```

[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95853-95865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28343]

[[Page 95853]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101775; File No. SR-NYSEARCA-2024-98]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Bitwise 10 
Crypto Index Fund Under Proposed NYSE Arca Rule 8.800-E (Commodity- and 
Digital Asset-Based Investment Interests)

November 27, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 14, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the Bitwise 10 
Crypto Index Fund (the ``Trust'') under proposed NYSE Arca Rule 8.800-E 
(Commodity- and/or Digital Asset-Based Investment Interests). The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange recently proposed to adopt new NYSE Arca Rule 8.800-E 
to provide for the listing and trading of Commodity- and/or Digital 
Asset-Based Investment Interests, which are securities issued by a 
trust, limited liability company, or other similar entity that holds 
specified commodities, digital assets, Derivative Securities Products, 
and/or cash.\4\ The Exchange now proposes to list and trade shares of 
the Trust \5\ under proposed NYSE Arca Rule 8.800-E.
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    \4\ See Securities Exchange Act Release No. 101470 (October 29, 
2024), 89 FR 87681 (November 4, 2024) (SR-NYSEARCA-2024-87). Shares 
of the Trust will not trade on the Exchange until such time that 
both the instant proposed rule change and the proposed rule change 
to adopt Rule 8.800-E have been approved by the Commission.
    \5\ The Trust is a Delaware statutory trust. Shares of the Trust 
currently trade under the symbol BITW on OTCQX. On March 1, 2024, 
the Trust filed with the Commission an Annual Report on Form 10-K 
for the fiscal year ended December 31, 2023 (the ``Annual Report'').
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    According to the Annual Report, the Trust will not be registered as 
an investment company under the Investment Company Act of 1940,\6\ and 
is not required to register thereunder. The Trust is not a commodity 
pool for purposes of the Commodity Exchange Act.\7\
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    \6\ 15 U.S.C. 80a-1.
    \7\ 17 U.S.C. 1.
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    The Exchange represents that the Shares satisfy the requirements of 
proposed NYSE Arca Rule 8.800-E and thereby qualify for listing on the 
Exchange.\8\
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    \8\ With respect to the application of Rule 10A-3 (17 CFR 
240.10A-3) under the Act, the Trust relies on the exemption 
contained in Rule 10A-3(c)(7).
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Operation of the Trust \9\
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    \9\ The description of the operation of the Trust, the Shares, 
and digital asset markets contained herein is based, in part, on the 
Annual Report. See note 5, supra.
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    The Trust will issue the Shares which, according to the Annual 
Report, represent units of undivided beneficial ownership of the Trust. 
The Trust is a Delaware statutory trust and will operate pursuant to a 
trust agreement (the ``Trust Agreement'') between Bitwise Investment 
Advisers, LLC (the ``Sponsor'' or ``Bitwise'') and Delaware Trust 
Company, as the Trust's trustee (the ``Trustee''). Coinbase Custody 
Trust Company, LLC will maintain custody of the Trust's assets (the 
``Custodian''). The Bank of New York Mellon will be the custodian for 
the Trust's cash holdings (in such role, the ``Cash Custodian''), as 
well as the Trust's administrator (in such role, the ``Administrator'') 
and transfer agent (in such role, the ``Transfer Agent'').
    According to the Annual Report, the investment objective of the 
Trust is to invest in a portfolio of digital assets (each, a 
``Portfolio Asset'' and, collectively, ``Portfolio Assets'') that 
tracks the Bitwise 10 Large Cap Crypto Index (the ``Index''). The Index 
is administered by Bitwise Index Services, LLC, an affiliate of the 
Sponsor (the ``Index Provider''). The Trust rebalances monthly 
alongside the rebalance of the Index to stay current with any changes 
to the Index. As of October 31, 2024, the Trust's Portfolio Assets and 
respective weightings are:

------------------------------------------------------------------------
                                                                  Weight
             Portfolio asset                      Symbol           (%)
------------------------------------------------------------------------
Bitcoin.................................  BTC                      75.10
Ethereum................................  ETH                       16.5
Solana..................................  SOL                       4.30
XRP.....................................  XRP                       1.50
Cardano.................................  ADA                       0.70
Avalanche...............................  AVAX                      0.60
Chainlink...............................  LINK                      0.40
Bitcoin Cash............................  BCH                       0.40
Polkadot................................  DOT                       0.30
Uniswap.................................  UNI                       0.30
------------------------------------------------------------------------

    To determine the Trust's Net Asset Value (``NAV'') at the end of 
every Business Day,\10\ the Sponsor will rely on a third-party 
valuation vendor, CF Benchmarks Ltd. (the ``Valuation Vendor''), to 
calculate and publish the U.S. dollar price for each Portfolio Asset 
(each, a ``Reference Price'' and, collectively, the ``Reference 
Prices'') as of 4:00 p.m. E.T. using prices from several different 
digital asset trading platforms selected by the Valuation Vendor.\11\ 
Each Reference Price aggregates the trade flow of several major digital 
asset trading platforms during an observation window between 3:00 p.m. 
and 4:00 p.m. E.T. into the U.S. dollar price of one of each Portfolio 
Asset at 4:00 p.m. E.T. The Reference Price calculation is designed 
based on the IOSCO Principals for Financial Benchmarks.
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    \10\ For purposes of this filing, a ``Business Day'' is defined 
as any day on which the New York Stock Exchange is scheduled to be 
open for trading.
    \11\ Digital asset trading platforms considered by the Valuation 
Vendor currently include Bitstamp, Coinbase, Gemini, itBit, LMAX, 
and Kraken. The Valuation Vendor's selection of digital asset 
trading platforms from which the Reference Prices may be derived is 
further discussed below.
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    The Trust's only assets will be Portfolio Assets and cash.\12\ The 
Trust

[[Page 95854]]

does not seek to hold any digital assets other than Portfolio Assets 
and has expressly disclaimed ownership of any such assets in the event 
the Trust ever involuntarily comes into possession of such assets.\13\ 
The Trust will not use derivatives that may subject the Trust to 
counterparty and credit risks. The Trust will process creations and 
redemptions in cash. The Trust's only recurring ordinary expense is 
expected to be the Sponsor's unitary management fee (the ``Management 
Fee''), which will accrue daily and will be payable monthly in arrears. 
The Administrator will calculate the Management Fee by applying an 
annualized rate to the NAV of the Trust's assets at the end of each 
month. Financial institutions authorized to create and redeem Shares 
(each, an ``Authorized Participant'') will deliver, or cause to be 
delivered, cash in exchange for Shares of the Trust, and the Trust will 
deliver cash to Authorized Participants when those Authorized 
Participants redeem Shares of the Trust.
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    \12\ The Trust conducts creations and redemptions of its Shares 
for cash. Authorized Participants (defined below) will deliver cash 
to the Cash Custodian pursuant to creation orders for Shares and the 
Cash Custodian will hold such cash until such time as it can be 
converted to Portfolio Assets, which the Trust intends to do on the 
same Business Day in which such cash is received by the Cash 
Custodian. Additionally, the Trust will sell Portfolio Assets in 
exchange for cash pursuant to redemption orders of its Shares. In 
connection with such sales, an approved Digital Asset Trading 
Counterparty (defined below) will send cash to the Cash Custodian. 
The Cash Custodian will hold such cash until it can be distributed 
to the redeeming Authorized Participant, which it intends to do on 
the same Business Day in which it is received. In connection with 
the purchases and sales of Portfolio Assets pursuant to its creation 
and redemption activity, it is possible that the Trust may retain de 
minimis amounts of cash as a result of rounding differences. The 
Trust may also initially hold small amounts of cash to initiate 
Trust operations in the immediate aftermath of its Registration 
Statement being declared effective. Lastly, the Trust may also sell 
Portfolio Assets and temporarily hold cash as part of a liquidation 
of the Trust or to pay certain extraordinary expenses not assumed by 
the Sponsor. Under the Trust Agreement, the Sponsor has agreed to 
assume the normal operating expenses of the Trust, subject to 
certain limitations. For example, the Trust will bear any 
indemnification or litigation liabilities as extraordinary expenses. 
In any event, in the ongoing course of business, the amounts of cash 
retained by the Trust are not expected to constitute a material 
portion of the Trust's holdings.
    \13\ The Trust may, from time to time, passively receive, by 
virtue of holding Portfolio Assets, certain additional digital 
assets (``IR Assets'') or rights to receive IR Assets (``Incidental 
Rights'') through a fork of a digital asset network or an airdrop of 
assets. The Trust will not seek to acquire such IR Assets or 
Incidental Rights. Pursuant to the terms of the Trust Agreement, the 
Trust has disclaimed ownership in any such IR Assets and/or 
Incidental Rights to make clear that such assets are not and shall 
never be considered assets of the Trust and will not be taken into 
account for purposes of determining the Trust's NAV or NAV per 
Share. Neither the Trust, nor the Sponsor, nor the Custodian, nor 
any other person associated with the Trust will, directly or 
indirectly, engage in action where any portion of the Trust's 
Portfolio Assets becomes subject to any proof-of-stake validation or 
is used to earn additional assets or generate income or other 
earnings.
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The Index
    The Bitwise Crypto Index Committee (the ``Committee''), convened by 
the Index Provider, is the governing body of the Index and is 
responsible for developing, maintaining, and adjusting the methodology 
by which the Index is constructed (the ``Index Methodology'').\14\ The 
Index is comprised of ten digital assets (the ``Index Components'') and 
is designed to track the performance of the ten largest digital assets 
that currently trade publicly on eligible digital asset trading 
platforms, as selected and weighted by free-float market 
capitalization. The market capitalization of a digital asset is 
calculated by multiplying its price \15\ times its free-float-adjusted 
or ``circulating'' \16\ supply. The proportion of each digital asset in 
the Index is based on this adjusted market capitalization.
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    \14\ The full Index Methodology is available at https://bitwiseinvestments.com/indexes/methodology.
    \15\ Based on the Lukka Prime price.
    \16\ According to the Annual Report, circulating supply is the 
best approximation of the number of coins available on public 
markets. Circulating supply is derived by taking the total number of 
existing digital assets native to a specific Blockchain and 
subtracting the number of coins verifiably burned, locked, or 
reserved (for example, by a foundation).
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    The Index will only consider for eligibility as Index Components 
digital assets that satisfy the following criteria:
     The digital asset must be a cryptographically secured 
digital bearer instrument;
     The digital asset must have a price that is not pegged to 
another digital asset, fiat currency, group of those currencies, or 
hard asset;
     The digital asset must be freely traded and can be freely 
held for the foreseeable future;
     The digital asset must trade on an Eligible Digital Asset 
Trading Platform,\17\ without withdrawal issues specific to that 
digital asset;
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    \17\ The Committee determines which trading platforms qualify as 
Eligible Digital Asset Trading Platforms. To qualify as an Eligible 
Digital Asset Trading Platform, a venue must: (1) provide an open 
platform for exchanging at least one digital asset for either 
another digital asset or for a fiat currency; (2) not be domiciled 
in a country, region, or locality that implements meaningful capital 
controls on international investors; (3) not be subject to 
extraordinary regulatory or legal action that is likely to lead to 
unusual pricing, significantly disrupt institutional access to the 
market, or disrupt fiat withdrawals; (4) charge fees for trading; 
(5) have a functioning, secure, and reliable application programming 
interface (API) allowing for the timely ingestion of trade and 
volume data; (6) have no significant downtime, withdrawal, or known 
security issues; (7) account for more than 1.0% of the combined 
trailing 30-day dollar trading volume of all digital assets on 
entities that meet the prior listed rules; and (8) in the opinion of 
the Committee, have significant real spot trading volume. The list 
of Eligible Digital Asset Trading Platforms is reviewed on an annual 
basis. As of January 25, 2024, the date that the Committee performed 
its 2024 annual review of Eligible Digital Asset Trading Platforms, 
the list of Eligible Digital Asset Trading Platforms included 
Bitstamp, BitFlyer, Coinbase, Gemini, Kraken, itBit, and LMAX.
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     The digital asset must be custodied by a third-party 
custodian regulated as a federally chartered bank or as a state trust 
company, that meets additional security practices, insurance 
requirements, and business practice requirements as determined by the 
Committee; \18\
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    \18\ The list of approved custodians is reviewed and updated on 
an annual basis, or at the discretion of the Committee. As of 
January 23, 2024, the date that the Committee performed its 2024 
annual review of eligible custodians, the list of approved 
custodians included Anchorage, Bakkt Warehouse, BitGo, Coinbase 
Custody, Fidelity Digital Assets, and Gemini Custody.
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     The digital asset must have no known security 
vulnerabilities, including critical bugs, undue exposure to 51% 
attacks, or other factors, as determined by the Committee;
     The digital asset must not face undue risk of being deemed 
a security under U.S. federal securities laws in the opinion of the 
Committee, given present knowable facts and circumstances; \19\
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    \19\ The Committee conducts a risk-based assessment that 
considers whether the digital asset may be deemed a security under 
U.S. federal securities laws and whether it is subject to regulatory 
action that may imperil the value of the digital asset. Such 
assessment does not preclude legal or regulatory action based on the 
presence of a security. The Committee does not engage in legal 
analysis of any digital assets or perform any analysis of digital 
assets based upon any legal standards. The Committee reviews the 
following information to make this determination: (1) public 
information to determine if the Commission, any other U.S. 
regulatory agency, or any court has made any statements regarding 
the digital asset; (2) public information regarding how the digital 
asset markets view the digital asset, including whether the digital 
asset has been listed on entities such as Coinbase or other U.S. 
digital asset trading platforms that would have had access to a 
reasonable amount of information when making their determinations to 
list the digital asset; (3) public information to undertake 
reasonable diligence into the structure and technology of the 
digital asset, including reviewing the digital asset's whitepaper if 
available and speaking with the sponsor of the digital asset; and 
(4) any other information gained from reputable sources that may 
impact the Committee's view of the digital asset, including a review 
of any websites associated with the digital asset's development. If 
the Committee adds a digital asset to the Index, but later becomes 
aware of new information that causes the Committee to revalue the 
risk profile of such digital asset, the Committee will review such 
information and determine whether the digital asset should be 
removed from the Index.
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     The digital asset must have traded more than 1% of its 
free-float-adjusted market capitalization on eligible trading venues 
over the past 30 days; and

[[Page 95855]]

     The digital asset must have maintained a unit price 
greater than $0.01 for the past 30 consecutive days.
    The Index is reconstituted on a monthly basis at 4:00 p.m. E.T. on 
the last Business Day of each month. As of October 31, 2024, the Index 
included the following digital assets, and their weights were as 
follows: \20\
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    \20\ The weighting of the Trust's Portfolio Assets will differ 
slightly from the weightings of the Index Components due to the need 
for the Trust to implement actual rebalance transactions, unlike the 
Index. The transactions undertaken by the Trust to align the 
Portfolio Assets with the Index Components may create transaction 
costs, fees, and trading slippage, which may cause the Trust's 
performance to deviate slightly from the Index's performance.

------------------------------------------------------------------------
                                                                 Weight
                        Digital asset                             (%)
------------------------------------------------------------------------
Bitcoin......................................................      75.14
Ethereum.....................................................      16.42
Solana.......................................................       4.30
XRP..........................................................       1.56
Cardano......................................................       0.66
Avalanche....................................................       0.55
Chainlink....................................................       0.39
Bitcoin Cash.................................................       0.38
Uniswap......................................................       0.31
Polkadot.....................................................       0.30
------------------------------------------------------------------------

    To the extent that a digital asset meets the Index's eligibility 
requirements at a future date, it would be considered for inclusion in 
the Index in connection with a future rebalancing. Digital assets will 
lose eligibility and be removed from the Index at the next monthly 
reconstitution event if they violate any of the eligibility 
requirements described above for 30 consecutive days.\21\
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    \21\ Under extraordinary circumstances, digital assets may lose 
eligibility to be Index Components and be removed from the Index on 
a same-day basis by a unanimous vote of the quorum of members of the 
Committee. Such emergency removals will take place at 4:00 p.m. E.T. 
following the conclusion of such decision by the Committee and will 
be publicly available on the Sponsor's website.
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    The Index is calculated on a daily basis and published on the 
Sponsor's website. Should any material change be made to the Index 
Methodology that results in a material change to the composition of the 
Index and, as part of the Trust's monthly rebalancing process, results 
in a material change to the composition of the Trust (which the Sponsor 
generally considers to be a change of 10% or more to the Trust or the 
Index holdings, but in any event, is also determined at the Trust's 
discretion), the Trust will notify shareholders of such material change 
by filing a Form 8-K with the Commission.
    The Index will implement a rule that will limit the Index 
Components and weightings thereof such that at least 90% of the weight 
of the Index Components shall, on both an initial and continuing basis, 
consist of commodities and/or digital assets concerning which the 
Exchange is able to obtain information via the Intermarket Surveillance 
Group (``ISG''), from other members of the ISG, or via a comprehensive 
surveillance sharing agreement (``CSSA'') at each monthly rebalancing. 
This rule will be in effect prior to such time that Shares of the Trust 
begin trading on the Exchange.
The Portfolio Assets and Index Components
    The Portfolio Assets will consist of the Index Components except 
that the Sponsor may determine to exclude a particular Index Component 
in its discretion under certain specified circumstances further 
described below (including to comply with the proposed requirements of 
Rule 8.800-E(e)(1)). The weighting of each Portfolio Asset is generally 
expected to be the same as the weighting of the Index Components in the 
Index, except when the Sponsor determines to exclude one or more 
digital assets from the Portfolio Assets in the rules-based 
circumstances set forth below, in which case the weightings of the 
Portfolio Assets are generally expected to be calculated proportionally 
to the respective Index Components for the remaining Index Components.
    The Sponsor will retain discretion to include or exclude individual 
digital assets from the Portfolio Assets only in the following 
circumstances:
     The Sponsor may exclude a digital asset or rebalance the 
weighting of an existing Portfolio Asset to the extent its inclusion as 
a Portfolio Asset or projected weighting would exceed a threshold that 
could, in the Sponsor's sole discretion, require the Trust to register 
as an investment company under the Investment Company Act or require 
the Sponsor to register as an investment adviser under the Investment 
Advisers Act;
     None or few of the Authorized Participants or service 
providers has the ability to trade or otherwise support a digital 
asset;
     The Sponsor believes, based on current guidance, that use 
or trading of the digital asset raises or potentially raises 
significant governmental, policy, or regulatory concerns or is subject 
or likely subject to a specialized regulatory regime, such as the U.S. 
federal securities or commodities laws or similar laws in other 
significant jurisdictions;
     The digital asset's underlying code contains, or may 
contain, significant flaws or vulnerabilities;
     There is limited or no reliable information regarding, or 
concerns over the intentions of, the core developers of the digital 
asset; or
     Any of the existing criteria used by the Index for 
inclusion in the Index is found by the Sponsor to prohibit the 
inclusion of the digital asset in the Index, in which case, the Sponsor 
may, in its sole discretion, cause the Portfolio Assets to deviate from 
the Index Components until such time as the Index has taken similar 
action.
    The Trust does not intend for the Portfolio Assets to deviate from 
the Index Components, and the Trust anticipates that such deviation 
would likely occur only if the Trust was unable to hold a particular 
digital asset included in the Index, if the Trust determined that 
holding that particular digital asset would result in significant harm 
to shareholders, or if the holding of that digital asset would cause 
the Trust's holdings to be inconsistent with the proposed requirements 
of Rule 8.800-E(c)(1). The Sponsor will ensure that the Trust's 
holdings are consistent with the requirements of Rule 8.800-E(c)(1), as 
proposed, by monitoring the weightings of the Portfolio Assets and 
Index Components daily and taking any measures as described in the 
preceding section to ensure that 90% of the holdings will consist of 
commodities and/or digital assets concerning which the Exchange may 
obtain information via the ISG, from other members of the ISG, or via 
CSSA \22\ and by implementing an Index rule that will limit the Index 
Components and weightings such that at least 90% of the weight of such 
constituents shall, on both an initial and continuing basis, consist of 
the same assets.
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    \22\ The Sponsor notes that, as of the date of this filing, the 
Index Components and Portfolio Assets that meet this standard are 
bitcoin and ether, which make up more than 91% of the Trust and 
Index.
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Background on Portfolio Assets
Bitcoin
    Bitcoin is the most well-recognized digital asset in the world. As 
of October 31, 2024, bitcoin is the largest digital asset in the world 
by market capitalization. Bitcoin was invented in 2008 by a 
pseudonymous software developer, or a group of software developers, 
under the name Satoshi Nakamoto. Nakamoto published a white paper 
titled ``Bitcoin: A Peer-to-Peer Electronic Cash System'' on October 
31, 2008, which provided the technical outline for launching the 
bitcoin network. The network went live on January 3, 2009, when 
Nakamoto mined

[[Page 95856]]

the first block of transactions, known as the ``Genesis Block.''
    The software underlying the Bitcoin Blockchain determines a number 
of key and independent parameters. At the heart of the system lies the 
algorithm that enforces that all ledgers converge over time (commonly 
known as the ``Consensus Algorithm''). Other important portions of the 
system include the rules that deem a transaction valid, a programming 
language that allows for different types of transactions to be 
executed, and the process through which new digital assets are minted 
(commonly known as ``Mining''), and others. The network strictly 
enforces the total amount of units issued to converge towards 21 
million by the year 2140 through a predetermined schedule.
    New bitcoin is created when Miners process blocks of transactions. 
In the bitcoin network, this occurs roughly every ten minutes. The 
Blockchain periodically adjusts the difficulty of settling transactions 
to ensure that cadence remains approximately accurate. The amount of 
new bitcoin created each time a block of bitcoin transactions is 
processed is predetermined by the software underlying the bitcoin 
Blockchain. Initially, the Miner that settled a block of transactions 
on the bitcoin Blockchain received 50 bitcoin. That reward was and is 
programmed to be cut in half roughly every four years; currently, 
Miners receive 3.125 bitcoin for each block of settled transactions.
    The bitcoin network is known for being extremely decentralized, as 
it is maintained by a network of computers that, joined together, 
represents the largest supercomputer in the world. Some believe that 
this makes bitcoin more secure and resistant to attacks compared to 
other Blockchain networks.
Ethereum
    Ether is the native digital asset of Ethereum, the second largest 
Blockchain network ranked by market capitalization as of October 31, 
2024. Ethereum was described in a white paper in late 2013, and an 
online crowdsale to fund development took place between July and August 
2014. The network went live in July 2015.
    Ethereum was specifically designed to power smart contracts, which 
are computer programs intended to enforce the performance of a contract 
that parties can codify and agree upon with minimal or no need of 
trusted intermediaries.
    Ethereum's script language, the programming language that 
developers use for creating Blockchain applications, is significantly 
more flexible than bitcoin's. This allows the creation of programs that 
do general computation instead of only the relatively simple 
conditional payments that are possible with bitcoin. As such, a whole 
ecosystem of different applications including asset issuance, 
decentralized financial applications, identity management, and others 
are able to be and have been developed on top of the Ethereum network. 
However, Ethereum's more permissive programming language makes the 
network inherently less secure because it can increase the odds that a 
catastrophic bug in one smart contract could affect the whole network.
    Due to Ethereum's focus on enabling innovation on its Blockchain 
system, events like hard forks are significantly more common in 
Ethereum than in bitcoin. For example, on September 15, 2022, Ethereum 
transitioned from a proof-of-work network to a proof-of-stake network. 
This infrastructure upgrade was known as ``The Merge.'' This was only 
one of several hard forks the Ethereum Blockchain has undergone since 
inception. Some consider Ethereum's stance as an advantage, while 
others perceive it as a risk, especially as the project grows larger 
and the cost of potential mistakes rises.
Solana
    Solana is a decentralized blockchain network with a focus on 
secure, low-fee, high-speed transactions that are paid for using SOL, 
which is the Solana Blockchain's native digital asset. By leveraging 
proof-of-history and other breakthrough innovations, Solana allows for 
greater throughput than many other Blockchains, with the ability to 
scale at the rate of Moore's Law. Solana, like Ethereum, is home to 
several use cases including gaming, decentralized finance, and non-
fungible token marketplaces.
XRP
    XRP is a digital asset that was created by Chris Larsen, Jed 
McCaleb, Arthur Britto, and David Schwartz (the ``XRP Creators'') in 
2012. Built out of the frustrations of bitcoin's utility for payments, 
the XRP ledger (the ledger to which XRP is native) is designed to be a 
global real-time payment and settlement system. The XRP Creators 
developed this unique digital asset to solve the scalability concerns 
that they believed were inherent in the structure of bitcoin. In 
particular, XRP was created to improve the efficiency of payments. To 
this end, the open source code (available at https://github.com/ripple/rippled/) was designed to maximize speed, scalability, and stability. 
For example, the XRP ledger can accommodate 4,400 transactions per 
second. This is, in part, because XRP is not mined like bitcoin, but is 
designed for the ledgers to close in seconds based on a system of 
consensus. Further, because of the consensus methodology underlying the 
XRP design, network transaction fees are substantially lower than 
bitcoin, typically less than $0.01. Given the unique qualities of XRP 
and the natural suitability of this digital asset to solve the friction 
experience with payments, the XRP Creators started a company, calling 
it Ripple, to further develop the ecosystem around XRP and build 
software solutions to address the friction in sending, processing, and 
sourcing liquidity for global payments. Thus, the company, Ripple, 
began as, and continues to be, a payments software company. Today, 
Ripple is focused on designing and deploying state-of-the-art and 
industry-leading software to enable banks and financial institutions to 
more easily effect cross-border payments. For maximum efficiency, 
Ripple's software can integrate XRP to solve liquidity and value 
transfer challenges.
Cardano
    Cardano is a proof-of-stake Blockchain and smart contract platform 
that facilitates secure payments and enables developers to build 
decentralized applications. Grounded in research and academia, the 
protocol and its token were named after 16th and 19th century 
polymaths, and its programming language, Haskell, is commonly used in 
the traditional finance and security sectors.
Avalanche
    Avalanche is a Blockchain ecosystem that is home to several 
applications across a variety of use cases including, but not limited 
to, gaming and decentralized finance. Avalanche's design makes it 
relatively easy for developers to deploy applications to and from 
Ethereum. Avalanche was designed to be a faster and cheaper alternative 
to other Blockchains for purposes of a better user and developer 
experience. For example, the network leverages its different built-in 
Blockchains for enhanced transaction speeds at economically feasible 
costs. To that end, some of its built-in Blockchains are dedicated to 
specific use cases and/or applications to avoid network congestion the 
popularity of other applications can cause.

[[Page 95857]]

Chainlink
    Chainlink is a network that connects smart contracts with real 
world data. Blockchain networks are unaware of what happens outside of 
those networks, and therefore whenever a Blockchain application needs 
to interact with external data, it needs a reliable data source to do 
so. These data sources are known in the industry as ``Oracles.'' 
Relying on one Oracle creates a single point of failure, and Chainlink 
aims to solve this issue by providing a decentralized network of 
multiple Oracles that can evaluate the same data. The accuracy of this 
data can be important if this data is used to trigger activity on a 
smart contract or other Blockchain application. Chainlink provides 
price reference data feeds for decentralized finance, and also allows 
users to create their own Oracle networks. Larger enterprises can also 
use Chainlink to sell their data to smart contracts that need them to 
trigger a certain condition. Current use cases for Chainlink include 
stable digital assets, decentralized lending and borrowing, and asset 
management.
Bitcoin Cash
    Bitcoin Cash is a proof-of-work lockchain that was created as a 
hard fork of bitcoin on August 1, 2017. At inception, the most 
significant difference between Bitcoin Cash's Blockchain design and the 
Blockchain design of bitcoin was Bitcoin Cash's adoption of larger 
block sizes. Larger block sizes allow the Bitcoin Cash Blockchain to 
process more transactions per second than the bitcoin Blockchain.
Uniswap
    Uniswap is the governance token of the Uniswap protocol. Over the 
past five years, Uniswap has emerged as a leading decentralized 
exchange for digital assets. Uniswap's automated platform lets traders 
exchange digital assets in the same way they do on centralized trading 
venues like Coinbase, but without a company standing in the middle of 
the transaction. Additionally, Uniswap's decentralized structure allows 
any individual to act as a market maker and provide liquidity on the 
platform, earning yield while facing risk.
Polkadot
    Polkadot is a proof-of-stake Blockchain that leverages a newer 
infrastructure design to that of Solana's and Ethereum's. For purposes 
of enhanced performance, Polkadot splits up the workload by hosting 
various independent blockchains on top of one central blockchain, known 
as the Relay Chain. The purpose of the Relay Chain is to provide 
ecosystem support, notably in terms of security and interoperability.
Custody of the Trust's Portfolio Assets
    The Custodian will maintain custody of the Portfolio Assets, other 
than that which is maintained in a trading account (the ``Trading 
Balance'') with Coinbase, Inc. (the ``Prime Execution Agent,'' which is 
an affiliate of the Custodian). The Custodian will maintain an account 
that holds the Trust's Portfolio Assets (the ``Trust Digital Asset 
Account'') and will facilitate the transfer of Portfolio Assets 
required for the operation of the Trust. The Trading Balance will only 
be used in the limited circumstances in which the Trust is using the 
Agent Execution Model (as defined below) to effectuate the purchases 
and sales of Portfolio Assets. The Custodian provides safekeeping of 
Portfolio Assets using a multi-layer cold storage security platform 
designed to provide offline security of the Portfolio Assets held by 
the Custodian.
Valuation of the Trust's Portfolio Assets and Determination of NAV
    The net assets of the Trust and its Shares are valued on a daily 
basis by the Valuation Vendor. The Trust uses the Reference Prices to 
calculate its NAV.
    The Sponsor, in its sole discretion, may cause the Trust to price 
its portfolio based upon an index, benchmark, or standard other than 
the Reference Prices at any time, with prior notice to the 
shareholders, if investment conditions change or the Sponsor believes 
that another index, benchmark, or standard better aligns with the 
Trust's investment objective and strategy. The Sponsor may make this 
decision for a number of reasons, including, but not limited to, a 
determination that the Reference Prices differ materially from the 
global market price of the Portfolio Assets and/or that third parties 
are able to purchase and sell Portfolio Assets on public or private 
markets not included among the Valuation Trading Platforms, and such 
transactions may take place at prices materially higher or lower than 
the Reference Prices. The Sponsor, however, is under no obligation 
whatsoever to make such changes in any circumstance. In the event that 
the Sponsor intends to establish the Trust's NAV by reference to an 
index, benchmark, or standard other than Reference Prices, it will 
provide shareholders with notice in a prospectus supplement and/or 
through a current report on Form 8-K or in the Trust's annual or 
quarterly reports.\23\
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    \23\ The Sponsor will provide notice of any such changes in the 
Trust's periodic or current reports and, if the Sponsor makes such a 
change other than on an ad hoc or temporary basis, will file a 
proposed rule change with the Commission.
---------------------------------------------------------------------------

    The Trust's only assets will be Portfolio Assets and, under limited 
circumstances, cash. The Trust's NAV and NAV per Share will be 
determined by the Administrator once each Exchange trading day as of 
4:00 p.m. E.T., or as soon thereafter as practicable. The Administrator 
will calculate the NAV by multiplying the Portfolio Assets held by the 
Trust by their respective Reference Prices for such day, adding any 
additional receivables and subtracting the accrued but unpaid 
liabilities of the Trust. The NAV per Share is calculated by dividing 
the NAV by the number of Shares then outstanding. The Valuation Vendor 
will determine the price of the Trust's Portfolio Assets by reference 
to the Valuation Trading Platforms.
Intraday Trust Value
    The Trust uses the real-time prices published by the Valuation 
Vendor for each Portfolio Asset to calculate an Indicative Trust Value 
(``ITV''). One or more major market data vendors will disseminate the 
ITV, updated every 15 seconds each trading day as calculated by the 
Exchange or a third-party financial data provider during the Exchange's 
Core Trading Session (9:30 a.m. to 4:00 p.m. E.T.). The ITV will be 
calculated throughout the trading day by using the prior day's holdings 
at the close of business and the most recently reported price level of 
the real-time prices for each Portfolio Asset published by the 
Valuation Vendor. The ITV will be widely disseminated by one or more 
major market data vendors during the NYSE Arca Core Trading Session.
Creation and Redemption of Shares
    The Trust creates and redeems Shares from time to time, but only in 
one or more Creation Units, which will initially consist of at least 
10,000 Shares, but may be subject to change (``Creation Unit''). A 
Creation Unit is only made in exchange for delivery to the Trust or the 
distribution by the Trust of an amount of cash, equivalent to the value 
of Portfolio Assets represented by the Creation Unit being created or 
redeemed, the amount of which is representative of the combined NAV of 
the number of Shares included in the Creation Units being created or 
redeemed determined as of 4:00 p.m. E.T. on the day the order to create 
or redeem Creation Units is properly

[[Page 95858]]

received. Except when aggregated in Creation Units or under 
extraordinary circumstances permitted under the Trust Agreement, the 
Shares are not redeemable securities.
    Authorized Participants are the only persons that may place orders 
to create and redeem Creation Units. Authorized Participants must be 
(1) registered broker-dealers or other securities market participants, 
such as banks and other financial institutions, that are not required 
to register as broker-dealers to engage in securities transactions 
described below, and (2) Depository Trust Company (``DTC'') 
participants. To become an Authorized Participant, a person must enter 
into an Authorized Participant Agreement with the Trust and/or the 
Trust's marketing agent (the ``Marketing Agent'').
    When purchasing or selling Portfolio Assets in response to the 
purchase of Creation Units or the redemption of Creation Units, which 
will be processed in cash, the Trust would do so pursuant to either (1) 
a ``Trust-Directed Trade Model,'' or (2) an ``Agent Execution Model,'' 
which are each described in more detail below.
    The Trust intends to utilize the Trust-Directed Trade Model for all 
purchases and sales of Portfolio Assets and would only utilize the 
Agent Execution Model in the event that no digital asset trading 
counterparty approved by the Sponsor (a ``Digital Asset Trading 
Counterparty'') \24\ is able to effectuate the Trust's purchase or sale 
of Portfolio Assets. Under the Trust-Directed Trade Model, in 
connection with receipt of a purchase order or redemption order, the 
Sponsor, on behalf of the Trust, would be responsible for acquiring 
Portfolio Assets from an approved Digital Asset Trading Counterparty in 
an amount equal to the Basket Amount. When seeking to purchase 
Portfolio Assets on behalf of the Trust, the Sponsor will seek to 
purchase Portfolio Assets at commercially reasonable prices and terms 
from any of the approved Digital Asset Trading Counterparties.\25\ Once 
agreed upon, the transaction will generally occur on an ``over-the-
counter'' basis.
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    \24\ The Digital Asset Trading Counterparties with which the 
Sponsor will engage in Portfolio Asset transactions are unaffiliated 
third parties that are not acting as agents of the Trust, the 
Sponsor or the Authorized Participant, and all transactions will be 
done on an arms-length basis. There is no contractual relationship 
between the Trust, the Sponsor or the Digital Asset Trading 
Counterparty.
    \25\ The Sponsor will maintain ownership and control of the 
Portfolio Assets in a manner consistent with good delivery 
requirements for spot commodity transactions.
---------------------------------------------------------------------------

    Whether utilizing the Trust-Directed Trade Model or the Agent 
Execution Model, the Authorized Participants will deliver only cash to 
create shares and will receive only cash when redeeming Shares. 
Further, Authorized Participants will not directly or indirectly 
purchase, hold, deliver, or receive Portfolio Assets as part of the 
creation or redemption process or otherwise direct the Trust or a third 
party with respect to purchasing, holding, delivering, or receiving 
Portfolio Assets as part of the creation or redemption process. 
Additionally, under either the Trust-Directed Trade Model or the Agent 
Execution Model, the Trust will create Shares by receiving Portfolio 
Assets from a third party that is not the Authorized Participant and is 
not affiliated with the Sponsor or the Trust, and the Trust--not the 
Authorized Participant--is responsible for selecting the third party to 
deliver the Portfolio Assets. The third party will not be acting as an 
agent of the Authorized Participant with respect to the delivery of the 
Portfolio Assets to the Trust or acting at the direction of the 
Authorized Participant with respect to the delivery of the Portfolio 
Assets to the Trust. Additionally, the Trust will redeem Shares by 
delivering Portfolio Assets to a third party that is not the Authorized 
Participant and is not affiliated with the Sponsor or the Trust, and 
the Trust--not the Authorized Participant--is responsible for selecting 
the third party to receive the Portfolio Assets. Finally, the third 
party will not be acting as an agent of the Authorized Participant with 
respect to the receipt of Portfolio Assets from the Trust or acting at 
the direction of the Authorized Participant with respect to the receipt 
of Portfolio Assets from the Trust.
Acquiring and Selling Portfolio Assets Pursuant to Creation and 
Redemption of Shares Under the Trust-Directed Trade Model
    Under the Trust-Directed Trade Model, on any Business Day, an 
Authorized Participant may create Shares by placing an order to 
purchase one or more Creation Units with the Transfer Agent through the 
Marketing Agent. Such orders are subject to approval by the Marketing 
Agent and the Transfer Agent. To be processed on the date submitted, 
creation orders must be placed before 4:00 p.m. E.T. or the close of 
regular trading on the Exchange, whichever is earlier, but may be 
required to be placed earlier at the discretion of the Sponsor. A 
purchase order will be effective on the date it is received by the 
Transfer Agent and approved by the Marketing Agent (``Purchase Order 
Date'').
    Creation Units are processed in cash. By placing a purchase order, 
an Authorized Participant agrees to deposit, or cause to be deposited, 
an amount of cash equal to the quantity of Portfolio Assets 
attributable to each Share of the Trust (net of accrued but unpaid 
expenses and liabilities) multiplied by the number of Shares (10,000) 
comprising a Creation Unit (the ``Basket Amount''). The Sponsor will 
cause to be published each Business Day, prior to the commencement of 
trading on the Exchange, the Basket Amount relating to a Creation Unit 
applicable for such Business Day. That amount is derived by multiplying 
the Basket Amount by the value of Portfolio Assets ascribed by the 
Pricing Index. However, the Authorized Participant is also responsible 
for any additional cash required to account for the price at which the 
Trust agrees to purchase the requisite amount of Portfolio Assets from 
a Digital Asset Trading Counterparty to the extent it is greater than 
the Pricing Index price on each Purchase Order Date.
    Prior to the delivery of Creation Units, the Authorized Participant 
must also have wired to the Transfer Agent the nonrefundable 
transaction fee due for the creation order. Authorized Participants may 
not withdraw a creation request. If an Authorized Participant fails to 
consummate the foregoing, the order may be cancelled.
    Following the acceptance of a purchase order, the Authorized 
Participant must wire the cash amount described above to the Cash 
Custodian, and the Digital Asset Trading Counterparty must deposit the 
required amount of Portfolio Assets with the Custodian by the end of 
the day E.T. on the Business Day following the Purchase Order Date. The 
Portfolio Assets will be purchased from Digital Asset Trading 
Counterparties that are not acting as agents of the Trust or agents of 
the Authorized Participant. These transactions will be done on an arms-
length basis, and there is no contractual relationship between the 
Trust, the Sponsor, or the Digital Asset Trading Counterparty to 
acquire such Portfolio Assets. Prior to any movement of cash from the 
Cash Custodian to the Digital Asset Trading Counterparty or movement of 
Shares from the Transfer Agent to the Authorized Participant's DTC 
account to settle the transaction, the Portfolio Assets must be 
deposited at the Custodian.
    The Digital Asset Trading Counterparty must deposit the required 
amount of Portfolio Assets by end of day E.T. on the Business Day 
following the Purchase Order Date prior to any movement of cash from 
the Cash Custodian or Shares from the Transfer

[[Page 95859]]

Agent. Upon receipt of the deposit amount of Portfolio Assets at the 
Custodian from the Digital Asset Trading Counterparty, the Custodian 
will notify the Sponsor that the Portfolio Assets have been received. 
The Sponsor will then notify the Transfer Agent that the Portfolio 
Assets have been received, and the Transfer Agent will direct DTC to 
credit the number of Shares ordered to the Authorized Participant's DTC 
account and will wire the cash previously sent by the Authorized 
Participant to the Digital Asset Trading Counterparty to complete 
settlement of the Purchase Order and the acquisition of the Portfolio 
Assets by the Trust, as described above.
    As between the Trust and the Authorized Participant, the expense 
and risk of the difference between the value of Portfolio Assets 
calculated by the Administrator for daily valuation using the Pricing 
Benchmarks and the price at which the Trust acquires the Portfolio 
Assets will be borne solely by the Authorized Participant to the extent 
that the Trust pays more for Portfolio Assets than the price used by 
the Trust for daily valuation. Any such additional cash amount will be 
included in the amount of cash calculated by the Administrator on the 
Purchase Order Date, communicated to the Authorized Participant on the 
Purchase Order Date, and wired by the Authorized Participant to the 
Cash Custodian on the day following the Purchase Order Date. If the 
Digital Asset Trading Counterparty fails to deliver the Portfolio 
Assets to the Custodian, no cash is sent from the Cash Custodian to the 
Digital Asset Trading Counterparty, no Shares are transferred to the 
Authorized Participant's DTC account, the cash is returned to the 
Authorized Participant, and the Purchase Order is cancelled.
    Under the Trust-Directed Trade Model and according to the 
Registration Statement, the procedures by which an Authorized 
Participant can redeem one or more Creation Units mirror the procedures 
for the creation of Creation Units. On any Business Day, an Authorized 
Participant may place an order with the Transfer Agent through the 
Marketing Agent to redeem one or more Creation Units. To be processed 
on the date submitted, redemption orders must be placed before 4:00 
p.m. E.T. or the close of regular trading on the Exchange, whichever is 
earlier, or earlier as determined by the Sponsor. A redemption order 
will be effective on the date it is received by the Transfer Agent and 
approved by the Marketing Agent (``Redemption Order Date''). The 
redemption procedures allow Authorized Participants to redeem Creation 
Units and do not entitle an individual shareholder to redeem any Shares 
in an amount less than a Creation Unit, or to redeem Creation Units 
other than through an Authorized Participant. In connection with 
receipt of a redemption order accepted by the Marketing Agent and 
Transfer Agent, the Sponsor, on behalf of the Trust, is responsible for 
selling the Portfolio Assets to an approved Digital Asset Trading 
Counterparty in an amount equal to the Basket Amount.
    The redemption distribution from the Trust will consist of a 
transfer to the redeeming Authorized Participant, or its agent, of the 
amount of cash the Trust received in connection with a sale of the 
Basket Amount of Portfolio Assets to a Digital Asset Trading 
Counterparty made pursuant to the redemption order. The Sponsor will 
cause to be published each Business Day, prior to the commencement of 
trading on the Exchange, the redemption distribution amount relating to 
a Creation Unit applicable for such Business Day. The redemption 
distribution amount is derived by multiplying the Basket Amount by the 
value of Portfolio Assets ascribed by the Pricing Benchmarks. However, 
as between the Trust and the Authorized Participant, the expense and 
risk of the difference between the value of Portfolio Assets ascribed 
by the Pricing Benchmarks and the price at which the Trust sells the 
Portfolio Assets will be borne solely by the Authorized Participant to 
the extent that the Trust receives less for Portfolio Assets than the 
value ascribed by the Pricing Benchmarks. Prior to the delivery of 
Creation Units, the Authorized Participant must also have wired to the 
Transfer Agent the nonrefundable transaction fee due for the redemption 
order.
    The redemption distribution due from the Trust will be delivered by 
the Transfer Agent to the Authorized Participant once the Cash 
Custodian has received the cash from the Digital Asset Trading 
Counterparty. The Custodian will not send the Basket Amount of 
Portfolio Assets to the Digital Asset Trading Counterparty until the 
Cash Custodian has received the cash from the Digital Asset Trading 
Counterparty and is instructed by the Sponsor to make such transfer. 
Once the Digital Asset Trading Counterparty has sent the cash to the 
Cash Custodian in an agreed upon amount to settle the agreed upon sale 
of the Basket Amount of Portfolio Assets, the Transfer Agent will 
notify the Sponsor. The Sponsor will then notify the Custodian to 
transfer the Portfolio Assets to the Digital Asset Trading 
Counterparty, and the Transfer Agent will wire the cash proceeds to the 
Authorized Participant once the Trust's DTC account has been credited 
with the Shares represented by the Creation Unit from the redeeming 
Authorized Participant. Once the Authorized Participant has delivered 
the Shares represented by the Creation Unit to be redeemed to the 
Trust's DTC account, the Cash Custodian will wire the requisite amount 
of cash to the Authorized Participant. If the Trust's DTC account has 
not been credited with all of the Shares of the Creation Unit to be 
redeemed, the redemption distribution will be delayed until such time 
as the Transfer Agent confirms receipt of all such Shares. If the 
Digital Asset Trading Counterparty fails to deliver the cash to the 
Cash Custodian, the transaction will be cancelled, and no transfer of 
Portfolio Assets or Shares will occur.
Acquiring and Selling Portfolio Assets Pursuant to Creation and 
Redemption of Shares Under the Agent Execution Model
    Under the Agent Execution Model, the Prime Execution Agent, acting 
in an agency capacity, would conduct Portfolio Assets purchases and 
sales on behalf of the Trust with third parties through its Coinbase 
Prime service pursuant to the Prime Execution Agent Agreement. To 
utilize the Agent Execution Model, the Trust may maintain some 
Portfolio Assets or cash in the Trading Balance with the Prime 
Execution Agent. The Prime Execution Agent Agreement provides that the 
Trust does not have an identifiable claim to any particular Portfolio 
Assets (and cash); rather, the Trust's Trading Balance represents an 
entitlement to a pro rata share of the Portfolio Assets (and cash) the 
Prime Execution Agent holds on behalf of customers who hold similar 
entitlements against the Prime Execution Agent. In this way, the 
Trust's Trading Balance represents an omnibus claim on the Prime 
Execution Agent's Portfolio Assets (and cash) held on behalf of the 
Prime Execution Agent's customers.
    To avoid having to pre-fund purchases or sales of Portfolio Assets 
in connection with cash creations and redemptions and sales of 
Portfolio Assets to pay Trust expenses not assumed by the Sponsor, to 
the extent applicable, the Trust may borrow Portfolio Assets or cash as 
trade credit (``Trade Credit'') from Coinbase Credit, Inc. (the ``Trade 
Credit Lender'') on a short-term basis pursuant to the Coinbase Credit 
Committed Trade Financing Agreement (the ``Trade Financing 
Agreement'').

[[Page 95860]]

    On the day of the Purchase Order Date, the Trust would enter into a 
transaction to buy Portfolio Assets through the Prime Execution Agent 
for cash. Because the Trust's Trading Balance may not be funded with 
cash on the Purchase Order Date for the purchase of Portfolio Assets in 
connection with the Purchase Order under the Agent Execution Model, the 
Trust may borrow Trade Credits in the form of cash from the Trade 
Credit Lender pursuant to the Trade Financing Agreement or may require 
the Authorized Participant to deliver the required cash for the 
Purchase Order on the Purchase Order Date. The extension of Trade 
Credits on the Purchase Order Date allows the Trust to purchase 
Portfolio Assets through the Prime Execution Agent on the Purchase 
Order Date, with such Portfolio Assets being deposited in the Trust's 
Trading Balance.
    On the day following the Purchase Order Date (the ``Purchase Order 
Settlement Date''), the Trust would deliver Shares to the Authorized 
Participant in exchange for cash received from the Authorized 
Participant. Where applicable, the Trust would use the cash to repay 
the Trade Credits borrowed from the Trade Credit Lender. On the 
Purchase Order Settlement Date for a Purchase Order utilizing the Agent 
Execution Model, the Portfolio Assets associated with the Purchase 
Order and purchased on the Purchase Order Date is swept from the 
Trust's Trading Balance with the Prime Execution Agent to the Trust 
Digital Asset Account with the Custodian pursuant to a regular end-of-
day sweep process. Transfers of Portfolio Assets into the Trust's 
Trading Balance are off-chain transactions and transfers from the 
Trust's Trading Balance to the Trust Digital Asset Account are ``on-
chain'' transactions represented on the Portfolio Assets blockchains, 
as applicable. Any financing fee owed to the Trade Credit Lender is 
deemed part of trade execution costs and embedded in the trade price 
for each transaction.
    For a Redemption Order utilizing the Agent Execution Model, on the 
day of the Redemption Order Date the Trust would enter into a 
transaction to sell Portfolio Assets through the Prime Execution Agent 
for cash. The Trust's Trading Balance with the Prime Execution Agent 
may not be funded with Portfolio Assets on trade date for the sale of 
Portfolio Assets in connection with the redemption order under the 
Agent Execution Model, when Portfolio Assets remains in the Trust 
Digital Asset Account with the Custodian at the point of intended 
execution of a sale of Portfolio Assets. In those circumstances the 
Trust may borrow Trade Credits in the form of Portfolio Assets from the 
Trade Credit Lender, which allows the Trust to sell Portfolio Assets 
through the Prime Execution Agent on the Redemption Order Date, and the 
cash proceeds are deposited in the Trust's Trading Balance with the 
Prime Execution Agent. On the business day following the Redemption 
Order Date (the ``Redemption Order Settlement Date'') for a redemption 
order utilizing the Agent Execution Model where Trade Credits were 
utilized, the Trust delivers cash to the Authorized Participant in 
exchange for Shares received from the Authorized Participant. In the 
event Trade Credits were used, the Trust will use the Portfolio Assets 
that are moved from the Trust Digital Asset Account with the Custodian 
to the Trading Balance with the Prime Execution Agent to repay the 
Trade Credits borrowed from the Trade Credit Lender.
    For a redemption of Creation Units utilizing the Agent Execution 
Model, the Sponsor would instruct the Custodian to prepare to transfer 
the Portfolio Assets associated with the redemption order from the 
Trust Digital Asset Account with the Custodian to the Trust's Trading 
Balance with the Prime Execution Agent. On the Redemption Order 
Settlement Date, the Trust would enter into a transaction to sell 
Portfolio Assets through the Prime Execution Agent for cash, and the 
Prime Execution Agent credits the Trust's Trading Balance with the 
cash. On the same day, the Authorized Participant would deliver the 
necessary Shares to the Trust and the Trust delivers cash to the 
Authorized Participant.
Applicable Standard
    The Commission has historically approved or disapproved exchange 
filings to list and trade series of Trust Issued Receipts, including 
spot, Commodity-Based Trust Shares, on the basis of whether the listing 
exchange has in place a comprehensive surveillance sharing agreement 
with a regulated market of significant size related to the underlying 
commodity to be held.\26\ However, the Commission recently approved the 
listing and trading of shares of spot bitcoin exchange-traded products 
(``Spot Bitcoin ETPs'') and spot ether exchange-traded products (``Spot 
Ether ETPs''), finding that there were sufficient ``other means'' of 
preventing fraud and manipulation sufficient to satisfy the 
requirements of Section 6(b)(5) of the Exchange Act.\27\ In each of the 
Spot Bitcoin ETP Approval Order and Spot Ether Approval Order, the 
Commission concluded, through a robust correlation analysis, that fraud 
or manipulation that impacts prices in spot bitcoin markets or spot 
ether markets would likely similarly impact CME bitcoin futures prices 
and CME ether futures prices, respectively.\28\ The Commission further 
found that, because the CME's surveillance can assist in detecting 
those impacts on CME bitcoin futures prices and CME ether futures 
prices, a listing exchange's CSSA with the CME can be reasonably 
expected to assist in surveilling for fraudulent and manipulative acts 
and practices in the context of the Spot Bitcoin ETPs and Spot Ether 
ETPs.\29\
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    \26\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order 
Setting Aside Action by Delegated Authority and Disapproving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List 
and Trade Shares of the Winklevoss Bitcoin Trust) (``Winklevoss 
Order''). In the Winklevoss Order, the Commission set forth both the 
importance and definition of a surveilled, regulated market of 
significant size, explaining that, for approved commodity-trust 
ETPs, ``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 membership in common 
with, that market.'' Winklevoss Order, 83 FR at 37594.
    \27\ See Securities Exchange Act Release No. 34-99306 (January 
10, 2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SRNYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-
2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-
040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; SR-CboeBZX-2023-072) 
(Order Granting Accelerated Approval of Proposed Rule Changes, as 
Modified by Amendments Thereto, to List and Trade Bitcoin-Based 
Commodity-Based Trust Shares and Trust Units) (the ``Spot Bitcoin 
ETP Approval Order''); Securities Exchange Act Release No. 100224 
(May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-NYSEARCA-2023-70; SR-
NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-
CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; SR-
CboeBZX-2024-018) (Order Granting Accelerated Approval of Proposed 
Rule Changes, as Modified by Amendments Thereto, to List and Trade 
Shares of Ether-Based Exchange-Traded Products) (the ``Spot Ether 
ETP Approval Order'').
    \28\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot 
Ether ETP Approval Order, 89 FR at 46938.
    \29\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot 
Ether ETP Approval Order, 89 FR at 46938-39.
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    The Trust is structured and will operate in a manner materially the 
same as the Spot Bitcoin ETPs and Spot Ether ETPs.\30\ The Sponsor 
believes that the Exchange's ability to obtain information

[[Page 95861]]

regarding trading in bitcoin futures and ether futures from the CME, 
which, like the Exchange, is a member of the ISG, would assist the 
Exchange in detecting potential fraud or manipulation with respect to 
trading in the Shares. The Sponsor thus believes that, for reasons 
similar to those set forth in the Spot Bitcoin ETP Approval Order and 
Spot Ether ETP Approval Order, listing and trading Shares of the Trust 
would be consistent with the requirements of the Act.
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    \30\ The Sponsor is also the sponsor of the Bitwise Bitcoin ETF 
and the Bitwise Ethereum ETF, which were approved pursuant to the 
Spot Bitcoin ETP Approval Order and Spot Ether ETP Approval, 
respectively, and which are both currently listed and traded on NYSE 
Arca.
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    The Sponsor acknowledges that the Portfolio Assets currently 
include minority positions in digital assets that are not bitcoin or 
ether. The Sponsor also represents that, consistent with proposed Rule 
8.800-E(c)(1), no more than 10% of the weight of its digital asset 
holdings will consist of digital assets concerning which the Exchange 
may not be able to obtain information via the ISG or via a CSSA. In the 
context of prior spot digital asset ETP proposal disapproval orders for 
bitcoin and ether, the Commission expressed concerns about the 
underlying digital asset market due to the potential for fraud and 
manipulation and has outlined the reasons why such ETP proposals have 
been unable to satisfy these concerns.\31\ For purposes of the Trust's 
proposal, the Sponsor anticipates that the Commission may have the same 
concerns about digital assets other than bitcoin and ether.
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    \31\ See Securities Exchange Act Release Nos. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order 
Setting Aside Action by Delegated Authority and Disapproving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To List 
and Trade Shares of the Winklevoss Bitcoin Fund) (the ``Winklevoss 
Order''); 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019) 
(SR-NYSEArca-2019-01) (Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, Relating to the Listing and Trading of 
Shares of the Bitwise Bitcoin ETF Fund Under NYSE Arca Rule 8.201-E) 
(the ``Bitwise Order''); 88284 (February 26, 2020), 85 FR 12595 
(March 3, 2020) (SR-NYSEArca-2019-39) (Order Disapproving a Proposed 
Rule Change, as Modified by Amendment No. 1, to Amend NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares) and to List and Trade Shares 
of the United States Bitcoin and Treasury Investment Trust Under 
NYSE Arca Rule 8.201-E) (the ``Wilshire Phoenix Order''); 83904 
(August 22, 2018), 83 FR 43934 (August 28, 2018) (SR-NYSEArca-2017-
139) (Order Disapproving a Proposed Rule Change to List and Trade 
the Shares of the ProShares Bitcoin ETF and the ProShares Short 
Bitcoin ETF); 83912 (August 22, 2018), 83 FR 43912 (August 28, 2018) 
(SR-NYSEArca-2018-02) (Order Disapproving a Proposed Rule Change 
Relating to Listing and Trading of the Direxion Daily Bitcoin Bear 
1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily 
Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and 
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E); 
83913 (August 22, 2018), 83 FR 43923 (August 28, 2018) (SR-CboeBZX-
2018-01) (Order Disapproving a Proposed Rule Change to List and 
Trade the Shares of the GraniteShares Bitcoin ETF and the 
GraniteShares Short Bitcoin ETF).
---------------------------------------------------------------------------

    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 the 
requisite surveillance-sharing agreement.\32\ In evaluating the 
effectiveness of this type of resistance, the Commission does not apply 
a ``cannot be manipulated'' standard. Instead, the Commission requires 
that such resistance to fraud and manipulation 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.\33\ The Sponsor believes the Trust's use of the Reference 
Prices provided by the Valuation Vendor to value the Trust's holdings 
and to determine NAV and ITV for the Trust, in tandem with the Trust's 
cash create and redeem structure represents a novel means to prevent 
fraud and manipulation from impacting the price of the Shares, by 
offering protections beyond those that exist in traditional commodity 
markets and consistent with those that exist in equity markets.
---------------------------------------------------------------------------

    \32\ See Winklevoss Order, 84 FR 37580, 37582-91; Bitwise Order, 
84 FR 55383, 55385-406; Wilshire Phoenix Order, 85 FR 12597.
    \33\ See Winklevoss Order, 84 FR 37582; Wilshire Phoenix Order, 
85 FR 12597.
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    As described in more detail below, the Sponsor believes that its 
use of Reference Prices accomplishes these objectives in the following 
ways:
    1. The Valuation Vendor calculates the Reference Prices for the 
Portfolio Assets exclusively through trading activity on spot digital 
asset trading platforms that are ``CME CF Constituent Trading 
Platforms.''
    CME CF Constituent Trading Platforms are identified by the 
Valuation Vendor and must meet the following eligibility criteria, as 
determined by the Valuation Vendor:
     The average daily volume of the venue's Relevant Pair \34\ 
spot trading contributed during the observation window for the 
Reference Price (i.e., 3:00 p.m. to 4:00 p.m. E.T.) must exceed 3% for 
two consecutive calendar quarters.
---------------------------------------------------------------------------

    \34\ Relevant Pair is defined as each Portfolio Asset versus the 
quote for that asset in U.S. Dollar terms.
---------------------------------------------------------------------------

     The venue has policies to ensure fair and transparent 
market conditions at all times and has processes in place to identify 
and impede illegal, unfair, or manipulative trading practices.
     The venue does not impose undue barriers to entry or 
restrictions on market participants, and utilizing the venue does not 
expose market participants to undue credit risk, operational risk, 
legal risk, or other risks.
     The venue complies with applicable laws and regulations, 
including, but not limited to capital markets regulations, money 
transmission regulations, client money custody regulations, know-your-
client (KYC) regulations, and anti-money laundering (AML) regulations.
     The venue cooperates with inquiries and investigations of 
regulators and the Administrator upon request and must execute data 
sharing agreements with the CME Group.
    Continued compliance with these criteria is reviewed on an annual 
basis by an independent committee, the CME CF Oversight Committee, and 
the Valuation Vendor's trading platform selection process has been 
continuously audited since 2020.\35\ As of the date of this filing, the 
CME CF Constituent Trading Platforms are Bitstamp, Coinbase, Gemini, 
Kraken, itBit and LMAX Digital.\36\ The Sponsor believes that the 
Valuation Vendor's enforcement of the rigorous criteria applicable to 
the CME CF Constituent Trading Platforms effectively acts as a first 
line of defense against manipulation of the Shares by ensuring that 
only data from spot trading platforms equipped to detect and impede 
market manipulation is included in the calculation of the Reference 
Prices that will determine the Trust's NAV and ITV.
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    \35\ The latest IASE 300 Reasonable Assurance Auditors Report by 
KPMG is publicly available on the Valuation Vendor's website: 
https://www.cfbenchmarks.com/legal/audit.
    \36\ The Sponsor notes that, given the rigorous application of 
the selection criteria described above, the list of CME CF 
Constituent Exchanges has never included FTX.com, FTX.US, 
Binance.com, or Binance.US.
---------------------------------------------------------------------------

    2. The Reference Prices are administered and provided by the 
Valuation Vendor, which is an Administrator of Benchmarks under the UK 
Benchmarks Regime (``BMR'').
    The Valuation Vendor received its regulatory authorization in 2019 
and has held this regulatory authorization continuously since then. The 
Valuation Vendor's compliance with the BMR's comprehensive regulation 
of financial benchmarks has been audited since 2020.\37\ The Sponsor 
believes that the Valuation Vendor is the leading provider of 
benchmarks and indices for regulated financial products that reference 
digital assets in the US and

[[Page 95862]]

internationally. Reference prices provided by the Valuation Vendor 
underpin derivatives contracts regulated by the Commodity Futures 
Trading Commission and listed by CME Group, as well as exchange-traded 
funds offered by BlackRock, Franklin Templeton, and the Sponsor under 
the regulatory purview of the Commission. In addition, to ensure 
compliance with BMR Article 14, the Valuation Vendor conducts 
surveillance of its benchmarks. When a surveillance alert is triggered, 
the Valuation Vendor conducts an investigation, including seeking 
further information from CME CF Constituent Trading Platforms. Each 
such investigation is memorialized in a report shared with the CME CF 
Cryptocurrency Committee. The UK Financial Conduct Authority (``FCA'') 
has regulatory oversight of this process, which is also subject to 
audit. The Sponsor believes that the Valuation Vendor's robust 
surveillance efforts would allow it to promptly address manipulation or 
attempted manipulation of Reference Prices through a regulatory filing 
with the UK FCA and, accordingly, that this surveillance of the 
underlying spot trading platforms constitutes a second line of defense 
against manipulation in the Shares.
---------------------------------------------------------------------------

    \37\ See note 35, supra.
---------------------------------------------------------------------------

    3. The Valuation Vendor has in place information sharing agreements 
with the CME CF Constituent Trading Platforms, from which it draws 
pricing data to construct its benchmarks.
    These agreements allow the Valuation Vendor to the obtain 
identifying information of any perpetrators of actual or attempted 
benchmark manipulation of any Reference Prices from the CME CF 
Constituent Trading Platforms. This identifying information can then be 
shared with the UK FCA for potential enforcement action under the 
provisions of the Market Abuse Regime (MAR), which specifically 
proscribes benchmark manipulation as a criminal offense in the UK. The 
Sponsor believes that the availability of this information to the 
Valuation Vendor supports enforcement and sanction efforts in response 
to actual or attempted manipulation in digital asset markets, and 
provides a third line of defense against any potential manipulation in 
the Shares.
* * * * *
    Finally, the Sponsor believes that the cash creation and redemption 
structure of the Trust also underscores the protections that the 
Reference Prices afford to the Trust. The Trust's Shares will have 
their NAV and ITV determined by the Reference Prices and because all 
shares in the Trust will be created and redeemed and secondary traded 
with cash (not physical digital assets), any attempts to manipulate 
Shares would have to involve transactions on the spot trading platforms 
that are CME CF Constituent Trading Platforms to be able to influence 
the price of the Shares. The Sponsor believes that the Valuation 
Vendor's surveillance of the CME CF Constituent Trading Platforms to 
detect such activity and the information sharing mechanisms in place 
between the Valuation Vendor and the CME CF Constituent Trading 
Platforms would both deter such activity and facilitate enforcement 
action should it occur.
Availability of Information
    The Trust's website (https://www.bitwiseinvestments.com/) will 
include quantitative information on a per Share basis updated on a 
daily basis, including, (i) the current NAV per Share daily and the 
prior Business Day's NAV per Share and the reported closing price of 
the Shares; (ii) the mid-point of the bid-ask price \38\ as of the time 
the NAV per Share is calculated (``Bid-Ask Price'') and a calculation 
of the premium or discount of such price against such NAV per Share; 
and (iii) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily Bid-Ask Price against the NAV per 
Share, within appropriate ranges, for each of the four previous 
calendar quarters (or for as long as the Trust has been trading as an 
ETP if shorter). In addition, on each business day the Trust's website 
will provide pricing information for the Shares and disclosed the 
Trust's holdings, including: (i) the name of each Portfolio Asset; (ii) 
the quantity of each Portfolio Asset; and (iii) the weighting of each 
Portfolio Asset.
---------------------------------------------------------------------------

    \38\ The bid-ask price of the Fund is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    One or more major market data vendors will provide the ITV per 
Share updated every 15 seconds, as calculated by the Exchange or a 
third party financial data provider during the Exchange's Core Trading 
Session (9:30 a.m. to 4:00 p.m. E.T.).\39\ The ITV will be calculated 
using the same methodology as the NAV per Share of the Trust (as 
described above), specifically by using the prior day's closing NAV per 
Share as a base and updating that value during the NYSE Arca Core 
Trading Session to reflect changes in the value of the Trust's NAV 
during the trading day.
---------------------------------------------------------------------------

    \39\ The IFV on a per Share basis disseminated during the NYSE 
Arca Core Trading Session should not be viewed as a real-time update 
of the NAV, which is calculated once a day.
---------------------------------------------------------------------------

    The ITV disseminated during the NYSE Arca Core Trading Session 
should not be viewed as an actual real-time update of the NAV per 
Share, which will be calculated only once at the end of each trading 
day. The ITV will be widely disseminated on a per Share basis every 15 
seconds during the NYSE Arca Core Trading Session by one or more major 
market data vendors. In addition, the ITV will be available through on-
line information services.
    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the Consolidated Tape 
Association (``CTA'').
    Quotation and last sale information for the Portfolio Assets will 
be widely disseminated through a variety of major market data vendors. 
In addition, real-time price (and volume) data for the Portfolio Assets 
is available by subscription major market data vendors. The spot price 
of the Portfolio Assets is available on a 24-hour basis from major 
market data vendors. Information relating to trading, including price 
and volume information, will be available from major market data 
vendors and from the trading platforms on which the Portfolio Assets 
are traded. The normal trading hours for digital asset trading 
platforms are 24-hours per day, 365-days per year.
    On each business day, the Sponsor will publish the Reference 
Prices, the Trust's NAV, and the NAV per Share on the Trust's website 
as soon as practicable after its determination. If the NAV and NAV per 
Share have been calculated using a price per Portfolio other than the 
Reference Prices, the publication on the Trust's website will note the 
valuation methodology used and the price per Portfolio Asset resulting 
from such calculation.
    The Trust will provide website disclosure of its NAV daily. The 
website disclosure of the Trust's NAV will occur at the same time as 
the disclosure by the Administrator of the NAV to Authorized 
Participants so that all market participants are provided such 
portfolio information at the same time. Therefore, the same portfolio 
information will be provided on the public website as well as in 
electronic files provided to Authorized Participants. Accordingly, each 
investor will have access to the current NAV of the Trust through the 
Trust's website, as well as from one or more major market data vendors.

[[Page 95863]]

    The value of the Index, as well as additional information regarding 
the Index such as the Index Methodology, is publicly available on a 
continuous basis on the Index Provider's website.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Trust.\40\ Trading in Shares of the Trust 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
---------------------------------------------------------------------------

    \40\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the ITV or Index occurs.\41\ If 
the interruption to the dissemination of the ITV or Index persists past 
the trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the Core Trading Session following the 
interruption. In addition, if the Exchange becomes aware that the NAV 
with respect to the Shares is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as the NAV is available to all market participants.
---------------------------------------------------------------------------

    \41\ A limit up/limit down condition in the futures market would 
not be considered an interruption requiring the Trust to be halted.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting 
and entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.800-E, as proposed. The trading of the 
Shares will be subject to proposed NYSE Arca Rule 8.800-E(i), which 
sets forth certain restrictions on Equity Trading Permit Holders (``ETP 
Holders'') acting as registered Market Makers in Commodity-Based Trust 
Shares to facilitate surveillance.\42\ The Exchange represents that, 
for initial and continued listing, the Trust will be in compliance with 
Rule 10A-3 under the Act,\43\ as provided by NYSE Arca Rule 5.3-E. A 
minimum of 100,000 Shares of the Trust will be outstanding at the 
commencement of trading on the Exchange.
---------------------------------------------------------------------------

    \42\ Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a 
registered Market Maker in the Shares is required to provide the 
Exchange with information relating to its accounts for trading in 
the underlying commodity, related futures or options on futures, or 
any other related derivatives. Commentary .04 of NYSE Arca Rule 
11.3-E requires an ETP Holder acting as a registered Market Maker, 
and its affiliates, in the Shares to establish, maintain and enforce 
written policies and procedures reasonably designed to prevent the 
misuse of any material nonpublic information with respect to such 
products, any components of the related products, any physical asset 
or commodity underlying the product, applicable currencies, 
underlying indexes, related futures or options on futures, and any 
related derivative instruments (including the Shares). As a general 
matter, the Exchange has regulatory jurisdiction over its ETP 
Holders and their associated persons, which include any person or 
entity controlling an ETP Holder. To the extent the Exchange may be 
found to lack jurisdiction over a subsidiary or affiliate of an ETP 
Holder that does business only in commodities or futures contracts, 
the Exchange could obtain information regarding the activities of 
such subsidiary or affiliate through surveillance sharing agreements 
with regulatory organizations of which such subsidiary or affiliate 
is a member.
    \43\ 17 CFR 240.10A-3. See note 8, supra.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\44\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
---------------------------------------------------------------------------

    \44\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a CSSA.\45\ 
The Exchange is also able to obtain information regarding trading in 
the Shares in connection with such ETP Holders' proprietary or customer 
trades which they effect through ETP Holders on any relevant market.
---------------------------------------------------------------------------

    \45\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all Portfolio Assets 
may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA, but that, consistent with proposed 
Rule 8.800-E(c)(1), at least 90% of the Trust's commodity and/or 
digital asset holdings will consist of commodities and/or digital 
assets concerning which the Exchange may obtain information via the 
ISG, from other members of the ISG, or via a CSSA.
---------------------------------------------------------------------------

    Under proposed Rule 8.800-E(i), an ETP Holder acting as a 
registered Market Maker in the Shares is required to provide the 
Exchange with information relating to its accounts for trading in any 
underlying commodity, related futures or options on futures, or any 
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E 
requires an ETP Holder acting as a registered Market Maker, and its 
affiliates, in the Shares to establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
any material nonpublic information with respect to such products, any 
components of the related products, any physical asset or commodity 
underlying the product, applicable currencies, underlying indexes, 
related futures or options on futures, and any related derivative 
instruments (including the Shares). As a general matter, the Exchange 
has regulatory jurisdiction over its ETP Holders and their associated 
persons, which include any person or entity controlling an ETP Holder. 
To the extent the Exchange may be found to lack jurisdiction over a 
subsidiary or affiliate of an ETP Holder that does business only in 
commodities or futures contracts and that subsidiary or affiliate is a 
member of another regulatory organization, the Exchange could obtain 
information regarding the activities of such subsidiary or affiliate 
through a surveillance sharing

[[Page 95864]]

agreement with that regulatory organization.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolios of the Trust, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange listing rules specified in this rule filing shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an ``Information Bulletin'' of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
the procedures for creations of Shares in Creation Units; (2) NYSE Arca 
Rule 9.2-E(a), which imposes a duty of due diligence on its ETP Holders 
to learn the essential facts relating to every customer prior to 
trading the Shares; (3) information regarding how the value of the ITV 
and NAV is disseminated; (4) the possibility that trading spreads and 
the resulting premium or discount on the Shares may widen during the 
Opening and Late Trading Sessions, when an updated ITV will not be 
calculated or publicly disseminated; (5) the requirement that members 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction and (6) 
trading information.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as described in the annual 
report. The Information Bulletin will disclose that information about 
the Shares of the Trust is publicly available on the Trust's website.
    The Information Bulletin will also discuss any relief, if granted, 
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \46\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in proposed NYSE Arca Rule 
8.800-E. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange or FINRA, on behalf of 
the Exchange, or both, will communicate as needed regarding trading in 
the Shares with other markets that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares and Portfolio Asset 
derivatives from such markets. In addition, the Exchange may obtain 
information regarding trading in the Shares and Portfolio Asset 
derivatives from markets that are members of ISG or with which the 
Exchange has in place a CSSA. Also, pursuant to proposed NYSE Arca Rule 
8.800-E(i), the Exchange is able to obtain information regarding Market 
Maker accounts for trading in the Shares and the underlying Portfolio 
Assets or any Portfolio Asset derivatives through ETP Holders acting as 
registered Market Makers, in connection with such ETP Holders' 
proprietary or customer trades through ETP Holders which they effect on 
any relevant market.
    The proposed rule change is also designed to prevent fraudulent and 
manipulative acts and practices because the Trust is structured 
similarly to and will operate in materially the same manner as the Spot 
Bitcoin ETPs and Spot Ether ETPs previously approved by the Commission. 
The Exchange further believes that the proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices because, as 
noted by the Commission in the Bitcoin ETP Approval Order and Ether ETP 
Approval Order, the Exchange's ability to obtain information regarding 
trading in the Shares and futures from other markets that are members 
of the ISG (including the CME) would assist the Exchange in detecting 
and deterring misconduct. In particular, the CME bitcoin futures market 
and CME ether futures market are large, surveilled, and regulated 
markets that are closely connected with the spot markets for bitcoin 
and ether, respectively, through which the Exchange could obtain 
information to assist in detecting and deterring potential fraud or 
manipulation.
    The proposed rule change is also designed to prevent fraudulent and 
manipulative acts and practices because the Trust's use of Reference 
Prices to calculate its NAV serves as a means sufficient to mitigate 
the impact of instances of fraud and manipulation on a reference price 
for the Portfolio Assets. As noted above, the Reference Prices for the 
Portfolio Assets are calculated by the Valuation Vendor based 
exclusively on trading activity at the CME CF Constituent Trading 
Platforms, each of which must meet robust eligibility criteria designed 
to protect the Reference Prices against fraud and manipulation. In 
addition, the Valuation Vendor is an Administrator of Benchmarks under 
the BMR that, among other things, conducts surveillance of its 
benchmarks to detect and investigate potential manipulation. The 
Valuation Vendor also has information sharing agreements with each of 
the CME CF Constituent Trading Platforms that support access to 
identifying information for perpetrators of actual or attempted 
manipulation to aid in pursuing regulatory action against those actors. 
The layers of defense provided by the Trust's use of Reference Prices 
to calculate NAV, in conjunction with the Trust's use of cash creations 
and redemptions, constitute a novel means to detect, prevent, and 
respond to fraud, attempted fraud, and similar wrongdoing, including 
market manipulation, consistent with the requirements of the Act.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that there is a considerable amount of price and market information 
available on public websites and through professional and subscription 
services for the Portfolio Assets. Investors may obtain, on a 24-hour 
basis, Portfolio Asset pricing information based on the spot price for 
the Portfolio Assets from various financial information service 
providers. The closing price and settlement prices of the Portfolio 
Assets are readily available from the Valuation Trading

[[Page 95865]]

Platforms and other publicly available websites. In addition, such 
prices are published in public sources, or on-line information services 
such as Bloomberg and Reuters. The NAV per Share will be calculated 
daily and made available to all market participants at the same time. 
The Trust will provide website disclosure of its NAV daily. One or more 
major market data vendors will disseminate for the Trust on a daily 
basis information with respect to the most recent NAV per Share and 
Shares outstanding. In addition, if the Exchange becomes aware that the 
NAV per Share is not disseminated to all market participants at the 
same time, it will halt trading in the Shares until such time as the 
NAV is available to all market participants. Quotation and last-sale 
information regarding the Shares will be disseminated through the 
facilities of the CTA. The ITV will be widely disseminated on a per 
Share basis every 15 seconds during the NYSE Arca Core Trading Session 
(normally 9:30 a.m. E.T. to 4:00 p.m. E.T.) by one or more major market 
data vendors. The Exchange represents that the Exchange may halt 
trading during the day in which an interruption to the dissemination of 
the ITV or the value of the Index occurs. If the interruption to the 
dissemination of the ITV or the value of the Index persists past the 
trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the NYSE Arca Core Trading Session on the 
trading day following the interruption.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a CSSA for at least 90% of the Trust's 
commodity and/or digital asset holdings. In addition, as noted above, 
investors will have ready access to information regarding the Trust's 
NAV, ITV, and quotation and last sale information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product that would enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-98 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSEARCA-2024-98. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2024-98 and should 
be submitted on or before December 24, 2024.
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    \47\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
Stephanie J. Fouse,
Assistant Secretary.
[FR Doc. 2024-28343 Filed 12-2-24; 8:45 am]
BILLING CODE 8011-01-P
```