Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2443 

76 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. 98564 

(Sept. 27, 2023), 88 FR 68188. Comments on the 

proposed rule change are available at: https://

www.sec.gov/comments/sr-nysearca-2023-58/ 

srnysearca202358.htm. 

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

information, in bitcoin is available from 

major market data vendors and from the 

trading platforms on which bitcoin are 

traded. Depth of book information is 

also available from bitcoin trading 

platforms. The normal trading hours for 

bitcoin trading platforms are 24 hours 

per day, 365 days per year. 

Information regarding market price 

and trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the CTA. 

In sum, the Exchange believes that 

this proposal is consistent with the 

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

Act, that this filing sufficiently 

demonstrates that the CME Bitcoin 

Futures market represents a regulated 

market of significant size, and that on 

the whole the manipulation concerns 

previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

investor protection issues that would be 

resolved by approving this proposal. 

The Exchange believes that the 

proposal is, in particular, designed to 

protect investors and the public interest. 

The investor protection issues for U.S. 

investors has grown significantly over 

the last several years, through roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. As discussed 

throughout, this growth investor 

protection concerns need to be 

reevaluated and rebalanced with the 

prevention of fraudulent and 

manipulative acts and practices 

concerns that previous disapproval 

orders have relied upon. Finally, the 

Exchange notes that in addition to all of 

the arguments herein which it believes 

sufficiently establish the CME Bitcoin 

Futures market as a regulated market of 

significant size, it is logically 

inconsistent to find that the CME 

Bitcoin Futures market is a significant 

market as it relates to the CME Bitcoin 

Futures market, but not a significant 

market as it relates to the bitcoin spot 

market for the numerous reasons laid 

out above. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–042 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–2023–042. 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–2023–042 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.76

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00502 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99291; File No. SR– 

NYSEARCA–2023–58] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of 

Amendment No. 1 to a Proposed Rule 

Change To List and Trade Shares of 

the Hashdex Bitcoin ETF Under NYSE 

Arca Rule 8.500–E (Trust Units) 

January 8, 2024. 

On September 22, 2023, NYSE Arca, 

Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

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

19b–4 thereunder,2 a proposed rule 

change to list and trade shares of the 

Hashdex Bitcoin ETF (f/k/a Hashdex 

Bitcoin Futures ETF) under NYSE Arca 

Rule 8.500–E (Trust Units). The 

proposed rule change was published for 

comment in the Federal Register on 

October 3, 2023.3 On November 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 


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2444 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

5See Securities Exchange Act Release No. 98947, 

88 FR 81171 (Nov. 21, 2023). 

6See Securities Exchange Act Release No. 99031, 

88 FR 84021 (Dec. 1, 2023). 

7The Predecessor Fund is a series of the 

Teucrium Commodity Trust (the ‘‘Predecessor 

Trust’’). The Commission has noticed for immediate 

effectiveness a separate proposed rule change 

relating to the transfer of management and control 

of the Fund from the Predecessor Trust to the Tidal 

Commodities Trust I (the ‘‘Trust’’). See Securities 

Exchange Act Release No. 99164 (December 13, 

2023), 88 FR 87825 (December 19, 2023) (SR– 

NYSEARCA–2023–84) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

to Make Changes to Certain Representations 

Relating to the Hashdex Bitcoin Futures Fund). 

8See Securities Exchange Act Release No. 34– 

94620 (April 6, 2022), 87 FR 21676 (April 12, 2022) 

(SR–NYSEArca–2021–53) (Order Approving a 

Proposed Rule Change, as Modified by Amendment 

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

Bitcoin Futures Fund Under NYSE Arca Rule 

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

(the ‘‘Approval Order’’). The representations herein 

supersede and replace the representations in the 

Exchange’s prior rule filing relating to the Teucrium 

Bitcoin Futures Fund and Partial Amendment No. 

2 thereto. See Securities Exchange Act Release No. 

92573 (August 5, 2021), 86 FR 44062 (August 11, 

2021) (SR–NYSEArca–2021–53) (Notice of Filing of 

a Proposed Rule Change To List and Trade Shares 

of Teucrium Bitcoin Futures Fund Under NYSE 

Arca Rule 8.200–E) and Partial Amendment No. 2, 

available at: https://www.sec.gov/comments/srnysearca-2021-53/srnysearca202153-20118884- 

271701.pdf. 

9On April 18, 2022, Teucrium Commodity Trust 

filed with the Commission Pre-Effective 

Amendment No. 2 to the registration statement on 

Form S–1 under the Securities Act of 1933 (the 

‘‘Securities Act’’) (File No. 333–256339) changing 

the name of the Fund from Teucrium Bitcoin 

Futures Fund to Hashdex Bitcoin Futures ETF. 

10The Sponsor is not registered as a broker-dealer 

or affiliated with a broker-dealer. In the event that 

(a) the Sponsor becomes registered as a brokerdealer or newly affiliated with a broker-dealer, or 

(b) any new sponsor or sub-adviser is registered as 

a broker-dealer or becomes affiliated with a brokerdealer, it will implement and maintain a fire wall 

with respect to its relevant personnel or personnel 

of the broker-dealer affiliate, as applicable, 

regarding access to information concerning the 

composition of and/or changes to the portfolio, and 

will be subject to procedures designed to prevent 

the use and dissemination of material non-public 

information regarding the portfolio. 

11On July 21, 2023, the Trust, on behalf of the 

Fund, filed with the Commission a registration 

statement on Form S–1 under the Securities Act 

(File No. 333–2773364), as amended by a PreEffective Amendment No. 1 filed with the 

Commission on November 2, 2023 (‘‘Form S–1’’), 

for the continuous offering and sale of the Fund’s 

Shares. On October 31, 2023, the Trust filed with 

the Commission a separate registration statement on 

Form S–4 (File No. 333–275227) (‘‘Form S–4’’) 

under the Securities Act to register 50,004 shares 

of the Fund, which was issued in exchange for the 

outstanding shares of the Predecessor Fund (the 

‘‘Reorganization’’). The Reorganization closed on 

January 3, 2024. The offering and sale of Fund 

Shares pursuant to the Form S–1 and the Form S– 

4 and the trading in such Shares commenced with 

the closing of the Reorganization, at which time the 

registration statements on the Form S–1 and the 

Form S–4 were declared effective. 

12The Trust, on behalf of the Fund, submitted an 

Amendment No. 1 to the Registration Statement on 

November 14, 2023 (‘‘DRS Amendment’’). The 

Jumpstart Our Business Startups Act (the ‘‘JOBS 

Act’’), enacted on April 5, 2012, added Section 6(e) 

to the Securities Act. Section 6(e) of the Securities 

Act provides that an ‘‘emerging growth company’’ 

may confidentially submit to the Commission a 

draft registration statement for confidential, nonpublic review by the Commission staff prior to 

public filing, provided that the initial confidential 

submission and all amendments thereto shall be 

publicly filed not later than 15 days before the date 

on which the issuer conducts a road show, as such 

term is defined in Securities Act Rule 433(h)(4). An 

emerging growth company is defined in Section 

2(a)(19) of the Securities Act as an issuer with less 

than $1,000,000,000 total annual gross revenues 

during its most recently completed fiscal year. The 

Trust meets the definition of an emerging growth 

company and consequently submitted its Draft 

Registration Statement and DRS Amendment to the 

Commission on a confidential basis. 

13A Pre-Effective Amendment No. 1 to the 

Registration Statement was filed on December 26, 

2023 (the ‘‘Amendment’’). The Amendment was an 

exhibit-only filing to provide the Fund’s executed 

bitcoin custodian agreement. The Draft Registration 

Statement and the DRS Amendment have been 

made accessible as public filings. The Registration 

Statement is not yet effective, and the Shares will 

not trade on the Exchange under the prospectus 

contained in the Registration Statement until such 

time that the Registration Statement is effective. 

disapprove the proposed rule change.5

On November 28, 2023, the Commission 

instituted proceedings to determine 

whether to disapprove the proposed 

rule change.6 On January 5, 2024, the 

Exchange filed Amendment No. 1 to the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. 

Amendment No. 1 amended and 

replaced the proposed rule change in its 

entirety. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as modified by 

Amendment No. 1, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes list and trade 

shares of the Hashdex Bitcoin ETF 

under NYSE Arca Rule 8.500–E (‘‘Trust 

Units’’). This Amendment No. 1 to SR– 

NYSEARCA–2023–58 replaces SR– 

NYSEARCA–2023–58 as originally filed 

and supersedes such filing in its 

entirety. The proposed rule change is 

available on the Exchange’s website at 

www.nyse.com, at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

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

Bitcoin ETF (the ‘‘Fund’’) under NYSE 

Arca Rule 8.500–E. 

The Commission previously approved 

the listing and trading of shares of the 

Teucrium Bitcoin Futures Fund (the 

‘‘Predecessor Fund’’) 7 pursuant to 

NYSE Arca Rule 8.200–E, Commentary 

.02.8 The Predecessor Fund’s name was 

subsequently changed to the Hashdex 

Bitcoin Futures ETF pursuant to an 

April 18, 2022 amendment to the 

Predecessor Fund’s registration 

statement.9 In connection with the 

launch of the Predecessor Fund, Tidal 

Investments LLC (f/k/a Toroso 

Investments LLC, the ‘‘Sponsor’’),10

Teucrium Trading, LLC (the ‘‘Prior 

Sponsor’’), and Hashdex Asset 

Management, Ltd. (‘‘Hashdex’’) entered 

into an agreement pursuant to which the 

Fund would be the successor and 

surviving entity from a merger into the 

Fund of the Predecessor Fund (which is 

a series of the Predecessor Trust 

sponsored by the Prior Sponsor).11

On August 25, 2023, the Trust on 

behalf of the Fund, submitted a 

confidential draft registration statement 

(the ‘‘Draft Registration Statement’’) on 

Form S–1 (File No. 377–06858) to 

change the Fund’s name to the Hashdex 

Bitcoin ETF and to modify the Fund’s 

investment objective and strategy, as 

further discussed below.12 On December 

22, 2023, the Trust, on behalf of the 

Fund, filed publicly a registration 

statement on Form S–1 (File No. 333– 

276254) (the ‘‘Registration Statement’’), 

which supersedes and replaces the Draft 

Registration Statement.13

The Fund is a series of the Trust, a 

Delaware statutory trust. The Fund is 

managed and controlled by the Sponsor 

and administered by Tidal ETF Services 

LLC (the ‘‘Administrator’’). The Sponsor 

is registered as a commodity pool 

operator (‘‘CPO’’) and a commodity 

trading adviser with the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

and is a member of the National Futures 

Association (‘‘NFA’’). 

U.S. Bancorp Fund Services, LLC 

(doing business as U.S. Bank Global 


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14 ‘‘Cash equivalents’’ include short-term treasury 

bills (90 days or less to maturity), money market 

funds, and demand deposit accounts. The Fund 

does not hold, invest in, or trade in digital assets 

that are linked to any fiat currency (i.e., 

stablecoins). 

15The Fund may, in the future, engage additional 

custodians for its bitcoin, each of whom may be 

referred to as a Bitcoin Custodian. 

16Consistent with the Approval Order, the Fund 

currently only invests in BTC Contracts and MBT 

Contracts (as defined below) and in cash and cash 

equivalents. 

17As used in this filing, ‘‘unregulated trading 

platforms’’ refers to trading venues whose trading 

rules are not subject to regulatory review or 

approval by the SEC, CFTC or other federal 

regulator, whose trading operations are not subject 

to regulatory examination, and that are not required 

by law to have anti-manipulation practices that 

federal securities or commodities regulation would 

require. See, e.g., Order Setting Aside Action by 

Delegated Authority and Disapproving a Proposed 

Rule Change, as Modified by Amendments No. 1 

and 2, To List and Trade Shares of the Winklevoss 

Bitcoin Trust, Securities Exchange Act Release No. 

83723 (July 26, 2018), 83 FR 37579 at 37597 

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

‘‘Winklevoss Order’’) (describing lack of regulatory 

oversight for Gemini trading platform). 

18The Fund’s futures-based spot pricing 

methodology and use of EFP transactions are 

explained in greater detail below in ‘‘Futures-Based 

Spot Price’’ and ‘‘EFP Transactions,’’ respectively. 

19BTC Contracts began trading on the CME 

Globex trading platform on December 15, 2017, and 

are cash-settled in U.S. dollars. MBT Contracts 

began trading on the CME Globex trading platform 

on May 3, 2021, under the ticker symbol ‘‘MBT’’ 

and are also cash-settled in U.S. dollars. For 

purposes of this filing, BTC Contracts and MBT 

Contracts may also be referred to, individually or 

collectively, as ‘‘CME Bitcoin Futures Contracts.’’ 

20The CME CF BRR aggregates the trade flow of 

major bitcoin spot platforms during a specific 

calculation window into a once-a-day reference rate 

of the U.S. dollar price of bitcoin. 

21See https://indexes.nasdaqomx.com/Index/ 

Overview/NQBTCS. 

22As further explained below, the Administrator 

will employ a methodology based on the settlement 

Continued 

Fund Services) is the sub-administrator, 

registrar, and transfer agent for the Fund 

(‘‘Sub-Administrator’’ or ‘‘Transfer 

Agent’’). U.S. Bank, N.A. will hold the 

Fund’s cash and/or cash equivalents 14

(‘‘Cash Custodian’’). BitGo Trust 

Company, Inc. will keep custody of all 

the Fund’s bitcoin as the ‘‘Bitcoin 

Custodian.’’ 15

The Fund’s Investment Objective and 

Strategy 

According to the Registration 

Statement, the investment objective of 

the Fund is to have the daily changes in 

the net asset value (‘‘NAV’’) of the 

Shares reflect the daily changes in the 

price of its benchmark, less expenses 

from the Fund’s operations, by investing 

in both bitcoin and bitcoin futures 

contracts traded on the Chicago 

Mercantile Exchange, Inc. (‘‘CME’’).16 In 

doing so, the Sponsor expects that the 

Fund will provide investors with 

bitcoin exposure that is more resistant 

to fraud and manipulative practices 

than comparable products that seek to 

rely on unregulated trading platforms.17

In particular, to avoid any exposure to 

potential manipulation from actors 

operating on unregulated trading 

platforms, although the Fund will hold 

spot bitcoin, the Fund’s NAV will be 

calculated using a spot bitcoin price 

derived from the price of CME Bitcoin 

Futures Contracts (as defined below), 

and the Fund expects to purchase and 

sell bitcoin exclusively via Exchange for 

Physical (‘‘EFP’’) transactions on the 

CME’s bitcoin futures market (the ‘‘CME 

Bitcoin Futures Market’’).18 The Fund 

will not trade or otherwise rely on 

information or services from 

unregulated spot bitcoin trading 

platforms, but will instead buy CME 

Bitcoin Futures Contracts with the 

purpose of using them to acquire 

physical bitcoin through EFP 

transactions on the regulated CME 

Bitcoin Futures Market. 

According to the Registration 

Statement, CME offers two bitcoin 

futures contracts, one contract 

representing five (5) bitcoins (‘‘BTC 

Contract’’) and another contract 

representing one-tenth of one (0.10) 

bitcoin (‘‘MBT Contract’’).19 Each BTC 

Contract and MBT Contract settles daily 

to the BTC Contract volume-weighted 

average price (‘‘VWAP’’) of all trades 

that occur between 2:59 p.m. and 3:00 

p.m., Central Time, the settlement 

period, rounded to the nearest tradable 

tick. BTC Contracts and MBT Contracts 

each expire on the last Friday of the 

contract month, and the final settlement 

value for each contract is based on the 

CME CF Bitcoin Reference Rate (‘‘CME 

CF BRR’’).20

BTC Contracts and MBT Contracts 

each trade six consecutive monthly 

contracts plus two additional December 

contract months (if the 6 consecutive 

months include December, only one 

additional December contract month is 

listed). Because BTC Contracts and MBT 

Contracts are exchange-listed, they 

allow investors to gain exposure to 

bitcoin without having to hold the 

underlying cryptocurrency. 

The Fund’s benchmark, as referenced 

above, is the Nasdaq Bitcoin Reference 

Price—Settlement (the ‘‘NQBTCS’’ or 

‘‘Benchmark’’),21 which ultimately 

tracks the price of bitcoin. The Sponsor 

believes that the spot price performance 

of bitcoin is best measured through the 

use of a reputable index provided by an 

established index provider and has 

selected the NQBTCS as a trustworthy 

benchmark of bitcoin pricing. 

The Sponsor will employ a passive 

investment strategy that is intended to 

track the changes in the Benchmark 

regardless of whether the Benchmark 

goes up or goes down, meaning that the 

Sponsor will not try to ‘‘beat’’ the 

Benchmark. In order to track the 

Benchmark as closely as possible, the 

Fund will aim to maximize its 

investment in bitcoin. 

The Fund will gain exposure to 

physical bitcoin by buying CME Bitcoin 

Futures Contracts for the primary 

purpose of using such CME Bitcoin 

Futures Contracts to acquire physical 

bitcoin through EFP transactions on the 

regulated CME Bitcoin Futures Market. 

The Fund may maintain CME Bitcoin 

Futures Contracts positions (with 

related cash reserves to meet applicable 

margin requirements) if the Sponsor 

deems it necessary to meet the Fund’s 

liquidity needs for the cash payment of 

Share redemption settlements and of 

other applicable expenses borne by the 

Fund. The Fund will also maintain cash 

balances or invest in cash equivalents to 

the extent it is unable to purchase CME 

Bitcoin Futures Contracts with available 

cash. 

If there are no Share redemption 

orders or currently due Fund-payable 

expenses and assuming that the Fund is 

able to utilize all available cash to 

purchase CME Bitcoin Futures 

Contracts, the Fund’s portfolio is 

expected to be composed of at least 95% 

in bitcoin and up to 5% in cash, cash 

equivalents, and/or CME Bitcoin 

Futures Contracts. 

The Sponsor expects that the Fund’s 

average daily tracking error against the 

Benchmark will be less than 10% over 

any period of 30 trading days. The 

Fund’s passive investment strategy is 

designed to allow investors to purchase 

and sell the Shares for the purpose of 

investing in bitcoin, whether to hedge 

the risk of losses in their bitcoin-related 

transactions or gain price exposure to 

the bitcoin market. 

The Fund’s investments will be 

consistent with the Fund’s investment 

objective and will not be used to 

enhance leverage. That is, given its 

passive investment strategy, the Fund’s 

investments will not be used to seek 

performance that is the multiple or 

inverse multiple (e.g., 2Xs, 3Xs, –2Xs, 

and –3Xs) of the Fund’s Benchmark. 

The Fund’s Benchmark 

According to the Sponsor, the Fund 

will use the Benchmark as a reference 

to track and measure its performance 

compared to the price performance of 

spot bitcoin. The Fund will not use the 

Benchmark for valuation purposes when 

calculating the Fund’s NAV.22


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prices of the CME Bitcoin Futures Contracts to 

determine the price of the Fund’s spot bitcoin 

holdings for NAV calculation. The Sponsor believes 

that this approach enables the Fund to effectively 

track the Benchmark while also mitigating risks to 

investors stemming from exposure to unregulated 

trading platforms and the prices derived from them. 

23See https://indexes.nasdaqomx.com/docs/ 

methodology_NCI.pdf. 

24According to NCI’s methodology, to 

demonstrate active capacity management, core 

trading platforms must demonstrate that their 

platform’s technical infrastructure is designed in 

such a way that it is capable of accommodating a 

sudden, significant increase in trade volume 

without impacting system functionality. See id. at 

4. 

25According to NCI’s methodology, to compute a 

trading platform’s market size, the NCIOC sums the 

U.S. Dollar (‘‘USD’’) volume of all eligible digital 

asset—USD pairs for the month of August each 

year. A core trading platform must have at least 

0.05% of the total volume in eligible trading 

platforms. See id. 

26Nasdaq, Inc. (‘‘Nasdaq’’), the index provider, 

adheres to the International Organization of 

Securities Commissions principles for benchmarks 

(the ‘‘IOSCO Principles’’) for many of its indexes 

via an internal control and governance framework 

that is audited by an external, independent auditor 

on an annual basis. Although NQBTCS is not 

currently one of the indexes that is required to 

comply with IOSCO Principles, as a reference rate 

index, it is administered in a manner that is 

generally consistent with both the IOSCO Principles 

and the elements of Nasdaq’s internal control and 

governance framework pursuant to IOSCO 

Principles. NQBTCS is administered and governed 

by the NCIOC in accordance with the publicly 

available NCI methodology. The NCIOC oversees all 

aspects of the administration of the NQBTCS, 

including the defined processes and controls for the 

selection and monitoring of third parties such as the 

core trading platforms and core custodians (see 

‘‘Custody of Bitcoin,’’ infra), as well as the 

validation and reconciliation of index calculations 

and pricing data. The NCIOC also oversees the 

identification and mitigation of any potential 

conflicts of interest, formal complaints, and updates 

or changes to the index methodology consistent 

with the IOSCO Principles. 

27The FBSP is based on extensive academic 

research on forward yield curves and is further 

described in the Fund’s Registration Statement. 

28For the calculation of FBSP, the Administrator 

considers all listed BTC Contracts that have a daily 

settlement price published by the CME Bitcoin 

Futures Market on a given date. The Sponsor notes 

that, although BTC and MBT Contracts have the 

same settlement prices, the Administrator will only 

consider BTC Contracts when calculating the FBSP. 

29See, e.g., Nelson, Charles R., and Andrew F. 

Siegel, ‘‘Parsimonious modeling of yield curves.’’ 

According to the Sponsor, the 

NQBTCS is designed to allow 

institutional investors to track the price 

of bitcoin by applying a rigorous 

methodology to trade data captured 

from cryptocurrency trading platforms 

that meet the eligibility criteria of the 

Nasdaq Crypto Index (‘‘NCI’’). The 

NQBTCS is calculated once every 

trading day by applying a publicly 

available rules-based pricing 

methodology to a diverse collection of 

pricing sources to provide an 

institutional-grade reference price for 

bitcoin.23 The NQBTCS is designed to 

account for variances in price across a 

wide range of sources, each of which 

has been vetted according to criteria 

identified in the methodology. 

Specifically, the NQBTCS settlement 

value is the Time Weighted Average 

Price (‘‘TWAP’’) calculated across the 

VWAPs for each minute in the 

settlement price window, which is 

between 2:50:00 and 3:00:00 p.m. New 

York time. Where there are no 

transactions observed in any given 

minute of the settlement price window, 

that minute is excluded from the 

calculation of the TWAP. 

According to the Sponsor, the 

NQBTCS also utilizes penalty factors to 

mitigate the impact of anomalous 

trading activity such as manipulation, 

illiquidity, large block trading, or 

operational issues that could 

compromise price representation. Three 

types of penalties are applied: abnormal 

price penalties, abnormal volatility 

penalties, and abnormal volume 

penalties. These penalties are defined as 

adjustment factors to the weight of 

information from each trading platform 

that contributes pricing information 

based on the deviation of a trading 

platform’s price, volatility, or volume 

from the median across all trading 

platforms. For example, if a core trading 

platform’s price is 2.5 standard 

deviations away from the median price, 

its price penalty factor will be a 1⁄2.5 

multiplier. 

Finally, as a means of achieving the 

highest degrees of confidence in the 

reported volume, data is sourced only 

from ‘‘core trading platforms’’ that are 

screened, selected, and approved by the 

Nasdaq Crypto Index Oversight 

Committee (the ‘‘NCIOC’’). Core trading 

platforms must: 

(1) Have strong forking controls; 

(2) Have effective anti-money 

laundering controls; 

(3) Have a reliable and transparent 

application programming interface that 

provides real-time and historical trading 

data; 

(4) Charge fees for trading and 

structure trading incentives that do not 

interfere with the forces of supply and 

demand; 

(5) Be licensed by a public 

independent governing body; 

(6) Include surveillance for 

manipulative trading practices and 

erroneous transactions; 

(7) Evidence a robust IT 

infrastructure; 

(8) Demonstrate active capacity 

management; 24

(9) Evidence cooperation with 

regulators and law enforcement; and 

(10) Have a minimum market 

representation for trading volume.25

Additionally, the NCIOC conducts 

further diligence to assess a trading 

platform’s eligibility and will consider 

additional criteria such as the trading 

platform’s organizational and ownership 

structure, security history, and 

reputation. The list of existing core 

trading platforms will be recertified by 

the NCIOC at a minimum on an annual 

basis. 

The Sponsor believes that the 

NQBTCS is a suitable Benchmark for the 

Fund for several reasons. First, it would 

provide reliable pricing for purposes of 

tracking the actual performance of 

bitcoin. Second, it is administered by a 

reputable index administrator that is not 

affiliated with the Sponsor or Fund,26

which provides assurances of 

accountability and independence. 

Finally, the NQBTCS methodology is 

designed to resist potential price 

manipulation from unregulated bitcoin 

markets by applying the following 

safeguards: 

(1) Strict eligibility criteria for the NCI 

core trading platforms from which the 

NQBTCS data is drawn; 

(2) A diverse collection of trustworthy 

pricing sources to provide an 

institutional-grade reference price for 

bitcoin; and 

(3) The use of adjustment factors to 

mitigate against the impact of any 

anomalous trading activity. 

Futures-Based Spot Price 

For purposes of calculating the Fund’s 

NAV, the value of the bitcoin held by 

the Fund will be determined by the 

Administrator in good faith based on a 

‘‘Futures-Based Spot Price’’ or ‘‘FBSP’’ 

methodology.27 The Sponsor has 

selected this pricing approach to value 

the Fund’s bitcoin because it insulates 

the calculation of the NAV of the Fund 

from data from unregulated bitcoin 

trading platforms. 

According to the Sponsor, the FBSP 

methodology allows for the estimation 

of the spot price of bitcoin by utilizing 

only market data related to BTC 

Contracts 28 traded on the CME Bitcoin 

Futures Market (specifically, settlement 

prices and time to maturity for such 

futures contracts). The Administrator is 

thus able to calculate the Fund’s NAV 

(as further described in ‘‘Net Asset 

Value’’ below) without relying on 

market data from unregulated bitcoin 

trading platforms. The Administrator 

will apply the FBSP methodology to 

estimate the price of spot bitcoin daily 

by using the daily settlement prices of 

BTC Contracts. 

According to the Sponsor, the FBSP 

methodology is based on wellestablished academic research,29


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2447 

Journal of Business (1987), available at: https://

www.researchgate.net/publication/24103017_

Parsimonious_Modeling_of_Yield_Curves; 

Svensson, Lars E.O., ‘‘Estimating and Interpreting 

Forward Interest Rates: Sweden 1992–1994.’’ 

(September 1994), IMF Working Paper No. 94/114, 

available at: https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=883856. 

30The forward curve of bitcoin futures contracts 

is the plot of the prices of individual futures 

contracts against their respective time to maturity. 

A parametric forward curve is a mathematical 

function that produces a price for a futures contract 

for any maturity, which can be used to generate a 

theoretical estimate of a futures price for a maturity 

that does not have contracts negotiated, including 

a spot price, by setting the time to maturity to zero. 

31The Sponsor will make these weights publicly 

available on the Fund’s website daily, such that any 

third party can replicate the calculation. 

particularly on the topic of term 

structure of interest rates. As discussed 

below, the Sponsor has tested the 

reliability of FBSP-derived prices by 

comparing them to historical samples of 

various benchmarks for the prices of 

physical bitcoin. The Sponsor believes 

that the FBSP-derived prices very 

closely adhere to such benchmarks and 

that the FBSP methodology can fairly 

price bitcoin while seeking to protect 

the Fund’s NAV from short-term 

distortions that may arise due to fraud 

or manipulation attempts by bad actors 

trading on unregulated trading 

platforms. 

The calculations underlying the FBSP 

methodology utilize well-understood 

and simple-to-implement mathematical 

and statistical techniques, such as 

multivariate linear regressions and 

arithmetic operations. The detailed 

methodology is described in the Fund’s 

Registration Statement and will also be 

published on the Fund’s website 

(https://hashdex-etfs.com/), along with 

all inputs necessary to replicate the 

calculation. In the event of any 

modifications to the FBSP methodology, 

the Fund will issue a press release 

notifying the investing public of such 

change and the date of the change’s 

effectiveness, which press release will 

be filed with the Commission under a 

current report on Form 8–K by the 

Fund, and, with respect changes to the 

FBSP methodology as described in this 

filing, file a proposed rule change under 

Section 19(b) with the Commission. 

The FBSP methodology involves 

calculating a parametric forward 

curve 30 into prevailing prices for actual 

BTC Contracts. The parametric forward 

curve can then be used to derive the 

spot price of bitcoin by calculating the 

price to the point of immediate 

settlement (i.e., setting the BTC 

Contracts’ time to maturity to zero). This 

process results in a set of calculated 

weights that are applied to the price of 

each actual BTC Contract included in 

the forward curve. The weights are 

calculated daily and are dependent 

solely on the number of calendar days 

until maturity of each active BTC 

Contract.31 The spot price for bitcoin 

derived from FBSP is, in turn, 

calculated by multiplying each price by 

its applicable weight and then summing 

all terms: 

FBSP = SWi * SPi

where 

Wi is the weight and 

SPi is the settlement price of each BTC 

Contract. 

The chart below visually illustrates 

the CME Bitcoin Futures Market’s 

forward curve and how the FBSP is 

determined for a specific date (October 

9, 2023). Each dot represents the 

settlement price of a specific CME 

Bitcoin Futures Contract. The line 

represents the calculated (fitted) 

forward curve. The dots align closely 

with the fitted curve line, meaning that 

the curve accurately tracks the 

settlement prices of the BTC Contracts. 

The square is a point on the curve 

corresponding to a zero-day maturity, 

representing the spot price for bitcoin 

for that date. 

The table below demonstrates the 

FBSP calculation for the same specific 

day. 

FBSP ON 10/09/2023 

Future Weight (W) 

(%) 

Settlement price 

(SP) 

Productivity 

(W x SP) 

Oct23 ......................................................................................................................... 122.10 $27,735.00 $33,864.44 

Nov23 ......................................................................................................................... ¥0.70 27,925.00 ¥$195.48 


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BTC Contracts Forward Curve and FBSP - 10/09/2023 

- Fitl8d CUrve • Funns 

30,000 .-~--------~-----------------------

27,000 ------------------~---------------

0 100 200 300 

Days lo maturily (calendar days} 
2448 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

FBSP ON 10/09/2023—Continued 

Future Weight (W) 

(%) 

Settlement price 

(SP) 

Productivity 

(W x SP) 

Dec23 ......................................................................................................................... ¥6.70 28,115.00 ¥$1,883.71 

Jan24 ......................................................................................................................... ¥5.9 28,275.00 ¥$1,668.23 

Feb24 ......................................................................................................................... ¥4.90 28,445.00 ¥$1,393.81 

Mar24 ......................................................................................................................... ¥3.70 28,650.00 ¥$1,060.05 

Jun24 ......................................................................................................................... ¥1.50 29,205.00 ¥$438.08 

Sep24 ......................................................................................................................... ¥0.30 29,755.00 ¥$89.27 

Dec24 ......................................................................................................................... 0.50 30,305.00 $151.53 

Mar25 ......................................................................................................................... 1.10 30,860.00 $339.46 

FBSP .................................................................................................................. .............................. .............................. $27,626.82 

NQBTC ............................................................................................................... .............................. .............................. $27,619.94 

Divergence (%) ................................................................................................... .............................. .............................. 0.02% 

Using data available on Bloomberg on 

July 10, 2023, the Sponsor compared 

FBSP to NQBTCS and CME CF BRR 

from December 27, 2022 to July 7, 2023 

and concluded that FBSP tracks both 

indexes with satisfactory accuracy. The 

following charts show a direct 

comparison between those two 

benchmark values and FBSP: 

In the above charts, each point 

indicates one day, and their proximity 

to the line shows how similar FBSP is 

to each of NQBTCS and CME CF BRR. 

The correlations between FBSP and 

each of NQBTCS and CME CF BRR 

exceed 99.9%, and the mean absolute 

percentage divergences are 21 basis 

points (‘‘bps,’’ where 1bp = 0.01%) and 

22bps, respectively, while the median 

absolute percentage divergences are 

18bps and 17bps, respectively. 

The Sponsor believes that this data 

strongly suggests that FBSP is a suitable 

choice for NAV calculation purposes. 

Mitigation of Manipulation Risks 

Through Use of the FBSP for NAV 

Calculation 

While the Commission has raised 

valid concerns about the potential 

influence of unregulated bitcoin markets 

on the daily settlement price of the CME 

Bitcoin Futures Market, the Sponsor 

believes that the proposed use of FBSP 

to calculate the value of the bitcoin held 

by the Fund for purposes of NAV 

calculation provides a significant and 

sufficient degree of insulation from such 

influences, for the following reasons: 

1. Regulated market influence: The 

daily settlement price of CME Bitcoin 

Futures Contracts, which is the basis for 

the NAV calculation of both futures 

contracts and bitcoin holdings of the 

Fund, is primarily influenced by trading 

activity within the regulated futures 

market itself. This market is subject to 

stringent oversight and surveillance 

mechanisms designed to detect and 

deter manipulative and fraudulent 

practices, thus significantly limiting the 

possible influence of unregulated 

bitcoin markets on the daily settlement 

price. 

2. High liquidity and volume: The 

CME Bitcoin Futures Market is 

characterized by high liquidity and 

trading volume, such that any attempt to 

influence the price calculated by the 

FBSP through trading activity in other, 

unregulated bitcoin markets would 

require a significant amount of capital 

and coordination. The Sponsor thus 

believes that any such manipulation 

attempts would be readily detectable by 

the CME’s market surveillance. 

3. Complex pricing methodology: The 

NAV calculation methodology is 

comprehensive and accounts for both 

the tenor and final settlement price of 

each futures contract. In addition, the 

FBSP method used in the NAV 

calculation process incorporates all 

maturities of BTC Contracts, which 

exhibit a robust price relationship 

among themselves. As a result, 

attempting to manipulate these prices in 

a coordinated manner to generate a 

substantial impact on NAV would be 

very challenging for potential 

manipulators and likely financially 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.004</GPH>

28000 

20000 

16000 

16000 20000 24000 28000 3200, 

FBSP 

(! 

0::24000 

m 

16000 I 

16000 20000 24000 28000 3200 

FBSP 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2449 

32The IFV, as further discussed in the ‘‘Indicative 

Fund Value’’ section below, is based on the prior 

day’s closing NAV per Share and updated to reflect 

changes in the Fund’s holdings value during the 

trading day. 33This date range represents days with intraday 

data available on Bloomberg as of July 27, 2023. 

Days with less than 40 observations for a given ABP 

were excluded from the analysis of such ABP. 

34The core trading platforms as of December 31, 

2023 were BitStamp, Coinbase, Gemini, itBit, and 

Kraken. 

35The market depth information was obtained 

from CoinMarketCap on July 19, 2023. The ABPs 

with blank cells in this table were not included in 

the July 19, 2023 snapshot. 

unfeasible. The Sponsor thus believes 

that the complexity of the methodology 

provides an additional layer of 

protection against manipulation, as it 

would be extremely difficult for a 

manipulator to influence all these 

factors in a coordinated way to impact 

the Fund’s NAV without leaving a 

detectable trail that would alert market 

surveillance. 

4. Focus on near-term contracts: The 

FBSP methodology gives more 

importance to futures contracts that are 

due for settlement in the near term 

because such contracts are more heavily 

traded, and their prices are more 

reliable indicators of the current spot 

price of bitcoin. The Sponsor believes 

that the methodology’s focus on nearterm contracts further reduces the 

potential for manipulation, as these 

contracts are less susceptible to 

manipulation due to their higher trading 

volumes and liquidity. 

As detailed above, the Sponsor’s 

proposed investment strategy ensures 

that no unregulated spot bitcoin trading 

platform could be considered a ‘‘market 

of relevant size’’ in relation to the Fund, 

given that the Fund does not rely on any 

information or services coming from 

unregulated markets. All of the Fund’s 

operations, including the purchase and 

sale of bitcoin and its NAV 

determination, rely on CME Bitcoin 

Futures Contracts on the CME Bitcoin 

Futures Market. Thus, all of the Fund’s 

transactions, whether in CME Bitcoin 

Futures Contracts or physical bitcoin, 

are registered and monitored on a 

regulated exchange, providing an 

additional layer of security and 

transparency. Because any attempt to 

manipulate the Fund would require 

significant trading on the CME Bitcoin 

Futures Market, and not on any 

unregulated bitcoin trading platform, 

there is significantly reduced potential 

for manipulation and fraud, further 

protecting investors and maintaining the 

integrity of the market. 

The Sponsor also believes that it is 

highly unlikely that a person attempting 

to manipulate the NAV of the Fund 

could do so successfully by trading on 

unregulated spot and derivatives 

markets. Because of direct arbitrage, it is 

reasonable to assume that the ETP’s 

market price (in the secondary market) 

would closely adhere to the Fund’s 

Indicative Fund Value (‘‘IFV’’),32 given 

that APs can always create and redeem 

shares of the Fund hedging with a 

basket of CME Bitcoin Futures Contracts 

and the value of the creation basket is 

determined based on the NAV of the 

Fund, which in turn is calculated using 

the FBSP method based on such basket 

of CME Bitcoin Futures Contracts. 

Consequently, the likelihood that a 

potential manipulator of the ETP could 

succeed by exclusively trading in 

unregulated bitcoin markets would 

depend on how much the prices in 

these markets have an impact over CME 

Bitcoin Futures Contracts prices. The 

likelihood that a potential manipulator 

would undertake such an effort is also 

low when considering the financial 

burden of manipulating the unregulated 

markets and the overall expected 

profitability of any such manipulation. 

To further assess such likelihood, the 

Sponsor carried out the following 

analysis to investigate the relationship 

between prices from relevant 

unregulated bitcoin markets and the 

prices of CME Bitcoin Futures 

Contracts, to assess the impact that a 

manipulation on those markets would 

have on the CME Bitcoin Futures 

Market. The Sponsor collected oneminute bars data between January 18, 

2023 and July 26, 2023 33 of prices for 

the nearest CME Bitcoin Futures 

Contract (‘‘Nearest CME Futures’’) and 

the following alternative bitcoin prices 

(‘‘ABP’’): (1) bitcoin (in USD) on each of 

NQBTCS’s core trading platforms,34 (2) 

bitcoin (in Tether stablecoin (USDT)), 

and (3) BTCUSDT USDs-Margined 

Perpetuals on Binance. For each day 

and each ABP, a simple regression 

model was estimated with one-minute 

Nearest CME Futures log-returns as the 

dependent variable, and two 

independent variables: (1) the log 

Nearest CME Futures closing price of 

the previous minute (as a control 

variable) and (2) the difference between 

the ABP log return and the Nearest CME 

Futures log return in the previous 

minute (as the variable of interest). 

The estimated coefficients associated 

with the variable of interest are a 

measure of the expected response from 

the Nearest CME Futures (as measured 

by its returns) to a divergence between 

its own return information and the one 

from ABP in the near past (one-minute 

lagged returns). Such divergences are 

expected to occur in cases of 

manipulation. A higher coefficient 

(closer to one) would indicate that 

Nearest CME Futures are more sensitive 

to and strongly influenced by the 

divergence, while a lower coefficient 

(closer to zero) would suggest that 

Nearest CME Futures are less responsive 

and not significantly influenced by the 

information coming from ABP. The 

Sponsor believes that these coefficients 

can be considered a conservative 

estimate of the real impact that 

manipulation in an ABP would have 

over the Nearest CME Futures price 

because the estimates are calculated 

under normal circumstances rather than 

under a manipulative attack, in which 

some other indicators, such as abnormal 

volume and volatility, would warn 

market participants and undermine 

their perception of the attacked ABP as 

a reliable price reference. 

The results of the Sponsor’s analysis 

are summarized in the table below: 35


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Estimated Parameters Market Deeth 

ABP Average 1st Decile Median 9th Decile +2% Deeth -2%Deeth 

Coinbase (spot USD) 0.39 0.21 0.41 0.53 $10,317,109 $17,320,315 

Binance (spot USDT) 0.36 0.15 0.38 0.52 $17,523,531 $42,136,404 

Kraken (spot USD) 0.22 0.03 0.23 0.40 $28,189,731 $30,375,259 

Bitstamp (spot USD) 0.17 0.03 0.18 0.33 $5,083,934 $4,831,827 

Gemini (spot USD) 0.15 -0.01 0.16 0.30 

ItBit (spot USD) 0.08 -0.07 0.07 0.23 

Binance (oeroetual USDTI 0.01 -0.07 0.00 0.09 
2450 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

36See https://www.cmegroup.com/clearing/ 

operations-and-deliveries/accepted-trade-types/efpefr-eoo-trades.html. The terms ‘‘EFP’’ and ‘‘EFRP’’ 

are used interchangeably for purposes of this filing. 

37The LPs with which the Fund will engage in 

bitcoin transactions are third parties that are not 

affiliated with the Fund and Sponsor and are not 

acting as agents of the Fund, Sponsor, or AP, and 

all transactions will be done on an arms-length 

basis. There is no contractual relationship between 

the Fund, the Sponsor, or the LP. When seeking to 

sell bitcoin on behalf of the Fund, the Sponsor will 

seek to sell bitcoin at commercially reasonable 

prices and terms to any of the approved LPs. Once 

agreed upon, the transaction will generally occur on 

an ‘‘over-the-counter’’ basis. 

38 In practice, both parties will simply enter open 

futures positions on the CME Bitcoin Futures 

Market (party A will open a short position and 

party B will open a long position). Both positions 

will have the exact same size and will be opened 

at the same price. The CME allows EFP transactions 

to be executed at a mutually agreed price, but it 

requires that such price be commercially 

reasonable. CME’s EFRP rules establish that if 

prices deviate excessively from prevailing market 

levels, counterparties to the trade may be required 

to demonstrate that such deviant prices are indeed 

legitimate. See CME Rule 538.F; note 44, infra. 

39See https://www.cmegroup.com/education/ 

articles-and-reports/bitcoin-futures-exchange-forphysical-transactions.html. 

The Sponsor’s analysis suggests that 

the influence of ABP over the Nearest 

CME Futures prices is relatively low. 

For instance, if a would-be manipulator 

chose to attack Coinbase, which is an 

ABP with higher coefficients and thus 

higher potential to impact Nearest CME 

Futures, the average coefficient of 0.39 

means that in order to manipulate 

Nearest CME Futures prices by 1%, the 

would-be manipulator would have to 

distort Coinbase prices by more than 

2.5% (i.e., 1% divided by 0.39) on 

average. To be successful with 90% 

confidence (1st Decile), this 

manipulator would have to distort 

Coinbase prices by more than 4.7% (1% 

divided by 0.21). The Sponsor believes 

that its analysis supports that, even 

considering these conservative 

estimates, indirect manipulation would 

be extremely inefficient. 

The market depth columns in the 

above table indicate that substantial 

financial resources, running into tens of 

millions of dollars, are present on both 

sides of the order book for the most 

influential ABPs (even without 

including hidden orders, bots, and 

arbitrageurs that effectively enhance 

liquidity). The considerable financial 

commitment that would be required 

makes the manipulation of these prices 

an expensive endeavor. 

The Sponsor believes that its analysis 

demonstrates that the low efficiency of 

attempts to manipulate ABPs, coupled 

with the significant cost involved in 

influencing impactful ABPs, makes 

potential manipulation of spot bitcoin 

markets an unattractive proposition, and 

that it is therefore highly unlikely that 

a potential manipulator of the ETP 

could succeed by exclusively trading in 

unregulated bitcoin markets. The 

combination of the high costs and the 

inefficiencies associated with 

manipulation makes it a daunting and 

unprofitable venture. 

The Sponsor acknowledges the 

potential for influence from trades 

settled in unregulated bitcoin markets. 

However, the Sponsor believes that the 

NAV calculation methodology, coupled 

with the inherent characteristics of the 

CME Bitcoin Futures Market, provides a 

significant degree of protection against 

such influence being deliberately used 

to manipulate the Fund’s market price 

or NAV. The Sponsor believes that any 

such attempt at manipulation very 

likely would be detected by CME market 

surveillance. 

EFP Transactions 

According to the Sponsor, an EFP 

transaction, also known as an Exchange 

for Related Position (‘‘EFRP’’) 

transaction,36 is a type of trade that is 

available for most CME futures 

contracts. An EFP trade is a composite 

transaction that involves the opening of 

a position in the futures market and the 

execution of an inverse trade in the 

underlying physical asset. An EFP trade 

closes with a physical delivery against 

a cash settlement. 

Because EFP trades require the parties 

to the transaction to simultaneously 

trade the futures and the physical legs 

of the transaction, the futures leg of an 

EFP trade is not executed at the CME’s 

central limit order book. Rather, an EFP 

is a CME-regulated, bilaterally 

negotiated block trade, in which both 

parties engage in both legs of the 

composite transaction. 

According to the Sponsor, the Fund 

seeks to use EFP transactions to gain 

exposure to spot bitcoin for the 

following reasons: 

(1) EFP transactions are reported 

through the CME Bitcoin Futures 

Market, which is a regulated market and 

the relevant regulated market for the 

Fund for the purposes of the test 

specified in the Winklevoss Order. 

(2) EFP transactions are subject to the 

CME’s market surveillance program, 

which helps deter and investigate 

fraudulent and manipulative 

misconduct. 

(3) EFP transactions will allow the 

Fund to gain efficient and regular 

exposure to physical bitcoin without 

relying on unregulated bitcoin markets 

for any purpose, including its creation 

and redemption processes. 

When the Sponsor intends to increase 

the Fund’s bitcoin holdings, the Fund 

will participate in an EFP transaction to 

sell futures contracts and buy physical 

bitcoin, while the liquidity provider 

(‘‘LP’’) participating in such transaction 

will buy futures contracts and sell 

physical bitcoin.37 Similarly, when the 

Sponsor seeks to decrease the Fund’s 

bitcoin holdings, the Fund will 

participate in an EFP transaction to buy 

futures contracts and sell physical 

bitcoin, while the LP on the other side 

of the transaction will sell futures 

contracts and buy physical bitcoin. 

The most well-established means for 

buying and selling physical bitcoin in 

large quantities is through the use of 

simple cash-for-asset OTC transactions 

with an LP, such as several market 

makers active in U.S. capital markets. 

The Sponsor believes that a key benefit 

of EFP transactions is that they allow for 

an OTC transaction to be conducted 

under the regulatory oversight of the 

CME. 

According to the Sponsor, the Fund 

will exclusively use CME Bitcoin 

Futures Market’s EFP transactions to 

purchase and sell its physical bitcoin. 

Therefore, all trading of the Fund’s noncash (or cash equivalents) assets (i.e., 

CME Bitcoin Futures Contracts and 

physical bitcoin) will take place through 

the CME Bitcoin Futures Market, and 

the CME Bitcoin Futures Market will be 

the relevant regulated market for the 

Fund. Because NYSE Arca and CME are 

both members of the Intermarket 

Surveillance Group (‘‘ISG’’), information 

shared by CME with NYSE Arca can be 

used to assist in detecting and deterring 

fraudulent or manipulative misconduct. 

EFP Transactions Through the CME 

Bitcoin Futures Market 

All EFP trades have two legs: a futures 

leg and a physical leg. In the futures leg 

of an EFP Transaction through the CME 

Bitcoin Futures Market, party A sells 

CME Bitcoin Futures Contracts to party 

B for a given price.38 In the physical leg 

of the same transaction, party A buys 

physical bitcoins sold by party B by 

delivering cash consideration for those 

bitcoins to party B. 

When two parties agree to perform a 

CME Bitcoin Futures Market EFP 

trade,39 they must agree on the 

following terms: 

(1) The contract (maturity) that will be 

used in the futures leg of the trade; 

(2) The number of futures contracts in 

the futures leg of the trade; 

(3) The price of the futures contract in 

the futures leg of the trade; 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2451 

40 In practice, the quantity of bitcoins in both the 

futures leg and in the physical leg of a CME Bitcoin 

Futures Market EFP trade are likely to be exactly 

the same. 

41 ‘‘Basis spread’’ refers to the difference in price 

between two related financial instruments. In the 

context of an EFP transaction, the basis spread is 

the difference between the futures contract price 

and the spot price of the underlying bitcoin. This 

spread is crucial in determining the amount of cash 

payment in the physical leg of the EFP transaction, 

essentially setting the price per bitcoin based on the 

prevailing market conditions in the futures and spot 

markets. 42As detailed above, one BTC Contract represents 

five bitcoins. 43As described in the Fund’s Registration 

Statement, the Sponsor will conduct a Request-forQuote auction with one or more previously 

identified LPs to determine the best price on the 

requested quantity for the proposed EFP 

transaction. The LPs of the Fund are screened, 

selected, and approved by the Sponsor and should 

satisfy, at minimum, the following criteria: (1) Be 

licensed as a Money Service Business by the 

Financial Crimes Enforcement Network; (2) 

Registered with the CFTC and a member of the NFA 

or otherwise comply with applicable CFTC 

requirements governing eligibility to transact in 

bitcoin EFPs; (3) Have anti-money laundering and 

combating the financing of terrorism policies in 

place and be compliant with Financial Action Task 

Force guidance; (4) Have cybersecurity, disaster 

recovery and business continuity, and third-party 

service provider management policies. 

(4) The quantity of physical bitcoins 

in the physical leg of the trade (where 

the amount of bitcoin traded must be 

approximately equivalent to the 

notional amount of the futures contracts 

traded); 40

(5) The basis spread,41 which is used 

to determine the price per bitcoin for 

the cash payment in the physical leg of 

the EFP trade. 

After both parties agree to the terms 

of an EFP trade, they report the trade 

details to the CME. The futures leg of 

the EFP transaction is cleared by CME 

Clearing. The two parties to the EFP 

trade are responsible for bilaterally 

clearing the physical leg of the 

transaction. 

The Fund’s Use of EFP Transactions 

According to the Sponsor, the Fund 

will, under normal market conditions, 

frequently increase or decrease its 

holdings of physical bitcoin as Shares 

are created and redeemed. As noted 

above, the Fund will acquire and 

dispose of physical bitcoin only through 

EFP transactions through the CME 

Bitcoin Futures Market, which take 

place under the regulatory oversight of 

the CME, a CFTC-regulated market. 

Pursuant to the Fund’s investment 

objectives, when the Sponsor decides to 

increase or decrease its holdings of 

physical bitcoin, it will cause the Fund 

to execute an EFP trade with an LP. The 

Fund and the LP will simultaneously 

exchange a futures position for a 

corresponding, economically offsetting 

position in physical bitcoin. 

The diagram below illustrates the 

steps in the execution of a typical EFP 

trade by the Fund to acquire spot 

bitcoin in exchange for CME Bitcoin 

Futures Contracts. 

To provide a more concrete example 

of an EFP transaction that the Fund 

would undertake to acquire spot bitcoin, 

assume that the Fund needs to buy 50 

bitcoins in exchange for 10 units of the 

next maturity of BTC Contracts.42 The 

Sponsor will select 43 an LP that it 

believes will provide the best execution 

opportunity for the proposed EFP trade. 

The LP will provide bid/ask quotes for 

the EFP transaction as a basis spread 

against the settlement price of the BTC 

Contract to determine the price of the 

physical bitcoin that will be exchanged 

in the physical leg of the EFP. Then, 

assume that the Sponsor determines that 

the best option for the Fund is a bid of 

+25 bps. Assuming that the daily 

settlement price of the relevant BTC 

Contract was $26,060, the price for the 

physical leg of the EFP transaction 

agreed upon by the Fund and the LP is 

$25,995.01. Upon completion of the EFP 

transaction, the Fund and the LP will 

have different positions, but the same 

financial exposure: 

• Before the transaction, the Fund 

was long 10 BTC Contracts; after the 

transaction, it has converted this 

exposure into 50 physical bitcoins. 


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2452 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

44See https://www.cmegroup.com/rulebook/files/ 

cme-group-Rule-538.pdf at FAQ 23. 

45See id. at FAQs 23, 24; Section 538.I. 

46See https://www.cmegroup.com/rulebook/files/ 

cme-group-Rule-538.pdf. 

47EFRPs ‘‘may not be priced off-market for the 

purpose of shifting substantial sums of cash from 

one party to another, to allocate gains and losses 

between the futures or options on futures and the 

cash or OTC derivative components of the EFRP, to 

evade taxes, to circumvent financial controls by 

disguising a firm’s financial condition, or to 

accomplish some other unlawful purpose’’ and 

‘‘EFRPs executed at off-market prices are more 

likely to be reviewed by Market Regulation to 

determine the purpose for the pricing.’’ See id. at 

FAQ 11. 

48See id. at FAQs 23, 24; Section 538.I. 

49The types of records that must be maintained 

by parties to an EFP include: (1) All order tickets, 

trade blotters, emails, instant messages, telephone 

recordings or other records related to the order 

placement, negotiation, execution and/or 

confirmation of the EFRP. (2) All cash 

confirmations and signed contracts corresponding 

to the cash or derivative component of the EFRP. 

The documentation must contain all of the relevant 

terms of the transaction and counterparty 

information. (3) Third party proof of payment 

evidencing settlement and documentation 

representing the transfer of ownership of the 

commodity. (4) Futures account statement reflecting 

confirmation of the EFRP. (5) Records reflecting the 

booking of the cash or derivative transaction in the 

firm’s internal bookkeeping systems. See id. at FAQ 

19. 

50See id. at FAQ 20. 

51A list of the LPs is available at: https://

www.cmegroup.com/trading/bitcoin-brokers-andblock-liquidity-providers.html. 

• Before the transaction, the LP had 

50 bitcoins; after the transaction, it 

holds an equivalent position long in 10 

BTC Contracts. 

The table below illustrates the steps 

in this EFP transaction: 

Steps LP Fund 

1. Starting point ............................................................................................................. 50 bitcoin ............................ 10 BTC Contracts. 

2. EFP transaction is negotiated between the LP and the Fund .................................. The LP and the Fund agree to terms of the EFP, namely: 

• Fund sells/LP buys 10 BTC Contracts at $26,000. 

• Fund buys/LP sells 50 bitcoins at $25,995.01 

(basis spread of +25bps). 

3. LP sends bitcoin to the Fund .................................................................................... ¥50 bitcoins ...................... +50 bitcoins. 

4. The EFP transaction is reported to CME and the LP assumes the long position in 

10 BTC Contracts.

+10 BTC Contracts ............ ¥10 BTC Contracts. 

5. Final position ............................................................................................................. 10 BTC Contracts .............. 50 bitcoins. 

EFP transactions must be submitted to 

the CME ‘‘as soon as possible, but no 

later than the end of the business day on 

which the EFRP was executed.’’ 44 The 

relevant terms reported to the CME 

are: 45

(1) The type of the EFRP (which, for 

the Fund, will be the CME Bitcoin 

Futures Market EFP); 

(2) The date and time of the trade (i.e., 

the time when agreement was reached 

on the prices and quantities of the 

transaction); 

(3) The price and quantity of the CME 

contract (which, for the Fund, will be 

the CME Bitcoin Futures Contracts); and 

(4) The price and quantity of the 

corresponding related position (which, 

for the Fund, will be physical bitcoin). 

Mitigation of Manipulation Risks 

Through Use of EFP Transactions 

The Sponsor believes that EFP 

transactions help protect against fraud 

and manipulation because they allow 

exchanges that share surveillance 

information with CME to investigate 

suspicious behavior by market 

participants. In addition, the Sponsor 

believes that regulatory requirements 

pursuant to CME Rule 538 46 pertaining 

to EFP transactions significantly 

increase the likelihood that fraud and 

manipulation will be detected and 

deterred. These regulatory requirements 

include: 

• Pricing of EFPs: Section 538.F 

(‘‘Prices and Price Increments’’) states 

that while parties to an EFP transaction 

have discretion to mutually agree on a 

price, EFPs ‘‘may not be priced to 

facilitate the transfer of funds between 

parties for any purpose other than as the 

consequence of legitimate commercial 

activity.’’ 47

• Reporting: Section 538.I 

(‘‘Submission to the Clearing House’’) 

states that parties engaging in an EFP 

transaction must report each transaction 

to CME Clearing within the time period 

and manner specified by the CME.48

EFP transaction volumes are also 

required to be reported to the CME with 

the daily large trader positions by each 

clearing member, omnibus account, and 

foreign broker. 

• Recordkeeping: Section 538.H 

(‘‘Recordkeeping’’) states that ‘‘parties to 

an [EFP] transaction must maintain all 

records relevant to the [futures] contract 

and the related position transaction.’’ 49

The FAQs relating to CME Rule 538 

also state that parties to an EFRP, along 

with their clearing members, are subject 

to CME jurisdiction and may be 

required to produce records and 

cooperate fully with any investigation.50

The Sponsor believes that EFP 

transactions between the Fund and an 

LP to trade physical bitcoin are 

significantly less susceptible to fraud or 

manipulation because they are subject 

to a range of CME regulatory 

requirements regarding pricing, 

reporting, surveillance, and 

recordkeeping, as discussed above. 

Further, EFP transactions are entered 

into only by CFTC-regulated futures 

commission merchants and occur 

through the CME Bitcoin Futures 

Market, which is a CFTC-regulated 

market with processes in place to 

prevent market manipulation, including 

the monitoring of transaction prices and 

the investigation of potential 

manipulations. 

According to the Sponsor, the ability 

of participants to undertake EFP 

transactions is determined exclusively 

by the liquidity of the CME Bitcoin 

Futures Market and by the liquidity of 

OTC markets for physical bitcoin, both 

of which are sufficiently large. The 

Sponsor understands that a significant 

number of LPs are prepared to execute 

bitcoin EFP transactions. The CME’s 

website lists at least 15 LPs that have 

agreed to be listed as contacts for clients 

interested in executing block trades and 

EFP transactions.51 The Sponsor has 

consulted with several such LPs and 

believes that those LPs could provide 

enough liquidity to support the Fund’s 

demand for bitcoin when it incorporates 

physical bitcoin into its strategy. The 

Sponsor notes that several such LPs 

already have an ongoing commercial 

relationship with the Sponsor and/or 

Hashdex and are active participants in 

trading the CME Bitcoin Futures 

Markets, bitcoin, and bitcoin ETPs 

worldwide. 

The Bitcoin and Bitcoin Futures 

Markets 

According to the Registration 

Statement, bitcoin is a digital asset that 

serves as the unit of account on an 

open-source, decentralized, peer-to-peer 


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52See Winklevoss Order. 

53 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. 

54See ‘‘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.’’ 

computer network. It may be used to 

pay for goods and services, stored for 

future use, or converted to governmentbacked currency. As of the date of this 

prospectus, the adoption of bitcoin for 

these purposes has been limited. The 

value of bitcoin is not backed by any 

government, corporation, or other 

identified body. 

The value of bitcoin depends on its 

supply (which is limited), and demand 

for bitcoin in the markets for exchange 

that have been organized to facilitate the 

trading of bitcoin. By design, the supply 

of bitcoin is intentionally limited to 21 

million bitcoins. According to the 

Registration Statement, there are 

approximately 19 million bitcoins in 

circulation. 

Bitcoin is maintained on a 

decentralized, open source, peer-to-peer 

computer network, the ‘‘Bitcoin 

Network.’’ No single entity owns or 

operates the Bitcoin Network. The 

Bitcoin Network is accessed through 

software and governs bitcoin’s creation 

and movement. The source code for the 

Bitcoin Network, often referred to as the 

‘‘Bitcoin Protocol,’’ is open-source, and 

anyone can contribute to its 

development. 

The infrastructure of the Bitcoin 

Network is collectively maintained by 

various participants in the Bitcoin 

Network, which include miners, 

developers, and users. Miners validate 

transactions and provide security to the 

network, and are currently compensated 

for that service in bitcoin. Developers 

maintain and contribute updates to the 

Bitcoin Protocol. Users access the 

Bitcoin Network using open-source 

software. Anyone can be a user, 

developer, or miner. 

Bitcoin is ‘‘stored’’ on a digital 

transaction ledger commonly known as 

a ‘‘blockchain.’’ A blockchain is a 

distributed database that is 

continuously updated and reconciled 

among certain users and is protected by 

cryptography. The bitcoin blockchain 

contains a complete record and history 

for each bitcoin transaction. New 

bitcoins are created through a process 

called ‘‘mining.’’ Miners use specialized 

computer software and hardware to 

solve a highly complex mathematical 

problem presented by the bitcoin 

Protocol. The first miner to successfully 

solve the problem is permitted to add a 

block of transactions to the bitcoin 

blockchain. The new block is then 

confirmed through acceptance by a 

majority of users who maintain versions 

of the blockchain on their individual 

computers. Miners that successfully add 

a block to the bitcoin blockchain are 

automatically rewarded with a fixed 

amount of bitcoin for their effort plus 

any transaction fees paid by transferors 

whose transactions are recorded in the 

block. This reward system is the means 

by which new bitcoin enters circulation 

and is the mechanism by which 

versions of the blockchain held by users 

on a decentralized network are kept in 

consensus. 

The Bitcoin Protocol is an opensource project with no official company 

or group in control, and anyone can 

review the underlying code. There are, 

however, a number of individual 

developers that regularly contribute to a 

specific distribution of the bitcoin 

software known as the ‘‘Bitcoin Core.’’ 

Developers of the Bitcoin Core loosely 

oversee the development of the source 

code. There are many other compatible 

versions of the bitcoin software, but 

Bitcoin Core is the most widely adopted 

and currently provides the de facto 

standard for the Bitcoin Protocol. The 

core developers are able to access, and 

can alter, the Bitcoin Network source 

code and, as a result, they are 

responsible for quasi-official releases of 

updates and other changes to the 

Bitcoin Network’s source code. 

However, because bitcoin has no central 

authority, the release of updates to the 

Bitcoin Network’s source code by the 

core developers does not guarantee that 

the updates will be automatically 

adopted by the other purchasers. Users 

and miners must accept any changes 

made to the source code by 

downloading the proposed modification 

and that modification is effective only 

with respect to those bitcoin users and 

miners who choose to download it. As 

a practical matter, a modification to the 

source code becomes part of the Bitcoin 

Network only if it is accepted by 

purchasers that collectively have a 

majority of the processing power on the 

Bitcoin Network. If a modification is 

accepted by only a percentage of users 

and miners, a division will occur such 

that one network will run the premodification source code and the other 

network will run the modified source 

code. Such a division is known as a 

‘‘fork.’’ 

The Sponsor notes that individual 

users, institutional investors and 

investment funds that want to provide 

exposure to bitcoin by investing directly 

in bitcoin, and therefore must transact 

in bitcoin, must use the Bitcoin Network 

to download specialized software 

referred to as a ‘‘bitcoin wallet.’’ This 

wallet may be used to send and receive 

bitcoin through users’ unique ‘‘bitcoin 

addresses.’’ The amount of bitcoin 

associated with each bitcoin address, as 

well as each bitcoin transaction to or 

from such address, is captured on the 

blockchain. Bitcoin transactions are 

secured by cryptography known as 

public-private key cryptography, 

represented by the bitcoin addresses 

and digital signature in a transaction’s 

data file. Each Bitcoin Network address, 

or wallet, is associated with a unique 

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

both of which are lengthy alphanumeric 

codes, derived together and possessing 

a unique relationship. The private key is 

a secret and must be kept in accordance 

with appropriate controls and 

procedures to ensure it is used only for 

legitimate and intended transactions. If 

an unauthorized third person learns of 

a user’s private key, that third person 

could forge the user’s digital signature 

and send the user’s bitcoin to any 

arbitrary bitcoin address, thereby 

stealing the user’s bitcoin. Similarly, if 

a user loses his private key and cannot 

restore such access (e.g., through a 

backup), the user may permanently lose 

access to the bitcoin contained in the 

associated address. 

The first rule filing proposing to list 

an exchange-traded product (‘‘ETP’’) to 

provide exposure to bitcoin in the U.S. 

was submitted by the Cboe BZX 

Exchange, Inc. on June 30, 2016.52 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.53

Similarly, regulated U.S. bitcoin futures 

contracts did not exist. The CFTC had 

determined that bitcoin is a 

commodity,54 but had not engaged in 

significant enforcement actions in the 

space. The New York Department of 


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2454 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

55A list of virtual currency businesses that are 

entities regulated by the NYDFS is available on the 

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

virtual_currency_

businesses#:∼:text=A%20business%

20must%20obtain%20a,business%20in%

20New%20York%20State. 

56See Bitcoin Investment Trust Form S–1, dated 

May 27, 2016, available at: https://www.sec.gov/

Archives/edgar/data/1588489/0000950123

16017801/filename1.htm (data as of March 31, 2016 

according to publicly available filings). 

57See 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. 

58See 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. 

59See Prospectus filed by Stone Ridge Trust VI 

on behalf of NYDIG Bitcoin Strategy Fund 

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

Archives/edgar/data/1764894/00011931251

9309942/d693146d497.htm. 

60See 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). 

61See 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. 

62See 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. 

63See, 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. 

64According to the CME, the CME CF BRR 

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 real-time 

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. 

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, 2016.55 While the first over-thecounter bitcoin fund launched in 2013, 

public trading was limited and the fund 

had only $60 million in assets.56 There 

were very few, if any, traditional 

financial institutions engaged in the 

space, whether through investment or 

providing services to digital asset 

companies. In January 2018, the Staff of 

the Commission noted in a letter to the 

Investment Company Institute and 

SIFMA that it was not aware, at that 

time, of a single custodian providing 

fund custodial services for digital 

assets.57

The digital assets financial ecosystem, 

including bitcoin, has progressed and 

matured 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 58 and shares 

in investment vehicles holding bitcoin 

futures.59 Additionally, licensed and 

regulated service providers have 

emerged to provide fund custodial 

services for digital assets, among other 

services. For example, in December 

2020, the Commission issued a 

statement permitting certain special 

purpose broker-dealers to custody 

digital asset securities under Rule 15c3– 

3 under the Act.60 In September 2020, 

the Staff of the Commission released a 

no-action letter permitting certain 

broker-dealers to operate a noncustodial Alternative Trading System 

(‘‘ATS’’) for digital asset securities, 

subject to specified conditions.61 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; 62 and multiple 

transfer agents who provide services for 

digital asset securities have registered 

with the Commission.63’ 

As noted above, CME began offering 

trading in BTC Contracts in 2017, and 

in MBT Contracts in 2021. Each of the 

contracts’ final cash settlement is based 

on the CME CF BRR.64 The contracts 

trade and settle like other cash-settled 

commodity futures contracts. According 

to the Sponsor, trading in CME Bitcoin 

Futures Contracts has increased 

significantly in recent years, in 

particular with respect to BTC 

Contracts. Nearly every measurable 

metric related to BTC Contracts has 

trended consistently up since launch 

and/or accelerated upward in the past 

year, as the market recovered some of 

the ground lost since falling from the 

all-time high activity levels of end 2021. 

This general upward trend in trading 

volume and open interest is captured in 

the following chart. 


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65A large open interest holder in BTC Contracts 

is an entity that holds at least 25 contracts, which 

is the equivalent of 125 bitcoin. At a price of 

approximately $26,025 per bitcoin on 9/7/23, more 

than 110 firms had outstanding positions of greater 

than $3.25 million in BTC Contracts. Source: 

https://www.theblock.co/data/crypto-markets/cmecots/large-open-interest-holders-of-cme-bitcoinfutures. 

66See https://coinmarketcap.com/largestcompanies/. 

67See Coinbase 2022 10–K, available at: https:// 

s27.q4cdn.com/397450999/files/doc_financials/ 

2022/q4/86fe25e0-342b-40fa-aaccea04faf322cb.pdf. 

68All statistics and charts included in this 

proposal with respect to the CME Bitcoin Futures 

Continued 

Similarly, the number of large open 

interest holders 65 has continued to 

increase even as the price of bitcoin has 

risen, as have the number of unique 

accounts trading CME Bitcoin Futures 

Contracts. 

As it pertains specifically to the CME 

Bitcoin Futures Contracts (those in 

which the Fund will invest), the 

statistics are equally as profound. The 

following table sets forth the 

approximate daily notional average 

volume for the CME Bitcoin Futures 

Contracts, followed by the daily average 

volume for all of the CME Bitcoin 

Futures Contracts, the first to expire and 

the second to expire. With a daily 

notional average volume of $1.4 billion 

in 2023, trading volume in CME Bitcoin 

Futures Contracts is almost six times the 

2019 volume and almost three times the 

volume in 2020. In addition, despite the 

bear market, the trading volume in 2023 

has been resilient and slightly 

increasing compared to 2022. 

Daily notional 

average volume for 

CME bitcoin futures 

contracts 

(in $) 

Average daily 

volume for 

CME bitcoin 

futures contracts 

First-to-expire 

CME bitcoin 

futures contract 

Second-to-expire 

CME bitcoin 

futures contract 

2019 ....... $242 million ........................................................................................... 6,365 5,400 700 

2020 ....... $523 million ........................................................................................... 8,782 7,100 1,300 

2021 ....... $2,379 million ........................................................................................ 10,035 7,300 2,100 

2022 ....... $1,426 million ........................................................................................ 10,735 8,200 2,100 

2023 ....... $1,413 million ........................................................................................ 10,775 8,400 1,900 

Note: The 2023 data is for the period ending on August 31, 2023. Source: CME; Bloomberg. 

Developments in the Bitcoin and 

Bitcoin Futures Markets 

The regulatory landscape for bitcoin 

and bitcoin markets has changed 

significantly since 2016. The market for 

bitcoin grew approximately 100 times 

larger through 2021, reaching a market 

cap of $1.3 trillion at its all-time high. 

Although bitcoin’s market cap is down 

to $500 billion (as of September 7, 

2023), its market cap is greater than 

companies 66 such as Visa, Inc., Exxon 

Mobil Corporation, Walmart, Inc., and 

JP Morgan Chase & Co. The number of 

verified users at Coinbase, the largest 

U.S.-based bitcoin trading platform, has

grown to over 110 million at the end of

2022, compared to 43 million at the end

of 2020.67 CFTC-regulated bitcoin

futures represented approximately $42

billion in notional trading on the CME

Bitcoin Futures Market in August 2023,

compared to $3.9 billion, $28 billion,

$60 billion, and $20 billion in total

trading in December 2019, December 

2020, December 2021, and December 

2022 respectively. CFTC-regulated 

bitcoin futures represented $2.2 billion 

in open interest in August 2023, 

compared to $115 million, $1.29 billion, 

$3.27 billion, and $1.31 billion in 

December 2019, December 2020, 

December 2021, and December 2022 

respectively.68 The CFTC has exercised 


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2456 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

Market are sourced from https://

www.cmegroup.com/trading/bitcoin-futures.html. 

In addition, as further discussed below, the Sponsor 

believes the CME Bitcoin Futures Market represents 

a regulated market of significant size for purposes 

of addressing the Commission’s concerns about 

potential manipulation of the bitcoin market. 

69The CFTC’s annual report for Fiscal Year 2020 

(which ended on September 30, 2020) noted that 

the CFTC ‘‘continued to aggressively prosecute 

misconduct involving digital assets that fit within 

the CEA’s definition of commodity’’ and ‘‘brought 

a record setting seven cases involving digital 

assets.’’ See CFTC FY2020 Division of Enforcement 

Annual Report, available at: https://www.cftc.gov/ 

media/5321/DOE_FY2020_AnnualReport_120120/ 

download. Additionally, the CFTC filed on October 

1, 2020, a civil enforcement action against the 

owner/operators of the BitMEX trading platform, 

which was one of the largest bitcoin derivative 

trading platforms. See CFTC Release No. 8270–20 

(October1, 2020), available at: https://www.cftc.gov/ 

PressRoom/PressReleases/8270-20. 

70See OCC News Release 2021–2 (January 4, 

2021), available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-2.html. 

71See FinCEN Guidance FIN–2019–G001 (May 9, 

2019) (Application of FinCEN’s Regulations to 

Certain Business Models Involving Convertible 

Virtual Currencies), available at: https://

www.fincen.gov/sites/default/files/2019-05/

FinCEN%20Guidance%20CVC%20

FINAL%20508.pdf. 

72See U.S. Department of the Treasury Press 

Release: ‘‘The Financial Crimes Enforcement 

Network Proposes Rule Aimed at Closing AntiMoney Laundering Regulatory Gaps for Certain 

Convertible Virtual Currency and Digital Asset 

Transactions’’ (December 18, 2020), available at: 

https://home.treasury.gov/news/press-releases/ 

sm1216. 

73See 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. 

74On December 10, 2020, Massachusetts Mutual 

Life Insurance Company (MassMutual) announced 

that it had purchased $100 million in bitcoin for its 

general investment account. See MassMutual Press 

Release ‘‘Institutional Bitcoin provider NYDIG 

announces minority stake purchase by 

MassMutual’’ (December 10, 2020), available at: 

https://www.massmutual.com/about-us/news-andpress-releases/press-releases/2020/12/institutionalbitcoin-provider-nydig-announces-minority-stakepurchase-by-massmutual. 

75See, e.g., ‘‘Morgan Stanley to Offer Rich Clients 

Access to Bitcoin Funds’’ (March 17, 2021) 

available at: https://www.bloomberg.com/news/ 

articles/2021-03-17/morgan-stanley-to-offer-richclients-access-to-bitcoin-funds. 

76See, e.g., ‘‘BlackRock’s Rick Rieder says the 

world’s largest asset manager has ‘started to dabble’ 

in Bitcoin’’ (February 17, 2021), available at: 

https://www.cnbc.com/2021/02/17/blackrock-hasstarted-to-dabble-in-bitcoin-says-rick-r ieder.html 

and ‘‘Guggenheim’s Scott Minerd Says Bitcoin 

Should Be Worth $400,000’’ (December 16, 2020), 

available at: https://www.bloomberg.com/news/

articles/2020-12-16/guggenheim-s-scott- minerdsays- bitcoin-should-be-worth-400-000. 

77See, e.g., ‘‘Visa Moves to Allow Payment 

Settlements Using Cryptocurrency’’ (March 29, 

2021), available at: https://www.reuters.com/ 

business/autos-transportation/exclusive-visamoves-allow-payment-settlements-usingcryptocurrency-2021-03-29/. 

78See, e.g., ‘‘Harvard and Yale Endowments 

Among Those Reportedly Buying Crypto’’ (January 

25, 2021), available at: https://

www.bloomberg.com/news/articles/2021-01-26/ 

harvard-and-yale-endowments-among-thosereportedly-buying-crypto. 

79See, e.g., ‘‘Virginia Police Department Reveals 

Why its Pension Fund is Betting on Bitcoin’’ 

(February 14, 2019), available at: https://finance.

yahoo.com/news/virginia-police-departmentreveals-why-194558505.html. 

80See, e.g., ‘‘Bridgewater: Our Thoughts on 

Bitcoin’’ (January 28, 2021) available at: https://

www.bridgewater.com/research-and-insights/ourthoughts-on-bitcoin and ‘‘Paul Tudor Jones says he 

likes bitcoin even more now, rally still in the ‘first 

inning’’’ (October 22, 2020), available at: https://

www.cnbc.com/2020/10/22/-paul-tudor-jones-sayshe-likes-bitcoin-even-more-now-rally-still-in-thefirst-inning.html. 

81See Letter from Division of Corporation 

Finance, Office of Real Estate & Construction to 

Barry E. Silbert, Chief Executive Officer, Grayscale 

Bitcoin Trust (January 31, 2020), available at: 

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

000000000020000953/filename1.pdf. 

82See Form 10–K submitted by Tesla, Inc. for the 

fiscal year ended December 31, 2020 at 23: https:// 

www.sec.gov/ix?doc=/Archives/edgar/data/

1318605/000156459021004599/tsla-10k_

20201231.htm. 

83See Form 10–Q submitted by MicroStrategy 

Incorporated for the quarterly period ended 

September 30, 2020 at 8: https://www.sec.gov/

ix?doc=/Archives/edgar/data/1050446/000156459

020047995/mstr-10q_20200930.htm. 

84See Form 10–Q submitted by Square, Inc. for 

the quarterly period ended September 30, 2020 at 

51: https://www.sec.gov/ix?doc=/Archives/edgar/

data/1512673/000151267320000012/sq20200930.htm. 

85Securities regulators in a number of other 

countries have either approved or otherwise 

allowed the listing and trading of bitcoin ETPs. 

Specifically, these funds (with their respective 

approximate AUMs as of April 14, 2021) include 

the Purpose Bitcoin ETF ($993,000,000), VanEck 

Vectors Bitcoin ETN ($209,000,000), WisdomTree 

Bitcoin ETP ($407,000,000), Bitcoin Tracker One 

($1,380,000,000), BTCetc Bitcoin ETP 

($1,410,000,000), 21Shares Bitcoin ETP 

($362,000,000), 21Shares Bitcoin Suisse ETP 

($30,000,000), CoinShares Physical Bitcoin ETP 

($396,000,000). 

its regulatory jurisdiction in bringing a 

number of enforcement actions related 

to bitcoin and against trading platforms 

that offer cryptocurrency trading.69 The 

U.S. Office of the Comptroller of the 

Currency (the ‘‘OCC’’) has made clear 

that federally-chartered banks are able 

to provide custody services for 

cryptocurrencies and other digital 

assets.70 NYDFS has granted no fewer 

than thirty BitLicenses, including to 

established public payment companies 

like PayPal Holdings, Inc. and Square, 

Inc., and limited purpose trust charters 

to entities providing cryptocurrency 

custody services. The U.S. Treasury 

Financial Crimes Enforcement Network 

(‘‘FinCEN’’) has released extensive 

guidance regarding the applicability of 

the Bank Secrecy Act (‘‘BSA’’) and 

implementing regulations to virtual 

currency businesses,71 and has 

proposed rules imposing requirements 

on entities subject to the BSA that are 

specific to the technological context of 

virtual currencies.72 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.73

In addition to the regulatory 

developments noted above, more 

traditional financial market participants 

appear to be embracing cryptocurrency: 

large insurance companies,74

investment banks,75 asset managers,76

credit card companies,77 university 

endowments,78 pension funds,79 and 

even historically bitcoin skeptical fund 

managers 80 are allocating to bitcoin. 

The largest over-the-counter bitcoin 

fund previously filed a Form 10 

registration statement, which the Staff of 

the Commission reviewed and which 

took effect automatically, and is now a 

reporting company.81 Established 

companies like Tesla, Inc.,82

MicroStrategy Incorporated,83 and 

Square, Inc.,84 among others, have 

recently announced substantial 

investments in bitcoin in amounts as 

large as $1.5 billion (Tesla) and $425 

million (MicroStrategy). 

The Sponsor maintains that despite 

these developments, access for U.S. 

retail investors to gain exposure to 

bitcoin via a transparent and regulated 

exchange-traded vehicle remains 

limited. As investors and advisors 

increasingly utilize ETPs to manage 

diversified portfolios (including 

equities, fixed income securities, 

commodities, and currencies) quickly, 

easily, relatively inexpensively, taxefficiently, and without having to hold 

directly any of the underlying assets; 

options for bitcoin exposure for U.S. 

investors remain limited to: (i) investing 

in over-the-counter bitcoin funds (‘‘OTC 

Bitcoin Funds’’) that are subject to high 

premium/discount volatility (and high 

management fees) to the advantage of 

more sophisticated investors that are 

able to purchase shares at NAV directly 

with the issuing trust; (ii) investing in 

CFTC-regulated bitcoin futures 

exchange-traded funds (‘‘ETFs’’) that are 

subject to higher complexity and costs 

due to need for rolling the futures 

contracts; (iii) facing the technical risk, 

complexity, and generally high fees 

associated with buying and storing 

bitcoin directly; or (iv) purchasing 

shares of operating companies that they 

believe will provide proxy exposure to 

bitcoin with limited disclosure about 

the associated risks. Meanwhile, 

investors in many other countries, 

including Canada, are able to use more 

traditional exchange listed and traded 

products to gain exposure to bitcoin.85


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86See, e.g., Stone Ridge Trust VI (File No. 333– 

234055); BlackRock Global Allocation Fund, Inc. 

(File No. 33–22462); and BlackRock Funds V (File 

No. 333–224371). 

87See, e.g., Amplify Transformational Data 

Sharing ETF (File No. 333–207937); and ARK 

Innovation ETF (File No. 333–191019). 

88See Dalia Blass, ‘‘Keynote Address—2019 ICI 

Securities Law Developments Conference’’ 

(December 3, 2019), available at: https://

www.sec.gov/news/speech/blass-keynote-address2019-ici-securities-law-developments-conference. 

89See https://indexes.nasdaqomx.com/docs/ 

methodology_nci.pdf. 

For example, the Purpose Bitcoin 

ETF, a retail physical bitcoin ETP 

launched in Canada, reportedly reached 

$421.8 million in assets under 

management (‘‘AUM’’) in two days, and 

has achieved $993 million in assets as 

of April 14, 2021, demonstrating the 

demand for a North American market 

listed bitcoin ETP. The Sponsor believes 

that the demand for the Purpose Bitcoin 

ETF is driven primarily by investors’ 

desire to have a regulated and accessible 

means of exposure to. The Purpose 

Bitcoin ETF also offers a class of units 

that is U.S. dollar bitcoin denominated, 

which could appeal to U.S. investors. 

Without an approved bitcoin ETP in the 

U.S. as a viable alternative, the Sponsor 

believes U.S. investors will seek to 

purchase these shares in order to get 

access to bitcoin exposure, leaving them 

without the protections of U.S. 

securities laws. 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. With the addition 

of more bitcoin ETPs in non-U.S. 

jurisdictions expected to grow, the 

Sponsor anticipates that such risks will 

only continue to grow. 

In addition, several funds registered 

under the Investment Company Act of 

1940 (the ‘‘1940 Act’’) have effective 

registration statements that contemplate 

bitcoin exposure through a variety of 

means, including through investments 

in bitcoin futures contracts 86 and 

through OTC Bitcoin Funds.87 In 

previous statements, the Staff of the 

Commission has acknowledged how 

such funds can satisfy their concerns 

regarding custody, valuation, and 

manipulation.88 The funds that have 

already invested in bitcoin instruments 

have no reported issues regarding 

custody, valuation, or manipulation of 

the instruments held by these funds. 

While these funds do offer investors 

some means of exposure to bitcoin, the 

Sponsor believes the current offerings 

fall short of giving investors an 

accessible, regulated product that 

provides concentrated exposure to 

bitcoin and bitcoin prices. 

Unregulated Exposure to Bitcoin and 

Investor Protection Concerns 

The Sponsor notes that U.S. investor 

exposure to bitcoin through OTC 

Bitcoin Funds and other unregulated 

means has grown into the tens of 

billions of dollars. With that growth, so 

too has grown the potential risk to U.S. 

investors. Investor protection concerns 

persist, as OTC Bitcoin Funds and other 

unregulated means of exposure to 

bitcoin continue to attract investors 

despite the approval of bitcoin futuresbased ETPs by the Commission. The 

Sponsor appreciates the Commission’s 

previously articulated concerns about 

potential manipulation when an ETP 

holds actual bitcoin and believes that 

the Fund represents an opportunity for 

U.S. investors to gain price exposure to 

CME Bitcoin Futures Contracts and 

bitcoin in a regulated and transparent 

exchange-traded vehicle that mitigates 

those concerns through the use of CME 

Bitcoin Futures Contracts, applying 

futures-based pricing for spot bitcoin, 

and limiting the Fund’s exposure to spot 

bitcoin to the CFTC-regulated EFP 

market. The Sponsor believes that the 

structure of the Fund accordingly limits 

risks by: (i) reducing premium and 

discount volatility; (ii) reducing 

management fees through meaningful 

competition; (iii) reducing risks 

associated with investing in operating 

companies that are imperfect proxies for 

bitcoin exposure; and (iv) avoiding 

regulatory concerns regarding valuation 

posed by ETFs and ETPs that invest 

directly in bitcoin rather than in CME 

Bitcoin Futures Contracts or bitcoin via 

EFP transactions on the regulated CME 

Bitcoin Futures Market, a CFTCregulated exchange that meets 

regulatory standards that are not met by 

spot bitcoin trading platforms. 

Custody of Bitcoin 

According to the Registration 

Statement, institutional purchasers of 

bitcoin, including other bitcoin funds 

that provide exposure to bitcoin by 

investing directly in bitcoin, generally 

maintain their bitcoin account with a 

bitcoin custodian. Bitcoin custodians 

are financial institutions that have 

implemented a series of specialized 

security precautions, including holding 

bitcoin in ‘‘cold storage,’’ to try to 

ensure the safety of an account holder’s 

bitcoin. These bitcoin custodians must 

carefully consider the design of the 

physical, operational, and cryptographic 

systems for secure storage of private 

keys in an effort to lower the risk of loss 

or theft, and many use a multi-factor 

security system under which actions by 

multiple individuals working together 

are required to access the private keys 

necessary to transfer such digital assets 

and ensure exclusive ownership. 

The Fund’s Bitcoin Custodian(s) will 

hold the Fund’s bitcoin acquired via 

EFP transactions through the CME 

Bitcoin Futures Market and will be 

responsible for maintaining custody of 

the Fund’s bitcoin assets. 

The Fund’s Bitcoin Custodian(s) must 

satisfy, at least, the ‘‘core custodian’’ 

requirements set forth by the NCIOC in 

the NCI methodology, including: 89

1. Provide custody accounts whose 

holders are the legal beneficiaries of the 

assets held in the account. In case of 

bankruptcy or insolvency of a Bitcoin 

Custodian, creditors or the estate should 

have no rights to the Fund’s assets. 

2. Offer segregated accounts and store 

the Fund’s bitcoin in separated 

individual accounts and not in omnibus 

accounts. The Fund’s bitcoin will be 

held in segregated wallets and not 

commingled with the Bitcoin 

Custodian’s or other customer assets. 

3. Generate account-segregated private 

keys for digital assets using high 

entropy random number generation 

methods and employ advanced security 

practices. 

4. Utilize technology for storing 

private keys in offline digital vaults and 

apply secure processes, such as private 

key segmentation, multi-signature 

authorization, and geographic 

distribution of stored assets, to limit 

access to private keys. The Bitcoin 

Custodian will use security technology 

for storing private keys aiming to avoid 

theft or misappropriation of assets due 

to online attacks, collusion of agents 

managing the storage services, or any 

other threat. 

5. Have a comprehensive risk 

management policy and formalized 

framework of managing operational and 

custody risks, including a disaster 

recovery program that ensures 

continuity of operations in the event of 

a system failure. The Bitcoin Custodian 

will have a business continuity plan to 

help ensure continued access to the 

Fund’s assets. 

6. Have an insurance policy that 

covers, at least partially, risks such as 

the loss of Fund assets held in cold 

storage, including from employee 

collusion or fraud, physical loss 

including theft, damage of key material, 

security breach or hack, and fraudulent 

transfer. 

7. Comply with higher standards of 

government oversight, external audits, 


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2458 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

90See Winklevoss Order; Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

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

of the Bitwise Bitcoin ETF Trust Under NYSE Arca 

Rule 8.201–E, Securities Exchange Act Release No. 

87267 (Oct. 9, 2019), 84 FR 55382 at 55383, 55410 

(Oct. 16, 2019) (SR–NYSEArca–2019–01) (the 

‘‘Bitwise Order’’); Order Disapproving a Proposed 

Rule Change, as Modified by Amendment No. 1, to 

Amend NYSE Arca Rule 8.201–E (CommodityBased Trust Shares) and to List and Trade Shares 

of the United States Bitcoin and Treasury 

Investment Trust Under NYSE Arca Rule 8.201–E, 

Securities Exchange Act Release No. 88284 

(February 26, 2020), 85 FR 12595 at 12609 (March 

3, 2020) (SR–NYSEArca–2019–39) (the ‘‘Wilshire 

Phoenix Order’’). 

91See, e.g., Winklevoss Order, 83 FR at 37594. 

The Commission further noted that ‘‘[t]here could 

be other types of ‘‘significant markets’’ and 

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

an example that will provide guidance to market 

participants.’’ Id. 

92See Approval Order, 87 FR at 21678 and further 

discussion at 21678–81. 

93See Securities Exchange Act Release No. 95180 

(June 29, 2022), 87 FR 40299 at 40312 (July 6, 2022) 

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

Proposed Rule Change, as Modified by Amendment 

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

Trust Under NYSE Arca Rule 8.201–E (CommodityBased Trust Shares)). 

94The ‘‘futures curve’’ is a representation of the 

relationship between futures contract prices and 

their respective expiration dates. 

and security to safekeep asset 

ownership. The Bitcoin Custodian must 

be licensed or registered as a custodian 

by a reputable and independent 

governing body (e.g., the New York 

State Department of Financial Services, 

or other state, national or international 

regulators), as can be ascertained by 

certain public data sources. 

8. Provide third-party audit reports at 

least annually on operational and 

security processes. These audits may be 

completed by having a Systems and 

Organizational Control certification 

issued and are intended to provide 

reasonable assurance that the Bitcoin 

Custodian’s operational processes and 

private key management controls are in 

accordance with the expected standards. 

The Sponsor will cause the Trust to 

maintain ownership and control of the 

Fund’s bitcoin in a manner consistent 

with good delivery requirements for 

spot commodity transactions. 

The Structure and Operation of the 

Fund Satisfies Commission 

Requirements for Bitcoin-Based 

Exchange Traded Products 

The Sponsor believes that the Fund’s 

holding a combination of CME Bitcoin 

Futures Contracts, bitcoin, and cash 

could significantly mitigate the risk of 

market manipulation while still 

providing the market with a regulated 

product that tracks the actual price of 

bitcoin, creating a secure way for U.S. 

investors to gain exposure to bitcoin 

without having to rely on unregulated 

products, offshore regulated products, 

or indirect strategies such as investing 

in publicly traded companies that hold 

bitcoin. 

In determining whether to approve 

listing and trading of new ETPs, the 

Commission conducts a thorough 

analysis to ensure the proposal is 

consistent with Section 6(b)(5) of the 

Act. Section 6(b)(5) of the Act mandates 

that the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, and to protect investors and 

the public interest. With respect to 

ETPs, the Commission often considers 

how the listing exchange would access 

necessary information to detect and 

deter market manipulation, illegal 

trading, and other abuses, which listing 

exchanges may accomplish by entering 

into a comprehensive surveillancesharing agreement with other entities, 

such as the markets trading the ETP’s 

underlying assets. Historically, for 

commodity-trust ETPs, there has always 

been at least one regulated market of 

significant size for trading futures on the 

underlying commodity—whether gold, 

silver, platinum, palladium, or copper. 

Then, the listing exchange would enter 

into surveillance-sharing agreements 

with, or hold ISG membership in 

common with, that regulated market.90

In the context of bitcoin, CME Bitcoin 

Futures Market is currently the only 

regulated market in the U.S. 

The Commission has previously 

interpreted the terms ‘‘significant 

market’’ and ‘‘market of significant size’’ 

to include a market (or group of 

markets) where: 

(1) There is a reasonable likelihood 

that a person attempting to manipulate 

the ETP would also have to trade on that 

market to successfully manipulate the 

ETP, such that a surveillance-sharing 

agreement would assist the ETP listing 

market in detecting and deterring 

misconduct; and 

(2) It is unlikely that trading in the 

ETP would be the predominant 

influence on prices in that market.91

With respect to the first prong of the 

Commission’s interpretation, the 

Commission has previously explained 

that the lead/lag relationship between 

the bitcoin futures market and the spot 

market is central to understanding this 

first prong. With respect to the second 

prong, the Commission’s prior analysis 

has focused on the potential size and 

liquidity of the ETP compared to the 

size and liquidity of the market. 

The Commission recognized in the 

Approval Order that ‘‘the CME is a 

‘significant market’ related to CME 

bitcoin futures contracts,’’ and thus that 

the Exchange has entered into the 

requisite surveillance-sharing agreement 

with respect to its CME Bitcoin Futures 

Contracts holdings.92 However, there is 

still a lack of consensus on whether the 

CME is of ‘‘significant size’’ in relation 

to the spot bitcoin market based on the 

test historically applied by the 

Commission. 

Interrelationship Between the CME 

Bitcoin Futures Market and the Fund 

The Commission has previously 

stated that ‘‘the interpretation of the 

term market of significant size depends 

on the interrelationship between the 

market with which the listing exchange 

has a surveillance-sharing agreement 

and the proposed ETP.’’ 93 The Sponsor 

intends to adopt an innovative approach 

to mitigate the risks of fraud and 

manipulation that are unique to the 

Fund. The core principle of this 

approach would be to structure the 

operation of the Fund such that the 

regulated market of significant size in 

relation to the Fund is the CME Bitcoin 

Futures Market because the Fund trades 

all of its non-cash assets through the 

CME Bitcoin Futures Market. Therefore, 

the Sponsor’s strategy aims to establish 

a comprehensive interrelationship 

between the CME and the Fund so that 

the CME Bitcoin Futures Market is the 

market of significant size in relation to 

the Fund. The Sponsor notes that, 

although the Fund may, as proposed, 

hold bitcoin, it does not rely on any 

pricing or other information or services 

from unregulated bitcoin spot bitcoin 

trading platforms. Therefore, no spot 

bitcoin trading platform could be 

considered a ‘‘market of relevant size’’ 

in relation to the Fund. 

The Sponsor has designed the Fund to 

have four novel features that underscore 

its significant interrelationship with the 

CME Bitcoin Futures Market: 

1. Investment strategy: The Fund will 

only hold bitcoin, CME Bitcoin Futures 

Contracts, and cash and cash 

equivalents. Accordingly, the CME 

Bitcoin Futures Market is the only 

market on which the Fund’s non-cash 

assets would trade and is therefore the 

‘‘significant market’’ in relation to the 

Fund, as proposed. 

2. Futures-based pricing for spot 

bitcoin: The price determination for 

bitcoin holdings in the NAV calculation 

will be derived from the CME’s bitcoin 

futures curve.94 As a result, the price of 

bitcoin holdings will depend solely on 

bitcoin futures settlement prices on the 

CME Bitcoin Futures Market and will 

not depend directly on price 

information from unregulated spot 


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95 In a cash creation/redemption format, the 

Authorized Participant delivers cash to the Fund 

instead of bitcoin. The Fund’s creation and 

redemption processes are further discussed below. 

96The portfolio’s exposure to bitcoin will be 

dynamic because the Sponsor will assess market 

conditions (e.g., expected level of creation and 

redemption based on historic trends, the futures 

curve, market liquidity and volatility) in allocating 

the Fund’s portfolio among the assets that it may 

hold (bitcoin, CME Bitcoin Futures Contracts, cash 

and cash equivalents). The Sponsor will manage the 

Fund to minimize transaction costs related to the 

conversion between CME Bitcoin Futures Contracts 

and bitcoin that would be necessary to process 

redemptions. The Sponsor will generally aim to 

maximize the allocation to bitcoin to better track 

the Fund’s Benchmark. 

97 In the Approval Order, the Commission stated 

that if the proposed ‘‘significant’’ regulated market 

(in this case, the CME Bitcoin Futures Market) with 

which the listing exchange has a surveillancesharing agreement is the same market on which the 

ETP trades its non-cash assets, then (i) it is 

unnecessary for the listing exchange to establish a 

reasonable likelihood that the would-be 

manipulator would have to trade on said listing 

exchange to manipulate the proposed ETP (thereby 

satisfying the first prong of the Commission’s 

standard for ‘‘market of significant size’’), and (ii) 

it is unnecessary to establish a ‘‘lead-lag’’ 

relationship between said listing exchange and 

other markets. 87 FR at 21679 n. 47 & 21680. 

98See Approval Order, 87 FR at 21679. 

99 Id. 

100See id. (‘‘The Commission agrees with [NYSE] 

Arca that the CME [Bitcoin Futures Market], as a 

CFTC-regulated futures exchange, has ‘the requisite 

oversight, controls, and regulatory scrutiny 

necessary to maintain, promote, and effectuate fair 

and transparent trading of its listed products, 

Continued 

bitcoin markets (as further discussed 

below). 

3. Physical bitcoin purchases through 

the CME Bitcoin Futures Market: The 

Fund will solely use the CME Bitcoin 

Futures Market’s EFP transactions to 

acquire and dispose of bitcoin, instead 

of transactions on unregulated spot 

bitcoin trading platforms. Accordingly, 

the only non-cash assets held by the 

Fund (CME Bitcoin Futures Contracts 

and bitcoin obtained from EFP 

transactions) would be traded, reported, 

and cleared through the CME Bitcoin 

Futures Market, such that CME and 

NYSE Arca can share information 

pursuant to their common ISG 

membership to detect and deter 

fraudulent or manipulative misconduct 

related to those assets. 

4. Creations and redemptions: The 

Fund will use cash creations and 

redemptions 95 to deter intraday Share 

price manipulation that could originate 

from in-kind creation or redemption 

from bitcoin sourced in unregulated 

spot markets. Investment in bitcoin thus 

would not be directly related to 

creation/redemptions, but would 

instead be adjusted dynamically based 

on target portfolio exposure.96 Trading 

for bitcoin could thus be accomplished 

in smaller sizes and at unpredictable 

times, reducing the risk of manipulation 

in the creation or redemption processes. 

The Sponsor believes that these 

features of the Fund are designed to 

provide a robust framework for 

mitigating the risks of market 

manipulation, thereby protecting 

investors and maintaining the integrity 

of the market. The Sponsor further 

believes that, given these features of the 

Fund, the CME Bitcoin Futures Market 

should be considered the regulated 

market of significant size in relation to 

the Fund. 

The Sponsor further believes that the 

proposed novel approach is in line with 

the first prong of the Commission’s 

interpretation of the definition of 

‘‘regulated market of significant size’’ as 

to the CME Bitcoin Futures Market 

because (i) the CME Bitcoin Futures 

Market is the only market where the 

Fund trades its non-cash assets,97 and 

(ii) there is a reasonable likelihood that 

a person attempting to manipulate the 

Fund would also have to trade on the 

CME Bitcoin Futures Market to 

successfully manipulate the ETP (and, 

accordingly, CME’s common ISG 

membership would aid NYSE Arca in 

detecting and deterring potential 

misconduct). 

The Sponsor has designed its 

approach so that any attempt to 

manipulate the Fund would require 

trading on the CME Bitcoin Futures 

Market, for the following reasons: 

1. Futures-based pricing for spot 

bitcoin: The price of the Fund’s bitcoin 

holdings would be determined based on 

settlement prices of CME Bitcoin 

Futures Contracts for purposes of 

calculating NAV (as explained in the 

discussion of FBSP above). Accordingly, 

any attempt to manipulate the price of 

the Fund would require influencing the 

futures curve on the CME Bitcoin 

Futures Market because the spot price 

(which could be a target for 

manipulation) does not directly 

influence the price of the Fund. There 

is thus a direct lead/lag relationship in 

which CME Bitcoin Futures Market 

prices lead both the spot price used by 

the Fund to determine its NAV and the 

Fund’s market price. 

2. Spot bitcoin operations via EFP 

transaction through the CME Bitcoin 

Futures Market: Because the Fund’s 

bitcoin operations would take place via 

CME Bitcoin Futures Market EFP 

transactions, any attempt to manipulate 

the Fund’s transactions in bitcoin 

holdings would require the would-be 

manipulator to trade on the CME 

Bitcoin Futures Market. Accordingly, 

any potential manipulation of the Fund 

would require extensive operations on 

the heavily regulated CME Bitcoin 

Futures Market. 

3. Cash creations and redemptions: 

The Fund’s use of cash creations and 

redemptions also reduces the potential 

for manipulation through the creation 

and redemption processes by 

eliminating the direct arbitrage between 

unregulated spot markets and the 

Fund’s market price. Any significant 

creation or redemption activity aimed at 

manipulating the Fund would likely 

influence the CME Bitcoin Futures 

Market, given that the cash received in 

the creation is used to buy CME Bitcoin 

Futures Contracts and the cash 

generated for redemption distribution 

comes from the sale of CME Bitcoin 

Futures Contracts. 

Given these factors, the Sponsor 

believes that the common membership 

of NYSE Arca and CME in the ISG 

would be an effective tool in assisting 

NYSE Arca in detecting and deterring 

potential misconduct. The exchanges’ 

ability to share information would 

provide the Exchange with access to 

relevant trading data from the CME 

Bitcoin Futures Market, which is 

intrinsically linked to the Fund, 

allowing for appropriate oversight and 

facilitating the ability to identify and 

investigate any suspicious trading 

activity. 

The Approval Order stated that 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’’ and 

that 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 [Fund] 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].’’ 98 The Commission 

further noted in the Approval Order 

that, as a result, ‘‘when the CME shares 

its surveillance information with 

[NYSE] Arca, the information would 

assist in detecting and deterring 

fraudulent or manipulative misconduct 

related to the non-cash assets held by 

the [Fund].’’ 99 The Sponsor further 

believes that, consistent with the 

Approval Order, CME surveillance can 

be relied upon to capture any possible 

manipulation of the CME Bitcoin 

Futures Market, even when the attempt 

is made indirectly by trading outside the 

CME Bitcoin Futures Market in 

unregulated markets.100


khammond on DSKJM1Z7X2PROD with NOTICES
2460 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

including the BTC Contracts and MBT Contracts.’ 

As [NYSE] Arca states, as a Designated Contracts 

Market (‘DCM’), the CME [Bitcoin Futures Market] 

‘comprehensively surveils futures market 

conditions and price movements on a realtime 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 

[NYSE] Arca, the information would assist in 

detecting and deterring fraudulent or manipulative 

misconduct related to the non-cash assets held by 

the proposed ETP’’) (internal citations omitted). 

101See id. at 21680. 

102See id. at 21681. 

103According to the Fund’s registration statement 

and as discussed above, the Fund uses EFP 

transactions to efficiently transition its bitcoin 

exposure from a physical to a futures position 

within a regulated environment. 

104See Securities Exchange Act Release No. 

92573 (August 5, 2021), 86 FR 44062 at 44073 

(August 11, 2021) (SR–NYSEArca–2021–53) (Notice 

of Filing of a Proposed Rule Change To List and 

Trade Shares of Teucrium Bitcoin Futures Fund 

Under NYSE Arca Rule 8.200–E). 

The Sponsor also believes that it is 

unlikely that trading in the Fund would 

be the predominant influence on prices 

on the CME Bitcoin Futures Market. The 

Approval Order noted that it was 

unlikely that trading in the Fund would 

be the predominant influence on price 

in the CME Bitcoin Futures Market,101

and the Sponsor believes that the 

addition of bitcoin to the Fund’s 

holdings, using EFP transactions 

through the CME Bitcoin Futures 

Market, does not significantly alter the 

influence of the Fund’s trading on the 

CME Bitcoin Futures Market, for the 

following reasons: 

1. The Fund’s limited influence over 

the market: As the Commission noted in 

the Approval Order,102 the Commission 

observed no disruption to the CME 

Bitcoin Futures Market or evidence that 

the Fund exerted a dominant influence 

on CME bitcoin futures prices. The 

Sponsor therefore believes that it is very 

unlikely that the Fund’s trading, even 

with the addition of bitcoin to its 

holdings, would become the 

predominant influence on the futures 

market. 

2. Spot bitcoin would be purchased 

using market-neutral EFP transactions: 

The bitcoin in the Fund’s portfolio 

would be purchased by exchanging an 

equivalent CME Bitcoin Futures 

Contracts position using EFP 

transactions through the CME Bitcoin 

Futures Market. The Fund’s bitcoin 

trading would thus be directly linked to 

the futures market and would not 

introduce a new, independent variable 

that could significantly influence the 

futures market. Indeed, because both 

sides of the trade track the same 

benchmark, an EFP is market-neutral, 

and, as such, the pricing of an EFP is 

quoted in terms of the basis between the 

price of the futures contract and the 

level of the underlying index.103

3. The Fund’s investment strategy 

reduces recurrent trading activity and 

price pressure on the CME Bitcoin 

Futures Market as compared to a fund 

that only holds CME Bitcoin Futures 

Contracts: Because the Fund will also 

hold bitcoin, the Sponsor believes that 

CME Bitcoin Futures Contracts rollover 

operations would be reduced, as would 

the trading activity on the CME Bitcoin 

Futures Market that occurs as a CME 

Bitcoin Futures Contract nears 

expiration, thereby significantly 

reducing its influence on the CME 

Bitcoin Futures Market. 

The Sponsor therefore believes that 

the proposed addition of bitcoin to the 

Fund’s holdings would not significantly 

alter the influence of the Fund’s trading 

on the CME Bitcoin Futures Market and 

that the proposed design of the Fund’s 

investment strategy would instead result 

in potential impact on the CME Bitcoin 

Futures Market that is the same or less 

than that of the previous investment 

strategy (as represented in the Approval 

Order). 

The Sponsor notes that, as of April 

2021 and as noted in the Fund’s original 

proposal to list and trade its Shares on 

the Exchange, the CME Bitcoin Futures 

Market was already showing a 

significant increase in size, as per the 

table below:104

The Sponsor notes that growth of the 

CME Bitcoin Futures Market at that time 

coincided with similar growth in the 

bitcoin spot market. Moreover, the 

market for Bitcoin futures was and still 

is rapidly approaching the size of 

markets for other commodity interests, 

including interests in metals, 

agricultural, and petroleum products. 

Accordingly, as the CME Bitcoin 

Futures Market continues to develop 

and more closely resemble other 

commodity futures markets, the Sponsor 

believes that it is reasonable to expect 

that the relationship between the bitcoin 

futures market and bitcoin spot market 

will behave similarly to other future/ 

spot market relationships, where the 

spot market may have no relationship to 

the futures market (although the current 

proposal does not depend on such 

similarity). 

In addition, in the time since the 

Approval Order was issued, there has 

been significant growth in bitcoin 

futures in terms of trading volumes, as 

reflected in the table below: 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.067</GPH>

CME BITCOIN FUTIJRES MARKET 

Febnt~ 26. 2020 A12ril 7. 2021 

Trading Volume $433 million $4,321 million 

Open Interest $238 million $2,582 million 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2461 

105 Data in this table is sourced from: https://

www.theblock.co/data/crypto-markets/futures. 

Trading volume data for bitcoin futures in 

unregulated markets was only available on a 

monthly frequency. Therefore, the trading volume 

figures displayed in the table are approximations 

derived from the daily average trading volumes 

reported for their respective months. 

106See Approval Order, 87 FR at 21681. 

107 In a cash creation/redemption mechanism, 

APs create or redeem shares of the ETP using cash 

instead of the underlying assets. This contrasts with 

in-kind creation/redemption, where APs use a 

basket of the ETP’s underlying assets for these 

transactions. In cash creation/redemption, APs 

provide or receive an equivalent cash value based 

on the NAV of the ETP’s shares. 

The Sponsor also notes that in the 

same period during which CME Bitcoin 

Futures Market open interest remained 

at roughly at the same level, trading 

volume and open interest of unregulated 

bitcoin futures markets had a significant 

drawdown: 105

Furthermore, the Sponsor notes that 

in the same period the trading volume 

of spot bitcoin also fell significantly: 

The Sponsor believes that the data 

above suggests an increase in market 

appetite for regulated products (e.g., 

CME Bitcoin Futures Contracts) vis-a-vis 

a significant decrease in interest for 

unregulated products (e.g., unregulated 

futures and spot bitcoin). 

The Sponsor further believes that an 

analysis of the data presented above 

indicates that the CME Bitcoin Futures 

Market managed to maintain its open 

interest level despite the price volatility 

that bitcoin experienced in 2022, 

demonstrating its resilience and that it 

is sufficiently developed such that it is 

unlikely that trading in the Fund would 

be the predominant influence on its 

prices. 

The Sponsor further notes that the 

Commission stated in the Approval 

Order ‘‘that the CME [Bitcoin Futures 

Market] has sufficiently developed to 

support ETPs seeking exposure to 

bitcoin by holding CME Bitcoin Futures 

Contracts.’’ 106 The Sponsor believes 

that the CME Bitcoin Futures Market is 

also sufficiently developed to support 

ETPs that seek exposure to Bitcoin by 

holding a mix of CME Bitcoin Futures 

Contracts and bitcoin through the use of 

EFP transactions that are traded, 

reported, and cleared through the CME 

Bitcoin Futures Market and whose 

conditions and prices are subject to 

CME oversight. 

Creations and Redemptions 

According to the Sponsor (and as 

discussed further below), the Fund uses 

cash creations and redemptions.107 An 

AP delivers cash to the Fund instead of 

bitcoin or CME Bitcoin Futures 

Contracts in the creation process. An AP 

receives cash instead of bitcoin or CME 

Bitcoin Futures Contracts in the 

redemption process. The cash received 

during the creation process is then used 

by the Sponsor to purchase CME Bitcoin 

Futures Contracts with an aggregate 

market value that approximates the 

amount of cash received upon the 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.068</GPH> EN12JA24.069</GPH> EN12JA24.070</GPH>

CME BITCOIN FUTURES MARKET 

Agril 6. 2022 Jtme 30= 2023 

Trading Volume $1,692 million $3,473 million 

Open Interest $2,529 million $2,800 million 

UNREGULATED BITCOIN FUTURES MARKETS 

At2ril 7 = 2021 Agril 6~ 2022 June 301 2023 

Trading Volume $68,333 million $37,333 million $29,693 million 

Open Interest $20,420 million $13,980 million $11,630 million 

SPOT BITCOIN 

ARril 7.2021 Agril 6. 2022 June 1,2023 

Trading Volume $698,000 million $297,000 million $116,000 million 
2462 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

108 VWAP is calculated based first on Tier 1 (if 

there are trades during the settlement period); then 

Tier 2 (if there are no trades during the settlement 

period); and then Tier 3 (in the absence of any trade 

activity or bid/ask in a given contract month during 

the current trading day, as follows: Tier 1: Each 

contract month settles to its VWAP of all trades that 

occur between 14:59:00 and 15:00:00 CT, the 

settlement period, rounded to the nearest tradable 

tick. If the VWAP is exactly in the middle of two 

tradable ticks, then the settlement will be the 

tradable price that is closer to the contract’s prior 

day settlement price. Tier 2: If no trades occur on 

CME Globex between 14:59:00 and 15:00:00 CT, the 

settlement period, then the last trade (or the 

contract’s settlement price from the previous day in 

the absence of a last trade price) is used to 

determine whether to settle to the bid or the ask 

during this period. a. If the last trade price is 

outside of the bid/ask spread, then the contract 

month settles to the nearest bid or ask price. b. If 

the last trade price is within the bid/ask spread, or 

if a bid/ask spread is not available, then the contract 

month settles to the last trade price. Tier 3: In the 

absence of any trade activity or bid/ask in a given 

contract month during the current trading day, the 

daily settlement price will be determined by 

applying the net change from the preceding contract 

month to the given contract month’s prior daily 

settlement price. 

creation. During a redemption 

transaction, the reverse process is used, 

where the Sponsor sells CME Bitcoin 

Futures Contracts with an aggregate 

market value that approximates the 

amount of cash to be paid upon the 

redemption. On a daily basis, the 

Sponsor will analyze the current 

portfolio allocation of the Fund between 

bitcoin and CME Bitcoin Futures 

Contracts and, based on market 

conditions, may decide to engage in an 

EFP transaction through the CME 

Bitcoin Futures Market to buy or sell 

bitcoin for the equivalent position in 

CME Bitcoin Futures Contracts. 

The Sponsor believes that the Fund’s 

use of cash creations and redemptions 

protects against manipulation in the 

creation and redemption process and of 

the Fund’s market price from trading in 

unregulated spot markets. Investment in 

bitcoin will not be directly related to 

creation or redemption of Shares such 

that trades can be performed in smaller 

sizes and at unpredictable times, 

reducing the risk of creation or 

redemption manipulation. 

Specifically, the Sponsor believes that 

cash creations and redemptions serve as 

a deterrent to manipulation in several 

ways: 

1. Decoupling from spot market: By 

using cash instead of bitcoin for 

creations and redemptions, the Fund’s 

operations are decoupled from the 

unregulated spot market. The creation 

and redemption process does not 

directly influence the unregulated spot 

market or vice versa, thereby reducing 

the potential for manipulation through 

this process. 

2. Unpredictable trading times: The 

Fund’s investment in spot bitcoin is not 

directly related to creations or 

redemptions. As a result, trading can be 

done in smaller sizes and at 

unpredictable times, making it harder 

for potential manipulators to time their 

actions. 

3. Reduced impact of large trades: By 

effecting creations and redemptions in 

cash, large trades that could potentially 

influence the unregulated spot market 

are mitigated. Instead, these trades are 

absorbed in the CME Bitcoin Futures 

Market, which is sufficiently liquid and, 

as a regulated market that is a member 

of ISG, can reasonably be relied upon to 

assist the Exchange in detecting and 

deterring fraudulent or manipulative 

misconduct. 

4. Reduced influence from 

unregulated spot bitcoin trading 

platforms: In-kind creation may create a 

direct relationship between the Fund’s 

market price and prices on offshore 

unregulated trading platforms such as 

Binance and others by arbitrage, because 

an AP could buy or sell bitcoin from 

such markets and receive or deliver 

bitcoin from the Fund through the 

creation or redemption process. With 

creations and redemptions in cash, 

however, that arbitrage cannot be 

executed without transacting on the 

CME Bitcoin Futures Market. Thus, the 

Sponsor believes that, by removing a 

direct causal relationship between 

unregulated markets and the Fund’s 

market price, it is unlikely that a person 

attempting to manipulate the ETP 

would be reasonably successful by 

trading only on unregulated spot bitcoin 

trading platforms. A would-be 

manipulator would have to transact on 

the CME Bitcoin Futures Market, such 

that NYSE Arca’s common ISG 

membership with CME would assist 

NYSE Arca in detecting and deterring 

misconduct. 

The Sponsor believes that the Fund’s 

creation and redemption process is 

designed to minimize the potential for 

market manipulation, thereby protecting 

investors and maintaining the integrity 

of the markets. 

Settlement of CME Bitcoin Futures 

Contracts 

According to the Registration 

Statement, each BTC Contract and MBT 

Contract settles daily to the BTC 

Contract VWAP of all trades that occur 

between 2:59 p.m. and 3:00 p.m. Central 

Time, the settlement period, rounded to 

the nearest tradable tick.108

BTC Contracts and MBT Contracts 

each expire on the last Friday of the 

contract month and are settled with 

cash. The final settlement value is based 

on the CME CF BRR at 4:00 p.m. 

London time on the expiration day of 

the futures contract. 

As proposed, the Fund will rollover 

its soon to expire CME Bitcoin Futures 

Contracts to extend the expiration or 

maturity of its position forward by 

closing the initial contract holdings and 

opening a new longer-term contract 

holding for the same underlying asset at 

the then-current market price. The Fund 

does not intend to hold any bitcoin 

futures positions into cash settlement. 

Net Asset Value 

According to the Registration 

Statement, the Fund’s NAV per Share 

will be calculated by taking the current 

market value of its total assets, 

subtracting any liabilities, and dividing 

that total by the number of Shares. 

The Administrator of the Fund will 

calculate the NAV once each trading 

day, as of the earlier of the close of the 

New York Stock Exchange or 4:00 p.m. 

Eastern Time (‘‘E.T.’’). 

According to the Registration 

Statement, to determine the value of 

CME Bitcoin Futures Contracts, the 

Fund’s Administrator will use the CME 

Bitcoin Futures Contract settlement 

price on the exchange on which the 

contract is traded, except that the ‘‘fair 

value’’ of CME Bitcoin Futures 

Contracts (as described in more detail 

below) may be used when CME Bitcoin 

Futures Contracts close at their price 

fluctuation limit for the day. The Fund’s 

Administrator will determine the value 

of Fund investments as of the earlier of 

the close of the New York Stock 

Exchange or 4:00 p.m. E.T. The Fund’s 

NAV will include any unrealized profit 

or loss on open CME Bitcoin Futures 

Contracts and any other credit or debit 

accruing to the Fund but unpaid or not 

received by the Fund. 

According to the Registration 

Statement, the fair value of the Fund’s 

holdings will be determined by the 

Fund’s Sponsor in good faith and in a 

manner that assesses the future bitcoin 

market value based on a consideration 

of all available facts and all available 

information on the valuation date. 

When a CME Bitcoin Futures Contract 

has closed at its price fluctuation limit, 

the fair value determination will 

attempt to estimate the price at which 

such CME Bitcoin Futures Contract 

would be trading in the absence of the 

price fluctuation limit (either above 

such limit when an upward limit has 

been reached or below such limit when 

a downward limit has been reached). 

Typically, this estimate will be made 

primarily by reference to exchange 

traded instruments at 4:00 p.m. E.T. on 

settlement day. The fair value of BTC 

Contracts and MBT Contracts may not 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2463 

109The ‘‘Nasdaq Bitcoin Reference Price—Real 

Time’’ or ‘‘NQBTC–RT’’ is the real-time version of 

the Benchmark and is calculated every second 

throughout a 24-hour trading day, seven days per 

week, using published, real-time bid and ask quotes 

for bitcoin on the NQBTCS core trading platforms. 

See https://indexes.nasdaqomx.com/docs/ 

methodology_nci.pdf. 

110Several major market data vendors display 

and/or make widely available IFVs taken from the 

Consolidated Tape Association (‘‘CTA’’) or other 

data feeds. 

111The Sponsor notes that Shares of the Fund 

will only be created and redeemed in cash because 

of regulatory and other concerns surrounding the 

ability of broker-dealers, such as the APs, to have 

custody and/or control over non-security digital 

assets, such as bitcoin. In 2019, Commission Staff 

noted that a digital asset security that does not meet 

the definition of a ‘‘security’’ under the Securities 

Investor Protection Act (‘‘SIPA’’) would likely not 

receive protection under SIPA in the event of the 

failure of a carrying broker-dealer (thus leaving 

holders of those digital asset securities with only 

unsecured general creditor claims against the 

broker-dealer’s estate). See SEC Division of Trading 

and Markets, FINRA Office of General Counsel, 

Joint Staff Statement on Broker-Dealer Custody of 

Digital Asset Securities (July 8, 2019), https://

www.sec.gov/news/public-statement/joint-staffstatement-broker-dealer-custody-digital-assetsecurities. The Staff also noted that uncertainty 

regarding when and whether a broker-dealer holds 

a digital asset security in its possession or control 

creates greater risk for customers that their 

securities will not be able to be returned in the 

event of a broker-dealer failure. See id. The Staff 

concluded that these concerns were likely to be 

inconsistent with the expectations of persons who 

would use a broker-dealer to custody their digital 

asset securities. In light of these concerns, the 

creation and redemption and processes of the Fund 

have been structured so that APs are not required 

to take custody of, or have control over, bitcoin at 

any stage. 

112The APs will deliver only cash to create 

Shares and will receive only cash when redeeming 

Shares. Further, APs 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. To the 

extent applicable, the Fund will create shares by 

receiving bitcoin from a third party that is not the 

AP and the Fund—not the AP—is responsible for 

selecting the third party to deliver the bitcoin. 

Further, the third party will not be acting as an 

agent of the AP with respect to the delivery of the 

bitcoin to the trust or acting at the direction of the 

AP with respect to the delivery of the bitcoin to the 

Fund. The Fund will redeem shares by delivering 

bitcoin to a third party that is not the AP and the 

Fund—not the AP—is responsible for selecting the 

third party to receive the bitcoin. Further, the third 

party will not be acting as an agent of the AP with 

respect to the receipt of the bitcoin from the Fund 

or acting at the direction of the AP with respect to 

the receipt of the bitcoin from the Fund. 

reflect such security’s market value or 

the amount that the Fund might 

reasonably expect to receive for the BTC 

Contracts and MBT Contracts upon its 

current sale. 

According to the Registration 

Statement and as discussed above, the 

value of spot bitcoin held by the Fund 

would be determined by the 

Administrator, when calculating the 

Fund’s NAV, via the FBSP 

methodology. As discussed above, the 

FBSP methodology allows for the 

determination of a spot price of bitcoin 

that utilizes market data exclusively 

from CME Bitcoin Futures Contracts and 

does not rely on market data obtained 

from unregulated bitcoin markets to 

determine the value of bitcoin held by 

the Fund. 

Indicative Fund Value 

According to the Registration 

Statement, in order to provide updated 

information relating to the Fund for use 

by investors and market professionals, 

ICE Data Indices, LLC will calculate an 

updated IFV. The IFV will be calculated 

by using the prior day’s closing NAV 

per Share of the Fund as a base and will 

be updated throughout the core trading 

session of 9:30 a.m. E.T. to 4:00 p.m. 

E.T. (the ‘‘Core Trading Session’’) to 

reflect changes in the value of the 

Fund’s holdings during the trading day. 

For purposes of calculating the IFV, the 

Fund’s spot bitcoin holdings will be 

priced using a real time version of the 

Benchmark, the Nasdaq Bitcoin 

Reference Price—Real Time (‘‘NQBTC– 

RT’’),109 and the Fund’s CME Bitcoin 

Futures Contracts holdings will be 

priced using the most recent trading 

price for each contract. 

The IFV will be disseminated on a per 

Share basis every 15 seconds during the 

Exchange’s Core Trading Session and be 

widely disseminated by one or more 

major market data vendors during the 

Exchange’s Core Trading Session.110

Creation and Redemption of Shares 

According to the Registration 

Statement, the Shares issued by the 

Fund may only be purchased by APs 

and only in blocks of 10,000 Shares 

called ‘‘Creation Baskets.’’ The amount 

of the purchase payment for a Creation 

Basket is equal to the total NAV of 

Shares in the Creation Basket. Similarly, 

only APs may redeem Shares and only 

in blocks of 10,000 Shares called 

‘‘Redemption Baskets.’’ The amount of 

the redemption proceeds for a 

Redemption Basket is equal to the total 

NAV of Shares in the Redemption 

Basket. The purchase price for Creation 

Baskets and the redemption price for 

Redemption Baskets are the actual NAV 

calculated at the end of the business day 

when a request for a purchase or 

redemption is received by the Fund. 

Shares of the Fund will be created and 

redeemed in cash.111

APs will be the only persons that may 

place orders to create and redeem 

Creation Baskets. APs must be (1) either 

registered broker-dealers or other 

securities market participants, such as 

banks and other financial institutions, 

that are not required to register as 

broker-dealers to engage in securities 

transactions, and (2) Depository Trust 

Company (‘‘DTC’’) participants. An AP 

is an entity that has entered into an 

Authorized Participant agreement with 

the Sponsor. 

An AP delivers cash to the Fund in 

the creation process, and an AP receives 

cash in the redemption process.112 The 

cash delivered or received during the 

creation or redemption process is then 

used by the Sponsor to purchase or sell 

CME Bitcoin Futures Contracts with an 

aggregate market value that 

approximates the amount of cash 

received or paid upon the creation or 

redemption. On a daily basis, the 

Sponsor will analyze the current 

portfolio allocation of the Fund between 

bitcoin and CME Bitcoin Futures 

Contracts and decide whether to engage 

in an EFP transaction through the CME 

Bitcoin Futures Market to buy or sell 

bitcoin for the equivalent position in 

CME Bitcoin Futures Contracts. 

Creation Procedures 

According to the Registration 

Statement, on any ‘‘Business Day,’’ an 

AP may place an order with the Fund’s 

Transfer Agent to create one or more 

Creation Baskets. For purposes of 

processing both purchase and 

redemption orders, a ‘‘Business Day’’ 

means any day other than a day when 

the CME Bitcoin Futures Market or the 

New York Stock Exchange is closed for 

regular trading. Purchase orders for 

Creation Baskets must be placed by 3:00 

p.m. EST or one hour prior to the close

of trading on the New York Stock

Exchange, whichever is earlier. The day

on which the distributor(s) engaged by

the Sponsor receives a valid purchase

order is referred to as the purchase order

date. If the purchase order is received

after the applicable cut-off time, the

purchase order date will be the next

Business Day. Purchase orders are

irrevocable.

By placing a purchase order, an AP 

agrees to deposit cash with the Cash 

Custodian. 

Determination of Required Deposits 

According to the Registration 

Statement, the total deposit required to 

create each basket (‘‘Creation Basket 

Deposit’’) is an amount of cash and/or 

cash equivalents in the same proportion 

to the total assets of the Fund (net of 

estimated accrued but unpaid fees, 

expenses and other liabilities) on the 

purchase order date as the proportion of 

the number of Shares to be created 

under the purchase order to the total 


khammond on DSKJM1Z7X2PROD with NOTICES
2464 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

113The CME imposes a maximum permitted price 

range for futures contracts in each trading session 

on its futures markets. When markets reach their 

price limits, the CME may temporarily halt trading 

until such price limits can be expanded, remain 

price limited, or suspend trading for the day, based 

on relevant regulatory provisions. CME Bitcoin 

Futures Contracts, like other futures contracts on 

the CME, are subject to price limits on a dynamic 

basis. At the commencement of each trading day, 

CME Bitcoin Futures Contracts are assigned a price 

limit variant, which equals a percentage of the prior 

day’s settlement price, or a price deemed 

appropriate by the CME. During the trading day, the 

price limit variant is applied in rolling 60-minute 

look-back periods to establish dynamic lower and 

upper price fluctuation limits. Price limits for CME 

Bitcoin Futures Contracts are published at https:// 

www.cmegroup.com/trading/price-limits.html#

cryptocurrencies. 

number of Shares outstanding on the 

purchase order date. The Sponsor 

determines, directly in its sole 

discretion or in consultation with the 

Cash Custodian and the SubAdministrator, the requirements for 

cash and/or cash equivalents, including 

the remaining maturities of the cash 

equivalents, which may be included in 

deposits to create baskets. If cash 

equivalents are to be included in a 

Creation Basket Deposit for orders 

placed on a given business day, the SubAdministrator will publish an estimate 

of the Creation Basket Deposit 

requirements at the beginning of such 

day. 

Delivery of Required Deposits 

According to the Registration 

Statement, an AP who places a purchase 

order is responsible for transferring to 

the Fund’s account with the Cash 

Custodian the required amount of cash 

and cash equivalents by the end of the 

next business day following the 

purchase order date or by the end of 

such later business day, not to exceed 

three business days after the purchase 

order date, as agreed to between the AP 

and the Cash Custodian when the 

purchase order is placed (the ‘‘Purchase 

Settlement Date’’). Upon receipt of the 

deposit amount, the Cash Custodian 

directs DTC to credit the number of 

baskets ordered to the AP’s DTC account 

on the Purchase Settlement Date. 

Because orders to purchase baskets must 

be placed by 3:00 p.m. E.T., but the total 

payment required to create a basket 

during the continuous offering period 

will not be determined until 4:00 p.m. 

E.T. on the date the purchase order is 

received, APs will not know the total 

amount of the payment required to 

create a basket at the time they submit 

an irrevocable purchase order for the 

basket. The Fund’s NAV and the total 

amount of the payment required to 

create a basket could rise or fall 

substantially between the time an 

irrevocable purchase order is submitted 

and the time the amount of the purchase 

price in respect thereof is determined. 

Suspension and Rejection of Purchase 

Orders 

According to the Registration 

Statement, the Sponsor has the 

discretion to suspend purchase orders 

or delay their settlement in specific 

situations. These situations may include 

(1) exchange closures or trading 

restrictions, (2) emergencies affecting 

the handling of cash equivalents, (3) 

shareholder protection needs, (4) 

potential price limit restrictions on CME 

Bitcoin Futures Contracts, or (5) 

circumstances in which it would not be 

in the best interest of the Fund or its 

investors to accept purchase orders. 

Purchase orders must conform to the 

criteria outlined in the AP agreement 

and be for whole baskets. The Sponsor 

may suspend orders that do not meet 

these criteria. The Sponsor, acting by 

itself or through the distributor or 

Transfer Agent, may reject a purchase 

order or a Creation Basket Deposit if: (a) 

it determines that, due to position limits 

or otherwise, investment alternatives 

that will enable the Fund to meet its 

investment objective are not available or 

practicable at that time; (b) it determines 

that the purchase order or the Creation 

Basket Deposit is not in proper form; (c) 

it believes that acceptance of the 

purchase order or the Creation Basket 

Deposit would have adverse tax 

consequences to the Fund or its 

investors; (d) the acceptance or receipt 

of the Creation Basket Deposit would, in 

the opinion of counsel to the Sponsor, 

be unlawful; (e) circumstances outside 

the control of the Sponsor make it, for 

all practical purposes, not feasible to 

process creations of baskets; (f) there is 

a possibility that any or all of the CME 

Bitcoin Futures Contracts of the Fund 

from which the NAV of the Fund is 

calculated will be priced at a dynamic 

price limit restriction; 113 or (g) if, in the 

sole discretion of the Sponsor, the 

execution of such an order would not be 

in the best interest of the Fund or its 

investors. 

Redemption Procedures 

According to the Registration 

Statement, the procedures by which an 

AP can redeem one or more Redemption 

Baskets will mirror the procedures for 

the creation of Creation Baskets. On any 

Business Day, an AP may place an order 

with the Transfer Agent to redeem one 

or more Redemption Baskets. 

The redemption procedures allow 

APs to redeem Redemption Baskets. 

Individual shareholders may not redeem 

directly from the Fund. By placing a 

redemption order, an AP agrees to 

deliver the Redemption Baskets to be 

redeemed through DTC’s book entry 

system to the Fund by the end of the 

next Business Day following the 

effective date of the redemption order or 

by the end of such later business day 

(‘‘Redemption Settlement Date’’). 

Determination of Redemption 

Distribution 

According to the Registration 

Statement, the redemption distribution 

from the Fund will consist of an amount 

of cash and/or cash equivalents that is 

in the same proportion to the total assets 

of the Fund on the date that the order 

to redeem is properly received as the 

number of Shares to be redeemed under 

the redemption order is in proportion to 

the total number of Shares outstanding 

on the date the order is received. 

Delivery of Redemption Distribution 

The redemption distribution due from 

a Fund will be delivered to the AP on 

the Redemption Settlement Date if the 

Fund’s DTC account has been credited 

with the baskets to be redeemed. If the 

Fund’s DTC account has not been 

credited with all of the baskets to be 

redeemed by the end of such date, the 

redemption distribution will be 

delivered to the extent of whole baskets 

received. Any remainder of the 

redemption distribution will be 

delivered on the next business day after 

the Redemption Settlement Date to the 

extent of remaining whole baskets 

received. Pursuant to information from 

the Sponsor, the Cash Custodian will 

also be authorized to deliver the 

redemption distribution 

notwithstanding that the baskets to be 

redeemed are not credited to the Fund’s 

DTC account by 12:00 p.m. E.T. on the 

Redemption Settlement Date if the AP 

has collateralized its obligation to 

deliver the baskets through DTC’s bookentry system on such terms as the 

Sponsor may from time to time 

determine. 

Availability of Information 

The NAV for the Fund’s Shares will 

be calculated and disseminated daily 

and will be made available to all market 

participants at the same time. The 

intraday, closing prices, and settlement 

prices of the CME Bitcoin Futures 

Contracts will be readily available from 

the CME website, automated quotation 

systems, published or other public 

sources, or major market data vendors. 

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 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2465 

114Pricing information for EFP transactions in 

CME Bitcoin Futures Contracts is reported to the 

CME Bitcoin Futures Market but is not publicly 

available. 

115See NYSE Arca Rule 7.12–E. 

116The Sponsor believes that, under normal 

market conditions, interruptions or trading halts in 

individual spot bitcoin markets are unlikely to 

impact trading in the Shares unless trading in the 

CME Bitcoin Futures Market is also impacted. 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. 

Real-time data for CME Bitcoin 

Futures Contracts will be available by 

subscription through on-line 

information services. ICE Futures U.S. 

and CME also provide delayed futures 

and options on futures information on 

current and past trading sessions and 

market news free of charge on their 

respective websites. The specific 

contract specifications for CME Bitcoin 

Futures Contracts will also be available 

on such websites, as well as other 

financial informational sources. The 

spot price of bitcoin is available on a 24- 

hour basis from major market data 

vendors, including Bloomberg and 

Reuters. Information relating to trading, 

including price and volume 

information, in bitcoin will be available 

from major market data vendors and 

from the trading platforms on which 

bitcoin is traded. EFP transaction 

volumes are reported daily, by 

instrument, on the CME website.114

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. Quotation information for cash 

equivalents and commodity futures may 

be obtained from brokers and dealers 

who make markets in such instruments. 

Intra-day price and closing price level 

information for the Benchmark will be 

available from major market data 

vendors. The real-time version of the 

Benchmark value, NQBTC–RT, will be 

disseminated once every 15 seconds 

during the Core Trading Session. The 

Benchmark components and 

methodology will be made publicly 

available. The IFV will be available 

through on-line information services. 

In addition, the Fund’s website, 

https://hashdex-etfs.com/, will display 

the applicable end of day closing NAV. 

The daily holdings of the Fund will be 

available on the Fund’s website. The 

Fund’s website will also include a form 

of the prospectus for the Fund that may 

be downloaded. The website will 

include the Shares’ ticker and CUSIP 

information along with additional 

quantitative information updated on a 

daily basis, including: (1) the prior 

Business Day’s reported NAV and 

closing price and a calculation of the 

premium and discount of the closing 

price or mid-point of the bid/ask spread 

at the time of NAV calculation (the 

‘‘Bid/Ask Price’’) against the NAV; and 

(2) data in chart format displaying the 

frequency distribution of discounts and 

premiums of the daily closing price or 

Bid/Ask Price against the NAV, within 

appropriate ranges, for at least each of 

the four previous calendar quarters. The 

website disclosure of portfolio holdings 

will be made daily and will include, as 

applicable, (i) the name, quantity, price, 

and market value of the Fund’s 

holdings, (ii) the counterparty to and 

value of forward contracts and any other 

financial instruments tracking the 

Benchmark, and (iii) the total cash and 

cash equivalents held in the Fund’s 

portfolio, if applicable. 

The Fund’s website will be publicly 

available at the time of the public 

offering of the Shares and accessible at 

no charge. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund.115 Trading in Shares of the 

Fund will be halted if the circuit breaker 

parameters in NYSE Arca Rule 7.12–E 

have been reached. Trading also may be 

halted because of market conditions or 

for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in the CME Bitcoin Futures Market 116

and in the securities and/or the 

financial instruments composing the 

daily disclosed portfolio of the Fund; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. 

The Exchange may halt trading during 

the day in which an interruption to the 

dissemination of the IFV or the value of 

the Benchmark occurs. The real-time 

version of the Benchmark value 

(NQBTC–RT) will be disseminated once 

every 15 seconds during the Core 

Trading Session. The Benchmark 

components and methodology will be 

made publicly available. If the 

interruption to the dissemination of the 

IFV, or to the value of the Benchmark 

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. Shares will trade on 

the NYSE Arca Marketplace from 4:00 

a.m. to 8:00 p.m. E.T. in accordance 

with NYSE Arca Rule 7.34–E (Early, 

Core, and Late Trading Sessions). The 

Exchange has appropriate rules to 

facilitate transactions in the Shares 

during all trading sessions. As provided 

in NYSE Arca Rule 7.6–E, the minimum 

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

entry of orders in equity securities 

traded on the NYSE Arca Marketplace is 

$0.01, with the exception of securities 

that are priced less than $1.00 for which 

the MPV for order entry is $0.0001. 

The Shares will conform to the initial 

and continued listing criteria under 

NYSE Arca Rule 8.500–E. The trading of 

the Shares will be subject to NYSE Arca 

Rule 8.500E(f), which sets forth certain 

restrictions on Equity Trading Permit 

Holders (‘‘ETP Holders’’) acting as 

registered market makers in Trust Units 

to facilitate surveillance. Pursuant to 

NYSE Arca Rule 8.500–E(f), an ETP 

Holder acting as a registered market 

maker in Trust Units 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 

market maker may have or over which 

it may exercise investment discretion. 

No 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 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, the ETP Holder acting as a 

market maker in Trust Units 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 


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117See Rule 10A–3(c)(7), 17 CFR 240.10A–3(c)(7) 

(stating that a listed issuer is not subject to the 

requirements of Rule 10A–3 if the issuer is 

organized as an unincorporated association that 

does not have a board of directors and the activities 

of the issuer are limited to passively owning or 

holding securities or other assets on behalf of or for 

the benefit of the holders of the listed securities). 

118FINRA conducts cross-market surveillances on 

behalf of the Exchange pursuant to a regulatory 

services agreement. The Exchange is responsible for 

FINRA’s performance under this regulatory services 

agreement. 

119For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all 

components of the Fund may trade on markets that 

are members of ISG or with which the Exchange has 

in place a CSSA. 

derivatives, as may be requested by the 

Exchange. 

For initial and continued listing as 

proposed herein, the Fund will be in 

compliance with Rule 10A–3 under the 

Act, and the Trust will rely on the 

exception contained in Rule 10A– 

3(c)(7).117 A minimum of 50,000 Shares 

of the Fund will be outstanding at the 

commencement of trading on the 

Exchange. 

Surveillance 

The Exchange represents that trading 

in the Shares of the Fund will be subject 

to the existing trading surveillances 

administered by the Exchange, as well 

as cross-market surveillances 

administered by FINRA on behalf of the 

Exchange, which are designed to detect 

violations of Exchange rules and 

applicable federal securities laws.118

The Exchange represents that these 

procedures are adequate to properly 

monitor Exchange trading of the Shares 

in all trading sessions and to deter and 

detect violations of Exchange rules and 

federal securities laws applicable to 

trading on the Exchange. 

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

When such situations are detected, 

surveillance analysis follows and 

investigations are opened, where 

appropriate, to review the behavior of 

all relevant parties for all relevant 

trading violations. 

The Exchange or FINRA, on behalf of 

the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares and the Fund’s 

holdings 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 the Fund’s holdings from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares and the Fund’s holdings from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance-sharing agreement 

(‘‘CSSA’’). The Exchange is also able to 

obtain information regarding trading in 

the Shares, the underlying bitcoin, CME 

Bitcoin Futures Contracts, options on 

bitcoin futures, or any other bitcoin 

derivative through ETP Holders, in 

connection with such ETP Holders’ 

proprietary or customer trades which 

they effect through ETP Holders on any 

relevant market. The Exchange can 

obtain market surveillance information, 

including customer identity 

information, with respect to transactions 

(including transactions in futures 

contracts) occurring on US futures 

exchanges, which are members of the 

ISG. In addition, the Exchange also has 

a general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

Under NYSE Arca Rule 8.500–E(f), an 

ETP Holder acting as a registered market 

maker in the Shares is required to 

provide the Exchange with information 

relating to its trading in the underlying 

physical commodity, related commodity 

futures or options on commodity 

futures, or any other related commodity 

derivatives. Commentary .04 of NYSE 

Arca Rule 11.3–E requires an ETP 

Holder acting as a registered market 

maker, and its affiliates, in the Shares to 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to prevent the misuse of any 

material nonpublic information with 

respect to such products, any 

components of the related products, any 

physical asset or commodity underlying 

the product, applicable currencies, 

underlying indexes, related futures or 

options on futures, and any related 

derivative instruments (including the 

Shares). As a general matter, the 

Exchange has regulatory jurisdiction 

over its ETP Holders and their 

associated persons, which include any 

person or entity controlling an ETP 

Holder. To the extent the Exchange may 

be found to lack jurisdiction over a 

subsidiary or affiliate of an ETP Holder 

that does business only in commodities 

or futures contracts, the Exchange could 

obtain information regarding the 

activities of such subsidiary or affiliate 

through surveillance sharing agreements 

with regulatory organizations of which 

such subsidiary or affiliate is a member. 

CME Bitcoin Futures Contracts held 

by the Fund will be listed on an 

exchange that is a member of the ISG or 

is a market with which the Exchange 

has a CSSA.119

All statements and representations 

made in this filing regarding (a) the 

description of the portfolio or reference 

asset, (b) limitations on portfolio 

holdings or reference assets, or (c) the 

applicability of Exchange listing rules 

specified in this rule filing shall 

constitute continued listing 

requirements for listing the Shares on 

the Exchange. 

The issuer has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Fund to 

comply with the continued listing 

requirements, and, pursuant to its 

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

Act, the Exchange will monitor for 

compliance with the continued listing 

requirements. If the Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

NYSE Arca Rule 5.5–E(m). 

Information Bulletin 

Prior to the commencement of trading 

of the Shares, the Exchange will inform 

its ETP Holders in an information 

bulletin (‘‘Information Bulletin’’) of the 

special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Bulletin 

will discuss the following: (1) the risks 

involved in trading the Shares during 

the Early and Late Trading Sessions 

when an updated IFV will not be 

calculated or publicly disseminated; (2) 

the procedures for purchases and 

redemptions of Shares in Creation 

Baskets and Redemption Baskets (and 

that Shares are not individually 

redeemable); (3) NYSE Arca Rule 9.2– 

E(a), which imposes a duty of due 

diligence on its ETP Holders to learn the 

essential facts relating to every customer 

prior to trading the Shares; (4) how 

information regarding the IFV is 

disseminated; (5) how information 

regarding portfolio holdings is 

disseminated; (6) the requirement that 

ETP Holders deliver a prospectus to 

investors purchasing newly issued 

Shares prior to or concurrently with the 

confirmation of a transaction; and (7) 

trading information. 

In addition, the Information Bulletin 

will advise ETP Holders, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Fund. The Exchange 

notes that investors purchasing Shares 

directly from the Fund will receive a 

prospectus. ETP Holders purchasing 

Shares from the Fund for resale to 

investors will deliver a prospectus to 

such investors. The Information Bulletin 

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

the Commission from any rules under 


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120 15 U.S.C. 78f(b)(5). 

the Act. In addition, the Information 

Bulletin will reference that the Fund is 

subject to various fees and expenses 

described in the Registration Statement. 

The Information Bulletin 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. 

The Information Bulletin will also 

disclose the trading hours of the Shares 

and that the NAV for the Shares will be 

calculated after 4:00 p.m. E.T. each 

trading day. The Information Bulletin 

will disclose that information about the 

Shares will be publicly available on the 

Fund’s website. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 120 that an 

exchange have rules that are designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to, and perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest. 

The Exchange believes the proposed 

rule change is designed to remove 

impediments to and perfect the 

mechanism of a free and open market 

and, in general, to protect investors and 

the public interest because it reflects the 

Fund’s proposed investment strategy, 

through which the Fund would seek to 

achieve its investment objectives by 

investing in both CME Bitcoin Futures 

Contracts and bitcoin, in addition to 

being able to hold part of its net assets 

in cash. The Exchange believes that the 

Fund’s strategy of holding a mix of 

bitcoin, CME Bitcoin Futures Contracts, 

and cash would remove impediments to 

and perfect the mechanism of a free 

market and protect investors and the 

public interest, offering investors 

exposure to bitcoin without relying on 

unregulated products or markets. The 

Exchange also believes that the Sponsor 

has designed the Fund to include 

features intended to provide a robust 

framework for mitigating the risks of 

market manipulation, such as its 

proposed use of futures-based pricing 

for bitcoin in calculating the Fund’s 

NAV, EFP transactions through the CME 

Bitcoin Futures Market to acquire and 

dispose of bitcoin, and cash creations 

and redemptions, which would remove 

impediments to and perfect the 

mechanism of a free and open market 

and promote the protection of investors 

and the public interest. Finally, the 

Exchange believes that, given these 

features of the Fund, the CME Bitcoin 

Futures Market should be considered 

the regulated market of significant size 

in relation to the Fund and that there is 

a reasonable likelihood that a person 

attempting to manipulate the Fund 

would also have to trade on the CME 

Bitcoin Futures Market to do so, such 

that information shared between CME 

and NYSE Arca pursuant their common 

ISG membership would aid NYSE Arca 

in detecting and deterring potential 

misconduct, and that it is unlikely that 

trading in the Fund would be the 

predominant influence on the CME 

Bitcoin Futures Market. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices and to protect 

investors and the public interest in that 

the Shares would be listed and traded 

on the Exchange pursuant to the initial 

and continued listing criteria in NYSE 

Arca Rule 8.500–E. The Exchange has in 

place surveillance procedures that are 

adequate to properly monitor trading in 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and applicable federal securities 

laws. The Exchange or FINRA, on behalf 

of the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares and the Fund’s 

holdings 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 the Fund’s holdings from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares and the Fund’s holdings from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a CSSA. The 

Exchange is also able to obtain 

information regarding trading in the 

Shares and the Fund’s holdings through 

ETP Holders, in connection with such 

ETP Holders’ proprietary or customer 

trades which they effect through ETP 

Holders on any relevant market. The 

Exchange can obtain market 

surveillance information, including 

customer identity information, with 

respect to transactions (including 

transactions in CME Bitcoin Futures 

Contracts) occurring on US futures 

exchanges, which are members of the 

ISG. The intraday, closing prices, and 

settlement prices of CME Bitcoin 

Futures Contracts and bitcoin will be 

readily available from the applicable 

futures exchange websites, automated 

quotation systems, published or other 

public sources, or major market data 

vendors website or on-line information 

services. Information regarding market 

price and trading volume of the Shares 

will be continually available on a realtime basis throughout the day on 

brokers’ computer screens and other 

electronic services. 

Real-time data for CME Bitcoin 

Futures Contracts will be available by 

subscription from on-line information 

services. ICE Futures U.S. and CME also 

provide delayed futures information on 

current and past trading sessions and 

market news free of charge on the 

Fund’s website. The specific contract 

specifications for CME Bitcoin Futures 

Contracts will also be available on such 

websites, as well as other financial 

informational sources. The spot price of 

bitcoin is available on a 24-hour basis 

from major market data vendors, 

including Bloomberg and Reuters. 

Information relating to trading, 

including price and volume 

information, in bitcoin will be available 

from major market data vendors and 

from the trading platforms on which 

bitcoin is traded. EFP transaction 

volumes are reported daily, by 

instrument, on the CME website. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. The IFV will be disseminated 

on a per Share basis every 15 seconds 

during the Exchange’s Core Trading 

Session and be widely disseminated by 

one or more major market data vendors 

during the NYSE Arca Core Trading 

Session. The Fund’s website will also 

include a form of the prospectus for the 

Fund that may be downloaded. The 

website will include the Share’s ticker 

and CUSIP information along with 

additional quantitative information 

updated on a daily basis, including, for 

the Fund: (1) the prior business day’s 

reported NAV and closing price and a 

calculation of the premium and 

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

NAV; and (2) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the daily 

closing price or Bid/Ask Price against 

the NAV, within appropriate ranges, for 

at least each of the four previous 

calendar quarters. The website 

disclosure of portfolio holdings will be 

made daily and will include, as 

applicable, (i) the name, quantity, price, 

and market value of CME Bitcoin 

Futures Contracts, (ii) the counterparty 

to and value of forward contracts, and 


khammond on DSKJM1Z7X2PROD with NOTICES
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121 17 CFR 200.30–3(a)(12). 

(iii) other financial instruments, if any, 

and the characteristics of such 

instruments and cash equivalents, and 

amount of cash held in the Fund’s 

portfolio, if applicable. 

Trading in Shares of the Fund will be 

halted if the circuit breaker parameters 

in NYSE Arca Rule 7.12–E have been 

reached or because of market conditions 

or for reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in BTC and/or MBT Contracts and the 

securities and/or the financial 

instruments composing the daily 

disclosed portfolio of the Fund; or (2) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of Trust Units based on bitcoin that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures that are adequate to properly 

monitor trading in the Shares in all 

trading sessions and to deter and detect 

violations of Exchange rules and 

applicable federal securities laws. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of the 

Shares, which are Trust Units based on 

bitcoin and that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. 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– 

NYSEARCA–2023–58 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NYSEARCA–2023–58. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSEARCA–2023–58 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.121

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00498 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #20014 and #20015; 

RHODE ISLAND Disaster Number RI–20000] 

Presidential Declaration of a Major 

Disaster for the State of Rhode Island 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 

SUMMARY: This is a Notice of the 

Presidential declaration of a major 

disaster for the State of Rhode Island 

(FEMA–4753–DR), dated 01/07/2024. 

Incident: Severe Storms, Flooding, 

and Tornadoes. 

Incident Period: 09/10/2023 through 

09/13/2023. 

DATES: Issued on 01/07/2024. 

Physical Loan Application Deadline 

Date: 03/07/2024. 

Economic Injury (EIDL) Loan 

Application Deadline Date: 10/07/2024. 

ADDRESSES: Visit the MySBA Loan 

Portal at https://lending.sba.gov to 

apply for a disaster assistance loan. 

FOR FURTHER INFORMATION CONTACT: 

Alan Escobar, Office of Disaster 

Recovery & Resilience, U.S. Small 

Business Administration, 409 3rd Street 

SW, Suite 6050, Washington, DC 20416, 

(202) 205–6734. 

SUPPLEMENTARY INFORMATION: Notice is 

hereby given that as a result of the 

President’s major disaster declaration on 

01/07/2024, applications for disaster 

loans may be submitted online using the 

MySBA Loan Portal https://

lending.sba.gov or other locally 

announced locations. Please contact the 

SBA disaster assistance customer 

service center by email at 

disastercustomerservice@sba.gov or by 

phone at 1–800–659–2955 for further 

assistance. 

The following areas have been 

determined to be adversely affected by 

the disaster: 

Primary Counties (Physical Damage and 

Economic Injury Loans): 

Providence. 

Contiguous Counties (Economic Injury 

Loans Only): 

Rhode Island: Bristol, Kent 

Connecticut: Windham 

Massachusetts: Worcester, Norfolk, 

Bristol 

The Interest Rates are: 

Percent 

For Physical Damage: 

Homeowners with Credit Available Elsewhere ...................... 5.000 

Homeowners without Credit 

Available Elsewhere .............. 2.500 

Businesses with Credit Available Elsewhere ...................... 8.000 


khammond on DSKJM1Z7X2PROD with NOTICES