Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41755 

41 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Trust was formed as a Delaware statutory 

trust on December 17, 2020 and is operated as a 

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

Trust has no fixed termination date. 

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

in Securities Exchange Act Release No. 65225 

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

(SR–BATS–2011–018). 

5All statements and representations made in this 

filing regarding (a) the description of the portfolio, 

(b) limitations on portfolio holdings or reference 

assets, or (c) the applicability of Exchange rules and 

surveillance procedures shall constitute continued 

listing requirements for listing the Shares on the 

Exchange. 

6The Exchange notes that another proposal to list 

and trade shares of the Trust was previously 

disapproved pursuant to delegated authority and is 

currently pending Commission Review pursuant to 

Rule 431 of the Commission’s Rules of Practice, 17 

CFR 201.431. See Securities Exchange Act Release 

No. 93559 (November 12, 2021), 86 FR 64539 

(November 18, 2021). See also Letter from Assistant 

Secretary J. Matthew DeLesDernier to Kyle Murray, 

Assistant General Counsel, Cboe Global Markets, 

dated November 12, 2021. 

7See Amendment No. 2 to Registration Statement 

on Form S–1, dated June 22, 2022, submitted to the 

Commission by the Sponsor on behalf of the Trust 

(333–251808). The descriptions of the Trust, the 

Shares, and the Benchmark contained herein are 

based, in part, on information in the Registration 

Statement. The Registration Statement is not yet 

effective and the Shares will not trade on the 

Exchange until such time that the Registration 

Statement is effective. 

8See Securities Exchange Act Release No. 83723 

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

proposal was subsequently disapproved by the 

Commission. See Securities Exchange Act Release 

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

2018) (the ‘‘Winklevoss Order’’). 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

PEARL–2022–26 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–PEARL–2022–26. 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 

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 Number SR–PEARL–2022–26 

and should be submitted on or before 

August 3, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.41

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–14886 Filed 7–12–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95218; File No. SR– 

CboeBZX–2022–035] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

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 

July 7, 2022. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on June 24, 

2022, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

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

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

to list and trade shares of the VanEck 

Bitcoin Trust (the ‘‘Trust’’),3 under BZX 

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

Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

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

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under BZX Rule 

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

and trading of Commodity-Based Trust 

Shares on the Exchange.5 VanEck 

Digital Assets, LLC is the sponsor of the 

Trust (‘‘Sponsor’’).6 The Shares will be 

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).7 A thirdparty regulated custodian will be 

responsible for custody of the Trust’s 

bitcoin (the ‘‘Custodian’’). As further 

discussed below, the Commission has 

historically approved or disapproved 

exchange filings to list and trade series 

of Trust Issued Receipts, including spotbased Commodity-Based Trust Shares, 

on the basis of whether the listing 

exchange has in place a comprehensive 

surveillance sharing agreement with a 

regulated market of significant size 

related to the underlying commodity to 

be held.8 Prior orders from the 

Commission have pointed out that in 

every prior approval order for 

Commodity-Based Trust Shares, there 

has been a derivatives market that 

represents the regulated market of 

significant size, generally a Commodity 


jspears on DSK121TN23PROD with NOTICES1
41756 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

9See streetTRACKS Gold Shares, Exchange Act 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2009–28); ETFS Palladium Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

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

palladium futures exchanges are the NYMEX and 

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

the largest exchange in the world for trading 

precious metals futures and options,’’ and that 

NYSE Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which NYMEX 

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

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

2009)); ETFS Platinum Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that ‘‘[t]he most significant platinum 

futures exchanges are the NYMEX and the Tokyo 

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

exchange in the world for trading precious metals 

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

obtain trading information via the Intermarket 

Surveillance Group,’’ of which NYMEX is a 

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

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

Sprott Physical Gold Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that the COMEX is one of the ‘‘major 

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

trading information via the Intermarket 

Surveillance Group,’’ and that NYMEX, of which 

COMEX is a division, is a member of the 

Intermarket Surveillance Group, Exchange Act 

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

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

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

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

NYSEArca–2010–84); ETFS Precious Metals Basket 

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

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

NYSEArca–2010–56) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘the most significant gold, silver, platinum and 

palladium futures exchanges are the COMEX and 

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

trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

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

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

ETFS White Metals Basket Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant 

silver, platinum and palladium futures exchanges 

are the COMEX and the TOCOM’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which COMEX 

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

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

2010)); ETFS Asian Gold Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant gold 

futures exchanges are the COMEX and the Tokyo 

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

exchange in the world for trading precious metals 

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

obtain trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

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

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

2010)); Sprott Physical Platinum and Palladium 

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

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

NYSEArca–2012–111) (notice of proposed rule 

change included NYSE Arca’s representation that 

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

two major exchanges: The New York Mercantile 

Exchange . . . and Tokyo Commodities Exchange’’ 

and that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

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

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

65733, 65739 (Oct. 30, 2012)); APMEX Physical–1 

oz. Gold Redeemable Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

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

gold futures are traded on COMEX and the Tokyo 

Commodity Exchange, with a cross-reference to the 

proposed rule change to list and trade shares of the 

ETFS Gold Trust, in which NYSE Arca represented 

that COMEX is one of the ‘‘major world gold 

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

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

2012)); JPM XF Physical Copper Trust, Exchange 

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

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

NYSEArca–2012–28); iShares Copper Trust, 

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

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

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

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

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

NYSEArca–2013–61) (notice of proposed rule 

change included NYSE Arca’s representation that 

FINRA, on behalf of the exchange, may obtain 

trading information regarding gold futures and 

options on gold futures from members of the 

Intermarket Surveillance Group, including COMEX, 

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

place a comprehensive surveillance sharing 

agreement,’’ and that gold futures are traded on 

COMEX and the Tokyo Commodity Exchange, with 

a cross-reference to the proposed rule change to list 

and trade shares of the ETFS Gold Trust, in which 

NYSE Arca represented that COMEX is one of the 

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

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

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

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

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

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘COMEX is the largest 

gold futures and options exchange’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ including with 

respect to transactions occurring on COMEX 

pursuant to CME and NYMEX’s membership, or 

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

place a comprehensive surveillance sharing 

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

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

2013)); Long Dollar Gold Trust, Exchange Act 

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

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

NYSEArca–2016–84). 

10See Winklevoss Order at 37592. 11See Exchange Act Release No. 94620 (April 6, 

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

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

with the Teucrium Approval, the ‘‘Bitcoin Futures 

Approvals’’). 

Futures Trading Commission (the 

‘‘CFTC’’) regulated futures market.9

Further to this point, the Commission’s 

prior orders have noted that the spot 

commodities and currency markets for 

which it has previously approved spot 

ETPs are generally unregulated and that 

the Commission relied on the 

underlying futures market as the 

regulated market of significant size that 

formed the basis for approving the series 

of Currency and Commodity-Based 

Trust Shares, including gold, silver, 

platinum, palladium, copper, and other 

commodities and currencies. The 

Commission specifically noted in the 

Winklevoss Order that the First Gold 

Approval Order ‘‘was based on an 

assumption that the currency market 

and the spot gold market were largely 

unregulated.’’ 10

As such, the regulated market of 

significant size test does not require that 

the spot bitcoin market be regulated in 

order for the Commission to approve 

this proposal, and precedent makes 

clear that an underlying market for a 

spot commodity or currency being a 

regulated market would actually be an 

exception to the norm. These largely 

unregulated currency and commodity 

markets do not provide the same 

protections as the markets that are 

subject to the Commission’s oversight, 

but the Commission has consistently 

looked to surveillance sharing 

agreements with the underlying futures 

market in order to determine whether 

such products were consistent with the 

Act. With this in mind, the Bitcoin 

Futures market, as defined below, is the 

proper market to consider in 

determining whether there is a related 

regulated market of significant size. 

Further to this point, the Exchange 

notes that the Commission has recently 

approved proposals related to the listing 

and trading of funds that would 

primarily hold Bitcoin Futures that are 

registered under the Securities Act of 

1933 instead of the Investment 

Company Act of 1940, as amended (the 

‘‘1940 Act’’).11 In the Teucrium 

Approval, the Commission found the 

Bitcoin Futures market to be a regulated 

market of significant size as it relates to 

Bitcoin Futures, an odd tautological 

truth that is also inconsistent with prior 

disapproval orders for ETPs that would 

hold actual bitcoin instead of 

derivatives contracts (‘‘Spot Bitcoin 

ETPs’’) that use the exact same pricing 

methodology as the Bitcoin Futures. As 

further discussed below, both the 

Exchange and the Sponsor believe that 

this proposal and the included analysis 

are sufficient to establish that the 

Bitcoin Futures market represents a 

regulated market of significant size as it 

relates both to the Bitcoin Futures 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41757 

12For additional information about bitcoin and 

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

getting-started; https:// 

www.fidelitydigitalassets.com/articles/addressingbitcoin-criticisms; and https://www.vaneck.com/

education/investment-ideas/investing-in-bitcoinand-digital-assets/. 

13See Winklevoss Order. 

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

are referred to throughout this proposal as ‘‘digital 

asset securities.’’ All other digital assets, including 

bitcoin, are referred to interchangeably as 

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

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

including both digital asset securities and 

cryptocurrencies, together. 

15See ‘‘In the Matter of Coinflip, Inc.’’ 

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

2015)) (order instituting proceedings pursuant to 

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

and imposing remedial sanctions), in which the 

CFTC stated: 

‘‘Section 1a(9) of the CEA defines ‘commodity’ to 

include, among other things, ‘all services, rights, 

and interests in which contracts for future delivery 

are presently or in the future dealt in.’ 7 U.S.C. 

1a(9). The definition of a ‘commodity’ is broad. See, 

e.g., Board of Trade of City of Chicago v. SEC, 677 

F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other 

virtual currencies are encompassed in the definition 

and properly defined as commodities.’’ 

16A list of virtual currency businesses that are 

entities regulated by the NYDFS is available on the 

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

apps_and_licensing/virtual_currency_businesses/ 

regulated_entities. 

17 Data as of March 31, 2016 according to publicly 

available filings. See Bitcoin Investment Trust Form 

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

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

000095012316017801/filename1.htm. 

18See letter from Dalia Blass, Director, Division 

of Investment Management, U.S. Securities and 

Exchange Commission to Paul Schott Stevens, 

President & CEO, Investment Company Institute 

and Timothy W. Cameron, Asset Management 

Group—Head, Securities Industry and Financial 

Markets Association (January 18, 2018), available at 

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

noaction/2018/cryptocurrency-011818.htm. 

19See Prospectus supplement filed pursuant to 

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

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

Archives/edgar/data/1725882/ 

000121390020023202/ea125858- 

424b1_inxlimited.htm. 

20See Securities Exchange Act Release No. 90788, 

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

25–20) (Custody of Digital Asset Securities by 

Special Purpose Broker-Dealers). 

21See letter from Elizabeth Baird, Deputy 

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

Securities and Exchange Commission to Kris 

Dailey, Vice President, Risk Oversight & 

Operational Regulation, Financial Industry 

Regulatory Authority (September 25, 2020), 

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

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

22See letter from Jeffrey S. Mooney, Associate 

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

Securities and Exchange Commission to Charles G. 

Cascarilla & Daniel M. Burstein, Paxos Trust 

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

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

17a.pdf. 

23See, e.g., Form TA–1/A filed by Tokensoft 

Transfer Agent LLC (CIK: 0001794142) on January 

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

edgar/data/1794142/000179414219000001/ 

xslFTA1X01/primary_doc.xml. 

24As of December 1, 2021, the total market cap 

of all bitcoin in circulation was approximately 

$1.08 trillion. 

market and to the spot bitcoin market 

and that this proposal should be 

approved. 

Background 

Bitcoin is a digital asset based on the 

decentralized, open source protocol of 

the peer-to-peer computer network 

launched in 2009 that governs the 

creation, movement, and ownership of 

bitcoin and hosts the public ledger, or 

‘‘blockchain,’’ on which all bitcoin 

transactions are recorded (the ‘‘Bitcoin 

Network’’ or ‘‘Bitcoin’’). The 

decentralized nature of the Bitcoin 

Network allows parties to transact 

directly with one another based on 

cryptographic proof instead of relying 

on a trusted third party. The protocol 

also lays out the rate of issuance of new 

bitcoin within the Bitcoin Network, a 

rate that is reduced by half 

approximately every four years with an 

eventual hard cap of 21 million. It’s 

generally understood that the 

combination of these two features—a 

systemic hard cap of 21 million bitcoin 

and the ability to transact trustlessly 

with anyone connected to the Bitcoin 

Network—gives bitcoin its value.12 The 

first rule filing proposing to list an 

exchange-traded product to provide 

exposure to bitcoin in the U.S. was 

submitted by the Exchange on June 30, 

2016.13 At that time, blockchain 

technology, and digital assets that 

utilized it, were relatively new to the 

broader public. The market cap of all 

bitcoin in existence at that time was 

approximately $10 billion. No registered 

offering of digital asset securities or 

shares in an investment vehicle with 

exposure to bitcoin or any other 

cryptocurrency had yet been conducted, 

and the regulated infrastructure for 

conducting a digital asset securities 

offering had not begun to develop.14

Similarly, regulated U.S. bitcoin futures 

contracts did not exist. The CFTC had 

determined that bitcoin is a 

commodity,15 but had not engaged in 

significant enforcement actions in the 

space. The New York Department of 

Financial Services (‘‘NYDFS’’) adopted 

its final BitLicense regulatory 

framework in 2015, but had only 

approved four entities to engage in 

activities relating to virtual currencies 

(whether through granting a BitLicense 

or a limited-purpose trust charter) as of 

June 30, 2016.16 While the first over-thecounter bitcoin fund launched in 2013, 

public trading was limited and the fund 

had only $60 million in assets.17 There 

were very few, if any, traditional 

financial institutions engaged in the 

space, whether through investment or 

providing services to digital asset 

companies. In January 2018, the Staff of 

the Commission noted in a letter to the 

Investment Company Institute and 

SIFMA that it was not aware, at that 

time, of a single custodian providing 

fund custodial services for digital 

assets.18 Fast forward to today and the 

digital assets financial ecosystem, 

including bitcoin, has progressed 

significantly. The development of a 

regulated market for digital asset 

securities has significantly evolved, 

with market participants having 

conducted registered public offerings of 

both digital asset securities 19 and shares 

in investment vehicles holding bitcoin 

futures, including Bitcoin Futures ETFs 

(as defined below). Additionally, 

licensed and regulated service providers 

have emerged to provide fund custodial 

services for digital assets, among other 

services. For example, in May 2021, the 

Staff of the Commission released a 

statement permitting open-end mutual 

funds to invest in cash-settled bitcoin 

futures; in December 2020, the 

Commission adopted a conditional noaction position permitting certain 

special purpose broker-dealers to 

custody digital asset securities under 

Rule 15c3–3 under the Exchange Act 

(the ‘‘Custody Statement’’); 20 in 

September 2020, the Staff of the 

Commission released a no-action letter 

permitting certain broker-dealers to 

operate a non-custodial Alternative 

Trading System (‘‘ATS’’) for digital asset 

securities, subject to specified 

conditions; 21 in October 2019, the Staff 

of the Commission granted temporary 

relief from the clearing agency 

registration requirement to an entity 

seeking to establish a securities 

clearance and settlement system based 

on distributed ledger technology,22 and 

multiple transfer agents who provide 

services for digital asset securities 

registered with the Commission.23

Outside the Commission’s purview, 

the regulatory landscape has changed 

significantly since 2016, and 

cryptocurrency markets have grown and 

evolved as well. The market for bitcoin 

is approximately 100 times larger, 

having at one point reached a market 

cap of over $1 trillion.24 According to 

the CME Bitcoin Futures Report, from 

March 28, 2022 through April 22, 2022, 

CFTC regulated bitcoin futures 

represented approximately $1.3 billion 

in notional trading volume on Chicago 

Mercantile Exchange (‘‘CME’’) (‘‘Bitcoin 

Futures’’) on a daily basis and notional 

volume was never below $670 


jspears on DSK121TN23PROD with NOTICES1
41758 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

25 Data sourced from the CME Bitcoin Futures 

Report: 19 Nov, 2021, available at: https:// 

www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_

Futures_Liquidity_Report.pdf. 26The CFTC’s annual report for Fiscal Year 2020 

(which ended on September 30, 2020) noted that 

the CFTC ‘‘continued to aggressively prosecute 

misconduct involving digital assets that fit within 

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

a record setting seven cases involving digital 

assets.’’ See CFTC FY2020 Division of Enforcement 

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

media/5321/DOE_FY2020_AnnualReport_120120/ 

download. Additionally, the CFTC filed on October 

1, 2020, a civil enforcement action against the 

owner/operators of the BitMEX trading platform, 

which was one of the largest bitcoin derivative 

exchanges. See CFTC Release No. 8270–20 (October 

1, 2020) available at: https://www.cftc.gov/ 

PressRoom/PressReleases/8270-20. 

27See OCC News Release 2021-2 (January 4, 2021) 

available at: https://www.occ.gov/news-issuances/ 

news-releases/2021/nr-occ-2021-2.html. 28See OCC News Release 2021-6 (January 13, 

2021) available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-6.html 

and OCC News Release 2021-19 (February 5, 2021) 

available at: https://www.occ.gov/news-issuances/ 

news-releases/2021/nr-occ-2021-19.html. 29See FinCEN Guidance FIN–2019–G001 (May 9, 

2019) (Application of FinCEN’s Regulations to 

Certain Business Models Involving Convertible 

Virtual Currencies) available at: https:// 

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

FinCEN%20Guidance%20CVC%20FINAL

%20508.pdf. 

30See U.S. Department of the Treasury Press 

Release: ‘‘The Financial Crimes Enforcement 

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

Convertible Virtual Currency and Digital Asset 

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

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

sm1216. 

31See U.S. Department of the Treasury 

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

Settlement with BitGo, Inc. for Apparent Violations 

of Multiple Sanctions Programs Related to Digital 

Currency Transactions’’ (December 30, 2020) 

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

126/20201230_bitgo.pdf. 

32On December 10, 2020, Massachusetts Mutual 

Life Insurance Company (MassMutual) announced 

that it had purchased $100 million in bitcoin for its 

general investment account. See MassMutual Press 

Release ‘‘Institutional Bitcoin provider NYDIG 

announces minority stake purchase by 

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

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

33See e.g., ‘‘BlackRock’s Rick Rieder says the 

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

in bitcoin’’ (February 17, 2021) available at: https:// 

www.cnbc.com/2021/02/17/blackrock-has-startedto-dabble-in-bitcoin-says-rick-rieder.html and 

‘‘Guggenheim’s Scott Minerd Says Bitcoin Should 

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

at: https://www.bloomberg.com/news/articles/2020- 

12-16/guggenheim-s-scott-minerd-says-bitcoinshould-be-worth-400-000. 

34See e.g., ‘‘Harvard and Yale Endowments 

Among Those Reportedly Buying Crypto’’ (January 

25, 2021) available at: https://www.bloomberg.com/ 

news/articles/2021-01-26/harvard-and-yaleendowments-among-those-reportedly-buyingcrypto. 

35See e.g., ‘‘Virginia Police Department Reveals 

Why its Pension Fund is Betting on Bitcoin’’ 

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

finance.yahoo.com/news/virginia-policedepartment-reveals-why-194558505.html. 

36See e.g., ‘‘Bridgewater: Our Thoughts on 

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

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

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

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

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

37See Letter from Division of Corporation 

Finance, Office of Real Estate & Construction to 

Barry E. Silbert, Chief Executive Officer, Grayscale 

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

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

000000000020000953/filename1.pdf. 

38The largest OTC Bitcoin Fund has an AUM of 

$23 billion. The premium and discount for OTC 

Bitcoin Funds is known to move rapidly. For 

example, over the period of 12/21/20 to 1/21/20, the 

premium for the largest OTC Bitcoin Fund went 

from 40.18% to 2.79%. While the price of bitcoin 

appreciated significantly during this period and 

NAV per share increased by 41.25%, the price per 

share increased by only 3.58%. This means that 

investors are buying shares of a fund that 

experiences significant volatility in its premium 

and discount outside of the fluctuations in price of 

the underlying asset. Even operating within the 

normal premium and discount range, it’s possible 

for an investor to buy shares of an OTC Bitcoin 

Fund only to have those shares quickly lose 10% 

or more in dollar value excluding any movement of 

the price of bitcoin. That is to say—the price of 

bitcoin could have stayed exactly the same from 

market close on one day to market open the next, 

yet the value of the shares held by the investor 

decreased only because of the fluctuation of the 

premium. As more investment vehicles, including 

mutual funds and ETFs, seek to gain exposure to 

bitcoin, the easiest option for a buy and hold 

strategy for such vehicles is often an OTC Bitcoin 

Fund, meaning that even investors that do not 

directly buy OTC Bitcoin Funds can be 

disadvantaged by extreme premiums (or discounts) 

and premium volatility. 

million.25 Open interest was over $2 

billion for the entirety of the period and 

at one point was over $3 billion. The 

CFTC has exercised its regulatory 

jurisdiction in bringing a number of 

enforcement actions related to bitcoin 

and against trading platforms that offer 

cryptocurrency trading.26 The U.S. 

Office of the Comptroller of the 

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

that federally-chartered banks are able 

to provide custody services for 

cryptocurrencies and other digital 

assets.27 The OCC recently granted 

conditional approval of two charter 

conversions by state-chartered trust 

companies to national banks, both of 

which provide cryptocurrency custody 

services.28 NYDFS has granted no fewer 

than twenty-five BitLicenses, including 

to established public payment 

companies like PayPal Holdings, Inc. 

and Square, Inc., and limited purpose 

trust charters to entities providing 

cryptocurrency custody services. The 

U.S. Treasury Financial Crimes 

Enforcement Network (‘‘FinCEN’’) has 

released extensive guidance regarding 

the applicability of the Bank Secrecy 

Act (‘‘BSA’’) and implementing 

regulations to virtual currency 

businesses,29 and has proposed rules 

imposing requirements on entities 

subject to the BSA that are specific to 

the technological context of virtual 

currencies.30 In addition, the Treasury’s 

Office of Foreign Assets Control 

(‘‘OFAC’’) has brought enforcement 

actions over apparent violations of the 

sanctions laws in connection with the 

provision of wallet management 

services for digital assets.31

In addition to the regulatory 

developments laid out above, more 

traditional financial market participants 

have embraced and continue to embrace 

cryptocurrency: large insurance 

companies,32 asset managers,33

university endowments,34 pension 

funds,35 and even historically bitcoin 

skeptical fund managers 36 are allocating 

to bitcoin. The largest over-the-counter 

bitcoin fund previously filed a Form 10 

registration statement, which the Staff of 

the Commission reviewed and which 

took effect automatically, and is now a 

reporting company.37 Established 

companies like Tesla, Inc., 

MicroStrategy Incorporated, and Square, 

Inc., among others, have made 

substantial investments in bitcoin. The 

foregoing examples demonstrate that 

bitcoin has gained mainstream usage 

and recognition. 

Despite these developments, access 

for U.S. retail investors to gain exposure 

to bitcoin via a transparent and U.S. 

regulated, U.S. exchange-traded vehicle 

remains limited. Instead current options 

include: (i) over-the-counter bitcoin 

funds (‘‘OTC Bitcoin Funds’’) with high 

management fees and potentially 

volatile premiums and discounts; 38 (ii) 

facing the technical risk, complexity 

and generally high fees associated with 

buying spot bitcoin; (iii) purchasing 

shares of operating companies that they 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41759 

39Recently a number of operating companies 

engaged in unrelated businesses—such as Tesla (a 

car manufacturer) and MicroStrategy (an enterprise 

software company)—have announced investments 

as large as $5.3 billion in bitcoin. Without access 

to bitcoin exchange-traded products, retail investors 

seeking investment exposure to bitcoin may end up 

purchasing shares in these companies in order to 

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

mainstream financial news networks have written 

a number of articles providing investors with 

guidance for obtaining bitcoin exposure through 

publicly traded companies (such as MicroStrategy, 

Tesla, and bitcoin mining companies, among 

others) instead of dealing with the complications 

associated with buying spot bitcoin in the absence 

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

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

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

trade without holding bitcoin yourself? Here are 

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

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

companies, however, are imperfect bitcoin proxies 

and provide investors with partial bitcoin exposure 

paired with a host of additional risks associated 

with whichever operating company they decide to 

purchase. Additionally, the disclosures provided by 

such operating companies with respect to risks 

relating to their bitcoin holdings are generally 

substantially smaller than the registration statement 

of a bitcoin ETP, including the Registration 

Statement, typically amounting to a few sentences 

of narrative description and a handful of risk 

factors. In other words, investors seeking bitcoin 

exposure through publicly traded companies are 

gaining only partial exposure to bitcoin and are not 

fully benefitting from the risk disclosures and 

associated investor protections that come from the 

securities registration process. 

40The Exchange notes that securities regulators in 

a number of other countries have either approved 

or otherwise allowed the listing and trading of 

bitcoin ETPs. 

41See Winklevoss Order at 37593, specifically 

footnote 202, which includes the language from 

numerous approval orders for which the underlying 

futures markets formed the basis for approving 

series of ETPs that hold physical metals, including 

gold, silver, palladium, platinum, and precious 

metals more broadly; and 37600, specifically where 

the Commission provides that ‘‘when the spot 

market is unregulated—the requirement of 

preventing fraudulent and manipulative acts may 

possibly be satisfied by showing that the ETP listing 

market has entered into a surveillance-sharing 

agreement with a regulated market of significant 

size in derivatives related to the underlying asset.’’ 

As noted above, the Exchange believes that these 

citations are particularly helpful in making clear 

that the spot market for a spot commodity ETP need 

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

ETP to be approved by the Commission, and in fact 

that it’s been the common historical practice of the 

Commission to rely on such derivatives markets as 

the regulated market of significant size because 

such spot commodities markets are largely 

unregulated. 

42As further outlined below, both the Exchange 

and the Sponsor believe that the Bitcoin Futures 

market represents a regulated market of significant 

size and that this proposal and others like it should 

be approved on this basis. 

43See Teucrium Approval at 21679. 

believe will provide proxy exposure to 

bitcoin with limited disclosure about 

the associated risks; 39 or (iv) purchasing 

Bitcoin Futures ETFs, as defined below, 

which represent a sub-optimal structure 

for long-term investors that will cost 

them significant amounts of money 

every year compared to Spot Bitcoin 

ETPs, as further discussed below. 

Meanwhile, investors in many other 

countries, including Canada and Brazil, 

are able to use more traditional 

exchange listed and traded products 

(including exchange-traded funds 

holding physical bitcoin) to gain 

exposure to bitcoin, disadvantaging U.S. 

investors and leaving them with more 

risky means of getting bitcoin 

exposure.40 Additionally, investors in 

other countries, specifically Canada, 

generally pay lower fees than U.S. retail 

investors that invest in OTC Bitcoin 

Funds due to the fee pressure that 

results from increased competition 

among available bitcoin investment 

options. Without an approved and 

regulated Spot Bitcoin ETP in the U.S. 

as a viable alternative, U.S. investors 

could seek to purchase shares of nonU.S. bitcoin vehicles in order to get 

access to bitcoin exposure. Given the 

separate regulatory regime and the 

potential difficulties associated with 

any international litigation, such an 

arrangement would create more risk 

exposure for U.S. investors than they 

would otherwise have with a U.S. 

exchange listed ETP. Further to this 

point, the lack of a U.S.-listed Spot 

Bitcoin ETP is not preventing U.S. funds 

from gaining exposure to bitcoin— 

several U.S. exchange-traded funds are 

using Canadian bitcoin ETPs to gain 

exposure to spot bitcoin. In addition to 

the benefits to U.S. investors articulated 

throughout this proposal, approving this 

proposal (and others like it) would 

provide U.S. exchange-traded funds and 

mutual funds with a U.S.-listed and 

regulated product to provide such 

access rather than relying on either 

flawed products or products listed and 

primarily regulated in other countries. 

Bitcoin Futures ETFs 

The Exchange and Sponsor applaud 

the Commission for allowing the launch 

of ETFs registered under the 1940 Act 

and the recent Bitcoin Futures 

Approvals that provide exposure to 

bitcoin primarily through Bitcoin 

Futures (‘‘Bitcoin Futures ETFs’’). 

Allowing such products to list and trade 

is a productive first step in providing 

U.S. investors and traders with 

transparent, exchange-listed tools for 

expressing a view on bitcoin. The 

Bitcoin Futures Approvals, however, 

have created a logical inconsistency in 

the application of the standard the 

Commission applies when considering 

bitcoin ETP proposals. 

As discussed further below, the 

standard applicable to bitcoin ETPs is 

whether the listing exchange has in 

place a comprehensive surveillance 

sharing agreement with a regulated 

market of significant size in the 

underlying asset. Previous disapproval 

orders have made clear that a market 

that constitutes a regulated market of 

significant size is generally a futures 

and/or options market based on the 

underlying reference asset rather than 

the spot commodity markets, which are 

often unregulated.41 Leaving aside the 

analysis of that standard until later in 

this proposal,42 the Exchange believes 

that the following rationale that the 

Commission applied to a Bitcoin 

Futures ETF should result in the 

Commission approving this and other 

Spot Bitcoin ETP proposals: 

The CME ‘‘comprehensively surveils 

futures market conditions and price 

movements on a real-time and ongoing basis 

in order to detect and prevent price 

distortions, including price distortions 

caused by manipulative efforts.’’ Thus the 

CME’s surveillance can reasonably be relied 

upon to capture the effects on the CME 

bitcoin futures market caused by a person 

attempting to manipulate the proposed 

futures ETP by manipulating the price of 

CME bitcoin futures contracts, whether that 

attempt is made by directly trading on the 

CME bitcoin futures market or indirectly by 

trading outside of the CME bitcoin futures 

market. As such, when the CME shares its 

surveillance information with Arca, the 

information would assist in detecting and 

deterring fraudulent or manipulative 

misconduct related to the non-cash assets 

held by the proposed ETP.43

Bitcoin Futures pricing is based on 

pricing from spot bitcoin markets. The 

statement from the Teucrium Approval 

that ‘‘CME’s surveillance can reasonably 

be relied upon to capture the effects on 

the CME bitcoin futures market caused 

by a person attempting to manipulate 

the proposed futures ETP by 

manipulating the price of CME bitcoin 

futures contracts. . .indirectly by 

trading outside of the CME bitcoin 

futures market,’’ makes clear that the 

Commission believes that CME’s 

surveillance can capture the effects of 

trading on the relevant spot markets on 

the pricing of Bitcoin Futures. If CME is 

able to detect such attempts at 

manipulation in the complex and 

interconnected spot bitcoin market, how 

would such an ability to detect 

attempted manipulation and the utility 

in sharing that information with the 

listing exchange apply only to Bitcoin 

Futures ETFs and not Spot Bitcoin 

ETPs? Stated a different way, given that 

there is significant trading volume on 

numerous bitcoin exchanges that are not 

part of the CME CF Bitcoin Reference 


jspears on DSK121TN23PROD with NOTICES1
41760 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

44See e.g., ‘‘Bitcoin ETF’s Success Could Come at 

Fundholders’ Expense,’’ Wall Street Journal 

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

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

‘‘Physical Bitcoin ETF Prospects Accelerate,’’ 

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

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

pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlp

IVdoCloLXbLjl44-1635476946-0-gqNtZGz

NApCjcnBszQql. 

Rate and that arbitrage opportunities 

across bitcoin exchanges means that 

such trading volume will influence spot 

bitcoin prices across the market and, 

despite this, the Commission still 

believes that CME can detect attempted 

manipulation of the Bitcoin Futures 

through ‘‘trading outside of the CME 

bitcoin futures market,’’ it is clear that 

such ability would apply equally to both 

Bitcoin Futures ETFs and Spot Bitcoin 

ETPs. To take it a step further, such an 

ability would also seem to be a strong 

indication that the CME Bitcoin Futures 

market represents a regulated market of 

significant size. To be clear, the 

Exchange agrees with the Commission 

on this point (and the implications of 

their conclusions) and notes that the 

pricing mechanism applicable to the 

Shares is similar to the CME CF Bitcoin 

Reference Rate, as further discussed 

below. 

The Exchange also notes that a 

Bitcoin Futures ETF may also be more 

susceptible to potential manipulation 

than a Spot Bitcoin ETP that offers only 

in-kind creation and redemption 

because Bitcoin Futures pricing (and 

thus the value of the underlying 

holdings of a Bitcoin Futures ETF) is 

based on a single price derived from 

spot bitcoin pricing, while shares of a 

Spot Bitcoin ETP would represent 

interest in bitcoin directly and 

authorized participants for a Spot 

Bitcoin ETP (as proposed herein) would 

be able to source bitcoin from any 

exchange and create or redeem with the 

applicable trust regardless of the price 

of the underlying index. As such, the 

Exchange believes that, in addition to 

the CME Bitcoin Futures market 

representing a regulated market of 

significant size as it relates to the spot 

bitcoin market, in-kind Spot Bitcoin 

ETPs are likely less susceptible to 

manipulation than Bitcoin Futures ETFs 

because of the underlying creation and 

redemption arbitrage mechanism that 

will operate in the same manner as it 

does for all other ETFs. 

In addition to potentially being more 

susceptible to manipulation than a Spot 

Bitcoin ETP, the structure of Bitcoin 

Futures ETFs provides negative 

outcomes for buy and hold investors as 

compared to a Spot Bitcoin ETP.44

Specifically, the cost of rolling Bitcoin 

Futures contracts will cause the Bitcoin 

Futures ETFs to lag the performance of 

bitcoin itself and, at over a billion 

dollars in assets under management, 

would cost U.S. investors significant 

amounts of money on an annual basis 

compared to Spot Bitcoin ETPs. Such 

rolling costs would not be required for 

Spot Bitcoin ETPs that hold bitcoin. 

Further, Bitcoin Futures ETFs could 

potentially hit CME position limits, 

which would force a Bitcoin Futures 

ETF to invest in non-futures assets for 

bitcoin exposure and cause potential 

investor confusion and lack of certainty 

about what such Bitcoin Futures ETFs 

are actually holding to try to get 

exposure to bitcoin, not to mention 

completely changing the risk profile 

associated with such an ETF. While 

Bitcoin Futures ETFs represent a useful 

trading tool, they are clearly a suboptimal structure for U.S. investors that 

are looking for long-term exposure to 

bitcoin that will, based on the 

calculations above, unnecessarily cost 

U.S. investors significant amounts of 

money every year compared to Spot 

Bitcoin ETPs and the Exchange believes 

that any proposal to list and trade a Spot 

Bitcoin ETP should be reviewed by the 

Commission with this important 

investor protection context in mind. 

Based on the foregoing, the Exchange 

and Sponsor believe that any objective 

review of the proposals to list Spot 

Bitcoin ETPs compared to the Bitcoin 

Futures ETFs and the Bitcoin Futures 

Approvals would lead to the conclusion 

that Spot Bitcoin ETPs should be 

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

this proposal and other comparable 

proposals to list and trade Spot Bitcoin 

ETPs should be approved by the 

Commission. Stated simply, U.S. 

investors will continue to lose 

significant amounts of money from 

holding Bitcoin Futures ETFs as 

compared to Spot Bitcoin ETPs, losses 

which could be prevented by the 

Commission approving Spot Bitcoin 

ETPs. Additionally, any concerns 

related to preventing fraudulent and 

manipulative acts and practices related 

to Spot Bitcoin ETPs would apply 

equally to the spot markets underlying 

the futures contracts held by a Bitcoin 

Futures ETF. While the 1940 Act does 

offer certain investor protections, those 

protections do not relate to mitigating 

potential manipulation of the holdings 

of an ETF in a way that warrants 

distinction between Bitcoin Futures 

ETFs and Spot Bitcoin ETPs. To be 

clear, both the Exchange and Sponsor 

believe that the Bitcoin Futures market 

is a regulated market of significant size 

and that such manipulation concerns 

are mitigated as described throughout 

this proposal. After issuing the Bitcoin 

Futures Approvals which conclude the 

CME Bitcoin Futures market is a 

regulated market of significant size as it 

relates to Bitcoin Futures, the only 

consistent outcome would be approving 

Spot Bitcoin ETPs on the basis that the 

Bitcoin Futures market is also a 

regulated market of significant size as it 

relates to the bitcoin spot market. 

Including in the analysis the significant 

and preventable losses to U.S. investors 

that comes with Bitcoin Futures ETFs, 

disapproving Spot Bitcoin ETPs seems 

even more arbitrary and capricious. 

Given the current landscape, approving 

this proposal (and others like it) and 

allowing Spot Bitcoin ETPs to be listed 

and traded alongside Bitcoin Futures 

ETFs would establish a consistent 

regulatory approach, provide U.S. 

investors with choice in product 

structures for bitcoin exposure, and 

offer flexibility in the means of gaining 

exposure to bitcoin through transparent, 

regulated, U.S. exchange-listed vehicles. 

Spot and Proxy Exposure to Bitcoin 

Exposure to bitcoin through an ETP 

also presents certain advantages for 

retail investors compared to buying spot 

bitcoin directly. The most notable 

advantage from the Sponsor’s 

perspective is the elimination of the 

need for an individual retail investor to 

either manage their own private keys or 

to hold bitcoin through a 

cryptocurrency exchange that lacks 

sufficient protections. Typically, retail 

exchanges hold most, if not all, retail 

investors’ bitcoin in ‘‘hot’’ (internetconnected) storage and do not make any 

commitments to indemnify retail 

investors or to observe any particular 

cybersecurity standard. Meanwhile, a 

retail investor holding spot bitcoin 

directly in a self-hosted wallet may 

suffer from inexperience in private key 

management (e.g., insufficient password 

protection, lost key, etc.), which could 

cause them to lose some or all of their 

bitcoin holdings. Thus, with respect to 

custody of the Trust’s bitcoin assets, the 

Trust presents advantages from an 

investment protection standpoint for 

retail investors compared to owning 

spot bitcoin directly. 

Finally, as described in the 

Background section above, a number of 

operating companies largely engaged in 

unrelated businesses—such as Tesla (a 

car manufacturer) and MicroStrategy (an 

enterprise software company)—have 

announced significant investments in 

bitcoin. Without access to bitcoin 

exchange-traded products, retail 

investors seeking investment exposure 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41761 

45 In August 2017, the Commission’s Office of 

Investor Education and Advocacy warned investors 

about situations where companies were publicly 

announcing events relating to digital coins or 

tokens in an effort to affect the price of the 

company’s publicly traded common stock. See 

https://www.sec.gov/oiea/investor-alerts-andbulletins/ia_icorelatedclaims. 

46See e.g., ‘‘7 public companies with exposure to 

bitcoin’’ (February 8, 2021) available at: https:// 

finance.yahoo.com/news/7-public-companies-withexposure-to-bitcoin-154201525.html; and ‘‘Want to 

get in the crypto trade without holding bitcoin 

yourself? Here are some investing ideas’’ (February 

19, 2021) available at: https://www.cnbc.com/2021/ 

02/19/ways-to-invest-in-bitcoin-without-holdingthe-cryptocurrency-yourself-.html. 

47See, e.g., Tesla 10–K for the year ended 

December 31, 2020, which mentions bitcoin just 

nine times: https://www.sec.gov/ix?doc=/Archives/ 

edgar/data/1318605/000156459021004599/tsla10k_20201231.htm. 

48The CME CF Bitcoin Reference Rate is based on 

a publicly available calculation methodology based 

on pricing sourced from several crypto exchanges 

and trading platforms, including Bitstamp, 

Coinbase, Gemini, itBit, Kraken, and LMAX Digital. 

49Source: CME, Bloomberg 4/30/22. 

to bitcoin may end up purchasing shares 

in these companies in order to gain the 

exposure to bitcoin that they seek.45 In 

fact, mainstream financial news 

networks have written a number of 

articles providing investors with 

guidance for obtaining bitcoin exposure 

through publicly traded companies 

(such as MicroStrategy, Tesla, and 

bitcoin mining companies, among 

others) instead of dealing with the 

complications associated with buying 

spot bitcoin in the absence of a bitcoin 

ETP.46 Such operating companies, 

however, are imperfect bitcoin proxies 

and provide investors with partial 

bitcoin exposure paired with a host of 

additional risks associated with 

whichever operating company they 

decide to purchase. Additionally, the 

disclosures provided by the 

aforementioned operating companies 

with respect to risks relating to their 

bitcoin holdings are generally 

substantially smaller than the 

registration statement of a bitcoin ETP, 

including the Registration Statement, 

typically amounting to a few sentences 

of narrative description and a handful of 

risk factors.47 In other words, investors 

seeking bitcoin exposure through 

publicly traded companies are gaining 

only partial exposure to bitcoin and are 

not fully benefitting from the risk 

disclosures and associated investor 

protections that come from the 

securities registration process. 

Bitcoin Futures 

CME began offering trading in Bitcoin 

Futures in 2017. Each contract 

represents five bitcoin and is based on 

the CME CF Bitcoin Reference Rate.48

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. Nearly every measurable 

metric related to Bitcoin Futures has 

generally trended up since launch, 

although certain notional volume 

calculations have decreased roughly in 

line with the decrease in the price of 

bitcoin. For example, there were 

219,089 Bitcoin Futures contracts traded 

in April 2022 (approximately $31.2 

billion) compared to 89,852 ($5.4 

billion), 118,235 ($4.6b billion), and 

201,295 ($55.8b billion) contracts traded 

in April 2019, April 2020, and April 

2021, respectively.49

BILLING CODE 8011–01–P 


jspears on DSK121TN23PROD with NOTICES1EN13JY22.000</GPH>
41762 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

50A large open interest holder in Bitcoin Futures 

is an entity that holds at least 25 contracts, which 

is the equivalent of 125 bitcoin. At a price of 

approximately $38,605 per bitcoin on 4/30/2022, 

more than 80 firms had outstanding positions of 

greater than $4.8 million in Bitcoin Futures. 

The number of large open interest 

holders 50and unique accounts trading 

Bitcoin Futures have both increased, 

even in the face of heightened Bitcoin 

price volatility. 

BILLING CODE 8011–01–C 

The Sponsor further believes that 

publicly available research, including 

research done as part of rule filings 

proposing to list and trade shares of 

Spot Bitcoin ETPs, corroborates the 

overall trend outlined above and 

supports the thesis that the Bitcoin 

Futures pricing leads the spot market 

and, thus, a person attempting to 

manipulate the Shares would also have 

to trade on that market to manipulate 

the ETP. Specifically, the Sponsor 

believes that such research indicates 


jspears on DSK121TN23PROD with NOTICES1EN13JY22.001</GPH> EN13JY22.002</GPH>
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41763 

51See Exchange Act Releases No. 94080 (January 

27, 2022), 87 FR 5527 (April 12, 2022) (specifically 

‘‘Amendment No. 1 to the Proposed Rule Change 

To List and Trade Shares of the Wise Origin Bitcoin 

Trust Under BZX Rule 14.11(3)(4), CommodityBased Trust Shares’’); 94982 (May 25, 2022), 87 FR 

33250 (June 1, 2022); 94844 (May 4, 2022), 87 FR 

28043 (May 10, 2022); and 93445 (October 28, 

2021), 86 FR 60695 (November 3, 2021). See also 

Hu, Y., Hou, Y. and Oxley, L. (2019). ‘‘What role 

do futures markets play in Bitcoin pricing? 

Causality, cointegration and price discovery from a 

time-varying perspective’’ (available at: https:// 

www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). 

This academic research paper concludes that 

‘‘There exist no episodes where the Bitcoin spot 

markets dominates the price discovery processes 

with regard to Bitcoin futures. This points to a 

conclusion that the price formation originates solely 

in the Bitcoin futures market. We can, therefore, 

conclude that the Bitcoin futures markets dominate 

the dynamic price discovery process based upon 

time-varying information share measures. Overall, 

price discovery seems to occur in the Bitcoin 

futures markets rather than the underlying spot 

market based upon a time-varying perspective.’’ 

52See Exchange Rule 14.11(f). 

53Commodity-Based Trust Shares, as described in 

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

Issued Receipt. 

54As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging. To the extent that there 

are bitcoin exchanges engaged in or allowing wash 

trading or other activity intended to manipulate the 

price of bitcoin on other markets, such pricing does 

not normally impact prices on other exchange 

because participants will generally ignore markets 

with quotes that they deem non-executable. 

Moreover, the linkage between the bitcoin markets 

and the presence of arbitrageurs in those markets 

means that the manipulation of the price of bitcoin 

price on any single venue would require 

manipulation of the global bitcoin price in order to 

be effective. Arbitrageurs must have funds 

distributed across multiple trading platforms in 

order to take advantage of temporary price 

dislocations, thereby making it unlikely that there 

will be strong concentration of funds on any 

particular bitcoin exchange or OTC platform. As a 

result, the potential for manipulation on a trading 

platform would require overcoming the liquidity 

supply of such arbitrageurs who are effectively 

eliminating any cross-market pricing differences. 

55As previously articulated by the Commission, 

‘‘The standard requires such surveillance-sharing 

agreements since ‘‘they provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

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

Commission has emphasized that it is essential for 

an exchange listing a derivative securities product 

to enter into a surveillance- sharing agreement with 

markets trading underlying securities for the listing 

exchange to have the ability to obtain information 

necessary to detect, investigate, and deter fraud and 

market manipulation, as well as violations of 

exchange rules and applicable federal securities 

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

for the sharing of information about market trading 

activity, clearing activity, and customer identity; 

that the parties to the agreement have reasonable 

ability to obtain access to and produce requested 

information; and that no existing rules, laws, or 

practices would impede one party to the agreement 

from obtaining this information from, or producing 

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

historically held that joint membership in the 

Intermarket Surveillance Group (‘‘ISG’’) constitutes 

such a surveillance sharing agreement. See 

Securities Exchange Act Release No. 88284 

(February 26, 2020), 85 FR 12595 (March 3, 2020) 

(SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix 

Disapproval’’). 

56For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

57See Wilshire Phoenix Disapproval. 

58See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘cannot be manipulated’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

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

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met.’’ 

Id. at 37582. 

that bitcoin futures lead the bitcoin spot 

market in price formation.51

Section 6(b)(5) and the Applicable 

Standards 

The Commission has approved 

numerous series of Trust Issued 

Receipts,52 including Commodity-Based 

Trust Shares,53 to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

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

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 

manipulative acts and practices; 54 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act and that this filing sufficiently 

demonstrates that the Bitcoin Futures 

market represents a regulated market of 

significant size and that, on the whole, 

the manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated to the point that 

they are outweighed by quantifiable 

investor protection issues that would be 

resolved by approving this proposal. 

(i) Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order to meet this standard in a 

proposal to list and trade a series of 

Commodity-Based Trust Shares, the 

Commission requires that an exchange 

demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 55 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.56 The only remaining issue to be 

addressed is whether the Bitcoin 

Futures market constitutes a market of 

significant size, which both the 

Exchange and the Sponsor believe that 

it does. The terms ‘‘significant market’’ 

and ‘‘market of significant size’’ include 

a market (or group of markets) as to 

which: (a) there is a reasonable 

likelihood that a person attempting to 

manipulate the ETP would also have to 

trade on that market to manipulate the 

ETP, so that a surveillance-sharing 

agreement would assist the listing 

exchange in detecting and deterring 

misconduct; and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.57

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

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

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.58

(a) Reasonable Likelihood That a Person 

Attempting To Manipulate the ETP 

Would Also Have To Trade on That 

Market To Manipulate the ETP 

Bitcoin Futures represent a growing 

influence on pricing in the spot bitcoin 

market as has been laid out above and 

in other proposals to list and trade Spot 

Bitcoin ETPs. Pricing in Bitcoin Futures 

is based on pricing from spot bitcoin 

markets. As noted above, the statement 

from the Teucrium Approval that 

‘‘CME’s surveillance can reasonably be 

relied upon to capture the effects on the 

CME bitcoin futures market caused by a 

person attempting to manipulate the 

proposed futures ETP by manipulating 

the price of CME bitcoin futures 

contracts . . . indirectly by trading 

outside of the CME bitcoin futures 

market,’’ makes clear that the 

Commission believes that CME’s 

surveillance can capture the effects of 

trading on the relevant spot markets on 

the pricing of Bitcoin Futures. While the 

Commission makes clear in the 

Teucrium Approval that the analysis 

only applies to the Bitcoin Futures 

market as it relates to an ETP that 

invests in Bitcoin Futures as its only 

non-cash or cash equivalent holding, if 

CME’s surveillance is sufficient to 

mitigate concerns related to trading in 

Bitcoin Futures for which the pricing is 

based directly on pricing from spot 


jspears on DSK121TN23PROD with NOTICES1
41764 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

59These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase, 

FTX and Kraken during the one year period ending 

May 2022. 

60While the Benchmark will not be particularly 

important for the creation and redemption process, 

it will be used for calculating fees. 61 15 U.S.C. 80a–1. 

bitcoin markets, it’s not clear how such 

a conclusion could apply only to ETPs 

based on Bitcoin Futures and not extend 

to Spot Bitcoin ETPs. 

Additionally, a Bitcoin Futures ETF is 

actually potentially more susceptible to 

manipulation than a Spot Bitcoin ETP 

where the underlying trust offers only 

in-kind creation and redemption. 

Specifically, the pricing of Bitcoin 

Futures is based on prices from spot 

bitcoin markets, while shares of a Spot 

Bitcoin ETP would represent an interest 

in bitcoin directly and authorized 

participants for a Spot Bitcoin ETP 

would be able to source bitcoin from 

any exchange and create or redeem with 

the applicable trust regardless of the 

price of the underlying index. Potential 

manipulation of a Bitcoin Futures ETF 

would require manipulation on the spot 

markets on which the pricing for Bitcoin 

Futures are based while the in-kind 

creation and redemption process and 

fungibility of bitcoin means that a 

would be manipulator of a Spot Bitcoin 

ETP would need to manipulate the price 

across all bitcoin markets or risk simply 

providing arbitrage opportunities for 

authorized participants. Further to this 

point, this arbitrage opportunity also 

acts to reduce any incentives to 

manipulate the price of a Spot Bitcoin 

ETP because the underlying trust will 

create and redeem shares at set rates of 

bitcoin per share without regard to the 

price that the ETP is trading at in the 

secondary market or the price of the 

underlying index. As such, the 

Exchange believes that part (a) of the 

significant market test outlined above is 

satisfied and that common membership 

in ISG between the Exchange and CME 

would assist the listing exchange in 

detecting and deterring misconduct in 

the Shares. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 

in the Bitcoin Futures market or spot 

market for a number of reasons, 

including the in-kind creation and 

redemption process, the spot market 

arbitrage opportunities that such in-kind 

creation and redemption process 

creates, the significant volume in the 

Bitcoin Futures market, the size of 

bitcoin’s market cap, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. According 

to data from Skew, the cost to buy or 

sell $5 million worth of bitcoin averages 

roughly 48 basis points with a market 

impact of $139.08.59 Stated another 

way, a market participant could enter a 

market buy or sell order for $5 million 

of bitcoin and only move the market 

0.48%. More strategic purchases or sales 

(such as using limit orders and 

executing through OTC bitcoin trade 

desks) would likely have less obvious 

impact on the market—which is 

consistent with MicroStrategy, Tesla, 

and Square being able to collectively 

purchase billions of dollars in bitcoin. 

As such, the combination of the inkind creation and redemption process, 

the Bitcoin Futures leading price 

discovery, the overall size of the bitcoin 

market, and the ability for market 

participants, including authorized 

participants creating and redeeming inkind with the Trust, to buy or sell large 

amounts of bitcoin without significant 

market impact will help prevent the 

Shares from becoming the predominant 

force on pricing in either the bitcoin 

spot or Bitcoin Futures markets, 

satisfying part (b) of the test outlined 

above. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. Consistent with 

prior points above, offering only in-kind 

creation and redemption will provide 

unique protections against potential 

attempts to manipulate the Shares. 

While the Sponsor believes that the 

Benchmark which it uses to value the 

Trust’s bitcoin is itself resistant to 

manipulation based on the methodology 

further described below, the fact that 

creations and redemptions are only 

available in-kind makes the 

manipulability of the Benchmark 

significantly less important. 

Specifically, because the Trust will not 

accept cash to buy bitcoin in order to 

create new shares or, barring a forced 

redemption of the Trust or under other 

extraordinary circumstances, be forced 

to sell bitcoin to pay cash for redeemed 

shares, the price that the Sponsor uses 

to value the Trust’s bitcoin is not 

particularly important.60 When 

authorized participants are creating 

with the Trust, they need to deliver a 

certain number of bitcoin per share 

(regardless of the valuation used) and 

when they’re redeeming, they can 

similarly expect to receive a certain 

number of bitcoin per share. As such, 

even if the price used to value the 

Trust’s bitcoin is manipulated (which 

the Sponsor believes that its 

methodology is resistant to), the ratio of 

bitcoin per Share does not change and 

the Trust will either accept (for 

creations) or distribute (for 

redemptions) the same number of 

bitcoin regardless of the value. This not 

only mitigates the risk associated with 

potential manipulation, but also 

discourages and disincentivizes 

manipulation of the Benchmark because 

there is little financial incentive to do 

so. 

VanEck Bitcoin Trust 

Delaware Trust Company is the 

trustee (‘‘Trustee’’). The State Street 

Bank and Trust Company will be the 

administrator (‘‘Administrator’’) and 

transfer agent (‘‘Transfer Agent’’). Van 

Eck Securities Corporation will be the 

marketing agent (‘‘Marketing Agent’’) in 

connection with the creation and 

redemption of ‘‘Baskets’’ of Shares. Van 

Eck Securities Corporation (‘‘VanEck’’) 

provides assistance in the marketing of 

the Shares. The Custodian will be 

responsible for custody of the Trust’s 

bitcoin. 

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in the Trust’s net assets. The Trust’s 

assets will consist of bitcoin held by the 

Custodian on behalf of the Trust. The 

Trust generally does not intend to hold 

cash or cash equivalents. However, 

there may be situations where the Trust 

will unexpectedly hold cash on a 

temporary basis. 

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended,61 nor a commodity pool for 

purposes of the Commodity Exchange 

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

the Sponsor is subject to regulation as 

a commodity pool operator or a 

commodity trading adviser in 

connection with the Shares. 

When the Trust sells or redeems its 

Shares, it will do so in ‘‘in-kind’’ 

transactions in blocks of 50,000 Shares 

(a ‘‘Creation Basket’’) at the Trust’s 

NAV. Authorized participants will 

deliver, or facilitate the delivery of, 

bitcoin to the Trust’s account with the 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41765 

62The CryptoCompare Exchange Benchmark 

methodology utilizes a combination of qualitative 

and quantitative metrics to analyze a 

comprehensive data set across eight categories of 

evaluation legal/regulation, KYC/transaction risk, 

data provision, security, team/exchange, asset 

quality/diversity, market quality and negative 

events. The CryptoCompare Exchange Benchmark 

review report assigns a grade to each exchange 

which helps identify what it believes to be the 

lowest risk exchanges in the industry. Based on the 

CryptoCompare Exchange Benchmark, MVIS 

initially selects the top five exchanges by rank for 

inclusion in the MVIS® CryptoCompare Bitcoin 

Benchmark Rate. If an eligible exchange is 

downgraded by two or more notches in a semiannual review and is no longer in the top five by 

rank, it is replaced by the highest ranked noncomponent exchange. Adjustments to exchange 

coverage are announced four business days prior to 

the first business day of each of March and 

September at 23:00 CET. The MVIS®

CryptoCompare Bitcoin Benchmark Rate is 

rebalanced at 16:00:00 GMT/BST on the last 

business day of each of February and August. 

63As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

Custodian in exchange for Shares when 

they purchase Shares, and the Trust, 

through the Custodian, will deliver 

bitcoin to such authorized participants 

when they redeem Shares with the 

Trust. Authorized participants may then 

offer Shares to the public at prices that 

depend on various factors, including the 

supply and demand for Shares, the 

value of the Trust’s assets, and market 

conditions at the time of a transaction. 

Shareholders who buy or sell Shares 

during the day from their broker may do 

so at a premium or discount relative to 

the NAV of the Shares of the Trust. 

Investment Objective 

According to the Registration 

Statement and as further described 

below, the investment objective of the 

Trust is for the Shares to reflect the 

performance of the MVIS®

CryptoCompare Bitcoin Benchmark Rate 

less the expenses of the Trust’s 

operations. In seeking to achieve its 

investment objective, the Trust will 

hold bitcoin and will value its Shares 

daily based on the reported MVIS®

CryptoCompare Bitcoin Benchmark Rate 

and process all creations and 

redemptions in-kind in transactions 

with authorized participants. The Trust 

is not actively managed. 

The Benchmark 

As described in the Registration 

Statement, the Fund will use the 

Benchmark to calculate the Trust’s 

NAV. The Benchmark is designed to be 

a robust price for bitcoin in USD and 

there is no component other than 

bitcoin in the index. The underlying 

exchanges are sourced from the industry 

leading CryptoCompare Exchange 

Benchmark review report. 

CryptoCompare Exchange Benchmark 

was established in 2019 as a tool 

designed to bring clarity to the digital 

asset exchange sector by providing a 

framework for assessing risk and in turn 

bringing transparency and 

accountability to a complex and rapidly 

evolving market.62 The current 

exchange composition of the Benchmark 

is Bitstamp, Coinbase, Gemini, itBit and 

Kraken, which are the same constituents 

that compose the CME CF Bitcoin 

Reference Rate. 

In calculating the MVIS®

CryptoCompare Bitcoin Benchmark 

Rate, the methodology captures trade 

prices and sizes from exchanges and 

examines twenty three-minute periods 

leading up to 4:00 p.m. EST. It then 

calculates an equal-weighted average of 

the volume-weighted median price of 

these twenty three-minute periods, 

removing the highest and lowest 

contributed prices. Using twenty 

consecutive three-minute segments over 

a sixty-minute period means malicious 

actors would need to sustain efforts to 

manipulate the market over an extended 

period of time, or would need to 

replicate efforts multiple times across 

exchanges, potentially triggering review. 

This extended period also supports 

authorized participant activity by 

capturing volume over a longer time 

period, rather than forcing authorized 

participants to mark an individual close 

or auction. The use of a median price 

reduces the ability of outlier prices to 

impact the NAV, as it systematically 

excludes those prices from the NAV 

calculation. The use of a volumeweighted median (as opposed to a 

traditional median) serves as an 

additional protection against attempts to 

manipulate the NAV by executing a 

large number of low-dollar trades, 

because, any manipulation attempt 

would have to involve a majority of 

global spot bitcoin volume in a threeminute window to have any influence 

on the NAV. As discussed in the 

Registration Statement, removing the 

highest and lowest prices further 

protects against attempts to manipulate 

the NAV, requiring bad actors to act on 

multiple exchanges at once to have any 

ability to influence the price. 

Availability of Information 

In addition to the price transparency 

of the Benchmark, the Trust will 

provide information regarding the 

Trust’s bitcoin holdings as well as 

additional data regarding the Trust. The 

Trust will provide an Intraday 

Indicative Value (‘‘IIV’’) per Share 

updated every 15 seconds, as calculated 

by the Exchange or a third-party 

financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

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

calculated by using the prior day’s 

closing NAV per Share as a base and 

updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Trust’s bitcoin holdings 

during the trading day. 

The IIV disseminated during Regular 

Trading Hours should not be viewed as 

an actual real-time update of the NAV, 

which will be calculated only once at 

the end of each trading day. The IIV will 

be widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours by 

one or more major market data vendors. 

In addition, the IIV will be available 

through on-line information services. 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price 63 in relation to 

the NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and (e) other applicable 

quantitative information. The Trust will 

also disseminate the Trust’s holdings on 

a daily basis on the Trust’s website. The 

price of bitcoin will be made available 

by one or more major market data 

vendors, updated at least every 15 

seconds during Regular Trading Hours. 

Information about the Benchmark, 

including key elements of how the 

Benchmark is calculated, will be 

publicly available at www.mvisindices.com/. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the Consolidated Tape Association 

(‘‘CTA’’). 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters, as well as the Benchmark. 

Information relating to trading, 

including price and volume 


jspears on DSK121TN23PROD with NOTICES1
41766 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

64For purposes of Rule 14.11(e)(4), the term 

commodity takes on the definition of the term as 

provided in the Commodity Exchange Act. As noted 

above, the CFTC has opined that Bitcoin is a 

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

Commodity Exchange Act. See Coinflip. 

information, in bitcoin is available from 

major market data vendors and from the 

exchanges on which bitcoin are traded. 

Depth of book information is also 

available from bitcoin exchanges. The 

normal trading hours for bitcoin 

exchanges are 24 hours per day, 365 

days per year. 

The Bitcoin Custodian 

The Custodian’s services (i) allow 

bitcoin to be deposited from a public 

blockchain address to the Trust’s bitcoin 

account and (ii) allow bitcoin to be 

withdrawn from the bitcoin account to 

a public blockchain address as 

instructed by the Trust. The Custody 

Agreement requires the Custodian to 

hold the Trust’s bitcoin in cold storage, 

unless required to facilitate withdrawals 

as a temporary measure. The Custodian 

will use segregated cold storage bitcoin 

addresses for the Trust which are 

separate from the bitcoin addresses that 

the Custodian uses for its other 

customers and which are directly 

verifiable via the Bitcoin Blockchain. 

The Custodian will safeguard the 

private keys to the bitcoin associated 

with the Trust’s bitcoin account. The 

Custodian will at all times record and 

identify in its books and records that 

such bitcoins constitute the property of 

the Trust. The Custodian will not 

withdraw the Trust’s bitcoin from the 

Trust’s account with the Custodian, or 

loan, hypothecate, pledge or otherwise 

encumber the Trust’s bitcoin, without 

the Trust’s instruction. If the custody 

agreement terminates, the Sponsor may 

appoint another custodian and the Trust 

may enter into a custodian agreement 

with such custodian. 

Net Asset Value 

NAV means the total assets of the 

Trust including, but not limited to, all 

bitcoin and cash, if any, less total 

liabilities of the Trust, each determined 

on the basis of generally accepted 

accounting principles. The 

Administrator will determine the NAV 

of the Trust on each day that the 

Exchange is open for regular trading, as 

promptly as practical after 4:00 p.m. 

EST. The NAV of the Trust is the 

aggregate value of the Trust’s assets less 

its estimated accrued but unpaid 

liabilities (which include accrued 

expenses). In determining the Trust’s 

NAV, the Administrator values the 

bitcoin held by the Trust based on the 

price set by the MVIS® CryptoCompare 

Bitcoin Benchmark Rate as of 4:00 p.m. 

EST. The Administrator also determines 

the NAV per Share. 

Creation and Redemption of Shares 

According to the Registration 

Statement, on any business day, an 

authorized participant may place an 

order to create one or more baskets. 

Purchase orders must be placed by 4:00 

p.m. Eastern Time, or the close of 

regular trading on the Exchange, 

whichever is earlier. The day on which 

an order is received is considered the 

purchase order date. The total deposit of 

bitcoin required is an amount of bitcoin 

that is in the same proportion to the 

total assets of the Trust, net of accrued 

expenses and other liabilities, on the 

date the order to purchase is properly 

received, as the number of Shares to be 

created under the purchase order is in 

proportion to the total number of Shares 

outstanding on the date the order is 

received. Each night, the Sponsor will 

publish the amount of bitcoin that will 

be required in exchange for each 

creation order. The Administrator 

determines the required deposit for a 

given day by dividing the number of 

bitcoin held by the Trust as of the 

opening of business on that business 

day, adjusted for the amount of bitcoin 

constituting estimated accrued but 

unpaid fees and expenses of the Trust 

as of the opening of business on that 

business day, by the quotient of the 

number of Shares outstanding at the 

opening of business divided by 50,000. 

The procedures by which an authorized 

participant can redeem one or more 

Creation Baskets mirror the procedures 

for the creation of Creation Baskets. 

Rule 14.11(e)(4)—Commodity-Based 

Trust Shares 

The Shares will be subject to BZX 

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

initial and continued listing criteria 

applicable to Commodity-Based Trust 

Shares. The Exchange will obtain a 

representation that the Trust’s NAV will 

be calculated daily and that these values 

and information about the assets of the 

Trust will be made available to all 

market participants at the same time. 

The Exchange notes that, as defined in 

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

(a) issued by a trust that holds a 

specified commodity 64 deposited with 

the trust; (b) issued by such trust in a 

specified aggregate minimum number in 

return for a deposit of a quantity of the 

underlying commodity; and (c) when 

aggregated in the same specified 

minimum number, may be redeemed at 

a holder’s request by such trust which 

will deliver to the redeeming holder the 

quantity of the underlying commodity. 

Upon termination of the Trust, the 

Shares will be removed from listing. 

The Trustee, Delaware Trust Company, 

is a trust company having substantial 

capital and surplus and the experience 

and facilities for handling corporate 

trust business, as required under Rule 

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

will be made to the trustee without prior 

notice to and approval of the Exchange. 

The Exchange also notes that, pursuant 

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

Exchange nor any agent of the Exchange 

shall have any liability for damages, 

claims, losses or expenses caused by 

any errors, omissions or delays in 

calculating or disseminating any 

underlying commodity value, the 

current value of the underlying 

commodity required to be deposited to 

the Trust in connection with issuance of 

Commodity-Based Trust Shares; 

resulting from any negligent act or 

omission by the Exchange, or any agent 

of the Exchange, or any act, condition or 

cause beyond the reasonable control of 

the Exchange, its agent, including, but 

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

extraordinary weather conditions; war; 

insurrection; riot; strike; accident; 

action of government; communications 

or power failure; equipment or software 

malfunction; or any error, omission or 

delay in the reports of transactions in an 

underlying commodity. Finally, as 

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

Exchange notes that any registered 

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

Shares must file with the Exchange in 

a manner prescribed by the Exchange 

and keep current a list identifying all 

accounts for trading in an underlying 

commodity, related commodity futures 

or options on commodity futures, or any 

other related commodity derivatives, 

which the registered Market Maker may 

have or over which it may exercise 

investment discretion. No registered 

Market Maker shall trade in an 

underlying commodity, related 

commodity futures or options on 

commodity futures, or any other related 

commodity derivatives, in an account in 

which a registered Market Maker, 

directly or indirectly, controls trading 

activities, or has a direct interest in the 

profits or losses thereof, which has not 

been reported to the Exchange as 

required by this Rule. In addition to the 

existing obligations under Exchange 

rules regarding the production of books 

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

registered Market Maker in CommodityBased Trust Shares shall make available 

to the Exchange such books, records or 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41767 

65For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

66Regular Trading Hours is the time between 9:30 

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

67 15 U.S.C. 78f. 

68 15 U.S.C. 78f(b)(5). 

69See Exchange Rule 14.11(f). 

70Commodity-Based Trust Shares, as described in 

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

Issued Receipt. 

71As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging. To the extent that there 

are bitcoin exchanges engaged in or allowing wash 

trading or other activity intended to manipulate the 

price of bitcoin on other markets, such pricing does 

not normally impact prices on other exchange 

because participants will generally ignore markets 

with quotes that they deem non-executable. 

Moreover, the linkage between the bitcoin markets 

and the presence of arbitrageurs in those markets 

means that the manipulation of the price of bitcoin 

price on any single venue would require 

manipulation of the global bitcoin price in order to 

be effective. Arbitrageurs must have funds 

distributed across multiple trading platforms in 

order to take advantage of temporary price 

dislocations, thereby making it unlikely that there 

will be strong concentration of funds on any 

particular bitcoin exchange or OTC platform. As a 

result, the potential for manipulation on a trading 

platform would require overcoming the liquidity 

supply of such arbitrageurs who are effectively 

eliminating any cross-market pricing differences. 

other information pertaining to 

transactions by such entity or registered 

or non-registered employee affiliated 

with such entity for its or their own 

accounts for trading the underlying 

physical commodity, related commodity 

futures or options on commodity 

futures, or any other related commodity 

derivatives, as may be requested by the 

Exchange. 

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. 

The Exchange will halt trading in the 

Shares under the conditions specified in 

BZX Rule 11.18. Trading may be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in the bitcoin underlying the Shares; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Rule 

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

circumstances under which trading in 

the Shares may be halted. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. BZX will allow trading 

in the Shares during all trading sessions 

on the Exchange. The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in BZX 

Rule 11.11(a) the minimum price 

variation for quoting and entry of orders 

in securities traded on the Exchange is 

$0.01 where the price is greater than 

$1.00 per share or $0.0001 where the 

price is less than $1.00 per share. 

Surveillance 

The Exchange believes that its 

surveillance procedures are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. 

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including 

Commodity-Based Trust Shares. The 

issuer has represented to the Exchange 

that it will advise the Exchange of any 

failure by the Trust or the Shares to 

comply with the continued listing 

requirements, and, pursuant to its 

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

Exchange Act, the Exchange will surveil 

for compliance with the continued 

listing requirements. If the Trust or the 

Shares are not in compliance with the 

applicable listing requirements, the 

Exchange will commence delisting 

procedures under Exchange Rule 14.12. 

The Exchange may obtain information 

regarding trading in the Shares and 

Bitcoin Futures via ISG, from other 

exchanges who are members or affiliates 

of the ISG, or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement.65

Information Circular 

Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (i) the 

procedures for the creation and 

redemption of Baskets (and that the 

Shares are not individually redeemable); 

(ii) BZX Rule 3.7, which imposes 

suitability obligations on Exchange 

members with respect to recommending 

transactions in the Shares to customers; 

(iii) how information regarding the IIV 

and the Trust’s NAV are disseminated; 

(iv) the risks involved in trading the 

Shares outside of Regular Trading 

Hours 66 when an updated IIV will not 

be calculated or publicly disseminated; 

(v) the requirement that members 

deliver a prospectus to investors 

purchasing newly issued Shares prior to 

or concurrently with the confirmation of 

a transaction; and (vi) trading 

information. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Shares. Members 

purchasing the Shares for resale to 

investors will deliver a prospectus to 

such investors. The Information Circular 

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

the Commission from any rules under 

the Act. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act 67 in general and Section 

6(b)(5) of the Act 68 in particular in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Commission has approved 

numerous series of Trust Issued 

Receipts,69 including Commodity-Based 

Trust Shares,70 to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

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

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 

manipulative acts and practices; 71 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act because this filing sufficiently 

demonstrates that the standard that has 

previously been articulated by the 

Commission applicable to CommodityVerDate Sep<11>2014 18:49 Jul 12, 2022 Jkt 256001 PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 E:\FR\FM\13JYN1.SGM 13JYN1

jspears on DSK121TN23PROD with NOTICES1
41768 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

72As previously articulated by the Commission, 

‘‘The standard requires such surveillance-sharing 

agreements since ‘‘they provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

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

Commission has emphasized that it is essential for 

an exchange listing a derivative securities product 

to enter into a surveillance- sharing agreement with 

markets trading underlying securities for the listing 

exchange to have the ability to obtain information 

necessary to detect, investigate, and deter fraud and 

market manipulation, as well as violations of 

exchange rules and applicable federal securities 

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

for the sharing of information about market trading 

activity, clearing activity, and customer identity; 

that the parties to the agreement have reasonable 

ability to obtain access to and produce requested 

information; and that no existing rules, laws, or 

practices would impede one party to the agreement 

from obtaining this information from, or producing 

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

historically held that joint membership in ISG 

constitutes such a surveillance sharing agreement. 

See Wilshire Phoenix Disapproval. 

73For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

74See Wilshire Phoenix Disapproval. 

75See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘‘cannot be manipulated’’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

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

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met. 

Id. at 37582. 

76These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase, 

FTX and Kraken during the one year period ending 

May 2022. 

Based Trust Shares has been met as 

outlined below. 

Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order for a proposal to list and 

trade a series of Commodity-Based Trust 

Shares to be deemed consistent with the 

Act, the Commission requires that an 

exchange demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 72 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.73 As such, the only remaining issue 

to be addressed is whether the Bitcoin 

Futures market constitutes a market of 

significant size, which the Exchange 

believes that it does. The terms 

‘‘significant market’’ and ‘‘market of 

significant size’’ include a market (or 

group of markets) as to which: (a) there 

is a reasonable likelihood that a person 

attempting to manipulate the ETP 

would also have to trade on that market 

to manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist the listing exchange in detecting 

and deterring misconduct; and (b) it is 

unlikely that trading in the ETP would 

be the predominant influence on prices 

in that market.74

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

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

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.75

(a) Reasonable Likelihood That a Person 

Attempting To Manipulate the ETP 

Would Also Have To Trade on That 

Market To Manipulate the ETP 

Bitcoin Futures represent a growing 

influence on pricing in the spot bitcoin 

market as has been laid out above and 

in other proposals to list and trade Spot 

Bitcoin ETPs. Pricing in Bitcoin Futures 

is based on pricing from spot bitcoin 

markets. As noted above, the statement 

from the Teucrium Approval that 

‘‘CME’s surveillance can reasonably be 

relied upon to capture the effects on the 

CME bitcoin futures market caused by a 

person attempting to manipulate the 

proposed futures ETP by manipulating 

the price of CME bitcoin futures 

contracts . . . indirectly by trading 

outside of the CME bitcoin futures 

market,’’ makes clear that the 

Commission believes that CME’s 

surveillance can capture the effects of 

trading on the relevant spot markets on 

the pricing of Bitcoin Futures. While the 

Commission makes clear in the 

Teucrium Approval that the analysis 

only applies to the Bitcoin Futures 

market as it relates to an ETP that 

invests in Bitcoin Futures as its only 

non-cash or cash equivalent holding, if 

CME’s surveillance is sufficient to 

mitigate concerns related to trading in 

Bitcoin Futures for which the pricing is 

based directly on pricing from spot 

bitcoin markets, it’s not clear how such 

a conclusion could apply only to ETPs 

based on Bitcoin Futures and not extend 

to Spot Bitcoin ETPs. 

Additionally, a Bitcoin Futures ETF is 

actually potentially more susceptible to 

manipulation than a Spot Bitcoin ETP 

where the underlying trust offers only 

in-kind creation and redemption. 

Specifically, the pricing of Bitcoin 

Futures is based on prices from spot 

bitcoin markets, while shares of a Spot 

Bitcoin ETP would represent an interest 

in bitcoin directly and authorized 

participants for a Spot Bitcoin ETP 

would be able to source bitcoin from 

any exchange and create or redeem with 

the applicable trust regardless of the 

price of the underlying index. Potential 

manipulation of a Bitcoin Futures ETF 

would require manipulation on the spot 

markets on which the pricing for Bitcoin 

Futures are based while the in-kind 

creation and redemption process and 

fungibility of bitcoin means that a 

would be manipulator of a Spot Bitcoin 

ETP would need to manipulate the price 

across all bitcoin markets or risk simply 

providing arbitrage opportunities for 

authorized participants. Further to this 

point, this arbitrage opportunity also 

acts to reduce any incentives to 

manipulate the price of a Spot Bitcoin 

ETP because the underlying trust will 

create and redeem shares at set rates of 

bitcoin per share without regard to the 

price that the ETP is trading at in the 

secondary market or the price of the 

underlying index. As such, the 

Exchange believes that part (a) of the 

significant market test outlined above is 

satisfied and that common membership 

in ISG between the Exchange and CME 

would assist the listing exchange in 

detecting and deterring misconduct in 

the Shares. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 

in the Bitcoin Futures market or spot 

market for a number of reasons, 

including the in-kind creation and 

redemption process, the spot market 

arbitrage opportunities that such in-kind 

creation and redemption process 

creates, the significant volume in the 

Bitcoin Futures market, the size of 

bitcoin’s market cap, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. According 

to data from Skew, the cost to buy or 

sell $5 million worth of bitcoin averages 

roughly 48 basis points with a market 

impact of $139.08.76 Stated another 

way, a market participant could enter a 

market buy or sell order for $5 million 

of bitcoin and only move the market 

0.48%. More strategic purchases or sales 

(such as using limit orders and 

executing through OTC bitcoin trade 

desks) would likely have less obvious 

impact on the market—which is 

consistent with MicroStrategy, Tesla, 

and Square being able to collectively 

purchase billions of dollars in bitcoin. 

As such, the combination of the inkind creation and redemption process, 

the Bitcoin Futures leading price 

discovery, the overall size of the bitcoin 

market, and the ability for market 

participants, including authorized 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41769 

77While the Benchmark will not be particularly 

important for the creation and redemption process, 

it will be used for calculating 

78See Winklevoss Order at 37593, specifically 

footnote 202, which includes the language from 

numerous approval orders for which the underlying 

futures markets formed the basis for approving 

series of ETPs that hold physical metals, including 

gold, silver, palladium, platinum, and precious 

metals more broadly; and 37600, specifically where 

the Commission provides that ‘‘when the spot 

market is unregulated—the requirement of 

preventing fraudulent and manipulative acts may 

possibly be satisfied by showing that the ETP listing 

market has entered into a surveillance-sharing 

agreement with a regulated market of significant 

size in derivatives related to the underlying asset.’’ 

As noted above, the Exchange believes that these 

citations are particularly helpful in making clear 

that the spot market for a spot commodity ETP need 

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

ETP to be approved by the Commission, and in fact 

that it’s been the common historical practice of the 

Commission to rely on such derivatives markets as 

the regulated market of significant size because 

such spot commodities markets are largely 

unregulated. 

79See Teucrium Approval at 21679. 

participants creating and redeeming inkind with the Trust, to buy or sell large 

amounts of bitcoin without significant 

market impact will help prevent the 

Shares from becoming the predominant 

force on pricing in either the bitcoin 

spot or Bitcoin Futures markets, 

satisfying part (b) of the test outlined 

above. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. Consistent with 

prior points above, offering only in-kind 

creation and redemption will provide 

unique protections against potential 

attempts to manipulate the Shares. 

While the Sponsor believes that the 

Benchmark which it uses to value the 

Trust’s bitcoin is itself resistant to 

manipulation based on the methodology 

further described below, the fact that 

creations and redemptions are only 

available in-kind makes the 

manipulability of the Benchmark 

significantly less important. 

Specifically, because the Trust will not 

accept cash to buy bitcoin in order to 

create new shares or, barring a forced 

redemption of the Trust or under other 

extraordinary circumstances, be forced 

to sell bitcoin to pay cash for redeemed 

shares, the price that the Sponsor uses 

to value the Trust’s bitcoin is not 

particularly important.77 When 

authorized participants are creating 

with the Trust, they need to deliver a 

certain number of bitcoin per share 

(regardless of the valuation used) and 

when they’re redeeming, they can 

similarly expect to receive a certain 

number of bitcoin per share. As such, 

even if the price used to value the 

Trust’s bitcoin is manipulated (which 

the Sponsor believes that its 

methodology is resistant to), the ratio of 

bitcoin per Share does not change and 

the Trust will either accept (for 

creations) or distribute (for 

redemptions) the same number of 

bitcoin regardless of the value. This not 

only mitigates the risk associated with 

potential manipulation, but also 

discourages and disincentivizes 

manipulation of the Benchmark because 

there is little financial incentive to do 

so. 

The Exchange also believes that 

reviewing this proposal through the lens 

of the Bitcoin Futures Approvals would 

also lead the Commission to approving 

this proposal. Previous disapproval 

orders have made clear that a market 

that constitutes a regulated market of 

significant size is generally a futures 

and/or options market based on the 

underlying reference asset rather than 

the spot commodity markets, which are 

often unregulated.78 The Exchange 

believes that the following excerpt from 

the Teucrium Approval is particular 

informative: 

The CME ‘‘comprehensively surveils 

futures market conditions and price 

movements on a real-time and ongoing 

basis in order to detect and prevent 

price distortions, including price 

distortions caused by manipulative 

efforts.’’ Thus the CME’s surveillance 

can reasonably be relied upon to capture 

the effects on the CME bitcoin futures 

market caused by a person attempting to 

manipulate the proposed futures ETP by 

manipulating the price of CME bitcoin 

futures contracts, whether that attempt 

is made by directly trading on the CME 

bitcoin futures market or indirectly by 

trading outside of the CME bitcoin 

futures market. As such, when the CME 

shares its surveillance information with 

Arca, the information would assist in 

detecting and deterring fraudulent or 

manipulative misconduct related to the 

non-cash assets held by the proposed 

ETP.79

Bitcoin Futures pricing is based on 

pricing from spot bitcoin markets. The 

statement from the Teucrium Approval 

that ‘‘CME’s surveillance can reasonably 

be relied upon to capture the effects on 

the CME bitcoin futures market caused 

by a person attempting to manipulate 

the proposed futures ETP by 

manipulating the price of CME bitcoin 

futures contracts . . . indirectly by 

trading outside of the CME bitcoin 

futures market,’’ makes clear that the 

Commission believes that CME’s 

surveillance can capture the effects of 

trading on the relevant spot markets on 

the pricing of Bitcoin Futures. If CME is 

able to detect such attempts at 

manipulation in the complex and 

interconnected spot bitcoin market, how 

would such an ability to detect 

attempted manipulation and the utility 

in sharing that information with the 

listing exchange apply only to Bitcoin 

Futures ETFs and not Spot Bitcoin 

ETPs? Stated a different way, given that 

there is significant trading volume on 

numerous bitcoin exchanges that are not 

part of the CME CF Bitcoin Reference 

Rate and that arbitrage opportunities 

across bitcoin exchanges means that 

such trading volume will influence spot 

bitcoin prices across the market and, 

despite this, the Commission still 

believes that CME can detect attempted 

manipulation of the Bitcoin Futures 

through ‘‘trading outside of the CME 

bitcoin futures market,’’ it is clear that 

such ability would apply equally to both 

Bitcoin Futures ETFs and Spot Bitcoin 

ETPs. To take it a step further, such an 

ability would also seem to be a strong 

indication that the CME Bitcoin Futures 

market represents a regulated market of 

significant size. To be clear, the 

Exchange agrees with the Commission 

on this point (and the implications of 

their conclusions) and further notes that 

the pricing mechanism applicable to the 

Shares is similar to the CME CF Bitcoin 

Reference Rate. 

Commodity-Based Trust Shares 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed on the Exchange pursuant to 

the initial and continued listing criteria 

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

Exchange believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on the 

Exchange during all trading sessions 

and to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. Trading of the 

Shares through the Exchange will be 

subject to the Exchange’s surveillance 

procedures for derivative products, 

including Commodity-Based Trust 

Shares. The issuer has represented to 

the Exchange that it will advise the 

Exchange of any failure by the Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under 


jspears on DSK121TN23PROD with NOTICES1
41770 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 

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

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. The Exchange 

may obtain information regarding 

trading in the Shares and listed bitcoin 

derivatives via the ISG, from other 

exchanges who are members or affiliates 

of the ISG, or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement. 

Availability of Information 

The Exchange also believes that the 

proposal promotes market transparency 

in that a large amount of information is 

currently available about bitcoin and 

will be available regarding the Trust and 

the Shares. In addition to the price 

transparency of the Benchmark, the 

Trust will provide information 

regarding the Trust’s bitcoin holdings as 

well as additional data regarding the 

Trust. The Trust will provide an IIV per 

Share updated every 15 seconds, as 

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

Exchange’s Regular Trading Hours (9:30 

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

calculated by using the prior day’s 

closing NAV per Share as a base and 

updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Trust’s bitcoin holdings 

during the trading day. 

The IIV disseminated during Regular 

Trading Hours should not be viewed as 

an actual real-time update of the NAV, 

which will be calculated only once at 

the end of each trading day. The IIV will 

be widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours by 

one or more major market data vendors. 

In addition, the IIV will be available 

through on-line information services. 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price in relation to the 

NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and (e) other applicable 

quantitative information. The Trust will 

also disseminate the Trust’s holdings on 

a daily basis on the Trust’s website. The 

price of bitcoin will be made available 

by one or more major market data 

vendors, updated at least every 15 

seconds during Regular Trading Hours. 

Information about the Benchmark, 

including key elements of how the 

Benchmark is calculated, will be 

publicly available at www.mvisindices.com/. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters, as well as the Benchmark. 

Information relating to trading, 

including price and volume 

information, in bitcoin is available from 

major market data vendors and from the 

exchanges on which bitcoin are traded. 

Depth of book information is also 

available from bitcoin exchanges. The 

normal trading hours for bitcoin 

exchanges are 24 hours per day, 365 

days per year 

In sum, the Exchange believes that 

this proposal is consistent with the 

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

Act, that this filing sufficiently 

demonstrates that the CME Bitcoin 

Futures market represents a regulated 

market of significant size, and that on 

the whole the manipulation concerns 

previously articulated by the 

Commission are sufficiently mitigated to 

the point that they are outweighed by 

investor protection issues that would be 

resolved by approving this proposal. 

The Exchange believes that the 

proposal is, in particular, designed to 

protect investors and the public interest. 

Premium and discount volatility, high 

fees, rolling costs, insufficient 

disclosures, and technical hurdles are 

putting U.S. investor money at risk on 

a daily basis that could potentially be 

eliminated through access to a Spot 

Bitcoin ETP. As such, the Exchange 

believes that this proposal acts to limit 

the risk to U.S. investors that are 

increasingly seeking exposure to bitcoin 

by providing direct, 1-for-1 exposure to 

bitcoin in a regulated, transparent, 

exchange-traded vehicle, specifically by: 

(i) reducing premium volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) providing 

an alternative to Bitcoin Futures ETFs 

which will eliminate roll cost; (iv) 

reducing risks associated with investing 

in operating companies that are 

imperfect proxies for bitcoin exposure; 

and (v) providing an alternative to 

custodying spot bitcoin. Finally, the 

Exchange notes that in addition to all of 

the arguments herein which it believes 

sufficiently establishes the Bitcoin 

Futures market as a regulated market of 

significant size, it is logically 

inconsistent to find that the CME 

Bitcoin Futures market is a significant 

market as it relates to the CME Bitcoin 

Futures market, but not a significant 

market as it relates to the bitcoin spot 

market for the numerous reasons laid 

out above. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received from 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: 

A. by order approve or disapprove 

such proposed rule change, or 

B. institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Notices 41771 

80 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Cboe Global Markets, U.S. Equities Market 

Volume Summary, Month-to-Date (June 27, 2022), 

available at https://markets.cboe.com/us/equities/ 

market_statistics/. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

CboeBZX–2022–035 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CboeBZX–2022–035. 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 

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 

Number SR–CboeBZX–2022–035 and 

should be submitted on or before 

August 3, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.80

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–14884 Filed 7–12–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–95215; File No. SR– 

CboeBZX–2022–036] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Its 

Fee Schedule 

July 7, 2022. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on July 1, 

2022, Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX’’) proposes to 

amend its Fee Schedule. The text of the 

proposed rule change is provided in 

Exhibit 5. 

The text of the proposed rule change 

is also available on the Exchange’s 

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

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule applicable to its equities 

trading platform (‘‘BZX Equities’’) by: (i) 

introducing a new Step-Up Tier 3 and 

(ii) modifying the criteria in Single 

MPID Investor Tier 1. The Exchange 

proposes to implement these changes 

effective July 1, 2022. 

The Exchange first notes that it 

operates in a highly competitive market 

in which market participants can 

readily direct order flow to competing 

venues if they deem fee levels at a 

particular venue to be excessive or 

incentives to be insufficient. More 

specifically, the Exchange is only one of 

16 registered equities exchanges, as well 

as a number of alternative trading 

systems and other off-exchange venues 

that do not have similar self-regulatory 

responsibilities under the Exchange Act, 

to which market participants may direct 

their order flow. Based on publicly 

available information,3 no single 

registered equities exchange has more 

than 16% of the market share. Thus, in 

such a low-concentrated and highly 

competitive market, no single equities 

exchange possesses significant pricing 

power in the execution of order flow. 

The Exchange in particular operates a 

‘‘Maker-Taker’’ model whereby it pays 

rebates to members that add liquidity 

and assesses fees to those that remove 

liquidity. 

The Exchange’s Fee Schedule sets 

forth the standard rebates and rates 

applied per share for orders that provide 

and remove liquidity, respectively. 

Currently, for orders in securities priced 

at or above $1.00, the Exchange 

provides a standard rebate of $0.00160 

per share for orders that add liquidity 

and assesses a fee of $0.0030 per share 

for orders that remove liquidity. For 

orders in securities priced below $1.00, 

the Exchange does not provide a rebate 

or assess a fee for orders that add 

liquidity and assesses a fee of 0.30% of 

total dollar value for orders that remove 

liquidity. Additionally, in response to 

the competitive environment, the 

Exchange also offers tiered pricing, 

which provides Members with 

opportunities to qualify for higher 

rebates or lower fees where certain 

volume criteria and thresholds are met. 

Tiered pricing provides an incremental 


jspears on DSK121TN23PROD with NOTICES1