[Federal Register Volume 87, Number 90 (Tuesday, May 10, 2022)]
[Notices]
[Pages 28043-28061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09957]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94844; File No. SR-NYSEArca-2021-90]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 to, and Designation of a Longer Period for 
Commission Action on Proceedings To Determine Whether To Approve or 
Disapprove, a Proposed Rule Change To List and Trade Shares of 
Grayscale Bitcoin Trust (BTC) Under NYSE Arca Rule 8.201-E

May 4, 2022.
    On October 19, 2021, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares of Grayscale Bitcoin 
Trust (BTC) under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares). The proposed rule change was published for comment in the 
Federal Register on November 8, 2021.\3\ On December 15, 2021, pursuant 
to Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ On February 4, 2022, the 
Commission instituted proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93504 (Nov. 2, 
2021), 86 FR 61804. Comments on the proposed rule change can be 
found at: https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93788, 86 FR 72291 
(Dec. 21, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 94151, 87 FR 7889 
(Feb. 10, 2022).
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    On April 21, 2022, the Exchange filed Amendment No. 1 to the 
proposed rule change, which supersedes the original filing in its 
entirety, and is described in Items I and II below, which Items have 
been prepared by the Exchange.\8\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment No.

[[Page 28044]]

1, from interested persons, and is designating a longer period within 
which to approve or disapprove the proposed rule change, as modified by 
Amendment No. 1.
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    \8\ In Amendment No. 1, the Exchange, among other things, 
provided updates to: (1) Certain statistical data, (2) information 
on the Index Price (as defined herein), and (3) information on the 
creation and redemption of Shares (as defined herein).
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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 following 
under NYSE Arca Rule 8.201-E: Grayscale Bitcoin Trust (BTC) (the 
``Trust'').\9\ This Amendment No. 1 to SR-NYSEArca-2021-90 replaces SR-
NYSEArca-2021-90 as originally filed and supersedes such filing in its 
entirety. The proposed 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.
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    \9\ The Trust was previously named Bitcoin Investment Trust, 
whose name was changed pursuant to a Certificate of Amendment to the 
Certificate of Trust of Bitcoin Investment Trust filed with the 
Delaware Secretary of State on January 11, 2019.
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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
    Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges ``Commodity-Based 
Trust Shares.'' \10\ The Exchange proposes to list and trade shares 
(``Shares'') \11\ of the Trust pursuant to NYSE Arca Rule 8.201-E.\12\
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    \10\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
    \11\ The Shares are expected to be listed under the ticker 
symbol ``BTC.''
    \12\ On March 22, 2016, the Trust confidentially filed its draft 
registration statement on Form 10 under the Securities Act of 1933 
(15 U.S.C. 77a) (the ``Securities Act'' or ``'33 Act'') (File No. 
377-01289) (the ``Draft Registration Statement on Form S-1''). On 
May 31, 2016, the Trust confidentially filed Amendment No. 1 to the 
Draft Registration Statement on Form S-1. On July 29, 2016, the 
Trust confidentially filed Amendment No. 2 to the Draft Registration 
Statement on Form S-1. On November 2, 2016, the Trust confidentially 
filed Amendment No. 3 to the Draft Registration Statement on Form S-
1. The Jumpstart Our Business Startups Act (the ``JOBS Act''), 
enacted on April 5, 2012, added Section 6(e) to the Securities Act. 
Section 6(e) of the Securities Act provides that an ``emerging 
growth company'' may confidentially submit to the Commission a draft 
registration statement for confidential, non-public review by the 
Commission staff prior to public filing, provided that the initial 
confidential submission and all amendments thereto shall be publicly 
filed not later than 21 days before the date on which the issuer 
conducts a road show, as such term is defined in Securities Act Rule 
433(h)(4). An emerging growth company is defined in Section 2(a)(19) 
of the Securities Act as an issuer with less than $1,000,000,000 
total annual gross revenues during its most recently completed 
fiscal year. The Trust meets the definition of an emerging growth 
company and consequently submitted its Draft Registration Statement 
on Form S-1 to the Commission on a confidential basis.
    On January 20, 2017, the Trust filed its registration statement 
on Form S-1 under the Securities Act (File No. 333-215627) (the 
``Registration Statement on Form S-1''). On March 24, 2017, the 
Trust filed Amendment No. 1 to the Registration Statement on Form S-
1. On May 4, 2017, the Trust filed Amendment No. 2 to the 
Registration Statement on Form S-1. On October 25, 2017, the Trust 
requested the withdrawal of the Registration Statement on Form S-1.
    On October 3, 2018, the Trust confidentially filed its draft 
registration statement on Form 10 under the Securities Act (File No. 
377-02297) (the ``Draft Registration Statement on Form 10''). On 
December 6, 2018, the Trust confidentially filed Amendment No. 1 to 
the Draft Registration Statement on Form 10. On February 25, 2019, 
the Trust confidentially filed Amendment No. 2 to the Draft 
Registration Statement on Form 10. On April 15, 2019, the Trust 
confidentially filed Amendment No. 3 to the Draft Registration 
Statement on Form 10. On September 9, 2019, the Trust confidentially 
filed Amendment No. 4 to the Draft Registration Statement on Form 
10. As noted above, the Trust meets the definition of an emerging 
growth company under the JOBS Act and consequently submitted its 
Draft Registration Statement on Form 10 to the Commission on a 
confidential basis.
    On November 19, 2019, the Trust filed its registration statement 
on Form 10 under the Securities Act (File No. 000-56121) (the 
``Registration Statement on Form 10''). On December 31, 2019, the 
Trust filed Amendment No. 1 to the Registration Statement on Form 
10. On January 21, 2020, the Registration Statement on Form 10 was 
automatically deemed effective.
    On March 20, 2020, the Trust filed its annual report on Form 10-
K under the Securities Act (File No. 000-56121). On May 8, 2020, 
August 7, 2020 and November 6, 2020, the Trust filed its quarterly 
reports on Form 10-Q under the Securities Act (File No. 000-56121). 
On March 5, 2021 and February 25, 2022, the Trust filed its annual 
report on Form 10-K under the Securities Act (File No. 000-56121) 
(the ``Annual Report''). On May 7, 2021, August 6, 2021 and November 
5, 2021, the Trust filed its quarterly reports on Form 10-Q under 
the Securities Act (File No. 000-56121) (the ``Quarterly Reports''). 
The descriptions of the Trust, the Shares, and Bitcoin contained 
herein are based, in part, on the Annual Report and Quarterly 
Reports.
    On January 17, 2019, the Trust submitted to the Commission an 
amended Form D as a business trust. Shares of the Trust have been 
quoted on OTC Market's OTCQX Best Marketplace under the symbol 
``GBTC'' since March 26, 2015. On February 22, 2019 and March 20, 
2020, the Trust published annual reports for GBTC for the periods 
ended December 31, 2018 and December 31, 2019, respectively. On May 
14, 2019, August 8, 2019, November 14, 2019, May 8, 2020, August 7, 
2020 and November 6, 2020, the Trust published quarterly reports for 
GBTC for the periods ended March 31, 2019, June 30, 2019, September 
30, 2019, March 31, 2020, June 30, 2020 and September 30, 2020 
respectively. Reports published before January 11, 2020, the date on 
which the Trust's Shares became registered pursuant to Section 12(g) 
of the Act, can be found on OTC Market's website (http://www.otcmarkets.com/stock/GBTC/disclosure), and reports published on 
or after January 11, 2020 can be found on OTC Market's website 
(http://www.otcmarkets.com/stock/GBTC/disclosure) and the 
Commission's website (https://www.sec.gov/cgi-bin/browse-edgar?CIK=gbtc&owner=exclude&action=getcompany). The Shares will be 
of the same class and will have the same rights as shares of GBTC. 
Effective October 28, 2014, the Trust suspended its redemption 
program for shares of GBTC, in which shareholders were permitted to 
request the redemption of their shares through Genesis Global 
Trading, Inc. (formerly known as SecondMarket, Inc.), an affiliate 
of the Sponsor and the Trust (``Genesis''). According to the 
Sponsor, freely tradeable shares of GBTC will remain freely 
tradeable Shares on the date of the listing of the Shares that are 
unregistered under the Securities Act. Restricted shares of GBTC 
will remain subject to private placement restrictions and the 
holders of such restricted shares will continue to hold those Shares 
subject to those restrictions until they become freely tradable 
Shares.
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    The sponsor of the Trust is Grayscale Investments, LLC 
(``Sponsor''), a Delaware limited liability company. The Sponsor is a 
wholly-owned subsidiary of Digital Currency Group, Inc. (``Digital 
Currency Group''). The trustee for the Trust is Delaware Trust Company 
(``Trustee''). The custodian for the Trust is Coinbase Custody Trust 
Company, LLC (``Custodian'').\13\ The administrator of the Trust is BNY 
Mellon Asset Servicing, a division of The Bank of New York Mellon (the 
``Administrator''). The distribution and marketing agent for the Trust 
is Genesis (the ``Marketing Agent''). The index provider for the Trust 
is CoinDesk Indices, Inc., formerly known as TradeBlock, Inc. (the 
``Index Provider'').
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    \13\ According to the Annual Report, Digital Currency Group owns 
a minority interest in Coinbase, Inc., which is the parent company 
of the Custodian, representing less than 1.0% of its equity.
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    The Trust is a Delaware statutory trust, organized on September 13, 
2013, that operates pursuant to a trust agreement between the Sponsor 
and the Trustee (``Trust Agreement''). The Trust has no fixed 
termination date.
Operation of the Trust
    According to the Annual Report, the Trust's assets consist solely 
of Bitcoins, Incidental Rights,\14\ IR Virtual

[[Page 28045]]

Currency,\15\ proceeds from the sale of Bitcoins, Incidental Rights, 
and IR Virtual Currency pending use of such cash for payment of 
Additional Trust Expenses \16\ or distribution to shareholders, and any 
rights of the Trust pursuant to any agreements, other than the Trust 
Agreement, to which the Trust is a party. Each Share represents a 
proportional interest, based on the total number of Shares outstanding, 
in each of the Trust's assets as determined by reference to the Index 
Price,\17\ less the Trust's expenses and other liabilities (which 
include accrued but unpaid fees and expenses). The Sponsor expects that 
the market price of the Shares will fluctuate over time in response to 
the market prices of Bitcoin. In addition, because the Shares reflect 
the estimated accrued but unpaid expenses of the Trust, the number of 
Bitcoins represented by a Share will gradually decrease over time as 
the Trust's Bitcoins are used to pay the Trust's expenses. The Trust 
does not expect to take any Incidental Rights or IR Virtual Currency it 
may hold into account for purposes of determining the Trust's ``Digital 
Asset Holdings'' (as described below) or the Digital Asset Holdings per 
Share.
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    \14\ ``Incidental Rights'' are rights to acquire, or otherwise 
establish dominion and control over, any virtual currency or other 
asset or right, which rights are incident to the Trust's ownership 
of Bitcoins and arise without any action of the Trust, or of the 
Sponsor or Trustee on behalf of the Trust.
    \15\ ``IR Virtual Currency'' is any virtual currency tokens, or 
other asset or right, acquired by the Trust through the exercise 
(subject to the applicable provisions of the Trust Agreement) of any 
Incidental Right.
    \16\ ``Additional Trust Expenses'' are any expenses incurred by 
the Trust in addition to the Sponsor's Fee that are not Sponsor-paid 
Expenses, including, but not limited to, (i) taxes and governmental 
charges, (ii) expenses and costs of any extraordinary services 
performed by the Sponsor (or any other service provider) on behalf 
of the Trust to protect the Trust or the interests of shareholders 
(including in connection with any Incidental Rights and any IR 
Virtual Currency), (iii) any indemnification of the Custodian or 
other agents, service providers or counterparties of the Trust, (iv) 
the fees and expenses related to the listing, quotation or trading 
of the Shares on any Secondary Market (including legal, marketing 
and audit fees and expenses) to the extent exceeding $600,000 in any 
given fiscal year and (v) extraordinary legal fees and expenses, 
including any legal fees and expenses incurred in connection with 
litigation, regulatory enforcement or investigation matters.
    \17\ The ``Index Price'' means the U.S. dollar value of a 
Bitcoin derived from the Digital Asset Exchanges that are reflected 
in the Index, calculated at 4:00 p.m., New York time, on each 
business day. For purposes of the Trust Agreement, the term Bitcoin 
Index Price has the same meaning as the Index Price as defined 
herein.
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    The activities of the Trust are limited to (i) issuing ``Baskets'' 
(as defined below) in exchange for Bitcoins transferred to the Trust as 
consideration in connection with the creations, (ii) transferring or 
selling Bitcoins, Incidental Rights, and IR Virtual Currency as 
necessary to cover the ``Sponsor's Fee'' and/or certain Trust expenses, 
(iii) transferring Bitcoins in exchange for Baskets surrendered for 
redemption (subject to obtaining regulatory approval from the SEC and 
approval of the Sponsor), (iv) causing the Sponsor to sell Bitcoins, 
Incidental Rights, and IR Virtual Currency on the termination of the 
Trust, (v) making distributions of Incidental Rights and/or IR Virtual 
Currency or cash from the sale thereof, and (vi) engaging in all 
administrative and security procedures necessary to accomplish such 
activities in accordance with the provisions of the Trust Agreement, 
the Custodian Agreement, the Index License Agreement and the 
Participant Agreements.
    In addition, the Trust may engage in any lawful activity necessary 
or desirable in order to facilitate shareholders' access to Incidental 
Rights or IR Virtual Currency, provided that such activities do not 
conflict with the terms of the Trust Agreement. The Trust will not be 
actively managed. It will not engage in any activities designed to 
obtain a profit from, or to ameliorate losses caused by, changes in the 
market prices of Bitcoins.
Investment Objective
    According to the Annual Report, and as further described below, the 
Trust's investment objective is for the value of the Shares (based on 
Bitcoin per Share) to reflect the value of the Bitcoins held by the 
Trust, as determined by reference to the Index Price, less the Trust's 
expenses and other liabilities. While an investment in the Shares is 
not a direct investment in Bitcoin, the Shares are designed to provide 
investors with a cost-effective and convenient way to gain investment 
exposure to Bitcoin. A substantial direct investment in Bitcoin may 
require expensive and sometimes complicated arrangements in connection 
with the acquisition, security and safekeeping of the Bitcoin and may 
involve the payment of substantial fees to acquire such Bitcoin from 
third-party facilitators through cash payments of U.S. dollars. Because 
the value of the Shares is correlated with the value of Bitcoin held by 
the Trust, it is important to understand the investment attributes of, 
and the market for, Bitcoin.
Bitcoin and the Bitcoin Network
    According to the Annual Report, Bitcoin is a digital asset that is 
created and transmitted through the operations of the peer-to-peer 
``Bitcoin Network,'' a decentralized network of computers that operates 
on cryptographic protocols. No single entity owns or operates the 
Bitcoin Network, the infrastructure of which is collectively maintained 
by a decentralized user base. The Bitcoin Network allows people to 
exchange tokens of value, called Bitcoin, which are recorded on a 
public transaction ledger known as a Blockchain. Bitcoin can be used to 
pay for goods and services, or it can be converted to fiat currencies, 
such as the U.S. dollar, at rates determined on ``Digital Asset 
Markets'' \18\ that trade Bitcoin or in individual end-user-to-end-user 
transactions under a barter system.
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    \18\ A ``Digital Asset Market'' is a ``Brokered Market,'' 
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange 
Market,'' as each such term is defined in the Financial Accounting 
Standards Board Accounting Standards Codification Master Glossary. 
The ``Digital Asset Exchange Market'' is the global exchange market 
for the trading of Bitcoins, which consists of transactions on 
electronic Digital Asset Exchanges. A ``Digital Asset Exchange'' is 
an electronic marketplace where exchange participants may trade, buy 
and sell Bitcoins based on bid-ask trading. The largest Digital 
Asset Exchanges are online and typically trade on a 24-hour basis, 
publishing transaction price and volume data.
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    The Bitcoin Network is decentralized and does not require 
governmental authorities or financial institution intermediaries to 
create, transmit, or determine the value of Bitcoin. Rather, Bitcoin is 
created and allocated by the Bitcoin Network protocol through a 
``mining'' process. The value of Bitcoin is determined by the supply of 
and demand for Bitcoin on the Digital Asset Markets or in private end-
user-to-end-user transactions.
    New Bitcoin are created and rewarded to the miners of a block in 
the Blockchain for verifying transactions. The Blockchain is 
effectively a decentralized database that includes all blocks that have 
been solved by miners, and it is updated to include new blocks as they 
are solved. Each Bitcoin transaction is broadcast to the Bitcoin 
Network and, when included in a block, recorded in the Blockchain. As 
each new block records outstanding Bitcoin transactions, and 
outstanding transactions are settled and validated through such 
recording, the Blockchain represents a complete, transparent and 
unbroken history of all transactions of the Bitcoin Network.
Summary of a Bitcoin Transaction
    Prior to engaging in Bitcoin transactions directly on the Bitcoin 
Network, a user generally must first install on its computer or mobile 
device a Bitcoin Network software program that will allow the user to 
generate a private and public key pair associated with a Bitcoin 
address, commonly referred to as a ``wallet.'' The Bitcoin Network 
software program and the Bitcoin address also enable the user to 
connect to the Bitcoin Network and transfer

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Bitcoin to, and receive Bitcoin from, other users.
    Each Bitcoin Network address, or wallet, is associated with a 
unique ``public key'' and ``private key'' pair. To receive Bitcoin, the 
Bitcoin recipient must provide its public key to the party initiating 
the transfer. This activity is analogous to a recipient for a 
transaction in U.S. dollars providing a routing address in wire 
instructions to the payor so that cash may be wired to the recipient's 
account. The payor approves the transfer to the address provided by the 
recipient by ``signing'' a transaction that consists of the recipient's 
public key with the private key of the address from where the payor is 
transferring the Bitcoin. The recipient, however, does not make public 
or provide to the sender its related private key.
    Neither the recipient nor the sender reveal their private keys in a 
transaction, because the private key authorizes transfer of the funds 
in that address to other users. Therefore, if a user loses his private 
key, the user may permanently lose access to the Bitcoin contained in 
the associated address. Likewise, Bitcoin is irretrievably lost if the 
private key associated with them is deleted and no backup has been 
made. When sending Bitcoin, a user's Bitcoin Network software program 
must validate the transaction with the associated private key. In 
addition, since every computation on the Bitcoin Network requires 
processing power, there is a transaction fee involved with the transfer 
that is paid by the payor. The resulting digitally validated 
transaction is sent by the user's Bitcoin Network software program to 
the Bitcoin Network miners to allow transaction confirmation.
    Bitcoin Network miners record and confirm transactions when they 
mine and add blocks of information to the Blockchain. When a miner 
mines a block, it creates that block, which includes data relating to 
(i) the satisfaction of the consensus mechanism to mine the block, (ii) 
a reference to the prior block in the Blockchain to which the new block 
is being added and (iii) transactions that have submitted to the 
Bitcoin Network but have not yet been added to the Blockchain. The 
miner becomes aware of outstanding, unrecorded transactions through the 
data packet transmission and distribution discussed above.
    Upon the addition of a block included in the Blockchain, the 
Bitcoin Network software program of both the spending party and the 
receiving party will show confirmation of the transaction on the 
Blockchain and reflect an adjustment to the Bitcoin balance in each 
party's Bitcoin Network public key, completing the Bitcoin transaction. 
Once a transaction is confirmed on the Blockchain, it is irreversible.
    Some Bitcoin transactions are conducted ``off-blockchain'' and are 
therefore not recorded in the Blockchain. Some ``off-blockchain 
transactions'' involve the transfer of control over, or ownership of, a 
specific digital wallet holding Bitcoin or the reallocation of 
ownership of certain Bitcoin in a pooled-ownership digital wallet, such 
as a digital wallet owned by a Digital Asset Exchange. In contrast to 
on-blockchain transactions, which are publicly recorded on the 
Blockchain, information and data regarding off-blockchain transactions 
are generally not publicly available. Therefore, off-blockchain 
transactions are not truly Bitcoin transactions in that they do not 
involve the transfer of transaction data on the Bitcoin Network and do 
not reflect a movement of Bitcoin between addresses recorded in the 
Blockchain. For these reasons, off-blockchain transactions are subject 
to risks, as any such transfer of Bitcoin ownership is not protected by 
the protocol behind the Bitcoin Network or recorded in, and validated 
through, the blockchain mechanism.
Custody of the Trust's Bitcoins
    Digital assets and digital asset transactions are recorded and 
validated on blockchains, the public transaction ledgers of a digital 
asset network. Each digital asset blockchain serves as a record of 
ownership for all of the units of such digital asset, even in the case 
of certain privacy-focused digital assets, where the transactions 
themselves are not publicly viewable. All digital assets recorded on a 
blockchain are associated with a public blockchain address, also 
referred to as a digital wallet. Digital assets held at a particular 
public blockchain address may be accessed and transferred using a 
corresponding private key.
Key Generation
    Public addresses and their corresponding private keys are generated 
by the Custodian in secret key generation ceremonies at secure 
locations inside faraday cages, which are enclosures used to block 
electromagnetic fields and mitigate attacks. The Custodian uses quantum 
random number generators to generate the public and private key pairs.
    Once generated, private keys are encrypted, separated into 
``shards,'' and then further encrypted. After the key generation 
ceremony, all materials used to generate private keys, including 
computers, are destroyed. All key generation ceremonies are performed 
offline. No party other than the Custodian has access to the private 
key shards of the Trust.
Key Storage
    Private key shards are distributed geographically in secure vaults 
around the world, including in the United States. The locations of the 
secure vaults may change regularly and are kept confidential by the 
Custodian for security purposes.
    The Digital Asset Account \19\ uses offline storage, or ``cold 
storage'', mechanisms to secure the Trust's private keys. The term cold 
storage refers to a safeguarding method by which the private keys 
corresponding to digital assets are disconnected and/or deleted 
entirely from the internet. Cold storage of private keys may involve 
keeping such keys on a non-networked (or ``airgapped'') computer or 
electronic device or storing the private keys on a storage device (for 
example, a USB thumb drive) or printed medium (for example, papyrus, 
paper, or a metallic object). A digital wallet may receive deposits of 
digital assets but may not send digital assets without use of the 
digital assets' corresponding private keys. In order to send digital 
assets from a digital wallet in which the private keys are kept in cold 
storage, either the private keys must be retrieved from cold storage 
and entered into an online, or ``hot,'' digital asset software program 
to sign the transaction, or the unsigned transaction must be 
transferred to the cold server in which the private keys are held for 
signature by the private keys and then transferred back to the online 
digital asset software program. At that point, the user of the digital 
wallet can transfer its digital assets.
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    \19\ The Digital Asset Account is a segregated custody account 
controlled and secured by the Custodian to store private keys, which 
allows for the transfer of ownership or control of the Trust's 
Bitcoins on the Trust's behalf.
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Security Procedures
    The Custodian is the custodian of the Trust's private keys in 
accordance with the terms and provisions of the Custodian Agreement. 
Transfers from the Digital Asset Account require certain security 
procedures, including, but not limited to, multiple encrypted private 
key shards, usernames, passwords and 2-step verification. Multiple 
private key shards held by the Custodian must be combined to 
reconstitute the private key to sign any transaction in order to 
transfer the Trust's assets. Private key shards are distributed 
geographically in secure

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vaults around the world, including in the United States.
    As a result, if any one secure vault is ever compromised, this 
event will have no impact on the ability of the Trust to access its 
assets, other than a possible delay in operations, while one or more of 
the other secure vaults is used instead. These security procedures are 
intended to remove single points of failure in the protection of the 
Trust's assets.
    Transfers of Bitcoins to the Digital Asset Account will be 
available to the Trust once processed on the Blockchain.
    Subject to obtaining regulatory approval to operate a redemption 
program and authorization of the Sponsor, the process of accessing and 
withdrawing Bitcoin from the Trust to redeem a Basket by an Authorized 
Participant will follow the same general procedure as transferring 
Bitcoins to the Trust to create a Basket by an Authorized Participant, 
only in reverse.
Digital Asset Holdings
    According to the Annual Report, the Trust's assets consist solely 
of Bitcoins, Incidental Rights, IR Virtual Currency, proceeds from the 
sale of Bitcoins, Incidental Rights, and IR Virtual Currency pending 
use of such cash for payment of Additional Trust Expenses or 
distribution to the shareholders, and any rights of the Trust pursuant 
to any agreements, other than the Trust Agreement, to which the Trust 
is a party. Each Share represents a proportional interest, based on the 
total number of Shares outstanding, in each of the Trust's assets as 
determined in the case of Bitcoin by reference to the Index Price, less 
the Trust's expenses and other liabilities (which include accrued but 
unpaid fees and expenses). The Sponsor expects that the market price of 
the Shares will fluctuate over time in response to the market prices of 
Bitcoin. In addition, because the Shares reflect the estimated accrued 
but unpaid expenses of the Trust, the number of Bitcoin represented by 
a Share will gradually decrease over time as the Trust's Bitcoin is 
used to pay the Trust's expenses. The Trust does not expect to take any 
Incidental Rights or IR Virtual Currency it may hold into account for 
purposes of determining the Trust's Digital Asset Holdings or the 
Digital Asset Holdings per Share.
    The Sponsor will evaluate the Bitcoin held by the Trust and 
determine the Digital Asset Holdings of the Trust in accordance with 
the relevant provisions of the Trust Documents. The following is a 
description of the material terms of the Trust Documents as they relate 
to valuation of the Trust's Bitcoin and the Digital Asset Holdings 
calculations.
    On each business day at 4:00 p.m., New York time, or as soon 
thereafter as practicable (the ``Evaluation Time''), the Sponsor will 
evaluate the Bitcoin held by the Trust and calculate and publish the 
Digital Asset Holdings of the Trust. To calculate the Digital Asset 
Holdings, the Sponsor will:
    1. Determine the Index Price as of such business day.
    2. Multiply the Index Price by the Trust's aggregate number of 
Bitcoins owned by the Trust as of 4:00 p.m., E.T. on the immediately 
preceding day, less the aggregate number of Bitcoins payable as the 
accrued and unpaid Sponsor's Fee as of 4:00 p.m., E.T. on the 
immediately preceding day.
    3. Add the U.S. dollar value of Bitcoins, calculated using the 
Index Price, receivable under pending creation orders, if any, 
determined by multiplying the number of the Baskets represented by such 
creation orders by the Basket Amount and then multiplying such product 
by the Index Price.\20\
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    \20\ ``Baskets'' and ``Basket Amount'' have the meanings set 
forth in ``Creation of Shares'' below.
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    4. Subtract the U.S. dollar amount of accrued and unpaid Additional 
Trust Expenses, if any.
    5. Subtract the U.S. dollar value of the Bitcoins, calculated using 
the Index Price, to be distributed under pending redemption orders, if 
any, determined by multiplying the number of Baskets to be redeemed 
represented by such redemption orders by the Basket Amount and then 
multiplying such product by the Index Price (the amount derived from 
steps 1 through 5 above, the ``Digital Asset Holdings Fee Basis 
Amount'').
    6. Subtract the U.S. dollar amount of the Sponsor's Fee that 
accrues for such business day, as calculated based on the Digital Asset 
Holdings Fee Basis Amount for such business day.
    In the event that the Sponsor determines that the primary 
methodology used to determine the Index Price is not an appropriate 
basis for valuation of the Trust's Bitcoins, the Sponsor will utilize 
the cascading set of rules as described in ``Trust Valuation of 
Bitcoin'' below. In addition, in the event that the Trust holds any 
Incidental Rights and/or IR Virtual Currency, the Sponsor may, at its 
discretion, include the value of such Incidental Rights and/or IR 
Virtual Currency in the determination of the Digital Asset Holdings, 
provided that the Sponsor has determined in good faith a method for 
assigning an objective value to such Incidental Rights and/or IR 
Virtual Currency. At this time, the Trust does not expect to take any 
Incidental Rights or IR Virtual Currency it may hold into account for 
the purposes of determining the Digital Asset Holdings or the Digital 
Asset Holdings per Share.
Limits on Bitcoin Supply
    The supply of new Bitcoin is mathematically controlled so that the 
number of Bitcoin grows at a limited rate pursuant to a pre-set 
schedule. The number of Bitcoin awarded for solving a new block is 
automatically halved after every 210,000 blocks are added to the 
Blockchain. Currently, the fixed reward for solving a new block is 6.25 
Bitcoin per block and this is expected to decrease by half to become 
3.125 Bitcoin after the next 210,000 blocks have entered the Bitcoin 
Network, which is expected to be mid-2024. This deliberately controlled 
rate of Bitcoin creation means that the number of Bitcoin in existence 
will increase at a controlled rate until the number of Bitcoin in 
existence reaches the pre-determined 21 million Bitcoin. As of December 
31, 2021, approximately 18.9 million Bitcoins were outstanding and the 
date when the 21 million Bitcoin limitation will be reached is 
estimated to be the year 2140.
Bitcoin Value
Digital Asset Exchange Valuation
    According to the Annual Report, the value of Bitcoin is determined 
by the value that various market participants place on Bitcoin through 
their transactions. The most common means of determining the value of a 
Bitcoin is by surveying one or more Digital Asset Exchanges where 
Bitcoin is traded publicly (e.g., Coinbase Pro, Bitstamp, Kraken, and 
LMAX Digital). Additionally, there are over-the-counter dealers or 
market makers that transact in Bitcoin.
Digital Asset Exchange Public Market Data
    On each online Digital Asset Exchange, Bitcoin is traded with 
publicly disclosed valuations for each executed trade, measured by one 
or more fiat currencies such as the U.S. dollar or Euro. Over-the-
counter dealers or market makers do not typically disclose their trade 
data.
    As of December 31, 2021, the Digital Asset Exchanges included in 
the Index are Coinbase Pro, Bitstamp, Kraken and LMAX Digital. As 
further described below, each of these Digital Asset Exchanges are in 
compliance with applicable U.S. federal and state

[[Page 28048]]

licensing requirements and practices regarding AML and KYC regulations.
    Coinbase Pro: A U.S.-based exchange registered as a money services 
business (``MSB'') with FinCen and licensed as a virtual currency 
business under the NYDFS BitLicense as well as money transmitter in 
various U.S. states.
    Bitstamp: A U.K.-based exchange registered as an MSB with FinCen 
and licensed as a virtual currency business under the NYDFS BitLicense 
as well as money transmitter in various U.S. states.
    Kraken: A U.S.-based exchange registered as an MSB with FinCen and 
licensed as money transmitter in various U.S. states. Kraken does not 
hold a BitLicense.
    LMAX Digital: A U.K.-based exchange registered as a broker with 
FCA. LMAX Digital does not hold a BitLicense.
    Currently, there are several Digital Asset Exchanges operating 
worldwide, and online Digital Asset Exchanges represent a substantial 
percentage of Bitcoin buying and selling activity and provide the most 
data with respect to prevailing valuations of Bitcoins. These exchanges 
include established exchanges such as exchanges included in the Index, 
which provide a number of options for buying and selling Bitcoins. The 
below table reflects the trading volume in Bitcoins and market share of 
the BTC-U.S. dollar trading pair of each of the Digital Asset Exchanges 
included in the Index as of December 31, 2021 using data reported by 
the Index Provider from May 1, 2015 to December 31, 2021:

------------------------------------------------------------------------
 Digital Asset Exchanges included in the                   Market share
   Index as of December 31, 2021 \21\      Volume (BTC)      \22\ (%)
------------------------------------------------------------------------
Coinbase Pro............................      32,019,298           20.76
Bitstamp................................      22,030,291           14.28
Kraken..................................      11,009,299            7.14
LMAX Digital............................       6,329,133            4.10
                                         -------------------------------
    Total BTC-U.S. dollar trading pair..      71,388,021           46.28
------------------------------------------------------------------------

    The domicile, regulation, and legal compliance of the Digital Asset 
Exchanges included in the Index varies. Information regarding each 
Digital Asset Exchange may be found, where available, on the websites 
for such Digital Asset Exchanges, among other places.
---------------------------------------------------------------------------

    \21\ On January 19, 2020, the Index Provider removed Bittrex due 
to a lack of trading volume and added LMAX Digital based on the 
exchange meeting the liquidity thresholds for inclusion in the 
Index. On April 6, 2020, the Index Provider removed itBit due to a 
lack of trading volume and did not add any constituents as part of 
its scheduled quarterly review.
    \22\ Market share is calculated using trading volume data (in 
Bitcoins) provided by the Index Provider for certain Digital Asset 
Exchanges, including Coinbase Pro, Bitstamp, Kraken, and LMAX 
Digital, as well as certain other large U.S.-dollar denominated 
Digital Asset Exchanges that are not currently included in the 
Index, including Binance. US (data included from April 1, 2020), 
Bitfinex, Bitflyer (data included from December 24, 2018), Bittrex 
(data included from July 31, 2018), ErisX (data included from 
October 1, 2020), Gemini, itBit, LakeBTC (data included from May 1, 
2015 to June 1, 2018 and from January 27, 2019), HitBTC (data 
included from April 1, 2019 to March 31, 2020) and OKCoin.
---------------------------------------------------------------------------

The Index and the Index Price
    The Index is a U.S. dollar-denominated composite reference rate for 
the price of Bitcoin. The Index is designed to (i) mitigate the effects 
of fraud, manipulation and other anomalous trading activity from 
impacting the Bitcoin reference rate, (ii) provide a real-time, volume-
weighted fair value of Bitcoin and (iii) appropriately handle and 
adjust for non-market related events.
    The Index Price is determined by the Index Provider through a 
process in which trade data is cleansed and compiled in such a manner 
as to algorithmically reduce the impact of anomalistic or manipulative 
trading. This is accomplished by adjusting the weight of each data 
input based on price deviation relative to the observable set, as well 
as recent and long-term trading volume at each venue relative to the 
observable set.
Constituent Exchange Selection
    According to the Annual Report, the Digital Asset Exchanges that 
are included in the Index are selected by the Index Provider utilizing 
a methodology that is guided by the International Organization of 
Securities Commissions (``IOSCO'') principles for financial benchmarks. 
For an exchange to become a Digital Asset Exchange included in the 
Index (a ``Constituent Exchange''), it must satisfy the criteria listed 
below (the ``Inclusion Criteria''):
    <bullet> Compliance with applicable U.S. federal and state 
licensing requirements and practices regarding anti-money laundering 
(``AML'') and know-your-customer (``KYC'') regulations;
    <bullet> Publicly known ownership;
    <bullet> No restrictions on deposits and/or withdrawals of Bitcoin;
    <bullet> No restrictions on deposits and/or withdrawals of U.S. 
dollars;
    <bullet> Reliably displays new trade prices and volumes on a real-
time basis through APIs;
    <bullet> Programmatic trading \23\ of the Bitcoin/U.S. dollar spot 
price;
---------------------------------------------------------------------------

    \23\ Exchanges with programmatic trading offer traders an 
application programming interface that permits trading by sending 
programmed commands to the exchange.
---------------------------------------------------------------------------

    <bullet> Liquid market in the Bitcoin/U.S. dollar spot price;
    <bullet> Trading volume must represent a minimum of total Bitcoin/
U.S. dollar trading volumes (5% for U.S. exchanges and 10% non-U.S. 
exchanges); and
    <bullet> Discretion of the Index Provider's analysts \24\
---------------------------------------------------------------------------

    \24\ This includes additional due diligence conducted by the 
Index Provider's analysts.
---------------------------------------------------------------------------

    A Digital Asset Exchange is removed from the Index when it no 
longer satisfies the Inclusion Criteria. The Index Provider does not 
currently include data from over-the-counter markets or derivatives 
platforms among the Constituent Exchanges. According to the Annual 
Report, over-the-counter data is not currently included because of the 
potential for trades to include a significant premium or discount paid 
for larger liquidity, which creates an uneven comparison relative to 
more active markets. There is also a higher potential for over-the-
counter transactions to not be arms-length, and thus not be 
representative of a true market price. Bitcoin derivative markets are 
also not currently included as the markets remain relatively thin. The 
Index Provider will consider IOSCO principles for financial benchmarks 
and the management of trading venues of Bitcoin derivatives when 
considering inclusion of over-the-counter or derivative platform data 
in the future.
    The Index Provider and the Sponsor have entered into an index 
license agreement, dated as of February 1, 2022 (the ``Index License 
Agreement''), governing the Sponsor's use of the Index

[[Page 28049]]

Price.\25\ Pursuant to the terms of the Index License Agreement, the 
Index Provider may adjust the calculation methodology for the Index 
Price without notice to, or consent of, the Trust or its shareholders. 
The Index Provider may decide to change the calculation methodology to 
maintain the integrity of the Index Price calculation should it 
identify or become aware of previously unknown variables or issues with 
the existing methodology that it believes could materially impact its 
performance and/or reliability. The Index Provider has sole discretion 
over the determination of Index Price and may change the methodologies 
for determining the Index Price from time to time. Shareholders will be 
notified of any material changes to the calculation methodology or the 
Index Price in the Trust's current reports and will be notified of all 
other changes that the Sponsor considers significant in the Trust's 
periodic reports. The Trust will determine the materiality of any 
changes to the Index Price on a case-by-case basis, in consultation 
with external counsel.
---------------------------------------------------------------------------

    \25\ Upon entering into the Index License Agreement, the Sponsor 
and the Index Provider terminated the license agreement between the 
parties dated as of February 28, 2019.
---------------------------------------------------------------------------

    The Index Provider may change the trading venues that are used to 
calculate the Index or otherwise change the way in which the Index is 
calculated at any time. For example, the Index Provider has scheduled 
quarterly reviews in which it may add or remove Constituent Exchanges 
that satisfy or fail the Inclusion Criteria. The Index Provider does 
not have any obligation to consider the interests of the Sponsor, the 
Trust, the shareholders, or anyone else in connection with such 
changes. The Index Provider is not required to publicize or explain the 
changes or to alert the Sponsor to such changes. Although the Index 
methodology is designed to operate without any manual intervention, 
rare events would justify manual intervention. Intervention of this 
kind would be in response to non-market-related events, such as the 
halting of deposits or withdrawals of funds on a Digital Asset 
Exchange, the unannounced closure of operations on a Digital Asset 
Exchange, insolvency or the compromise of user funds. In the event that 
such an intervention is necessary, the Index Provider would issue a 
public announcement through its website, API and other established 
communication channels with its clients.
Determination of the Index Price
    The Index applies an algorithm to the price of Bitcoin on the 
Constituent Exchanges calculated on a per second basis over a 24-hour 
period. The Index's algorithm is expected to reflect a four-pronged 
methodology to calculate the Index Price from the Constituent 
Exchanges:
    <bullet> Volume Weighting: Constituent Exchanges with greater 
liquidity receive a higher weighting in the Index Price, increasing the 
ability to execute against (i.e., replicate) the Index in the 
underlying spot markets.
    <bullet> Price-Variance Weighting: The Index Price reflects data 
points that are discretely weighted in proportion to their variance 
from the rest of the other Constituent Exchanges. As the price at a 
particular exchange diverges from the prices at the rest of the 
Constituent Exchanges, its weight in the Index Price consequently 
decreases.
    <bullet> Inactivity Adjustment: The Index Price algorithm penalizes 
stale activity from any given Constituent Exchange. When a Constituent 
Exchange does not have recent trading data, its weighting in the Index 
Price is gradually reduced until it is de-weighted entirely. Similarly, 
once trading activity at a Constituent Exchange resumes, the 
corresponding weighting for that Constituent Exchange is gradually 
increased until it reaches the appropriate level.
    <bullet> Manipulation Resistance: In order to mitigate the effects 
of wash trading and order book spoofing, the Index Price only includes 
executed trades in its calculation. Additionally, the Index Price only 
includes Constituent Exchanges that charge trading fees to its users in 
order to attach a real, quantifiable cost to any manipulation attempts.
    The Index Provider formally re-evaluates the weighting algorithm 
quarterly, but maintains discretion to change the way in which an Index 
Price is calculated based on its periodic review or in extreme 
circumstances. The Index is designed to limit exposure to trading or 
price distortion of any individual Digital Asset Exchange that 
experiences periods of unusual activity or limited liquidity by 
discounting, in real-time, anomalous price movements at individual 
Digital Asset Exchanges.
    The Sponsor believes the Index Provider's selection process for 
Constituent Exchanges as well as the methodology of the Index Price's 
algorithm provides a more accurate picture of Bitcoin price movements 
than a simple average of Digital Asset Exchange spot prices, and that 
the weighting of Bitcoin prices on the Constituent Exchanges limits the 
inclusion of data that is influenced by temporary price dislocations 
that may result from technical problems, limited liquidity or 
fraudulent activity elsewhere in the Bitcoin spot market. By 
referencing multiple trading venues and weighting them based on trade 
activity, the Sponsor believes that the impact of any potential fraud, 
manipulation or anomalous trading activity occurring on any single 
venue is reduced.
    If the Index Price becomes unavailable, or if the Sponsor 
determines in good faith that such Index Price does not reflect an 
accurate price for Bitcoin, then the Sponsor will, on a best efforts 
basis, contact the Index Provider to obtain the Index Price directly 
from the Index Provider. If after such contact such Index Price remains 
unavailable or the Sponsor continues to believe in good faith that such 
Index Price does not reflect an accurate price for the relevant digital 
asset, then the Sponsor will employ a cascading set of rules to 
determine the Index Price, as described below in ``Determination of the 
Index Price When Index Prices are Unavailable.''
    The Trust values its Bitcoin for operational purposes by reference 
to the Index Price. The Index Price is the value of a Bitcoin as 
represented by the Index, calculated at 4:00 p.m., New York time, on 
each business day. The Index Provider develops, calculates and 
publishes the Index on a continuous basis using the price at the 
Digital Asset Benchmark Exchanges, as selected by the Index Provider.
Illustrative Example
    For the purposes of illustration, outlined below are examples of 
how the attributes that impact weighting and adjustments in the 
aforementioned methodology may be utilized to generate the Index Price 
for a digital asset. For example, the Constituent Exchanges for the 
Index Price of the digital asset are Coinbase Pro, Kraken, LMAX Digital 
and Bitstamp.
    The Index Price algorithm, as described above, accounts for 
manipulation at the outset by only including data from executed trades 
on Constituent Exchanges that charge trading fees. Then, the below-
listed elements may impact the weighting of the Constituent Exchanges 
on the Index price as follows:
    <bullet> Volume Weighting: Each Constituent Exchange will be 
weighted to appropriately reflect the trading volume share of the 
Constituent Exchange relative to all the Constituent Exchanges during 
this same period. For

[[Page 28050]]

example, an average hourly weighting of 52.17%, 11.88%, 24.46% and 
11.49% for Coinbase Pro, Kraken, LMAX Digital and Bitstamp, 
respectively, would represent each Constituent Exchange's share of 
trading volume during the same period.
    <bullet> Inactivity Adjustment: Assume that a Constituent 
Exchange's trading engine represented a 14% influence on the trading 
price of the digital asset and then went offline for approximately two 
hours. The index algorithm automatically recognizes inactivity and de-
weights that Constituent Exchange's influence in the Index Price--for 
example, from 14% to 0%--until trading activity resumes. At which point 
it would re-weight the Constituent Exchange activity to a weight lower 
than its original weighting--for example, to 12%.
    <bullet> Price-Variance Weighting: Assume that for a one-hour 
period, the digital asset's execution prices on one Constituent 
Exchange were trading more than 7% higher than the average execution 
prices on another Constituent Exchange. The algorithm will 
automatically detect the anomaly and reduce that specific Constituent 
Exchange's weighting to 0% for that one-hour period, ensuring a 
reliable spot reference unaffected by the localized event.
Determination of the Index Price When Index Price is Unavailable
    The Sponsor will use the following cascading set of rules to 
calculate the Index Price.\26\ For the avoidance of doubt, the Sponsor 
will employ the below rules sequentially and in the order as presented 
below, should one or more specific rule(s) fail.
---------------------------------------------------------------------------

    \26\ The Sponsor updated these rules on January 11, 2022.
---------------------------------------------------------------------------

    1. Index Price = The price set by the Index as of 4:00 p.m., New 
York time, on the valuation date. If the Index becomes unavailable, or 
if the Sponsor determines in good faith that the Index does not reflect 
an accurate price, then the Sponsor will, on a best efforts basis, 
contact the Index Provider to obtain the Index Price directly from the 
Index Provider. If after such contact the Index remains unavailable or 
the Sponsor continues to believe in good faith that the Index does not 
reflect an accurate price, then the Sponsor will employ the next rule 
to determine the Index Price. There are no predefined criteria to make 
a good faith assessment and it will be made by the Sponsor in its sole 
discretion.
    2. Index Price = The price set by Coin Metrics Real-Time Rate (the 
``Secondary Index'') as of 4:00 p.m., New York time, on the valuation 
date (the ``Secondary Index Price''). The Secondary Index Price is a 
real-time reference rate price, calculated using trade data from 
constituent markets selected by Coin Metrics (the ``Secondary Index 
Provider''). The Secondary Index Price is calculated by applying 
weighted-median techniques to such trade data where half the weight is 
derived from the trading volume on each constituent market and half is 
derived from inverse price variance, where a constituent market with 
high price variance as a result of outliers or market anomalies 
compared to other constituent markets is assigned a smaller weight. If 
the Secondary Index becomes unavailable, or if the Sponsor determines 
in good faith that the Secondary Index does not reflect an accurate 
price, then the Sponsor will, on a best efforts basis, contact the 
Secondary Index Provider to obtain the Secondary Index Price directly 
from the Secondary Index Provider. If after such contact the Secondary 
Index remains unavailable or the Sponsor continues to believe in good 
faith that the Secondary Index does not reflect an accurate price, then 
the Sponsor will employ the next rule to determine the Index Price. 
There are no predefined criteria to make a good faith assessment and it 
will be made by the Sponsor in its sole discretion.
    3. Index Price = The price set by the Trust's principal market (the 
``Tertiary Pricing Option'') as of 4:00 p.m., New York time, on the 
valuation date. The Tertiary Pricing Option is a spot price derived 
from the principal market's public data feed that is believed to be 
consistently publishing pricing information as of 4:00 p.m., New York 
time, and is provided to the Sponsor via an application programming 
interface. If the Tertiary Pricing Option becomes unavailable, or if 
the Sponsor determines in good faith that the Tertiary Pricing Option 
does not reflect an accurate price, then the Sponsor will, on a best 
efforts basis, contact the Tertiary Pricing Provider to obtain the 
Tertiary Pricing Option directly from the Tertiary Pricing Provider. If 
after such contact the Tertiary Pricing Option remains unavailable 
after such contact or the Sponsor continues to believe in good faith 
that the Tertiary Pricing Option does not reflect an accurate price, 
then the Sponsor will employ the next rule to determine the Index 
Price. There are no predefined criteria to make a good faith assessment 
and it will be made by the Sponsor in its sole discretion.
    4. Index Price = The Sponsor will use its best judgment to 
determine a good faith estimate of the Index Price. There are no 
predefined criteria to make a good faith assessment and it will be made 
by the Sponsor in its sole discretion.
    In the event of a fork, the Index Provider may calculate the Index 
Price based on a virtual currency that the Sponsor does not believe to 
be the appropriate asset that is held by the Trust.\27\ In this event, 
the Sponsor has full discretion to use a different index provider or 
calculate the Index Price itself using its best judgment.
---------------------------------------------------------------------------

    \27\ According to the Annual Report, when a modification is 
introduced and a substantial majority of users and miners consent to 
the modification, the change is implemented and the network remains 
uninterrupted. However, if less than a substantial majority of users 
and miners consent to the proposed modification, and the 
modification is not compatible with the software prior to its 
modification, the consequence would be what is known as a ``hard 
fork'' of the Bitcoin Network, with one group running the pre-
modified software and the other running the modified software. The 
effect of such a fork would be the existence of two versions of 
Bitcoin running in parallel, yet lacking interchangeability. For 
example, in August 2017, Bitcoin ``forked'' into Bitcoin and a new 
digital asset, Bitcoin Cash, as a result of a several-year dispute 
over how to increase the rate of transactions that the Bitcoin 
Network can process. In the event of a hard fork of the Bitcoin 
Network, the Sponsor will, if permitted by the terms of the Trust 
Agreement, use its discretion to determine, in good faith, which 
peer-to-peer network, among a group of incompatible forks of the 
Bitcoin Network, is generally accepted as the Bitcoin Network and 
should therefore be considered the appropriate network for the 
Trust's purposes. The Sponsor will base its determination on a 
variety of then relevant factors, including, but not limited to, the 
Sponsor's beliefs regarding expectations of the core developers of 
Bitcoin, users, services, businesses, miners, and other 
constituencies, as well as the actual continued acceptance of, 
mining power on, and community engagement with, the Bitcoin Network. 
There is no guarantee that the Sponsor will choose the digital asset 
that is ultimately the most valuable fork, and the Sponsor's 
decision may adversely affect the value of the Shares as a result. 
The Sponsor may also disagree with shareholders, security vendors, 
and the Index Provider on what is generally accepted as Bitcoin and 
should therefore be considered ``Bitcoin'' for the Trust's purposes, 
which may also adversely affect the value of the Shares as a result.
---------------------------------------------------------------------------

The Structure and Operation of the Trust Protects Investors and 
Satisfies Commission Requirements for Bitcoin-Based Exchange Traded 
Products
    The Commission has expressed legitimate concerns about the 
underlying Digital Asset Market due to the potential for fraud and 
manipulation and has clearly outlined the reasons why prior Bitcoin-
based ETP proposals have been unable to satisfy these concerns in 
orders disapproving the proposed listing and trading of the Winklevoss 
Bitcoin Trust, Bitwise Bitcoin ETF Trust, United States Bitcoin and 
Treasury Investment Trust, and

[[Page 28051]]

various Bitcoin-based trust issued receipts.\28\
---------------------------------------------------------------------------

    \28\ See Order Setting Aside Action by Delegated Authority and 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (the ``Winklevoss 
Order''); Order Disapproving a Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to the Listing and Trading of Shares of 
the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E, 
Securities Exchange Act Release No. 87267 (Oct. 9, 2019), 84 FR 
55382 (Oct. 16, 2019) (SR-NYSEArca-2019-01) (the ``Bitwise Order''); 
Order Disapproving a Proposed Rule Change, as Modified by Amendment 
No. 1, to Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) and to List and Trade Shares of the United States Bitcoin 
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E, 
Securities Exchange Act Release No. 88284 (February 26, 2020), 85 FR 
12595 (March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix 
Order''); Order Disapproving a Proposed Rule Change to List and 
Trade the Shares of the ProShares Bitcoin ETF and the ProShares 
Short Bitcoin ETF, Securities Exchange Act Release No. 83904 (Aug. 
22, 2018), 83 FR 43934 (Aug. 28, 2018) (SR-NYSEArca-2017-139) (the 
``ProShares Order''); Order Disapproving a Proposed Rule Change 
Relating to Listing and Trading of the Direxion Daily Bitcoin Bear 
1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily 
Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and 
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E, 
Securities Exchange Act Release No. 83912 (Aug. 22, 2018), 83 FR 
43912 (Aug. 28, 2018) (SR-NYSEArca-2018-02) (the ``Direxion 
Order''); Order Disapproving a Proposed Rule Change to List and 
Trade the Shares of the GraniteShares Bitcoin ETF and the 
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No. 
83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR-CboeBZX-2018-
01) (the ``GraniteShares Order'').
---------------------------------------------------------------------------

    In these disapproval orders, the Commission outlined that a 
proposal relating to a Bitcoin-based ETP could satisfy its concerns 
regarding potential for fraud and manipulation by demonstrating:
    (1) Inherent Resistance to Fraud and Manipulation: That the 
underlying commodity market is inherently resistant to fraud and 
manipulation;
    (2) Other Means to Prevent Fraud and Manipulation: That there are 
other means to prevent fraudulent and manipulative acts and practices 
that are sufficient; or
    (3) Surveillance Sharing: That the listing exchange has entered 
into a surveillance sharing agreement with a regulated market of 
significant size relating to the underlying or reference assets.
    As described below, the Sponsor believes the structure and 
operation of the Trust are designed to prevent fraudulent and 
manipulative acts and practices, to protect investors and the public 
interest, and to respond to the specific concerns that the Commission 
has identified with respect to potential fraud and manipulation in the 
context of a Bitcoin-based ETP.
How the Trust Meets Standards in the Winklevoss Order, Bitwise Order 
and Wilshire Phoenix Order
1. Resistance to or Prevention of Fraud and Manipulation
    In the Bitwise Order, the Commission disagreed with the proposition 
that Bitcoin's fungibility, transportability and exchange tradability 
combine to provide unique protections against, and allow Bitcoin to be 
uniquely resistant to, attempts at price manipulation. The Commission 
reached its conclusion based on concessions by Bitwise that 95% of the 
reported trading in Bitcoin is ``fake'' or non-economic, effectively 
admitting that the properties of Bitcoin do not make it inherently 
resistant to manipulation. Bitwise's concessions were further 
compounded by evidence of potential and actual fraud and manipulation 
in the historical trading of Bitcoin on certain marketplaces such as 
(1) ``wash'' trading, (2) trading based on material, non-public 
information, including the dissemination of false and misleading 
information, (3) manipulative activity involving Tether, and (4) fraud 
and manipulation.\29\
---------------------------------------------------------------------------

    \29\ See Bitwise Order, 84 FR at 55383 (discussing analysis of 
the Bitcoin spot market that asserts that 95% of the spot market is 
dominated by fake and non-economic activity, such as wash trades), 
55391 (discussing possible sources of fraud and manipulation in the 
bitcoin spot market). See also Winklevoss Order, 83 FR at 37585-86 
(discussing pending litigation against a Bitcoin trading platform 
for fraudulent conduct relating to Tether); Bitwise Order, 84 FR at 
55391 n.140, 55402 & n.331 (same); Winklevoss Order, 83 FR at 37584-
86 (discussing potential types of manipulation in the Bitcoin spot 
market). The Commission has also noted that fraud and manipulation 
in the Bitcoin spot market could persist for a significant duration. 
See, e.g., Bitwise Order, 84 FR at 55405 & n.379.
---------------------------------------------------------------------------

    The Sponsor acknowledges the possibility that fraud and 
manipulation may exist and that Bitcoin trading on any given exchange 
may be no more uniquely resistant to fraud and manipulation than other 
commodity markets.\30\ However, the Sponsor believes that the 
fundamental features of Bitcoin's fungibility, transportability and 
exchange tradability offer novel protections beyond those that exist in 
traditional commodity markets or equity markets when combined with 
other means, as discussed further below.
---------------------------------------------------------------------------

    \30\ See generally Bitwise Order.
---------------------------------------------------------------------------

2. Other Means To Prevent Fraud and Manipulation
    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.\31\ 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.\32\
---------------------------------------------------------------------------

    \31\ See Winklevoss Order, 84 FR at 37580, 37582-91; Bitwise 
Order, 84 FR at 55383, 55385-406; Wilshire Phoenix Order, 85 FR at 
12597.
    \32\ See Winklevoss Order, 84 FR at 37582; Wilshire Phoenix 
Order, 85 FR at 12597.
---------------------------------------------------------------------------

    The Sponsor believes the Index represents a novel means to prevent 
fraud and manipulation from impacting a reference price for Bitcoin and 
that it offers protections beyond those that exist in traditional 
commodity markets or equity markets. Specifically, Bitcoin is novel and 
exists outside traditional commodity markets. It therefore stands to 
reason that the methods in which it trades will be novel and that the 
market for Bitcoin will have different attributes than traditional 
commodity markets. Bitcoin was only introduced within the past decade, 
twenty years after the first U.S. ETFs were offered \33\ and 150 years 
after the first futures were offered.\34\ In contrast to older 
commodities such as gold, silver, platinum, palladium or copper, which 
the Commission has noted all had at least one significant, regulated 
market for trading futures on the underlying commodity at the time 
commodity trust ETPs were approved for listing and trading, the first 
trading in Bitcoin took place entirely in an open, transparent and 
online setting where other commodities cannot trade.
---------------------------------------------------------------------------

    \33\ SEC, ``Investor Bulletin: Exchange-Traded Funds (ETFs),'' 
August 2012, https://www.sec.gov/investor/alerts/etfs.pdf.
    \34\ CFTC, ``History of the CFTC,'' https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html.
---------------------------------------------------------------------------

    The Trust has priced its Shares consistently for more than six 
years based on the Index. The Sponsor believes the Trust's use of the 
Index specifically addresses the Commission's concerns in that the 
Index serves as an alternative means to prevent fraud and manipulation. 
Specifically, the Index can (i) mitigate the effects of fraud, 
manipulation and other anomalous trading activity on the Bitcoin 
reference rate, (ii) provide a real-time, volume-weighted fair value of 
Bitcoin and (iii) appropriately handle and adjust for non-market 
related events.
    As described in more detail below, the Sponsor believes that the 
Index

[[Page 28052]]

accomplishes those objectives in the following ways:
    1. The Index tracks the Digital Asset Exchange Market Price through 
trading activity at ``U.S.-Compliant Exchanges''; \35\
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    \35\ ``U.S.-Compliant Exchanges'' are exchanges in the Digital 
Asset Exchange Market that are compliant with applicable U.S. 
federal and state licensing requirements and practices regarding AML 
and KYC regulations. All Constituent Exchanges are U.S.-Compliant 
Exchanges. ``Non-U.S.-Compliant Exchanges'' are all other exchanges 
in the Digital Asset Exchange Market. As of December 31, 2021, the 
U.S.-Compliant Exchanges that the Index Provider considered for 
inclusion in the Index were Bitstamp, Coinbase Pro, Kraken and LMAX 
Digital. From these U.S.-Compliant Exchanges, the Index Provider 
then applies additional Inclusion Criteria to determine the 
Constituent Exchange. As of December 31, 2021, the Constituent 
Exchanges were Bitstamp, Coinbase Pro, Kraken, and LMAX Digital.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity in real-time through 
systematic adjustments;
    3. The Index is constructed and maintained by an expert third-party 
index provider, allowing for prudent handling of non-market-related 
events; and
    4. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity concentrated on any 
one specific exchange through a cross-exchange composite index rate.
    1. The Index tracks the Digital Asset Exchange Market Price through 
trading activity at ``U.S.-Compliant Exchanges''.
    To reduce the risk of fraud, manipulation, and other anomalous 
trading activity from impacting the Index, only U.S.-Compliant 
Exchanges are eligible to be included in the Index.
    The Index maintains a minimum number of three exchanges and a 
maximum number of five exchanges to track the Digital Asset Exchange 
Market while offering replicability for traders and market makers.\36\
---------------------------------------------------------------------------

    \36\ According to the Sponsor, the more exchanges included in 
the Index, the more ability there is for traders and market makers 
to trade against the Index by arbitraging price differences. For 
example, in the event of variances between Bitcoin prices on 
Constituent Exchanges and non-Constituent Exchanges, arbitrage 
trading opportunities would exist. These discrepancies generally 
consolidate over time, as price differences across exchanges are 
realized and capitalized upon by traders and market makers.
---------------------------------------------------------------------------

    U.S.-Compliant Exchanges possess safeguards that protect against 
fraud and manipulation. For example, U.S.-Compliant Exchanges regulated 
by the New York State Department of Financial Services (``NYDFS'') 
under the BitLicense program have regulatory requirements to implement 
measures designed to effectively detect, prevent, and respond to fraud, 
attempted fraud, market manipulation, and similar wrongdoing, and to 
monitor, control, investigate and report back to the NYDFS regarding 
any wrongdoing.\37\ These exchanges also have the following 
obligations:\38\
---------------------------------------------------------------------------

    \37\ See, e.g., ``DFS Takes Action to Deter Fraud and 
Manipulation in Virtual Currency Markets,'' available at: https://www.dfs.ny.gov/about/press/pr1802071.htm.
    \38\ See ``New York's Final ``BitLicense'' Rule: Overview and 
Changes from July 2014 Proposal,'' June 5, 2015, Davis Polk, 
available at: https://www.davispolk.com/files/new_yorks_final_bitlicense_rule_overview_changes_july_2014_proposal.pdf.
---------------------------------------------------------------------------

    <bullet> Submission of audited financial statements including 
income statements, statement of assets/liabilities, insurance, and 
banking;
    <bullet> Compliance with capitalization requirements set at NYDFS's 
discretion;
    <bullet> Prohibitions against the sale or encumbrance to protect 
full reserves of custodian assets;
    <bullet> Fingerprints and photographs of employees with access to 
customer funds;
    <bullet> Retention of a qualified Chief Information Security 
Officer and annual penetration testing/audits;
    <bullet> Documented business continuity and disaster recovery plan, 
independently tested annually; and
    <bullet> Participation in an independent exam by NYDFS.
    Other U.S.-Compliant Exchanges have voluntarily implemented 
measures to protect against common forms of market manipulation.\39\
---------------------------------------------------------------------------

    \39\ As of the date of filing, two of the four Constituent 
Exchanges, Bitstamp and Coinbase Pro, are regulated by NYDFS.
---------------------------------------------------------------------------

    Furthermore, all U.S.-Compliant Exchanges are considered Money 
Services Businesses (``MSBs'') that are subject to federal and state 
reporting requirements of the U.S Department of Treasury's FinCEN 
division that provide additional safeguards. For example, unscrupulous 
traders may be less likely to engage in fraudulent or manipulative acts 
and practices on exchanges that (1) report suspicious activity to 
FinCEN as money services businesses, (2) report to state regulators as 
money transmitters, and/or (3) require customer identification through 
KYC procedures. U.S.-Compliant Exchanges are required to: \40\
---------------------------------------------------------------------------

    \40\ See BSA Requirements for MSBs, FinCEN website: https://www.fincen.gov/bsarequirements-msbs.
---------------------------------------------------------------------------

    <bullet> Identify people with ownership stakes or controlling roles 
in the MSB;
    <bullet> Establish a formal Anti-Money Laundering (AML) policy in 
place with documentation, training, independent review, and a named 
compliance officer;
    <bullet> Implement strict customer identification and verification 
policies and procedures;
    <bullet> File Suspicious Activity Reports (SARs) for suspicious 
customer transactions;
    <bullet> File Currency Transaction Reports (CTRs) for cash-in or 
cash-out transactions greater than $10,000; and
    <bullet> Maintain a five-year record of currency exchanges greater 
than $1,000 and money transfers greater than $3,000.
    Lastly, because of Bitcoin's classification as a commodity, the 
CFTC has authority to police fraud and manipulation on U.S.-Compliant 
Exchanges.
    The Sponsor acknowledges that there are substantial differences 
between FinCEN and New York state regulations and the Commission's 
regulation of the national securities exchanges.\41\ The Sponsor does 
not believe the inclusion of U.S.-Compliant Exchanges is in and of 
itself sufficient to prove that the Index is an alternative means to 
prevent fraud and manipulation such that surveillance sharing 
agreements are not required, but does believe that the inclusion of 
only U.S.-Compliant Exchanges in the Index is one significant way in 
which the Index is protected from the potential impacts of fraud and 
manipulation.
---------------------------------------------------------------------------

    \41\ See Bitwise Order, 84 FR at 55392; Wilshire Phoenix Order, 
85 FR at 12603.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity in real-time through 
systematic adjustments.
    The Index is calculated once every second according to a systematic 
methodology that relies on observed trading activity on the Constituent 
Exchanges. While the precise methodology underlying the Index is 
currently proprietary, the key elements of the Index are outlined 
below:
    <bullet> Volume Weighting: Constituent Exchanges with greater 
liquidity receive a higher weighting in the Index, increasing the 
ability to execute against (i.e., replicate) the Index in the 
underlying spot markets.
    <bullet> Price-Variance Weighting: The Index reflects data points 
that are discretely weighted in proportion to their variance from the 
rest of the Constituent Exchanges. As the price at a Constituent 
Exchange diverges from the prices at the rest of the Constituent 
Exchanges, its weight in the Index consequently decreases.
    <bullet> Inactivity Adjustment: The Index algorithm penalizes stale 
activity from any given Constituent Exchange. When a Constituent 
Exchange does not have recent trading data, its weighting in the

[[Page 28053]]

Index is gradually reduced, until it is de-weighted entirely. 
Similarly, once trading activity at the Constituent Exchange resumes, 
the corresponding weighting for that Constituent Exchange is gradually 
increased until it reaches the appropriate level.
    <bullet> Manipulation Resistance: In order to mitigate the effects 
of wash trading and order book spoofing, the Index only includes 
executed trades in its calculation. Additionally, the Index only 
includes Constituent Exchanges that charge trading fees to its users in 
order to attach a real, quantifiable cost to any manipulation attempts.
    The Index Provider reviews and periodically updates the exchanges 
included in the Index by utilizing a methodology that is guided by the 
IOSCO principles for financial benchmarks.
    3. The Index is constructed and maintained by an expert third-party 
index provider, allowing for prudent handling of non-market-related 
events.
    The Index Provider reviews and periodically updates which exchanges 
are included in the Index by utilizing a methodology that is guided by 
the IOSCO principles for financial benchmarks.
    For an exchange to become a Constituent Exchange, it must satisfy 
the following Inclusion Criteria:
    <bullet> Compliance with any applicable U.S. federal and state 
licensing requirements and practices regarding AML and KYC regulations 
(i.e., the Constituent Exchange must be a U.S.-Compliant Exchange);
    <bullet> Publicly known ownership entity;
    <bullet> No restrictions on deposits and/or withdrawals of Bitcoin;
    <bullet> No restrictions on deposits and/or withdrawals of USD;
    <bullet> Reliably publish trade prices and volumes on a real-time 
basis through APIs;
    <bullet> Charges trading fees to its users in order to attach a 
real, quantifiable cost to any manipulation attempts;
    <bullet> Offer programmatic trading of the Bitcoin/USD spot price;
    <bullet> Liquid market in the Bitcoin/USD pair;
    <bullet> Trading volume that represents a minimum of total Bitcoin/
USD trading volumes (5% for U.S. exchanges and 10% non-U.S. exchanges); 
and
    <bullet> Discretion of the Index Provider's analysts.
    Although the Index methodology is designed to operate without any 
human interference, rare events would justify manual intervention. 
Manual intervention would only be in response to ``non-market-related 
events'' (e.g., halting of deposits or withdrawals of funds, 
unannounced closure of exchange operations, insolvency, compromise of 
user funds, etc.). In the event that such an intervention is necessary, 
the Index Provider would issue a public announcement through its 
website, API and other established communication channels with its 
clients.\42\
---------------------------------------------------------------------------

    \42\ To the extent any such intervention has a material impact 
on the Trust, the Sponsor will also issue a public announcement.
---------------------------------------------------------------------------

    4. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity concentrated on any 
one specific exchange through a cross-exchange composite index rate.
    The Index is based on the price and volume data of multiple U.S.-
Compliant Exchanges that satisfy the Index Provider's Inclusion 
Criteria. By referencing multiple trading venues and weighting them 
based on trade activity, the impact of any potential fraud, 
manipulation, or anomalous trading activity occurring on any single 
venue is reduced. Specifically, the effects of fraud, manipulation, or 
anomalous trading activity occurring on any single venue are de-
weighted and consequently diluted by non-anomalous trading activity 
from other Constituent Exchanges.
    Although the Index is designed to accurately capture the market 
price of Bitcoin, third parties may be able to purchase and sell 
Bitcoin on public or private markets included or not included among the 
Constituent Exchanges, and such transactions may take place at prices 
materially higher or lower than the Index Price. For example, based on 
data provided by the Index Provider, on any given day during the year 
ended December 31, 2021, the maximum differential between the 4:00 
p.m., New York time spot price of any single Digital Asset Exchange 
included in the Index and the Index Price was 0.64% and the average of 
the maximum differentials of the 4:00 p.m., New York time spot price of 
each Digital Asset Exchange included in the Index and the Index Price 
was 0.32%. During this same period, the average differential between 
the 4:00 p.m., New York time spot prices of all the Digital Asset 
Exchanges included in the Index and the Index Price was 0.0003%.\43\
---------------------------------------------------------------------------

    \43\ All Digital Asset Exchanges that were included in the Index 
throughout the period were considered in this analysis.
---------------------------------------------------------------------------

    Since November 1, 2014, the Trust has consistently priced its 
Shares at 4:00 p.m., E.T. based on the Index Price.\44\ While that 
pricing would be known to the market, the Sponsor believes that, even 
if efforts to manipulate the price of Bitcoin at 4:00 p.m., E.T. were 
successful on any exchange, such activity would have had a negligible 
effect on the pricing of the Trust, due to the controls embedded in the 
structure of the Index.
---------------------------------------------------------------------------

    \44\ Prior to February 1, 2022, the Trust valued its Bitcoins 
for operational purposes by reference to the volume-weighted average 
Index Price (the ``Old Index Price''). The Old Index Price was 
calculated by applying a weighting algorithm to the price and 
trading volume data for the immediately preceding 24-hour period as 
of 4:00 p.m., New York time, derived from the Constituent Exchanges 
reflected in the Index on such trade date, and overlaying an 
averaging mechanism to the price produced. Thus, whereas the Old 
Index Price reflected the price of a Bitcoin at 4:00 p.m., New York 
time, calculated by taking the average of each price of a Bitcoin 
produced by the Index over the preceding 24-hour period, the Index 
Price now is the price of a Bitcoin at 4:00 p.m., New York time, 
calculated based on the price and trading volume data of the Digital 
Asset Exchanges included in the Index over the preceding 24-hour 
period. The Index Price differs from the Old Index Price only in 
that it does not use an additional averaging mechanism; the Index 
Price otherwise uses the same methodology as the Old Index Price, 
and there has been no change to the Index used to determine the 
Index Price or the criteria used to select the Constituent 
Exchanges.
---------------------------------------------------------------------------

    Accordingly, the Sponsor believes that the Index has proven its 
ability to (i) mitigate the effects of fraud, manipulation and other 
anomalous trading activity on the Bitcoin reference rate, (ii) provide 
a real-time, volume-weighted fair value of Bitcoin and (iii) 
appropriately handle and adjust for non-market related events. For 
these reasons, the Sponsor believes that the Index represents an 
effective alternative means to prevent fraud and manipulation and the 
Trust's reliance on the Index addresses the Commission's concerns with 
respect to potential fraud and manipulation.
3. A Significant, Regulated and Surveilled Market Exists and Is Closely 
Connected With Spot Market for Bitcoin
    In the Winklevoss Order, Bitwise Order and Wilshire Phoenix Order, 
the Commission described both the need for and the definition of a 
surveilled market of significant size for commodity-trust ETPs like the 
Trust to date.\45\ Specifically, the Commission explained that:
---------------------------------------------------------------------------

    \45\ See Winklevoss Order, 83 FR at 37593-94; Bitwise Order, 84 
FR at 55383, 55410; Wilshire Phoenix Order, 85 FR at 12609.

for the commodity-trust ETPs approved to date for listing and 
trading, there has been in every case at least one significant, 
regulated market for trading futures on the underlying commodity--
whether gold, silver, platinum, palladium, or copper--and the ETP 
listing exchange has entered into surveillance-sharing agreements 
with, or held Intermarket Surveillance Group membership in common 
with, that market.\46\
---------------------------------------------------------------------------

    \46\ See Winklevoss Order, 83 FR at 37594.


[[Page 28054]]


---------------------------------------------------------------------------

    Further, the Commission stated that its interpretation of the term 
``market of significant size'' depends on the interrelationship between 
the market with which the listing exchange has a surveillance-sharing 
agreement and the proposed ETP.\47\ Accordingly, the terms 
``significant market'' and ``market of significant size'' could mean:
---------------------------------------------------------------------------

    \47\ See Winklevoss Order, 83 FR at 37594; Bitwise Order, 84 FR 
at 55410; ProShares Order, 83 FR at 43936; GraniteShares Order, 83 
FR at 43925; Direxion Order, 83 FR at 43914; Wilshire Phoenix Order, 
85 FR at 12609.

a market (or group of markets) as to which (a) there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to successfully manipulate the ETP, so 
that a surveillance-sharing agreement would assist in detecting and 
deterring misconduct, and (b) it is unlikely that trading in the ETP 
would be the predominant influence on prices in that market.\48\
---------------------------------------------------------------------------

    \48\ See Winklevoss Order, 83 FR at 37594. This definition is 
illustrative and not exclusive. There could be other types of 
``significant markets'' and ``markets of significant size,'' but 
this definition is an example that will provide guidance to market 
participants.

    In the context of Bitcoin-based ETPs specifically, the Commission 
has stated that establishing a lead-lag relationship between the 
Bitcoin futures market and the spot market is central to understanding 
whether it is reasonably likely that a would-be manipulator of the ETP 
would need to trade on the Bitcoin futures market to successfully 
manipulate prices on those spot platforms that feed into the proposed 
ETP's pricing mechanism such that a surveillance-sharing agreement 
would assist the ETP listing market in detecting and deterring 
misconduct.\49\ In particular, if the spot market leads the futures 
market, this would indicate that it would not be necessary to trade on 
the futures market to manipulate the proposed ETP, even if arbitrage 
worked efficiently, because the futures price would move to meet the 
spot price.
---------------------------------------------------------------------------

    \49\ See Bitwise Order, 84 FR at 55411; Wilshire Phoenix Order, 
85 FR at 12612.
---------------------------------------------------------------------------

    The Sponsor has conducted a lead/lag analysis of per minute data 
comparing the Bitcoin futures market, as represented by the CME futures 
market, to the Bitcoin spot market, as represented by the Index. Based 
on this analysis, the Sponsor has concluded that there does not appear 
to be a significant lead/lag relationship between the two instruments 
for the period of November 1, 2019 to August 31, 2021. However, the 
Sponsor notes that other studies prior to and since such date have 
found that the CME futures market does lead the Bitcoin spot 
market.\50\
---------------------------------------------------------------------------

    \50\ See Memorandum to File from Neel Maitra, Senior Special 
Counsel (Fintech & Crypto Specialist), Division of Trading and 
Markets, U.S. Securities and Exchange Commission re: Meeting with 
Representatives from Fidelity Digital Assets, et al. and attachment 
(SR-CboeBZX-2021-039) (September 8, 2021), available at: https://www.sec.gov/comments/sr-cboebzx-2021-039/srcboebzx2021039-250110.pdf; Letter from Bitwise Asset Management, Inc. re: File 
Number SR-NYSEArca-2021-89 (February 25, 2022), available at: 
https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189-20117902-270822.pdf; Letter from Wilson Sonsini Goodrich and Rosati, 
P.C. and Chapman and Cutler LLP, on behalf of Bitwise Asset 
Management, Inc. re: File No. SR-NYSEArca-2021-89 (March 7, 2022), 
available at: https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189-20118794-271630.pdf.
---------------------------------------------------------------------------

    Although there have been mixed findings regarding the lead/lag 
relationship between the CME futures and Bitcoin spot markets, the 
Sponsor believes that the CME futures market represents a large, 
surveilled and regulated market. For example, from November 1, 2019 to 
August 31, 2021, the CME futures market trading volume was over $432 
billion, compared to $624 billion in trading volume across the 
Constituent Exchanges included in the Index. With over 69% of the Index 
trading volume, the CME futures market represents significant coverage 
of U.S.-Compliant Exchanges in the Bitcoin market. In addition, the CME 
futures market trading volume from November 1, 2019 to August 31, 2021 
was approximately 50% of the trading volume of the U.S. dollar-
denominated Bitcoin spot markets referenced in the Bitwise Order.\51\
---------------------------------------------------------------------------

    \51\ These Bitcoin spot markets include Binance, Coinbase Pro, 
Bitfinex, Kraken, Bitstamp, BitFlyer, Poloniex, Bittrex and itBit.
---------------------------------------------------------------------------

    Given the significant size of the CME futures markets, the Sponsor 
believes there is a reasonable likelihood that a person attempting to 
manipulate the ETP would also have to trade on that market to 
successfully manipulate the ETP, since arbitrage between the derivative 
and spot markets would tend to counter an attempt to manipulate the 
spot market alone. As a result, the Exchange's ability to obtain 
information regarding trading in the Shares and futures from markets 
and other entities that are members of the Intermarket Trading Group 
(``ISG''), including the CME, would assist the Exchange in detecting 
and deterring misconduct.
    The Sponsor also believes it is unlikely that the ETP would become 
the predominant influence on prices in the market.
    While future inflows to the proposed Trust cannot be predicted, to 
provide comparable data, the Sponsor examined the change in market 
capitalization of Bitcoin with net inflows into the Trust, which 
currently trades on OTC Markets and is largest and most liquid Bitcoin 
investment product in the world.\52\ From November 1, 2019 to August 
31, 2021, the market capitalization of Bitcoin grew from $166 billion 
to $888 billion, a $721 billion increase. Over the same period, the 
Trust experienced $6.6 billion of inflows. The cumulative inflow into 
the Trust over the stated time period was only 0.9% of the aggregate 
growth of Bitcoin's market capitalization.
---------------------------------------------------------------------------

    \52\ To further illustrate the size and liquidity of the Trust, 
as of October 31, 2020, compared with global commodity ETPs, the 
Trust would rank fourth in assets under management and seventh in 
notional trading volume from November 1, 2019 to October 31, 2020.
---------------------------------------------------------------------------

    Additionally, the Trust experienced approximately $98.5 billion of 
trading volume from November 1, 2019 to August 31, 2021, only 23% of 
the CME futures market and 16% of the Index over the same period.
* * * * *
    In summary, the Sponsor believes that the foregoing responds to the 
Commission's articulated concerns with respect to potential fraud and 
manipulation in Bitcoin-based ETPs. Specifically, the Sponsor believes 
that, although Bitcoin is not itself inherently resistant to fraud and 
manipulation, the Index represents an effective means to prevent 
fraudulent and manipulative acts and practices. As discussed above, the 
Trust has used the Index to price the Shares for more than six years, 
and the Index has proven its ability to (i) mitigate the effects of 
fraud, manipulation and other anomalous trading activity on the Bitcoin 
reference rate, (ii) provide a real-time, volume-weighted fair value of 
bitcoin and (iii) appropriately handle and adjusts for non-market 
related events. The Sponsor also believes that the CME futures market 
is a significant, surveilled and regulated market that is closely 
connected with the spot market for Bitcoin and may fulfill the 
requirements for surveillance sharing given the Exchange's ability to 
obtain information from markets and other entities that are members of 
the ISG to assist in detecting and deterring misconduct.
The Approval of Bitcoin-Based ETFs Registered Under the Investment 
Company Act of 1940 and Bitcoin Based ETPs Registered Under the 
Securities Act of 1933 and Securities Exchange Act 1934
    In an August 3, 2021 speech at the Aspen Security Forum, the Chair 
stated that he looked forward to the Commission's review of Bitcoin-
based

[[Page 28055]]

ETF proposals registered under the Investment Company Act of 1940 (the 
``'40 Act''), ``particularly if those are limited to [the] CME-traded 
Bitcoin futures,'' noting the ``significant investor protection'' 
offered by the '40 Act.\53\ In this same speech, the Chair specifically 
identified the Trust in the context of existing investment vehicles 
that provide exposure to Bitcoin, noting that the Trust, which is a 
Bitcoin-based ETP proposal that would be registered under the '33 Act 
and '34 Act, rather than the '40 Act, is ``the largest among them 
having been around for eight years and worth more than $20 billion.'' 
\54\ Since that speech, the first Bitcoin-based ETFs registered under 
the '40 Act were approved for trading,\55\ subsequent Bitcoin-based 
ETPs that would be registered under the '33 Act and '34 Act were 
disapproved \56\ and a subsequent Bitcoin-based ETP that will be 
registered under the '33 Act and '34 Act was approved for trading.\57\
---------------------------------------------------------------------------

    \53\ Chair Gary Gensler Public Statement, ``Remarks Before the 
Aspen Security Forum,'' (August 3, 2021), https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03.
    \54\ Id.
    \55\ ProShares Bitcoin Strategy ETF (BITO); VanEck Bitcoin 
Strategy ETF (XBTF); Valkyrie Bitcoin Strategy ETF (BTF).
    \56\ See, e.g., Securities Exchange Act Release Nos. 93559 
(November 12, 2021), 86 FR 64539 (November 18, 2021) (SR-CboeBZX-
2021-019) (Order Disapproving a Proposed Rule Change To List and 
Trade Shares of the VanEck Bitcoin Trust Under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares); 94080 (January 27, 2022), 87 FR 5527 
(February 1, 2022) (SR-CboeBZX-2021-029) (Order Disapproving a 
Proposed Rule Change To List and Trade Shares of the Wise Origin 
Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares); 94571 (March 31, 2022), 87 FR 20014 (April 6, 2022) (SR-
CboeBZX-2021-051) (Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, To List and Trade Shares of the ARK 
21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based 
Trust Shares).
    \57\ See Securities Exchange Act Release No. 94620 (April 6, 
2022), 87 FR 21676 (April 12, 2022) (SR-NYSEArca-2021-53) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2, to List and Trade Shares of the Teucrium Bitcoin 
Futures Fund under NYSE Arca Rule 8.200-E, Commentary .02 (Trust 
Issued Receipts)).
---------------------------------------------------------------------------

    As described above, the Commission has outlined the reasons why 
prior Bitcoin-based ETF and ETP proposals registered under both the '40 
Act and '33 Act and '34 Act, respectively, have been unable to satisfy 
its concerns about pricing in the underlying Digital Asset Market due 
to the potential for fraud and manipulation and described how such 
concerns could be addressed. It has been the Sponsor's understanding 
that none of the stated requirements have indicated a preference for 
Bitcoin-based ETF and ETP proposals registered under the '40 Act versus 
the '33 Act and '34 Act, respectively. Nor does the Sponsor believe 
that such requirements can be addressed by gaining exposure to Bitcoin 
through Bitcoin futures in an ETF registered under the '40 Act rather 
than physical Bitcoin in an ETP registered under the '33 Act because 
both products would be reliant on Bitcoin's underlying price in the 
spot markets.
    For instance, Bitcoin-based ETFs registered under the '40 Act that 
hold Bitcoin futures are priced by referencing the CME CF Bitcoin 
Reference Rate (``BRR''), which itself references the Digital Asset 
Markets: Bitstamp, Coinbase, Gemini, itBit, and Kraken. Similarly, 
Bitcoin-based ETPs that would be registered under the '33 Act and '34 
Act, like the Trust, would be priced by referencing Digital Asset 
Markets included in the BRR, such as through the Index. As a result, 
the Sponsor believes that any potential fraud or manipulation in the 
underlying Digital Asset Market would impact both types of ETP 
proposals. Thus, in light of the Commission's recent approval of a 
futures-based ETP registered under the '33 Act and '34 Act,\58\ which 
suggests that the Commission believes that both Bitcoin-based ETFs 
registered under the '40 Act and Bitcoin-based ETPs registered under 
the '33 Act and '34 Act could meet the requirements of the Exchange 
Act, the Sponsor believes that the Commission should take the same view 
towards both types of proposals and that differences between the '40 
Act on the one hand, and the '33 Act and '34 Act on the other, should 
not form the basis for denial of proposed Bitcoin-based ETPs registered 
under the '33 Act and '34 Act, like the Trust.
---------------------------------------------------------------------------

    \58\ See id.
---------------------------------------------------------------------------

Creation of Shares
    According to the Annual Report, the Trust will issue Shares to 
Authorized Participants from time to time, but only in one or more 
Baskets (with a Basket being a block of 100 Shares). The Trust will not 
issue fractions of a Basket. The creation of Baskets will be made only 
in exchange for the delivery to the Trust, or the distribution by the 
Trust, of the number of whole and fractional Bitcoins represented by 
each Basket being created, which is determined by dividing (x) the 
number of Bitcoins owned by the Trust at 4:00 p.m., E.T., on the trade 
date of a creation order, after deducting the number of Bitcoins 
representing the U.S. dollar value of accrued but unpaid fees and 
expenses of the Trust (converted using the Index Price at such time, 
and carried to the eighth decimal place), by (y) the number of Shares 
outstanding at such time (with the quotient so obtained calculated to 
one one-hundred-millionth of one Bitcoin (i.e., carried to the eighth 
decimal place)), and multiplying such quotient by 100 (the ``Basket 
Amount''). All questions as to the calculation of the Basket Amount 
will be conclusively determined by the Sponsor and will be final and 
binding on all persons interested in the Trust. The Basket Amount 
multiplied by the number of Baskets being created is the ``Total Basket 
Amount.'' The number of Bitcoins represented by a Share will gradually 
decrease over time as the Trust's Bitcoins are used to pay the Trust's 
expenses. As of December 31, 2021, each Share represented approximately 
0.0009 of one Bitcoin.
    Authorized Participants are the only persons that may place orders 
to create Baskets. Each Authorized Participant must (i) be a registered 
broker-dealer, (ii) enter into an agreement with the Sponsor and the 
Liquidity Provider (as defined below), if applicable, that provides the 
procedures for the creation and redemption of Baskets and for the 
delivery of Bitcoins required for Creation Baskets and Redemption 
Baskets (each, a ``Participant Agreement'') and (iii) in the case of 
creation or redemption in-kind, own a Bitcoin wallet address that is 
known to the Custodian as belonging to the Authorized Participant. An 
Authorized Participant may act for its own account or as agent for 
broker-dealers, custodians and other securities market participants 
that wish to create or redeem Baskets. Shareholders who are not 
Authorized Participants will only be able to redeem their Shares 
through an Authorized Participant.
    Although the creation of Baskets requires the delivery to the Trust 
of the Total Basket Amount, an Authorized Participant may deposit cash 
with the Administrator, which will facilitate the purchase or sale of 
Bitcoins on behalf of the Authorized Participant through one or more 
eligible companies (each, a ``Liquidity Provider'') that have entered 
into a Participant Agreement with the Sponsor, the Administrator, the 
Marketing Agent and the relevant Authorized Participant.
    The Participant Agreement provides the procedures for the creation 
of Baskets and for the delivery of the whole and fractional Bitcoins 
required for such creations. The Participant Agreement and the related 
procedures attached thereto may be amended by the Sponsor and the 
relevant Authorized Participant. Under the Participant Agreement, the 
Sponsor has agreed to indemnify each Authorized Participant against 
certain liabilities, including liabilities under the Securities Act.

[[Page 28056]]

    Authorized Participants do not pay a transaction fee to the Trust 
in connection with the creation of Baskets, but there may be 
transaction fees associated with the validation of the transfer of 
Bitcoins by the Bitcoin Network. Authorized Participants who deposit 
Bitcoins with the Trust in exchange for Baskets will receive no fees, 
commissions or other form of compensation or inducement of any kind 
from either the Sponsor or the Trust, and no such person has any 
obligation or responsibility to the Sponsor or the Trust to effect any 
sale or resale of Shares.
Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Administrator to create one or more Baskets. Orders for 
creations may be placed either ``in-kind'' or ``in-cash.'' Orders for 
creation in-kind must be placed with the Administrator no later than 
3:59:59 p.m., New York time, and no later than 4:59:59 p.m., New York 
time, for creations in-cash (in each case, the ``Order Cutoff Time'').
    In-kind creations will take place as follows, where ``T'' is the 
trade date and each day in the sequence must be a business day:

------------------------------------------------------------------------
                     T                                   T+1
------------------------------------------------------------------------
<bullet> The Authorized Participant places  <bullet> The Authorized
 a creation order with the Administrator.    Participant transfers the
<bullet> The Marketing Agent accepts (or     Total Basket Amount to the
 rejects) the creation order, which is       Custodian no later than
 communicated to the Authorized              4:00 p.m., New York time.
 Participant by the Administrator.          <bullet> Once the Total
<bullet> The Total Basket Amount is          Basket Amount is received
 determined as soon as practicable after     by the Custodian, the
 4:00 p.m., New York time.                   Administrator directs the
                                             Transfer Agent to credit
                                             the number of Baskets
                                             created to the Authorized
                                             Participant's DTC account.
------------------------------------------------------------------------

    In-cash creations will take place as follows, where ``T'' is the 
trade date and each day in the sequence must be a business day:

----------------------------------------------------------------------------------------------------------------
                     T-1                                       T                               T+1
----------------------------------------------------------------------------------------------------------------
<bullet> The Authorized Participant places a   <bullet> The Sponsor notifies     <bullet> The Liquidity Provider
 creation order with the Administrator.         the Liquidity Provider of the     delivers the Total Basket
<bullet> The Marketing Agent accepts (or        creation order and the            Amount to the Custodian no
 rejects) the creation order, which is          Liquidity Provider may begin      later than 4:00 p.m., New York
 communicated to the Authorized Participant     purchasing Bitcoin to deliver     time.
 by the Administrator.                          the Total Basket Amount.         <bullet> Once the Total Basket
<bullet> The Authorized Participant sends      <bullet> The Total Basket Amount   Amount is received by the
 110% of the U.S. dollar value of the number    is determined as soon as          Custodian, the Administrator
 of baskets ordered pursuant to such creation   practicable after 4:00 p.m.,      directs the Transfer Agent to
 order, as calculated using the Index Price     New York time.                    credit the number of Baskets
 as of the order date (the ``Cash Collateral                                      created to the Authorized
 Amount'') to the Administrator.                                                  Participant's DTC account.
                                                                                 <bullet> The Administrator
                                                                                  sends the Liquidity Provider
                                                                                  cash equal to the U.S. dollar
                                                                                  value of the Total Basket
                                                                                  Amount, as determined on the
                                                                                  trade date, plus the Variable
                                                                                  Fee, and returns the remaining
                                                                                  amount of the Cash Collateral
                                                                                  Amount (if any) to the
                                                                                  Authorized Participant.
----------------------------------------------------------------------------------------------------------------

Redemption of Shares
    The Trust may redeem Shares from time to time but only in Baskets. 
A Basket equals a block of 100 Shares. The number of outstanding Shares 
is expected to decrease from time to time as a result of the redemption 
of Baskets. The redemption of Baskets requires the distribution by the 
Trust of the number of Bitcoins represented by the Baskets being 
redeemed. The redemption of a Basket will be made only in exchange for 
the distribution by the Trust of the number of whole and fractional 
Bitcoins represented by each Basket being redeemed, the number of which 
is determined by dividing (x) the number of Bitcoins owned by the Trust 
at 4:00 p.m., New York time, on the relevant trade date of a redemption 
order, after deducting the number of Bitcoins representing the U.S. 
dollar value of accrued but unpaid fees and expenses of the Trust 
(converted using the Index Price at such time, and carried to the 
eighth decimal place) by (y) the number of Shares outstanding at such 
time (with the quotient so obtained calculated to one one-hundred-
millionth of one Bitcoin (i.e., carried to the eighth decimal place)), 
and multiplying such quotient by 100.
    Authorized Participants are the only persons that may place orders 
to redeem Baskets. Shareholders who are not Authorized Participants 
will be able to redeem their Shares only through an Authorized 
Participant.
    Each Participant Agreement provides the procedures for the 
redemption of Baskets and for the delivery of the whole and fractional 
Bitcoins required for such redemption. The Participant Agreement and 
the related procedures attached thereto may be amended by the

[[Page 28057]]

Sponsor and the relevant Authorized Participant.
    Authorized Participants do not pay a transaction fee to the Trust 
in connection with the redemption of Baskets, but there may be 
transaction fees associated with the validation of the transfer of 
Bitcoins by the Bitcoin Network.
Redemption Procedures
    The Trust will also redeem Shares on a continuous basis but only in 
Baskets of 100 Shares. The procedures by which an Authorized 
Participant can redeem one or more Baskets mirror the procedures for 
the creation of Baskets. On any business day, an Authorized Participant 
may place an order with the Administrator to redeem one or more 
Baskets. Redemption orders must be placed with the Administrator no 
later than the Order Cutoff Time.
    In-kind redemptions will take place as follows, where ``T'' is the 
trade date and each day in the sequence must be a business day:

------------------------------------------------------------------------
                     T                                   T+2
------------------------------------------------------------------------
<bullet> The Authorized Participant places  <bullet> The Authorized
 a redemption order with the                 Participant delivers
 Administrator.                              Baskets from its DTC
<bullet> The Marketing Agent accepts (or     account to the Transfer
 rejects) the redemption order, which is     Agent no later than 4:00
 communicated to the Authorized              p.m., New York time.
 Participant by the Administrator.          <bullet> Once the Baskets
<bullet> The Total Basket Amount is          are received by the
 determined as soon as practicable after     Transfer Agent, the
 4:00 p.m., New York time.                   Custodian transfers the
                                             Total Basket Amount to the
                                             Authorized Participant and
                                             the Transfer Agent cancels
                                             the Shares.
------------------------------------------------------------------------

    In-cash redemptions will take place as follows, where ``T'' is the 
trade date and each day in the sequence must be a business day:

----------------------------------------------------------------------------------------------------------------
                     T-1                                       T                               T+2
----------------------------------------------------------------------------------------------------------------
<bullet> The Authorized Participant places a   <bullet> The Sponsor notifies     <bullet> The Authorized
 redemption order with the Administrator.       the Liquidity Provider of the     Participant delivers Baskets
<bullet> The Marketing Agent accepts (or        redemption order and the          to be redeemed to the Transfer
 rejects) the redemption order, which is        Liquidity Provider may begin      Agent no later than 4:00 p.m.,
 communicated to the Authorized Participant     selling Bitcoin to deliver the    New York time.
 by the Administrator.                          Total Basket Amount.             <bullet> The Liquidity Provider
                                               <bullet> The Total Basket Amount   deposits with the
                                                is determined as soon as          Administrator cash equal to
                                                practicable after 4:00 p.m.,      the U.S. dollar value of the
                                                New York time.                    Total Basket Amount, as
                                                                                  determined on the trade date.
                                                                                 <bullet> Once the Baskets are
                                                                                  received by the Transfer Agent
                                                                                  and the Administrator sends
                                                                                  the above-mentioned cash equal
                                                                                  to the U.S. dollar value of
                                                                                  the Total Basket Amount less
                                                                                  the Transaction Fee, the
                                                                                  Variable Fee and all other
                                                                                  charges and fees payable in
                                                                                  connection with the redemption
                                                                                  order to the Authorized
                                                                                  Participant, the Transfer
                                                                                  Agent cancels the Shares.
                                                                                 <bullet> The Custodian sends
                                                                                  the Liquidity Provider the
                                                                                  number of Bitcoins equal to
                                                                                  the Total Basket Amount and
                                                                                  the Administrator sends the
                                                                                  Variable Fee to the Liquidity
                                                                                  Provider.
----------------------------------------------------------------------------------------------------------------

Suspension of Orders
    The creation or redemption of Shares may be suspended generally, or 
refused with respect to particular requested creations or redemptions, 
during any period when the transfer books of the Transfer Agent are 
closed or if circumstances outside the control of the Sponsor or its 
delegates make it for all practical purposes not feasible to process 
creation orders or redemption orders. The Administrator may reject an 
order or, after accepting an order, may cancel such order by rejecting 
the Total Basket Amount if: (i) Such order is not presented in proper 
form as described in the Participant Agreement, (ii) the transfer of 
the Total Basket Amount comes from an account other than a Bitcoin 
wallet address that is known to the Custodian as belonging to the 
Authorized Participant or (iii) the fulfillment of the order, in the 
opinion of counsel, might be unlawful, among other reasons. None of the 
Sponsor or its delegates will be liable for the suspension, rejection 
or acceptance of any creation order or redemption order.
    In particular, upon the Trust's receipt of any Incidental Rights 
and/or IR Virtual Currency in connection with a fork, airdrop or 
similar event, the Sponsor may suspend redemptions until it is able to 
cause the Trust to sell or distribute such Incidental Rights and/or IR 
Virtual Currency.
Availability of Information
    The Trust's website (https://grayscale.com/products/grayscale-bitcoin-trust/) will include quantitative information on a per Share 
basis updated on a daily basis, including, (i) the current Digital 
Asset Holdings per Share daily and the prior business day's Digital 
Asset Holdings and the reported closing price; (ii) the mid-point of 
the bid-ask price \59\ in relation to the Digital Asset Holdings as of 
the time the Digital Asset Holdings is calculated (``Bid-Ask Price'') 
and a calculation of the

[[Page 28058]]

premium or discount of such price against such Digital Asset Holdings; 
and (iii) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily Bid-Ask Price against the Digital 
Asset Holdings, within appropriate ranges, for each of the four 
previous calendar quarters (or for the life of the Trust, if shorter). 
In addition, on each business day the Trust's website will provide 
pricing information for the Shares.
---------------------------------------------------------------------------

    \59\ The bid-ask price of the Trust is determined using the 
highest bid and lowest offer on the Consolidated Tape as of the time 
of calculation of the closing day Digital Asset Holdings.
---------------------------------------------------------------------------

    The Trust's website, as well as one or more major market data 
vendors, will provide an intra-day indicative value (``IIV'') per Share 
updated every 15 seconds, as calculated by the Exchange or a third 
party financial data provider during the Exchange's Core Trading 
Session (9:30 a.m. to 4:00 p.m., E.T.).\60\ The IIV will be calculated 
using the same methodology as the Digital Asset Holdings of the Trust 
(as described above), specifically by using the prior day's closing 
Digital Asset Holdings 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 Digital Asset Holdings during the trading day.
---------------------------------------------------------------------------

    \60\ The IIV on a per Share basis disseminated during the Core 
Trading Session should not be viewed as a real-time update of the 
Digital Asset Holdings, which is calculated once a day.
---------------------------------------------------------------------------

    The IIV disseminated during the NYSE Arca Core Trading Session 
should not be viewed as an actual real-time update of the Digital Asset 
Holdings, which will be calculated only once at the end of each trading 
day. The IIV 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 IIV will be available through on-
line information services.
    The Digital Asset Holdings for the Trust will be calculated by the 
Sponsor once a day and will be disseminated daily to all market 
participants at the same time. To the extent that the Sponsor has 
utilized the cascading set of rules described in ``Index Price'' above, 
the Trust's website will note the valuation methodology used and the 
price per Bitcoin resulting from such calculation. 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 Bitcoin will be widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. In addition, the complete real-time price (and 
volume) data for Bitcoin is available by subscription from Reuters and 
Bloomberg. The spot price of Bitcoin is available on a 24-hour basis 
from major market data vendors, including Bloomberg and Reuters. 
Information relating to trading, including price and volume 
information, in Bitcoin will be available from major market data 
vendors and from the exchanges on which Bitcoin are traded. The normal 
trading hours for Digital Asset Exchanges are 24-hours per day, 365-
days per year.
    The Sponsor will publish the Index Price, the Trust's Digital Asset 
Holdings, and the Digital Asset Holdings per Share on the Trust's 
website as soon as practicable after its determination. If the Digital 
Asset Holdings and Digital Asset Holdings per Share have been 
calculated using a price per Bitcoin other than the Index Price for 
such Evaluation Time, the publication on the Trust's website will note 
the valuation methodology used and the price per Bitcoin resulting from 
such calculation.
    The Trust will provide website disclosure of its Digital Asset 
Holdings daily. The website disclosure of the Trust's Digital Asset 
Holdings will occur at the same time as the disclosure by the Sponsor 
of the Digital Asset Holdings 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 Digital Asset Holdings of the Trust through the Trust's 
website, as well as from one or more major market data vendors.
    The value of the Index, as well as additional information regarding 
the Index, may be found at https://tradeblock.com/markets/index/xbx.
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 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered Market Makers in Commodity-Based Trust Shares to facilitate 
surveillance. The Exchange represents that, for initial and continued 
listing, the Trust will be in compliance with Rule 10A-3 \61\ under the 
Act, 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.
---------------------------------------------------------------------------

    \61\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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.\62\ 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.
---------------------------------------------------------------------------

    \62\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IIV or the value of the Index 
occurs. If the interruption to the dissemination of the IIV or the 
value of the Index persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. In addition, if the Exchange 
becomes aware that the Digital Asset Holdings 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 Digital Asset Holdings per 
Share is available to all market participants.
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.\63\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares

[[Page 28059]]

in all trading sessions and to deter and detect violations of Exchange 
rules and federal securities laws applicable to trading on the 
Exchange.
---------------------------------------------------------------------------

    \63\ 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 
comprehensive surveillance sharing agreement (``CSSA'').\64\ 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.
---------------------------------------------------------------------------

    \64\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Trust may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
---------------------------------------------------------------------------

    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 Baskets; (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 Index and 
the IIV are 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 IIV will not be 
calculated or publicly disseminated; and (5) trading information. The 
Exchange notes that investors purchasing Shares directly from the Trust 
will receive a prospectus.
    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) \65\ 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.
---------------------------------------------------------------------------

    \65\ 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 NYSE Arca Rule 8.201-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 from such markets. In addition, the 
Exchange may obtain information regarding trading in the Shares from 
markets that are members of ISG or with which the Exchange has in place 
a CSSA. Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is 
able to obtain information regarding trading in the Shares and the 
underlying Bitcoin or any Bitcoin derivative 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, although the Digital Asset 
Exchange Market is not inherently resistant to fraud and manipulation, 
the Index serves as a means sufficient to mitigate the impact of 
instances of fraud and manipulation on a reference price for Bitcoin. 
Specifically, the Index provides a better benchmark for the price of 
Bitcoin than the Digital Asset Exchange Market Price because it (1) 
tracks the Digital Asset Exchange Market Price through trading activity 
at U.S.-Compliant Exchanges; (2) mitigates the impact of instances of 
fraud, manipulation and other anomalous trading activity in real-time 
through systematic adjustments; (3) is constructed and maintained by an 
expert third-party index provider, allowing for prudent handling of 
non-market-related events; and (4) mitigates the impact of instances of 
fraud, manipulation and other anomalous trading activity concentrated 
on any one specific exchange through a cross-exchange composite index 
rate. The Trust has used the Index to price the Shares for more than 
six years, and the Index has proven its ability to (i) mitigate the 
effects of fraud, manipulation and other anomalous trading activity 
from impacting the Bitcoin reference rate, (ii) provide a real-time, 
volume-weighted fair value of bitcoin and (iii) appropriately handle 
and adjusts for non-market related events, such that efforts to 
manipulate the price of Bitcoin would have had a negligible effect on 
the pricing of the Trust, due to the controls embedded in the structure 
of the Index. In addition, certain of the Index's Constituent Exchanges 
also have or have begun to implement market surveillance infrastructure 
to further detect, prevent,

[[Page 28060]]

and respond to fraud, attempted fraud, and similar wrongdoing, 
including market manipulation. The proposed rule change is also 
designed to prevent fraudulent and manipulative acts and practices 
based on the existence of the CME futures market as a large, surveilled 
and regulated market that is closely connected with the spot market for 
Bitcoin and through which the Exchange could obtain information to 
assist in detecting and deterring potential fraud or manipulation.
    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 Bitcoin price and market 
information available on public websites and through professional and 
subscription services. Investors may obtain, on a 24-hour basis, 
Bitcoin pricing information based on the spot price for Bitcoin from 
various financial information service providers. The closing price and 
settlement prices of Bitcoin are readily available from the Digital 
Asset Exchanges 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 Digital Asset Holdings 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 Digital Asset Holdings daily. One or more major 
market data vendors will disseminate for the Trust on a daily basis 
information with respect to the most recent Digital Asset Holdings per 
Share and Shares outstanding. In addition, if the Exchange becomes 
aware that the Digital Asset Holdings 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 Digital Asset Holdings is available to 
all market participants. Quotation and last-sale information regarding 
the Shares will be disseminated through the facilities of the CTA. The 
IIV 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. In addition, 
the IIV will be available on the Trust's website through on-line 
information services. The Exchange represents that the Exchange may 
halt trading during the day in which an interruption to the 
dissemination of the IIV or the value of the Index occurs. If the 
interruption to the dissemination of the IIV or the value of the Index 
persists past the trading day in which it occurred, the Exchange will 
halt trading no later than the beginning of the trading day following 
the interruption.
    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. In addition, as noted above, 
investors will have ready access to information regarding the Trust's 
Digital Asset Holdings, IIV, 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, and the first such product 
based on Bitcoin, which will enhance competition among market 
participants, to the benefit of investors and the marketplace.

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

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

III. Notice of Designation of a Longer Period for Commission Action on 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change, as Modified by Amendment No. 1

    Section 19(b)(2) of the Act \66\ provides that, after initiating 
proceedings, the Commission shall issue an order approving or 
disapproving the proposed rule change not later than 180 days after the 
date of publication of notice of filing of the proposed rule change. 
The Commission may extend the period for issuing an order approving or 
disapproving the proposed rule change, however, by not more than 60 
days if the Commission determines that a longer period is appropriate 
and publishes the reasons for such determination. The proposed rule 
change was published for comment in the Federal Register on November 8, 
2021.\67\ The 180th day after publication of the proposed rule change 
is May 7, 2022. The Commission is extending the time period for 
approving or disapproving the proposed rule change for an additional 60 
days.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78s(b)(2).
    \67\ See supra note 3.
---------------------------------------------------------------------------

    The Commission finds that it is appropriate to designate a longer 
period within which to issue an order approving or disapproving the 
proposed rule change so that it has sufficient time to consider the 
proposed rule change, as modified by Amendment No. 1, and the issues 
raised in the comments that have been submitted in connection 
therewith. Accordingly, the Commission, pursuant to Section 19(b)(2) of 
the Act,\68\ designates July 6, 2022, as the date by which the 
Commission shall either approve or disapprove the proposed rule change, 
as modified by Amendment No. 1 (File No. SR-NYSEArca-2021-90).
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    \68\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Act. Comments may be submitted 
by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="d0a2a5bcb5fdb3bfbdbdb5bea4a390a3b5b3feb7bfa6">[email protected]</span></a>. Please include 
File No. SR-NYSEArca-2021-90 on the subject line.

Paper Comments

    <bullet> 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 No. SR-NYSEArca-2021-90. 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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements

[[Page 28061]]

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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-NYSEArca-2021-90 and should be submitted on 
or before May 31, 2022.
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    \69\ 17 CFR 200.30-3(a)(12) and (57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-09957 Filed 5-9-22; 8:45 am]
BILLING CODE 8011-01-P


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