Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2387 

79 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 97461 

(May 9, 2023), 88 FR 31045. Comments received on 

the proposed rule change can be found at: https:// 

www.sec.gov/comments/sr-cboebzx-2023-028/ 

srcboebzx2023028.htm. 

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

5See Securities Exchange Act Release No. 97732, 

88 FR 40877 (June 22, 2023). 

6See Securities Exchange Act Release No. 98112, 

88 FR 55743 (Aug. 16, 2023). 

protect investors and the public interest. 

The investor protection issues for U.S. 

investors has grown significantly over 

the last several years, through roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. As discussed 

herein, this growth investor protection 

concerns need to be reevaluated and 

rebalanced with the prevention of 

fraudulent and manipulative acts and 

practices concerns that previous 

disapproval orders have relied upon. 

Finally, the Exchange notes that in 

addition to all of the arguments herein 

which it believes sufficiently establish 

the CME Bitcoin Futures market as a 

regulated market of significant size, it is 

logically inconsistent to find that the 

CME Bitcoin Futures market is a 

significant market as it relates to the 

CME Bitcoin Futures market, but not a 

significant market as it relates to the 

bitcoin spot market for the numerous 

reasons laid out above. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

section 6(b)(5) of the Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–072 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2023–072. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2023–072 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.79

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00509 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99288; File No. SRCboeBZX–2023–028] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 5 to a Proposed Rule 

Change To List and Trade Shares of 

the ARK 21Shares Bitcoin ETF Under 

BZX Rule 14.11(e)(4), CommodityBased Trust Shares 

January 8, 2024. 

On April 25, 2023, Cboe BZX 

Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the ARK 21Shares Bitcoin 

ETF under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. The 

proposed rule change was published for 

comment in the Federal Register on 

May 15, 2023.3 On June 15, 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 June 28, 2023, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which amended and replaced 

the proposed rule change in its entirety. 

On June 30, 2023, the Exchange filed 

Amendment No. 2 to the proposed rule 

change, which amended and replaced 

the proposed rule change, as modified 

by Amendment No. 1, in its entirety. On 

July 11, 2023, the Exchange filed 

Amendment No. 3 to the proposed rule 

change, which amended and replaced 

the proposed rule change, as modified 

by Amendment No. 2, in its entirety. On 

August 11, 2023, the Commission 

noticed Amendment No. 3 and 

instituted proceedings to determine 

whether to disapprove the proposed 

rule change, as modified by Amendment 

No. 3.6 On September 26, 2023, the 

Commission designated a longer period 

for Commission action on the proposed 


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2388 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

7See Securities Exchange Act Release No. 98530, 

88 FR 67851 (Oct. 2, 2023). The Commission 

designated January 10, 2024, as the date by which 

the Commission shall approve or disapprove the 

proposed rule change. 

8The Trust was formed as a Delaware statutory 

trust on June 22, 2021 and is operated as a grantor 

trust for U.S. federal tax purposes. The Trust has 

no fixed termination date. 

9The Commission approved BZX Rule 14.11(e)(4) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

10Any of the statements or representations 

regarding the index composition, the description of 

the portfolio or reference assets, limitations on 

portfolio holdings or reference assets, dissemination 

and availability of index, reference asset, and 

intraday indicative values, or the applicability of 

Exchange listing rules specified in this filing to list 

a series of Other Securities (collectively, 

‘‘Continued Listing Representations’’) shall 

constitute continued listing requirements for the 

Shares listed on the Exchange. 

11The Exchange notes that two different 

proposals to list and trade shares of the Trust were 

disapproved by the Commission on March 31, 2022 

and January 26, 2023. See Exchange Act Release 

Nos. 94571 (March 31, 2022), 87 FR 20014 (April 

6, 2022) and 96751 (January 26, 2023), 88 FR 628 

(January 31, 2023). 

12See draft Amendment No. 5 to the Registration 

Statement on Form S–1, dated December 28, 2023 

submitted to the Commission by the Sponsor on 

behalf of the Trust. The descriptions of the Trust, 

the Shares, and the Index (as defined below) 

contained herein are based, in part, on information 

in the Registration Statement. The Registration 

Statement is not yet effective and the Shares will 

not trade on the Exchange until such time that the 

Registration Statement is effective. 

13See Exchange Rule 14.11(f)(1). 

14See Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 (August 1, 2018). This 

proposal was subsequently disapproved by the 

Commission. See Securities Exchange Act Release 

No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 

2018) (the ‘‘Winklevoss Order’’). 

15See streetTRACKS Gold Shares, Exchange Act 

Release No. 50603 (Oct. 28, 2004), 69 FR 64614, 

64618–19 (Nov. 5, 2004) (SR–NYSE–2004–22) (the 

‘‘First Gold Approval Order’’); iShares COMEX 

Gold Trust, Exchange Act Release No. 51058 (Jan. 

19, 2005), 70 FR 3749, 3751, 3754–55 (Jan. 26, 2005) 

(SR–Amex–2004–38); iShares Silver Trust, 

Exchange Act Release No. 53521 (Mar. 20, 2006), 71 

FR 14967, 14968, 14973–74 (Mar. 24, 2006) (SR– 

Amex–2005–072); ETFS Gold Trust, Exchange Act 

Release No. 59895 (May 8, 2009), 74 FR 22993, 

22994–95, 22998, 23000 (May 15, 2009) (SR– 

NYSEArca–2009–40); ETFS Silver Trust, Exchange 

Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771, 

18772, 18775–77 (Apr. 24, 2009) (SR–NYSEArca– 

2009–28); ETFS Palladium Trust, Exchange Act 

Release No. 61220 (Dec. 22, 2009), 74 FR 68895, 

68896 (Dec. 29, 2009) (SR–NYSEArca–2009–94) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘[t]he most significant 

palladium futures exchanges are the NYMEX and 

the Tokyo Commodity Exchange,’’ that ‘‘NYMEX is 

the largest exchange in the world for trading 

precious metals futures and options,’’ and that 

NYSE Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which NYMEX 

is a member, Exchange Act Release No. 60971 (Nov. 

9, 2009), 74 FR 59283, 59285–86, 59291 (Nov. 17, 

2009)); ETFS Platinum Trust, Exchange Act Release 

No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887–88 

(Dec. 29, 2009) (SR–NYSEArca–2009–95) (notice of 

proposed rule change included NYSE Arca’s 

representation that ‘‘[t]he most significant platinum 

futures exchanges are the NYMEX and the Tokyo 

Commodity Exchange,’’ that ‘‘NYMEX is the largest 

exchange in the world for trading precious metals 

futures and options,’’ and that NYSE Arca ‘‘may 

obtain trading information via the Intermarket 

Surveillance Group,’’ of which NYMEX is a 

member, Exchange Act Release No. 60970 (Nov. 9, 

2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); 

Sprott Physical Gold Trust, Exchange Act Release 

No. 61496 (Feb. 4, 2010), 75 FR 6758, 6760 (Feb. 

10, 2010) (SR–NYSEArca–2009–113) (notice of 

proposed rule change included NYSE Arca’s 

representation that the COMEX is one of the ‘‘major 

world gold markets,’’ that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ and that NYMEX, of which 

COMEX is a division, is a member of the 

Intermarket Surveillance Group, Exchange Act 

Release No. 61236 (Dec. 23, 2009), 75 FR 170, 171, 

174 (Jan. 4, 2010)); Sprott Physical Silver Trust, 

Exchange Act Release No. 63043 (Oct. 5, 2010), 75 

FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR– 

NYSEArca–2010–84); ETFS Precious Metals Basket 

Trust, Exchange Act Release No. 62692 (Aug. 11, 

2010), 75 FR 50789, 50790 (Aug. 17, 2010) (SR– 

NYSEArca–2010–56) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘the most significant gold, silver, platinum and 

palladium futures exchanges are the COMEX and 

the TOCOM’’ and that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

member, Exchange Act Release No. 62402 (Jun. 29, 

2010), 75 FR 39292, 39295, 39298 (July 8, 2010)); 

rule change, as modified by Amendment 

No. 3.7 On October 24, 2023, the 

Exchange filed Amendment No. 4 to the 

proposed rule change, which amended 

and replaced the proposed rule change, 

as modified by Amendment No. 3, in its 

entirely. On January 5, 2024, the 

Exchange filed Amendment No. 5 to the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. 

Amendment No. 5 amended and 

replaced the proposed rule change, as 

modified by Amendment No. 4, in its 

entirety. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as modified by 

Amendment No. 5, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

to list and trade shares of the ARK 

21Shares Bitcoin ETF (the ‘‘Trust’’),8

under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

This Amendment No. 5 to SR– 

CboeBZX–2023–028 amends and 

replaces in its entirety the proposal as 

originally submitted on April 25, 2023 

and as amended by Amendment No. 1 

on June 28, 2023, Amendment No. 2 on 

June 30, 2023, and Amendment No. 3 on 

July 11, 2023, and Amendment No. 4 on 

October 24, 2023. The Exchange submits 

this Amendment No. 5 in order to 

clarify certain points and add additional 

details to the proposal. 

The Exchange proposes to list and 

trade the Shares under BZX Rule 

14.11(e)(4),9 which governs the listing 

and trading of Commodity-Based Trust 

Shares on the Exchange.10 11 21Shares 

US LLC is the sponsor of the Trust (the 

‘‘Sponsor’’). The Shares will be 

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).12 As further 

discussed below, the Commission has 

historically approved or disapproved 

exchange filings to list and trade series 

of Trust Issued Receipts,13 including 

spot-based Commodity-Based Trust 

Shares, on the basis of whether the 

listing exchange has in place a 

comprehensive surveillance sharing 

agreement with a regulated market of 

significant size related to the underlying 

commodity to be held.14 Prior orders 

from the Commission have pointed out 

that in every prior approval order for 

Commodity-Based Trust Shares, there 

has been a derivatives market that 

represents the regulated market of 

significant size, generally a Commodity 

Futures Trading Commission (the 

‘‘CFTC’’) regulated futures market.15


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ETFS White Metals Basket Trust, Exchange Act 

Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 

56158 (Sept. 15, 2010) (SR–NYSEArca–2010–71) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant 

silver, platinum and palladium futures exchanges 

are the COMEX and the TOCOM’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which COMEX 

is a member, Exchange Act Release No. 62620 (July 

30, 2010), 75 FR 47655, 47657, 47660 (Aug. 6, 

2010)); ETFS Asian Gold Trust, Exchange Act 

Release No. 63464 (Dec. 8, 2010), 75 FR 77926, 

77928 (Dec. 14, 2010) (SR–NYSEArca–2010–95) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant gold 

futures exchanges are the COMEX and the Tokyo 

Commodity Exchange,’’ that ‘‘COMEX is the largest 

exchange in the world for trading precious metals 

futures and options,’’ and that NYSE Arca ‘‘may 

obtain trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

member, Exchange Act Release No. 63267 (Nov. 8, 

2010), 75 FR 69494, 69496, 69500–01 (Nov. 12, 

2010)); Sprott Physical Platinum and Palladium 

Trust, Exchange Act Release No. 68430 (Dec. 13, 

2012), 77 FR 75239, 75240–41 (Dec. 19, 2012) (SR– 

NYSEArca–2012–111) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘[f]utures on platinum and palladium are traded on 

two major exchanges: The New York Mercantile 

Exchange ... and Tokyo Commodities Exchange’’ 

and that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

Group,’’ of which COMEX is a member, Exchange 

Act Release No. 68101 (Oct. 24, 2012), 77 FR 65732, 

65733, 65739 (Oct. 30, 2012)); APMEX Physical— 

1 oz. Gold Redeemable Trust, Exchange Act Release 

No. 66930 (May 7, 2012), 77 FR 27817, 27818 (May 

11, 2012) (SR–NYSEArca–2012–18) (notice of 

proposed rule change included NYSE Arca’s 

representation that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

Group,’’ of which COMEX is a member, and that 

gold futures are traded on COMEX and the Tokyo 

Commodity Exchange, with a cross-reference to the 

proposed rule change to list and trade shares of the 

ETFS Gold Trust, in which NYSE Arca represented 

that COMEX is one of the ‘‘major world gold 

markets,’’ Exchange Act Release No. 66627 (Mar. 

20, 2012), 77 FR 17539, 17542–43, 17547 (Mar. 26, 

2012)); JPM XF Physical Copper Trust, Exchange 

Act Release No. 68440 (Dec. 14, 2012), 77 FR 75468, 

75469–70, 75472, 75485–86 (Dec. 20, 2012) (SR– 

NYSEArca–2012–28); iShares Copper Trust, 

Exchange Act Release No. 68973 (Feb. 22, 2013), 78 

FR 13726, 13727, 13729–30, 13739–40 (Feb. 28, 

2013) (SR–NYSEArca–2012–66); First Trust Gold 

Trust, Exchange Act Release No. 70195 (Aug. 14, 

2013), 78 FR 51239, 51240 (Aug. 20, 2013) (SR– 

NYSEArca–2013–61) (notice of proposed rule 

change included NYSE Arca’s representation that 

FINRA, on behalf of the exchange, may obtain 

trading information regarding gold futures and 

options on gold futures from members of the 

Intermarket Surveillance Group, including COMEX, 

or from markets ‘‘with which [NYSE Arca] has in 

place a comprehensive surveillance sharing 

agreement,’’ and that gold futures are traded on 

COMEX and the Tokyo Commodity Exchange, with 

a cross-reference to the proposed rule change to list 

and trade shares of the ETFS Gold Trust, in which 

NYSE Arca represented that COMEX is one of the 

‘‘major world gold markets,’’ Exchange Act Release 

No. 69847 (June 25, 2013), 78 FR 39399, 39400, 

39405 (July 1, 2013)); Merk Gold Trust, Exchange 

Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 

4786–87 (Jan. 29, 2014) (SR–NYSEArca–2013–137) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘COMEX is the largest 

gold futures and options exchange’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ including with 

respect to transactions occurring on COMEX 

pursuant to CME and NYMEX’s membership, or 

from exchanges ‘‘with which [NYSE Arca] has in 

place a comprehensive surveillance sharing 

agreement,’’ Exchange Act Release No. 71038 (Dec. 

11, 2013), 78 FR 76367, 76369, 76374 (Dec. 17, 

2013)); Long Dollar Gold Trust, Exchange Act 

Release No. 79518 (Dec. 9, 2016), 81 FR 90876, 

90881, 90886, 90888 (Dec. 15, 2016) (SR– 

NYSEArca–2016–84). 

16See Exchange Rule 14.11(e)(5). 

17See Winklevoss Order at 37592. 

18See Exchange Act Release No. 94620 (April 6, 

2022), 87 FR 21676 (April 12, 2022) (the ‘‘Teucrium 

Approval’’) and 94853 (May 5, 2022) (collectively, 

with the Teucrium Approval, the ‘‘Bitcoin Futures 

Approvals’’). 

19For additional information about bitcoin and 

the Bitcoin Network, see https://bitcoin.org/en/ 

getting-started; https://www.fidelitydigitalassets.

com/articles/addressing-bitcoin-criticisms; and 

Continued 

Further to this point, the Commission’s 

prior orders have noted that the spot 

commodities and currency markets for 

which it has previously approved spot 

exchange-traded products (‘‘ETPs’’) are 

generally unregulated and that the 

Commission relied on the underlying 

futures market as the regulated market 

of significant size that formed the basis 

for approving the series of Currency 16

and Commodity-Based Trust Shares, 

including gold, silver, platinum, 

palladium, copper, and other 

commodities and currencies. The 

Commission specifically noted in the 

Winklevoss Order that the First Gold 

Approval Order ‘‘was based on an 

assumption that the currency market 

and the spot gold market were largely 

unregulated.’’ 17

As such, the regulated market of 

significant size test does not require that 

the spot bitcoin market be regulated in 

order for the Commission to approve 

this proposal, and precedent makes 

clear that an underlying market for a 

spot commodity or currency being a 

regulated market would actually be an 

exception to the norm. These largely 

unregulated currency and commodity 

markets do not provide the same 

protections as the markets that are 

subject to the Commission’s oversight, 

but the Commission has consistently 

looked to surveillance sharing 

agreements with the underlying futures 

market in order to determine whether 

such products were consistent with the 

Act. With this in mind, the Chicago 

Mercantile Exchange (‘‘CME’’) bitcoin 

futures (‘‘Bitcoin Futures’’) market is the 

proper market to consider in 

determining whether there is a related 

regulated market of significant size. 

Further to this point, the Exchange 

notes that the Commission has approved 

proposals related to the listing and 

trading of funds that would primarily 

hold CME Bitcoin Futures that are 

registered under the Securities Act of 

1933.18 In the Teucrium Approval, the 

Commission found the CME Bitcoin 

Futures market to be a regulated market 

of significant size as it relates to CME 

Bitcoin Futures, an odd tautological 

truth that is also inconsistent with prior 

disapproval orders for ETPs that would 

hold actual bitcoin instead of 

derivatives contracts (‘‘Spot Bitcoin 

ETPs’’) that use the exact same pricing 

methodology as the CME Bitcoin 

Futures. As further discussed below, 

both the Exchange and the Sponsor 

believe that this proposal and the 

included analysis are sufficient to 

establish that the CME Bitcoin Futures 

market represents a regulated market of 

significant size as it relates both to the 

CME Bitcoin Futures market and to the 

spot bitcoin market and that this 

proposal should be approved. 

Finally, as discussed in greater detail 

below, the Trust provides investors 

interested in exposure to bitcoin with 

important protections that are not 

always available to investors that invest 

directly in bitcoin, including protection 

against insolvency, cyber attacks, and 

other risks. If U.S. investors had access 

to vehicles such as the Trust for their 

bitcoin investments, instead of directing 

their bitcoin investments into loosely 

regulated offshore vehicles (such as 

loosely regulated centralized trading 

platforms that have since faced 

bankruptcy proceedings or other 

insolvencies), then countless investors 

would have protected their principal 

investments in bitcoin and thus 

benefited. 

Background 

Bitcoin is a digital asset based on the 

decentralized, open-source protocol of 

the peer-to-peer computer network 

launched in 2009 that governs the 

creation, movement, and ownership of 

bitcoin and hosts the public ledger, or 

‘‘blockchain,’’ on which all bitcoin 

transactions are recorded (the ‘‘Bitcoin 

Network’’ or ‘‘Bitcoin’’). The 

decentralized nature of the Bitcoin 

Network allows parties to transact 

directly with one another based on 

cryptographic proof instead of relying 

on a trusted third party. The protocol 

also lays out the rate of issuance of new 

bitcoin within the Bitcoin Network, a 

rate that is reduced by half 

approximately every four years with an 

eventual hard cap of 21 million. It’s 

generally understood that the 

combination of these two features—a 

systemic hard cap of 21 million bitcoin 

and the ability to transact trustlessly 

with anyone connected to the Bitcoin 

Network—gives bitcoin its value.19 The 


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https://www.vaneck.com/education/investmentideas/investing-in-bitcoin-and-digital-assets/. 

20See Winklevoss Order. 

21 Digital assets that are securities under U.S. law 

are referred to throughout this proposal as ‘‘digital 

asset securities.’’ All other digital assets, including 

bitcoin, are referred to interchangeably as 

‘‘cryptocurrencies’’ or ‘‘virtual currencies.’’ The 

term ‘‘digital assets’’ refers to all digital assets, 

including both digital asset securities and 

cryptocurrencies, together. 

22See ‘‘In the Matter of Coinflip, Inc.’’ 

(‘‘Coinflip’’) (CFTC Docket 15–29 (September 17, 

2015)) (order instituting proceedings pursuant to 

sections 6(c) and 6(d) of the CEA, making findings 

and imposing remedial sanctions), in which the 

CFTC stated: ‘‘Section 1a(9) of the CEA defines 

‘commodity’ to include, among other things, ‘all 

services, rights, and interests in which contracts for 

future delivery are presently or in the future dealt 

in.’ 7 U.S.C. 1a(9). The definition of a ‘commodity’ 

is broad. See, e.g., Board of Trade of City of Chicago 

v. SEC, 677 F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin 

and other virtual currencies are encompassed in the 

definition and properly defined as commodities.’’ 

23A list of virtual currency businesses that are 

entities regulated by the NYDFS is available on the 

NYDFS website. See https://www.dfs.ny.gov/apps_

and_licensing/virtual_currency_businesses/ 

regulated_entities. 

24 Data as of March 31, 2016 according to publicly 

available filings. See Bitcoin Investment Trust Form 

S–1, dated May 27, 2016, available: https://

www.sec.gov/Archives/edgar/data/1588489/ 

000095012316017801/filename1.htm. 

25See letter from Dalia Blass, Director, Division 

of Investment Management, U.S. Securities and 

Exchange Commission to Paul Schott Stevens, 

President & CEO, Investment Company Institute 

and Timothy W. Cameron, Asset Management 

Group—Head, Securities Industry and Financial 

Markets Association (January 18, 2018), available at 

https://www.sec.gov/divisions/investment/ 

noaction/2018/cryptocurrency-011818.htm. 

26See Prospectus supplement filed pursuant to 

Rule 424(b)(1) for INX Tokens (Registration No. 

333–233363), available at: https://www.sec.gov/ 

Archives/edgar/data/1725882/ 

000121390020023202/ea125858-424b1_

inxlimited.htm. 

27See Prospectus filed by Stone Ridge Trust VI 

on behalf of NYDIG Bitcoin Strategy Fund 

Registration, available at: https://www.sec.gov/ 

Archives/edgar/data/1764894/ 

000119312519309942/d693146d497.htm. 

28See Investment Advisers Act Release No. 6240 

88 FR 14672 (March 9, 2023) (Safeguarding 

Advisory Client Assets). 

29See Securities Exchange Act Release No. 90788, 

86 FR 11627 (February 26, 2021) (File Number S7– 

25–20) (Custody of Digital Asset Securities by 

Special Purpose Broker-Dealers). 

30See letter from Elizabeth Baird, Deputy 

Director, Division of Trading and Markets, U.S. 

Securities and Exchange Commission to Kris 

Dailey, Vice President, Risk Oversight & 

Operational Regulation, Financial Industry 

Regulatory Authority (September 25, 2020), 

available at: https://www.sec.gov/divisions/ 

marketreg/mr-noaction/2020/finra-ats-role-insettlement-of-digital-asset-security-trades09252020.pdf. 

31See letter from Jeffrey S. Mooney, Associate 

Director, Division of Trading and Markets, U.S. 

Securities and Exchange Commission to Charles G. 

Cascarilla & Daniel M. Burstein, Paxos Trust 

Company, LLC (October 28, 2019), available at: 

https://www.sec.gov/divisions/marketreg/mrnoaction/2019/paxos-trust-company-102819- 

17a.pdf. 

32See, e.g., Form TA–1/A filed by Tokensoft 

Transfer Agent LLC (CIK: 0001794142) on January 

8, 2021, available at: https://www.sec.gov/Archives/ 

edgar/data/1794142/000179414219000001/ 

xslFTA1X01/primary_doc.xml. 

33As of February 1, 2023, the total market cap of 

all bitcoin in circulation was approximately $450 

billion. 

34 Data sourced from the CME Bitcoin Futures 

Report: 30 March, 2023, available at: https://www.

cmegroup.com/markets/cryptocurrencies/bitcoin/ 

bitcoin.volume.htm. 

35The CFTC’s annual report for Fiscal Year 2022 

(which ended on September 30, 2022) noted that 

the CFTC completed the fiscal year with 18 

enforcement filings related to digital assets. ‘‘Digital 

asset actions included manipulation, a $1.7 billion 

fraudulent scheme, and a decentralized 

autonomous organization (DAO) failing to register 

as a SEF or FCM or to seek DCM designation.’’ See 

CFTC FY 2022 Agency Financial Report, available 

at: https://www.cftc.gov/media/7941/2022afr/ 

download. Additionally, the CFTC filed on March 

27, 2023, a civil enforcement action against the 

owner/operators of the Binance centralized digital 

asset trading platform, which is one of the largest 

bitcoin derivative trading platforms. See CFTC 

Release No. 8680–23 (March 27, 2023), available at: 

https://www.cftc.gov/PressRoom/PressReleases/ 

8680-23. 

first rule filing proposing to list an ETP 

to provide exposure to bitcoin in the 

U.S. was submitted by the Exchange on 

June 30, 2016.20 At that time, 

blockchain technology, and digital 

assets that utilized it, were relatively 

new to the broader public. The market 

cap of all bitcoin in existence at that 

time was approximately $10 billion. No 

registered offering of digital asset 

securities or shares in an investment 

vehicle with exposure to bitcoin or any 

other cryptocurrency had yet been 

conducted, and the regulated 

infrastructure for conducting a digital 

asset securities offering had not begun 

to develop.21 Similarly, regulated U.S. 

Bitcoin Futures contracts did not exist. 

The CFTC had determined that bitcoin 

is a commodity,22 but had not engaged 

in significant enforcement actions in the 

space. The New York Department of 

Financial Services (‘‘NYDFS’’) adopted 

its final ‘‘BitLicense’’ regulatory 

framework in 2015, but had only 

approved four entities to engage in 

activities relating to virtual currencies 

(whether through granting a BitLicense 

or a limited-purpose trust charter) as of 

June 30, 2016.23 While the first over-thecounter bitcoin fund launched in 2013, 

public trading was limited and the fund 

had only $60 million in assets.24 There 

were very few, if any, traditional 

financial institutions engaged in the 

space, whether through investment or 

providing services to digital asset 

companies. In January 2018, the staff of 

the Commission noted in a letter to the 

Investment Company Institute (‘‘ICI’’) 

and Securities Industry and Financial 

Markets Association (‘‘SIFMA’’) that it 

was not aware, at that time, of a single 

custodian providing fund custodial 

services for digital assets.25 Fast forward 

to today and the digital assets financial 

ecosystem, including bitcoin, has 

progressed significantly. The 

development of a regulated market for 

digital asset securities has significantly 

evolved, with market participants 

having conducted registered public 

offerings of both digital asset 

securities 26 and shares in investment 

vehicles holding Bitcoin Futures.27

Additionally, licensed and regulated 

service providers have emerged to 

provide fund custodial services for 

digital assets, among other services. For 

example, in February 2023, the 

Commission proposed to amend Rule 

206(4)–2 under the Advisers Act of 1940 

(the ‘‘custody rule’’) to expand the scope 

beyond client funds and securities to 

include all crypto assets, among other 

assets; 28 in May 2021, the staff of the 

Commission released a statement 

permitting open-end mutual funds to 

invest in cash-settled Bitcoin Futures; in 

December 2020, the Commission 

adopted a conditional no-action 

position permitting certain special 

purpose broker-dealers to custody 

digital asset securities under Rule 15c3– 

3 under the Exchange Act (the ‘‘Custody 

Statement’’); 29 in September 2020, the 

staff of the Commission released a noaction letter permitting certain brokerdealers to operate a non-custodial 

Alternative Trading System (‘‘ATS’’) for 

digital asset securities, subject to 

specified conditions; 30 in October 2019, 

the staff of the Commission granted 

temporary relief from the clearing 

agency registration requirement to an 

entity seeking to establish a securities 

clearance and settlement system based 

on distributed ledger technology,31 and 

multiple transfer agents who provide 

services for digital asset securities 

registered with the Commission.32

Outside the Commission’s purview, 

the regulatory landscape has changed 

significantly since 2016, and 

cryptocurrency markets have grown and 

evolved as well. The market for bitcoin 

is approximately 100 times larger, 

having at one point reached a market 

cap of over $1 trillion.33 According to 

the CME Bitcoin Futures report, from 

February 13, 2023 through March 27, 

2023, CFTC regulated Bitcoin Futures 

represented between $750 million and 

$3.2 billion in notional trading volume 

on CME Bitcoin Futures on a daily 

basis.34 Open interest was over $1.4 

billion for the entirety of the period and 

at one point was over $2 billion. The 

CFTC has exercised its regulatory 

jurisdiction in bringing a number of 

enforcement actions related to bitcoin 

and against trading platforms that offer 

cryptocurrency trading.35 As of 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2391 

36See https://www.dfs.ny.gov/virtual_currency_

businesses. 

37The ‘‘Custodian’’ is Coinbase Trust Company, 

LLC. 

38See U.S. Department of the Treasury 

Enforcement Release: ‘‘OFAC Enters Into $98,830 

Settlement with BitGo, Inc. for Apparent Violations 

of Multiple Sanctions Programs Related to Digital 

Currency Transactions’’ (December 30, 2020) 

available at: https://home.treasury.gov/system/files/ 

126/20201230_bitgo.pdf. See also U.S. Department 

of the Treasury Enforcement Release: ‘‘Treasury 

Announces Two Enforcement Actions for over 

$24M and $29M Against Virtual Currency 

Exchange, Bittrex, Inc.’’ (October 11, 2022) 

available at: https://home.treasury.gov/news/pressreleases/jy1006. See also U.S. Department of 

Treasure Enforcement Release ‘‘OFAC Settles with 

Virtual Currency Exchange Kraken for $362,158.70 

Related to Apparent Violations of the Iranian 

Transactions and Sanctions Regulations’’ 

(November 28, 2022) available at: https://home.

treasury.gov/system/files/126/20221128_

kraken.pdf. 

39See the FSOC ‘‘Report on Digital Asset 

Financial Stability Risks and Regulation 2022’’ 

(October 3, 2022) (at footnote 26) at https://home.

treasury.gov/system/files/261/FSOC-Digital-AssetsReport-2022.pdf. 

40See Letter from Division of Corporation 

Finance, Office of Real Estate & Construction to 

Barry E. Silbert, Chief Executive Officer, Grayscale 

Bitcoin Trust (January 31, 2020) https://

www.sec.gov/Archives/edgar/data/1588489/ 

000000000020000953/filename1.pdf. 

41The premium and discount for OTC Bitcoin 

Funds is known to move rapidly. For example, over 

the period of 12/21/20 to 1/21/21, the premium for 

the largest OTC Bitcoin Fund went from 40.18% to 

2.79%. While the price of bitcoin appreciated 

significantly during this period and NAV per share 

increased by 41.25%, the price per share increased 

by only 3.58%. This means that investors are 

buying shares of a fund that experiences significant 

volatility in its premium and discount outside of 

the fluctuations in price of the underlying asset. 

Even operating within the normal premium and 

discount range, it’s possible for an investor to buy 

shares of an OTC Bitcoin Fund only to have those 

shares quickly lose 10% or more in dollar value 

excluding any movement of the price of bitcoin. 

That is to say—the price of bitcoin could have 

stayed exactly the same from market close on one 

day to market open the next, yet the value of the 

shares held by the investor decreased only because 

of the fluctuation of the premium. As more 

investment vehicles, including mutual funds and 

ETFs, seek to gain exposure to bitcoin, the easiest 

option for a buy and hold strategy for such vehicles 

is often an OTC Bitcoin Fund, meaning that even 

investors that do not directly buy OTC Bitcoin 

Funds can be disadvantaged by extreme premiums 

(or discounts) and premium volatility. 

42A number of operating companies engaged in 

unrelated businesses—such as Tesla (a car 

manufacturer) and MicroStrategy (an enterprise 

software company)—have announced investments 

as large as $5.3 billion in bitcoin. Without access 

to bitcoin exchange-traded products, retail investors 

seeking investment exposure to bitcoin may end up 

purchasing shares in these companies in order to 

gain the exposure to bitcoin that they seek. In fact, 

mainstream financial news networks have written 

a number of articles providing investors with 

guidance for obtaining bitcoin exposure through 

publicly traded companies (such as MicroStrategy, 

Tesla, and bitcoin mining companies, among 

others) instead of dealing with the complications 

associated with buying spot bitcoin in the absence 

of a bitcoin ETP. See e.g., ‘‘7 public companies with 

exposure to bitcoin’’ (February 8, 2021) available at: 

https://finance.yahoo.com/news/7-publiccompanies-with-exposure-to-bitcoin154201525.html; and ‘‘Want to get in the crypto 

trade without holding bitcoin yourself? Here are 

some investing ideas’’ (February 19, 2021) available 

at: https://www.cnbc.com/2021/02/19/ways-toinvest-in-bitcoin-without-holding-thecryptocurrency-yourself-.html. 

43The Exchange notes that the list of countries 

above is not exhaustive and that securities 

regulators in a number of additional countries have 

either approved or otherwise allowed the listing 

and trading of Spot Bitcoin ETPs. 

44See FTX Trading Ltd., et al., Case No. 22– 

11068. 

45See Celsius Network LLC, et al., Case No. 22– 

10964. 

46See BlockFi Inc., Case No. 22–19361. 

47See Voyager Digital Holdings, Inc., et al., Case 

No. 22–10943. 

February 14, 2023 the NYDFS has 

granted no fewer than thirty-four 

BitLicenses,36 including to established 

public payment companies like PayPal 

Holdings, Inc. and Square, Inc., and 

limited purpose trust charters to entities 

providing cryptocurrency custody 

services, including the Trust’s 

Custodian.37 In addition, the Treasury’s 

Office of Foreign Assets Control 

(‘‘OFAC’’) has brought enforcement 

actions over apparent violations of the 

sanctions laws in connection with the 

provision of wallet management 

services for digital assets.38

In addition to the regulatory 

developments laid out above, more 

traditional financial market participants 

have become more active in 

cryptocurrency: large insurance 

companies, asset managers, university 

endowments, pension funds, and even 

historically bitcoin skeptical fund 

managers have allocated to bitcoin. As 

noted in the Financial Stability 

Oversight Council (‘‘FSOC’’) report on 

Digital Asset Financial Stability Risks 

and Regulation, ‘‘[i]ndustry surveys 

suggest that the scale of these 

investments grew quickly during the 

boom in crypto-asset markets through 

late 2021. In June 2022, PwC estimated 

that the number of crypto-specialist 

hedge funds was more than 300 

globally, with $4.1 billion in assets 

under management. In addition, in a 

survey PwC found that 38 percent of 

surveyed traditional hedge funds were 

currently investing in ‘digital assets,’ 

compared to 21 percent the year 

prior.’’ 39 The largest over-the-counter 

bitcoin fund previously filed a Form 10 

registration statement, which the staff of 

the Commission reviewed and which 

took effect automatically, and is now a 

reporting company.40 Established 

companies like Tesla, Inc., 

MicroStrategy Incorporated, and Square, 

Inc., among others, announced 

substantial investments in bitcoin in 

amounts as large as $1.5 billion (Tesla) 

and $425 million (MicroStrategy). The 

foregoing examples demonstrate that 

bitcoin has gained mainstream usage 

and recognition. 

Despite these developments, access 

for U.S. retail investors to gain exposure 

to bitcoin via a transparent and U.S. 

regulated, U.S. exchange-traded vehicle 

remains limited. Instead current options 

include: (i) facing the counter-party risk, 

legal uncertainty, technical risk, and 

complexity associated with accessing 

spot bitcoin; (ii) over-the-counter 

bitcoin funds (‘‘OTC Bitcoin Funds’’) 

with high management fees and 

potentially volatile premiums and 

discounts; 41 (iii) purchasing shares of 

operating companies that they believe 

will provide proxy exposure to bitcoin 

with limited disclosure about the 

associated risks; 42 or (iv) purchasing 

Bitcoin Futures exchange-traded funds 

(‘‘ETFs’’), as defined below, which 

represent a sub-optimal structure for 

long-term investors that will cost them 

significant amounts of money every year 

compared to Spot Bitcoin ETPs, as 

further discussed below. Meanwhile, 

investors in many other countries, 

including Canada and Brazil, are able to 

use more traditional exchange listed and 

traded products (including ETFs 

holding physical bitcoin) to gain 

exposure to bitcoin. Similarly, investors 

in Switzerland and across Europe have 

access to ETPs (issued by 21Shares, 

among others) which trade on regulated 

exchanges and provide exposure to a 

broad array of spot crypto assets. U.S. 

investors, by contrast, are left with 

fewer and more risky means of getting 

bitcoin exposure, as described above.43

To this point, the lack of a Spot 

Bitcoin ETP exposes U.S. investor assets 

to significant risk because investors that 

would otherwise seek crypto asset 

exposure through a Spot Bitcoin ETP are 

forced to find alternative exposure 

through generally riskier means. For 

instance, many U.S. investors that held 

their digital assets in accounts at FTX,44

Celsius Network LLC,45 BlockFi Inc.46

and Voyager Digital Holdings, Inc.47

have become unsecured creditors in the 

insolvencies of those entities. If a Spot 

Bitcoin ETP was available, it is likely 

that at least a portion of the billions of 

dollars tied up in those proceedings 

would still reside in the brokerage 

accounts of U.S. investors, having 

instead been invested in a transparent, 

regulated, and well-understood 

structure—a Spot Bitcoin ETP. To this 

point, approval of a Spot Bitcoin ETP 

would represent a major win for the 

protection of U.S. investors in the 

crypto asset space. As further described 

below, the Trust, like all other series of 

Commodity-Based Trust Shares, is 

designed to protect investors against the 


khammond on DSKJM1Z7X2PROD with NOTICES
2392 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

48See Winklevoss Order at 37593, specifically 

footnote 202, which includes the language from 

numerous approval orders for which the underlying 

futures markets formed the basis for approving 

series of ETPs that hold physical metals, including 

gold, silver, palladium, platinum, and precious 

metals more broadly; and 37600, specifically where 

the Commission provides that ‘‘when the spot 

market is unregulated—the requirement of 

preventing fraudulent and manipulative acts may 

possibly be satisfied by showing that the ETP listing 

market has entered into a surveillance-sharing 

agreement with a regulated market of significant 

size in derivatives related to the underlying asset.’’ 

As noted above, the Exchange believes that these 

citations are particularly helpful in making clear 

that the spot market for a spot commodity ETP need 

not be ‘‘regulated’’ in order for a spot commodity 

ETP to be approved by the Commission, and in fact 

that it’s been the common historical practice of the 

Commission to rely on such derivatives markets as 

the regulated market of significant size because 

such spot commodities markets are largely 

unregulated. 

49As further outlined below, both the Exchange 

and the Sponsor believe that the CME Bitcoin 

Futures market represents a regulated market of 

significant size and that this proposal and others 

like it should be approved on this basis. 

50See Teucrium Approval at 21679. 

51 Grayscale Investments, LLC v. Securities and 

Exchange Commission, et al., Case No. 22–1142. 

52See e.g., ‘‘Bitcoin ETF’s Success Could Come at 

Fundholders’ Expense,’’ Wall Street Journal 

(October 24, 2021), available at: https://

www.wsj.com/articles/bitcoin-etfs-success-couldcome-at-fundholders-expense-11635080580; 

‘‘Physical Bitcoin ETF Prospects Accelerate,’’ 

ETF.com (October 25, 2021), available at: https://

www.etf.com/sections/blog/physical-bitcoin-etfprospects-shine?nopaging=1&__cf_chl_jschl_tk__

=pmd_

JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44- 

1635476946-0-gqNtZGzNApCjcnBszQql. 

risk of losses through fraud and 

insolvency that arise by holding digital 

assets, including bitcoin, on centralized 

platforms. 

Additionally, investors in other 

countries, specifically Canada, generally 

pay lower fees than U.S. retail investors 

that invest in OTC Bitcoin Funds due to 

the fee pressure that results from 

increased competition among available 

bitcoin investment options. Without an 

approved and regulated Spot Bitcoin 

ETP in the U.S. as a viable alternative, 

U.S. investors could seek to purchase 

shares of non-U.S. bitcoin vehicles in 

order to get access to bitcoin exposure. 

Given the separate regulatory regime 

and the potential difficulties associated 

with any international litigation, such 

an arrangement would create more risk 

exposure for U.S. investors than they 

would otherwise have with a U.S. 

exchange listed ETP. In addition to the 

benefits to U.S. investors articulated 

throughout this proposal, approving this 

proposal (and others like it) would 

provide U.S. ETFs and mutual funds 

with a U.S.-listed and regulated product 

to provide such access rather than 

relying on either flawed products or 

products listed and primarily regulated 

in other countries. 

Bitcoin Futures ETFs 

The Exchange and Sponsor applaud 

the Commission for allowing the launch 

of ETFs registered under the Investment 

Company Act of 1940, as amended (the 

‘‘1940 Act’’) and the Bitcoin Futures 

Approvals that provide exposure to 

bitcoin primarily through CME Bitcoin 

Futures (‘‘Bitcoin Futures ETFs’’). 

Allowing such products to list and trade 

is a productive first step in providing 

U.S. investors and traders with 

transparent, exchange-listed tools for 

expressing a view on bitcoin. The 

Bitcoin Futures Approvals, however, 

have created a logical inconsistency in 

the application of the standard the 

Commission applies when considering 

Bitcoin ETP proposals. 

As discussed further below, the 

standard applicable to Bitcoin ETPs is 

whether the listing exchange has in 

place a comprehensive surveillance 

sharing agreement with a regulated 

market of significant size in the 

underlying asset. Previous disapproval 

orders have made clear that a market 

that constitutes a regulated market of 

significant size is generally a futures 

and/or options market based on the 

underlying reference asset rather than 

the spot commodity markets, which are 

often unregulated.48 Leaving aside the 

analysis of that standard until later in 

this proposal,49 the Exchange believes 

that the following rationale the 

Commission applied to a Bitcoin 

Futures ETF should result in the 

Commission approving this and other 

Spot Bitcoin ETP proposals: 

The CME ‘‘comprehensively surveils 

futures market conditions and price 

movements on a real-time and ongoing basis 

in order to detect and prevent price 

distortions, including price distortions 

caused by manipulative efforts.’’ Thus, the 

CME’s surveillance can reasonably be relied 

upon to capture the effects on the CME 

bitcoin futures market caused by a person 

attempting to manipulate the proposed 

futures ETP by manipulating the price of 

CME bitcoin futures contracts, whether that 

attempt is made by directly trading on the 

CME bitcoin futures market or indirectly by 

trading outside of the CME bitcoin futures 

market. As such, when the CME shares its 

surveillance information with Arca, the 

information would assist in detecting and 

deterring fraudulent or manipulative 

misconduct related to the non-cash assets 

held by the proposed ETP.50

CME Bitcoin Futures pricing is based 

on pricing from spot bitcoin markets. 

The statement from the Teucrium 

Approval that ‘‘CME’s surveillance can 

reasonably be relied upon to capture the 

effects on the CME Bitcoin Futures 

market caused by a person attempting to 

manipulate the proposed futures ETP by 

manipulating the price of CME Bitcoin 

Futures contracts . . . indirectly by 

trading outside of the CME Bitcoin 

Futures market,’’ makes clear that the 

Commission believes that CME’s 

surveillance can capture the effects of 

trading on the relevant spot markets on 

the pricing of CME Bitcoin Futures. This 

was further acknowledged in the 

‘‘Grayscale lawsuit’’ 51 when Judge Rao 

stated ‘‘. . . the Commission in the 

Teucrium order recognizes that the 

futures prices are influenced by the spot 

prices, and the Commission concludes 

in approving futures ETPs that any 

fraud on the spot market can be 

adequately addressed by the fact that 

the futures market is a regulated one 

. . .’’ The Exchange agrees with the 

Commission on this point and notes that 

the pricing mechanism applicable to the 

Shares is similar to that of the CME 

Bitcoin Futures. As further discussed 

below, this view is also consistent with 

the Sponsor’s research. 

The structure of Bitcoin Futures ETFs 

provides negative outcomes for buy and 

hold investors as compared to a Spot 

Bitcoin ETP.52 Specifically, the cost of 

rolling CME Bitcoin Futures contracts 

will cause the Bitcoin Futures ETFs to 

lag the performance of bitcoin itself and, 

at over a billion dollars in assets under 

management, would cost U.S. investors 

significant amounts of money on an 

annual basis compared to Spot Bitcoin 

ETPs. Such rolling costs would not be 

required for Spot Bitcoin ETPs that hold 

bitcoin. Further, Bitcoin Futures ETFs 

could potentially hit CME position 

limits, which would force a Bitcoin 

Futures ETF to invest in non-futures 

assets for bitcoin exposure and cause 

potential investor confusion and lack of 

certainty about what such Bitcoin 

Futures ETFs are actually holding to try 

to get exposure to bitcoin, not to 

mention completely changing the risk 

profile associated with such an ETF. 

While Bitcoin Futures ETFs represent a 

useful trading tool, they are clearly a 

sub-optimal structure for U.S. investors 

that are looking for long-term exposure 

to bitcoin that will, based on the 

calculations above, unnecessarily cost 

U.S. investors significant amounts of 

money every year compared to Spot 

Bitcoin ETPs and the Exchange believes 

that any proposal to list and trade a Spot 

Bitcoin ETP should be reviewed by the 

Commission with this important 

investor protection context in mind. 

To the extent the Commission may 

view differential treatment of Bitcoin 

Futures ETFs and Spot Bitcoin ETPs as 


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53See, e.g., Division of Investment Management 

Staff, Staff Statement on Funds Registered Under 

the Investment Company Act Investing in the 

Bitcoin Futures Market, May 11, 2021 (‘‘The Bitcoin 

Futures market also has not presented the custody 

challenges associated with some cryptocurrencybased investing because the futures are cashsettled’’). 

54Unless otherwise noted, all data and analysis 

presented in this section and referenced elsewhere 

in the filing has been provided by the Sponsor. 

55According to CME, the CME CF Bitcoin 

Reference Rate aggregates the trade flow of major 

bitcoin spot trading platforms during a specific 

calculation window into a once-a-day reference rate 

of the U.S. dollar price of bitcoin. Calculation rules 

are geared toward maximum transparency and realtime replicability in underlying spot markets, 

including Bitstamp, Coinbase, Gemini, itBit, and 

Kraken. For additional information, refer to https:// 

www.cmegroup.com/trading/cryptocurrencyindices/cf-bitcoin-reference-rate.html?redirect=/ 

trading/cf-bitcoin-reference-rate.html. 

56 Data on Bitcoin Futures is available at https:// 

www.cmegroup.com/markets/cryptocurrencies/ 

bitcoin/bitcoin.volume.html. 

57 Data on bitcoin volume traded on 

cryptocurrency trading platforms is available at 

https://www.cryptocompare.com. 

warranted based on the Commission’s 

concerns about the custody of physical 

bitcoin that a Spot Bitcoin ETP would 

hold (compared to cash-settled futures 

contracts),53 the Sponsor believes this 

concern is mitigated to a significant 

degree by the custodial arrangements 

that the Trust has contracted with the 

Custodian to provide, as further 

outlined below. In the Custody 

Statement, the Commission stated that 

the fourth step that a broker-dealer 

could take to shield traditional 

securities customers and others from the 

risks and consequences of digital asset 

security fraud, theft, or loss is to 

establish, maintain, and enforce 

reasonably designed written policies, 

procedures, and controls for safekeeping 

and demonstrating the broker-dealer has 

exclusive possession or control over 

digital asset securities that are 

consistent with industry best practices 

to protect against the theft, loss, and 

unauthorized and accidental use of the 

private keys necessary to access and 

transfer the digital asset securities the 

broker-dealer holds in custody. While 

bitcoin is not a security and the 

Custodian is not a broker-dealer, the 

Sponsor believes that similar 

considerations apply to the Custodian’s 

holding of the Trust’s bitcoin. After 

diligent investigation, the Sponsor 

believes that the Custodian’s policies, 

procedures, and controls for 

safekeeping, exclusively possessing, and 

controlling the Trust’s bitcoin holdings 

are consistent with industry best 

practices to protect against the theft, 

loss, and unauthorized and accidental 

use of the private keys. As a trust 

company chartered by the NYDFS, the 

Sponsor notes that the Custodian is 

subject to extensive regulation and has 

among longest track records in the 

industry of providing custodial services 

for digital asset private keys. Under the 

circumstances, therefore, to the extent 

the Commission believes that its 

concerns about the risks of spot bitcoin 

custody justifies differential treatment 

of a Bitcoin Futures ETF versus a Spot 

Bitcoin ETP, the Sponsor believes that 

the fact that the Custodian employs the 

same types of policies, procedures, and 

safeguards in handling spot bitcoin that 

the Commission has stated that brokerdealers should implement with respect 

to digital asset securities would appear 

to weaken the justification for treating a 

Bitcoin Futures ETF compared to a Spot 

Bitcoin ETP differently due to spot 

bitcoin custody concerns. 

Based on the foregoing, the Exchange 

and Sponsor believe that any objective 

review of the proposals to list Spot 

Bitcoin ETPs compared to the Bitcoin 

Futures ETFs and the Bitcoin Futures 

Approvals would lead to the conclusion 

that Spot Bitcoin ETPs should be 

available to U.S. investors and, as such, 

this proposal and other comparable 

proposals to list and trade Spot Bitcoin 

ETPs should be approved by the 

Commission. Stated simply, U.S. 

investors will continue to lose 

significant amounts of money from 

holding Bitcoin Futures ETFs as 

compared to Spot Bitcoin ETPs, losses 

which could be prevented by the 

Commission approving Spot Bitcoin 

ETPs. Additionally, any concerns 

related to preventing fraudulent and 

manipulative acts and practices related 

to Spot Bitcoin ETPs would apply 

equally to the spot markets underlying 

the futures contracts held by a Bitcoin 

Futures ETF. Both the Exchange and 

Sponsor believe that the CME Bitcoin 

Futures market is a regulated market of 

significant size and that such 

manipulation concerns are mitigated, as 

described extensively below. After 

allowing and approving the listing and 

trading of Bitcoin Futures ETFs that 

hold primarily CME Bitcoin Futures, 

however, the only consistent outcome 

would be approving Spot Bitcoin ETPs 

on the basis that the CME Bitcoin 

Futures market is a regulated market of 

significant size. 

Given the current landscape, 

approving this proposal (and others like 

it) and allowing Spot Bitcoin ETPs to be 

listed and traded alongside Bitcoin 

Futures ETFs would establish a 

consistent regulatory approach, provide 

U.S. investors with choice in product 

structures for bitcoin exposure, and 

offer flexibility in the means of gaining 

exposure to bitcoin through transparent, 

regulated, U.S. exchange-listed vehicles. 

Bitcoin Futures 54

CME began offering trading in Bitcoin 

Futures in 2017. Each contract 

represents five bitcoin and is based on 

the CME CF Bitcoin Reference Rate.55

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. Nearly every measurable 

metric related to Bitcoin Futures has 

trended consistently up since launch. 

According to the Sponsor, the 

increase in the volume on CME, over the 

past few years, is reflected in a higher 

proportion of the bitcoin market share. 

This is illustrated by plotting the 

proportion of monthly volume traded in 

bitcoin on the CME 56 (categorized as 

regulated in the chart and used as the 

numerator) in relation to the total 

bitcoin market, which is comprised of 

the sum of the volume of Bitcoin 

Futures on the CME and the spot 

volume on cryptocurrency trading 

platforms 57 (categorized as unregulated 

and used as the denominator) from 

January 1, 2018 to January 31, 2023. 


khammond on DSKJM1Z7X2PROD with NOTICES
2394 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

58The calculation of daily correlations used the 

period January 20, 2021 to February 1, 2023 as this 

is the common period across all the trading 

platforms and data sources being analyzed. 

59The Pearson correlation is a measure of linear 

association between two variables and indicates the 

magnitude as well as direction of this relationship. 

The value can range between ¥1 (suggesting a 

strong negative association) and 1 (suggesting a 

strong positive association). 

The proportion of volume traded on 

CME has increased from less than 1% at 

inception, to more than 10% over three 

and a half years. Furthermore, the CME 

market, as well as other crypto-linked 

markets, and the spot market are highly 

correlated. In markets that are globally 

and efficiently integrated, one would 

expect that changes in prices of an asset 

across all markets to be highly 

correlated. The rationale behind this is 

that quick and efficient arbitrageurs 

would capture potentially profitable 

opportunities, consequently converging 

prices to the average intrinsic value very 

rapidly. 

Bitcoin markets exhibit a high degree 

of correlation. Using daily bitcoin prices 

from centralized trading platforms, ETP 

providers, and the CME from January 

20, 2021 to February 1, 2023,58 the 

Sponsor calculates the Pearson 

correlation of returns 59 across these 

markets and find a high degree of 

correlation. 

Correlations are between 57% and 

99%, with the latter found mainly 

across centralized trading platforms due 

to their higher level of 

interconnectedness. The lower 

correlations pertain mainly to the ETPs, 

which are relatively newer products and 

are mainly offered by a few competing 

market makers who are required to trade 

in large blocks, thus making it 

economically infeasible to capture small 

mispricings. As additional investors and 

arbitrageurs enter the market and 

capture the mispricing opportunities 

between these markets, it is likely that 

there will be much higher levels of 

correlations across all markets. 

BILLING CODE 8011–01–P 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.051</GPH>

Proportion of Regulated BTC Market Share From January 31, 2018 to January 31, 2023 

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2395 

Pair-wise correlations of bitcoin 

returns are also calculated on hourly 

and minute-by-minute sampling 

frequencies in order to estimate the 

intra-day associations across the 

different bitcoin markets. The results 

show correlations no less than 92% 

among centralized trading platforms and 

between the CME Bitcoin Futures and 

centralized trading platforms on an 

hourly basis, and no less than 78% on 

a minutely basis. This suggests that 

bitcoin prices on centralized trading 

platforms and the CME markets move 

very similarly and in a very efficient 

manner to quickly reflect changes in 

market conditions, not only on a daily 

basis, but also at much higher intra-day 

frequencies. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.052</GPH>

Pairwise Correlation of Bitcoin Daily Returns across Centralized Exchanges, ETPs, and the CME 
/ Vol. 89, No. 9 / Friday, January 12, 2024 / Notices Federal Register 2396 


EN12JA24.053</GPH>khammond on DSKJM1Z7X2PROD with NOTICES

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2397 

60Co-skewness and Co-kurtosis are higher order 

cross-moments used in finance to examine how 

assets move together. Co-skewness measures the 

extent to which two variables undergo extreme 

deviations at the same time, whereby a positive 

(negative) value means that both values exhibit 

positive (negative) values simultaneously. While 

this measure is useful for estimating co-movements 

in one direction or the other, it does not allow us 

to test whether two variables comove similarly in 

either direction. For that, we apply the co-kurtosis, 

which measures the extent to which two variables 

undergo both extreme positive and negative 

deviations at the same time. 

According to the Sponsor’s research, 

this relationship holds true during 

periods of extreme price volatility. This 

implies that no single bitcoin market 

can deviate significantly from the 

consensus, such that the market is 

sufficiently large and has an inherent 

unique resistance to manipulation. 

Hence, the Sponsor introduces a 

statistical co-moment called co-kurtosis, 

which measures to what extent two 

random variables change together.60 If 

two returns series exhibit a high degree 

of co-kurtosis, this means that they tend 

to undergo extreme positive and 

negative changes simultaneously. A cokurtosis value larger than +3 or less than 

¥3 is considered statistically 

significant. The following table shows 

that the level of co-kurtosis is positive 

and very high between all market 

combinations of hourly returns, which 

suggests that bitcoin markets tend to 

move very similarly especially for 

extreme price deviations. 

Co-Kurtosis of Bitcoin Hourly Returns 

Across Centralized Exchanges, ETPs, 

and the CME 


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2398 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

As a robustness check, the co-kurtosis 

metric is also calculated using minuteby-minute returns, and the conclusion 

remains the same, suggesting that all 

bitcoin markets move in tandem 

especially during extreme market 

movements. 

Co-Kurtosis of Bitcoin Minutely Returns 

Across Centralized Exchanges, ETPs, 

and the CME 

BILLING CODE 8011–01–C 

These results present evidence of a 

robust global bitcoin market that quickly 

reacts in a unanimous manner to 

extreme price movements across both 

the spot markets, futures and ETP 

markets. 

The Sponsor further believes that 

academic research corroborates the 

overall trend outlined above and 

supports the thesis that the Bitcoin 

Futures pricing leads the spot market 

and, thus, a person attempting to 

manipulate the Shares would also have 

to trade on that market to manipulate 

the ETP. Specifically, the Sponsor 

believes that such research indicates 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2399 

61See Hu, Y., Hou, Y. and Oxley, L. (2019). 

‘‘What role do futures markets play in Bitcoin 

pricing? Causality, cointegration and price 

discovery from a time-varying perspective’’ 

(available at: https://www.ncbi.nlm.nih.gov/pmc/ 

articles/PMC7481826/). This academic research 

paper concludes that ‘‘There exist no episodes 

where the Bitcoin spot markets dominates the price 

discovery processes with regard to Bitcoin futures. 

This points to a conclusion that the price formation 

originates solely in the Bitcoin futures market. We 

can, therefore, conclude that the Bitcoin futures 

markets dominate the dynamic price discovery 

process based upon time-varying information share 

measures. Overall, price discovery seems to occur 

in the Bitcoin futures markets rather than the 

underlying spot market based upon a time-varying 

perspective.’’ See also Matthew Hougan, Hong Kim, 

and Satyajeet Pal (2021). ‘‘Price Discovery in the 

Modern Bitcoin Market: Examining Lead-Lag 

Relationships Between the Bitcoin Spot and Bitcoin 

Futures Market’’ (available at https://static.bitwise

investments.com/Bitwise-Bitcoin-ETP-White-Paper1.pdf). This academic research paper also 

concluded that ‘‘the CME bitcoin futures market is 

the dominant source of price discovery when 

compared with the bitcoin spot market, and that 

prices on the CME bitcoin futures market lead 

prices on bitcoin spot markets . . .’’ 

62See Exchange Rule 14.11(f). 

63Commodity-Based Trust Shares, as described in 

Exchange Rule 14.11(e)(4), are a type of Trust 

Issued Receipt. 

64As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging. To the extent that there 

are bitcoin trading platforms engaged in or allowing 

wash trading or other activity intended to 

manipulate the price of bitcoin on other markets, 

such pricing does not normally impact prices on 

other trading platforms because participants will 

generally ignore markets with quotes that they 

deem non-executable. Moreover, the linkage 

between the bitcoin markets and the presence of 

arbitrageurs in those markets means that the 

manipulation of the price of bitcoin price on any 

single venue would require manipulation of the 

global bitcoin price in order to be effective. 

Arbitrageurs must have funds distributed across 

multiple trading platforms in order to take 

advantage of temporary price dislocations, thereby 

making it unlikely that there will be strong 

concentration of funds on any particular bitcoin 

trading platform or OTC platform. As a result, the 

potential for manipulation on a trading platform 

would require overcoming the liquidity supply of 

such arbitrageurs who are effectively eliminating 

any cross-market pricing differences. 

65As previously articulated by the Commission, 

‘‘The standard requires such surveillance-sharing 

agreements since ‘‘they provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

investigate a manipulation if it were to occur.’’ The 

Commission has emphasized that it is essential for 

an exchange listing a derivative securities product 

to enter into a surveillance-sharing agreement with 

markets trading underlying securities for the listing 

exchange to have the ability to obtain information 

necessary to detect, investigate, and deter fraud and 

market manipulation, as well as violations of 

exchange rules and applicable federal securities 

laws and rules. The hallmarks of a surveillancesharing agreement are that the agreement provides 

for the sharing of information about market trading 

activity, clearing activity, and customer identity; 

that the parties to the agreement have reasonable 

ability to obtain access to and produce requested 

information; and that no existing rules, laws, or 

practices would impede one party to the agreement 

from obtaining this information from, or producing 

it to, the other party.’’ The Commission has 

historically held that joint membership in the 

Intermarket Surveillance Group constitutes such a 

surveillance sharing agreement. See Wilshire 

Phoenix Disapproval. 

66For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

67See Wilshire Phoenix Disapproval. 

68See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘cannot be manipulated’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

Act and, pursuant to its Rules of Practice, places the 

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met.’’ 

Id. at 37582. 

69As further described below, the ‘‘Index’’ for the 

Trust is the CME CF Bitcoin Reference Rate—New 

York Variant. The current trading platform 

composition of the Index is Coinbase, Bistamp, 

Kraken, itBit, LMAX Digital, and Gemini (the 

‘‘Constituent Platforms’’). 

that Bitcoin Futures lead the bitcoin 

spot market in price formation.61

Section 6(b)(5) and the Applicable 

Standards 

The Commission has approved 

numerous series of Trust Issued 

Receipts,62 including Commodity-Based 

Trust Shares,63 to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

section 6(b)(5) of the Act, specifically 

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 

manipulative acts and practices; 64 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act and that this filing sufficiently 

demonstrates that the CME Bitcoin 

Futures market represents a regulated 

market of significant size and that, on 

the whole, the manipulation concerns 

previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

quantifiable investor protection issues 

that would be resolved by approving 

this proposal. 

(i) Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order to meet this standard in a 

proposal to list and trade a series of 

Commodity-Based Trust Shares, the 

Commission requires that an exchange 

demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 65 with a regulated 

market of significant size. Both the 

Exchange and CME are members of the 

Intermarket Surveillance Group 

(‘‘ISG’’).66 The only remaining issue to 

be addressed is whether the Bitcoin 

Futures market constitutes a market of 

significant size, which both the 

Exchange and the Sponsor believe that 

it does. The terms ‘‘significant market’’ 

and ‘‘market of significant size’’ include 

a market (or group of markets) as to 

which: (a) there is a reasonable 

likelihood that a person attempting to 

manipulate the ETP would also have to 

trade on that market to manipulate the 

ETP, so that a surveillance-sharing 

agreement would assist the listing 

exchange in detecting and deterring 

misconduct; and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.67

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

satisfying section 6(b)(5) of the act, 

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.68

(a) Manipulation of the ETP 

According to the Sponsor’s research 

presented above, the Bitcoin Futures 

market is the leading market for bitcoin 

price formation. Where Bitcoin Futures 

lead the price in the spot market such 

that a potential manipulator of the 

bitcoin spot market (beyond just the 

constituents of the Index 69) would have 

to participate in the Bitcoin Futures 

market, it follows that a potential 

manipulator of the Shares would 

similarly have to transact in the Bitcoin 

Futures market because the Index is 

based on spot prices. As such, the 

Exchange believes that part (a) of the 

significant market test outlined above is 

satisfied and that common membership 

in ISG between the Exchange and CME 

would assist the listing exchange in 

detecting and deterring misconduct in 

the Shares. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 


khammond on DSKJM1Z7X2PROD with NOTICES
2400 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

70The trading platforms include Binance, 

Bitfinex, Bithumb, Bitstamp, Cexio, Coinbase, 

Coinone, Gateio, Gemini, HuobiPro, itBit, Kraken, 

Kucoin, and OKEX. 

in the Bitcoin Futures market or spot 

market for a number of reasons, 

including the significant volume in the 

Bitcoin Futures market, the size of 

bitcoin’s market cap, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. 

According to the Sponsor, a 

significant portion of the considerations 

around crypto pricing have historically 

stemmed from a lack of consistent 

pricing across markets. However, 

according to the Sponsor’s research, 

cross-platforms spreads in bitcoin have 

been declining consistently over the 

past several years. Based on the daily 

bitcoin price series from several popular 

centralized trading platforms 70 the 

Sponsor has calculated the largest crossplatform percentage spread (labelled as 

%C-Spread) by deducting the highest or 

maximum price (P) at time t from the 

lowest or minimum, and dividing by the 

lowest across all trading platforms (i). 

Formally, this is expressed as: 

The results show a clear and sharp 

decline in the %C-Spread, indicating 

that the bitcoin market has become more 

efficient as cross-platform prices have 

converged over time. 

In addition, the magnitude of outlier 

% C-spreads has also declined over 

time. This boxplot shows that, not only 

did the median value of the %C-Spread 

decline over time, but also the extreme 

outlier values. For instance, the 

maximum %C-Spread for 2017, 2018, 

2019, 2020, 2021, 2022, and 2023 (up 

until February 01, 2023) are 29.14%, 

14.12%, 8.54%, 6.04%, 3.65%, 5.56%, 

and 0.63%, respectively. The market has 

experienced a 38% year-on-year decline 

in the annual median %C-Spread 

indicating a greater degree of bitcoin 

price convergence across trading 

platforms and a more efficient market. 


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2017 2018 2019 2020 2023 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2401 

The dispersion (s) of bitcoin Prices 

has also declined over the same period. 

This chart shows the 7-day rolling 

standard deviation of the %C-Spread 

from January 1, 2017 to February 1, 

2023. The Sponsor’s research finds that 

the dispersion in bitcoin prices across 

all trading platforms has decreased over 

time, indicating that prices on all the 

considered trading platforms converge 

towards the intrinsic average much 

more efficiently. This suggests that the 

market has become better at quickly 

reaching a consensus price for bitcoin. 

As the pricing of the crypto market 

becomes increasingly efficient, pricing 

methodologies become more accurate 

and less susceptible to manipulation. 

The clustering of prices across a variety 

of sources within the primary market 

points towards robust price discovery 

mechanisms and efficient arbitrage. 


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Boxplot of C-Spread (in%) of Bitcoin across Exchanges From January 1, 2017 to February 1, 2023 

l l l 2018 2021 2022 
2402 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

One factor that has contributed to the 

overall efficiency of, and improved 

price discovery within the bitcoin 

market is the increase in the number of 

participants, and subsequently, the total 

dollar amount allocated to this market. 

This can be illustrated by the following 

chart, which shows the number of 

wallet addresses holding bitcoin from 

January 2016 to February 2023. 

The large number of participants in 

the bitcoin market has manifested itself 

in high liquidity in the market. This is 

exhibited in the following chart, which 

shows the daily aggregated dollar 

notional of the bid and ask order books 

within the first 100 price levels across 

several of the largest centralized crypto 

trading platforms from February 2022 to 

January 2023. Specifically, the dollar 

notional that is allocated closest to the 

mid price has hovered between $2.6 

million and $12 million over that 

period. 


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7-0ay Standard Deviation (a) of C•Spread across Exchanges From January 1, 2017 to February 1, 2023 

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2403 

An increased notional order book 

suggests that there is a higher degree of 

consensus among investors regarding 

the price of bitcoin. Moreover, this 

market characteristic hampers any 

attempt of price manipulation by any 

single large entity. 

As a robustness check, the Sponsor 

investigates whether the dollar notional 

in the order book changes significantly 

prior to and post an extreme price event. 

Specifically, for events constituting 

large increases in the price of bitcoin, if 

the ask (or sell) side of the order book 

experiences a significant shrinkage in 

the dollar notional right before the 

event, then this may be an indication of 

market manipulation whereby the askside of the order book becomes 

sufficiently thin for a large order to 

move the price upward. Similarly, for 

events constituting large decreases in 

the price of bitcoin, if the bid (or buy) 

side of the order book experiences a 

significant shrinkage in the dollar 

notional prior to such events, then this 

may be an indication of market 

manipulation whereby the thinner bidside of the order book may potentially 

lead to significant downward price 

movements. 

Using the top and bottom 0.1% of 

hourly price changes from February 1, 

2022 to February 1, 2023 as events of 

extreme upward and downward market 

movements, respectively, the Sponsor 

plotted the bid (left charts) and ask 

(right charts) dollar notional of the 

bitcoin order book within a six-hour 

window around these events in the 

chart below, which shows the results for 

extreme upward price movements. The 

extreme price events (indicated by the 

dashed green lines) perfectly coincide 

with the decrease in dollar notional of 

the ask-side of the order book. This is 

indicative of an efficient market, 

whereby large market movements are 

quickly and dynamically absorbed by a 

thick orderbook. Moreover, the dollar 

notional on the ask side after the event 

is replenished back to its pre-event 

level, which implies that market 

participants’ reactions are quick to 

restore the market back to its 

equilibrium level. 

BILLING CODE 8011–01–P 


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Mar 2022 May2022 Jul 2022 Sep 2022 Nov2022 Jan 2023 
2404 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

The same results and conclusions are 

found for extreme downward price 

movements. The charts below show that 

such price events perfectly coincide 

with shrinkages on the bid side of the 

order book (left charts), indicating an 

efficient and dynamic bitcoin market. 

Moreover, the bid-side of the order book 

after the event is also restored back to 

its pre-event level, which suggests that 

the market is symmetrically efficient in 

moving back to equilibrium. 


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Median Hourly Order Book Dollar Notional of Bid (Left Charts) and Ask (Right Charts) on Binance, 

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12:00 

06:00 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2405 

BILLING CODE 8011–01–C 

(ii) Designed To Protect Investors and 

the Public Interest 

The Exchange believes that the 

proposal is designed to protect investors 

and the public interest. Over the past 

several years, U.S. investor exposure to 

bitcoin through OTC Bitcoin Funds has 

grown into the tens of billions of 

dollars, including through Bitcoin 

Futures ETFs. With that growth, so too 

has grown the quantifiable investor 

protection issues to U.S. investors 

through roll costs for Bitcoin Futures 

ETFs and premium/discount volatility 

and management fees for OTC Bitcoin 

Funds. The Exchange believes that the 

concerns related to the prevention of 

fraudulent and manipulative acts and 

practices have been sufficiently 

addressed to be consistent with the Act 

and, to the extent that the Commission 

disagrees with that assertion, such 

concerns are now outweighed by 

investor protection concerns. As such, 

the Exchange believes that approving 

this proposal (and comparable 

proposals) provides the Commission 

with the opportunity to allow U.S. 

investors with access to bitcoin in a 

regulated and transparent exchangetraded vehicle that would act to limit 

risk to U.S. investors by: (i) reducing 

premium and discount volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) reducing 

risks and costs associated with investing 

in Bitcoin Futures ETFs and operating 

companies that are imperfect proxies for 

bitcoin exposure; and (iv) providing an 

alternative to custodying spot bitcoin. 

ARK 21Shares Bitcoin ETF 

Delaware Trust Company is the 

trustee (‘‘Trustee’’). The Bank of New 

York Mellon will be the administrator 

(‘‘Administrator’’) and transfer agent 

(‘‘Transfer Agent’’). Foreside Global 

Services, LLC will be the marketing 

agent (‘‘Marketing Agent’’) in 

connection with the creation and 

redemption of ‘‘Baskets’’ of Shares. ARK 

Investment Management LLC (the 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.064</GPH>

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Nov 9, 2022 
2406 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

71The Subadviser is an investment adviser. An 

investment adviser to an open-end fund is required 

to be registered under the Investment Advisers Act 

of 1940 (the ‘‘Advisers Act’’). As a result, the 

Adviser and its related personnel are subject to the 

provisions of Rule 204A–1 under the Advisers Act 

relating to codes of ethics. This Rule requires 

investment advisers to adopt a code of ethics that 

reflects the fiduciary nature of the relationship to 

clients as well as compliance with other applicable 

securities laws. Accordingly, procedures designed 

to prevent the communication and misuse of nonpublic information by an investment adviser must 

be consistent with Rule 204A–1 under the Advisers 

Act. In addition, Rule 206(4)–7 under the Advisers 

Act makes it unlawful for an investment adviser to 

provide investment advice to clients unless such 

investment adviser has (i) adopted and 

implemented written policies and procedures 

reasonably designed to prevent violation, by the 

investment adviser and its supervised persons, of 

the Advisers Act and the Commission rules adopted 

thereunder; (ii) implemented, at a minimum, an 

annual review regarding the adequacy of the 

policies and procedures established pursuant to 

subparagraph (i) above and the effectiveness of their 

implementation; and (iii) designated an individual 

(who is a supervised person) responsible for 

administering the policies and procedures adopted 

under subparagraph (i) above. 

72Cash equivalents are short-term instruments 

with maturities of less than 3 months. 

73 15 U.S.C. 80a–1. 

74According to the Registration Statement, the 

Trust’s cash will be held at The Bank of New York 

Mellon pursuant to a cash custody agreement. 

75The Trust agreement refers to the ‘‘Amended 

and Restated Trust Agreement of Ark 21Shares 

Bitcoin ETF.’’ 

‘‘Subadviser’’) 71 is the sub-adviser of 

the Trust and will provide data, 

research, and, as needed, operational 

support to the Trust, including with 

respect to assistance in the marketing of 

the Shares. As noted above, Coinbase 

Custody Trust Company, LLC, is the 

Custodian and will be responsible for 

custody of the Trust’s bitcoin. The Bank 

of New York Mellon (the ‘‘Cash 

Custodian’’) will act as custodian of the 

Trust’s cash and cash equivalents. 

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in the Trust. The Trust’s assets will only 

consist of bitcoin, cash, and cash 

equivalents.72

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended,73 nor a commodity pool for 

purposes of the Commodity Exchange 

Act (‘‘CEA’’), and neither the Trust nor 

the Sponsor is subject to regulation as 

a commodity pool operator or a 

commodity trading adviser in 

connection with the Shares. 

When the Trust creates or redeems its 

Shares, it will do so in cash transactions 

in blocks of 5,000 Shares (a ‘‘Creation 

Basket’’) at the Trust’s net asset value 

(‘‘NAV’’). Authorized participants will 

deliver, or facilitate the delivery of, cash 

to the Trust’s account with the Cash 

Custodian, in exchange for Shares when 

they create Shares, and the Trust, 

through the Cash Custodian, will deliver 

cash to such authorized participants 

when they redeem Shares with the 

Trust. Authorized participants may then 

offer Shares to the public at prices that 

depend on various factors, including the 

supply and demand for Shares, the 

value of the Trust’s assets, and market 

conditions at the time of a transaction. 

As noted above, the Trust is designed 

to protect investors against the risk of 

losses through fraud and insolvency that 

arise by holding bitcoin on centralized 

platforms. Specifically, the Trust is 

designed to protect investors as follows: 

(i) Assets of the Trust Protected From 

Insolvency 

The Trust’s bitcoin will be held by its 

Custodian,74 which is a New York 

chartered trust company overseen by the 

NYDFS and a qualified custodian under 

Rule 206–4 of the Investment Adviser 

Act. The Custodian will custody the 

Trust’s bitcoin pursuant to a custody 

agreement, which requires the 

Custodian to maintain the Trust’s 

bitcoin in segregated accounts that 

clearly identify the Trust as owner of 

the accounts and assets held on those 

accounts; the segregation will be both 

from the proprietary property of the 

Custodian and the assets of any other 

customer. Such an arrangement is 

generally deemed to be ‘‘bankruptcy 

remote,’’ that is, in the event of an 

insolvency of the Custodian, assets held 

in such segregated accounts would not 

become property of the Custodian’s 

estate and would not be available to 

satisfy claims of creditors of the 

Custodian. In addition, according to the 

Registration Statement, the Custodian 

carries fidelity insurance, which covers 

assets held by the Custodian in custody 

from risks such as theft of funds. These 

arrangements provide significant 

protections to investors and could have 

mitigated the type of losses incurred by 

investors in the numerous cryptorelated insolvencies, including Celsius, 

Voyager, BlockFi and FTX. 

(ii) Trust’s Transfer Agent Will Instruct 

Disposition of Trust’s Bitcoin 

According to the Registration 

Statement, except with respect to sale of 

bitcoin from time to time to cover 

expenses of the Trust, the only time 

bitcoin will move into or out from the 

Trust will be with respect to creations 

or redemptions of Shares of the Trust. 

In such cases, a third party will use cash 

to buy and deliver bitcoin to create 

Shares or withdraw and sell bitcoin for 

cash to redeem Shares, on behalf of the 

Trust. Authorized participants will 

deliver cash to the Trust’s account with 

the Cash Custodian in exchange for 

Shares of the Trust, and the Trust, 

through the Cash Custodian, will deliver 

cash to authorized participants when 

those authorized participants redeem 

Shares of the Trust. The Transfer Agent 

will facilitate the settlement of Shares in 

response to the placement of creation 

orders and redemption orders from 

authorized participants. The creation 

and redemption procedures are 

administered by the Transfer Agent, an 

independent third party. Specifically, 

Shares are issued in registered form in 

accordance with the Trust agreement.75

The Transfer Agent has been appointed 

registrar and transfer agent for the 

purpose of transferring Shares in 

certificated form. The Transfer Agent 

keeps a record of all shareholders and 

holder of the Shares in certified form in 

the registry. The Sponsor recognizes 

transfers of Shares in certified form only 

if done in accordance with the Trust 

agreement. In other words, according to 

the Registration Statement, with very 

limited exceptions, the Sponsor will not 

give instructions with respect to the 

transfer or disposition of the Trust’s 

bitcoin. Bitcoin owned by the Trust will 

at all times be held by, and in the 

control of, the Custodian, and transfer of 

such bitcoin to or from the Custodian 

will occur only in connection with 

creation and redemptions of Shares. 

This will provide safeguards against the 

movement of bitcoin owned by the 

Trust by or to the Sponsor or affiliates 

of the Sponsor. 

(iii) Trust’s Assets Are Subject to 

Regular Audit 

According to the Registration 

Statement, audit trails exist for all 

movement of bitcoin within Custodiancontrolled bitcoin wallets and are 

audited annually for accuracy and 

completeness by an independent 

external audit firm. In addition, the 

Trust will be audited by an independent 

registered public accounting firm on a 

regular basis. 

(iv) Trust is Subject to the Exchange’s 

Obligations of Companies Listed on the 

Exchange and Applicable Corporate 

Governance Requirements 

The Trust will be subject to the 

obligations of companies listed on the 

Exchange set forth in BZX Rule 14.6, 

which require the listed companies to 

make public disclosure of material 

events and any notifications of 

deficiency by the Exchange, file and 

distribute period financial reports, 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2407 

76Such alternative method will only be employed 

on an ad hoc basis. Any permanent change to the 

calculation of the NAV would require a proposed 

rule change under Rule 19b–4. 

engage independent public accountants 

registered with the Exchange, among 

other things. Such disclosures serve a 

key investor protection role. In addition, 

the Trust will be subject to the corporate 

governance requirements for companies 

listed on the Exchange set forth in BZX 

Rule 14.10. 

Investment Objective 

According to the Registration 

Statement and as further described 

below, the investment objective of the 

Trust is to seek to track the performance 

of bitcoin, as measured by the 

performance of the CME CF Bitcoin 

Reference Rate—New York Variant (the 

‘‘Index’’), adjusted for the Trust’s 

expenses and other liabilities. In seeking 

to achieve its investment objective, the 

Trust will hold bitcoin and will value 

the Shares daily based on the Index. The 

Trust will process all creations and 

redemptions in cash transactions with 

authorized participants. The Trust is not 

actively managed. 

The Index 

As described in the Registration 

Statement, the Trust will use the Index 

to calculate the Trust’s NAV. The Trust 

will determine the bitcoin Index price 

and value its Shares daily based on the 

value of bitcoin as reflected by the 

Index. The Index is calculated daily and 

aggregates the notional value of bitcoin 

trading activity across major bitcoin 

spot trading platforms. The Index 

currently uses substantially the same 

methodology as the CME CF Bitcoin 

Reference Rate (‘‘BRR’’), including 

utilizing the same constituent bitcoin 

trading platforms, which is the 

underlying rate to determine settlement 

of CME Bitcoin Futures contracts, 

except that the Index is calculated as of 

4 p.m. ET, whereas the BRR is 

calculated as of 4 p.m. London time. 

The Index is designed based on the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) Principals for 

Financial Benchmarks. The 

administrator of the Index is CF 

Benchmarks Ltd. (the ‘‘Index Provider’’). 

The Trust also uses the bitcoin Index 

price to calculate its bitcoin holdings, 

which is the aggregate U.S. Dollar value 

of bitcoins in the Trust, based on the 

bitcoin Index price, less its liabilities 

and expenses. 

The Index was created to facilitate 

financial products based on bitcoin. It 

serves as a once-a-day benchmark rate of 

the U.S. dollar price of bitcoin (USD/ 

BTC), calculated as of 4 p.m. ET. The 

Index, which has been calculated and 

published since February 28, 2022, 

aggregates the trade flow of several 

bitcoin trading platforms, during an 

observation window between 3:00 p.m. 

and 4:00 p.m. ET into the U.S. dollar 

price of one bitcoin at 4:00 p.m. ET. 

Specifically, the Index is calculated 

based on the ‘‘Relevant Transactions’’ 

(as defined below) of all of its 

constituent bitcoin trading platforms, 

which are currently Coinbase, Bitstamp, 

Kraken, itBit, LMAX Digital and Gemini 

(the ‘‘Constituent Platforms’’), as 

follows: 

• All Relevant Transactions are added 

to a joint list, recording the time of 

execution, trade price and size for each 

transaction. 

• The list is partitioned by timestamp 

into 12 equally-sized time intervals of 5 

(five) minute length. 

• For each partition separately, the 

volume-weighted median trade price is 

calculated from the trade prices and 

sizes of all Relevant Transactions, i.e., 

across all Constituent Platforms. A 

volume-weighted median differs from a 

standard median in that a weighting 

factor, in this case trade size, is factored 

into the calculation. 

• The Index is then determined by 

the equally-weighted average of the 

volume medians of all partitions. 

Description of the Index, Index 

Construction and Maintenance 

The Index does not include any 

futures prices in its methodology. A 

‘‘Relevant Transaction’’ is any 

cryptocurrency versus U.S. dollar spot 

trade that occurs during the observation 

window between 3:00 p.m. and 4:00 

p.m. ET on a Constituent Platform in the 

BTC/USD pair that is reported and 

disseminated by a Constituent Platform 

through its publicly available 

Application Programming Interface 

(‘‘API’’) and observed by the Index 

Provider. 

An oversight function is implemented 

by the Index Provider in seeking to 

ensure that the Index is administered 

through the Index Provider’s codified 

policies for Index integrity, which 

include a conflicts of interest policy, a 

control framework, an accountability 

framework, and an input data policy. 

The Index is subject to oversight by the 

CME CF Oversight Committee. The CME 

CF Oversight Committee shall be 

comprised of at least five members, 

including at least: (i) two who are 

representatives of CME (‘‘CME 

Members’’); (ii) one who is a 

representative of CF (‘‘CF Member’’); 

and (iii) two who bring expertise and 

industry knowledge relating to 

benchmark determination, issuance and 

operations. The CME CF Oversight 

Committee meets no less frequently 

than quarterly. The CME CF Oversight 

Committee’s Founding Charter and 

quarterly meeting minutes are publicly 

available. 

The Sponsor believes that the use of 

the Index is reflective of a reasonable 

valuation of the average spot price of 

bitcoin and that resistance to 

manipulation is a priority aim of its 

design methodology. The methodology: 

(i) takes an observation period and 

divides it into equal partitions of time; 

(ii) then calculates the volume-weighted 

median of all transactions within each 

partition; and (iii) the value is 

determined from the arithmetic mean of 

the volume-weighted medians, equally 

weighted. By employing the foregoing 

steps, the Index thereby seeks to ensure 

that transactions in bitcoin conducted at 

outlying prices do not have an undue 

effect on the value of a specific 

partition, large trades or clusters of 

trades transacted over a short period of 

time will not have an undue influence 

on the index level, and the effect of 

large trades at prices that deviate from 

the prevailing price are mitigated from 

having an undue influence on the 

benchmark level. 

Index data and the description of the 

Index are based on information made 

publicly available by the Index Provider 

on its website at https://

www.cfbenchmarks.com. 

Net Asset Value 

NAV means the total assets of the 

Trust (which includes all bitcoin and 

cash and cash equivalents) less total 

liabilities of the Trust. The 

Administrator determines the NAV of 

the Trust on each day that the Exchange 

is open for regular trading, as promptly 

as practical after 4:00 p.m. EST. The 

NAV of the Trust is the aggregate value 

of the Trust’s assets less its estimated 

accrued but unpaid liabilities (which 

include accrued expenses). In 

determining the Trust’s NAV, the 

Administrator values the bitcoin held by 

the Trust based on the price set by the 

Index as of 4:00 p.m. EST. The 

Administrator also determines the NAV 

per Share. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

If the Index is not available, or if the 

Sponsor determines in good faith that 

the Index does not reflect an accurate 

bitcoin price, then the Administrator 

will employ an alternative method to 

determine the fair value of the Trust’s 

assets.76


khammond on DSKJM1Z7X2PROD with NOTICES
2408 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

77As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

Availability of Information 

In addition to the price transparency 

of the Index, the Trust will provide 

information regarding the Trust’s 

bitcoin holdings as well as additional 

data regarding the Trust. The website for 

the Trust, which will be publicly 

accessible at no charge, will contain the 

following information: (a) the current 

NAV per Share daily and the prior 

business day’s NAV and the reported 

closing price; (b) the BZX Official 

Closing Price 77 in relation to the NAV 

as of the time the NAV is calculated and 

a calculation of the premium or 

discount of such price against such 

NAV; (c) data in chart form displaying 

the frequency distribution of discounts 

and premiums of the Official Closing 

Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

life of the Trust, if shorter); (d) the 

prospectus; and (e) other applicable 

quantitative information. The 

aforementioned information will be 

published as of the close of business 

and available on the Sponsor’s website 

at www.21shares.com, or any successor 

thereto. 

The Intraday Indicative Value (‘‘IIV’’) 

will be calculated by using the prior 

day’s closing NAV per Share as a base 

and updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Trust’s bitcoin holdings 

during the trading day. The IIV 

disseminated during Regular Trading 

Hours should not be viewed as an actual 

real-time update of the NAV, which will 

be calculated only once at the end of 

each trading day. The IIV may differ 

from the NAV due to the differences in 

the time window of trades used to 

calculate each price (the NAV uses the 

Index price as of 4 p.m. ET, whereas the 

IIV draws prices from the last trade on 

each Constituent Platform in an effort to 

produce a relevant, real-time price). The 

Trust will provide an IIV per Share 

updated every 15 seconds, as calculated 

by the Exchange or a third-party 

financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. E.T.). The IIV will be 

widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours 

through the facilities of the consolidated 

tape association (CTA) and 

Consolidated Quotation System (CQS) 

high speed lines. In addition, the IIV 

will be available through on-line 

information services such as Bloomberg 

and Reuters. 

The price of bitcoin will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Index is 

calculated daily and aggregates the 

notional value of bitcoin trading activity 

across major bitcoin spot trading 

platforms. Index data, value, and the 

description of the Index are based on 

information made publicly available by 

the Index Provider on its website at 

https://www.cfbenchmarks.com. 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters. Information relating to trading, 

including price and volume 

information, in bitcoin is available from 

major market data vendors and from the 

trading platforms on which bitcoin are 

traded. Depth of book information is 

also available from bitcoin trading 

platforms. The normal trading hours for 

bitcoin trading platforms are 24 hours 

per day, 365 days per year. 

Information regarding market price 

and trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the Consolidated Tape 

Association (‘‘CTA’’). 

The Bitcoin Custodian 

The Custodian carefully considers the 

design of the physical, operational and 

cryptographic systems for secure storage 

of the Trust’s private keys in an effort 

to lower the risk of loss or theft. The 

Custodian utilizes a variety of security 

measures to ensure that private keys 

necessary to transfer digital assets 

remain uncompromised and that the 

Trust maintains exclusive ownership of 

its assets. The operational procedures of 

the Custodian are reviewed by thirdparty advisors with specific expertise in 

physical security. The devices that store 

the keys will never be connected to the 

internet or any other public or private 

distributed network—this is colloquially 

known as ‘‘cold storage.’’ Only specific 

individuals are authorized to participate 

in the custody process, and no 

individual acting alone will be able to 

access or use any of the private keys. In 

addition, no combination of the 

executive officers of the Sponsor or the 

investment professionals managing the 

Trust, acting alone or together, will be 

able to access or use any of the private 

keys that hold the Trust’s bitcoin. 

Creation and Redemption of Shares 

When the Trust creates or redeems its 

Shares, it will do so in cash transactions 

in blocks of 5,000 Shares that are based 

on the quantity of bitcoin attributable to 

each Share of the Trust (e.g., a Creation 

Basket) at the Trust’s NAV. The 

authorized participants will deliver only 

cash to create shares and will receive 

only cash when redeeming shares. 

Further, authorized participants will not 

directly or indirectly purchase, hold, 

deliver, or receive bitcoin as part of the 

creation or redemption process or 

otherwise direct the Trust or a third 

party with respect to purchasing, 

holding, delivering, or receiving bitcoin 

as part of the creation or redemption 

process. The Trust will create shares by 

receiving bitcoin from a third party that 

is not the authorized participant and the 

Trust—not the authorized participant— 

is responsible for selecting the third 

party to deliver the bitcoin. Further, the 

third party will not be acting as an agent 

of the authorized participant with 

respect to the delivery of the bitcoin to 

the Trust or acting at the direction of the 

authorized participant with respect to 

the delivery of the bitcoin to the Trust. 

The Trust will redeem shares by 

delivering bitcoin to a third party that 

is not the authorized participant and the 

Trust—not the authorized participant— 

is responsible for selecting the third 

party to receive the bitcoin. Further, the 

third party will not be acting as an agent 

of the authorized participant with 

respect to the receipt of the bitcoin from 

the Trust or acting at the direction of the 

authorized participant with respect to 

the receipt of the bitcoin from the Trust. 

According to the Registration 

Statement, on any business day, an 

authorized participant may place an 

order to create one or more Creation 

Basket. Purchase orders must be placed 

by 12:00 p.m. Eastern Time, the close of 

regular trading on the Exchange, or 

another time determined by the 

Sponsor. The day on which an order is 

received is considered the purchase 

order date. The total deposit of cash 

required is an amount of cash sufficient 

to purchase such amount of bitcoin, the 

amount of which is equal to the 

combined NAV of the number of Shares 

included in the Creation Baskets being 

created determined as promptly as 

practicable after 4:00 p.m. ET on the 

date the order to purchase is properly 

received. The Administrator determines 

the quantity of bitcoin used to calculate 

the cash deposit in the Creation Basket 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2409 

78For purposes of Rule 14.11(e)(4), the term 

commodity takes on the definition of the term as 

provided in the Commodity Exchange Act. As noted 

above, the CFTC has opined that bitcoin is a 

commodity as defined in section 1a(9) of the 

Commodity Exchange Act. See Coinflip. 

for a given day by dividing the number 

of bitcoin held by the Trust as of the 

opening of business on that business 

day, adjusted for the amount of bitcoin 

constituting estimated accrued but 

unpaid fees and expenses of the Trust 

as of the opening of business on that 

business day, by the quotient of the 

number of Shares outstanding at the 

opening of business divided by 5,000. 

For example, assume the total bitcoin 

held by the Trust less any estimated 

accrued but unpaid fees and expenses is 

1,000 bitcoin and the total number of 

Shares outstanding is 10,000. The 

Administrator would determine the 

required deposit as follows: 

Total deposited cash as described in 

the example above would be 500 

multiplied by the purchase price of 

bitcoin. 

The procedures by which an 

authorized participant can redeem one 

or more Creation Baskets mirror the 

procedures for the creation of Creation 

Baskets. A third party, that is 

unaffiliated with the Trust and the 

Sponsor, will use cash to buy and 

deliver bitcoin to create Shares or 

withdraw and sell bitcoin for cash to 

redeem Shares, on behalf of the Trust. 

The Sponsor will maintain ownership 

and control of bitcoin in a manner 

consistent with good delivery 

requirements for spot commodity 

transactions. 

Rule 14.11(e)(4)—Commodity-Based 

Trust Shares 

The Shares will be subject to BZX 

Rule 14.11(e)(4), which sets forth the 

initial and continued listing criteria 

applicable to Commodity-Based Trust 

Shares. The Exchange represents that, 

for initial and continued listing, the 

Trust must be in compliance with Rule 

10A–3 under the Act. A minimum of 

10,000 Shares will be outstanding at the 

commencement of listing on the 

Exchange. The Exchange will obtain a 

representation that the NAV will be 

calculated daily and information about 

the NAV and the assets of the Trust will 

be made available to all market 

participants at the same time. The 

Exchange notes that, as defined in Rule 

14.11(e)(4)(C)(i), the Shares will be: (a) 

issued by a trust that holds (1) a 

specified commodity 78 deposited with 

the trust, or (2) a specified commodity 

and, in addition to such specified 

commodity, cash; (b) issued by such 

trust in a specified aggregate minimum 

number in return for a deposit of a 

quantity of the underlying commodity 

and/or cash; and (c) when aggregated in 

the same specified minimum number, 

may be redeemed at a holder’s request 

by such trust which will deliver to the 

redeeming holder the quantity of the 

underlying commodity and/or cash. 

Upon termination of the Trust, the 

Shares will be removed from listing. 

The Trustee, Delaware Trust Company, 

is a trust company having substantial 

capital and surplus and the experience 

and facilities for handling corporate 

trust business, as required under Rule 

14.11(e)(4)(E)(iv)(a) and that no change 

will be made to the trustee without prior 

notice to and approval of the Exchange. 

The Exchange also notes that, pursuant 

to Rule 14.11(e)(4)(F), neither the 

Exchange nor any agent of the Exchange 

shall have any liability for damages, 

claims, losses or expenses caused by 

any errors, omissions or delays in 

calculating or disseminating any 

underlying commodity value, the 

current value of the underlying 

commodity required to be deposited to 

the Trust in connection with issuance of 

Commodity-Based Trust Shares; 

resulting from any negligent act or 

omission by the Exchange, or any agent 

of the Exchange, or any act, condition or 

cause beyond the reasonable control of 

the Exchange, its agent, including, but 

not limited to, an act of God; fire; flood; 

extraordinary weather conditions; war; 

insurrection; riot; strike; accident; 

action of government; communications 

or power failure; equipment or software 

malfunction; or any error, omission or 

delay in the reports of transactions in an 

underlying commodity. Finally, as 

required in Rule 14.11(e)(4)(G), the 

Exchange notes that any registered 

market maker (‘‘Market Maker’’) in the 

Shares must file with the Exchange in 

a manner prescribed by the Exchange 

and keep current a list identifying all 

accounts for trading in an underlying 

commodity, related commodity futures 

or options on commodity futures, or any 

other related commodity derivatives, 

which the registered Market Maker may 

have or over which it may exercise 

investment discretion. No registered 

Market Maker shall trade in an 

underlying commodity, related 

commodity futures or options on 

commodity futures, or any other related 

commodity derivatives, in an account in 

which a registered Market Maker, 

directly or indirectly, controls trading 

activities, or has a direct interest in the 

profits or losses thereof, which has not 

been reported to the Exchange as 

required by this Rule. In addition to the 

existing obligations under Exchange 

rules regarding the production of books 

and records (see, e.g., Rule 4.2), the 

registered Market Maker in CommodityBased Trust Shares shall make available 

to the Exchange such books, records or 

other information pertaining to 

transactions by such entity or registered 

or non-registered employee affiliated 

with such entity for its or their own 

accounts for trading the underlying 

physical commodity, related commodity 

futures or options on commodity 

futures, or any other related commodity 

derivatives, as may be requested by the 

Exchange. 

The Exchange is able to obtain 

information regarding trading in the 

Shares and the underlying bitcoin, 

Bitcoin Futures contracts, options on 

Bitcoin Futures, or any other bitcoin 

derivative through members acting as 

registered Market Makers, in connection 

with their proprietary or customer 

trades. 

As a general matter, the Exchange has 

regulatory jurisdiction over its members, 

and their associated persons. The 

Exchange also has regulatory 

jurisdiction over any person or entity 

controlling a member, as well as a 

subsidiary or affiliate of a member that 

is in the securities business. A 

subsidiary or affiliate of a member 

organization that does business only in 

commodities would not be subject to 

Exchange jurisdiction, but the Exchange 

could obtain information regarding the 

activities of such subsidiary or affiliate 

through surveillance sharing agreements 

with regulatory organizations of which 

such subsidiary or affiliate is a member. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.065</GPH>

1,000BTC 

(10,000 Shares = SOO BTC per Creation Basket 

S,000 ) 
2410 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

79For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

80Regular Trading Hours is the time between 9:30 

a.m. and 4:00 p.m. Eastern Time. 

81 15 U.S.C. 78f. 

82 15 U.S.C. 78f(b)(5). 

83See Exchange Rule 14.11(f). 

84Commodity-Based Trust Shares, as described in 

Exchange Rule 14.11(e)(4), are a type of Trust 

Issued Receipt. 

factors in exercising its discretion to 

halt or suspend trading in the Shares. 

The Exchange will halt trading in the 

Shares under the conditions specified in 

BZX Rule 11.18. Trading may be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in the bitcoin underlying the Shares; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Rule 

14.11(e)(4)(E)(ii), which sets forth 

circumstances under which trading in 

the Shares may be halted. 

If the IIV or the value of the Index is 

not being disseminated as required, the 

Exchange may halt trading during the 

day in which the interruption to the 

dissemination of the IIV or the value of 

the Index occurs. If the interruption to 

the dissemination of the IIV or the value 

of the Index persists past the trading day 

in which it occurred, the Exchange will 

halt trading no later than the beginning 

of the trading day following the 

interruption. 

In addition, if the Exchange becomes 

aware that the NAV with respect to the 

Shares is not disseminated to all market 

participants at the same time, it will halt 

trading in the Shares until such time as 

the NAV is available to all market 

participants. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. BZX will allow trading 

in the Shares during all trading sessions 

on the Exchange. The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in BZX 

Rule 11.11(a), the minimum price 

variation for quoting and entry of orders 

in securities traded on the Exchange is 

$0.01 where the price is greater than 

$1.00 per share or $0.0001 where the 

price is less than $1.00 per share. The 

Shares of the Trust will conform to the 

initial and continued listing criteria set 

forth in BZX Rule 14.11(e)(4). 

Surveillance 

The Exchange represents that its 

surveillance procedures are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. 

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including 

Commodity-Based Trust Shares. FINRA 

conducts certain cross-market 

surveillances on behalf of the Exchange 

pursuant to a regulatory services 

agreement. The Exchange is responsible 

for FINRA’s performance under this 

regulatory services agreement. 

The Exchange or FINRA, on behalf of 

the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares and Bitcoin 

Futures with other markets and other 

entities that are members of the ISG, and 

the Exchange, or FINRA, on behalf of 

the Exchange, or both, may obtain 

trading information regarding trading in 

the Shares and Bitcoin Futures from 

such markets and other entities.79 The 

Exchange may obtain information 

regarding trading in the Shares and 

Bitcoin Futures via ISG, from other 

exchanges who are members or affiliates 

of the ISG, or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

The issuer has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under section 

19(g)(1) of the Exchange Act, the 

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. 

Information Circular 

Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (i) the 

procedures for the creation and 

redemption of Baskets (and that the 

Shares are not individually redeemable); 

(ii) BZX Rule 3.7, which imposes 

suitability obligations on Exchange 

members with respect to recommending 

transactions in the Shares to customers; 

(iii) how information regarding the IIV 

and the Trust’s NAV are disseminated; 

(iv) the risks involved in trading the 

Shares outside of Regular Trading 

Hours 80 when an updated IIV will not 

be calculated or publicly disseminated; 

(v) the requirement that members 

deliver a prospectus to investors 

purchasing newly issued Shares prior to 

or concurrently with the confirmation of 

a transaction; and (vi) trading 

information. The Information Circular 

will also reference the fact that there is 

no regulated source of last sale 

information regarding bitcoin, that the 

Commission has no jurisdiction over the 

trading of bitcoin as a commodity, and 

that the CFTC has regulatory 

jurisdiction over the trading of Bitcoin 

Futures contracts and options on 

Bitcoin Futures contracts. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Shares. Members 

purchasing the Shares for resale to 

investors will deliver a prospectus to 

such investors. The Information Circular 

will also discuss any exemptive, noaction and interpretive relief granted by 

the Commission from any rules under 

the Act. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with section 6(b) 

of the Act 81 in general and section 

6(b)(5) of the Act 82 in particular in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Commission has approved 

numerous series of Trust Issued 

Receipts,83 including Commodity-Based 

Trust Shares,84 to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

section 6(b)(5) of the Act, specifically 

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2411 

85As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging. To the extent that there 

are bitcoin trading platforms engaged in or allowing 

wash trading or other activity intended to 

manipulate the price of bitcoin on other markets, 

such activity does not normally impact prices on 

other trading platforms because participants will 

generally ignore markets with quotes that they 

deem non-executable. The reason is that wash 

trading aims to manipulate the volume rather than 

the price of an asset to give the impression of 

heightened market activity in hopes of attracting 

investors to that asset. Moreover, wash trades are 

executed within a trading platform rather than cross 

trading platforms since the entity executing the 

wash trades would aim to trade against itself, and 

as such, this can only happen within a trading 

platform. Should the wash trades of that entity 

result in a deviation of the price on that trading 

platform relative to others, arbitrageurs would then 

be able to capitalize on this mispricing, and bring 

the manipulated price back to equilibrium, 

resulting in a loss to the entity executing the wash 

trades. Moreover, the linkage between the bitcoin 

markets and the presence of arbitrageurs in those 

markets means that the manipulation of the price 

of bitcoin price on any single venue would require 

manipulation of the global bitcoin price in order to 

be effective. Arbitrageurs must have funds 

distributed across multiple trading platforms in 

order to take advantage of temporary price 

dislocations, thereby making it unlikely that there 

will be strong concentration of funds on any 

particular bitcoin trading platform or OTC platform. 

As a result, the potential for manipulation on a 

trading platform would require overcoming the 

liquidity supply of such arbitrageurs who are 

effectively eliminating any cross-market pricing 

differences. 

86As previously articulated by the Commission, 

‘‘The standard requires such surveillance-sharing 

agreements since ‘‘they provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

investigate a manipulation if it were to occur.’’ The 

Commission has emphasized that it is essential for 

an exchange listing a derivative securities product 

to enter into a surveillance- sharing agreement with 

markets trading underlying securities for the listing 

exchange to have the ability to obtain information 

necessary to detect, investigate, and deter fraud and 

market manipulation, as well as violations of 

exchange rules and applicable federal securities 

laws and rules. The hallmarks of a surveillancesharing agreement are that the agreement provides 

for the sharing of information about market trading 

activity, clearing activity, and customer identity; 

that the parties to the agreement have reasonable 

ability to obtain access to and produce requested 

information; and that no existing rules, laws, or 

practices would impede one party to the agreement 

from obtaining this information from, or producing 

it to, the other party.’’ The Commission has 

historically held that joint membership in ISG 

constitutes such a surveillance sharing agreement. 

See Wilshire Phoenix Disapproval. 

87For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

88See Wilshire Phoenix Disapproval. 

89See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘cannot be manipulated’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

Act and, pursuant to its Rules of Practice, places the 

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met.’’ 

Id. at 37582. 

90As further described below, the ‘‘Index’’ for the 

Trust is the CME CF Bitcoin Reference Rate—New 

York Variant. The current trading platform 

composition of the Index is Coinbase, Bistamp, 

Kraken, itBit, LMAX Digital, and Gemini (the 

‘‘Constituent Platforms’’). 

manipulative acts and practices; 85 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act and that this filing sufficiently 

demonstrates that the CME Bitcoin 

Futures market represents a regulated 

market of significant size and that, on 

the whole, the manipulation concerns 

previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

quantifiable investor protection issues 

that would be resolved by approving 

this proposal. 

(i) Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order to meet this standard in a 

proposal to list and trade a series of 

Commodity-Based Trust Shares, the 

Commission requires that an exchange 

demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 86 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.87 The only remaining issue to be 

addressed is whether the Bitcoin 

Futures market constitutes a market of 

significant size, which both the 

Exchange and the Sponsor believe that 

it does. The terms ‘‘significant market’’ 

and ‘‘market of significant size’’ include 

a market (or group of markets) as to 

which: (a) there is a reasonable 

likelihood that a person attempting to 

manipulate the ETP would also have to 

trade on that market to manipulate the 

ETP, so that a surveillance-sharing 

agreement would assist the listing 

exchange in detecting and deterring 

misconduct; and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.88

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

satisfying section 6(b)(5) of the act, 

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.89

(a) Manipulation of the ETP 

According to the Sponsor’s research 

presented above, the Bitcoin Futures 

market is the leading market for bitcoin 

price formation. Where Bitcoin Futures 

lead the price in the spot market such 

that a potential manipulator of the 

bitcoin spot market (beyond just the 

constituents of the Index 90) would have 

to participate in the Bitcoin Futures 

market, it follows that a potential 

manipulator of the Shares would 

similarly have to transact in the Bitcoin 

Futures market because the Index is 

based on spot prices. As such, the 

Exchange believes that part (a) of the 

significant market test outlined above is 

satisfied and that common membership 

in ISG between the Exchange and CME 

would assist the listing exchange in 

detecting and deterring misconduct in 

the Shares. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 

in the Bitcoin Futures market or spot 

market for a number of reasons, 

including the significant volume in the 

Bitcoin Futures market, the size of 

bitcoin’s market cap, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. 

The Exchange believes that the 

proposal is designed to protect investors 

and the public interest. Over the past 

several years, U.S. investor exposure to 

bitcoin through OTC Bitcoin Funds has 

grown into the tens of billions of dollars 

and more than a billion dollars of 

exposure through Bitcoin Futures ETFs. 

With that growth, so too has grown the 

quantifiable investor protection issues 

to U.S. investors through roll costs for 

Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. The Exchange 


khammond on DSKJM1Z7X2PROD with NOTICES
2412 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

91As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

believes that the concerns related to the 

prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed to be 

consistent with the Act and, to the 

extent that the Commission disagrees 

with that assertion, also believes that 

such concerns are now outweighed by 

these investor protection concerns. As 

such, the Exchange believes that 

approving this proposal (and 

comparable proposals) provides the 

Commission with the opportunity to 

allow U.S. investors with access to 

bitcoin in a regulated and transparent 

exchange-traded vehicle that would act 

to limit risk to U.S. investors by: (i) 

reducing premium and discount 

volatility; (ii) reducing management fees 

through meaningful competition; (iii) 

reducing risks and costs associated with 

investing in Bitcoin Futures ETFs and 

operating companies that are imperfect 

proxies for bitcoin exposure; and (iv) 

providing an alternative to custodying 

spot bitcoin. 

Commodity-Based Trust Shares 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed on the Exchange pursuant to 

the initial and continued listing criteria 

in Exchange Rule 14.11(e)(4). The 

Exchange believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on the 

Exchange during all trading sessions 

and to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. Trading of the 

Shares through the Exchange will be 

subject to the Exchange’s surveillance 

procedures for derivative products, 

including Commodity-Based Trust 

Shares. The issuer has represented to 

the Exchange that it will advise the 

Exchange of any failure by the Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under section 

19(g)(1) of the Exchange Act, the 

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. The Exchange 

may obtain information regarding 

trading in the Shares and listed bitcoin 

derivatives via the ISG, from other 

exchanges who are members or affiliates 

of the ISG, or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement. 

Availability of Information 

The Exchange also believes that the 

proposal promotes market transparency 

in that a large amount of information is 

currently available about bitcoin and 

will be available regarding the Trust and 

the Shares. In addition to the price 

transparency of the Index, the Trust will 

provide information regarding the 

Trust’s bitcoin holdings as well as 

additional data regarding the Trust. The 

website for the Trust, which will be 

publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price 91 in relation to 

the NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

life of the Trust, if shorter); (d) the 

prospectus; and (e) other applicable 

quantitative information. The 

aforementioned information will be 

published as of the close of business 

and available on the Sponsor’s website 

at www.21shares.com, or any successor 

thereto. 

The Trust will provide an IIV per 

Share updated every 15 seconds, as 

calculated by the Exchange or a thirdparty financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. E.T.). The IIV will be 

widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours 

through the facilities of the consolidated 

tape association (CTA) and 

Consolidated Quotation System (CQS) 

high speed lines. In addition, the IIV 

will be available through on-line 

information services such as Bloomberg 

and Reuters. 

The price of bitcoin will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Index is 

calculated daily and aggregates the 

notional value of bitcoin trading activity 

across major bitcoin spot trading 

platforms. Index data, value, and the 

description of the Index are based on 

information made publicly available by 

the Index Provider on its website at 

https://www.cfbenchmarks.com. 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters. Information relating to trading, 

including price and volume 

information, in bitcoin is available from 

major market data vendors and from the 

trading platforms on which bitcoin are 

traded. Depth of book information is 

also available from bitcoin trading 

platforms. The normal trading hours for 

bitcoin trading platforms are 24 hours 

per day, 365 days per year. 

Information regarding market price 

and trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the Consolidated Tape 

Association (‘‘CTA’’). 

In sum, the Exchange believes that 

this proposal is consistent with the 

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

Act, that this filing sufficiently 

demonstrates that the CME Bitcoin 

Futures market represents a regulated 

market of significant size, and that on 

the whole the manipulation concerns 

previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

investor protection issues that would be 

resolved by approving this proposal. 

The Exchange believes that the 

proposal is, in particular, designed to 

protect investors and the public interest. 

The investor protection issues for U.S. 

investors has grown significantly over 

the last several years, through roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. As discussed 

throughout, this growth investor 

protection concerns need to be reevaluated and rebalanced with the 

prevention of fraudulent and 

manipulative acts and practices 

concerns that previous disapproval 

orders have relied upon. Finally, the 

Exchange notes that in addition to all of 

the arguments herein which it believes 

sufficiently establish the CME Bitcoin 

Futures market as a regulated market of 

significant size, it is logically 

inconsistent to find that the CME 

Bitcoin Futures market is a significant 

market as it relates to the CME Bitcoin 

Futures market, but not a significant 

market as it relates to the bitcoin spot 

market for the numerous reasons laid 

out above. 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2413 

92 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 97903 

(July 13, 2023), 88 FR 46320. Comments on the 

proposed rule change, as modified by Amendment 

No. 1, are available at: https://www.sec.gov/ 

comments/sr-cboebzx-2023-040/ 

srcboebzx2023040.htm. 

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

5See Securities Exchange Act Release No. 98265, 

88 FR 61641 (Sept. 7, 2023). 

6See Securities Exchange Act Release No. 98614, 

88 FR 68785 (Oct. 4, 2023). 

7The Trust was formed as a Delaware statutory 

trust on December 17, 2020 and is operated as a 

grantor trust for U.S. federal tax purposes. The 

Trust has no fixed termination date. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

section 6(b)(5) of the Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–028 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2023–028. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2023–028 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.92

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00499 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99289; File No. SR– 

CboeBZX–2023–040] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 2 to a Proposed Rule 

Change To List and Trade Shares of 

the VanEck Bitcoin Trust Under BZX 

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

Trust Shares 

January 8, 2024. 

On June 30, 2023, Cboe BZX 

Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the VanEck Bitcoin Trust 

under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. On July 

11, 2023, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which amended and replaced 

the proposed rule change in its entirety. 

The proposed rule change, as modified 

by Amendment No. 1, was published for 

comment in the Federal Register on July 

19, 2023.3 On August 31, 2023, pursuant 

to section 19(b)(2) of the Act,4 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change, as modified by 

Amendment No. 1.5 On September 28, 

2023, the Commission instituted 

proceedings to determine whether to 

disapprove the proposed rule change, as 

modified by Amendment No. 1.6 On 

January 5, 2024, the Exchange filed 

Amendment No. 2 to the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. Amendment No. 2 

amended and replaced the proposed 

rule change, as modified by Amendment 

No. 1, in its entirety. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 2, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change to list and trade shares of 

the VanEck Bitcoin Trust (the ‘‘Trust’’),7

under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 


khammond on DSKJM1Z7X2PROD with NOTICES