS/CS could be 

biased by sparsity in price data, the 

Commission deemed it odd that the 

Sponsor still drew conclusions from the 

academic literature without further 

explanation: 

[Bitwise does not] discuss these 10 IS/CS 

studies in light of Bitwise’s acknowledgment 

that ‘‘classic’’ price discovery metrics like IS/ 

CS could be misspecified, with potentially 

biased results, when price data have a high 

level of sparsity.75

Furthermore, the Commission 

suggested that the Sponsor was 

implicitly casting doubt on the results of 

its own IS/CS analysis as well: 

Bitwise’s acknowledgement of the 

[Robertson and Zhang (2022) paper]’s finding 

that ‘‘there is a high level of sparsity in 

bitcoin data’’ suggests that, by its own 

admission, Bitwise’s IS/CS approach is 

misspecified and its estimates potentially 

biased.76

The Sponsor would like to clear up 

this misunderstanding. 

It is indeed true that the CME bitcoin 

futures market has a high level of 

sparsity in its transaction data compared 

to that of spot markets, because CME 


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77See CME bitcoin futures contract specs, 

available at https://www.cmegroup.com/markets/

cryptocurrencies/bitcoin/bitcoin.

contractSpecs.html; see also Coinbase market specs, 

available at https://exchange.coinbase.com/ 

markets. 

78See Robertson and Zhang 2022, at 14. 

79See Bitwise Order II, 87 FR at 40288. 

80 Id. 

bitcoin futures contracts have much 

higher tick sizes ($5 vs. $0.01 per 

bitcoin on Coinbase) and minimum 

trade sizes (5 bitcoin vs. 0.00000001 

bitcoin on Coinbase).77 Robertson and 

Zhang (2022) includes a table in the 

Appendix of their study where the 

authors quantify this sparsity 

concretely: For Q1 2021, the average 

seconds between trades (rounded) was 

25 seconds for CME and 1 second for 

Coinbase. 

It is also true that, if one price series 

of a two-dimensional price discovery 

analysis has a high degree of sparsity 

compared to the other price series, the 

results can be potentially biased. 

Robertson and Zhang (2022) 

demonstrates this incredibly clearly 

through a simulation analysis 

constructed as below (copied directly 

from the paper): 

[W]e compare the Coinbase USD market to 

an artificially modified version of itself using 

IS and CS every day from Q1 2019 through 

Q1 2021. The artificial modifications come in 

two forms: (1) the market’s trade times are 

advanced by 3 seconds to represent a leading 

market and then (2) a percentage (in 10% 

increments starting at 10% and ending at 

90%) of random trade values is removed to 

represent leading markets with varying levels 

of sparsity.78

The results of the simulation analysis 

is that the artificially-leading Coinbase 

price series is found to lead close to 

100% (as expected) when only 10% of 

the trade values are removed. Then as 

the percentage of trade values randomly 

removed increases towards 90%, the 

price leadership of the artificiallyleading Coinbase price series trends 

down, approaching 0%. With only 

about 40% of the trade values removed, 

the leadership actually flips directions, 

with IS and CS values dropping below 

50%. In other words, introducing 

sparsity into a price series can cause it 

to appear as if it is lagging the other 

price series using IS and CS, even when 

the price series is objectively leading 

originally. This is the ‘‘potential bias’’ 

we acknowledged and agreed with the 

authors of the study on. 

It is important to note, however, that 

this bias only runs one way: Against the 

market with higher data sparsity. As 

such, the acknowledgement of this 

statistical bias does not mean results 

cannot be relied on in a situation where 

the market with higher data sparsity is 

found to lead price discovery. Quite the 

contrary. 

In all studies comparing the CME 

bitcoin futures market and spot markets, 

the CME futures market has a higher 

degree of sparsity. As a result, in each 

of these studies, the IS/CS values for the 

CME bitcoin futures market are biased 

downwards compared to that of spot 

markets. This means we can rely on IS/ 

CS results showing the CME futures 

market leading spot markets, as those 

results only understate the strength of 

the CME futures market’s price 

leadership. 

Section Summary 

The Sponsor does not believe that the 

academic literature is mixed. Instead, it 

finds a high degree of consensus 

amongst well-designed studies showing 

that the CME futures market leads the 

spot market. This finding is all-the-more 

impressive given the high degree of 

sparsity in the CME bitcoin futures 

market, which introduces a significant 

bias against it in traditional price 

discovery analysis. 

As such, the Sponsor believes the 

academic record clearly demonstrates 

that the CME bitcoin futures market 

leads the spot market, and therefore 

meets the first prong of the significant 

market test. 

The Sponsor’s Comprehensive Research 

Demonstrates That the CME Bitcoin 

Futures Market Meets Both Prongs of 

the Significant Market Test 

As detailed in the ‘‘Background’’ 

section, following the first Bitwise 

disapproval Order, the Sponsor, in an 

effort to conduct comprehensive 

research demonstrating both prongs of 

the significant market test while 

providing sufficient information to the 

Commission on the data and 

methodology underlying its analysis, 

met with the Commission Staff 14 times 

between January 2020 and August 2021, 

including with staff from the Divisions 

of Trading and Markets, Economic Risk 

and Analysis, and Corporate Finance, 

and produced two white papers, one 

addressing each prong. 

The 107-page Bitwise Prong One 

Paper included a survey and validation 

of bitcoin data sources, a detailed 

review of existing academic literature 

on the topic of lead-lag relationships 

between bitcoin markets, and a rigorous 

statistical analysis using both 

Information Share (IS)/Component 

Share (CS) and Time-Shift Lead-Lag 

(TSLL) metrics comparing the CME 

bitcoin futures market against both spot 

bitcoin platforms and unregulated 

bitcoin futures platforms. The 24-page 

Bitwise Prong Two paper included an 

analysis of potential inflows into a spot 

bitcoin ETP and a statistical evaluation 

of the impact of historical inflows into 

other bitcoin investment products on 

the bitcoin market. 

Both the Bitwise Prong One Paper and 

the Bitwise Prong Two Paper were 

included in full as exhibits in the rule 

proposal disapproved in Bitwise Order 

II, and their analyses formed the core 

arguments around why the Sponsor and 

the Exchange believed the CME bitcoin 

futures market had met both prongs of 

the significant market test. The 

Commission disagreed with the 

Sponsor’s analyses and listed out five 

specific disagreements regarding the 

first prong analysis and three specific 

disagreements regarding the second 

prong analysis. 

The following sections will 

comprehensively address all eight 

disagreements the Commission raised 

regarding the Sponsor’s prior analyses 

in Bitwise Order II. 

The Sponsor’s Response to the 

Disagreements Raised by the 

Commission Regarding the Sponsor’s 

Prior Analysis of the First Prong of the 

Significant Market Test 

Disagreement 1: The Sponsor’s 

acknowledgement of the concerns raised 

in Robertson and Zhang (2022) and 

Buccheri et al. (2021) casts doubt on its 

own IS/CS results. 

The first disagreement raised by the 

Commission regarding the Sponsor’s 

prior analysis of the first prong focuses 

on the Sponsor’s acknowledgement of 

certain academic concerns surrounding 

IS/CS price discovery analysis. 

According to the Commission: 

Bitwise’s first comment letter 

acknowledges that ‘‘classic’’ price discovery 

metrics like IS and CS ‘‘face difficulties based 

on the model assumptions of VECM [the 

Vector Error Correction Model] when the 

prices under consideration are asynchronous 

and/or infrequent,82 citing an academic study 

by Buccheri et al.83 that investigates the 

difficulties to identifying price discovery 

with VECM models due to the high sparsity 

of data in markets that record trades at the 

sub-millisecond level. Bitwise also 

acknowledges that, ‘‘when prices have a high 

level of sparsity, the VECM is clearly 

misspecified and the estimates are 

potentially biased.’’ 79

The Commission suggests that this 

means ‘‘by its own admission, Bitwise’s 

IS/CS approach is misspecified and its 

estimates potentially biased.’’ 80

The Sponsor disagrees. As detailed 

earlier in this proposal, in the section 

under the sub-head ‘‘Robertson and 

Zhang (2022) 81 and Buccheri et al. 


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81See Robertson and Zhang 2022. 

82 Giuseppe Buccheri et al. (2021), ‘‘Comment on: 

Price Discovery in High Resolution,’’ Journal of 

Financial Econometrics, Volume 19, Issue 3, 

Summer 2021, pp. 439–451 (‘‘Buccheri et al. 

2021’’). 

83See Bitwise Order II, 87 FR at 40288 (emphasis 

in original). 84See Bitwise Order II, 87 FR at 40289. 

85See Grayscale Order, 87 FR at 40313. 

86See Bitwise Order, 84 FR at 55411. 

87See id. at 40313. 

(2021),’’ 82 the bias that sparsity 

introduces into IS/CS statistics runs in 

a single direction, punishing the market 

with the higher level of sparsity. In each 

and every pairwise investigation in the 

Sponsor’s analysis, the CME bitcoin 

futures market is the market with the 

higher level of sparsity. Therefore, the 

IS/CS price discovery ascribed to the 

CME bitcoin futures market in each 

investigation should be considered the 

lower bound of actual contribution, and 

that the actual contribution of the CME 

to price discovery is likely higher than 

stated. 

The fact that IS/CS statistics are 

biased against markets with higher 

levels of sparsity does not weaken the 

Sponsor’s argument that the CME 

bitcoin futures market led other markets 

from a price discovery perspective. It 

actually strengthens it. 

Disagreement 2: The Sponsor 

performed its IS, CS and TSLL analysis 

on a daily basis before the monthly or 

full-sample averaging was applied and 

did not adequately explain why daily 

was the appropriate frequency to 

calculate intermediate values instead of 

different frequencies such as intraday. 

The second disagreement the 

Commission raised focused on the 

Sponsor’s use of daily results as 

intermediate values. Specifically, in its 

analysis, the Sponsor performed IS, CS 

and TSLL analysis on a per day basis, 

and then averaged the daily results both 

by month and across the full-sample 

period. 

The Commission observed: 

However, neither the Exchange nor Bitwise 

explains why Bitwise chose a daily basis to 

compute its IS, CS, and TSLL estimates; 

provides any information about how variable 

the daily estimates are, before the monthly 

and/or full-sample averaging was applied; or 

provides any information on the robustness 

of the estimates—that is, whether these daily 

estimates or the statistical significance of the 

monthly and/or full-sample averages of such 

daily estimates are sensitive to different 

choices that Bitwise could have made for the 

analysis (e.g., to compute intraday 

estimates).83

Price discovery metrics are not ‘‘point 

in time’’ metrics, but rather, calculations 

that require statistical analysis over a 

reasonable period of time. This is why 

all ten studies in the prior literature 

review, as well as all subsequent studies 

noted by the Commission, have 

evaluated price discovery on either a 

daily or a generalized ‘‘full study 

period’’ basis. The Sponsor elected to 

use the more-frequent daily basis to 

better capture and display potential 

time-dependent changes in leadership, 

as the Commission previously raised 

questions around this topic. To be clear, 

evaluating price discovery on an 

intraday basis would have been 

completely out-of-consensus compared 

to all academic studies reviewed by 

both the Sponsor and the Commission, 

and it is not clear what conclusions 

could have been drawn by such analysis 

since price discovery analysis of time 

periods that are too short can lead to 

spurious results. 

Additionally, the Sponsor disagrees 

with the statement that it has not 

provided ‘‘any information on the 

robustness of the estimates.’’ The 

Sponsor included statistical significance 

tests and visual 95% confidence 

intervals on its monthly results 

specifically to highlight the robustness 

of the underlying daily estimates. The 

Sponsor also provided detailed 

guidance on its data inputs and 

methodology—and relied only on 

publicly available statistical tools—so 

that any observer with additional 

questions about the study could easily 

replicate the results, adjust them to their 

own specifications, or drill down on any 

specific potential analytical angle. 

Disagreement 3: The Sponsor has not 

explained why it is reasonably likely 

that a would-be manipulator would 

have to trade on the CME to successfully 

manipulate the proposed ETP when the 

spot markets still account for 32–47% of 

price discovery. 

The Commission observed: 

[T]he pairwise IS/CS full-sample average 

results for CME compared to each of the 10 

spot platforms ranged between 52.97% (the 

CS result versus itBit) to 68.03% (the CS 

result versus Bitstamp). Even accepting these 

results and their statistical significance at 

face value, these results suggest that spot 

bitcoin markets still account for 

approximately 32%-47% of price discovery. 

Yet neither Bitwise nor the Exchange has 

explained why, notwithstanding this amount 

of price discovery occurring on spot 

platforms, it is reasonably likely that a 

would-be manipulator would nonetheless 

have to trade on the CME bitcoin futures 

market to successfully manipulate the 

proposed ETP.84

The response to this query lies in the 

words of the Commission itself. 

Through multiple disapproval orders, 

the Commission has highlighted the 

importance of the ‘‘lead-lag 

relationship’’ between the CME bitcoin 

futures market and the spot market in 

satisfying the first prong of the 

significant market test. For instance, in 

the Grayscale Order, the Commission 

wrote: 

The Commission considers the lead/lag 

relationship between the CME bitcoin futures 

market and the spot bitcoin market to be 

central to understanding whether it is 

reasonably likely that a would-be 

manipulator of a spot bitcoin ETP would 

need to trade on the CME bitcoin futures 

market to successfully manipulate the 

proposed ETP.85

The Commission has also clarified 

exactly why this lead/lag relationship is 

so important, writing for instance in the 

Bitwise Order: 

[I]f the spot market leads the futures 

market, this would indicate that it would not 

be necessary to trade on the futures market 

to manipulate the proposed ETP, even if 

arbitrage worked efficiently, because the 

futures price would move to meet the spot 

price.86

The Commission has carried this 

language through more than a dozen 

disapproval orders and across multiple 

years, emphasizing the ‘‘central’’ 

importance of the ‘‘lead-lag 

relationship’’ in understanding whether 

it is reasonably likely that a would-be 

manipulator would have to trade on the 

CME bitcoin futures market to 

successfully manipulate the proposed 

ETP. 

The Commission further clarified that 

the significant market test does not 

require the CME market to lead bitcoin 

spot markets 100% of the time, noting 

in the Grayscale Order: 

A lead/lag statistical result that CME 

bitcoin futures prices ‘‘lead’’ spot prices does 

not mean that CME bitcoin futures prices 

‘‘always’’ move before spot prices—which 

would be [an] ‘‘obvious’’ and exploitable 

arbitrage opportunity. . .87

The Commission is now turning back 

to the Sponsor to ask why the standard 

of ‘‘leads’’ having more than 50% of 

price discovery, is sufficient to satisfy 

the first prong. The Sponsor’s answer 

can only be that 50% is the uniform 

academic standard across every price 

discovery paper the Sponsor has 

reviewed, as well as all academic papers 

the Commission has referenced, for the 

standard the Commission has set. 

If the Commission believes that the 

standard for satisfying the first prong 

should be higher than ‘‘leads’’ (such as, 

‘‘overwhelmingly leads’’ or ‘‘nearly 

always leads’’), then the Commission 

should state that. Until then, the 

analysis will assume that determining 

whether the CME futures market 

‘‘leads’’ or ‘‘lags’’ the spot market is 


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88See Bitwise Order II, 87 FR at 40289. 89See Bitwise Order II, 87 FR at 40289. 

‘‘central’’ to understanding the first 

prong and that the Sponsor’s IS/CS 

analysis that applies the academic 

consensus methodologies in making 

such determination is valid. 

Disagreement 4: The Sponsor’s TSLL 

results show that the extent to which the 

CME bitcoin futures market ‘‘leads’’ the 

10 spot markets has decreased since 

2019. The Sponsor has not explained 

the implication of the CME’s decreasing 

lead time over the identified spot 

markets, nor why the CME’s ‘‘lead’’ time 

against the spot markets would not be 

expected to continue to decrease until it 

lags spot. 

The Commission writes: 

[T]aking Bitwise’s TSLL results at face 

value, as Bitwise acknowledges, the extent to 

which the CME bitcoin futures market 

‘‘leads’’ the 10 unregulated spot platforms 

has decreased since 2019 to the end of 

Bitwise’s sample period in September 2020. 

This general trend is also observed in the 

[Robertson and Zhang (2022)] TSLL analysis, 

which uses a longer sample period (to Q1 

2021) and finds that the CME’s average 

‘‘lead’’ time has ‘‘steadily decreased’’ among 

all evaluated markets to about one second in 

Q4 2020 and Q1 2021. The record, however, 

does not explain the implication of the 

CME’s decreasing lead over the identified 

spot platforms, nor why the CME’s ‘‘lead’’ 

time against spot platforms would not be 

expected to continue to decrease throughout 

2021 and 2022 until it ‘‘lags’’ spot 

platforms.88

The Sponsor believes that this 

disagreement reflects a simple 

misinterpretation of the TSLL analysis. 

TSLL analysis is designed to show 

whether prices on one market lead or 

lag prices on another market. It achieves 

this goal by shifting prices forward and 

backward and finding the shift that 

produces the highest level of 

correlation. In this view, a longer lead 

time is not indicative of a stronger 

relationship; it is simply indicative of 

different times it takes for information 

to travel. 

A shorter lead time suggests that there 

is a faster transmission of information 

from one market to another. The correct 

way to interpret the shortening lead 

time between the CME bitcoin futures 

market and the spot market is that the 

rate at which information passes from 

the CME futures market to the spot 

market is accelerating. 

There is no indication in the results, 

however, that the direction of 

information flow is changing; indeed, as 

the lead times decrease, the confidence 

intervals also tighten to indicate that the 

lead times are still statistically 

significantly above 0. For example, for 

December 2017 (the first month of the 

study), CME’s lead time against 

Coinbase is 26.16 seconds with a 95% 

confidence interval of 12.72—39.59 

seconds. For September 2020 (the last 

month of the study), CME’s lead time 

against Coinbase is 2.11 seconds with a 

95% confidence interval of 1.77–2.46 

seconds. 

In the Sponsor’s view, the tightening 

of the lead time between the two 

markets should only be seen as a sign 

of market maturation, since information 

processing time is accelerating, and 

should if anything strengthen the view 

that it is reasonably likely that a wouldbe manipulator would have to trade on 

the CME bitcoin futures market to 

manipulate the proposed ETP. 

Disagreement 5: The Sponsor’s 

statistical results are all based on 

pairwise, two-dimensional analysis and 

the Sponsor has not explained why its 

results hold in light of the findings and 

critiques raised in Alexander and Heck 

(2020). 

The Commission stated: 

[A]ll of Bitwise’s statistical results—IS, CS, 

and TSLL—are based on pairwise, twodimensional analysis . . . At least one 

multidimensional approach to price 

discovery (Alexander & Heck 2020) finds that 

CME bitcoin futures ‘‘have a very minor 

effect on price discovery,’’ and that ‘‘a faster 

speed of adjustment and information 

absorption [occurs] on the unregulated spot 

and derivatives [platforms] than on CME 

bitcoin futures.’’. . . While Bitwise 

acknowledges the Alexander & Heck 2020 

paper . . . Bitwise neither critiques the 

multidimensional Alexander & Heck 2020 

approach; nor attempts to apply the approach 

to Bitwise’s own data; nor discusses the 

robustness of Bitwise’s two-dimensional 

methodology in response to the critique in 

Alexander & Heck 2020 that: ‘‘omitting 

substantial information flows from other 

markets can produce misleading 

results. . . .[I]n a two-dimensional model 

one or other of the instruments must 

necessarily be identified as price leader.’’ 89

This criticism was addressed in a 

prior section of this proposal, under the 

sub-heading ‘‘Alexander and Heck 

(2020)’’. 

Multidimensional analysis is rare in 

the literature, particularly when 

comparing amongst different types of 

markets, because it introduces bias into 

the assessment of the common price 

based on the numbers of markets used 

from each different type of market, or 

from similar market types. 

An exhaustive pairwise analysis can 

be relied upon to find the market that 

is leading overall as long as all potential 

leading markets are included in the 

analysis. The same cannot be said for 

multidimensional analysis due to the 

aforementioned bias. Given these 

circumstances, the Sponsor believes that 

the traditional, pairwise, twodimensional approach to price 

discovery analysis is the correct 

approach for exploring the lead-lag 

relationship between the CME bitcoin 

futures market and the spot market. 

Section Summary 

No single statistical study can answer 

every question, consider every variable, 

or use every statistical approach to a 

given problem. 

The Sponsor designed its study— 

developed over a series of 14 meetings 

with the Staff—to supplement the 

broader academic literature 

investigating price discovery in the 

bitcoin market. It attempted to be as 

comprehensive as possible, using all 

available data and examining all 

available major trading platforms, 

including those in spot, regulated 

futures, and unregulated futures. It used 

high-quality data providers, conducting 

a thorough analysis of data providers to 

find the most accurate data set before 

beginning its analysis. In an effort to be 

easily replicable, it detailed its full 

methodology and used publicly 

available statistical tools to conduct its 

analysis. It made these choices in an 

effort to provide sufficient information 

to the Commission on the data and 

methodology underlying its analysis 

and bring confidence to its results. 

The data show convincingly that the 

CME is the leading source of price 

discovery, whether evaluated using IS, 

CS or TSLL, and despite the headwind 

that the sparsity bias raises against its IS 

and CS results. 

The Sponsor’s Response to the 

Disagreements Raised by the 

Commission Regarding the Sponsor’s 

Prior Analysis of the Second Prong of 

the Significant Market Test 

Disagreement 1: The Sponsor 

provides conflicting claims with respect 

to the demand for a spot bitcoin ETP, 

which undermines the credibility of 

Sponsor’s estimates for the likely size of 

such an ETP and the rapidity of inflows 

into it. 

The Commission observed: 

On the one hand, Bitwise downplays 

potential investor demand, stating that 

‘‘[w]hile there is interest in a bitcoin ETP,’’ 

the bitcoin market is ‘‘incredibly and 

increasingly crowded’’ with options for 

investors, noting that investors today can buy 

bitcoin on crypto trading apps, finance apps, 

through over-the-counter trusts, via bitcoin 

futures ETFs, and ‘‘in many other ways.’’. . . 

On the other hand. . . Bitwise also 

highlights that, unlike GBTC, the proposed 

ETP would allow for daily creations and 

redemptions; can be expected to ‘‘closely 

track the value of [b]itcoin, and not 


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90See Bitwise Order II, 87 FR at 40291. 

91 Gold market capitalization as of 2004 is 

calculated by taking the World Gold Council’s 

estimate of above-ground gold stocks in 2004 

multiplied by the price of gold as reported by 

Macrotrends in November 2004. 

92Bitcoin market capitalization as of June 30, 

2023 was $592 billion according to Blockchain.com. 

93See Grayscale Investments, LLC v. SEC, No. 22– 

1142 (D.C. Cir. Aug. 29, 2023), at 17–18. 

94As demonstrated in a Comment Letter from 

Professor Robert E. Whaley of Vanderbilt 

University, and presented and relied upon as 

evidence in Grayscale, the CME bitcoin futures 

market and the spot bitcoin market share a 99.9% 

correlation. 

periodically trade at substantial premiums to 

and discounts from the value of [b]itcoin’’; 

and would be ‘‘professionally managed, SECregulated, highly-liquid, fully transparent, 

and listed on the NYSE Arca’’; and that ‘‘at 

least some segment’’ of retail and other 

investors would benefit from such 

characteristics and would be ‘‘affirmatively 

disadvantaged’’ by not having access to it. . . 

If, as Bitwise claims, U.S. investors have been 

and are ever-increasingly investing in 

bitcoin, and the proposed ETP ‘‘would add 

material protections’’ that are not currently 

available through GBTC or otherwise for 

some segment of investors, and would, 

unlike GBTC, be available to trade 

immediately on a national securities 

exchange with daily creations and 

redemptions, it is not clear that Bitwise’s use 

of the GBTC historical record of $4.7 billion 

in inflows is a likely, let alone ‘‘aggressive,’’ 

estimate for first-year inflows into a new spot 

bitcoin ETP.90

It is true that the Sponsor details both 

the headwinds (increasingly crowded 

competition with other avenues of 

accessing bitcoin exposure) and 

tailwinds (unique investor protections 

afforded) that a new spot bitcoin ETP 

will face in raising assets. However, the 

two claims do not contradict each other. 

The bitcoin investment market is, in 

fact, crowded, and a spot bitcoin ETP 

would be attractive in certain ways. The 

Sponsor’s decision to present both sides 

of the argument should not undermine 

the credibility of the Sponsor’s 

estimates, but rather add confidence to 

those estimates by demonstrating the 

Sponsor’s balanced perspective. 

Furthermore, the Commission, other 

than suggesting minor conflicts amongst 

claims the Sponsor has made, has not 

disagreed with the crux of the Sponsor’s 

argument in estimating first-year flows 

by relying on the close approximation 

historical examples. 

For example, SPDR Gold Shares ETF 

(GLD) was the fastest growing new 

commodity-trust ETP ever in history 

with $3.01 billion in first-year flows. 

The spot bitcoin ETP will also be a new 

commodity-trust ETP, occupying the 

same category. The global above-ground 

gold market cap was roughly $2.1 

trillion when GLD debuted in 2004.91

By comparison, the global bitcoin 

market cap was $592 billion as of June 

30, 2023.92 If the new spot bitcoin ETP 

is assumed to be as successful as GLD, 

the most successful commodity-trust 

ETP ever, in terms relative to the market 

caps of the underlying commodities, the 

new ETP would gather approximately 

$849 million in first-year flows. The 

Sponsor’s estimate of $4.7 billion in 

first-year flows for the new spot bitcoin 

ETP is over five times the $849 million 

figure. 

While there could be meaningful 

latent demand built up for a spot bitcoin 

ETP given its unique investor 

protections, the Sponsor continues to 

believe that its estimate of $4.7 billion 

in first-year flows, which is assuming 

that the new ETP will be over fives 

times as successful as GLD, the most 

successful commodity-trust ETP in 

history, is a safe estimate and the actual 

first-year flows is unlikely to exceed 

that value. 

Additionally, the Sponsor’s analysis 

should provide comfort that, even if 

first-year flows exceed $4.7 billion, it is 

unlikely that trading in the new ETP 

will have a ‘‘predominant influence’’ on 

prices in the CME bitcoin futures 

market. The Sponsors second prong 

analysis includes a correlation study 

where GBTC’s $4.7 billion maximum 

single year flow in 2020 was found to 

have had a negligible correlation to 

changes in the spot bitcoin price. While 

we do not have any bitcoin investment 

vehicle with a higher single year flow to 

run historical correlation analysis on, 

the fact that GBTC’s $4.7 billion inflow 

had almost no correlation to bitcoin 

prices suggests that there is likely a safe 

margin of error where a higher first-year 

flow figure would still not be the 

predominant influence on prices in the 

CME bitcoin futures market. 

This last point is further reinforced by 

the fact that the CME bitcoin futures 

market’s trading volume grew around 

six fold between 2020 (when the 

correlation analysis was done) and 

2023. As noted in ‘‘The CME Bitcoin 

Futures Market’’ section in this 

proposal, the CME bitcoin futures 

contracts traded approximately $39.8 

billion in June 2023 compared to $6.0 

billion in June 2020. Assuming a 

relationship between trading volume 

growth and the amount of flows a 

market could withstand without its 

prices being dominated by the influence 

of such flows, the proposed spot bitcoin 

ETP could have much more than $4.7 

billion in first-year flows—perhaps even 

six times as much ($28 billion, 

assuming a linear relationship)— 

without becoming the predominant 

influence on prices in the CME bitcoin 

futures market. 

Disagreement 2a: The Sponsor’s study 

examined the correlation of inflows into 

GBTC, BTCE and BTCC compared to 

spot bitcoin prices, instead of CME 

bitcoin futures prices. Given that the 

Sponsor identifies the CME bitcoin 

futures market as the relevant regulated 

market of significant size, the use of 

spot bitcoin prices for its correlation 

analysis could render the analysis 

immaterial. 

The Sponsor disagrees that the use of 

spot prices instead of futures prices 

could render the correlation analysis 

immaterial. 

In the Grayscale Court’s analysis of 

the second prong, the Court observed 

that ‘‘[b]ecause Grayscale owns no 

futures contracts, trading in Grayscale 

can affect the futures market only 

through the spot market.’’ 93 In other 

words, when thinking about the 

potential predominant influence trading 

in a new spot bitcoin ETP could have on 

prices in the CME futures market it is 

erroneous to consider the relationship 

between the new ETP and the CME 

futures market in isolation, ignoring the 

existence of the spot market. 

Inflows into a new spot bitcoin ETP 

will result in purchases of the 

underlying asset, spot bitcoin. Market 

participants might attempt to predict the 

daily inflows into the new ETP and 

speculate on the CME futures market 

ahead of time but ultimately they are 

speculating on how much the inflows 

could impact the bitcoin market as a 

whole, and inflows would have to 

influence both futures and spot markets 

together to impact prices. In short, given 

the tight correlation and arbitrage 

relationship between the bitcoin futures 

price and spot price,94 trading in the 

new spot bitcoin ETP is unlikely to 

become a predominant influence on 

prices in the CME futures market 

without also becoming a predominant 

influence on prices in the spot market. 

Therefore, a correlation analysis of the 

historical impact of inflows to bitcoin 

prices should be valid when run on 

either spot prices and futures prices. 

Beyond the argument above around 

the theoretical validity of using spot 

prices in the correlation analysis in the 

context of the second prong, there is 

also the broader economic reality that, 

given the high correlation between spot 

prices and futures prices, the results of 

the correlation analysis would have 

been nearly identical. Indeed, the 

Sponsor ran the same correlation 

analysis this time between daily/weekly 

inflows into GBTC in 2020 and daily/ 

weekly price changes in the CME 

bitcoin futures market and the 


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95See Bitwise Order II, 87 FR at 40291. 

correlation values were 0.1075/0.0771 

compared to 0.1087/0.0811 in the 

original analysis when changes in spot 

prices where used instead. 

Disagreement 2b: The Sponsor’s 

correlation analysis does not control for 

any other factors that may have been 

affecting spot bitcoin prices during the 

daily or weekly aggregation periods. 

Thus, the results do not isolate the 

statistical relationship between spot 

bitcoin prices and the factor of interest 

(i.e., flows into GBTC, BTCE, or BTCC). 

The Sponsor believes that this 

argument is not relevant to the question 

at hand. The goal of the second prong 

analysis is to demonstrate that trading 

in the new ETP will not become the 

predominant influence on prices in the 

CME bitcoin futures market as 

compared to other influences. If other 

factors are perfectly controlled, then the 

results of the analysis would be moot; 

any amount of isolated buying or selling 

in relation to the new ETP would 

perfectly move bitcoin prices up or 

down because it is the only influence 

that was not controlled for in the 

analysis. As the goal of the correlation 

analysis is to demonstrate that inflows 

into the ETP do not overwhelm other 

factors, presence of other factors is not 

only valid but necessary. 

Disagreement 3: The Sponsor has not 

explained its analysis on why the 

second prong would be met when its 

own estimates still indicate that the new 

ETP would have 36.5% of the daily 

trading volume and first-year AUM 

greater than the all the open interest in 

the CME bitcoin futures market. 

According to the Commission: 

Bitwise’s analysis regarding the potential 

effects of trading in the Shares on CME 

bitcoin futures prices is vague and 

conclusory. Bitwise states that it ‘believes’ 

that it is unlikely that trading in a new 

bitcoin ETP will become the predominant 

influence on prices in the CME bitcoin 

futures market ‘if such trading activity is 

substantially smaller than the trading activity 

on the CME bitcoin futures market.’. . . 

However, an alternative calculation using 

Bitwise’s statistics is that a single bitcoin 

ETP’s average daily trading volume could be 

approximately 36.5% ($143 million divided 

by $392 million)—more than one-third—of 

the size of CME bitcoin futures’ average daily 

trading volume. On top of that, assuming, as 

Bitwise does, potentially $4.7 billion in firstyear inflows, such a spot bitcoin ETP could 

have AUM that exceeds the value of all open 

interest in CME bitcoin futures contracts. 

Bitwise has not directly addressed why, 

given this relative size of estimated daily 

trading in the Shares compared with daily 

trading in CME bitcoin futures contracts, and 

the relative size of the Trust’s estimated 

AUM itself compared with all open interest 

in CME bitcoin futures contracts, it is 

nonetheless unlikely that trading in the 

proposed ETP would be the predominant 

influence on prices in the CME bitcoin 

futures market.95

Any analysis related to the second 

prong is forced to make guesses as to 

what conditions would make 

predominant influence ‘‘likely’’ or 

‘‘unlikely.’’ The Sponsor’s logic that 

predominant influence is unlikely ‘‘if 

[the new ETP’s] trading activity is 

substantially smaller than the trading 

activity on the CME bitcoin futures 

market’’ is fundamentally sound and 

concrete since markets with deeper 

liquidity can absorb cross-market trades 

with less price movement. 

The actual disagreement, therefore, 

then is likely less about the logic and 

more about the threshold at which the 

logic produces an affirmative 

interpretation that predominant 

influence is unlikely. The Sponsor 

argued that if daily trading in the new 

ETP is 36.5% of the trading in the CME 

futures market it is unlikely to become 

the predominant influence. The 

Commission questioned if that is 

sufficient. 

Fortunately, the CME bitcoin futures 

market has matured further since 2020 

(the year which our daily trading 

volume estimates were based upon). 

Again, as noted in ‘‘The CME Bitcoin 

Futures Market’’ section in this 

proposal, the CME bitcoin futures 

contracts traded approximately $39.8 

billion in June 2023 compared to $6.0 

billion in June 2020, over a six-fold 

growth in trading volume. The 

Sponsor’s $142 million daily trading 

volume estimate of the new ETP was 

based on the Sponsor’s $4.7 billion firstyear inflow estimate multiplied by the 

higher of GLD and GBTC’s average 

ADV/AUM ratio (3.04%), so that 

estimate remains the same assuming the 

same first-year inflows to the new ETP. 

Applying the over six-fold growth in the 

CME futures market’s trading activity to 

our past estimates, it would mean that 

the trading activity in the new ETP now 

would be approximately only 6% of the 

trading activity in the CME bitcoin 

futures market. This development 

should provide a higher degree of 

confidence that trading in the new ETP 

is unlikely to be the predominant 

influence of prices in the CME bitcoin 

futures market. 

With regards to the Commission’s 

concern around the fact that the AUM 

of the new ETP, based on our $4.7 

billion first-year flow estimate, could 

exceed all open interest in the CME 

bitcoin futures market, the Sponsor does 

not find comparing those two figures 

relevant to the question at hand. The 

second prong asks whether trading in 

the new ETP would be unlikely to be 

the predominant influence on prices, 

not assets. One could interpret 

‘‘trading’’ as trading activity in the 

secondary market or inflows in the 

secondary market, both of which the 

Sponsor has analyzed, but AUM is not 

directly relevant; it is only relevant to 

the extent that AUM can influence the 

amount of ‘‘trading’’ that occurs in the 

ETP, which the Sponsor’s analysis 

captures. 

Additionally, AUM is an asset related 

figure and open interest is a trading 

related figure. Comparing the two 

literally and concluding that a market 

with a higher asset related figure is 

likely to become the predominant 

influence on prices on a market with a 

lower trading related figure is a bit like 

comparing apples to oranges. 

Section Summary 

The Sponsor’s prior estimates of firstyear flows in a new spot bitcoin ETP 

and prior correlation analysis studying 

the relationship between inflows into 

GBTC, BTCE and BTCC and spot bitcoin 

prices are still valid. Furthermore, in 

light of the massive growth of trading 

activity in the CME bitcoin futures 

market, the Sponsor’s analysis that 

trading in the new spot bitcoin ETP is 

unlikely to be the predominant 

influence on prices in the CME bitcoin 

futures market is even stronger than 

before. 

Availability of Information Regarding 

the Shares and Bitcoin 

The NAV will be disseminated daily 

to all market participants at the same 

time. Quotation and last-sale 

information regarding the Shares will be 

disseminated through the facilities of 

the CTA. The ITV will be calculated 

every 15 seconds throughout the core 

trading session each trading day, and 

available through online information 

services. 

The Sponsor will cause information 

about the Shares to be posted to the 

Trust’s website (https://

www.bitwiseinvestments.com/): (i) the 

NAV and NAV per Share for each 

Exchange trading day, posted at end of 

day; (ii) the daily holdings of the Trust, 

before 9:30 a.m. E.T. on each Exchange 

trading day; (iii) the Trust’s effective 

prospectus, in a form available for 

download; and (iv) the Shares’ ticker 

and CUSIP information, along with 

additional quantitative information 

updated on a daily basis for the Trust. 

For example, the Trust’s website will 

include (i) the prior business day’s 

trading volume, the prior business day’s 

reported NAV and closing price, and a 


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68882 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

96See NYSE Arca Rule 7.12–E. 

97A limit up/limit down condition in the futures 

market would not be considered an interruption 

requiring the Trust to be halted. 

98Under NYSE Arca Rule 8.201–E(g), an ETP 

Holder acting as a registered Market Maker in the 

Shares is required to provide the Exchange with 

information relating to its trading in the underlying 

commodity, related futures or options on futures, or 

any other related derivatives. Commentary .04 of 

NYSE Arca Rule 11.3–E requires an ETP Holder 

acting as a registered Market Maker, and its 

affiliates, in the Shares to establish, maintain and 

enforce written policies and procedures reasonably 

designed to prevent the misuse of any material 

nonpublic information with respect to such 

products, any components of the related products, 

any physical asset or commodity underlying the 

product, applicable currencies, underlying indexes, 

related futures or options on futures, and any 

related derivative instruments (including the 

Shares). As a general matter, the Exchange has 

regulatory jurisdiction over its ETP Holders and 

their associated persons, which include any person 

or entity controlling an ETP Holder. To the extent 

the Exchange may be found to lack jurisdiction over 

a subsidiary or affiliate of an ETP Holder that does 

business only in commodities or futures contracts, 

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. 

99 17 CFR 240.10A–3. 

100FINRA conducts cross-market surveillances on 

behalf of the Exchange pursuant to a regulatory 

services agreement. The Exchange is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

101For a list of current ISG members, see https:// 

isgportal.org/. The Exchange notes that not all 

components of the Trust may trade on markets that 

are members of ISG or with which the Exchange has 

in place a comprehensive surveillance sharing 

agreement. 

calculation of the premium and 

discount of the closing price or midpoint of the bid/ask spread at the time 

of NAV calculation (‘‘Bid/Ask Price’’) 

against the NAV; and (ii) data in chart 

format displaying the frequency 

distribution of discounts and premiums 

of the daily closing price or Bid/Ask 

Price against the NAV, within 

appropriate ranges, for at least each of 

the four previous calendar quarters. The 

Trust’s website will be publicly 

available prior to the public offering of 

Shares and accessible at no charge. 

Investors may obtain on a 24-hour 

basis bitcoin pricing information based 

on the CME US Reference Rate, CME UK 

Reference Rate and CME Bitcoin Real 

Time Price, bitcoin spot market prices 

and bitcoin futures price from various 

financial information service providers. 

Current bitcoin spot market prices are 

also generally available with bid/ask 

spreads from bitcoin trading platforms, 

including the Constituent Platforms of 

the CME US Reference Rate. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Trust.96 Trading in Shares of the 

Trust will be halted if the circuit breaker 

parameters in NYSE Arca Rule 7.12–E 

have been reached. Trading also may be 

halted because of market conditions or 

for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. 

The Exchange may halt trading during 

the day in which an interruption to the 

dissemination of the ITV occurs.97 If the 

interruption to the dissemination of the 

ITV 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. 

The Exchange may also halt trading if 

the value of the underlying commodity 

is no longer calculated or available on 

at least a 15-second delayed basis from 

a source unaffiliated with the Sponsor, 

Trust, Bitcoin Custodian or the 

Exchange or if the Exchange stops 

providing a hyperlink on its website to 

any such unaffiliated commodity value. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. Shares will trade on 

the NYSE Arca Marketplace from 4 a.m. 

to 8 p.m. E.T. in accordance with NYSE 

Arca Rule 7.34–E (Early, Core, and Late 

Trading Sessions). The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in NYSE 

Arca Rule 7.6–E, the minimum price 

variation (‘‘MPV’’) for quoting and entry 

of orders in equity securities traded on 

the NYSE Arca Marketplace is $0.01, 

with the exception of securities that are 

priced less than $1.00 for which the 

MPV for order entry is $0.0001. 

The Shares will conform to the initial 

and continued listing criteria under 

NYSE Arca Rule 8.201–E. The trading of 

the Shares will be subject to NYSE Arca 

Rule 8.201–E(g), which sets forth certain 

restrictions on Equity Trading Permit 

(‘‘ETP’’) Holders acting as registered 

Market Makers in Commodity-Based 

Trust Shares to facilitate surveillance.98

The Exchange represents that, for initial 

and continued listing, the Trust will be 

in compliance with Rule 10A–3 under 

the Act,99 as provided by NYSE Arca 

Rule 5.3–E. A minimum of 100,000 

Shares of the Trust will be outstanding 

at the commencement of trading on the 

Exchange. 

Surveillance 

The Exchange represents that trading 

in the Shares of the Trust will be subject 

to the existing trading surveillances 

administered by the Exchange, as well 

as cross-market surveillances 

administered by FINRA on behalf of the 

Exchange, which are designed to detect 

violations of Exchange rules and 

applicable federal securities laws.100

The Exchange represents that these 

procedures are adequate to properly 

monitor Exchange trading of the Shares 

in all trading sessions and to deter and 

detect violations of Exchange rules and 

federal securities laws applicable to 

trading on the Exchange. 

The Exchange further represents that 

it may obtain information regarding 

trading in the Shares and the CME 

Market from the CME and other markets 

and other entities that are members of 

the ISG or with which the Exchange has 

in place a comprehensive surveillance 

sharing agreement.101 The Exchange or 

FINRA, on behalf of the Exchange, or 

both, will communicate as needed 

regarding trading in the Shares and the 

CME Market with the CME and other 

markets and 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, the CME Market 

and the underlying commodity, as 

applicable, from such markets and other 

entities. 

Also, pursuant to NYSE Arca Rule 

8.201–E(g), the Exchange is able to 

obtain information regarding trading in 

the Shares, bitcoin futures and the 

underlying bitcoin through ETP Holders 

acting as registered Market Makers, in 

connection with such ETP Holders’ 

proprietary or customer trades through 

ETP Holders which they effect on any 

relevant market. 

In addition, the Exchange has a 

general policy prohibiting the improper 

distribution of material, non-public 

information by its employees. 

All statements and representations 

made in this filing regarding (i) the 

description of the index, portfolio or 

referenced asset, (ii) limitations on 

index or portfolio holdings or reference 

assets, or (iii) the applicability of 

Exchange listing rules specified in this 

rule filing will constitute continued 

listing requirements for listing the 

Shares on the Exchange. 


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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68883 

102 15 U.S.C. 78f(b)(5). 

103 15 U.S.C. 78s(b)(2)(B). 

104 Id. 

The Sponsor has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Trust to 

comply with the continued listing 

requirements, and, pursuant to its 

obligations under Section 19(g)(1) of the 

Act, the Exchange will monitor for 

compliance with the continued listing 

requirements. If the Trust is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

NYSE Arca Rule 9.2–E(a). 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 102 that an 

exchange have rules that are designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to, and perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices and to protect 

investors and the public interest in that 

the Shares will be listed and traded on 

the Exchange pursuant to the initial and 

continued listing criteria in NYSE Arca 

Rule 8.201–E. Further, the Exchange has 

demonstrated that the proposed rule 

change satisfies Section 6(b)(5) of the 

Act by showing that the CME Market is 

a regulated market of significant size 

that shares surveillance with the 

Exchange. 

As discussed above, both existing 

academic literature and the Sponsor’s 

own studies show that the CME Market 

leads price discovery relative to the 

bitcoin spot market. As a result, and 

given that the Sponsor has 

demonstrated that it is unlikely that 

trading in the Shares will become the 

predominant influence upon prices in 

the CME Market, the CME Market 

represents a regulated market of 

significant size related to spot bitcoin, 

and that there is a reasonable likelihood 

that a person attempting to manipulate 

the Shares would also have to trade on 

that market to successfully manipulate 

the Shares. 

The Exchange has in place 

surveillance procedures that are 

adequate to properly monitor trading in 

the Shares and the CME Market in all 

trading sessions and to deter and detect 

attempted manipulation of the Shares or 

other violations of Exchange rules and 

applicable federal securities laws. The 

Exchange or FINRA, on behalf of the 

Exchange, or both, will communicate as 

needed regarding trading in the Shares 

and bitcoin futures with the CME and 

other markets and other entities that are 

members of the ISG, and the Exchange 

or FINRA, on behalf of the Exchange, or 

both, may obtain trading information 

regarding trading in the Shares from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares from markets and other entities 

that are members of ISG or with which 

the Exchange has in place a 

comprehensive surveillance sharing 

agreement. The Exchange is also able to 

obtain information regarding trading in 

the Shares and bitcoin futures or the 

underlying bitcoin through ETP 

Holders, in connection with such ETP 

Holders’ proprietary or customer trades 

which they effect through ETP Holders 

on any relevant market. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. The Trust’s website will also 

include a form of the prospectus for the 

Trust that may be downloaded. The 

website will include the Shares’ ticker 

and CUSIP information, along with 

additional quantitative information 

updated on a daily basis for the Trust. 

The Trust’s website will include (i) 

daily trading volume, the prior business 

day’s reported NAV and closing price, 

and a calculation of the premium and 

discount of the closing price or midpoint of the Bid/Ask Price against the 

NAV; and (ii) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the daily 

closing price or Bid/Ask Price against 

the NAV, within appropriate ranges, for 

at least each of the four previous 

calendar quarters. The Trust’s website 

will be publicly available prior to the 

public offering of Shares and accessible 

at no charge. 

Trading in Shares of the Trust will be 

halted if the circuit breaker parameters 

in NYSE Arca Rule 7.12–E have been 

reached or because of market conditions 

or for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of a new type of exchange-traded 

product based on the price of bitcoin 

that will enhance competition among 

market participants, to the benefit of 

investors and the marketplace. As noted 

above, the Exchange has in place 

surveillance procedures that are 

adequate to properly monitor trading in 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and applicable federal securities 

laws. 

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 will 

facilitate the listing and trading of a new 

type of Commodity-Based Trust Share 

based on the price of bitcoin that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NYSEARCA–2023–44, as Modified by 

Amendment No. 1, and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 103 to determine 

whether the proposed rule change, as 

modified by Amendment No. 1, should 

be approved or disapproved. Institution 

of proceedings is appropriate at this 

time in view of the legal and policy 

issues raised by the proposed rule 

change, as discussed below. Institution 

of proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

provide comments on the proposed rule 

change, as modified by Amendment No. 

1. 

Pursuant to Section 19(b)(2)(B) of the 

Act,104 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposed rule 

change’s consistency with Section 

6(b)(5) of the Act, which requires, 

among other things, that the rules of a 

national securities exchange be 

‘‘designed to prevent fraudulent and 

manipulative acts and practices’’ and 


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68884 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

105 15 U.S.C. 78f(b)(5). 

106See Securities Exchange Act Release No. 

93445 (Oct. 28, 2021), 86 FR 60695 (Nov. 3, 2021). 

107See Securities Exchange Act Release No. 

94126 (Feb. 1, 2022), 87 FR 6903 (Feb. 7, 2022). 

108See Securities Exchange Act Release No. 

95179 (July 29, 2022), 87 FR 40282 (July 6, 2022). 

109See supra Item II.A. 

110See id. 

111See id. 

112See, e.g. Notice of Filing of Amendment No. 

3 to, and Order Instituting Proceedings to 

Determine Whether to Approve or Disapprove, a 

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, 

Securities Exchange Act Release No. 98112 (Aug. 

11, 2023), 88 FR 55743 (Aug. 16, 2023) (including 

data from sponsor 21Shares US LLC that purports 

to show correlations of returns across the two-year 

period from January 20, 2021, to February 1, 2023, 

of no less than 92% among certain spot bitcoin 

platforms and between the CME bitcoin futures 

market and such spot bitcoin platforms on an 

hourly basis, and no less than 78% on a minutely 

basis). 

113Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 

114 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 

3(a)(57). 

‘‘to protect investors and the public 

interest.’’ 105

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, which are set forth in 

Amendment No. 1, in addition to any 

other comments they may wish to 

submit about the proposed rule change, 

as modified by Amendment No. 1. In 

particular, the Commission seeks 

comment on the following questions 

and asks commenters to submit data 

where appropriate to support their 

views: 

1. What are commenters’ views on 

whether the proposed Trust and Shares 

would be susceptible to manipulation? 

What are commenters’ views generally 

on whether the Exchange’s proposal is 

designed to prevent fraudulent and 

manipulative acts and practices? What 

are commenters’ views generally with 

respect to the liquidity and transparency 

of the bitcoin markets and the bitcoin 

markets’ susceptibility to manipulation? 

2. The Exchange originally provided 

data and analysis in support of a similar 

proposed rule change to list and trade 

shares of the Bitwise Bitcoin ETP Trust 

in NYSEARCA–2021–89 (the ‘‘Original 

Proposal’’).106 The Commission raised 

questions about such data and analysis 

in its order instituting proceedings on 

the Original Proposal 107 and detailed its 

concerns with the data and analysis in 

its order disapproving the Original 

Proposal.108 The Exchange has provided 

its responses to the Commission’s 

concerns and provided some updated 

data and analysis in its Amendment No. 

1, as provided herein.109 Based on these 

responses and the updated data and 

analysis, do commenters agree with the 

Exchange that the Chicago Mercantile 

Exchange (‘‘CME’’), on which CME 

bitcoin futures trade, represents a 

regulated market of significant size 

related to spot bitcoin? 110 What are 

commenters’ views on whether there is 

a reasonable likelihood that a person 

attempting to manipulate the Shares 

would also have to trade on the CME to 

manipulate the Shares? Do commenters 

agree with the Exchange that trading in 

the Shares would not be the 

predominant influence on prices in the 

CME bitcoin futures market? 111

3. Some sponsors of proposed spot 

bitcoin exchange-traded products have 

also provided data regarding the 

correlation between certain bitcoin spot 

markets and the CME bitcoin futures 

market.112 What are commenters’ views 

on the correlation between the bitcoin 

spot market and the CME bitcoin futures 

market? What are commenters’ views on 

the extent to which that correlation 

provides evidence that the CME bitcoin 

futures market is ‘‘significant’’ related to 

spot bitcoin? 

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the Act, 

and the rules and regulations 

thereunder. Although there do not 

appear to be any issues relevant to 

approval or disapproval that would be 

facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b–4, any request for an 

opportunity to make an oral 

presentation.113

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change, as modified by 

Amendment No. 1, should be approved 

or disapproved by October 25, 2023. 

Any person who wishes to file a rebuttal 

to any other person’s submission must 

file that rebuttal by November 8, 2023. 

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 rule-comments@

sec.gov. Please include file number 

SR–NYSEARCA–2023–44 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NYSEARCA–2023–44. 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–NYSEARCA–2023–44 and should be 

submitted on or before October 25, 

2023. Rebuttal comments should be 

submitted by November 8, 2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.114

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21947 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 


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