20014 Federal Register / Vol. 87, No. 66 / Wednesday, April 6, 2022 / Notices 

28 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. 92543 

(Aug. 2, 2021), 86 FR 43289. Comments on the 

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

www.sec.gov/comments/sr-cboebzx-2021-051/ 

srcboebzx2021051.htm. 

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

5See Securities Exchange Act Release No. 92989, 

86 FR 52530 (Sept. 21, 2021). 

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

7See Securities Exchange Act Release No. 93510, 

86 FR 61820 (Nov. 8, 2021). 

8See Securities Exchange Act Release No. 93822, 

86 FR 73360 (Dec. 27, 2021). Amendment No. 1 to 

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

www.sec.gov/rules/sro/cboebzx/2021/34-93822.pdf. 

9See Securities Exchange Act Release No. 94055, 

87 FR 4980 (Jan. 31, 2022). 

10 15 U.S.C. 78f(b)(5). 

11Bitcoins are digital assets that are issued and 

transferred via a decentralized, open-source 

protocol used by a peer-to-peer computer network 

through which transactions are recorded on a 

public transaction ledger known as the ‘‘bitcoin 

blockchain.’’ The bitcoin protocol governs the 

creation of new bitcoins and the cryptographic 

system that secures and verifies bitcoin 

transactions. See, e.g., Amendment No. 1, 86 FR at 

73362. 

12See 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 (Aug. 1, 2018) (SR– 

BatsBZX–2016–30) (‘‘Winklevoss Order’’); Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, To Amend NYSE Arca Rule 

8.201–E (Commodity-Based Trust Shares) and To 

List and Trade Shares of the United States Bitcoin 

and Treasury Investment Trust Under NYSE Arca 

Rule 8.201–E, Securities Exchange Act Release No. 

88284 (Feb. 26, 2020), 85 FR 12595 (Mar. 3, 2020) 

(SR–NYSEArca–2019–39) (‘‘USBT Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the WisdomTree Bitcoin Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93700 (Dec. 1, 2021), 86 FR 69322 (Dec. 7, 2021) 

(SR–CboeBZX–2021–024) (‘‘WisdomTree Order’’); 

Order Disapproving a Proposed Rule Change To List 

and Trade Shares of the Kryptoin Bitcoin ETF Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93860 (Dec. 22, 2021), 86 FR 74166 (Dec. 29, 2021) 

(SR–CboeBZX–2021–029) (‘‘Kryptoin Order’’); 

Order Disapproving a Proposed Rule Change To List 

and Trade Shares of the Valkyrie Bitcoin Fund 

Under NYSE Arca Rule 8.201–E (Commodity-Based 

Trust Shares), Securities Exchange Act Release No. 

93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) 

(SR–NYSEArca–2021–31) (‘‘Valkyrie Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the First Trust SkyBridge Bitcoin 

ETF Trust Under NYSE Arca Rule 8.201–E, 

Securities Exchange Act Release No. 94006 (Jan. 20, 

2022), 87 FR 3869 (Jan. 25, 2022) (SR–NYSEArca– 

2021–37) (‘‘Skybridge Order’’); Order Disapproving 

a Proposed Rule Change To List and Trade Shares 

of the Wise Origin Bitcoin Trust under BZX Rule 

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

Securities Exchange Act Release No. 94080 (Jan. 27, 

2022), 87 FR 5527 (Feb. 1, 2022) (SR–CboeBZX– 

2021–039) (‘‘Wise Origin Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the NYDIG Bitcoin ETF Under 

NYSE Arca Rule 8.201–E (Commodity-Based Trust 

Shares), Securities Exchange Act Release No. 94395 

(Mar. 10, 2022), 87 FR 14932 (Mar. 16, 2022) (SR– 

NYSEArca–2021–57) (‘‘NYDIG Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the Global X Bitcoin Trust Under 

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

Shares, Securities Exchange Act Release No. 94396 

(Mar. 10, 2022), 87 FR 14912 (Mar. 16, 2022) (SR– 

CboeBZX–2021–052) (‘‘Global X Order’’). See also 

Order Disapproving a Proposed Rule Change, as 

Modified by Amendment No. 1, Relating to the 

Listing and Trading of Shares of the SolidX Bitcoin 

Trust Under NYSE Arca Equities Rule 8.201, 

Securities Exchange Act Release No. 80319 (Mar. 

28, 2017), 82 FR 16247 (Apr. 3, 2017) (SR– 

NYSEArca–2016–101) (‘‘SolidX Order’’). The 

Commission also notes that orders were issued by 

delegated authority on the following matters: Order 

Disapproving a Proposed Rule Change To List and 

Trade the Shares of the ProShares Bitcoin ETF and 

the ProShares Short Bitcoin ETF, Securities 

Exchange Act Release No. 83904 (Aug. 22, 2018), 

83 FR 43934 (Aug. 28, 2018) (SR–NYSEArca–2017– 

139) (‘‘ProShares Order’’); Order Disapproving a 

Proposed Rule Change To List and Trade the Shares 

of the GraniteShares Bitcoin ETF and the 

GraniteShares Short Bitcoin ETF, Securities 

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

83 FR 43923 (Aug. 28, 2018) (SR–CboeBZX–2018– 

001) (‘‘GraniteShares Order’’); Order Disapproving a 

Proposed Rule Change To List and Trade Shares of 

the VanEck Bitcoin Trust Under BZX Rule 

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

Securities Exchange Act Release No. 93559 (Nov. 

12, 2021), 86 FR 64539 (Nov. 18, 2021) (SR– 

CboeBZX–2021–019) (‘‘VanEck Order’’). 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. 

You should submit only information 

that you wish to make available 

publicly. All submissions should refer 

to File Number SR–NYSENAT–2022–04 

and should be submitted on or before 

April 27, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.28

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–07186 Filed 4–5–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94571; File No. SR– 

CboeBZX–2021–051] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order 

Disapproving a Proposed Rule 

Change, as Modified by Amendment 

No. 1, To List and Trade Shares of the 

ARK 21Shares Bitcoin ETF Under BZX 

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

Trust Shares 

March 31, 2022. 

I. Introduction 

On July 20, 2021, Cboe BZX 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to list and trade 

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

Bitcoin ETF (‘‘Trust’’) under BZX Rule 

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

Shares. The proposed rule change was 

published for comment in the Federal 

Register on August 6, 2021.3

On September 15, 2021, pursuant to 

Section 19(b)(2) of the Exchange Act,4

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

On November 2, 2021, the Commission 

instituted proceedings under Section 

19(b)(2)(B) of the Exchange Act 6 to 

determine whether to approve or 

disapprove the proposed rule change.7

On December 9, 2021, the Exchange 

filed Amendment No. 1, which 

amended and replaced the proposed 

rule change in its entirety, and on 

December 17, 2021, the Commission 

published notice of Amendment No. 1 

to the proposed rule change.8 On 

January 25, 2022, the Commission 

designated a longer period for 

Commission action on the proposed rule 

change, as modified by Amendment No. 

1.9

This order disapproves the proposed 

rule change, as modified by Amendment 

No. 1. The Commission concludes that 

BZX has not met its burden under the 

Exchange Act and the Commission’s 

Rules of Practice to demonstrate that its 

proposal is consistent with the 

requirements of Exchange Act Section 

6(b)(5), and in particular, the 

requirement 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.’’ 10

When considering whether BZX’s 

proposal to list and trade the Shares is 

designed to prevent fraudulent and 

manipulative acts and practices, the 

Commission applies the same standard 

used in its orders considering previous 

proposals to list bitcoin 11-based 

commodity trusts and bitcoin-based 

trust issued receipts.12 As the 

Commission has explained, an exchange 

that lists bitcoin-based exchange-traded 

products (‘‘ETPs’’) can meet its 

obligations under Exchange Act Section 

6(b)(5) by demonstrating that the 

exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 


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13See USBT Order, 85 FR at 12596. See also 

Winklevoss Order, 83 FR at 37592 n.202 and 

accompanying text (discussing previous 

Commission approvals of commodity-trust ETPs); 

GraniteShares Order, 83 FR at 43925–27 nn.35–39 

and accompanying text (discussing previous 

Commission approvals of commodity-futures ETPs). 

14See Amendment to Rule Filing Requirements 

for Self-Regulatory Organizations Regarding New 

Derivative Securities Products, Securities Exchange 

Act Release No. 40761 (Dec. 8, 1998), 63 FR 70952, 

70959 (Dec. 22, 1998) (‘‘NDSP Adopting Release’’). 

See also Winklevoss Order, 83 FR at 37594; 

ProShares Order, 83 FR at 43936; GraniteShares 

Order, 83 FR at 43924; USBT Order, 85 FR at 12596. 

15See NDSP Adopting Release, 63 FR at 70959. 

16See Winklevoss Order, 83 FR at 37592–93; 

Letter from Brandon Becker, Director, Division of 

Market Regulation, Commission, to Gerard D. 

O’Connell, Chairman, Intermarket Surveillance 

Group (June 3, 1994), available at https://

www.sec.gov/divisions/marketreg/mr-noaction/ 

isg060394.htm. 

17See Winklevoss Order, 83 FR at 37594. This 

definition is illustrative and not exclusive. There 

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

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

an example that will provide guidance to market 

participants. See id. 

18See USBT Order, 85 FR at 12597. 

19See Winklevoss Order, 83 FR at 37594. 

20See USBT Order, 85 FR at 12597; Securities 

Exchange Act Release No. 33555 (Jan. 31, 1994), 59 

FR 5619, 5621 (Feb. 7, 1994) (SR–Amex–93–28) 

(order approving listing of options on American 

Depository Receipts (‘‘ADRs’’)). The Commission 

has also required a surveillance-sharing agreement 

in the context of index options even when (i) all 

of the underlying index component stocks were 

either registered with the Commission or exempt 

from registration under the Exchange Act; (ii) all of 

the underlying index component stocks traded in 

the U.S. either directly or as ADRs on a national 

securities exchange; and (iii) effective international 

ADR arbitrage alleviated concerns over the 

relatively smaller ADR trading volume, helped to 

ensure that ADR prices reflected the pricing on the 

home market, and helped to ensure more reliable 

price determinations for settlement purposes, due 

to the unique composition of the index and reliance 

on ADR prices. See Securities Exchange Act Release 

No. 26653 (Mar. 21, 1989), 54 FR 12705, 12708 

(Mar. 28, 1989) (SR–Amex–87–25) (stating that 

‘‘surveillance-sharing agreements between the 

exchange on which the index option trades and the 

markets that trade the underlying securities are 

necessary’’ and that ‘‘[t]he exchange of surveillance 

data by the exchange trading a stock index option 

and the markets for the securities comprising the 

index is important to the detection and deterrence 

of intermarket manipulation.’’). And the 

Commission has required a surveillance-sharing 

agreement even when approving options based on 

an index of stocks traded on a national securities 

exchange. See Securities Exchange Act Release No. 

30830 (June 18, 1992), 57 FR 28221, 28224 (June 24, 

1992) (SR–Amex–91–22) (stating that surveillancesharing agreements ‘‘ensure the availability of 

information necessary to detect and deter potential 

manipulations and other trading abuses’’). 

21See USBT Order, 85 FR at 12597. 

22See Winklevoss Order, 83 FR at 37580, 37582– 

91 (addressing assertions that ‘‘bitcoin and bitcoin 

[spot] markets’’ generally, as well as one bitcoin 

trading platform specifically, have unique 

resistance to fraud and manipulation); see also 

USBT Order, 85 FR at 12597. 

23See USBT Order, 85 FR at 12597. 

24See supra note 12. 

25See Amendment No. 1, 86 FR at 73370–78. 

26See id. at 73371–72. 

27See id. at 73372–78. 

related to the underlying or reference 

bitcoin assets.13

The standard requires such 

surveillance-sharing agreements since 

they ‘‘provide a necessary deterrent to 

manipulation because they facilitate the 

availability of information needed to 

fully investigate a manipulation if it 

were to occur.’’ 14 The Commission has 

emphasized that it is essential for an 

exchange listing a derivative securities 

product to enter into a surveillancesharing agreement with markets trading 

the underlying assets for the listing 

exchange to have the ability to obtain 

information necessary to detect, 

investigate, and deter fraud and market 

manipulation, as well as violations of 

exchange rules and applicable federal 

securities laws and rules.15 The 

hallmarks of a surveillance-sharing 

agreement are that the agreement 

provides for the sharing of information 

about market trading activity, clearing 

activity, and customer identity; that the 

parties to the agreement have reasonable 

ability to obtain access to and produce 

requested information; and that no 

existing rules, laws, or practices would 

impede one party to the agreement from 

obtaining this information from, or 

producing it to, the other party.16

In the context of this standard, the 

terms ‘‘significant market’’ and ‘‘market 

of significant size’’ include a market (or 

group of markets) as to which (a) there 

is a reasonable likelihood that a person 

attempting to manipulate the ETP 

would also have to trade on that market 

to successfully manipulate the ETP, so 

that a surveillance-sharing agreement 

would assist in detecting and deterring 

misconduct, and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.17 A surveillance-sharing 

agreement must be entered into with a 

‘‘significant market’’ to assist in 

detecting and deterring manipulation of 

the ETP, because a person attempting to 

manipulate the ETP is reasonably likely 

to also engage in trading activity on that 

‘‘significant market.’’ 18

Consistent with this standard, for the 

commodity-trust ETPs approved to date 

for listing and trading, there has been in 

every case at least one significant, 

regulated market for trading futures on 

the underlying commodity—whether 

gold, silver, platinum, palladium, or 

copper—and the ETP listing exchange 

has entered into surveillance-sharing 

agreements with, or held Intermarket 

Surveillance Group (‘‘ISG’’) membership 

in common with, that market.19

Moreover, the surveillance-sharing 

agreements have been consistently 

present whenever the Commission has 

approved the listing and trading of 

derivative securities, even where the 

underlying securities were also listed on 

national securities exchanges—such as 

options based on an index of stocks 

traded on a national securities 

exchange—and were thus subject to the 

Commission’s direct regulatory 

authority.20

Listing exchanges have also attempted 

to demonstrate that other means besides 

surveillance-sharing agreements will be 

sufficient to prevent fraudulent and 

manipulative acts and practices, 

including that the bitcoin market as a 

whole or the relevant underlying bitcoin 

market is ‘‘uniquely’’ and ‘‘inherently’’ 

resistant to fraud and manipulation.21 In 

response, the Commission has agreed 

that, if a listing exchange could 

establish that the underlying market 

inherently possesses a unique resistance 

to manipulation beyond the protections 

that are utilized by traditional 

commodity or securities markets, it 

would not necessarily need to enter into 

a surveillance-sharing agreement with a 

regulated significant market.22 Such 

resistance to fraud and manipulation, 

however, must be novel and beyond 

those protections that exist in 

traditional commodity markets or equity 

markets for which the Commission has 

long required surveillance-sharing 

agreements in the context of listing 

derivative securities products.23 No 

listing exchange has satisfied its burden 

to make such demonstration.24

Here, BZX contends that approval of 

the proposal is consistent with Section 

6(b)(5) of the Exchange Act, and, in 

particular, Section 6(b)(5)’s requirement 

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.25 As discussed in 

more detail below, BZX asserts that the 

proposal is consistent with Section 

6(b)(5) of the Exchange Act because the 

Exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size,26

and there exist other means to prevent 

fraudulent and manipulative acts and 

practices that are sufficient to justify 

dispensing with the requisite 

surveillance-sharing agreement.27

Specifically, the Exchange believes 

that the proposal is consistent with the 

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

Exchange Act because the proposal 

sufficiently demonstrates that the 

Chicago Mercantile Exhange (‘‘CME’’) 

bitcoin futures market represents a 

regulated market of significant size and 


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28See id. at 73382. 

29See id. at 73390. 

30See Amendment No. 1, supra note 8. See also 

draft Registration Statement on Form S–1, dated 

June 28, 2021, filed with the Commission on behalf 

of the Trust (‘‘Registration Statement’’). 31See Amendment No. 1, 86 FR at 73379. 

21Shares US LLC (‘‘Sponsor’’) is the sponsor of the 

Trust, Delaware Trust Company is the trustee, and 

The Bank of New York Mellon will be the 

administrator (‘‘Administrator’’) and transfer agent. 

Foreside Global Services, LLC will be the marketing 

agent in connection with the creation and 

redemption of Shares. ARK Investment 

Management LLC will provide assistance in the 

marketing of the Shares. Coinbase Custody Trust 

Company, LLC (‘‘Custodian’’) will be responsible 

for custody of the Trust’s bitcoin. See id. at 73361, 

73378. 

32See id. at 73378–79. 33The underlying platforms are sourced by Lukka 

Inc. (‘‘Data Provider’’), which according to BZX, 

bases its sourcing on a combination of qualitative 

and quantitative metrics to analyze a 

comprehensive data set and evaluate factors 

including legal/regulation, Know-Your-Customer/ 

transaction risk, data provision, security, team/ 

exchange, asset quality/diversity, market quality, 

and negative events. See id. at 73379. 

34According to BZX, the Index methodology uses 

a ranking approach that considers several platform 

characteristics including oversight and intra-day 

trading volume. Specifically, to rank the credibility 

and quality of each platform, the Data Provider 

dynamically assigns a Base Exchange Score (‘‘BES’’) 

to the key characteristics for each platform. The 

BES reflects the fundamentals of a platform and 

determines which platform should be designated as 

the principal market at a given point of time. This 

score is determined by computing a weighted 

average of the values assigned to four different 

platform characteristics: (i) Oversight; (ii) 

microstructure efficiency; (iii) data transparency; 

and (iv) data integrity. The methodology then 

applies a five-step weighting process for identifying 

a principal market and the last price on that market. 

Following this weighting process, an ‘‘executed 

exchange price’’ is assigned for bitcoin as of 4:00 

p.m. ET. The Data Provider takes the last traded 

prices at that moment in time on that trading venue 

for the relevant pair (bitcoin/USD) when 

determining the Index price. See id. at 73379–80. 

35See id. at 73381. 

36See id. at 73380. 

that, on the whole, ‘‘the manipulation 

concerns previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

quantifiable investor protection issues 

that would be resolved by approving 

this proposal.’’ 28

Further, BZX believes that the 

proposal would give U.S. investors 

access to bitcoin in a regulated and 

transparent exchange-traded vehicle 

that would act to limit risk to U.S. 

investors. According to BZX, the 

proposed listing and trading of the 

Shares would mitigate risk by: (i) 

Reducing premium and discount 

volatility; (ii) reducing management fees 

through meaningful competition; (iii) 

reducing risks and costs associated with 

investing in bitcoin futures exchangetraded funds and operating companies 

that are imperfect proxies for bitcoin 

exposure; and (iv) providing an 

alternative to custodying spot bitcoin.29

In the analysis that follows, the 

Commission examines whether the 

proposed rule change, as modified by 

Amendment No. 1, is consistent with 

Section 6(b)(5) of the Exchange Act by 

addressing: In Section III.B.1 assertions 

that other means besides surveillancesharing agreements will be sufficient to 

prevent fraudulent and manipulative 

acts and practices; in Section III.B.2 

assertions that BZX has entered into a 

comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to bitcoin; and in 

Section III.C assertions that the proposal 

is consistent with the protection of 

investors and the public interest. 

Based on its analysis, the Commission 

concludes that BZX has not established 

that other means to prevent fraudulent 

and manipulative acts and practices are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. The Commission further 

concludes that BZX has not established 

that it has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to bitcoin. As discussed further 

below, BZX repeats certain assertions 

made in prior bitcoin-based ETP 

proposals that the Commission has 

previously addressed and rejected—and 

more importantly, BZX does not 

respond to the Commission’s reasons for 

rejecting those assertions but merely 

repeats them. As a result, the 

Commission is unable to find that the 

proposed rule change is consistent with 

the statutory requirements of Exchange 

Act Section 6(b)(5). 

The Commission again emphasizes 

that its disapproval of this proposed 

rule change, as modified by Amendment 

No. 1, does not rest on an evaluation of 

whether bitcoin, or blockchain 

technology more generally, has utility or 

value as an innovation or an investment. 

Rather, the Commission is disapproving 

this proposed rule change, as modified 

by Amendment No. 1, because, as 

discussed below, BZX has not met its 

burden to demonstrate that its proposal 

is consistent with the requirements of 

Exchange Act Section 6(b)(5). 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

No. 1 

As described in more detail in 

Amendment No. 1,30 the Exchange 

proposes to list and trade the Shares of 

the Trust under BZX Rule 14.11(e)(4), 

which governs the listing and trading of 

Commodity-Based Trust Shares on the 

Exchange. 

The investment objective of the Trust 

would be to seek to track the 

performance of bitcoin, as measured by 

the performance of the S&P Bitcoin 

Index (‘‘Index’’), adjusted for the Trust’s 

expenses and other liabilities.31 Each 

Share will represent a fractional 

undivided beneficial interest in the 

bitcoin held by the Trust. The Trust’s 

assets will consist of bitcoin held by the 

Custodian on behalf of the Trust. The 

Trust generally does not intend to hold 

cash or cash equivalents. However, 

there may be situations where the Trust 

will unexpectedly hold cash on a 

temporary basis.32

In seeking to achieve its investment 

objective, the Trust would hold bitcoin 

and value the Shares daily based on the 

Index. The Index is a U.S. dollardenominated composite reference rate 

for the price of bitcoin. The Index price 

is currently sourced from the following 

platforms: Binance, Bitfinex, Bitflyer, 

Bittrex, Bitstamp, Coinbase Pro, Gemini, 

HitBTC, Huobi, Kraken, KuCoin, and 

Poloniex.33 The Index methodology is 

intended to determine the fair market 

value for bitcoin by determining the 

principal market for bitcoin as of 4:00 

p.m. ET daily.34

The net asset value (‘‘NAV’’) of the 

Trust means the total assets of the Trust 

including, but not limited to, all bitcoin 

and cash, if any, less total liabilities of 

the Trust, each determined on the basis 

of generally accepted accounting 

principles. The NAV of the Trust is the 

aggregate value of the Trust’s assets less 

its estimated accrued but unpaid 

liabilities (which include accrued 

expenses). In determining the Trust’s 

NAV, the Administrator values the 

bitcoin held by the Trust based on the 

price set by the Index as of 4:00 p.m. ET. 

The Administrator determines the NAV 

of the Trust on each day that the 

Exchange is open for regular trading, as 

promptly as practical after 4:00 p.m. 

ET.35

The Trust will provide information 

regarding the Trust’s bitcoin holdings, 

as well as an Intraday Indicative Value 

(‘‘IIV’’) per Share updated every 15 

seconds, as calculated by the Exchange 

or a third-party financial data provider 

during the Exchange’s Regular Trading 

Hours (9:30 a.m. ET to 4:00 p.m. ET). 

The IIV will be calculated by using the 

prior day’s closing NAV per Share as a 

base and updating that value during 

Regular Trading Hours to reflect 

changes in the value of the Trust’s 

bitcoin holdings during the trading 

day.36

When the Trust sells or redeems its 

Shares, it will do so in ‘‘in-kind’’ 

transactions in blocks of 5,000 Shares. 

When creating the Shares, authorized 


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37See id. at 73379. 

38 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) 

of the Exchange Act, 15 U.S.C. 78s(b)(2), the 

Commission must disapprove a proposed rule 

change filed by a national securities exchange if it 

does not find that the proposed rule change is 

consistent with the applicable requirements of the 

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

that an exchange shall not be registered as a 

national securities exchange unless the Commission 

determines that ‘‘[t]he rules of the exchange are 

designed to prevent fraudulent and manipulative 

acts and practices, to promote just and equitable 

principles of trade, to foster cooperation and 

coordination with persons engaged in regulating, 

clearing, settling, processing information with 

respect to, and facilitating transactions in securities, 

to remove impediments to and perfect the 

mechanism of a free and open market and a 

national market system, and, in general, to protect 

investors and the public interest; and are not 

designed to permit unfair discrimination between 

customers, issuers, brokers, or dealers, or to regulate 

by virtue of any authority conferred by this title 

matters not related to the purposes of this title or 

the administration of the exchange.’’ 15 U.S.C. 

78f(b)(5). 

39Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

40See id. 

41See id. 

42Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017) (‘‘Susquehanna’’). 

43See USBT Order, 85 FR at 12597 n.23. The 

Commission is not applying a ‘‘cannot be 

manipulated’’ standard. Instead, the Commission is 

examining whether the proposal meets the 

requirements of the Exchange Act and, pursuant to 

its Rules of Practice, places the burden on the 

listing exchange to demonstrate the validity of its 

contentions and to establish that the requirements 

of the Exchange Act have been met. See id. 

44See id. at 12597. 

45See Amendment No. 1, 86 FR at 73370 n.73. 

46See id. 

47See id. 

48See id. 

49See id. 

50See id. 

51According to the Exchange, the Pearson 

correlation is a measure of linear association 

between two variables and indicates the magnitude 

as well as direction of this relationship. See id. at 

73368 n.68. 

52See id. at 73368. BZX represents that 

correlations are between 57% and 99%, with the 

latter found mainly across centralized market 

venues due to their higher level of 

interconnectedness and the lower correlations 

pertaining mainly to the non-U.S. bitcoin ETPs, 

which are relatively newer products and are mainly 

offered by a few competing market makers who are 

required to trade in large blocks, thus making it, 

according to BZX, economically infeasible to 

capture small mispricings. According to BZX, as 

additional investors and arbitrageurs enter the 

market and capture the mispricing opportunities 

between these markets, it is likely that there will 

be much higher levels of correlations across all 

markets. See id. 

53See id. 

participants will deliver, or facilitate the 

delivery of, bitcoin to the Trust’s 

account with the Custodian in exchange 

for the Shares, and, when redeeming the 

Shares, the Trust, through the 

Custodian, will deliver bitcoin to such 

authorized participants.37

III. Discussion 

A. The Applicable Standard for Review 

The Commission must consider 

whether BZX’s proposal is consistent 

with the Exchange Act. Section 6(b)(5) 

of the Exchange Act requires, in relevant 

part, 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.’’ 38

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization [‘SRO’] that proposed the 

rule change.’’ 39

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,40 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.41

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.42

B. Whether BZX Has Met Its Burden To 

Demonstrate That the Proposal Is 

Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

(1) Assertions That Other Means Besides 

Surveillance-Sharing Agreements Will 

Be Sufficient To Prevent Fraudulent and 

Manipulative Acts and Practices 

As stated above, the Commission has 

recognized that a listing exchange could 

demonstrate that other means to prevent 

fraudulent and manipulative acts and 

practices are sufficient to justify 

dispensing with a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size, 

including by demonstrating that the 

bitcoin market as a whole or the 

relevant underlying bitcoin market is 

uniquely and inherently resistant to 

fraud and manipulation.43 Such 

resistance to fraud and manipulation 

must be novel and beyond those 

protections that exist in traditional 

commodities or securities markets.44

(i) Assertions Regarding Bitcoin Markets 

BZX asserts that bitcoin is resistant to 

price manipulation. According to BZX, 

the geographically diverse and 

continuous nature of bitcoin trading 

render it difficult and prohibitively 

costly to manipulate the price of 

bitcoin.45 Fragmentation across bitcoin 

platforms, the relatively slow speed of 

transactions, and the capital necessary 

to maintain a significant presence on 

each trading platform make 

manipulation of bitcoin prices through 

continuous trading activity 

challenging.46 To the extent that there 

are bitcoin platforms engaged in or 

allowing wash trading or other activity 

intended to manipulate the price of 

bitcoin on other markets, such pricing 

does not normally impact prices on 

other platforms because participants 

will generally ignore markets with 

quotes that they deem non-executable.47

BZX further argues that the linkage 

between the bitcoin markets and the 

presence of arbitrageurs in those 

markets means that the manipulation of 

the price of bitcoin on any single venue 

would require manipulation of the 

global bitcoin price in order to be 

effective.48 Arbitrageurs must have 

funds distributed across multiple 

trading platforms in order to take 

advantage of temporary price 

dislocations, thereby making it unlikely 

that there will be strong concentration 

of funds on any particular bitcoin 

trading venue.49 As a result, BZX 

concludes that ‘‘the potential for 

manipulation on a [bitcoin] trading 

platform would require overcoming the 

liquidity supply of such arbitrageurs 

who are effectively eliminating any 

cross-market pricing differences.’’ 50

BZX provides results of statistical 

analysis by the Sponsor in support of its 

assertions regarding linkages between 

bitcoin markets and efficient arbitrage 

across such markets. First, according to 

BZX, using daily bitcoin prices, the 

Sponsor calculated the Pearson 

correlation 51 of returns across certain 

bitcoin spot markets, non-U.S. bitcoin 

ETPs, and the CME, and concluded that 

there is a high degree of correlation 

across these markets.52 BZX argues that 

in markets that are globally and 

efficiently integrated, one would expect 

changes in prices of an asset across all 

markets to be highly correlated, and that 

‘‘the rationale behind this is that quick 

and efficient arbitrageurs would capture 

potentially profitable opportunities, 

consequently converging prices to the 

average intrinsic value very rapidly.’’ 53

Second, BZX asserts that, according to 

the Sponsor’s research, this high 

correlation holds true during periods of 

extreme price volatility. Employing a 

statistical component called cokurtosis, 


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54According to BZX, if two returns series exhibit 

a high degree of cokurtosis, this means that they 

tend to undergo extreme positive and negative 

changes simultaneously. A cokurtosis value larger 

than +3 or less than ¥3 is considered statistically 

significant. According to BZX, the Sponsor 

calculated cokurtosis using hourly bitcoin returns 

across ‘‘centralized’’ market venues, two non-U.S. 

ETPs (21Shares Bitcoin ETP (Ticker: ABTC) and 

VanEck Vectors Bitcoin ETN (Ticker: VBTC)), and 

the CME. See id. at 73369 & n.69. 

55See id. at 73369. 

56According to BZX, the Sponsor calculated the 

largest cross-platform percentage spread (defined as 

‘‘%C-Spread’’) at a given time by subtracting the 

highest price across all platforms at that time from 

the lowest price across all platforms at that time, 

and dividing the result by that lowest price. BZX 

represents that, for this calculation, the Sponsor 

used daily bitcoin price series from Binance, 

Bitfinex, Bithumb, Bitstamp, Cexio, Coinbase, 

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

Kucoin, and OKEX. See id. at 73372 & n.95. 

57See id. at 73373. 

58See id. 

59See id. at 73374. 

60See id. 

61See id. at 73375. 

62See id. 

63See id. at 73376. 

64According to BZX, the Sponsor used the top 

and bottom 0.1% of hourly price changes from 

October 2020 to April 2021 as events of extreme 

upward and downward market movements. See id. 

65See id. 

66One commenter questions BZX’s statement 

about bitcoin’s resistance to fraud and 

manipulation. See letter from Adam Girts, dated 

November 5, 2021 (‘‘Girts Letter’’) (stating that the 

proposed ETP does not ‘‘seem resistant to 

manipulation’’ and that the Exchange’s emphasis on 

the decentralized nature of bitcoin itself ‘‘is a red 

herring.’’). 

67See Amendment No. 1, 86 FR at 73374. Several 

other deficiencies in the Sponsor’s methodological 

choices prevent the Commission from agreeing with 

the Exchange’s conclusions. For example, one 

measure of cokurtosis uses the square of the 

difference of two random variables from their 

means, and the squares of the two variables’ 

standard deviations, and as such, the statistic 

calculates magnitude, but not direction. If this is the 

cokurtosis statistic that was used by the Sponsor 

(Amendment No. 1 does not specify), then while 

the results may show that the two variables move 

together, it would not necessarily mean that the two 

variables move in the same direction ‘‘in a 

unanimous manner’’ (see id. at 73369). In addition, 

by design, the Sponsor’s ‘‘%C-Spread’’ statistic 

measures the maximum difference among prices 

(i.e., the highest and lowest) across bitcoin 

platforms at a given point in time. However, such 

statistic does not provide any information about the 

extent of price dispersion among the intermediary 

prices across bitcoin platforms or whether there is 

any ‘‘intrinsic average’’ or ‘‘consensus price’’ of 

bitcoin towards which prices are converging (see id. 

at 73374). Moreover, the Commission is not able to 

assess the validity of the Sponsor’s claims regarding 

‘‘higher liquidity’’ in the bitcoin market, based 

upon the Sponsor’s calculations of ‘‘increased 

notional order book’’ and reactions to ‘‘extreme’’ 

price events, because of insufficient detail in the 

proposal on the process the Sponsor used to 

calculate the ‘‘dollar notional’’ of a bitcoin 

which, according to BZX, measures to 

what extent two random variables 

change together, the Sponsor found, 

using hourly bitcoin prices, that the 

bitcoin markets tend to move very 

similarly, especially for extreme price 

deviations. BZX states that this is 

evidence of a robust global bitcoin 

market ‘‘that quickly reacts in a 

unanimous manner to extreme price 

movements across both the spot 

markets, futures and [non-U.S.] ETP 

markets.’’ 54 According to BZX, this 

implies that ‘‘no single [b]itcoin market 

can deviate significantly from the 

consensus for a prolonged period of 

time, such that the global [b]itcoin 

market is sufficiently large and has an 

inherent unique resistance to 

manipulation.’’ 55

Third, based on the Sponsor’s 

research using daily bitcoin price series, 

BZX argues that cross-platform spreads 

in bitcoin have been declining 

consistently over the past several 

years.56 BZX contends that the ‘‘clear 

and sharp’’ decline in the spread 

indicates that the bitcoin market has 

become more efficient over time.57 In 

addition, based on the Sponsor’s 

research, BZX argues that the magnitude 

of outlier spreads have also declined 

over time, and that the market has 

experienced a 38% year-on-year decline 

in the annual median spread, indicating 

‘‘a greater degree of [b]itcoin price 

convergence across [platforms] and a 

more efficient market.’’ 58 Further, based 

on the Sponsor’s calculations of a 7-day 

rolling standard deviation of the spread 

from January 1, 2017, to December 1, 

2021, BZX asserts that the dispersion in 

bitcoin prices across all platforms has 

decreased over time, indicating that 

prices on all the considered platforms 

converge towards the ‘‘intrinsic 

average’’ much more efficiently, and 

suggesting that the market has become 

better at quickly reaching a ‘‘consensus 

price’’ for bitcoin.59 BZX posits that, as 

the pricing of the bitcoin market 

becomes increasingly efficient, pricing 

methodologies become ‘‘more accurate 

and less susceptible to manipulation.’’ 

BZX further asserts that the ‘‘clustering 

of prices across a variety of sources 

within the primary market’’ points 

towards robust price discovery 

mechanisms and efficient arbitrage.60

Fourth, BZX asserts that one factor 

that has contributed to the overall 

efficiency, price discovery, and lower 

volatility of the bitcoin market is the 

increase in the number of participants, 

and subsequently, ‘‘the total dollar 

amount allocated to this market.’’ BZX’s 

measure of participation is based on the 

increase from March 2012 to December 

2021 in the number of wallet addresses 

holding bitcoin.61

Finally, BZX contends that this 

increase in the number of participants 

has resulted in higher liquidity in the 

bitcoin market, based on the ‘‘daily 

aggregated dollar notional of the bid and 

ask order books within the first 100 

price levels across several of the largest 

centralized crypto [platforms] from 

October 2020 to April 2021.’’ According 

to BZX, ‘‘the dollar notional that is 

allocated closest to the mid price has 

increased from around $230 million to 

$860 million over that period, 

representing a 270% increase in half a 

year.’’ 62 BZX suggests that the 

‘‘increased notional order book’’ 

indicates that there is a ‘‘higher degree 

of consensus’’ among investors 

regarding the price of bitcoin, and that 

this ‘‘hampers any attempt of price 

manipulation by any single large 

entity.’’ 63 Additionally, according to 

BZX, the Sponsor found that 

movements in the bid and ask dollar 

notional of the bitcoin order book 

within a six-hour window around 

‘‘extreme’’ 64 price events were 

indicative of an efficient market, 

whereby large market movements are 

‘‘quickly and dynamically absorbed’’ by 

a thick order book and market 

participants’ reactions are ‘‘quick to 

restore the market back to its 

equilibrium level.’’ 65

As with the previous proposals, the 

Commission here concludes that the 

record does not support a finding that 

the bitcoin market is inherently and 

uniquely resistant to fraud and 

manipulation.66 BZX asserts that, 

because of how bitcoin trades occur, 

including through continuous means 

and through fragmented platforms, 

arbitrage across the bitcoin platforms 

essentially helps to keep global bitcoin 

prices aligned with one another, thus 

hindering manipulation. The Exchange 

also provides various statistics from the 

Sponsor which purport to show that 

bitcoin prices are closely and 

increasingly aligned across markets and 

that any price disparities are quickly 

arbitraged away. However, as described 

by BZX, the Sponsor’s statistics are 

based on aggregated daily or hourly 

bitcoin prices (for example, according to 

BZX, the Pearson correlations were 

calculated using daily bitcoin prices, 

and cokurtosis was calculated using 

hourly bitcoin prices). Such data does 

not capture intra-hour or intra-day price 

disparities, and provides no information 

on how long price disparities typically 

persist. Nor do the Sponsor’s statistics 

or BZX’s assertions provide any insight 

into what size or duration of price 

disparities would be profitable for a 

would-be manipulator, and thus they do 

not inform BZX’s conclusion that 

bitcoin pricing has become ‘‘less 

susceptible to manipulation.’’ 67 The 


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platform’s order book, the ‘‘mid price’’ on a bitcoin 

platform, and the ‘‘first 100 price levels’’ across 

bitcoin platforms (see id. at 73375–76). Further, 

even if the calculations performed by the Sponsor 

show, as BZX claims, that ‘‘there is a higher degree 

of consensus among investors regarding the price of 

[b]itcoin’’ and that ‘‘market participants’ reactions 

are quick to restore the market back to its 

equilibrium level,’’ the Exchange has not 

demonstrated how either purported showing leads 

to its conclusion that this ‘‘hampers any attempt of 

price manipulation by any single large entity’’ (see 

id. at 73376). In particular, the Exchange has not 

addressed the concerns raised by the Commission 

in previous proposals, as well as risk factors raised 

by the Sponsor in the Registration Statement, that 

actions by a single large, dominant market 

participant could ‘‘have an adverse effect on the 

price of bitcoin’’ (see Registration Statement at 24 

and infra note 71). That is, even if, as the Exchange 

claims, there is a ‘‘high degree of consensus’’ among 

investors and market participants are ‘‘quick to 

restore’’ the market back to its equilibrium level, the 

trading activity of a dominant market participant 

could, itself, impact what that consensus/ 

equilibrium will be. These deficiencies undermine 

the Exchange’s arguments that linkages between 

bitcoin markets, and increasingly efficient arbitrage 

across such markets, make such markets less 

susceptible to manipulation. 68 In addition, the Registration Statement states: 

‘‘As the use of digital asset networks increases 

without a corresponding increase in transaction 

processing speed of the networks, average fees and 

settlement times can increase significantly. 

Bitcoin’s network has been, at times, at capacity, 

which has led to increased transaction fees. . . . 

Increased fees and decreased settlement speeds . . . 

could adversely impact the value of the Shares.’’ 

See Registration Statement at 21. The Registration 

Statement further states that ‘‘the [b]itcoin network 

faces significant obstacles to increasing the usage of 

bitcoin without resulting in higher fees or slower 

transaction settlement times, and attempts to 

increase the volume of transactions may not be 

effective . . . . which may adversely affect the 

price of bitcoin and therefore an investment in the 

Shares.’’ See Registration Statement at 14. BZX does 

not provide data or analysis to address, among other 

things, whether such risks of increased fees and 

bitcoin transaction settlement times may affect the 

arbitrage effectiveness that BZX asserts. See also 

infra note 81 and accompanying text (referencing 

statements made in the Registration Statement that 

contradict assertions made by BZX). And without 

such data or analysis, the Commission cannot 

accept BZX’s assertions. See Susquehanna, 866 F.3d 

at 447. 

69See Winklevoss Order, 83 FR at 37586; SolidX 

Order, 82 FR at 16256–57; USBT Order, 85 FR at 

12601; WisdomTree Order, 86 FR at 69325; Valkyrie 

Order, 86 FR at 74159–60; Kryptoin Order, 86 FR 

at 74170; Wise Origin Order, 87 FR at 5531. 

70See, e.g., USBT Order, 85 FR at 12601; 

WisdomTree Order, 86 FR at 69329; Valkyrie Order, 

86 FR at 74160; Kryptoin Order, 86 FR at 74170; 

Wise Origin Order, 87 FR at 5531. The Commission 

also notes that equities that underlie such options 

trade on U.S. equity markets that are deep, liquid, 

highly interconnected, and almost entirely 

automated, and that operate at high speeds 

measured in microseconds and even nanoseconds. 

See SEC Staff Report on Algorithmic Trading in 

U.S. Capital Markets (Aug. 5, 2020), available at: 

https://www.sec.gov/files/Algo_Trading_Report_

2020.pdf; Market Data Infrastructure Proposing 

Release, Securities Exchange Act Release No. 88216 

(Feb. 14, 2020), 85 FR 16726, 16728 (Mar. 24, 2020). 

71See, e.g., Winklevoss Order, 83 FR at 37584; 

USBT Order, 85 FR at 12600–01; WisdomTree 

Order, 86 FR at 69325; Valkyrie Order, 86 FR at 

74160; Kryptoin Order, 86 FR at 74170; Skybridge 

Order, 87 FR at 3783–84; Wise Origin Order, 87 FR 

at 5531. See also Registration Statement at 24 

(‘‘Some entities hold large amounts of bitcoin 

relative to other market participants, and to the 

extent such entities engage in large-scale hedging, 

sales or distributions on non-market terms, or sales 

in the ordinary course, it could result in a reduction 

in the price of bitcoin and adversely affect the value 

of the Shares. . . . As of the date of this 

[Registration Statement], the largest 100 bitcoin 

wallets held a substantial amount of the 

outstanding supply of bitcoin and it is possible that 

some of these wallets are controlled by the same 

person or entity. Moreover, it is possible that other 

persons or entities control multiple wallets that 

collectively hold a significant number of bitcoin, 

even if each wallet individually only holds a small 

amount. As a result of this concentration of 

ownership, large sales by such holders could have 

an adverse effect on the market price of bitcoin.’’); 

and supra note 67. 

72See Amendment No. 1, 86 FR at 73370 n.73 

(‘‘To the extent that there are bitcoin exchanges 

engaged in or allowing wash trading or other 

activity intended to manipulate the price of bitcoin 

on other markets, such pricing does not normally 

impact prices on other exchange because 

participants will generally ignore markets with 

quotes that they deem non-executable.’’). 

73See USBT Order, 85 FR at 12601. See also 

WisdomTree Order, 86 FR at 69325; Kryptoin 

Order, 86 FR at 74170; Wise Origin Order, 87 FR 

at 5531. 

74See supra notes 52–54 and accompanying text. 

75See Winklevoss Order, 83 FR at 37585 n.92 and 

accompanying text. See also WisdomTree Order, 86 

FR at 69325–26; Kryptoin Order, 86 FR at 74170; 

Skybridge Order, 87 FR at 3783–84; Wise Origin 

Order, 87 FR at 5531. 

76See Winklevoss Order, 83 FR at 37585. 

77See supra notes 72–73 and accompanying text. 

78See supra note 71 and accompanying text. 

79See USBT Order, 85 FR at 12600–01 & nn.66– 

67 (discussing J. Griffin & A. Shams, Is Bitcoin 

Really Untethered? (October 28, 2019), available at 

https://ssrn.com/abstract=3195066 and published 

in 75 J. Finance 1913 (2020)); Winklevoss Order, 83 

FR at 37585–86. 

Commission is thus unable to conclude 

from the evidence provided that 

arbitrage across bitcoin markets is 

efficient, let alone so efficient as to 

make the markets inherently resistant to 

fraud and manipulation.68

Efficient price arbitrage, moreover, is 

not sufficient to support the finding that 

a market is uniquely and inherently 

resistant to manipulation such that the 

Commission can dispense with 

surveillance-sharing agreements.69 The 

Commission has stated, for example, 

that even for equity options based on 

securities listed on national securities 

exchanges, the Commission relies on 

surveillance-sharing agreements to 

detect and deter fraud and 

manipulation.70 Here, the Exchange 

provides insufficient evidence to 

support its assertion of efficient price 

arbitrage across bitcoin platforms, let 

alone any evidence that price arbitrage 

in the bitcoin market is novel or unique 

so as to warrant the Commission 

dispensing with the requirement of a 

surveillance-sharing agreement. 

Moreover, BZX’s data regarding the 

increase in the number of wallet 

addresses holding bitcoin do not 

provide any information on the 

concentration of bitcoin within or 

among such wallets, or take into 

account that a market participant with 

a dominant ownership position would 

not find it prohibitively expensive to 

overcome the liquidity supplied by 

arbitrageurs and could use dominant 

market share to engage in 

manipulation.71

In addition, the Exchange makes the 

unsupported claim that, to the extent 

that there are bitcoin platforms engaged 

in or allowing wash trading or other 

manipulative activities, market 

participants will generally ignore those 

platforms.72 However, without the 

necessary data or other evidence, the 

Commission has no basis on which to 

conclude that bitcoin platforms are 

insulated from prices of others that 

engage in or permit fraud or 

manipulation.73 Indeed, the notion that 

a platform would be insulated from 

prices on other platforms is contradicted 

by the Exchange’s assertions and the 

Sponsor’s statistical evidence that 

bitcoin markets are ‘‘highly correlated,’’ 

including during periods of extreme 

price volatility.74

Additionally, the continuous nature 

of bitcoin trading does not eliminate 

manipulation risk, and neither do 

linkages among markets, as BZX 

asserts.75 Even in the presence of 

continuous trading or linkages among 

markets, formal (such as those with 

consolidated quotations or routing 

requirements) or otherwise (such as in 

the context of the fragmented, global 

bitcoin markets), manipulation of asset 

prices, as a general matter, can occur 

simply through trading activity that 

creates a false impression of supply or 

demand.76

Moreover, BZX does not sufficiently 

contest the presence of possible sources 

of fraud and manipulation in the bitcoin 

spot market generally that the 

Commission has raised in previous 

orders. Such possible sources have 

included (1) ‘‘wash’’ trading,77 (2) 

persons with a dominant position in 

bitcoin manipulating bitcoin pricing,78

(3) hacking of the bitcoin network and 

trading platforms, (4) malicious control 

of the bitcoin network, (5) trading based 

on material, non-public information, 

including the dissemination of false and 

misleading information, (6) 

manipulative activity involving the 

purported ‘‘stablecoin’’ Tether (USDT), 

and (7) fraud and manipulation at 

bitcoin trading platforms.79

In addition, BZX does not address risk 

factors specific to the bitcoin blockchain 

and bitcoin platforms, described in the 


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80BZX expressly acknowledges that ‘‘unregulated 

currency and commodity markets do not provide 

the same protections as the markets that are subject 

to the Commission’s oversight.’’ See Amendment 

No. 1, 86 FR at 73362. 

81See Registration Statement at 4, 12–13, 18–20, 

28. See also Winklevoss Order, 83 FR at 37585. 

82See Amendment No. 1, 86 FR at 73378. 

83See id. at 73379. 

84See id. 

85See id. 

86See id. 

87See id. at 73379–80. 

88See id. at 73380. 

89See id. BZX states that, upon detection or 

external referral of suspect manipulative activities, 

the case is raised to the Price Integrity Oversight 

Board. These checks occur on an on-going, intraday 

basis, and any investigations are typically resolved 

promptly, in clear cases within minutes and in 

more complex cases same business day. According 

to BZX, the evidence uncovered will be turned over 

to the Data Provider’s Price Integrity Oversight 

Board for final decision and action. The Price 

Integrity Oversight Board may choose to pick an 

alternative ‘‘primary market’’ and may exclude such 

market from future inclusion in the Index 

methodology or choose to stand by the original 

published price upon fully evaluating all available 

evidence. It may also initiate an investigation of 

prior prices from such markets and shall evaluate 

evidence presented on a case-by-case basis. See id. 

90The Exchange appears to use the terms ‘‘Lukka 

Prime price,’’ ‘‘Lukka price,’’ and ‘‘Index price’’ 

interchangeably. The Commission understands 

these terms to be interchangeable. 

91See Amendment No. 1, 86 FR at 73380. BZX 

also notes that the Index Provider provides certain 

quality assurance mechanisms with respect to 

‘‘crypto price validation’’ based on current market 

conditions, internal system processes, and other 

assessments. See id. 

92See id. at 73378. 

93See id. 

Trust’s Registration Statement, that 

undermine the argument that the bitcoin 

market is inherently resistant to fraud 

and manipulation. For example, the 

Registration Statement acknowledges 

that ‘‘it may be possible for a bad actor 

to manipulate the [b]itcoin network and 

hinder transactions’’; that ‘‘[s]pot 

markets on which bitcoin trades are 

relatively new and largely unregulated, 

and, therefore, may be more exposed to 

fraud and security breaches than 

established, regulated exchanges for 

other financial assets or instruments, 

which could have a negative impact on 

the performance of the Trust’’; 80 that 

‘‘[o]ver the past several years, a number 

of bitcoin spot markets have been closed 

or faced issues due to fraud, failure, 

security breaches or governmental 

regulations’’; that ‘‘[t]he nature of the 

assets held at bitcoin spot markets 

makes them appealing targets for 

hackers and a number of bitcoin spot 

markets have been victims of 

cybercrimes’’ and ‘‘[n]o bitcoin 

[platform] is immune from these risks’’; 

that ‘‘[t]he potential consequences of a 

spot market’s failure or failure to 

prevent market manipulation could 

adversely affect the value of the 

Shares[,] . . . . [t]he blockchain 

infrastructure could be used by certain 

market participants to exploit arbitrage 

opportunities through schemes such as 

front-running, spoofing, pump-anddump and fraud across different 

systems, platforms or geographic 

locations’’ . . . . and ‘‘[a]s a result of 

reduced oversight, these schemes may 

be more prevalent in digital asset 

markets than in the general market for 

financial products’’; that ‘‘many 

[bitcoin] spot markets and over-thecounter market venues . . . do not 

provide the public with significant 

information regarding their ownership 

structure, management teams, corporate 

practices or oversight of customer 

trading’’ and ‘‘many [bitcoin] spot 

markets lack certain safeguards put in 

place by more traditional exchanges to 

enhance the stability of trading on the 

exchange’’; that ‘‘[s]ecurity breaches, 

cyber-attacks, computer malware and 

computer hacking attacks have been a 

prevalent concern in relation to digital 

assets’’; and that the bitcoin blockchain 

could be vulnerable to a ‘‘51% attack,’’ 

in which a bad actor or actors that 

control a majority of the processing 

power dedicated to mining on the 

bitcoin network may be able to alter the 

bitcoin blockchain on which the bitcoin 

network and bitcoin transactions rely.81

(ii) Assertions Regarding the Index and 

the Create/Redeem Process 

BZX also argues that the Index, which 

would be used to value the Trust’s 

bitcoin, is designed to reduce the risk of 

manipulation based on the Index’s 

methodology.82 BZX states that the 

Index is a U.S. dollar-denominated 

composite reference rate for the price of 

bitcoin. The Index price is currently 

sourced from the following bitcoin 

platforms selected by the Data Provider 

based on a combination of qualitative 

and quantitative metrics: Binance, 

Bitfinex, Bitflyer, Bittrex, Bitstamp, 

Coinbase Pro, Gemini, HitBTC, Huobi, 

Kraken, KuCoin, and Poloniex.83

According to BZX, the Index 

methodology is intended to determine 

the fair market value for bitcoin by 

determining the ‘‘principal market’’ for 

bitcoin as of 4:00 p.m. ET daily. To rank 

the credibility and quality of each 

underlying bitcoin platform, the Data 

Provider dynamically assigns a score to 

the key characteristics for each 

platform.84 BZX states that the score 

determines which platform should be 

designated as the ‘‘principal market’’ at 

a given point of time by computing a 

weighted average of the values assigned 

to four different platform characteristics: 

(i) Oversight; (ii) microstructure 

efficiency; (iii) data transparency; and 

(iv) data integrity.85 The methodology 

then applies a five-step weighting 

process for identifying a principal 

market and the last price on that 

market.86 Following this weighting 

process, an ‘‘executed exchange price’’ 

is assigned for bitcoin as of 4:00 p.m. 

ET. The Data Provider takes the last 

traded prices at that moment in time on 

that trading venue for the relevant pair 

(bitcoin/USD) when determining the 

Index price.87

BZX asserts that the fact that there are 

multiple bitcoin spot markets that may 

contribute prices to the Index price 

makes manipulation more difficult in a 

well-arbitraged and fractured market, as 

a malicious actor would need to 

manipulate multiple spot markets 

simultaneously to impact the Index 

price, or dramatically skew the 

historical distribution of volume 

between the various platforms.88 In 

addition, BZX asserts that the Data 

Provider has dedicated resources and 

committees established to ensure all 

prices are representative of the market, 

and that any price challenges will result 

in an independent analysis of the price. 

This includes assessing whether the 

price from the selected platform is 

biased according to analyses designed to 

recognize patterns consistent with 

manipulative activity, such as a quick 

reversion to previous traded levels 

following a sharp price change or any 

significant deviations from the volume 

weighted average price on a particular 

platform or pricing on any other eligible 

platform.89 In addition, BZX further 

represents that, after the ‘‘Lukka Prime 

price’’ 90 is generated, the S&P DJI 

(‘‘Index Provider’’) performs 

independent quality checks as a second 

layer of validation to those employed by 

the Data Provider, and may submit a 

price challenge to the Data Provider. In 

such circumstances, according to BZX, 

the Data Provider will perform an 

independent review of the price 

challenge to ensure the price is 

representative of the fair value of a 

particular cryptocurrency.91

Simultaneously with its assertions 

regarding the Index, BZX also states 

that, because the Trust will engage in inkind creations and redemptions only, 

the ‘‘manipulability of the Index [is] 

significantly less important.’’ 92 BZX 

elaborates further that, ‘‘because the 

Trust will not accept cash to buy bitcoin 

in order to create new shares or . . . be 

forced to sell bitcoin to pay cash for 

redeemed shares, the price that the 

Sponsor uses to value the Trust’s bitcoin 

is not particularly important.’’ 93


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94See id. 95See id. 96See id. 97As discussed above, while BZX asserts that 

bitcoin prices on platforms with wash trades or 

other activity intended to manipulate the price of 

bitcoin do not influence the real price of bitcoin, 

the Commission has no basis on which to conclude 

that bitcoin platforms are insulated from prices of 

others that engage in or permit fraud or 

manipulation. See supra notes 72–73 and 

accompanying text. 

98See Registration Statement at 12–13, 32. 

99See id. at 32. 

100See Amendment No. 1, 86 FR at 73380. 

101One commenter states that the proposed ETP 

is ‘‘pegging the value to a collection of independent 

exchanges, who collectively, would be able to 

manipulate the bitcoin index by manipulation of 

their own forums.’’ See Girts Letter. 

102See Amendment No. 1, 86 FR at 73380. BZX 

represents that the Data Provider has also ‘‘designed 

a series of automated algorithms designed to 

supplement the core Lukka Prime Methodology in 

enhancing the ability to detect potentially 

anomalous price activity which could be 

detrimental to the goal of obtaining a Fair Market 

Value price that is representative of the market at 

a point in time.’’ See id. 

103See also USBT Order, 85 FR at 12603–05; 

VanEck Order, 86 FR at 64545; WisdomTree Order, 

86 FR at 69328; Kryptoin Order, 86 FR at 74173. 

104See 15 U.S.C. 78f(b)(5). 

According to BZX, when authorized 

participants create Shares with the 

Trust, they would need to deliver a 

certain number of bitcoin per Share 

(regardless of the valuation used), and 

when they redeem with the Trust, they 

would similarly expect to receive a 

certain number of bitcoin per Share.94

As such, BZX argues that, even if the 

price used to value the Trust’s bitcoin 

is manipulated, the ratio of bitcoin per 

Share does not change, and the Trust 

will either accept (for creations) or 

distribute (for redemptions) the same 

number of bitcoin regardless of the 

value.95 This, according to BZX, not 

only mitigates the risk associated with 

potential manipulation, but also 

discourages and disincentivizes 

manipulation of the Index because there 

is little financial incentive to do so.96

Based on assertions made and the 

information provided, the Commission 

can find no basis to conclude that BZX 

has articulated other means to prevent 

fraud and manipulation that are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. First, the record does not 

demonstrate that the proposed 

methodology for calculating the Index 

would make the proposed ETP resistant 

to fraud or manipulation such that a 

surveillance-sharing agreement with a 

regulated market of significant size is 

unnecessary. Specifically, BZX has not 

assessed the possible influence that spot 

platforms not included among the 

Index’s underlying bitcoin platforms 

would have on the ‘‘principal market’’ 

that is used to calculate the Index.97

And as discussed above, the record does 

not establish that the broader bitcoin 

market is inherently and uniquely 

resistant to fraud and manipulation. 

Accordingly, to the extent that trading 

on platforms not directly used to 

calculate the Index affects prices on the 

Index’s underlying bitcoin platforms, 

the characteristics of those other 

platforms—where various kinds of fraud 

and manipulation from a variety of 

sources may be present and persist— 

may affect whether the Index is resistant 

to manipulation. 

Moreover, BZX’s assertions that the 

Index’s methodology helps make the 

Index resistant to manipulation are 

contradicted by the Registration 

Statement’s own statements. 

Specifically, the Registration Statement 

states, among other things, that ‘‘[s]pot 

markets on which bitcoin trades are 

relatively new and largely unregulated, 

and, therefore, may be more exposed to 

fraud and security breaches than 

established, regulated exchanges for 

other financial assets or instruments’’; 

and that ‘‘[t]he potential consequences 

of a spot market’s failure or failure to 

prevent market manipulation could 

adversely affect the value of the 

Shares[,] . . . . [t]he blockchain 

infrastructure could be used by certain 

market participants to exploit arbitrage 

opportunities through schemes such as 

front-running, spoofing, pump-anddump and fraud across different 

systems, platforms or geographic 

locations’’ . . . . and ‘‘[a]s a result of 

reduced oversight, these schemes may 

be more prevalent in digital asset 

markets than in the general market for 

financial products.’’ 98 The Index’s 

underlying bitcoin platforms are a 

subset of the bitcoin trading venues 

currently in existence. 

The Registration Statement also states, 

specifically with respect to the Index, 

that ‘‘[p]ricing sources used by the 

Index are digital asset spot markets that 

facilitate the buying and selling of 

bitcoin and other digital assets’’ and that 

‘‘[a]lthough many pricing sources refer 

to themselves as ‘exchanges,’ they are 

not registered with, or supervised by, 

the [Commission] or [Commodity 

Futures Trading Commission] and do 

not meet the regulatory standards of a 

national securities exchange or 

designated contract market,’’ and ‘‘[f]or 

these reasons, among others, purchases 

and sales of bitcoin may be subject to 

temporary distortions or other 

disruptions . . . . [which] could affect 

the price of bitcoin used in Index 

calculations and, therefore, could 

adversely affect the bitcoin price as 

reflected by the Index.’’ The Sponsor 

further states in the Registration 

Statement that ‘‘[t]he Index is based on 

various inputs which include price data 

from various third-party bitcoin spot 

markets’’ and that ‘‘[t]he [index 

provider] does not guarantee the 

validity of any of these inputs, which 

may be subject to technological error, 

manipulative activity, or fraudulent 

reporting from their initial source.’’ 99

Moreover, the Exchange describes a 

process through which the Data 

Provider may select an ‘‘alternative 

primary market’’ upon detection or 

referral of suspect manipulative 

activities.100 And, although the Sponsor 

raises concerns regarding fraud and 

security of bitcoin platforms, as well as 

concerns specific to the Index’s 

underlying bitcoin platforms, leading to 

the potential need for an ‘‘alternative’’ 

basis for the Index price, the Exchange 

does not explain how or why such 

concerns are consistent with its 

assertion that the Index is resistant to 

fraud and manipulation.101

The Commission thus concludes that 

BZX has not demonstrated that the 

Index methodology makes the proposed 

ETP resistant to manipulation. 

Second, BZX argues that the Data 

Provider has dedicated resources and 

has established committees to ensure all 

prices are representative of the market, 

and that any price challenges will result 

in an independent price analysis, which 

would include assessing whether the 

price from the selected ‘‘principal 

market’’ platform is biased according to 

analyses designed to recognize patterns 

consistent with manipulative 

activity.102 However, the level of 

oversight of the Index’s underlying 

bitcoin platforms, whose trade flows 

might contribute to the Index, is not 

equivalent to the obligations, authority, 

and oversight of national securities 

exchanges or futures exchanges and 

therefore is not an appropriate 

substitute.103 National securities 

exchanges are required to have rules 

that are ‘‘designed to prevent fraudulent 

and manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest.’’ 104 Moreover, national 

securities exchanges must file proposed 

rules with the Commission regarding 

certain material aspects of their 


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105 17 CFR 240.19b–4(a)(6)(i). 

106Section 6 of the Exchange Act, 15 U.S.C. 78f, 

requires national securities exchanges to register 

with the Commission and requires an exchange’s 

registration to be approved by the Commission, and 

Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), 

requires national securities exchanges to file 

proposed rules changes with the Commission and 

provides the Commission with the authority to 

disapprove proposed rule changes that are not 

consistent with the Exchange Act. Designated 

contract markets (‘‘DCMs’’) (commonly called 

‘‘futures markets’’) registered with and regulated by 

the Commodity Futures Trading Commission 

(‘‘CFTC’’) must comply with, among other things, 

a similarly comprehensive range of regulatory 

principles and must file rule changes with the 

CFTC. See, e.g., Designated Contract Markets 

(DCMs), CFTC, available at http://www.cftc.gov/ 

IndustryOversight/TradingOrganizations/DCMs/ 

index.htm. 

107See Winklevoss Order, 83 FR at 37597. The 

Commission notes that the New York State 

Department of Financial Services (‘‘NYSDFS’’) has 

issued ‘‘guidance’’ to supervised virtual currency 

business entities, stating that these entities must 

‘‘implement measures designed to effectively 

detect, prevent, and respond to fraud, attempted 

fraud, and similar wrongdoing.’’ See Maria T. Vullo, 

Superintendent of Financial Services, NYSDFS, 

Guidance on Prevention of Market Manipulation 

and Other Wrongful Activity (Feb. 7, 2018), 

available at https://www.dfs.ny.gov/docs/legal/ 

industry/il180207.pdf. The NYSDFS recognizes that 

its ‘‘guidance is not intended to limit the scope or 

applicability of any law or regulation’’ (id.), which 

would include the Exchange Act. Nothing in the 

record evidences whether the Index’s underlying 

bitcoin platforms have complied with this NYSDFS 

guidance. Further, as stated previously, there are 

substantial differences between the NYSDFS and 

the Commission’s regulation. Anti-money 

laundering (‘‘AML’’) and know-your-customer 

(‘‘KYC’’) policies and procedures, for example, have 

been referenced in other bitcoin-based ETP 

proposals as a purportedly alternative means by 

which such ETPs would be uniquely resistant to 

manipulation. The Commission has previously 

concluded that such AML and KYC policies and 

procedures do not serve as a substitute for, and are 

not otherwise dispositive in the analysis regarding 

the importance of, having a surveillance-sharing 

agreement with a regulated market of significant 

size relating to bitcoin. For example, AML and KYC 

policies and procedures do not substitute for the 

sharing of information about market trading activity 

or clearing activity and do not substitute for 

regulation of a national securities exchange. See 

USBT Order, 85 FR at 12603 n.101. See also, e.g., 

WisdomTree Order, 86 FR at 69328 n.95; Kryptoin 

Order, 86 FR at 74173 n.98. 108See 15 U.S.C. 78e, 78f. 

109The Commission has previously considered 

and rejected similar arguments about the valuation 

of bitcoin according to a benchmark or reference 

price. See, e.g., SolidX Order, 82 FR at 16258; 

Winklevoss Order, 83 FR at 37587–90; USBT Order, 

85 FR at 12599–601. 

110See supra notes 84–91 and accompanying text. 

111See 15 U.S.C. 78f(b). 

112See supra notes 92–96 and accompanying text. 

113See Amendment No. 1, 86 FR at 73378 

(‘‘While the Sponsor believes that the Index which 

it uses to value the Trust’s bitcoin is designed to 

reduce the risk of manipulation based on the 

methodology further described below, the fact that 

creations and redemptions are only available inkind makes the manipulability of the Index 

significantly less important.’’). 

114See id. (concluding that ‘‘because the Trust 

will not accept cash to buy bitcoin in order to create 

new shares or, barring a forced redemption of the 

Trust or under other extraordinary circumstances, 

be forced to sell bitcoin to pay cash for redeemed 

shares, the price that the Sponsor uses to value the 

Trust’s bitcoin is not particularly important.’’). 

115See Winklevoss Order, 83 FR at 37589–90; 

USBT Order, 85 FR at 12607–08; VanEck Order, 86 

FR at 64546; WisdomTree Order, 86 FR at 69329; 

Kryptoin Order, 86 FR at 74174; Skybridge Order, 

87 FR at 3874; Wise Origin Order, 87 FR at 5533. 

116See, e.g., iShares COMEX Gold Trust, 

Securities Exchange Act Release No. 51058 (Jan. 19, 

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

Amex–2004–38); iShares Silver Trust, Securities 

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

FR 14969, 14974 (Mar. 24, 2006) (SR–Amex–2005– 

072). 

117Putting aside BZX’s various assertions about 

the nature of bitcoin and the bitcoin market, the 

Index, and the Shares, BZX also does not address 

concerns the Commission has previously identified, 

including the susceptibility of bitcoin markets to 

potential trading on material, non-public 

information (such as plans of market participants to 

significantly increase or decrease their holdings in 

bitcoin; new sources of demand for bitcoin; the 

decision of a bitcoin-based investment vehicle on 

how to respond to a ‘‘fork’’ in the bitcoin 

blockchain, which would create two different, nonoperations,105 and the Commission has 

the authority to disapprove any such 

rule that is not consistent with the 

requirements of the Exchange Act.106

Thus, national securities exchanges are 

subject to Commission oversight of, 

among other things, their governance, 

membership qualifications, trading 

rules, disciplinary procedures, 

recordkeeping, and fees.107 The Index’s 

underlying bitcoin platforms, on the 

other hand, have none of these 

requirements (none are registered as a 

national securities exchange).108

In addition, although BZX argues that 

the Data Provider’s various procedures 

of oversight of the Index helps to 

identify patterns consistent with 

manipulative activity, the purported 

procedures and oversight do not 

represent a unique measure to resist or 

prevent manipulation beyond 

mechanisms that exist in securities or 

commodities markets.109

Further, the oversight performed by 

the Data Provider of the Index’s 

underlying bitcoin platforms is for the 

purpose of ensuring the accuracy and 

integrity of the Index.110 Such oversight 

serves a fundamentally different 

purpose as compared to the regulation 

of national securities exchanges and the 

requirements of the Exchange Act. 

While the Commission recognizes that 

this may be an important function in 

ensuring the integrity of the Index, such 

requirements do not imbue either the 

Data Provider or the Index’s underlying 

bitcoin platforms with regulatory 

authority similar to that the Exchange 

Act confers upon self-regulatory 

organizations such as national securities 

exchanges.111

Third, BZX does not explain the 

significance of the Index’s purported 

resistance to manipulation to the overall 

analysis of whether the proposal to list 

and trade the Shares is designed to 

prevent fraud and manipulation. Even 

assuming that BZX’s argument is that, if 

the Index is resistant to manipulation, 

the Trust’s NAV, and thereby the Shares 

as well, would be resistant to 

manipulation, BZX has not established 

in the record a basis for such 

conclusion. That assumption aside, the 

Commission notes that the Shares 

would trade at market-based prices in 

the secondary market, not at NAV, 

which then raises the question of the 

significance of the NAV calculation to 

the manipulation of the Shares. 

Fourth, BZX’s arguments are 

contradictory. While arguing that the 

Index is resistant to manipulation, the 

Exchange simultaneously downplays 

the importance of the Index in light of 

the Trust’s in-kind creation and 

redemption mechanism.112 BZX points 

out that the Trust will create and 

redeem Shares in-kind, not in cash, 

which renders the NAV calculation, and 

thereby the ability to manipulate NAV, 

‘‘significantly less important.’’ 113 In 

BZX’s own words, the Trust will not 

accept cash to buy bitcoin in order to 

create Shares or sell bitcoin to pay cash 

for redeemed Shares, so the price that 

the Sponsor uses to value the Trust’s 

bitcoin ‘‘is not particularly 

important.’’ 114 If the Index that the 

Trust uses to value the Trust’s bitcoin 

‘‘is not particularly important,’’ it 

follows that the Index’s resistance to 

manipulation is not material to the 

Shares’ susceptibility to fraud and 

manipulation. As BZX does not address 

or provide any analysis with respect to 

these issues, the Commission cannot 

conclude that the Index aids in the 

determination that the proposal to list 

and trade the Shares is designed to 

prevent fraudulent and manipulative 

acts and practices. 

Finally, the Commission finds that 

BZX has not demonstrated that in-kind 

creations and redemptions provide the 

Shares with a unique resistance to 

manipulation. The Commission has 

previously addressed similar 

assertions.115 As the Commission stated 

before, in-kind creations and 

redemptions are a common feature of 

ETPs, and the Commission has not 

previously relied on the in-kind creation 

and redemption mechanism as a basis 

for excusing exchanges that list ETPs 

from entering into surveillance-sharing 

agreements with significant, regulated 

markets related to the portfolio’s 

assets.116 Accordingly, the Commission 

is not persuaded here that the Trust’s inkind creations and redemptions afford it 

a unique resistance to manipulation.117


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interchangeable types of bitcoin), or to the 

dissemination of false or misleading information. 

See Winklevoss Order, 83 FR at 37585. See also 

USBT Order, 85 FR at 12600–01; WisdomTree 

Order, 86 FR at 69329 n.114; Kryptoin Order, 86 FR 

at 74174 n.107; Skybridge Order, 87 FR at 3872; 

Wise Origin Order, 87 FR at 5533 n.89. 118See Winklevoss Order, 83 FR at 37594. This 

definition is illustrative and not exclusive. There 

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

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

an example that provides guidance to market 

participants. See id. 

119See id. at 37580 n.19. 

120See Amendment No. 1, 86 FR at 73371 n.75 

and accompanying text. 

121While the Commission recognizes that the 

CFTC regulates the CME, the CFTC is not 

responsible for direct, comprehensive regulation of 

the underlying bitcoin spot market. See Winklevoss 

Order, 83 FR at 37587, 37599. See also WisdomTree 

Order, 86 FR at 69330 n.118; Kryptoin Order, 86 FR 

at 74174 n.119; Skybridge Order, 87 FR at 3874 

n.80; Wise Origin Order, 87 FR at 5534 n.93. 

122See Amendment No. 1, 86 FR at 73370. 

123See id. at 73371 (citing S. Corbet, B. Lucey, M. 

Peat, & S. Vigne, Bitcoin futures—What use are 

they?, 172 Econ. Letters 23 (2018) (‘‘Corbet et al.’’)). 

124See id. at 73371. 

125See id. at 73371 (citing D. Baur & T. Dimpfl, 

Price discovery in bitcoin spot or futures?, 39 J. 

Futures Mkts. 803 (2019)). 

126See id. at 73371. 

127See id. at 73371 (citing B. Kapar & J. Olmo, 

An analysis of price discovery between Bitcoin 

futures and spot markets, 174 Econ. Letters 62 

(2019) (‘‘Kapar and Olmo’’)). 

128See id. at 73371 (citing E. Akyildirim, S. 

Corbet, P. Katsiampa, N. Kellard & A. Sensoy, The 

development of Bitcoin futures: Exploring the 

interactions between cryptocurrency derivatives, 34 

Fin. Res. Letters 101234 (2020)). 

129See id. at 73371 (citing Y. Hu, Y. Hou & L. 

Oxley, What role do futures markets play in Bitcoin 

pricing? Causality, cointegration and price 

discovery from a time-varying perspective, 72 Int’l 

Rev. of Fin. Analysis 101569 (2020) (‘‘Hu, Hou and 

Oxley’’)). 130See id. at 73371. 131See id. at 73372 (citing L. Eguren, B. Fondufe, 

C. Hogan, and C. Matthews, Price Discovery in the 

Bitcoin Spot and Derivatives Markets, 

Massachusetts Institute of Technology Blockchain 

Lab Program, May 15, 2020 (‘‘Blockchain Lab 

Paper’’), available at: https:// 

static1.squarespace.com/static/59aae5e9a803

bb10bedeb03e/t/5fa2de64862fbd230d09033d/ 

1604509286275/WG19- 

20PriceDiscoveryintheBitcoinSpot

%26DerivativesMarketsComplete.pdf (last visited 

Mar. 3, 2022)). This study was performed by MBA 

students at the MIT Sloan School of Management 

as part of the Blockchain Lab, an action-learning 

course offered by MIT. The sudy considered the 

relationship between unregulated spot and 

derivatives bitcoin markets, and which market leads 

the other in pricing. 

132Based on the submission of Amendment No. 

1 in December 2021, the Commission understands 

‘‘last month’’ to refer to November 2021. 

133Based on the submission of Amendment No. 

1 in December 2021, the Commission understands 

‘‘past three months’’ to refer to September– 

November 2021. 

134See Amendment No. 1, 86 FR at 73372. That 

is, according to BZX, since the start of the year, the 

Continued 

(2) Assertions That BZX Has Entered 

Into a Comprehensive SurveillanceSharing Agreement With a Regulated 

Market of Significant Size 

As BZX has not demonstrated that 

other means besides surveillancesharing agreements will be sufficient to 

prevent fraudulent and manipulative 

acts and practices, the Commission next 

examines whether the record supports 

the conclusion that BZX has entered 

into a comprehensive surveillancesharing agreement with a regulated 

market of significant size relating to the 

underlying assets. In this context, the 

term ‘‘market of significant size’’ 

includes a market (or group of markets) 

as to which (i) there is a reasonable 

likelihood that a person attempting to 

manipulate the ETP would also have to 

trade on that market to successfully 

manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist in detecting and deterring 

misconduct, and (ii) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.118

As the Commission has stated in the 

past, it considers two markets that are 

members of the ISG to have a 

comprehensive surveillance-sharing 

agreement with one another, even if 

they do not have a separate bilateral 

surveillance-sharing agreement.119

Accordingly, based on the common 

membership of BZX and the CME in the 

ISG,120 BZX has the equivalent of a 

comprehensive surveillance-sharing 

agreement with the CME. However, 

while the Commission recognizes that 

the CFTC regulates the CME futures 

market,121 including the CME bitcoin 

futures market, and thus such market is 

‘‘regulated,’’ in the context of the 

proposed ETP, the record does not, as 

explained further below, establish that 

the CME bitcoin futures market is a 

‘‘market of significant size’’ as that term 

is used in the context of the applicable 

standard here. 

(i) Whether There Is a Reasonable 

Likelihood That a Person Attempting To 

Manipulate the ETP Would Also Have 

To Trade on the CME Bitcoin Futures 

Market To Successfully Manipulate the 

ETP 

The first prong in establishing 

whether the CME bitcoin futures market 

constitutes a ‘‘market of significant size’’ 

is the determination that there is a 

reasonable likelihood that a person 

attempting to manipulate the ETP 

would have to trade on the CME bitcoin 

futures market to successfully 

manipulate the ETP. 

While BZX states that academic 

research supports the thesis that CME 

bitcoin futures pricing leads the spot 

market,122 BZX acknowledges that the 

literature has presented mixed evidence. 

BZX states that, on the one hand, an 

early study by Corbet et al. (2018) 123

applied four metrics of price discovery 

to the CME, CBOE, and spot prices 

using data sampled on a one-minute 

frequency, and found that price 

discovery is focused on the spot 

market.124 BZX states that, in another 

study, Baur and Dimpfl (2019) 125 use 

data sampled on a five-minute interval 

and similarly conclude that price 

discovery occurs in the spot market.126

BZX states that, on the other hand, a 

study by Kapar and Olmo (2019) 127

finds contradictory evidence using 

daily-sampled data, concluding that the 

CME bitcoin futures market dominates 

price discovery. BZX states that 

similarly, Akyildirim et al. (2019) 128

show that bitcoin futures play a 

significant role in price discovery 

relative to the spot market. 

BZX surmises that one potential 

reason for the mixed evidence, 

according to BZX’s interpretation of Hu, 

Hou and Oxley (2020),129 is that 

‘‘cointegration relationships may go 

undetected if the underlying model 

formulation is constrained to be timeinvariant.’’ BZX states that, as such, Hu, 

Hou and Oxley ‘‘apply time-varying 

cointegrating coefficients’’ and 

‘‘conclude that futures prices Grangercause spot prices and that futures prices 

dominate [b]itcoin price discovery.’’ 130

BZX further asserts that the bitcoin 

futures market is by orders of magnitude 

larger than the entire spot market of all 

cryptoassets in terms of traded volume, 

and that, according to a study by the 

Blockchain Lab of Massachusetts 

Institute of Technology: ‘‘[T]he 

derivative market leads price discovery 

of bitcoin more frequently than the spot 

markets. The spot market is more likely 

to indicate the direction of the price 

movement while the derivatives market 

is more likely to lead the magnitude of 

the price movement.’’ 131

BZX also asserts that the bitcoin 

futures market has processed more than 

$1 trillion in futures volume per month 

since the start of the year. In November 

2021, bitcoin futures volume accounted 

for $1.58 trillion, while spot volume, in 

the same time frame, amounted to $1.4 

trillion, including both crypto-only and 

fiat currency volumes of all 

cryptoassets, not just bitcoin. In terms of 

volume just in the last month,132 BZX 

asserts that the bitcoin futures market is 

12% larger than the entire spot market. 

Over the past three months,133 the 

average monthly spot volume was $1.3 

trillion while the average bitcoin futures 

volume was significantly greater 

(approximately 30%) than the spot at 

$1.71 trillion.134


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bitcoin futures market is 52% larger than the spot 

volume of all cryptoassets traded on platforms. 

135See id. 

136See id. Put in another way, according to BZX, 

the bitcoin spot market accounts for 17% of the 

bitcoin futures market in volume terms. 

137See id. 

138See USBT Order, 85 FR at 12611. Listing 

exchanges have attempted to demonstrate such an 

‘‘interrelationship’’ by presenting the results of 

various econometric ‘‘lead-lag’’ analyses. The 

Commission considers such analyses to be central 

to understanding whether it is reasonably likely 

that a would-be manipulator of the ETP would need 

to trade on the CME bitcoin futures market. See id. 

at 12612. See also VanEck Order, 86 FR at 64547; 

WisdomTree Order, 86 FR at 69330–31; Kryptoin 

Order, 86 FR at 74176 n.144; Skybridge Order, 87 

FR at 3876 n.101; Wise Origin Order, 87 FR at 5535 

n.107. 

139See Amendment No. 1, 86 FR at 73372. 

140See supra notes 123–131 and accompanying 

text. See also, e.g., O. Entrop, B. Frijns & M. Seruset, 

The determinants of price discovery on bitcoin 

markets, 40 J. Futures Mkts. 816 (2020) (finding that 

price discovery measures vary significantly over 

time without one market being clearly dominant 

over the other); J. Hung, H. Liu & J. Yang, Trading 

activity and price discovery in Bitcoin futures 

markets, 62 J. Empirical Finance 107 (2021) (finding 

that the bitcoin spot market dominates price 

discovery); A. Fassas, S. Papadamou, & A. Koulis, 

Price discovery in bitcoin futures, 52 Res. Int’l Bus. 

Fin. 101116 (2020) (finding that bitcoin futures play 

a more important role in price discovery); S. Aleti 

& B. Mizrach, Bitcoin spot and futures market 

microstructure, 41 J. Futures Mkts. 194 (2021) 

(finding that relatively more price discovery occurs 

on the CME as compared to four spot exchanges); 

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

cointegration in bitcoin spot and futures markets, 

41 J. Futures Mkts. 1478 (2021) (finding that CME 

bitcoin futures dominate price discovery). See also 

C. Alexander & D. Heck, Price discovery in Bitcoin: 

The impact of unregulated markets, 50 J. Financial 

Stability 100776 (2020) (finding that, in a multidimensional setting, including the main price 

leaders within futures, perpetuals, and spot 

markets, CME bitcoin futures have a very minor 

effect on price discovery; and that faster speed of 

adjustment and information absorption occurs on 

the unregulated spot and derivatives platforms than 

on CME bitcoin futures) (‘‘Alexander & Heck’’). 

141See USBT Order, 85 FR at 12613 n.244. 

142See, e.g., VanEck Order, 86 FR at 64547; 

WisdomTree Order, 86 FR at 69331; Kryptoin 

Order, 86 FR at 74176; Wise Origin Order, 87 FR 

at 5535. 

143The paper finds that the CME bitcoin futures 

market dominates the spot markets in terms of 

Granger causality, but that the causal relationship 

is bi-directional, and a Granger causality episode 

from March 2019 to June/July 2019 runs from 

bitcoin spot prices to CME bitcoin futures prices. 

The paper concludes: ‘‘[T]he Granger causality 

episodes are not constant throughout the whole 

sample period. Via our causality detection methods, 

market participants can identify when markets are 

being led by futures prices and when they might not 

be.’’ See Hu, Hou and Oxley, supra note 129. 

144See USBT Order, 85 FR at 12613 n.244. 

145See supra note 131. 

146See also supra note 140 (citing Alexander & 

Heck’s finding that, in a multi-dimensional price 

discovery analysis, including the main price leaders 

within futures, perpetuals, and spot markets, CME 

bitcoin futures have a very minor effect on price 

discovery; and that faster speed of adjustment and 

information absorption occurs on the unregulated 

spot and derivatives platforms than on CME bitcoin 

futures). 

147 In addition, BZX fails to address the 

relationship (if any) between prices on other bitcoin 

futures markets and the CME bitcoin futures 

market, the bitcoin spot market, and/or the bitcoin 

platforms underlying the Index, or where price 

formation occurs when the entirety of bitcoin 

futures markets, not just the CME, is considered. 

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

Order, 86 FR at 69331; Kryptoin Order, 86 FR at 

74176; Wise Origin Order, 87 FR at 5535. 

In addition, BZX contends that, in the 

past twelve months, the average 

monthly futures volume for bitcoin was 

$1.89 trillion, while the monthly spot 

volume for all cryptoassets was $1.24 

trillion.135 BZX further states that, as of 

December 2, 2021, the ratio of bitcoin 

spot versus futures volume currently 

stands at 0.17.136 BZX concludes that, 

‘‘where CME bitcoin futures lead the 

price in the spot market such that a 

potential manipulator of the bitcoin spot 

market (beyond just the constituents of 

the Index . . .) would have to 

participate in the CME [b]itcoin 

[f]utures market, it follows that a 

potential manipulator of the Shares 

would similarly have to transact in the 

CME [b]itcoin [f]utures market.’’ 137

The Commission disagrees. 

Specifically, the econometric evidence 

in the record for the proposal does not 

support the conclusion that an 

interrelationship exists between the 

CME bitcoin futures market and the 

bitcoin spot market such that it is 

reasonably likely that a person 

attempting to manipulate the proposed 

ETP would also have to trade on the 

CME bitcoin futures market.138 While 

BZX concludes that CME bitcoin futures 

pricing leads the spot market,139 BZX’s 

own recitation of the literature on the 

lead-lag relationship and price 

discovery between bitcoin spot and 

futures markets underscores that the 

literature is unsettled.140 BZX also has 

not addressed issues that the 

Commission has raised in past 

disapproval orders with respect to some 

of the studies that BZX cites in the 

present proposal. Specifically, BZX has 

not addressed the concern that the use 

of daily price data by Kapar and Olmo 

and Hu, Hou and Oxley, as opposed to 

intra-day prices, may hinder the ability 

to distinguish which market 

incorporates new information faster; 141

or that, as stated in previous 

disapproval orders,142 the findings of 

Hu, Hou and Oxley’s Granger causality 

analysis are concededly mixed; 143 or 

why Hu, Hou and Oxley’s inconclusive 

evidence that CME bitcoin futures 

prices lead spot prices—in particular 

that the months at the end of the paper’s 

sample period showed that the spot 

market was the leading market—would 

not indicate a shift towards prices in the 

spot market leading the futures market 

that would be expected to persist into 

the future.144

In addition, the Blockchain Lab 

Paper 145 does not appear to have 

included CME bitcoin futures in its 

analysis. Thus, even setting aside 

methodological and data issues in this 

unpublished paper and accepting its 

results at face value, the Blockchain Lab 

Paper’s results provide no evidence that 

the CME leads price discovery, or that 

it is reasonably likely that a would-be 

manipulator would have to trade on the 

CME to successfully manipulate the 

proposed ETP. According to the paper’s 

results, the ‘‘derivatives market’’ quoted 

by BZX as ‘‘lead[ing] price discovery of 

bitcoin more frequently’’ were 

unregulated derivatives markets such as 

OkEX and bitMEX.146 The Exchange, 

however, proposes that the CME is the 

market of significant size, not OkEX, 

bitMEX, or any other unregulated 

derivatives market. 

The failure to distinguish between the 

(regulated) CME bitcoin futures market 

and unregulated bitcoin derivatives 

markets is also prevalent in the data that 

BZX cites. None of the ‘‘bitcoin futures’’ 

market data that BZX provides in 

support of the first prong of the ‘‘market 

of significant size’’ determination is 

specific to the CME bitcoin futures 

market. Nor does BZX provide 

information establishing what portion of 

the total ‘‘bitcoin futures’’ market the 

CME comprises.147

Moreover, BZX does not provide 

results of its own analysis and does not 

present any other data supporting its 

conclusion. 

BZX’s unsupported representations 

constitute an insufficient basis for 

approving this proposed rule change. 

The Commission thus concludes that 

the information that BZX provides is not 

a sufficient basis to support a 

determination that it is reasonably likely 

that a would-be manipulator of the 

proposed ETP would have to trade on 

the CME bitcoin futures market to 

successfully manipulate the proposed 

ETP. Therefore, the information in the 

record also does not establish that the 

CME bitcoin futures market is a ‘‘market 

of significant size’’ with respect to the 

proposed ETP. 

(ii) Whether It Is Unlikely That Trading 

in the Proposed ETP Would Be the 

Predominant Influence on Prices in the 

CME Bitcoin Futures Market 

The second prong in establishing 

whether the CME bitcoin futures market 

constitutes a ‘‘market of significant size’’ 

is the determination that it is unlikely 

that trading in the proposed ETP would 


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148See Winklevoss Order, 83 FR at 37594; USBT 

Order, 85 FR at 12596–97. 

149BZX states that the CME began to offer trading 

in bitcoin futures in December 2017. See 

Amendment No. 1, 86 FR at 73366. According to 

BZX, nearly every measurable metric related to 

CME bitcoin futures contracts, which trade and 

settle like other cash-settled commodity futures 

contracts, has ‘‘trended consistently up since 

launch and/or accelerated upward in the past year.’’ 

See id. For example, according to BZX, from 

October 25, 2021, through November 19, 2021, there 

was approximately $2.9 billion in notional trading 

volume in CME bitcoin futures on a daily basis, and 

notional volume was never below $1.2 billion per 

day. See id. at 73363. Additionally, BZX states that 

open interest was over $4 billion for the entirety of 

the period, and at one point reached $5.5 billion. 

See id. According to the Sponsor, the increase in 

the volume on the CME is reflected in a higher 

proportion of the bitcoin market share, based on the 

proportion of the total monthly volume of bitcoin 

futures traded on the CME in relation to the total 

spot bitcoin volume on digital asset platforms. See 

id. at 73367. BZX states that that proportion has 

increased from less than 5% at inception, to more 

than 20% over three and a half years. See id. at 

73367–68. 

150According to BZX, as of December 1, 2021, the 

total market cap of all bitcoin in circulation was 

approximately $1.08 trillion. See id. at 73363 n.30. 

151See id. at 73372. 

152See id. 

153See id. According to BZX, these statistics are 

based on samples of bitcoin liquidity in U.S. dollars 

(excluding stablecoins or Euro liquidity) based on 

executable quotes on Coinbase Pro, Gemini, 

Bitstamp, Kraken, LMAX Exchange, BinanceUS, 

and OKCoin during February 2021. See id. at 73372 

n.94. 

154See id. at 73372. 

155See id. 

156See id. 

157See supra notes 138–146 and accompanying 

text. 

158See VanEck Order, 86 FR at 64548–59; 

WisdomTree Order, 86 FR at 69332–33; Kryptoin 

Order, 86 FR at 74177; Skybridge Order, 87 FR at 

3879; Wise Origin Order, 87 FR at 5537. 

159See Amendment No. 1, 86 FR at 73372 (‘‘For 

a $10 million market order, the cost to buy or sell 

is roughly 20 basis points with a market impact of 

50 basis points. Stated another way, a market 

participant could enter a market buy or sell order 

for $10 million of bitcoin and only move the market 

0.5%.’’). 

160 In addition, with respect to the Exchange’s 

assertions that, because the Shares are created inkind, they are ‘‘fully collateralized’’ and that the 

Shares should remain close to NAV because 

investors and market makers would arbitrage any 

significant price deviations between the price of the 

Shares and prices in the spot market (see id. at 

73372), the Exchange’s statement relates only to the 

potential connection between the Shares’ trade 

prices and NAV. It does not speak to any potential 

connection between the Shares’ trade prices and 

CME bitcoin futures prices, which is the 

interrelationship relevant to the second prong of the 

‘‘market of significant size’’ determination. 

161See VanEck Order, 86 FR at 64549; 

WisdomTree Order, 86 FR at 69333; Kryptoin 

Order, 86 FR at 74177; Skybridge Order, 87 FR at 

3879; Wise Origin Order, 87 FR at 5537. 

be the predominant influence on prices 

in the CME bitcoin futures market.148

BZX asserts that trading in the Shares 

would not be the predominant force on 

prices in the CME bitcoin futures market 

(or spot market) because of the 

significant volume in the CME bitcoin 

futures market,149 the size of bitcoin’s 

market capitalization,150 and the 

significant liquidity available in the spot 

market.151 BZX also asserts that, 

because the Shares are created in-kind, 

they are ‘‘fully collateralized,’’ and the 

Shares should remain close to NAV 

given that investors and market makers 

would arbitrage any significant price 

deviations between the price of the 

Shares and prices in the spot market.152

BZX further provides that, according to 

February 2021 data, the cost to buy or 

sell $5 million worth of bitcoin averages 

roughly 10 basis points with a market 

impact of 30 basis points.153 For a $10 

million market order, the cost to buy or 

sell is roughly 20 basis points with a 

market impact of 50 basis points. Stated 

another way, BZX provides that a 

market participant could enter a market 

buy or sell order for $10 million of 

bitcoin and only move the market 0.5 

percent.154 BZX further asserts that 

more strategic purchases or sales (such 

as using limit orders and executing 

through over-the-counter (‘‘OTC’’) 

bitcoin trade desks) would likely have 

less obvious impact on the market, 

which is consistent with MicroStrategy, 

Tesla, and Square being able to 

collectively purchase billions of dollars 

in bitcoin.155 Thus, BZX concludes that 

the combination of CME bitcoin futures 

leading price discovery, the overall size 

of the bitcoin market, and the ability for 

market participants (including 

authorized participants creating and 

redeeming in-kind with the Trust) to 

buy or sell large amounts of bitcoin 

without significant market impact, will 

help prevent the Shares from becoming 

the predominant force on pricing in 

either the bitcoin spot or the CME 

bitcoin futures market.156

The Commission does not agree. The 

record does not demonstrate that it is 

unlikely that trading in the proposed 

ETP would be the predominant 

influence on prices in the CME bitcoin 

futures market. As the Commission has 

already addressed and rejected one of 

the bases of BZX’s assertion—that CME 

bitcoin futures leads price 

discovery 157—it will only address 

below the other two bases—the overall 

size of, and the impact of buys and sells 

on, the bitcoin market. 

BZX’s assertions about the potential 

effect of trading in the Shares on the 

CME bitcoin futures market and bitcoin 

spot market are general and conclusory, 

repeating the aforementioned trade 

volume of the CME bitcoin futures 

market and the size and liquidity of the 

bitcoin spot market, as well as the 

market impact of a large transaction, 

without any analysis or evidence to 

support these assertions. For example, 

there is no limit on the amount of mined 

bitcoin that the Trust may hold. Yet 

BZX does not provide any information 

on the expected growth in the size of the 

Trust and the resultant increase in the 

amount of bitcoin held by the Trust over 

time, or on the overall expected number, 

size, and frequency of creations and 

redemptions—or how any of the 

foregoing could (if at all) influence 

prices in the CME bitcoin futures 

market. Thus, the Commission cannot 

conclude, based on BZX’s statements 

alone and absent any evidence or 

analysis in support of BZX’s assertions, 

that it is unlikely that trading in the ETP 

would be the predominant influence on 

prices in the CME bitcoin futures 

market.158

The Commission also is not 

persuaded by BZX’s assertions about the 

minimal effect a large market order to 

buy or sell bitcoin would have on the 

bitcoin market.159 While BZX concludes 

by way of a $10 million market order 

example that buying or selling large 

amounts of bitcoin would have 

insignificant market impact, the 

conclusion does not analyze the extent 

of any impact on the CME bitcoin 

futures market. Even assuming that BZX 

is suggesting that a single $10 million 

order in bitcoin would have immaterial 

impact on the prices in the CME bitcoin 

futures market, this prong of the 

‘‘market of significant size’’ 

determination concerns the influence on 

prices from trading in the proposed 

ETP, which is broader than just trading 

by the proposed ETP. While authorized 

participants of the Trust might only 

transact in the bitcoin spot market as 

part of their creation or redemption of 

Shares, the Shares themselves would be 

traded in the secondary market on BZX 

and other national securities exchanges. 

The record does not discuss the 

expected number or trading volume of 

the Shares, or establish the potential 

effect of the Shares’ trade prices on CME 

bitcoin futures prices.160 For example, 

BZX does not provide any data or 

analysis about the potential effect the 

quotations or trade prices of the Shares 

might have on market-maker quotations 

in CME bitcoin futures contracts and 

whether those effects would constitute a 

predominant influence on the prices of 

those futures contracts.161

Thus, because BZX has not provided 

sufficient information to establish both 

prongs of the ‘‘market of significant 

size’’ determination, the Commission 

cannot conclude that the CME bitcoin 

futures market is a ‘‘market of 

significant size’’ such that BZX would 


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20026 Federal Register / Vol. 87, No. 66 / Wednesday, April 6, 2022 / Notices 

162See Winklevoss Order, 83 FR at 37602. See 

also GraniteShares Order, 83 FR at 43931; 

ProShares Order, 83 FR at 43941; USBT Order, 85 

FR at 12615; WisdomTree Order, 86 FR at 69333; 

Valkyrie Order, 86 FR at 74163; Kryptoin Order, 86 

FR at 74178; Skybridge Order, 87 FR at 3880; Wise 

Origin Order, 87 FR at 5537. 

163BZX states that ‘‘[t]he largest OTC Bitcoin 

Fund has grown its [assets under management or 

‘‘AUM’’] from approximately $2.6 billion on 

February 26, 2020, the date on which the 

Commission issued the disapproval order for the 

United States Bitcoin and Treasury Investment 

Trust, to $37.1 billion on December 1, 2021 . . . .’’. 

See Amendment No. 1, 86 FR at 73364 n.48. 

According to BZX, while the price of one bitcoin 

has increased approximately 690% in the 

intervening period, the total AUM has increased by 

approximately 1,540%, indicating that the increase 

in AUM was created beyond just price appreciation 

in bitcoin and that investors are buying shares of 

a fund that experiences significant volatility in its 

premium and discount outside of the fluctuations 

in price of the underlying asset. See id. 164See id. at 73364. 165See id. at 73378. 166See id. 167See id. at 73364 n.49. 168See id. 

169See id. 

170See id. at 73364–65. BZX represents that the 

Purpose Bitcoin ETF, a retail bitcoin-based ETP 

launched in Canada, reportedly reached $1.2 billion 

in AUM as of October 15, 2021, demonstrating the 

demand for a North American market listed bitcoin 

ETP. BZX contends that the Purpose Bitcoin ETF 

also offers a class of units that is U.S. dollar 

denominated, which could appeal to U.S. investors. 

See id. at 73364 n.50. In addition, BZX states that 

investors in other countries, specifically Canada, 

generally pay lower fees than U.S. retail investors 

that invest in OTC bitcoin funds due to the fee 

pressure that results from increased competition 

among available bitcoin investment options. BZX 

also argues that, without an approved bitcoin ETP 

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

could seek to purchase shares of non-U.S. bitcoin 

vehicles in order to gain access to bitcoin exposure. 

BZX believes that, 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. See id. at 73365. BZX further 

contends that the lack of a U.S.-listed spot bitcoin 

ETP is not preventing U.S. funds from gaining 

exposure to bitcoin—several U.S. exchange-traded 

funds are using Canadian bitcoin ETPs to gain 

exposure to spot bitcoin—and that approving this 

proposal ‘‘would provide U.S. exchange-traded 

funds with a U.S.-listed and regulated product to 

provide such access rather than relying on either 

flawed products or products listed and primarily 

regulated in other countries.’’ See id. BZX also 

states that regulators in other countries have either 

approved or otherwise allowed the listing and 

trading of bitcoin-based ETPs. See id. at 73365 n.51. 

171See Exchange Act Section 19(b)(2)(C), 15 

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

be able to rely on a surveillance-sharing 

agreement with the CME to provide 

sufficient protection against fraudulent 

and manipulative acts and practices. 

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

the Exchange Act apply to the rules of 

national securities exchanges. 

Accordingly, the relevant obligation for 

a comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size, or other means to 

prevent fraudulent and manipulative 

acts and practices that are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement, resides 

with the listing exchange. Because there 

is insufficient evidence in the record 

demonstrating that BZX has satisfied 

this obligation, the Commission cannot 

approve the proposed ETP for listing 

and trading on BZX. 

C. Whether BZX Has Met Its Burden To 

Demonstrate That the Proposal Is 

Designed To Protect Investors and the 

Public Interest 

BZX contends that, if approved, the 

proposed ETP would protect investors 

and the public interest. However, the 

Commission must consider these 

potential benefits in the broader context 

of whether the proposal meets each of 

the applicable requirements of the 

Exchange Act.162 Because BZX has not 

demonstrated that its proposed rule 

change is designed to prevent 

fraudulent and manipulative acts and 

practices, the Commission must 

disapprove the proposal. 

BZX asserts that access for U.S. retail 

investors to gain exposure to bitcoin via 

a transparent and U.S. regulated, U.S. 

exchange-traded vehicle remains 

limited. Specifically, BZX asserts that 

current options for U.S. retail investors 

include paying a potentially high 

premium (and high management fees) to 

buy OTC bitcoin funds, to the advantage 

of more sophisticated investors that are 

able to create shares at NAV directly 

with the issuing trust,163 facing the 

technical risk, complexity, and 

generally high fees associated with 

buying spot bitcoin, purchasing shares 

of operating companies that they believe 

will provide proxy exposure to bitcoin 

with limited disclosure about the 

associated risks, or through the 

purchase of bitcoin futures exchangetraded funds.164 BZX explains that over 

the past 1.5 years, U.S. investor 

exposure to bitcoin through OTC bitcoin 

funds has grown into the tens of billions 

of dollars and more than a billion 

dollars of exposure through bitcoin 

futures exchange-traded funds.165 With 

that growth, so too has grown the 

quantifiable investor protection issues 

to U.S. investors through roll costs for 

bitcoin futures exchange-traded funds 

and premium/discount volatility and 

management fees for OTC bitcoin funds. 

BZX asserts that the concerns related to 

the prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed to be 

consistent with the Exchange Act and, 

as such, approving the proposal (and 

comparable proposals) would provide 

U.S. investors access to bitcoin in a 

regulated and transparent exchangetraded vehicle that would act to limit 

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

premium and discount volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) reducing 

risks and costs associated with investing 

in bitcoin futures exchange-traded funds 

and operating companies that are 

imperfect proxies for bitcoin exposure; 

and (iv) providing an alternative for 

investors to self-custodying spot 

bitcoin.166

BZX states that a number of operating 

companies engaged in unrelated 

businesses have announced investments 

as large as $5.3 billion in bitcoin.167

BZX argues that, without access to 

bitcoin ETPs, retail investors seeking 

investment exposure to bitcoin may 

purchase shares in these companies in 

order to gain the exposure to bitcoin.168

BZX contends that such operating 

companies, however, are imperfect 

bitcoin proxies and provide investors 

with partial bitcoin exposure paired 

with additional risks associated with 

whichever operating company they 

decide to purchase. BZX concludes that 

investors seeking bitcoin exposure 

through publicly traded companies are 

gaining only partial exposure to bitcoin 

and are not fully benefitting from the 

risk disclosures and associated investor 

protections that come from the 

securities registration process.169

BZX also states that investors in many 

other countries, including Canada and 

Brazil, are able to use more traditional 

exchange-listed and traded products 

(including exchange-traded funds 

holding spot bitcoin) to gain exposure to 

bitcoin, disadvantaging U.S. investors 

and leaving them with more risky 

means of getting bitcoin exposure.170

In essence, BZX asserts that the risky 

nature of direct investment in the 

underlying bitcoin and the unregulated 

markets on which bitcoin and OTC 

bitcoin funds trade compel approval of 

the proposed rule change. The 

Commission disagrees. Pursuant to 

Section 19(b)(2) of the Exchange Act, 

the Commission must approve a 

proposed rule change filed by a national 

securities exchange if it finds that the 

proposed rule change is consistent with 

the applicable requirements of the 

Exchange Act—including the 

requirement under Section 6(b)(5) that 

the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices—and it must disapprove the 

filing if it does not make such a 

finding.171 Thus, even if a proposed rule 

change purports to protect investors 


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172See SolidX Order, 82 FR at 16259; VanEck 

Order, 86 FR at 54550–51; WisdomTree Order, 86 

FR at 69344; Kryptoin Order, 86 FR at 74179; 

Valkyrie Order, 86 FR at 74163; Skybridge Order, 

87 FR at 3881; Wise Origin Order, 87 FR at 5538. 

173See supra note 162. 

174See 15 U.S.C. 78s(b)(2)(C). 

175 15 U.S.C. 78f(b)(5). 

176 In disapproving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

177See Amendment No. 1, 86 FR at 73361–62. 

178See supra notes 12 and 13 and accompanying 

text. See also Wise Origin Order, 87 FR at 5539. 

179See Amendment No. 1, 86 FR at 73365. 

180See id. 

181See id. The Exchange further asserts that, to 

the extent the Commission may view differential 

treatment of Bitcoin Futures ETFs and non-1940 

Act-registered ETPs that hold spot bitcoin as 

warranted based on concerns about the custody of 

bitcoin, that concern is mitigated to a significant 

degree by the custodial arrangements that the Trust 

has with the Custodian, which the Exchange 

believes are the same types of policies, procedures, 

and safeguards in handling spot bitcoin that the 

Commission has stated that broker-dealers should 

implement with respect to digital asset securities. 

The Exchange also asserts that the Custodian’s 

policies, procedures, and controls are consistent 

with industry best practices and, as a trust company 

chartered by the NYSDFS, the Custodian is subject 

to extensive regulation and has among the longest 

track records in the industry of providing custodial 

services for digital asset private keys. See id. at 

73366. But see also supra note 107 (regarding the 

limitations of NYSDFS regulation). In addition, 

even if the Exchange’s assertions regarding 

custodial arrangements are true, as noted above, see 

supra note 162, the Commission must consider any 

such potential investor protections in the broader 

context of whether the proposal meets each of the 

applicable requirements of the Exchange Act. The 

Exchange has not met such requirements. 

182See Amendment No. 1, 86 FR at 73366. 

183See id. 

184See id. The Exchange also makes additional 

investor protection arguments related to Bitcoin 

Futures ETFs, namely, that Bitcoin Futures ETFs 

represent a sub-optimal structure for long-term 

investors. The Exchange states that the cost of 

rolling CME bitcoin futures contracts will cause the 

Bitcoin Futures ETFs to lag the performance of 

bitcoin itself and, at over a billion dollars in assets 

under management, would cost U.S. investors 

hundreds of millions of dollars on an annual basis. 

The Exchange states that such rolling costs would 

not be required for spot bitcoin ETPs. The Exchange 

further states that Bitcoin Futures ETFs have grown 

so rapidly that they face potentially running into 

CME position limits, which would force a Bitcoin 

Futures ETF to invest in non-futures assets for 

bitcoin exposure and cause potential investor 

confusion and lack of certainty about what such 

Bitcoin Futures ETFs are actually holding and 

change the risk profile associated with such a 

Continued 

from a particular type of investment 

risk—such as experiencing a potentially 

high premium/discount by investing in 

OTC bitcoin funds—the proposed rule 

change may still fail to meet the 

requirements under the Exchange 

Act.172

Here, even if it were true that, 

compared to trading in unregulated 

bitcoin spot markets, trading a bitcoinbased ETP on a national securities 

exchange provides some additional 

protection to investors, the Commission 

must consider this potential benefit in 

the broader context of whether the 

proposal meets each of the applicable 

requirements of the Exchange Act.173 As 

explained above, for bitcoin-based ETPs, 

the Commission has consistently 

required that the listing exchange have 

a comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to bitcoin, or 

demonstrate that other means to prevent 

fraudulent and manipulative acts and 

practices are sufficient to justify 

dispensing with the requisite 

surveillance-sharing agreement. The 

listing exchange has not met that 

requirement here. Therefore, the 

Commission is unable to find that the 

proposed rule change is consistent with 

the statutory standard. 

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

Exchange Act, the Commission must 

disapprove a proposed rule change filed 

by a national securities exchange if it 

does not find that the proposed rule 

change is consistent with the applicable 

requirements of the Exchange Act— 

including the requirement under 

Section 6(b)(5) that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices.174

For the reasons discussed above, BZX 

has not met its burden of demonstrating 

that the proposal is consistent with 

Exchange Act Section 6(b)(5),175 and, 

accordingly, the Commission must 

disapprove the proposal.176

D. Other Arguments and Comments 

The Exchange makes additional 

arguments in its Amendment No. 1. The 

Exchange argues that, based on a review 

of the Commission’s past approvals and 

disapprovals of ETPs, the applicable 

standard does not require the 

underlying commodity market to be 

regulated, but rather requires that the 

listing exchange has in place a 

comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to the underlying 

commodity.177 The Exchange states that, 

therefore, the CME bitcoin futures 

market is the proper market for the 

Commission to consider in determining 

whether the proposal is consistent with 

the Exchange Act. 

The Commission does not disagree. 

As the Commission has clearly and 

consistently stated, an exchange that 

lists bitcoin-based ETPs can meet its 

obligation under Exchange Act Section 

6(b)(5) that its rules be designed to 

prevent fraudulent and manipulative 

acts and practices by demonstrating that 

the exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to the underlying or reference 

bitcoin assets.178 As discussed in detail 

in Section III.B.2, the Commission has 

considered the Exchange’s arguments 

with respect to the CME bitcoin futures 

market, and the Commission concludes 

that the Exchange has failed to 

demonstrate that the CME bitcoin 

futures market is such a ‘‘market of 

significant size.’’ 

The Exchange also argues that it 

would be inconsistent for the 

Commission to allow the listing and 

trading of exchange-traded funds 

registered under the Investment 

Company Act of 1940 (‘‘1940 Act’’) that 

provide exposure to bitcoin through 

CME bitcoin futures (‘‘Bitcoin Futures 

ETFs’’) while disapproving this 

proposal.179 The Exchange asserts that, 

if the Commission does not deem the 

CME bitcoin futures market a regulated 

market of significant size, permitting 

Bitcoin Futures ETFs to list and trade 

would be inconsistent with the 

requirement under the Exchange Act 

that the listing and trading of the 

Bitcoin Futures ETFs be designed to 

prevent fraudulent and manipulative 

acts and practices as articulated in the 

Winklevoss Order and other disapproval 

orders.180 The Exchange states that, 

while one may argue that the 1940 Act 

provides certain investor protections, 

those protections relate primarily to the 

composition of board of directors, 

limitations on leverage, and transactions 

with affiliates, among others, and thus 

do not confer additional protections to 

investors in relation to the underlying 

CME bitcoin futures market to justify 

different regulatory outcomes for 

Bitcoin Futures ETFs and non-1940 Actregulated ETPs that hold spot bitcoin.181

The Exchange also adds that the largest 

Bitcoin Futures ETF has contracts 

representing about 40 percent of open 

interest in CME bitcoin futures, which, 

according to the Exchange, ‘‘seems to 

directly contradict’’ the ‘‘predominant 

influence’’ prong in establishing 

whether the CME bitcoin futures market 

constitutes a market of significant 

size.182 The Exchange further asserts 

that any concerns related to preventing 

fraud and manipulation related to spot 

bitcoin ETPs would ‘‘apply equally’’ to 

the spot markets underlying the futures 

contracts held by a Bitcoin Futures 

ETF.183 The Exchange concludes that 

the only ‘‘consistent outcome’’ would be 

approving spot bitcoin ETPs on the 

basis that the CME bitcoin futures 

market is a regulated market of 

significant size.184


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20028 Federal Register / Vol. 87, No. 66 / Wednesday, April 6, 2022 / Notices 

Bitcoin Futures ETF. See id. at 73365. However, as 

noted above, see supra note 162, even if these 

assertions are true, the Commission must consider 

any potential investor protections of the proposal in 

the broader context of whether the proposal meets 

each of the applicable requirements of the Exchange 

Act. The Exchange has not met such requirements. 

185See supra note 12. See also VanEck Order, 86 

FR at 64552; Skybridge Order, 87 FR at 3881 n.177. 

186See letter from Sam Ahn, dated August 25, 

2021 (‘‘Ahn Letter’’). 

187See Ahn Letter. 

The Commission disagrees with the 

premise of these arguments. The 

proposed rule change, as modified by 

Amendment No. 1, does not relate to a 

product regulated under the 1940 Act, 

nor does it relate to the same underlying 

holdings as the Bitcoin Futures ETFs. 

The Commission considers the 

proposed rule change on its own merits 

and under the standards applicable to it. 

Namely, with respect to this proposed 

rule change, the Commission must 

apply the standards as provided by 

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

which it has applied in connection with 

its orders considering previous 

proposals to list bitcoin-based 

commodity trusts and bitcoin-based 

trust issued receipts.185

Comment letters also address the 

general nature and uses of bitcoin 186

and the state of regulation of bitcoin 

markets.187 Ultimately, however, 

additional discussion of these topics is 

unnecessary, as they do not bear on the 

basis for the Commission’s decision to 

disapprove the proposal. 

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that the proposed rule change, as 

modified by Amendment No. 1, is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and in 

particular, with Section 6(b)(5) of the 

Exchange Act. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that proposed rule change SR– 

CboeBZX–2021–051, as modified by 

Amendment No. 1, be, and hereby is, 

disapproved. 

By the Commission. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–07193 Filed 4–5–22; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice: 11705] 

Determination With Respect to 

Assistance to Afghanistan Consistent 

With the Trafficking Victims Protection 

Act of 2000 

Consistent with section 110 of the 

Trafficking Victims Protection Act of 

2000 (22 U.S.C. 7107) (the ‘‘Act’’) and 

Presidential Memorandum dated 

December 21, 2021, I hereby determine: 

• That a partial waiver of the 

restriction described in section 

110(d)(1)(A)(i) of the Act with respect to 

Afghanistan to allow for Economic 

Support Fund and Global Health 

Programs assistance would promote the 

purposes of the Act or is otherwise in 

the national interest of the United 

States; and 

• That providing the assistance 

described in section 110(d)(1)(B) of the 

Act to Afghanistan would promote the 

purposes of the Act or is otherwise in 

the national interest of the United 

States. 

This determination, along with the 

accompanying certification required by 

section 110(e) of the Act, and the 

Memorandum of Justification, on which 

I have relied, shall be transmitted to 

Congress, and the determination shall 

be published in the Federal Register. 

Dated: March 24, 2022. 

Antony J. Blinken, 

Secretary of State. 

[FR Doc. 2022–07305 Filed 4–5–22; 8:45 am] 

BILLING CODE 4710–31–P 

DEPARTMENT OF STATE 

[Public Notice: 11666] 

List of Participating Countries and 

Entities in the Kimberley Process 

Certification Scheme, Known as 

‘‘Participants’’ for the Purposes of the 

Clean Diamond Trade Act of 2003 

AGENCY: Bureau of Economic and 

Business Affairs. 

ACTION: Notice. 

SUMMARY: The Department of State is 

updating the list of Participants eligible 

for trade in rough diamonds under the 

Act, and their respective Importing and 

Exporting Authorities, revising the 

previously published list of January 8, 

2021, to reflect the addition of the 

Kyrgyz Republic, Mozambique, and 

Qatar as Participants. 

DATES: This notice is effective on April 

6, 2022. 

FOR FURTHER INFORMATION CONTACT: 

George Cajati, Bureau of Economic and 

Business Affairs, Department of State, 

(202) 647–2856. 

SUPPLEMENTARY INFORMATION: Section 4 

of the Clean Diamond Trade Act of 

2003, Public Law 108–19 (the ‘‘Act’’) 

requires the President to prohibit the 

importation into, or the exportation 

from, the United States of any rough 

diamond, from whatever source, that 

has not been controlled through the 

Kimberley Process Certification Scheme 

(KPCS). Under Section 3(2) of the Act, 

‘‘controlled through the Kimberley 

Process Certification Scheme’’ means an 

importation from the territory of a 

Participant or exportation to the 

territory of a Participant of rough 

diamonds that is either (i) carried out in 

accordance with the KPCS, as set forth 

in regulations promulgated by the 

President, or (ii) controlled under a 

system determined by the President to 

meet substantially the standards, 

practices, and procedures of the KPCS. 

The referenced regulations are 

contained at 31 CFR part 592 (‘‘Rough 

Diamond Control Regulations’’) (68 FR 

45777, August 4, 2003). 

Section 6(b) of the Act requires the 

President to publish in the Federal 

Register a list of all Participants, and all 

Importing and Exporting Authorities of 

Participants, and to update the list as 

necessary. Section 2 of E.O.13312 of 

July 29, 2003 delegates this function to 

the Secretary of State. Section 3(7) of the 

Act defines ‘‘Participant’’ as a state, 

customs territory, or regional economic 

integration organization identified by 

the Secretary of State. Section 3(3) of the 

Act defines ‘‘Exporting Authority’’ as 

one or more entities designated by a 

Participant from whose territory a 

shipment of rough diamonds is being 

exported as having the authority to 

validate a Kimberley Process Certificate. 

Section 3(4) of the Act defines 

‘‘Importing Authority’’ as one or more 

entities designated by a Participant into 

whose territory a shipment of rough 

diamonds is imported as having the 

authority to enforce the laws and 

regulations of the Participant regarding 

imports, including the verification of 

the Kimberley Process Certificate 

accompanying the shipment. 

List of Participants 

Pursuant to Sections 3 and 6 of the 

Act, Section 2 of E.O. 13312, 

Department of State Delegations of 

Authority No. 245–1 (February 13, 

2009), and No. 376 (October 31, 2011), 

I hereby identify the following entities 

as Participants under section 6(b) of the 

Act. Included in this List are the 

Importing and Exporting Authorities for 

Participants, as required by Section 6(b) 


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