Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 29321 

18 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 March 17, 2021 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. 

6See draft Registration Statement on Form S–1, 

dated March 24, 2021 submitted to the Commission 

by the Sponsor on behalf of the Trust. The 

descriptions of the Trust, the Shares, and the Index 

(as defined below) 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. 

7For additional information about bitcoin and the 

Bitcoin Network, see https://bitcoin.org/en/gettingstarted; https://www.fidelitydigitalassets.com/ 

articles/addressing-bitcoin-criticisms; and https://

www.vaneck.com/education/investment-ideas/ 

investing-in-bitcoin-and-digital-assets/. 

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’’). 

9 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. 

10See ‘‘In the Matter of Coinflip, Inc.’’ 

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

Continued 

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–NASDAQ–2021–043 and 

should be submitted on or before June 

22, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11405 Filed 5–28–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–91994; File No. SR– 

CboeBZX–2021–039] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the Wise Origin 

Bitcoin Trust Under BZX Rule 

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

Shares 

May 25, 2021. 

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 May 10, 

2021, 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 Wise 

Origin 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 FD Funds 

Management LLC is the sponsor of the 

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

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).6

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 is 

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.7

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, 

2016.8 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.9

Similarly, regulated U.S. bitcoin futures 

contracts did not exist. The Commodity 

Futures Trading Commission (the 

‘‘CFTC’’) had determined that bitcoin is 

a commodity,10 but had not engaged in 


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29322 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 

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.’’ 

11A 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. 

12 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. 

13See 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. 

14See 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/1725882/000121390

020023202/ea125858-424b1_inxlimited.htm. 

15See Prospectus filed by Stone Ridge Trust VI 

on behalf of NYDIG Bitcoin Strategy Fund 

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

Archives/edgar/data/1764894/00011931

2519309942/d693146d497.htm. 

16See 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). 

17See 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. 

18See 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. 

19See, 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. 

20All statistics and charts included in this 

proposal are sourced from https://

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

21The 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. The CFTC also 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. The CFTC also ordered 

Coinbase Inc. to pay $6.5 million for false, 

misleading, or inaccurate reporting and wash 

trading on March 19, 2021. See CFTC Release No. 

8369–21 (March 19, 2021) available at: https://

cftc.gov/PressRoom/PressReleases/8369-21. 

22See OCC News Release 2021–2 (January 4, 

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

23See 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. 

24See FinCEN Guidance FIN–2019–G001 (May 9, 

2019) (Application of FinCEN’s Regulations to 

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, 2016.11 While the first over-thecounter bitcoin fund launched in 2013, 

public trading was limited and the fund 

had only $60 million in assets.12 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.13

Fast forward to the first quarter of 

2021 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 14 and shares in investment 

vehicles holding bitcoin futures.15

Additionally, licensed and regulated 

service providers have emerged to 

provide fund custodial services for 

digital assets, among other services. For 

example, in December 2020, the 

Commission adopted a conditional noaction position permitting certain 

special purpose broker-dealers to 

custody digital asset securities under 

Rule 15c3–3 under the Exchange Act; 16

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; 17 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,18 and 

multiple transfer agents who provide 

services for digital asset securities 

registered with the Commission.19

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 recently reached a market cap of 

over $1 trillion. As of February 27, 2021, 

bitcoin’s market cap is greater than 

companies such as Facebook, Inc., 

Berkshire Hathaway Inc., and JP Morgan 

Chase & Co. CFTC regulated bitcoin 

futures represented approximately $28 

billion in notional trading volume on 

Chicago Mercantile Exchange (‘‘CME’’) 

(‘‘Bitcoin Futures’’) in December 2020 

compared to $737 million, $1.4 billion, 

and $3.9 billion in total trading in 

December 2017, December 2018, and 

December 2019, respectively. Bitcoin 

Futures traded over $1.2 billion per day 

in December 2020 and represented $1.6 

billion in open interest compared to 

$115 million in December 2019, which 

the Exchange believes represents a 

regulated market of significant size, as 

further discussed below.20 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.21 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.22 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.23 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, 

including the Trust’s Custodian. 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,24 and has proposed rules 


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Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 29323 

Certain Business Models Involving Convertible 

Virtual Currencies) available at: https://

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

FinCEN%20Guidance%20CVC%20

FINAL%20508.pdf. 

25See 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. 

26See 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. 

27On 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. 

28See, 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. 

29See, 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. 

30See, 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. 

31See, 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. 

32See 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. 

33See Form 10–K submitted by Tesla, Inc. for the 

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

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

1318605/000156459021004599/tsla-10k_

20201231.htm. 

34See Form 10–Q submitted by MicroStrategy 

Incorporated for the quarterly period ended 

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

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

000156459020047995/mstr-10q_20200930.htm. 

35See Form 10–Q submitted by Square, Inc. for 

the quarterly period ended September 30, 2020 at 

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

data/1512673/000151267320000012/sq20200930.htm. 

36The Exchange notes that the Purpose Bitcoin 

ETF, a publicly listed physical bitcoin ETP recently 

launched in Canada, reportedly reached $421.8 

million in assets under management (‘‘AUM’’) in 

two days, demonstrating the demand for a North 

American market listed bitcoin exchange-traded 

product (‘‘ETP’’). The Purpose Bitcoin ETF also 

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

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

Without an approved bitcoin ETP in the U.S. as a 

viable alternative, U.S. investors could seek to 

purchase these shares 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. 

37The Exchange notes that securities regulators in 

a number of other countries have either approved 

or otherwise allowed the listing and trading of 

bitcoin ETPs. Specifically, these funds include the 

Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors 

Bitcoin ETN, WisdomTree Bitcoin ETP, Bitcoin 

Tracker One, BTCetc bitcoin ETP, Amun Bitcoin 

ETP, Amun Bitcoin Suisse ETP, 21Shares Short 

Bitcoin ETP, CoinShares Physical Bitcoin ETP. 

38The Survey included interviews with 774 

institutional investors. 393 respondents were based 

in the U.S. and 381 respondents were based in 

Europe. The Survey spanned a variety of investor 

segments, including high-net worth individuals, 

financial advisors, family offices, crypto hedge and 

venture funds, traditional hedge funds, 

endowments and foundations. The first installment 

of The Institutional Investors Digital Assets Survey 

covered the period of November 2018 to January 

2019 and surveyed over 400 U.S. investors. Thus, 

the year-over-year comparisons compare only the 

responses of U.S. investors. The Survey is available 

at the following link: https://

www.fidelitydigitalassets.com/bin-public/060_

www_fidelity_com/documents/FDAS/institutionalinvestors-digital-asset-survey.pdf. 

imposing requirements on entities 

subject to the BSA that are specific to 

the technological context of virtual 

currencies.25 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.26

In addition to the regulatory 

developments laid out above, more 

traditional financial market participants 

appear to be embracing cryptocurrency: 

Large insurance companies,27 asset 

managers,28 university endowments,29

pension funds,30 and even historically 

bitcoin skeptical fund managers 31 are 

allocating to bitcoin. The largest overthe-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.32 Established companies like 

Tesla, Inc.,33 MicroStrategy 

Incorporated,34 and Square, Inc.,35

among others, have recently announced 

substantial investments in bitcoin in 

amounts as large as $1.5 billion (Tesla) 

and $425 million (MicroStrategy). 

Suffice to say, bitcoin is on its way to 

gaining mainstream usage. 

Despite these developments, access 

for U.S. investors to gain exposure to 

bitcoin via a transparent and regulated 

exchange-traded vehicle remains 

limited. As investors and advisors 

increasingly utilize ETPs to manage 

diversified portfolios (including 

equities, fixed income securities, 

commodities, and currencies) quickly, 

easily, relatively inexpensively, and 

without having to hold directly any of 

the underlying assets, alternatives for 

bitcoin exposure for U.S. investors are 

instead limited to: (i) Buying over-thecounter bitcoin funds (‘‘OTC Bitcoin 

Funds’’) that are subject to premium/ 

discount volatility; (ii) facing the 

technical risk, complexity and generally 

high fees associated with buying spot 

bitcoin; or (iii) purchasing shares of 

operating companies that they believe 

will provide proxy exposure to bitcoin. 

Meanwhile, investors in many other 

countries, including Canada,36 are able 

to use more traditional exchange listed 

and traded products to gain exposure to 

bitcoin, disadvantaging U.S. investors 

and leaving them with riskier and more 

expensive means of getting bitcoin 

exposure.37

Institutional Adoption and Investor 

Interest in Bitcoin 

As noted above, institutional adoption 

and investor interest in bitcoin has 

increased significantly over the last two 

years. A recent independent investor 

survey, The Institutional Investors 

Digital Asset Survey (the ‘‘Survey’’) 38

conducted by Fidelity Digital Assets, 

Fidelity Center for Applied Technology 

and Fidelity Consulting in collaboration 

with Greenwich Associates from 

November 2019 to early March 2020 

found that i. 36% of institutional 

investors surveyed currently invest in 

digital assets; ii. almost 60% of all 

investors surveyed have a neutral or 

positive perception toward digital 

assets; and iii. more than 80% of 

investors indicated they would be 

interested in institutional investment 

products that hold digital assets. The 

Survey reported that the portion of U.S. 

investors who have an allocation to 

digital assets increased to 27% from 

22% in 2019 and cited multiple factors 

that may be driving ownership 

including, but not limited to, the 

entrance of incumbent custody, trading 

and derivatives service providers; and 

the expansion of the types of regulated 

derivatives available to institutional 

investors, which fueled awareness of 

digital assets. 

The Survey reported that exposure to 

digital assets continues to grow with 


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39Because OTC Bitcoin Funds are not listed on 

an exchange, they are also not subject to the same 

transparency and regulatory oversight by a listing 

exchange as the Shares would be. In the case of the 

Trust, the existence of a surveillance-sharing 

agreement between the Exchange and the Bitcoin 

Futures market results in increased investor 

protections compared to OTC Bitcoin Funds. 

40New York state trust companies are subject to 

rigorous oversight similar to other types of entities, 

such as nationally chartered banking entities, that 

hold customer assets. Like national banks, they 

must obtain specific approval of their primary 

regulator for the exercise of their fiduciary powers. 

Moreover, limited purpose trust companies engaged 

in the custody of digital assets are subject to even 

more stringent requirements than national banks 

which, following initial approval of trust powers, 

generally can exercise those powers broadly 

without further approval of the OCC. In contrast, 

NYDFS requires in their approval orders that 

limited purpose trust companies obtain separate 

approval for all material changes in business. 

41 In addition to enforcing specific regulatory 

reporting requirements, NYDFS consistently 

exercises its broad authority to examine trust 

companies for compliance with law, risk 

management and general safety and soundness 

considerations, including to assess items such as 

the internal controls, client records and segregation 

of assets topics that are typically important to the 

ability of an entity to act as a qualified custodian. 

In this regard, the Custodian is subject to annual 

examination, with specific attention to its internal 

controls and risk management systems. 

42 It has been announced that MicroStrategy is 

currently contemplating a $600 million convertible 

note offering for the purpose of acquiring bitcoin. 

See: https://www.cnbc.com/2021/02/16/ 

microstrategy-shares-rise-after-revealing-plans-tobuy-more-bitcoin.html. 

43 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. 

44See, 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. 

22% of U.S. respondents invested in 

digital assets having exposure via 

futures, a substantial increase relative to 

9% of U.S. investors surveyed in 2019. 

The Survey also reported that 91% of 

institutional investors that plan to make 

an allocation to digital assets expect to 

have at least 0.5% of their portfolio in 

digital assets within five years. The 

increase in institutional use and interest 

in the digital asset market is a benefit to 

all investors. As institutional 

participation increases, this helps to 

solidify the market for digital assets and 

assists in maturing the ecosystem for 

digital assets, creating a more sound 

structure for this asset class. ETPs are 

well established vehicles with a 

structure that has proven to be 

beneficial to investors based on the 

transparency, competition with respect 

to fees charged, and disclosures to help 

educate investors on risks associated 

with investment. 

The Exchange understands the 

Commission’s previous focus on 

potential manipulation of a bitcoin ETP 

in prior disapproval orders, but now 

believes that such concerns have been 

sufficiently mitigated. The Exchange 

believes that the significant increase in 

investor participation in and 

institutional adoption of bitcoin have 

facilitated the maturation of the bitcoin 

trading ecosystem. As such, the 

Exchange believes that approving this 

proposal (and comparable proposals 

submitted hereafter) provides the 

Commission with the opportunity to 

allow U.S. investors with access to 

bitcoin in a regulated and transparent 

exchange-traded vehicle that would act 

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

Reducing premium and discount 

volatility; (ii) reducing management fees 

through meaningful competition; (iii) 

reducing certain risks associated with 

investing in operating companies that 

are proxies for bitcoin exposure; and (iv) 

providing an alternative to custodying 

spot bitcoin. 

(i) OTC Bitcoin Funds and Premium/ 

Discount Volatility 

OTC Bitcoin Funds are generally 

designed to provide exposure to bitcoin 

in a manner similar to the Shares. 

However, unlike the Shares, OTC 

Bitcoin Funds are unable to freely offer 

creation and redemption in a way that 

incentivizes market participants to keep 

their shares trading in line with their 

NAV 39 and, as such, frequently trade at 

a price that is out of line with the value 

of their assets held. Historically, OTC 

Bitcoin Funds have traded at significant 

premiums or discounts compared to 

their NAV. A bitcoin ETP would 

provide an alternative to OTC Bitcoin 

Funds that would offer investors access 

to direct bitcoin exposure with real time 

trading and transparency on pricing/ 

valuation, liquidity and active 

arbitrage—advantages of the ETP 

structure. 

(ii) Spot and Proxy Exposure 

Exposure to bitcoin through an ETP 

also presents certain advantages for 

investors compared to buying spot 

bitcoin directly. The most notable 

advantage is the use of the Custodian to 

custody the Trust’s bitcoin assets. The 

Sponsor has carefully selected the 

Custodian, a New York state limited 

liability trust,40 due to its manner of 

holding the Trust’s bitcoin. This 

includes, among others, the use of 

‘‘cold’’ (offline) storage to hold private 

keys and the employment by the 

Custodian of a certain degree of 

cybersecurity measures and operational 

best practices.41 By contrast, an investor 

holding bitcoin through a 

cryptocurrency exchange lacks these 

protections. Typically, cryptocurrency 

exchanges hold most, if not all, 

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

commitments to indemnify investors or 

to observe any particular cybersecurity 

standard. Meanwhile, an investor 

holding spot bitcoin directly in a selfhosted 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. In the Custodian, the Trust 

has engaged a regulated and licensed 

entity highly experienced in bitcoin 

custody, with dedicated, trained 

employees and procedures to manage 

the private keys to the Trust’s bitcoin, 

and which is accountable for failures. 

Thus, with respect to custody of the 

Trust’s bitcoin assets, the Trust presents 

advantages for investors compared to 

owning spot bitcoin directly. 

Finally, as described in the 

Background section above, recently 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 $1.5 

billion in bitcoin.42 Without access to 

bitcoin exchange-traded products, 

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.43 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.44 Such operating companies, 

however, are imperfect bitcoin proxies 

and provide investors with partial or 

indirect 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, 

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45See, 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 

46According to CME, the CME CF Bitcoin 

Reference Rate aggregates the trade flow of major 

bitcoin spot exchanges during a specific calculation 

window into a once-a-day reference rate of the U.S. 

dollar price of bitcoin. Calculation rules are geared 

toward maximum transparency and real-time 

replicability in underlying spot markets, including 

Bitstamp, Coinbase, Gemini, itBit, and Kraken. For 

additional information, refer to https://

www.cmegroup.com/trading/cryptocurrencyindices/cf-bitcoin-reference-rate.html?redirect=/ 

trading/cf-bitcoin-reference-rate.html. 

47A 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 $30,000 per bitcoin on 12/31/20, 

more than 80 firms had outstanding positions of 

greater than $3.8 million in Bitcoin Futures. 

typically amounting to a few sentences 

of narrative description and a handful of 

risk factors.45

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.46

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. Nearly every measurable 

metric related to Bitcoin Futures has 

trended consistently up since launch 

and/or accelerated upward in the past 

year. For example, there was 

approximately $28 billion in trading in 

Bitcoin Futures in December 2020 

compared to $737 million, $1.4 billion, 

and $3.9 billion in total trading in 

December 2017, December 2018, and 

December 2019, respectively. Bitcoin 

Futures traded over $1.2 billion per day 

on the CME in December 2020 and 

represented $1.6 billion in open interest 

compared to $115 million in December 

2019. This general upward trend in 

trading volume and open interest is 

captured in the following chart. 

BILLING CODE 8011–01–P 

Similarly, the number of large open 

interest holders 47 has continued to 

increase even as the price of bitcoin has 

risen, as have the number of unique 

accounts trading Bitcoin Futures. 


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48See 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.’’ 

49See Exchange Rule 14.11(f). 

50Commodity-Based Trust Shares, as described in 

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

Issued Receipt. 

51As 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. 

52The ‘‘Index’’ refers to the Fidelity Bitcoin Index 

PR. 

53As 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. 

54For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

55See Wilshire Phoenix Disapproval. 

56See 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. 

57As further described below, the ‘‘Index’’ for the 

Fund is the Fidelity Bitcoin Index PR. The Index 

is constructed using bitcoin price feeds from 

eligible bitcoin spot markets. The current exchange 

composition of the Index is Bitstamp, Coinbase, 

Gemini, itBit and Kraken. 

The Sponsor further believes that 

academic research 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 

that bitcoin futures lead the bitcoin spot 

market in price formation.48

Section 6(b)(5) and the Applicable 

Standards 

The Commission has approved 

numerous series of Trust Issued 

Receipts,49 including Commodity-Based 

Trust Shares,50 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; 51 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 it has sufficiently 

demonstrated that, on the whole, the 

manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated. Specifically, the 

Exchange lays out below why it believes 

that the significant increase in trading 

volume in Bitcoin Futures, the growth 

of liquidity at the inside in the spot 

market for bitcoin, and certain features 

of the Shares and the Index 52 mitigate 

potential manipulation concerns since 

the Commission last reviewed an 

exchange proposal to list and trade a 

bitcoin ETP should be the central 

consideration as the Commission 

determines whether to approve 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 53 with a regulated 

market of significant size. Both the 

Exchange and CME are members of the 

Intermarket Surveillance Group (the 

‘‘ISG’’).54 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.55

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.56

(a) Manipulation of the ETP 

The significant growth in Bitcoin 

Futures across each of trading volumes, 

open interest, large open interest 

holders, and total market participants 

since the Wilshire Phoenix Disapproval 

was issued are reflective of that market’s 

growing influence on the spot price, 

which according to the academic 

research cited above, was already 

leading the spot price in 2018 and 2019. 

Where Bitcoin Futures lead the price in 

the spot market such that a potential 

manipulator of the bitcoin spot market 

(beyond just the constituents of the 

Index 57) would have to participate in 

the Bitcoin Futures market, it follows 

that a potential manipulator of the 

Shares would similarly have to transact 

in the Bitcoin Futures market because 


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58These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

59These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

60While the Index will not be particularly 

important for the creation and redemption process, 

it will be used for calculating fees. 

61The Exchange notes that the Sponsor is 

finalizing negotiations with several service 

providers and it will submit an amendment to this 

proposal upon finalization of those arrangements. 

62 15 U.S.C. 80a–1. 

the Index is based on spot prices. 

Further, the Trust receives and holds 

only bitcoin, which, as further described 

below, reduces the potential for 

manipulation of the Shares through 

manipulation of the Index or any of its 

individual constituents, again 

emphasizing that a potential 

manipulator of the Shares would have 

to manipulate the entirety of the bitcoin 

spot market, which is led by the Bitcoin 

Futures market. 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 also believes 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 

significant volume in the Bitcoin 

Futures market, the size of bitcoin’s 

market cap (approximately $1 trillion), 

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 

CoinRoutes from February 2021, the 

cost to buy or sell $5 million worth of 

bitcoin averages roughly 10 basis points 

with a market impact of 30 basis 

points.58 For a $10 million market order, 

the cost to buy or sell is roughly 20 basis 

points with a market impact of 50 basis 

points. Stated another way, a market 

participant could enter a market buy or 

sell order for $10 million of bitcoin and 

only move the market 0.5%. 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 Bitcoin Futures leading 

price discovery, the overall size of the 

bitcoin market, and the ability for 

market participants, including 

authorized participants creating and 

redeeming 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 believes that such conditions 

are present. Specifically, the significant 

liquidity in the spot market and the 

impact of market orders on the overall 

price of bitcoin mean that attempting to 

move the price of bitcoin is costly and 

has grown more expensive over the past 

year. In January 2020, for example, the 

cost to buy or sell $5 million worth of 

bitcoin averaged roughly 30 basis points 

(compared to 10 basis points in 2/2021) 

with a market impact of 50 basis points 

(compared to 30 basis points in 

2/2021).59 For a $10 million market 

order, the cost to buy or sell was 

roughly 50 basis points (compared to 20 

basis points in 2/2021) with a market 

impact of 80 basis points (compared to 

50 basis points in 2/2021). As the 

liquidity in the bitcoin spot market 

increases, it follows that the impact of 

$5 million and $10 million orders will 

continue to decrease the overall impact 

in spot price. 

Additionally, offering in-kind creation 

and redemption will provide unique 

protections against potential attempts to 

manipulate the Shares. While the 

Sponsor believes that the Index 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 available in-kind makes 

the manipulability of the Index 

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 the Index 

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 Index because there 

is little financial incentive to do so. 

Wise Origin Bitcoin Trust 

Delaware Trust Company is the 

trustee (‘‘Trustee’’). Fidelity Service 

Company, Inc. (‘‘FSC’’) will be the 

administrator (‘‘Administrator’’) A 

third-party transfer agent (the ‘‘Transfer 

Agent’’) will facilitate the issuance and 

redemption of Shares of the Trust, 

respond to correspondence by Trust 

Shareholders and others relating to its 

duties, maintain Shareholder accounts, 

and make periodic reports to the 

Trust.61 An affiliate of the Sponsor, 

Fidelity Distributors Corporation, will 

be the marketing agent (‘‘Marketing 

Agent’’) in connection with the creation 

and redemption of ‘‘Baskets’’ of Shares. 

The Sponsor provides assistance in the 

marketing of the Shares. Fidelity Digital 

Assets Services, LLC will serve as the 

Trust’s custodian (the ‘‘Custodian’’). 

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in and ownership of the Trust. The 

Trust’s assets will consist of bitcoin 

held by the Custodian on behalf of the 

Trust. The Trust generally does not 

intend to hold cash or cash equivalents. 

However, there may be situations where 

the Trust will unexpectedly hold cash 

on a temporary basis. 

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended,62 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 Shares (a 


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63The Sponsor’s affiliates have an ownership 

interest in Coin Metrics, Inc. 

64As 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. 

‘‘Creation Basket’’) at the Trust’s NAV. 

Authorized participants will deliver, or 

facilitate the delivery of, bitcoin to the 

Trust’s account with the 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 to seek to track the performance 

of bitcoin, as measured by the Index, 

adjusted for the Trust’s expenses and 

other liabilities. 

In seeking to achieve its investment 

objective, the Trust will hold bitcoin 

and will value its Shares daily as of 4:00 

p.m. Eastern time using the same 

methodology used to calculate the Index 

and process all creations and 

redemptions in transactions with 

authorized participants. The Trust is not 

actively managed. 

The Index 

As described in the Registration 

Statement, for purposes of calculating 

the Trust’s NAV per Share, the Trust’s 

holdings of bitcoin will be valued using 

the same methodology as used to 

calculate the Index. The Index is 

designed to reflect the performance of 

bitcoin in U.S. dollars. The Index is 

constructed using bitcoin price feeds 

from eligible bitcoin spot markets and 

the VWMP methodology, calculated 

every 15 seconds based on VWMP spot 

market data over rolling 5-minute 

increments to develop a bitcoin price 

composite. The current exchange 

composition of the Index is Bitstamp, 

Coinbase, Gemini, itBit and Kraken. The 

Index methodology was developed by 

Fidelity Product Services, LLC (the 

‘‘Index Provider’’) and is administered 

by the Fidelity Index Committee. Coin 

Metrics, Inc. is the third-party 

calculation agent for the Index.63

The Index is calculated using a 

volume-weighted median price 

approach. The Index market value is the 

volume-weighted median price of 

bitcoin in U.S. dollars over the previous 

five minutes, which is calculated by (1) 

ordering all individual transactions on 

eligible spot markets over the previous 

five minutes by price, and then (2) 

selecting the price associated with the 

50th percentile of total volume. Using 

rolling five-minute segments 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. Further, 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 Index, 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. Eastern 

time). 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 64 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 

value of the Index will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

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 Index. 

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. 

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 NAV of the 

Trust is calculated by taking the fair 

market value of its total assets based on 

the volume-weighted median price of 

bitcoin used for the calculation of the 

Index, subtracting any liabilities (which 

include accrued expenses), and dividing 

that total by the total number of 


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29330 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 

65For 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. 

outstanding Shares. The Administrator 

calculates the NAV of the Trust once 

each Exchange trading day. The NAV 

for a normal trading day will be released 

after 4:00 p.m. Eastern time. Trading 

during the core trading session on the 

Exchange typically closes at 4:00 p.m. 

Eastern time. However, NAVs are not 

officially struck until later in the day 

(often by 5:30 p.m. Eastern time and 

almost always by 8:00 p.m. Eastern 

time). The pause between 4:00 p.m. 

Eastern time and 5:30 p.m. Eastern time 

(or later) provides an opportunity to 

algorithmically detect, flag, investigate, 

and correct unusual pricing should it 

occur. Eastern time [sic]. 

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 the 

time noted in the Authorized 

Participant Agreement or as provided 

separately to all Authorized 

Participants. 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 the 

aggregation of Shares associated with a 

Creation Basket. 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 65 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. The Delaware Trust 

Company also has the experience and 

facilities for handling corporate trust 

business, as required under Rule 

14.11(e)(4)(E)(iv)(a). 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 

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 


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66For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

67Regular Trading Hours is the time between 9:30 

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

68 15 U.S.C. 78f. 

69 15 U.S.C. 78f(b)(5). 

70See Exchange Rule 14.11(f). 

71Commodity-Based Trust Shares, as described in 

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

Issued Receipt. 

72As 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 exchanges 

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. 

$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.66

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 67 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 68 in general and Section 

6(b)(5) of the Act 69 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,70 including Commodity-Based 

Trust Shares,71 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; 72 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that the 

proposal is, in particular, designed to 

protect investors and the public interest. 

With the growth of OTC Bitcoin Funds 

over the past year, so too has grown the 

potential risk to U.S. investors. 

Significant and prolonged premiums 

and discounts, significant premium/ 

discount volatility, high fees, 

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 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 

through the elimination of significant 

and prolonged premiums and discounts, 

the reduction of significant premium/ 

discount volatility, the reduction of 

management fees through meaningful 

competition, the avoidance of risks 

associated with investing in operating 

companies that are imperfect proxies for 

bitcoin exposure, and protection from 

risk associated with custodying spot 

bitcoin by providing direct, 1-for-1 

exposure to bitcoin in a regulated, 

transparent, exchange-traded vehicle 

designed to reduce the likelihood of 

significant and prolonged premiums 

and discounts with its open-ended 

nature as well as the ability of 

authorized participants to create and 

redeem on a daily basis. 

The Exchange also believes that this 

proposal is consistent with the 

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

Act and that it has sufficiently 

demonstrated that, on the whole, the 

manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated. Specifically, the 

Exchange believes that the significant 

increase in trading volume in Bitcoin 

Futures, the growth of liquidity at the 

inside in the spot market for bitcoin, 

and certain features of the Shares and 

the Index mitigate potential 

manipulation concerns should be the 

central consideration as the Commission 

determines whether to approve this 

proposal. 


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73As 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. 

74For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

75See Wilshire Phoenix Disapproval. 

76See 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. 

77These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

78These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

(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 73 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.74 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.75

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.76

(a) Manipulation of the ETP 

The significant growth in Bitcoin 

Futures across each of trading volumes, 

open interest, large open interest 

holders, and total market participants 

since the Wilshire Phoenix Disapproval 

was issued are reflective of that market’s 

growing influence on the spot price, 

which according to the academic 

research cited above, was already 

leading the spot price in 2018 and 2019. 

Where Bitcoin Futures lead the price in 

the spot market such that a potential 

manipulator of the bitcoin spot market 

(beyond just the constituents of the 

Index) would have to participate in the 

Bitcoin Futures market, it follows that a 

potential manipulator of the Shares 

would similarly have to transact in the 

Bitcoin Futures market because the 

Index is based on spot prices. Further, 

the Trust allows for in-kind creation and 

redemption, which, as further described 

below, reduces the potential for 

manipulation of the Shares through 

manipulation of the Index or any of its 

individual constituents, again 

emphasizing that a potential 

manipulator of the Shares would have 

to manipulate the entirety of the bitcoin 

spot market, which is led by the Bitcoin 

Futures market. 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 also believes 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 

significant volume in the Bitcoin 

Futures market, the size of bitcoin’s 

market cap (approximately $1 trillion), 

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 

CoinRoutes from February 2021, the 

cost to buy or sell $5 million worth of 

bitcoin averages roughly 10 basis points 

with a market impact of 30 basis 

points.77 For a $10 million market order, 

the cost to buy or sell is roughly 20 basis 

points with a market impact of 50 basis 

points. Stated another way, a market 

participant could enter a market buy or 

sell order for $10 million of bitcoin and 

only move the market 0.5%. 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 Bitcoin Futures leading 

price discovery, the overall size of the 

bitcoin market, and the ability for 

market participants, including 

authorized participants creating and 

redeeming in-kind with the Trust, to 

buy or sell large amounts of bitcoin 

without significant market impact will 

help prevent the Shares from becoming 

the predominant force on pricing in 

either the bitcoin spot or 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 believes that such conditions 

are present. Specifically, the significant 

liquidity in the spot market and the 

impact of market orders on the overall 

price of bitcoin mean that attempting to 

move the price of bitcoin is costly and 

has grown more expensive over the past 

year. In January 2020, for example, the 

cost to buy or sell $5 million worth of 

bitcoin averaged roughly 30 basis points 

(compared to 10 basis points in 2/2021) 

with a market impact of 50 basis points 

(compared to 30 basis points in 

2/2021).78 For a $10 million market 

order, the cost to buy or sell was 

roughly 50 basis points (compared to 20 

basis points in 2/2021) with a market 

impact of 80 basis points (compared to 

50 basis points in 2/2021). As the 

liquidity in the bitcoin spot market 

increases, it follows that the impact of 

$5 million and $10 million orders will 

continue to decrease the overall impact 

in spot price. 


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79While the Index will not be particularly 

important for the creation and redemption process, 

it will be used for calculating fees. 

Additionally, offering in-kind creation 

and redemption will provide unique 

protections against potential attempts to 

manipulate the Shares. While the 

Sponsor believes that the independently 

calculated Index 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 available 

in-kind makes the manipulability of the 

Index 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.79 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 Index because there 

is little financial incentive to do so. 

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 

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 Index, 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 third-party 

financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. Eastern time). 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 

value of the Index will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

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 Index. 

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. 

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 


jbell on DSKJLSW7X2PROD with NOTICES
29334 Federal Register / Vol. 86, No. 103 / Tuesday, June 1, 2021 / Notices 

80 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 91482 

(April 6, 2021), 86 FR 19067. 

4Comments received on the proposed rule change 

are available at: https://www.sec.gov/comments/srcboe-2021-020/srcboe2021020.htm. 

5 15 U.S.C. 78s(b)(2). 

6 Id. 

7 17 CFR 200.30–3(a)(31). 

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

2 17 CFR 240.19b–4. 

3On May 12, 2021, FICC filed this proposed rule 

change as an advance notice (SR–FICC–2021–801) 

with the Commission pursuant to Section 806(e)(1) 

of Title VIII of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act entitled the Payment, 

Clearing, and Settlement Supervision Act of 2010, 

12 U.S.C. 5465(e)(1), and Rule 19b–4(n)(1)(i) under 

the Act, 17 CFR 240.19b–4(n)(1)(i). A copy of the 

advance notice is available at http://www.dtcc.com/ 

legal/sec-rule-filings.aspx. 

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. 

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–2021–039 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–2021–039. 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–2021–039 and 

should be submitted on or before June 

22, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.80

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11402 Filed 5–28–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92011; File No. SR–CBOE– 

2021–020] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Designation 

of a Longer Period for Commission 

Action on a Proposed Rule Change To 

Adopt Rule 6.10 To Introduce a 

Voluntary Compression Service 

May 25, 2021. 

On March 24, 2021, Cboe Exchange, 

Inc. (the ‘‘Exchange’’ or ‘‘Cboe 

Options’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change to adopt Rule 6.10 

to introduce a voluntary compression 

service for Market Makers. The 

proposed rule change was published for 

comment in the Federal Register on 

April 12, 2021.3 The Commission has 

received two comment letters on the 

proposed rule change.4

Section 19(b)(2) of the Act 5 provides 

that, within 45 days of the publication 

of notice of the filing of a proposed rule 

change, or within such longer period up 

to 90 days as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or as to which the 

self-regulatory organization consents, 

the Commission shall either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day after 

publication of the notice for this 

proposed rule change is May 27, 2021. 

The Commission is extending the 45- 

day time period for Commission action 

on the proposed rule change. The 

Commission finds that it is appropriate 

to designate a longer period within 

which to take action on the proposed 

rule change so that it has sufficient time 

to consider the novel proposed rule 

change, including the comments 

received thereon. Accordingly, pursuant 

to Section 19(b)(2) of the Act,6 the 

Commission designates July 11, 2021, as 

the date by which the Commission shall 

either approve or disapprove, or 

institute proceedings to determine 

whether to disapprove, the proposed 

rule change (File No. SR–CBOE–2021– 

020). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–11404 Filed 5–28–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92014; File No. SR–FICC– 

2021–003] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Add the Sponsored GC Service and 

Make Other Changes 

May 25, 2021. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on May 12, 

2021, Fixed Income Clearing 

Corporation (‘‘FICC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the clearing agency.3 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

The proposed rule change consists of 

modifications to the FICC Government 


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