[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Notices]
[Pages 45554-45573]
[FR Doc No: 2016-16604]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78262; File No. SR-BatsBZX-2016-30]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change to BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares, To List and Trade Winklevoss Bitcoin Shares Issued
by the Winklevoss Bitcoin Trust

July 8, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 30, 2016, Bats BZX Exchange, Inc. (the ``Exchange''
or ``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange filed a proposal to list and trade Winklevoss Bitcoin
Shares (the ``Shares'') issued by the Winklevoss Bitcoin Trust (the
``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares.
    The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the 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 parts of such
statements.

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

1. Purpose
    The Exchange 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\ The Shares will be offered by
the Trust, which was established as a Delaware statutory trust on
December 30, 2014. The Trust will not be registered as an investment

company under the Investment Company Act of 1940 \6\ and is not
required to register under such act. The Trust will not be a commodity
pool for purposes of the Commodity Exchange Act (``CEA'').\7\ The
Shares of the Trust will be registered with the Commission by means of
the Trust's registration statement on Form S-1 (the ``Registration
Statement'') under the Securities Act of 1933 (the ``Securities Act'').
The most recent amendment to the Registration Statement was filed on
June 29, 2016 and the Registration Statement will be effective as of
the date of any offer and sale pursuant to the Registration
Statement.\8\
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    \4\ The 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).
    \5\ All 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.
    \6\ 15 U.S.C. 80a-1.
    \7\ 17 U.S.C. 1.
    \8\ See Registration Statement on Form S-1, dated June 29, 2016
(File No. 333-189752). The descriptions of the Trust and the Shares
contained herein are based, in part, on information in the
Registration Statement.
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Service providers of the Trust
    Digital Asset Services, LLC, formerly Math-Based Asset Services,
LLC, will be the sponsor of the Trust (the ``Sponsor'').\9\ The Trust's
administrator (the ``Administrator'') \10\ and trust agency service
provider (the ``Trust Agency Service Provider'') will be the same
entity.\11\ Gemini Trust Company, LLC will be the custodian of the
Trust (the ``Custodian'').\12\ The Custodian is a New York State-
chartered limited liability trust company that operates under the
direct supervision and regulatory authority of the NYSDFS. The
Custodian is a fiduciary and must meet the capitalization, compliance,
anti-money laundering, consumer protection and cyber security
requirements as set forth by the NYSDFS. The Custodian will hold the
bitcoin deposited with the Custodian on behalf of the Trust in a
segregated custody account (the ``Trust Custody Account'') in
accordance with the Trust Custody Agreement. The Custodian will use its
proprietary and patent-pending offline (i.e., air-gapped) Cold Storage
System to store the Trust's bitcoin, as further described herein.
Delaware Trust Company acts as the trustee of the Trust (the
``Trustee'').\13\
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    \9\ The Sponsor is a Delaware limited liability company formed
on May 9, 2013, and is wholly-owned by Winklevoss Capital Management
LLC. Under the Delaware Limited Liability Company Act and the
governing documents of the Sponsor, Winklevoss Capital Management
LLC, the sole member of the Sponsor, is not responsible for the
debts, obligations and liabilities of the Sponsor solely by reason
of being the sole member of the Sponsor. The Sponsor will be the
exclusive licensee, within the field of use of operation of an
exchange-traded product (``ETP''), of certain patent-pending
intellectual property regarding the operation of the Trust.
Winklevoss IP LLC, an affiliate of the Sponsor, is the owner of and
is licensing to the Sponsor such intellectual property for use by
the Trust and the Custodian and other service providers in the
operation of the Trust. The Sponsor arranged for the creation of the
Trust and will arrange for the registration of the Shares for their
public offering in the United States and their listing on the
Exchange.
    \10\ The Administrator is generally responsible for the day-to-
day administration of the Trust under the trust servicing agreement
(``Trust Servicing Agreement'') and in accordance with the
provisions of the trust agreement (``Trust Agreement''). This
includes (1) assisting the Sponsor in receiving and processing
orders from authorized participants (``Authorized Participants'') to
create and redeem blocks of 50,000 Shares (a block of 50,000 Shares
is called a ``Basket'') and coordinating the processing of such
orders with the Trust Agency Service Provider (which, in this case
is, or is affiliated with, the Administrator) and The Depository
Trust Company (``DTC''), (2) calculating the net asset value per
Share (``NAV''), (3) instructing the Custodian to transfer the
Trust's bitcoin as needed to pay the remuneration due to the Sponsor
(``Sponsor's Fee'') in bitcoin (such Bitcoin transfers are expected
to occur approximately monthly in the ordinary course), (4)
instructing the Custodian to transfer the Trust's bitcoin as needed
to pay any extraordinary Trust expenses that are not assumed by the
Sponsor and (5) selling or directing the sale of the Trust's
remaining bitcoin in the event of termination of the Trust and
distributing the cash proceeds to the owners of beneficial interests
in the Shares (``Shareholders'') of record.
    \11\ The Trust Agency Service Provider is authorized by the
Sponsor under the Trust Agreement to serve as the transfer agent in
accordance with the provisions of the Trust Agency Service Provider
Agreement. The Trust Agency Service Provider, among other things,
provides transfer agent services with respect to the creation and
redemption of Baskets by Authorized Participants. The Trust Agency
Service Provider is, or is affiliated with, the Administrator.
    \12\ The Custodian is an affiliate of the Sponsor and a New York
State-chartered limited liability trust company that operates under
the direct supervision and regulatory authority of the New York
State Department of Financial Services (``NYSDFS''). Although the
Trust's bitcoin is not stored in a physical sense, all transactions
involving the Trust's bitcoin are recorded on the Bitcoin Network's
Blockchain and associated with a public Bitcoin address. The Trust's
public Bitcoin addresses are established by the Custodian using its
proprietary hardware and software security technology (``Cold
Storage System''), which holds the Trust's bitcoin and permits the
Trust to move its bitcoin. Access and control of those Bitcoin
addresses, and the bitcoin associated with them, is restricted
through the public-private key pair relating to each Bitcoin
address. The Custodian is responsible for the safekeeping of the
Trust's private keys used to access and transfer the Trust's
bitcoin. The Custodian also facilitates the transfer of bitcoin in
accordance with the Administrator's instructions pursuant to the
terms of the Trust Servicing Agreement. Pursuant to the terms of the
Trust Agreement and the trust custody agreement (``Trust Custody
Agreement''), the Custodian will store all of the Trust's bitcoin on
a segregated basis in its unique Bitcoin addresses with balances
that can be directly verified on the Blockchain. It will provide the
Trust's public Bitcoin addresses to the Administrator. Pursuant to
the provisions of the Trust Custody Agreement, the Custodian will
use the Cold Storage System to manage and safeguard a system
utilizing numerous Bitcoin addresses that are kept offline either
(i) in computers that are not directly connected to or accessible
from the internet or (ii) through the storage of the public and
private keys relating to such Bitcoin addresses only in ``cold
storage.''
    \13\ The Trustee, a Delaware trust company, acts as the trustee
of the Trust for the purpose of creating a Delaware statutory trust
in accordance with the Delaware Statutory Trust Act (``DSTA''). The
duties of the Trustee will be limited to (i) accepting legal process
served on the Trust in the State of Delaware and (ii) the execution
of any certificates required to be filed with the Delaware Secretary
of State which the Delaware Trustee is required to execute under the
DSTA. To the extent that, at law or in equity, the Trustee has
duties (including fiduciary duties) and liabilities relating thereto
to the Trust or the Shareholders, such duties and liabilities will
be replaced by the duties and liabilities of the Trustee expressly
set forth in the Trust Agreement.
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    The Trust will only hold bitcoin, which is a digital commodity \14\
that is not issued by any government, bank or central organization.
Bitcoin is a digital asset (``Digital Asset'') based on the
decentralized, open source protocol of the peer-to-peer Bitcoin
computer network (the ``Bitcoin Network'' or ``Bitcoin'') \15\ that
hosts the decentralized public transaction ledger, known as the
``Blockchain,'' on which all bitcoin is recorded. The Bitcoin Network
software source code includes the protocols that govern the creation of
bitcoin and the cryptographic system that secures and verifies Bitcoin
transactions.
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    \14\ Bitcoin is a commodity as defined in Section 1a(9) of the
Commodity Exchange Act. 7 U.S.C. 1a(9). See In re Coinflip, Inc.,
No. 15-29 (CFTC Sept. 17, 2015), available at<EMAIL_ADDRESS>(``Coinflip'').
    \15\ By common convention, Bitcoin with a capital ``B''
typically refers to the Bitcoin Network as a whole, whereas bitcoin
with a lowercase ``b'' refers to the Digital Asset of the Bitcoin
Network, including the Trust's bitcoin. This naming convention is
used throughout this document.
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    The Trust is expected to issue and redeem Shares from time to time
only in one or more whole Baskets. Certain Authorized Participants are
the only persons that may place orders to create or redeem Baskets.
Authorized Participants or their affiliated market makers are expected
to have the facility to participate directly on one or more Bitcoin
Exchanges (as defined below).
    The investment objective of the Trust is for the Shares to track
the price of bitcoin, as measured by the spot price at 4:00 p.m.
Eastern time on the Gemini exchange (``Gemini Exchange'') (the ``Gemini
Exchange Spot Price''), each day the Exchange is open for trading (each
a ``Business Day''), less the Trust's liabilities (which include
accrued but unpaid fees and expenses). The Gemini Exchange is a Digital
Asset exchange owned and operated by the Custodian and is an affiliate
of the Sponsor. The Gemini Exchange does not receive any compensation
from the Trust or the Sponsor for providing the Gemini

Exchange Spot Price. The Sponsor believes that, for many investors, the
Shares will represent a cost-effective and convenient means of gaining
investment exposure to bitcoin similar to a direct investment in
bitcoin. The Shares represent units of fractional undivided beneficial
interest in and ownership of the Trust and are expected to be traded
under the ticker symbol ``COIN'' on the Exchange.
Overview of the Bitcoin Industry and Market
    Bitcoin is a Digital Asset that is issued by, and transmitted
through, the decentralized, open source protocol of the peer-to-peer
Bitcoin Network. The Bitcoin Network hosts the decentralized public
transaction ledger, known as the Blockchain, on which all bitcoin is
recorded. No single entity owns or operates the Bitcoin Network, the
infrastructure of which is collectively maintained by a decentralized
user base. Bitcoin can be used to pay for goods and services or can be
converted to fiat currencies, such as the U.S. Dollar, at rates
determined on bitcoin exchanges (each a ``Bitcoin Exchange'') \16\ or
in individual end-user-to-end-user transactions under a barter system.
See ``Uses of Bitcoin--Bitcoin Exchange Market,'' below.
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    \16\ The Gemini Exchange is a United States-based Bitcoin
Exchange that began trading on October 8, 2015. It is currently
operational in 31 states and Washington, DC and allows trading
between Bitcoin, U.S. Dollars, and other Digital Assets.
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    Bitcoin is ``stored'' or reflected on the Blockchain, which is a
digital file stored in a decentralized manner on the computers of each
Bitcoin Network user. The Bitcoin Network software source code includes
the protocols that govern the creation of bitcoin and the cryptographic
system that secures and verifies Bitcoin transactions. The Blockchain
is a canonical record of every bitcoin, every Bitcoin transaction
(including the creation or ``mining'' of new bitcoin) and every Bitcoin
address associated with a quantity of bitcoin. The Bitcoin Network and
Bitcoin Network software programs can interpret the Blockchain to
determine the exact bitcoin balance, if any, of any public Bitcoin
address listed in the Blockchain as having taken part in a transaction
on the Bitcoin Network. The Bitcoin Network utilizes the Blockchain to
evidence the existence of bitcoin in any public Bitcoin address. A
Bitcoin private key controls the transfer or ``spending'' of bitcoin
from its associated public Bitcoin address. A Bitcoin ``wallet'' is a
collection of private keys and their associated public Bitcoin
addresses.
    The Blockchain is comprised of a digital file, downloaded and
stored, in whole or in part, on all Bitcoin Network users' software
programs. The file includes all blocks that have been solved by miners
and is updated to include new blocks as they are solved. See ``Bitcoin
Mining & Creation of New Bitcoin.'' As each newly solved block refers
back to and ``connects'' with the immediately prior solved block, the
addition of a new block adds to the Blockchain in a manner similar to a
new link being added to a chain. Each new block records outstanding
Bitcoin transactions, and outstanding transactions are settled and
validated through such recording. The Blockchain represents a complete,
transparent and unbroken history of all transactions of the Bitcoin
Network. Each Bitcoin transaction is broadcast to the Bitcoin Network
and recorded in the Blockchain.
    The Bitcoin Network is decentralized and does not rely on either
governmental authorities or financial institutions to create, transmit
or determine the value of bitcoin. Rather, bitcoin is created and
allocated by the Bitcoin Network protocol through a ``mining'' process
subject to a strict, well-known issuance schedule. The value of bitcoin
is determined by the supply of and demand for bitcoin in the ``Bitcoin
Exchange Market'' \17\ (and in private end-user-to-end-user
transactions), as well as the number of merchants that accept them. As
Bitcoin transactions can be broadcast to the Bitcoin Network by any
user's Bitcoin Network software and bitcoin can be transferred without
the involvement of intermediaries or third parties, there are currently
little or no transaction fees in direct peer-to-peer transactions on
the Bitcoin Network. Third party service providers such as Bitcoin
Exchanges and third-party Bitcoin payment processing services may
charge fees for processing transactions and for converting, or
facilitating the conversion of, bitcoin to or from fiat currency.
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    \17\ For purposes of this filing, the term Bitcoin Exchange
Market means the global Bitcoin Exchange Market for the trading of
bitcoin, which consists of transactions on various electronic
Bitcoin Exchanges.
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    The Bitcoin Network was initially contemplated in a white paper
that also described bitcoin and the operating software to govern the
Bitcoin Network. The white paper was purportedly authored by Satoshi
Nakamoto; however, no individual with that name has been reliably
identified as Bitcoin's creator, and the general consensus is that the
name is a pseudonym for the actual inventor or inventors. The first
bitcoin was created in 2009 after Nakamoto released the Bitcoin Network
source code (the software and protocol that created and launched the
Bitcoin Network). Since its introduction, the Bitcoin Network has been
under active development by a group of contributors currently headed by
Wladimir J. van der Laan who was appointed project maintainer in April
2014 by Gavin Andresen (who was previously appointed maintainer by
Satoshi Nakamoto in 2010). As an open source project, Bitcoin is not
represented by an official organization or authority.
Overview of the Bitcoin Network's Operations
    In order to own, transfer or use bitcoin, a person generally must
have Internet access to connect to the Bitcoin Network. Bitcoin
transactions may be made directly between end-users without the need
for a third-party intermediary, although there are entities that
provide third-party intermediary services. To prevent the possibility
of double-spending bitcoin, a user must notify the Bitcoin Network of
the transaction by broadcasting the transaction data to its network
peers. The Bitcoin Network provides confirmation against double-
spending by memorializing every transaction in the Blockchain, which is
publicly accessible and transparent. This memorialization and
verification against double-spending is accomplished through the
Bitcoin Network mining process, which adds ``blocks'' of data,
including recent transaction information, to the Blockchain. See
``Cryptographic Security Used in the Bitcoin Network--Double-Spending
and the Bitcoin Network Confirmation System,'' below.
Brief Description of Bitcoin Transfers
    Prior to engaging in Bitcoin transactions, a user generally must
first install on its computer or mobile device a Bitcoin Network
software program that will allow the user to generate a private and
public key pair associated with a Bitcoin address (analogous to a
Bitcoin account). The Bitcoin Network software program and the Bitcoin
address also enable the user to connect to the Bitcoin Network and
engage in the transfer of bitcoin with other users. The computer of a
user that downloads a version of the Bitcoin Network software program
will become a ``node'' on the Bitcoin Network that assists in
validating and relaying transactions from other users. See
``Cryptographic Security Used in the Bitcoin Network--Double-Spending
and the Bitcoin Network Confirmation System,'' below. Alternatively, a
user

may retain a third party to create a Bitcoin address, or collection of
Bitcoin addresses known as a digital wallet to be used for the same
purpose. There is no limit on the number of Bitcoin addresses a user
can have, and each such Bitcoin address consists of a ``public key''
and a ``private key,'' which are mathematically related. See
``Cryptographic Security Used in the Bitcoin Network--Public and
Private Keys,'' below.
    In a Bitcoin transaction, the bitcoin recipient must provide its
public Bitcoin address, which serves as a routing number for the
recipient on the Blockchain, to the party initiating the transfer. This
activity is analogous to a recipient providing a routing address in
wire instructions to the payor so that cash may be wired to the
recipient's account. The recipient, however, does not make public or
provide to the sender its related private key. The payor, or
``spending'' party, does reveal its public key in signing and verifying
its spending transaction to the Blockchain.
    Neither the recipient nor the sender reveal their public Bitcoin
addresses' private key in a transaction, because the private key
authorizes access to, and transfer of, the funds in that Bitcoin
address to other users. Therefore, if a user loses his private key, the
user permanently loses access to the bitcoin contained in the
associated Bitcoin address. Likewise, bitcoin is irretrievably lost if
the private key associated with them is deleted and no backup has been
made. When sending bitcoin, a user's Bitcoin Network software program
must ``sign'' the transaction with the associated private key. The
resulting digitally signed transaction is sent by the user's Bitcoin
Network software program to the Bitcoin Network to allow transaction
confirmation. The digital signature serves as validation that the
transaction has been authorized by the holder of the Bitcoin addresses'
private key. This signature process is typically automated by software
that has access to the public and private keys.
Summary of a Bitcoin Transaction
    In a Bitcoin transaction between two parties, the following
circumstances must be in place: (i) The party seeking to send bitcoin
must have a public Bitcoin address and the Bitcoin Network must
recognize that public Bitcoin address as having sufficient bitcoin for
the spending transaction; (ii) the receiving party must have a public
Bitcoin address; and (iii) the spending party must have Internet access
with which to send its spending transaction.
    Next, the receiving party must provide the spending party with its
public Bitcoin address, an identifying series of twenty-seven (27) to
thirty-four (34) alphanumeric characters that represents the routing
number on the Bitcoin Network and allow the Blockchain to record the
sending of bitcoin to that public Bitcoin address. The receiving party
can provide this address to the spending party in alphanumeric format
or an encoded format such as a Quick Response Code (commonly known as a
QR Code), which may be scanned by a smartphone or other device to
quickly transmit the information.
    After the provision of a recipient's public Bitcoin address, the
spending party must enter the address into its Bitcoin Network software
program along with the number of bitcoin to be sent. The number of
bitcoin to be sent will typically be agreed upon between the two
parties based on a set number of bitcoin or an agreed upon conversion
of the value of fiat currency to bitcoin. Most Bitcoin Network software
programs also allow, and often suggest, the payment of a transaction
fee (also known as a miner's fee). Transaction fees are not required to
be included by many Bitcoin Network software programs, but, when they
are included, they are paid by the spending party on top of the
specified amount of bitcoin being sent in the transaction. Transaction
fees, if any, are typically a fractional number of bitcoin (e.g., 0.005
or 0.0005 bitcoin) and are automatically transferred by the Bitcoin
Network to the Bitcoin Network miner that solves and adds the block
recording the spending transaction on the Blockchain.
    After the entry of the Bitcoin address, the number of bitcoin to be
sent and the transaction fees, if any, to be paid, the spending party
will transmit the spending transaction. The transmission of the
spending transaction results in the creation of a data packet by the
spending party's Bitcoin Network software program, which data packet
includes data showing (i) the destination public Bitcoin address, (ii)
the number of bitcoin being sent, (iii) the transaction fees, if any,
and (iv) the spending party's digital signature, verifying the
authenticity of the transaction. The data packet also includes
references called ``inputs'' and ``outputs,'' which are used by the
Blockchain to identify the source of the bitcoin being spent and record
the flow of bitcoin from one transaction to the next transaction in
which the bitcoin is spent. The digital signature exposes the spending
party's public Bitcoin address and public key to the Bitcoin Network,
though, for the receiving party, only its public Bitcoin address is
revealed. The spending party's Bitcoin Network software will transmit
the data packet onto the decentralized Bitcoin Network, resulting in
the propagation of the information among the software programs of
Bitcoin users across the Bitcoin Network for eventual inclusion in the
Blockchain. Typically, the data will spread to a vast majority of
Bitcoin Network miners within the course of less than a minute.
    As discussed in greater detail below in ``Bitcoin Mining & Creation
of New Bitcoin,'' Bitcoin Network miners record transactions when they
solve for and add blocks of information to the Blockchain. When a miner
solves for a block, it creates that block, which includes data relating
to (i) the solution to the block, (ii) a reference to the prior block
in the Blockchain to which the new block is being added and (iii)
transactions that have occurred but have not yet been added to the
Blockchain. The miner becomes aware of outstanding, unrecorded
transactions through the data packet transmission and propagation
discussed above. Typically, Bitcoin transactions will be recorded in
the next chronological block if the spending party has an Internet
connection and at least one (1) minute has passed between the
transaction's data packet transmission and the solution of the next
block. If a transaction is not recorded in the next chronological
block, it is usually recorded in the next block thereafter.
    Upon the addition of a block included in the Blockchain, the
Bitcoin Network software program of both the spending party and the
receiving party will show confirmation of the transaction on the
Blockchain and reflect an adjustment to the bitcoin balance in each
party's public Bitcoin address, completing the bitcoin transaction.
Typically, Bitcoin Network software programs will automatically check
for and display additional confirmations of six or more blocks in the
Blockchain. See ``Cryptographic Security Used in the Bitcoin Network--
Double-Spending and the Bitcoin Network Confirmation System.''
Cryptographic Security Used in the Bitcoin Network
Public and Private Keys
    The Bitcoin Network uses sophisticated cryptography to maintain the
integrity of the Blockchain ledger. Transactions are digitally signed
by their senders. Before adding a transaction to a block, miners will
verify both that the sender has not already

spent the bitcoin being sent and that the digital signature information
in the transaction is valid. Besides the requirement of containing only
valid transactions (as described in the preceding sentence), blocks are
validated by means of properties of their cryptographic hashes. By
extension, blocks in the Blockchain can be validated by verifying that
each block contains the cryptographic hash of the prior block. The
cryptographic algorithms and cryptographic parameters, including key
sizes, used by the Bitcoin Network provide adequate security for the
foreseeable future.
Double-Spending and the Bitcoin Network Confirmation System
    To ensure the integrity of Bitcoin transactions from the
recipient's side (i.e., to prevent double-spending by a spending
party), every Bitcoin transaction is broadcast to the Bitcoin Network
and recorded in the Blockchain through the ``mining'' process, which
time-stamps the transaction and memorializes the change in the
ownership of bitcoin transferred. See ``Bitcoin Mining & Creation of
New Bitcoin,'' below. Adding a block to the Blockchain requires Bitcoin
Network miners to exert significant computational effort. Requiring
this ``proof of work'' prevents a malicious actor from either adding
fraudulent blocks to generate bitcoin (i.e., counterfeit bitcoin) or
overwriting existing valid blocks to reverse prior transactions.
    A Bitcoin transaction between two parties is recorded in the
Blockchain in a block only if that block is accepted as valid by a
majority of the nodes on the Bitcoin Network. Validation of a block is
achieved by confirming the cryptographic hash value included in the
block's solution and by the block's addition to the longest confirmed
Blockchain on the Bitcoin Network. For a transaction, inclusion in a
block on the Blockchain constitutes a ``confirmation'' of a Bitcoin
transaction. As each block contains a reference to the immediately
preceding block, additional blocks appended to and incorporated into
the Blockchain constitute additional confirmations of the transactions
in such prior blocks, and a transaction included in a block for the
first time is confirmed once against double-spending. The layered
confirmation process makes changing historical blocks (and reversing
transactions) exponentially more difficult the further back one goes in
the Blockchain. Bitcoin Exchanges and users can set their own threshold
as to how many confirmations they require until funds from the
transferor are considered valid.
    To undo past transactions in a block recorded on the Blockchain, a
malicious actor would have to exert tremendous hashrate in resolving
each block in the Blockchain starting with and after the target block
and broadcasting all such blocks to the Bitcoin Network. The Bitcoin
Network is generally programmed to consider the longest Blockchain
containing solved blocks to be the most accurate Blockchain. In order
to undo multiple layers of confirmation and alter the Blockchain, a
malicious actor must resolve all of the old blocks sought to be
regenerated and be able to continuously add new blocks to the
Blockchain at a speed that would have to outpace that of all of the
other miners on the Bitcoin Network, who would be continuously solving
for and adding new blocks to the Blockchain. Given the size and speed
of the Bitcoin Network, it is generally agreed that the cost of
amassing such computational power exceeds the profit to be obtained by
double-spending or attempting to fabricate prior blocks.
    If a malicious actor is able to amass ten (10) percent of the
Bitcoin Network's aggregate hashrate, there is estimated to be a 0.1
percent chance that it would be able to overcome six (6) confirmations.
Therefore, given the difficulty in amassing such hashrate, six (6)
confirmations is an often-cited standard for the validity of
transactions. The Trust has adopted a policy whereby a transaction will
be deemed confirmed upon this industry standard of six (6)
confirmations (the ``Confirmation Protocol''). As one (1) block is
added to the Blockchain approximately every six (6) to twelve (12)
minutes, a Bitcoin transaction will be, on average, confirmed using the
Confirmation Protocol beyond a reasonable doubt in approximately one
(1) hour. Merchants selling high-value goods and services, as well as
Bitcoin Exchanges and many experienced users, are believed to generally
use the six (6) confirmations standard. This confirmation system,
however, does not mean that merchants must always wait for multiple
confirmations for transactions involving low-value goods and services.
As discussed below, the value of a successful double-spending attack
involving a low-value transaction may, and perhaps likely will, be
significantly less than the cost involved in arranging and executing
such double-spending attacks. Furthermore, merchants engaging in low-
value transactions may then view the reward of quicker transaction
settlements with limited or no Blockchain confirmation as greater than
the related risk of not waiting for six (6) confirmations with respect
to low-value transactions at points of sale. Conversely, for high-value
transactions that are not time sensitive, additional settlement
security can be provided by waiting for more than six (6)
confirmations.
Bitcoin Mining & Creation of New Bitcoin
Mining Process
    The process by which bitcoin is ``mined'' results in new blocks
being added to the Blockchain and new bitcoin being issued to the
miners. Bitcoin Network miners engage in a set of prescribed complex
mathematical calculations in order to add a block to the Blockchain and
thereby confirm Bitcoin transactions included in that block's data.
Miners that are successful in adding a block to the Blockchain are
automatically awarded a fixed number of bitcoin for their effort. This
reward system is the method by which new bitcoin enter into circulation
to the public and is accomplished in the added block through the
notation of the new bitcoin creation and their allocation to the
successful miner's public Bitcoin address. To begin mining, a user can
download and run Bitcoin Network mining software, which, like regular
Bitcoin Network software programs, turns the user's computer into a
``node'' on the Bitcoin Network that validates blocks. See ``Overview
of the Bitcoin Network's Operations,'' above.
    All Bitcoin transactions are recorded in blocks added to the
Blockchain. Each block contains (i) the details of some or all of the
most recent transactions that are not memorialized in prior blocks,
(ii) a reference to the most recent prior block, and (iii) a record of
the award of bitcoin to the miner who added the new block. In order to
add blocks to the Blockchain, a miner must map an input data set (i.e.,
a reference to the immediately preceding block in the Blockchain, plus
a block of the most recent Bitcoin Network transactions and an
arbitrary number called a ``nonce'') to a desired output data set of
predetermined length (``hash value'') using a cryptographic hash
algorithm. To ``solve'' or ``calculate'' a block, a miner must repeat
this computation with a different nonce until the miner generates a
hash of a block's header that has a value less than or equal to the
current target set by the Bitcoin Network. Each unique block can only
be solved and added to the Blockchain by one (1) miner; therefore, all
individual miners and mining pools on the Bitcoin

Network are engaged in a competitive process and are incentivized to
increase their computing power to improve their likelihood of solving
for new blocks.
    The cryptographic hash function that a miner uses is one-way only
and is, in effect, irreversible: Hash values are easy to generate from
input data (i.e., valid recent network transactions, Blockchain and
nonce), but neither a miner nor participant is able to determine the
original input data solely from the hash value. As a result, generating
a new valid block with a header value less than or equal to the target
prescribed by the Bitcoin Network is initially difficult for a miner,
yet other nodes can easily confirm a proposed block by running the hash
function just once with the proposed nonce and other input data. A
miner's proposed block is added to the Blockchain once a majority of
the nodes on the Bitcoin Network confirms the miner's work, and the
miner that solved such block receives the reward of a fixed number of
bitcoin (plus any transaction fees paid by spenders of transactions
that are recorded in the block). Therefore, ``hashing'' is akin to a
mathematical lottery, and miners that have devices with greater
processing power (i.e., the ability to make more hash calculations per
second) are more likely to be successful miners because they can
generate more hashes or ``entries'' into that lottery.
    As more miners join the Bitcoin Network and its aggregate hashrate
increases, the Bitcoin Network automatically adjusts the complexity of
the block-solving equation in an effort to set distribution such that
newly-created blocks will be added to the Blockchain, on average,
approximately every ten (10) minutes. Hashrate is added to the Bitcoin
Network at irregular rates that have grown with increasing speed since
early 2013, though the rate of additional mining power slowed steadily
through 2014, until the computational speed of the network temporarily
and marginally declined during December 2014. The following chart,
sourced from Bitcoin.sipa.be, shows the estimated growth of the Bitcoin
Network's computational power from the first calendar quarter in 2009
to the first calendar quarter in 2016.
[GRAPHIC] [TIFF OMITTED] TN14JY16.002

    The rapid growth of the computational power of the Bitcoin Network
means that blocks are typically solved faster than the Bitcoin
protocol's target of, on average, approximately every ten (10) minutes.
Although the difficulty of the mining process is adjusted on a periodic
basis, after 2,016 blocks have been added to the Blockchain since the
last adjustment, the average solution time for a block has been
approximately 9.3 minutes for the one hundred and eighty (180) days
prior to and including May 1, 2016.
Incentives for Mining
    Miners dedicate substantial resources to mining. Given the
increasing difficulty of the target established by the Bitcoin Network,
current miners must invest in expensive mining devices with adequate
processing power to hash at a competitive rate. The first mining
devices were standard home computers; however, mining computers are
currently designed solely for mining purposes. Such devices include
application specific integrated circuit (``ASIC'') machines built by
specialized companies such as BitFury. Miners also incur substantial
electricity costs in order to continuously power and cool their devices
while solving for a new block. In June 2013, blockchain.info estimated
that the aggregate electricity costs of mining across the Bitcoin
Network exceeded $300,000 every twenty-four (24) hours. Although
variables such as the rate and cost of electricity are estimated, as of
September 1, 2013, blockchain.info had revised upward the average 24-
hour electricity cost of all mining on the Bitcoin Network to more than
$1.5 million. In late 2013, blockchain.info ceased publishing estimated
electric consumption on the Bitcoin Network, in

part due to uncertainty in estimating electrical usage as newer, more
energy efficient mining hardware became prevalent. As of May 2016, over
the past year, two (2) years, and three (3) years, the aggregate
hashrate of the Bitcoin Network has increased more than 3.76-fold,
22.33-fold and 17,730-fold, respectively, due in part to the
development of more energy efficient ASIC mining chips and, during the
second half of 2013, the substantial increase in the price of bitcoin.
Additionally, it can be estimated that the scale of total computing
resources devoted to mining on the Bitcoin Network is commensurate with
the total rewards, which was approximately $1.6 million U.S. dollars
per day as of May 1, 2016.
    The Bitcoin Network is designed in such a way that the reward for
adding new blocks to the Blockchain decreases over time and the
production (and reward) of bitcoin will eventually cease. Once such
reward ceases, it is expected that miners will demand compensation in
the form of transaction fees to ensure that there is adequate incentive
for them to continue mining. The amount of transaction fees will be
based upon the need to provide sufficient revenue to incentivize
miners, counterbalanced by the need to retain sufficient Bitcoin
Network users (and transactions) to make mining profitable.
    Though not free from doubt, Bitcoin industry participants have
expressed a belief that transaction fees would be enforced through (i)
mining operators collectively refusing to record transactions that do
not include a payment of a transaction fee or (ii) the updating of
Bitcoin Network software to require a minimum transaction fee payment.
Indeed, most miners already have a policy regarding transactions fees,
albeit the minimum fees are currently low under such policies. Under a
regime whereby large miners require fees to record transactions, a
transaction where the spending party did not include a payment of
transaction fees would not be recorded on the Blockchain until a miner
who does not require transaction fees solves for a new block (thereby
recording all outstanding transaction records for which it has received
data). If popular Bitcoin Network software were to require a minimum
transaction fee, users of such programs would be required to include
such fees; however, because of the open-source nature of the Bitcoin
Network, there may be no way to require that all software instances
include minimum transaction fees for spending transactions.
Alternatively, a future Bitcoin Network software update could simply
build a small transaction fee payment into all spending transactions
(e.g., by deducting a fractional number of bitcoin from all
transactions on the Bitcoin Network as transaction fees).
    The Bitcoin Network protocol already includes transaction fee rules
and the mechanics for awarding transaction fees to the miners that
solve for blocks in which the fees are recorded; however, users
currently may opt not to pay transaction fees (depending on the Bitcoin
Network software they use) and miners may choose not to enforce the
transaction fee rules since, at present, the bitcoin rewards are far
more substantial than transaction fees. As of April 2016, transaction
fees accounted for an average of 1.44 percent of miners' total revenue
based upon information available at www.blockchain.info, though the
percentage of revenue represented by transaction fees is not static and
fluctuates based on the number of transactions for which sending users
include transaction fees, the levels of those transaction fees and the
number of transactions a miner includes in its solved blocks.
Typically, transactions do not have difficulty being recorded if
transaction fees are not included.
Mining Pools
    A miner's daily expected reward is proportional to their
contribution to the Bitcoin Network's aggregate hashrate. Given the
limited number of blocks produced per day and the statistically
uncertain nature of finding blocks, a small miner acting alone would
experience very high variance in block rewards. Because of this fact
most miners join mining pools wherein multiple miners act cohesively
and share any rewards.
    According to blockchain.info, as of April 28, 2016, the largest
three (3) known mining pools were AntPool, F2Pool and BTCC Pool, which,
when aggregated, represented approximately sixty-three (63) percent of
the aggregate hashrate of the Bitcoin Network (as calculated by
determining the percentage of blocks mined by each such pool over the
prior four (4) days). Also according to blockchain.info, on such date,
the nine (9) largest pools (AntPool, F2Pool, BTCC Pool, BitFury,
BW.COM, Slush, BitClub Network, Kano CKPool and KnCMiner) accounted for
approximately ninety-seven (97) percent of the aggregate hashrate of
the Bitcoin Network. In late May and early June 2014, reports indicated
that a mining pool named GHash.io approached and, during a twenty-four
(24)- to forty-eight (48)-hour period in early June, may have exceeded
one-half of the aggregate hashrate of the Bitcoin Network, as measured
by the self-reported hashrate of the pool and by measuring the
percentage of blocks mined by the pool. As of April 28, 2016,
GHash.io's percentage of the aggregate hashrate of the Bitcoin Network
has since fallen to approximately two (2) percent. As of April 28,
2016, Antpool was determined to be the largest mining pool, having
solved for twenty-eight (28) percent of the block discovered during the
prior four (4) days.
Mathematically Controlled Supply
    The method for creating new bitcoin is mathematically controlled in
a manner so that the supply of bitcoin grows at a limited rate pursuant
to a pre-set schedule. The number of bitcoin awarded for solving a new
block is automatically halved every two hundred and ten thousand
(210,000) blocks. Thus, the current fixed reward for solving a new
block is twenty-five (25) bitcoin per block and the reward will
decrease by half to become twelve and a half (12.5) bitcoin in or
around the start of July 2016 (based on estimates of the rate of block
solution calculated by BitcoinClock.com). This deliberately controlled
rate of bitcoin creation means that the number of bitcoin in existence
will never exceed twenty-one (21) million and that bitcoin cannot be
devalued through excessive production unless the Bitcoin Network's
source code (and the underlying protocol for bitcoin issuance) is
altered. See ``Modifications to the Bitcoin Protocol,'' below. As of
April 28, 2016, fifteen million, four hundred and eighty-two thousand,
three hundred (15,482,300) bitcoin have been mined. It is estimated
that more than ninety (90) percent of the twenty-one (21) million
bitcoin will have been produced by 2022.
    The following chart from blockchain.info indicates the number of
bitcoin that have been mined since the Bitcoin Network began operation
in January 2009 through April 2016.

[GRAPHIC] [TIFF OMITTED] TN14JY16.003

Modifications to the Bitcoin Protocol
    Bitcoin is an open source project (i.e., a product whose source
code is freely available to the public and that utilizes crowdsourcing
to identify possible issues, problems and defects) and there is no
official developer or group of developers that controls the Bitcoin
Network. The Bitcoin Network's development is furthered by a collection
of active contributors who can access and propose alterations to the
Bitcoin Network source code hosted on GitHub.com, an online service and
forum used to share and develop open source code. Other programmers
have access to and can propose changes to the Bitcoin Network source
code on GitHub.com, but some contributors have an elevated level of
influence over the process. As a result, these contributors are
responsible for quasi-official releases of updates and other changes to
the Bitcoin Network's source code. Users and miners can accept any
changes made to the Bitcoin Network (including those proposed by
contributors) by downloading the proposed modification of the source
code.
    A modification of the source code is only effective with respect to
the Bitcoin users and miners that download it. Consequently, as a
practical matter, a modification to the source code (e.g., a proposal
to increase the twenty-one (21) million total limit on bitcoin or to
reduce the average confirmation time target from ten (10) minutes per
block) only becomes part of the Bitcoin Network if accepted by
participants collectively having an effective majority of the aggregate
hashrate of the Bitcoin Network. Additionally, an issue may arise in
which a modification is overwhelmingly supported by users but miners do
not support it, or vice versa. If a modification is accepted only by a
percentage of users and miners, a division in the Bitcoin Network will
occur such that one (1) network will run the pre-modification source
code and the other network will run the modified source code; such a
division is known as a ``fork'' in the Bitcoin Network. It should be
noted that, although their power to amend the source code is
effectively subject to the approval of users and miners, some
contributors have substantial influence over the development of the
Bitcoin Network and the direction of the Bitcoin community.
Bitcoin Value
Bitcoin Exchange Valuation
    The value of bitcoin is determined by the value that various market
participants place on bitcoin through their transactions. The most
common means of determining the value of a bitcoin is by surveying one
or more Bitcoin Exchanges where bitcoin is traded publicly and
transparently (i.e., the Bitcoin Exchange Market) or an index tracking
prices on the Bitcoin Exchange Market (e.g., the CoinDesk Bitcoin Price
Index).
Bitcoin Exchange Public Market Data
    On each online Bitcoin Exchange, bitcoin is traded with publicly
disclosed valuations for each executed trade, measured by one or more
fiat currencies such as the U.S. Dollar, the Euro or the Chinese Yuan.
Bitcoin Exchanges typically publish trade data including last price,
bid and ask information, and trade volume, among other data. Although
each Bitcoin Exchange has its own market price, it is expected that
most Bitcoin Exchanges' market prices should be relatively consistent
with the Bitcoin Exchange Market average since market participants can
choose the Bitcoin Exchange on which to buy or sell bitcoin (i.e.,
exchange shopping). Arbitrage between the prices on various Bitcoin
Exchanges is possible, but varying fees and fiat currency deposit/
withdrawal policies and other concerns appear to have, at times,
prevented an active arbitrage mechanism among users on some Bitcoin
Exchanges. For example, delayed fiat currency withdrawals imposed by
Bitcoin Exchanges and the perceived risks associated with such delayed
withdrawals have, at times, resulted in trading on such Bitcoin
Exchange to be at a premium for certain periods.
Bitcoin Exchange Price Convergence
    Price differentials across Bitcoin Exchanges remain; however, such
differentials have been decreasing. For example, the daily opening
price data for the one hundred (100) days prior to May 9, 2016 shows
that the Bitifinex

and BTC-e absolute price difference was less than 1% percent [sic]
according to data from BitcoinWisdom.com. Since 2015, prices on U.S.
Dollar-denominated Bitcoin Exchanges have generally been converging. In
January of 2015, the average range in prices across all Bitcoin
Exchanges was approximately 3.80%; as of May 2016, that figure has
dropped to less than 1.30%.\18\ This convergence serves to illustrate
the fungibility of bitcoin across Bitcoin Exchanges and the ease with
which market participants transfer their assets amongst them.
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    \18\ See, e.g., https://data.bitcoinity.org/markets/price/2y/USD?c=e&t=l).
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Bitcoin Exchange Market Manipulation
    As the Bitcoin Exchange Market has evolved and matured, licensed
entrants have emerged, including two (2) New York limited purpose trust
companies, markedly changing the once concentrated and non-regulated
landscape of the Bitcoin Exchange Market. For example, in the first
half of 2013, Mt. Gox accounted for nearly three-quarters of all
Bitcoin Exchange Market trading.\19\ Any disruption to Mt. Gox trading,
such as a distributed denial of service (``DDOS'') attack had a
dramatic impact on the bitcoin price and subsequently the Bitcoin
Exchange Market as a whole. Since then, the number of constituents in
the Bitcoin Exchange Market has considerably increased and no single
Bitcoin Exchange represents a systemically critical part or single
point of failure of the Bitcoin ecosystem. In addition, the advent of
market participants who are chiefly arbitrageurs results in Bitcoin
Exchange prices generally converging after dislodgement. Arbitrageurs
must have funds distributed across multiple Bitcoin Exchanges in order
to take advantage of temporary price dislocations, thereby discouraging
the strong concentration of funds on any particular Bitcoin Exchange.
As a result, the potential for manipulation on a particular Bitcoin
Exchange would require overcoming the liquidity supply of such
arbitrageurs who are actively eliminating any cross-market pricing
differences.
---------------------------------------------------------------------------

    \19\ For most of 2013, Mt. Gox (a Japanese exchange operated at
www.mtgox.com by Tibanne Co. Ltd.) was the largest online Bitcoin
Exchange in the world. Supporting trading of bitcoin using sixteen
(16) different fiat currencies, Mt. Gox accounted for nearly three-
quarters of all Bitcoin Exchange Market trading during the first
half of 2013. On February 25, 2014, Mt. Gox suspended trading on its
platform and, three (3) days later, filed for bankruptcy protection
in Japanese courts, stating that it had lost approximately eight
hundred and fifty thousand (850,000) bitcoin, including
approximately seven hundred fifty thousand (750,000) bitcoin
belonging to its customers. Mt. Gox subsequently recovered access to
approximately two hundred thousand (200,000) of the lost bitcoin. As
no full, reliable accounting has been publicly provided, it is
difficult to assess whether Mt. Gox's collapse was due to cyber-
attacks (including denial of service and hacking incidents reported
in 2011 and 2013), mismanagement or fraud, although many market
participants believe Mt. Gox's collapse was due to the latter.
Following the cessation of trading activity on its platform, Mt. Gox
has been in bankruptcy proceedings in Japan and the United States
and is in the process of liquidation.
---------------------------------------------------------------------------

The Gemini Exchange
    The Gemini Exchange, an affiliate of the Sponsor, is a Digital
Asset exchange that has a U.S. dollar-denominated bitcoin order book.
As a facility of a New York State-chartered limited liability trust
company, the Gemini Exchange is one of only two (2) Bitcoin Exchanges
in the world that have such a high level of regulatory oversight. The
Bitcoin Exchange Market has experienced several significant incidents
at unregulated Bitcoin Exchanges and it is widely-believed that much of
the self-reported trade volume numbers of unregulated Bitcoin Exchanges
are inaccurate (either intentionally or unintentionally). The Gemini
Exchange was established in an effort to improve the Bitcoin ecosystem
by having a regulated entity where participants could engage in trading
bitcoin.
    In establishing the Gemini Exchange, Gemini Trust Company, LLC
worked closely with the NYSDFS to obtain a limited purpose trust
company license. The term ``limited purpose trust company'' refers to
entities that are chartered under the bank and trust company provisions
of the New York Banking Law. Under New York Banking Law, a ``trust
company'' has general powers available to banks and trust companies, as
well as powers generally associated with trustees and other
fiduciaries.
    Apart from general fiduciary powers, the following activities are
among those specifically identified in the statute as activities that
New York Trust Companies may conduct with respect to their fiduciary
accounts, including (i) the power to accept deposits exclusively in a
fiduciary capacity, to receive and disburse money, to transfer,
register and countersign evidences of indebtedness or other securities,
and to act as attorney in fact or agent; \20\ and (ii) the power to
accept appointment as receiver, trustee, or committee of the property
of an estate of any person in insolvency or bankruptcy proceedings.
---------------------------------------------------------------------------

    \20\ N.Y. Banking Law Sec.  100 (McKinney).
---------------------------------------------------------------------------

    A ``limited purpose'' trust company must conduct its business and
operations subject to the limitations or restrictions as the NYSDFS may
prescribe in its sole discretion. In practice, most limited purpose
trust companies typically engage in activities such as employee benefit
trust, personal trust, corporate trust, transfer agency, securities
clearance, investment management, and custodial services. A trust
company, including a limited purpose trust company like Gemini Trust
Company, LLC, can serve as the custodian of customer funds itself.
    Under New York Banking Law, the same general procedures,
requirements and criteria for the formation of a full-service bank
apply also to the formation of a limited purpose trust company with two
(2) exceptions: (i) No requirement to carry FDIC insurance and (ii) a
level of capitalization deemed satisfactory to the Superintendent of
Financial Services. Once submitted in acceptable form, a limited
purpose trust company application receives the same level of scrutiny
as other bank and trust company proposals and ultimately requires the
approval of the Superintendent of Financial Services. In addition,
trust companies are subject to many of the same requirements that apply
to a bank operating under a New York State banking charter, including:
(i) Capital requirements, (ii) implementation of an anti-money
laundering program,\21\ (iii) implementation of a cyber security
program, and (iv) consumer protection disclosures.\22\ Furthermore, as
a limited purpose trust company with fiduciary powers under the Banking
Law, all activities of a trust company, including all exchange
functions, are subject to examination and supervision by the NYSDFS.
Gemini Trust Company, LLC complies with the capital requirements under
New York State banking law, has implemented the required anti-money
laundering program and cybersecurity program and makes the required

consumer protection disclosures. As a facility of a regulated entity,
the Gemini Exchange is obliged to put the interests of its customers
before its own, to provide accurate public market data and pricing
information and to monitor for and prevent market manipulation.
---------------------------------------------------------------------------

    \21\ In particular, a prospective trust company must establish
policies and procedures designed to ensure and monitor compliance
with the Bank Secrecy Act (``BSA'') as amended by the USA PATRIOT
Act and the anti-money laundering programs of Part 115 of the
General Regulations of the Banking Board. A compliance program must
include, at a minimum, a system of internal controls to assure
ongoing compliance, independent testing for compliance to be
conducted by bank personnel or by an outside party, the designation
of an individual or individuals responsible for coordinating and
monitoring day-to-day compliance, and training for appropriate
personnel.
    \22\ Limited purpose trust companies operating virtual currency
exchanges are required to provide disclosures to current and
prospective customers (in a form approved by NYSDFS) regarding the
risks of its services and products and are also required to disclose
to current and prospective customers the terms and conditions for
using the trust company's products and services prior to any
customer using the product or service.
---------------------------------------------------------------------------

    As part of its supervision under the NYSDFS and New York Banking
Law, Gemini Trust Company, LLC must (i) undergo semiannual bank exams,
(ii) submit quarterly financial updates to NYSDFS, (iii) submit
independent third-party year-end audited financial statements to
NYSDFS,\23\ (iv) submit semiannual Federal Financial Institutions
Examination Council (``FFIEC'') Call Reports \24\ to the NYSDFS, and
(v) undergo an annual third-party review of its overall security
program as implemented by its Chief Security Officer (``CSO'') that may
take the form of a Service Organization Controls (``SOC'') Level 2
audit.
---------------------------------------------------------------------------

    \23\ Gemini Trust Company, LLC, successfully completed an
independent third-party opening day Balance Sheet audit for October
2, 2015 as well as an independent third-party year-end Financial
Statements audit for December 31, 2015. No material issues,
weaknesses or concerns were raised.
    \24\ Gemini Trust Company, LLC, successfully completed and filed
its first FFIEC Call Report with the NYSDFS on February 1, 2016.
---------------------------------------------------------------------------

    The Gemini Exchange is not the only venue on which Authorized
Participants can purchase bitcoin for delivery to the Trust, but it may
provide a convenient and stable venue given its regulatory oversight
and superior liquidity characteristics. While Authorized Participants
are not obliged to use the Gemini Exchange to trade their bitcoin, it
may prove to be an efficient way to do so.
Gemini Exchange Spot Price
    The Trust values its bitcoin as measured at 4:00 p.m. Eastern time
using the Gemini Exchange Spot Price on each Business Day. The Gemini
Exchange Spot Price is the price of bitcoin on the Gemini Exchange as
of 4:00 p.m. Eastern time on each Business Day.
    The Sponsor believes that the Gemini Exchange Spot Price is
representative of the accurate price of bitcoin because of the positive
price discovery attributes of the Gemini Exchange marketplace.
According to market data on bitcoinity.org, as of May 23, 2016, the
Gemini Exchange is a top three (3) U.S.-based Bitcoin Exchange by
volume for the seven (7) days prior and had the tightest spread as a
percentage of price, the tightest spread ten (10) bitcoin wide on the
bid and ask, the tightest spread one hundred (100) bitcoin wide on the
bid and ask and the lowest volatility (i.e., smallest standard
deviation) of any U.S. dollar-denominated bitcoin order book on any
Bitcoin Exchange in the world. In addition, since opening in October
2015, the Gemini Exchange Spot Price differed from the median price of
all U.S. Dollar-denominated Bitcoin Exchanges by 0.35% on average; that
difference dropped to 0.15% on average in May 2016.\25\ These facts,
taken together, suggest that the Gemini Exchange Spot Price is
representative and indicative of the larger Bitcoin marketplace.
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

    As discussed above, the Gemini Exchange is uniquely positioned
because of its regulatory status and licensing as a venue on which
traditional financial institutions may be comfortable transacting in
bitcoin. These institutions provide a vital bridge to the equities
markets and other capital markets, serving to enrich price discovery,
liquidity, and transparency. The Trust has entered into preliminary
conversations with a number of potential Authorized Participants as
well as market makers, each of which is an experienced participant in
the ETP \26\ marketplace and is actively engaged in trading ETPs. A
number of these potential Authorized Participants, currently trade
bitcoin and are already registered participants that trade on the
Gemini Exchange. Authorized Participants will not be required to use
the Gemini Exchange to trade their bitcoin, and the Gemini Exchange is
not the only venue on which Authorized Participants can purchase
bitcoin for delivery to the Trust. However, the Gemini Exchange may
provide a convenient and stable venue in which to purchase bitcoin, as
well as an efficient way to trade bitcoin, given its regulatory
oversight and superior liquidity characteristics.\27\ See ``Bitcoin
Value--The Gemini Exchange'' above.
---------------------------------------------------------------------------

    \26\ For purposes of this filing, the term ETP means any product
that may be listed on the Exchange pursuant to Rule 14.11.
    \27\ See, e.g., https://data.bitcoinity.org/markets/exchanges/USD/30d#volatility_asc.
---------------------------------------------------------------------------

Bitcoin Market
Global Bitcoin Market
    Global trade in bitcoin consists of individual end-user-to-end-user
transactions, together with facilitated exchange-based bitcoin trading
on ``lit'' markets as well as ``dark pools''. A limited market
currently exists for bitcoin-based derivatives. The Trust represents
the first known ETP in the United States that seeks to track the price
of a Digital Asset (a ``Digital Asset ETP''). Securitized instruments
have been created for other marketplaces, but have encountered limited
success due to their lack of transparency and thorough regulatory
oversight. Two notable examples are the Grayscale Investment Trust,
which trades under the ticker GBTC on OTC Markets (formerly the ``Pink
Sheets'') and does not qualify as an exchange-listed product, and
Bitcoin Tracker One, which trades under the ticker COINXBT on the
Stockholm Stock Exchange. Neither of these instruments are held to the
same regulatory scrutiny and oversight as a security listed under the
Securities Act. Because of the high standards pursued in the creation
and listing of the Trust, it will finally provide investors with a
reliable and transparent vehicle for access to bitcoin as an asset
class.
End-User-to-End-User
    The Bitcoin end-user-to-end-user ecosystem operates on a
continuous, 24-hour per day basis. This is accomplished through
decentralized peer-to-peer transactions between parties on a principal-
to-principal basis. All risks and issues of credit are between the
parties directly involved in the transaction. Liquidity can change from
time to time during the course of a 24-hour trading day. The Bitcoin
Network rules that require transaction fees are generally not enforced;
therefore transaction costs, if any, are negotiable between the parties
and may vary widely, although, where transaction fees are included,
they are paid by the spending party in a Bitcoin transaction. These
transactions occur remotely through the Internet or in-person through
forums such as Satoshi Square (an open-air bitcoin trading market held
in New York City) and bulletin boards such as LocalBitcoins.
Marketplaces like LocalBitcoins and ICBIT are intended to bring
together counterparties trading in bitcoin but do not provide any
clearing or intermediary function and may or may not report transaction
data such as price and volume.
Bitcoin Exchange ``Lit'' Market
    Online Bitcoin Exchanges traded over $450,000,000 dollars of
notional value during a twenty-four (24) hour period on May 31,
2016.\28\ These marketplaces provide significant data with respect to
prevailing valuations of bitcoin. Most Bitcoin Exchanges operate
through pooled account systems, whereby the users of the Bitcoin
Exchange send bitcoin and/or fiat currency to an account of the Bitcoin
Exchange, which records user sub-account balances in a

ledger entry system. Trades on pooled account exchanges are typically
conducted ``off-Blockchain,'' meaning that they are settled by
reallocating bitcoin and money to and from users on the balanced ledger
of the Bitcoin Exchange. Therefore, a trade on a pooled account
exchange will not result in a Bitcoin transaction being transmitted and
subsequently recorded on the Blockchain, or of a money transfer going
from one bank account to another. For a pooled-account Bitcoin
Exchange, Bitcoin transactions and money transfers typically only occur
during the withdrawal or deposit of bitcoin or fiat currency by an
exchange customer, or if the Bitcoin Exchange needs to shift bitcoin or
fiat currency between its pooled accounts for internal purposes.
Nevertheless, Bitcoin Exchanges typically publish trade data including
last price, bid and ask information, and trade volume, among other
data, on their respective Web sites and through application programming
interfaces (``APIs'').
---------------------------------------------------------------------------

    \28\ See, e.g., https://data.bitcoinity.org/markets/volume/30d?c=e&t=a.
---------------------------------------------------------------------------

    As noted above, Gemini Exchange, an affiliate of the Sponsor and
the source of the Gemini Exchange Spot Price used by the Trust to
calculate its NAV, operates the Web site www.gemini.com. Gemini
Exchange is owned and operated by Gemini Trust Company, LLC, the
Trust's Custodian. As a facility of a New York State-chartered limited
liability trust company, Gemini Exchange operates under the direct
supervision and regulatory authority of the NYSDFS. The Gemini Trust
Company is a fiduciary and must meet the capitalization, compliance,
anti-money laundering, consumer protection and cyber security
requirements as set forth by the NYSDFS. Gemini Exchange's principal
business is to provide an electronic trading platform and associated
online presence to allow customers to exchange fiat currency (e.g.,
U.S. Dollars) for Digital Assets (e.g., bitcoin or ether) and vice
versa.
Bitcoin Exchange Market ``Dark Pools'' and OTC Trading
    In addition to transparent or ``lit'' online Bitcoin Exchanges with
a traditional central limit order book structure, some trading in
bitcoin takes place on an on-demand or over-the-counter (``OTC'')
basis. Similar to mature securities, there are also private request for
quote (RFQ) venues and ``dark pools,'' which are bitcoin trading
platforms that do not publicly report limit order book data. Market
participants have the ability to execute large block trades in a dark
pool without revealing those trades and the related price data to the
public Bitcoin Exchange Market; however, any withdrawal from or deposit
to a dark pool platform must ultimately be recorded on the Blockchain,
as must OTC transactions. Genesis Trading also operates a form of dark
pool through a trading desk that buys and sells blocks of bitcoin
without publicly reporting trade data. In June 2015, Kraken, a Bitcoin
Exchange, launched a dark pool for bitcoin trades separate from its
public central limit order book. Informal dark pools are currently
believed to exist, particularly among wholesale buyers of bitcoin and
Bitcoin Network mining groups that obtain bitcoin through mining. Such
informal dark pools function as a result of the peer-to-peer nature of
the Bitcoin Network, which allows direct transactions between any
seller and buyer. As the Bitcoin Exchange Market and bitcoin dark pools
have a limited history and no publicly available limit order book data,
it is difficult to estimate the impact of dark pools on the Bitcoin
Exchange Market.
Global Bitcoin Derivatives Markets
    Nascent derivatives markets for bitcoin now exist. For example,
certain types of options, futures contracts for differences and other
derivative instruments are available in certain jurisdictions; however,
many of these are not available in the United States and generally are
not regulated to the degree that U.S. investors expect derivative
instruments to be regulated. The U.S. Commodity Futures Trading
Commission (``CFTC'') has approved TeraExchange, LLC as a swap
execution facility (``SEF''), on which bitcoin swap contracts may be
entered into. On October 9, 2014, TeraExchange announced that it had
hosted the first executed bitcoin swap traded on a CFTC-regulated
platform. Additionally, in September 2015, the CFTC issued an order
temporarily registering LedgerX LLC as a SEF. LedgerX also previously
applied for registration as a derivatives clearing organization
(``DCO'') although its application is still in the process of CFTC
approval. Other parties have acknowledged submitting applications for
registration to the CFTC, though no other bitcoin-focused derivatives
platform has been approved for registration by the CFTC. Various
platforms and Bitcoin Exchanges also offer trading on margin.
Currently, the open interest in these bitcoin derivative instruments is
quite limited in comparison to the volume of actual bitcoin trades.
CFTC commissioners have previously expressed publicly that derivatives
based on Digital Assets such as bitcoin are subject to regulation by
the CFTC, including oversight to prevent market manipulation of the
price of bitcoin. As previously noted, in the September 2015 Coinflip
case, the CFTC instituted and settled administrative proceedings that
involved a bitcoin derivatives trading platform and its chief executive
officer. In Coinflip,\29\ the CFTC determined that bitcoin and other
``virtual currencies'' (aka Digital Assets) are properly defined as
commodities under the CEA and CFTC regulations, and applied CEA
provisions and CFTC regulations that apply to transactions in commodity
options and swaps to the conduct of the bitcoin derivatives trading
platform. The CFTC affirmed its approach to the regulation of bitcoin
and bitcoin-related enterprises on June 2, 2016, when the CFTC settled
charges against Bitfinex, a Bitcoin Exchange based in Hong Kong. In its
Order, the CFTC found that Bitfinex engaged in ``illegal, off-exchange
commodity transactions and failed to register as a futures commission
merchant'' when it facilitated borrowing transactions among its users
to permit the trading of bitcoin on a ``leveraged, margined or financed
basis'' without first registering with the CFTC.\30\ While the
Commission has not opined on the legal characterization of bitcoin as a
security, it has taken various actions against persons or entities
misusing bitcoin in connection with fraudulent schemes (i.e., Ponzi
schemes), inaccurate and inadequate publicly disseminated information,
and the offering of unregistered securities.\31\
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    \29\ See supra note 13.
    \30\ See In re BFXNA Inc., No. 16-19 (CFTC June 2, 2016),
available at<EMAIL_ADDRESS>    \31\ See, e.g., Complaint and Demand for Jury Trial, SEC v.
Homero Joshua Garza, GAW Miners, LLC and ZenMiner, LLC, Case 3:15-
cv-01760 (D. Conn. Dec. 1, 2015) (The Commission brought charges in
connection with a bitcoin-related Ponzi scheme); SEC v. Erik T.
Voorhees, SEC Administrative Proceeding File No. 3-15902 (June 3,
2014), available at https://www.sec.gov/litigation/admin/2014/33-9592.pdf (The Commission brought an administrative action in
connection with the offering of unregistered securities of two
bitcoin-related entities.); BTC Trading, Corp. and Ethan Burnside,
Securities Act Release No. 9685 (Dec. 8, 2014), available at http://www.sec.gov/litigation/admin/2014/33-9685.pdf (The Commission
brought an administrative action in connection with the operation
and offering of securities of two online exchanges, neither of which
were registered with the Commission, that accepted payment in
bitcoin and primarily listed virtual currency-related companies.);
SEC v. Sand Hill Exchange, et al., Securities Act Release No. 9809
(June 17, 2015), available at https://www.sec.gov/litigation/admin/2015/33-9809.pdf (The Commission took legal action against an online
exchange that accepted payment in bitcoin in connection with
disseminating fraudulent information, among other matters.).

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Goods and Services
    Bitcoin can also be used to purchase goods and services, either
online or at physical locations, although reliable data is not readily
available about the retail and commercial market penetration of the
Bitcoin Network. In January 2014, U.S. national online retailers
Overstock.com and TigerDirect began accepting Bitcoin payments. Over
the course of 2014, computer hardware and software company Microsoft
began accepting bitcoin as online payment for certain digital content,
online retailer NewEgg began accepting bitcoin, and computer hardware
company Dell began accepting bitcoin. There are thousands of additional
online merchants that accept bitcoin, and the variety of goods and
services for which bitcoin can be exchanged is increasing. Currently,
local, regional and national businesses, including Time Inc.,
Wikimedia, WordPress, Expedia and Foodler, accept bitcoin. Bitcoin
service providers such as BitPay, Coinbase and GoCoin and online gift
card retailer Gyft provide other means to spend bitcoin for goods and
services at additional retailers. There are also many real-world
locations that accept bitcoin throughout the world.
    As of April 2016, it was estimated that as many as one hundred
thousand (100,000) merchants or businesses accept, or have the
technological infrastructure to choose to accept (e.g., Shopify
merchants), bitcoin as payment. In September 2014, payments giant
PayPal announced a partnership with BitPay, Coinbase and GoCoin to
expand their Bitcoin-related services to PayPal's merchant customers,
thereby significantly expanding the reach of bitcoin-accepting
merchants. To date, the rate of consumer adoption and use of bitcoin in
paying merchants has trailed the broad expansion of retail and
commercial acceptance of bitcoin. Nevertheless, there will likely be a
strong correlation between continued expansion of the Bitcoin Network
and its retail and commercial market penetration.
Market Participants
Miners
    Miners range from Bitcoin enthusiasts to professional mining
operations that design and build dedicated machines and data centers,
but the vast majority of mining is now undertaken by participants in
mining pools. See ``Bitcoin Mining & Creation of New Bitcoin'' above.
Investment and Speculative Sector
    This sector includes the investment and trading activities of both
private and professional investors and speculators. These participants
range from exchange-traded products, such as ARK Web x.0 ETF, or hedge
funds such as the Pantera Bitcoin Fund Ltd. to day-traders who invest
in bitcoin by trading on Bitcoin Exchanges such as Slovenia-based
BitStamp and Hong Kong-based Bitfinex. See ``Uses of Bitcoin--Bitcoin
Exchange Market'' below.
    Historically, larger financial services institutions are publicly
reported to have limited involvement in investment and trading in
bitcoin. In December 2013, Wedbush Securities and Bank of America
Merrill Lynch released preliminary research reports on Bitcoin as both
a payment tool and investment vehicle. Additionally in December, the
Federal Reserve Bank of Chicago released a primer on Bitcoin prepared
by a senior economist. In early 2014, Fitch Ratings, Goldman Sachs,
JPMorgan Chase, PricewaterhouseCoopers, UBS Securities and Wedbush
Securities, among others, released additional research reports
analyzing the Bitcoin Network on the basis of bitcoin value,
technological innovation or payment system mechanics. In December 2014,
the Federal Reserve Board's Divisions of Research & Statistics and
Monetary Affairs released an analysis of the Bitcoin Network's
transaction system and the Bitcoin Exchange Market's economics.
Additionally, institutions including Fortress Investment Group and
Pantera Capital made, or proposed to make, direct or indirect
investments in bitcoin or the Bitcoin ecosystem. In addition, in
October 2015, the Congressional Research Service, at the request of one
(1) or more Members, released a report detailing the background and
regulatory landscape of Bitcoin.
Retail Sector
    The retail sector includes users transacting in direct peer-to-peer
Bitcoin transactions through the direct sending of bitcoin over the
Bitcoin Network. The retail sector also includes transactions between
consumers paying for goods or services from commercial or service
businesses through direct transactions or third-party service providers
such as BitPay, Coinbase and GoCoin. BitPay, Coinbase and GoCoin each
provide a merchant platform for instantaneous transactions whereby the
consumer sends bitcoin to BitPay, Coinbase, or GoCoin, which then
provides either the bitcoin or the cash value thereof to the commercial
or service business utilizing the platform. PayPal, Square and Shopify
are examples of traditional merchant payment processors or merchant
platforms that have also added Bitcoin payment options for their
merchant customers. Payment processing through the Bitcoin Network
typically reduces the transaction cost for merchants, relative to the
costs paid for credit card transaction processing. Consumers can now
purchase goods or services through retail companies such as
Overstock.com, DISH, Dell, Expedia, Microsoft, and Time, Inc.
Service Sector
    This sector includes companies that provide a variety of services
including the buying, selling, payment processing and storing of
bitcoin. Bitfinex, Bit-X and BTC-e are three (3) of the largest global
U.S. Dollar-denominated Bitcoin Exchanges in the world based on
Bitcoinity.org as of May 3, 2016. Huobi and OKCoin are large Bitcoin
Exchanges based in China that primarily feature trading of bitcoin for
Chinese Yuan based on Bitcoinity.org as of May 3, 2016. Coinbase and
Circle are each multi-service financial institutions that provide
digital wallets that store bitcoin for users and also serve as a retail
gateway whereby users can purchase bitcoin for fiat currency. Coinbase,
BitPay, BitPagos, and GoCoin are examples of Bitcoin payment processors
that allow merchants to accept bitcoin as payment.
    As the Bitcoin Network continues to grow in acceptance, it is
anticipated that service providers will expand the currently available
range of services and that additional parties will enter the service
sector for the Bitcoin Network.
Competition
    Bitcoin is not the only Digital Asset founded on math-based
algorithms and cryptographic security, although it is considered the
most prominent. Approximately seven hundred (700) other Digital Assets
or ``altcoins'' have been developed since the Bitcoin Network's
inception, including Litecoin, Ether and Ripple. The Bitcoin Network,
however, possesses the ``first-to-market'' advantage and thus far has
the largest market capitalization and is secured by a mining network
with significantly more aggregate hashrate than the networks of any
other Digital Assets.
Description of the Trust and the Shares
    According to the Registration Statement, the investment objective
of the Trust is for the Shares to track the price of bitcoin as
measured at 4:00 p.m. Eastern time using the Gemini Exchange

Spot Price on each Business Day, less the Trust's liabilities (which
include accrued but unpaid fees and expenses).\32\ The Shares are
designed for investors seeking a cost-effective and convenient means of
gaining investment exposure to bitcoin similar to a direct investment
in bitcoin. A substantial direct investment in bitcoin may require
expensive and sometimes complicated arrangements in connection with the
acquisition, security and safekeeping of the bitcoin and may involve
the payment of substantial fees to acquire such bitcoin from third-
party facilitators through cash payments of U.S. Dollars. Although the
Shares will not be the exact equivalent of a direct investment in
bitcoin, they provide investors with an alternative that allows them to
gain investment exposure to bitcoin. In addition, the Trust will
provide its investors with other advantages including easy
accessibility, relative cost efficiencies and minimal credit risk as
the Trust will wholly-own all of its bitcoin assets, as discussed
below. The Shares offer an investment that is:
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    \32\ According to the Registration Statement, the activities of
the Trust will be limited to (1) issuing Baskets in exchange for the
actual bitcoin deposited by the Authorized Participants with the
Custodian as consideration, (2) transferring actual bitcoin as
necessary to cover the Sponsor's Fee and as necessary to pay Trust
expenses not assumed by the Sponsor and other liabilities, (3)
transferring actual bitcoin in exchange for Baskets surrendered for
redemption by the Authorized Participants, (4) causing the
Administrator to sell bitcoin on the termination of the Trust, and
(5) engaging in all administrative and custodial procedures
necessary to accomplish such activities in accordance with the
provisions of the Trust Agreement, the Trust Servicing Agreement,
the Trust Agency Service Provider Agreement, the Custody Agreement,
the License Agreement and Authorized Participant Agreements. The
Trust will not be actively managed. It will not engage in any
activities designed to obtain a profit from, or to ameliorate losses
caused by, changes in the market prices of bitcoin. The Trust seeks
to achieve its investment objective by directly owning bitcoin and
will not speculate with regard to short-term changes in bitcoin
prices. The Trust will not invest in bitcoin derivatives, futures,
swaps, or other financial instruments that represent bitcoin or that
may be exchanged for bitcoin. The Trust does not expect to make any
cash distributions to shareholders.
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     Easily Accessible and Relatively Cost Efficient. Investors
in the Shares can also directly access bitcoin through the Bitcoin
Exchange Market. The Sponsor believes that investors will be able to
more effectively implement strategic and tactical asset allocation
strategies that use bitcoin by using the Shares instead of directly
purchasing and holding bitcoin, and for many investors, transaction
costs related to the Shares will be lower than those associated with
the direct purchase, storage and safekeeping of bitcoin.
     Exchange-Traded and Transparent. The Shares will be listed
and trade on BZX, providing investors with an efficient means to
implement various investment strategies. Upon effectiveness of the
registration statement of which this prospectus is a part, the Shares
will be eligible for margin accounts and will be backed by the assets
of the Trust. The Trust will not hold or employ any derivative
securities. The value of the Trust's holdings will be reported each day
on the Trust's Web site. Furthermore, the fact that the Trust will be
regulated by the Exchange and by the Commission under the Act provides
a level of oversight not provided by any other current Bitcoin
Exchanges or service providers. The Sponsor represents that the Trust
will enter into an information sharing agreement with the Gemini
Exchange enabling it to obtain and publish the Gemini Exchange Spot
Price on the Trust's Web site. In addition, the Sponsor will arrange
for the Gemini Exchange to share data regarding the Gemini Exchange
Spot Price and other trading data with the Exchange. See ``Overview of
the Bitcoin Industry and Market--Bitcoin Value--Gemini Exchange Spot
Price'' above. Lastly, the Exchange has the ability to halt trading and
delist the Shares of the Trust under certain circumstances and, more
generally, retains broad discretionary authority over the continued
listing of securities on the Exchange, as further described below.
     Proprietary Cold Storage System. The Custodian has been
appointed to store and safekeep the Trust's bitcoin using a state-of-
the-art, proprietary Cold Storage System. Similar hardware, software,
administration and continued technological development may not be
available or cost-efficient for many investors. Winklevoss IP, LLC
(``WIP'') is the owner of certain intellectual property and it has
licensed such intellectual property to the Sponsor for use by the
Custodian and its service providers in the safekeeping of the Trust's
bitcoin.
    Using the precious metals exchange-traded trusts currently trading
on U.S. exchanges \33\ as design paradigms, the Sponsor has structured
the Trust to be a similar passive investment vehicle holding a single
asset. Like the precious metals exchange traded trusts cited above, the
Trust will only own and store bitcoin and will not be permitted to hold
cash or any other Digital Asset.
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    \33\ See, e.g., SPDR Gold Trust: See Securities Exchange Act
Release No. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004)
(SR-NYSE-2004-22) (approving listing of the SPDR Gold Trust);
iShares Gold Trust: See Securities Exchange Act Release No. 51058
(January 19, 2005), 70 FR 3749 (January 26, 2005) (SR-Amex-2004-38)
(approving listing of the iShares Gold Trust); ETFS Gold Trust: See
Securities Exchange Act Release No. 59895 (May 8, 2009), 74 FR 22993
(May 15, 2009) (SR-NYSEArca-2009-40) (approving listing of the ETFS
Gold Trust); ETFS Silver Trust: See Securities Exchange Act Release
No. 59781 (April 17, 2009), 74 FR 18771 (April 24, 2009) (SR-
NYSEArca-2009-95) (approving listing of the ETFS Silver Trust); ETFS
Platinum Trust: See Securities Exchange Act Release No. 61219
(December 22, 2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-
2009-94) (approving listing of the ETFS Platinum Trust); and ETFS
Palladium Trust: See Securities Exchange Act Release No. 61220
(December 22, 2009), 74 FR 68895 (December 29, 2009) (SR-NYSEArca-
2009-94) (approving listing of the ETFS Palladium Trust).
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    The Custodian has been appointed to store and safekeep the Trust's
bitcoin using a state-of-the-art, proprietary Cold Storage System.\34\
Similar hardware, software, administration and continued technological
development may not be available or cost-efficient for many investors.
As such, the logistics of accepting, transferring and safekeeping of
actual bitcoin are dealt with by the Custodian using the Cold Storage
System, and the related expenses are built into the price of the
Shares. Therefore, the investor does not have any additional tasks or
costs over and above those associated with dealing in any other
publicly traded security. The Shares are intended to provide investors
with a cost-efficient and convenient means of gaining exposure to
bitcoin similar to a direct investment in bitcoin.
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    \34\ WIP is the owner of certain intellectual property and it
has licensed such intellectual property to the Sponsor for use by
the Custodian and its service providers in the safekeeping of the
Trust's bitcoin. The Sponsor believes that the use of this Cold
Storage System and other security features described below, the
technological experience of the Custodian's employees and the
Sponsor's management team, as well as the use of independent
auditors for periodic reviews, will provide a level of security not
available through other Digital Asset custodians.
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    All bitcoin is recorded on the Blockchain, the decentralized
transaction ledger of the Bitcoin Network. The Blockchain is a
canonical record of every bitcoin, every Bitcoin transaction (including
the mining of new bitcoin) and every Bitcoin address associated with a
quantity of bitcoin. In order to transfer or ``spend'' bitcoin, one
must control the private key that is mathematically associated with a
given Bitcoin address. The private keys that control the Trust's
bitcoin are secured by the Custodian and stored completely offline
(i.e., air-gapped) using the Custodian's state-of-the-art, proprietary
Cold Storage System. The Custodian's Cold Storage System is founded on
the principles of (i) building defense-in-depth against external
threats; (ii) protecting against human error; and (iii) guarding
against misuse of insider access.

    In order to accomplish these principles, the Custodian's Cold
Storage System generates, stores and manages the private keys that
control the Trust's bitcoin onboard hardware security modules
(``HSMs'') for the lifetime of each private key. HSMs (each, a
``Signer'') are tamper-resistant computers used by the Custodian to
digitally sign (i.e., authenticate) any transfer of the Trust's
bitcoin. All Signers are stored, as well as backed up, in various
geographically distributed, access-controlled facilities throughout the
United States. In addition, the Custodian's Cold Storage System
utilizes multiple-signature (``Multisig'') technology with an ``M-of-
N'' signing design that requires a signature from more than one (1)
Signer (but fewer than the full complement of potential Signers) in
order to move the Trust's bitcoin. This provides both security against
attacks and tolerance to losing access to a minority of facilities or
private keys, thereby eliminating single points of failure. In
addition, the operation of a Signer requires the coordinated actions of
multiple employees (each a ``Signatory'') to protect against insider
malfeasance. Lastly, the Cold Storage System is comprised of hardware
that is sourced from multiple, diverse manufacturers to guard against
supply-chain risks.
    The Custodian's Cold Storage System was purpose-built to
demonstrate ``proof of control'' of the private keys associated with
its public Bitcoin addresses. More specifically, the Custodian can use
Signers to sign a specific message chosen by the Custodian that
references a current event (i.e., to prove recency), thereby proving
control of the private keys associated with the public Bitcoin
addresses in which the Trust's bitcoin are held. This allows the
Custodian to evidence control of the Trust's assets periodically during
audits on-demand and without necessitating the transfer of any of the
Trust's bitcoin.
    The Custodian has evaluated different insurance policy options and
determined not to obtain coverage at this time due to insurers' lack of
understanding and sophistication with respect to Digital Assets, which
has led to a thin marketplace of policies that are (i) not priced in an
actuarially-fair manner and (ii) don't properly model relevant loss
vectors. Unfortunately, an efficient and effective marketplace for
bitcoin insurance has not yet developed.
    The Custodian is the custodian of the Trust's bitcoin in accordance
with the terms and provisions of the Trust Custody Agreement and
utilizes its Cold Storage System in the administration and operation of
the Trust and the safekeeping of its bitcoin. The Custodian segregates
the Trust's bitcoin which are held in unique Bitcoin addresses with
balances that can be directly verified on the Bitcoin Blockchain. Under
the Trust Custody Agreement, the Custodian is also responsible for the
maintenance of, and periodic updates to, the Cold Storage System.
    Acting on standing instructions specified in the Trust Custody
Agreement, the Custodian will accept, on behalf of the Trust, delivery
of bitcoin from Authorized Participants into the Trust Custody Account
in the creation of a Basket. In order for an Authorized Participant to
redeem a Basket and receive a distribution of bitcoin from the Trust,
the Custodian, upon receiving instructions from the Administrator, will
sign transactions necessary to transfer bitcoin out of the Trust
Custody Account and distribute to the Bitcoin address specified by the
Authorized Participant. See ``Net Asset Value--Creation and Redemption
of Shares.''
    The Sponsor has adopted several control procedures in addition to
the safety features integral to the Cold Storage System's design. For
example, the Sponsor must engage an independent audit firm to
periodically audit the Custodian's Cold Storage System protocols and
internal controls (``Internal Controls Audit''), and report to the
Sponsor at least annually on such matters. Additionally, the Sponsor
must engage an independent audit firm to biannually verify that the
Custodian can demonstrate ``proof of control'' of the private keys that
control the Trust's bitcoin (``Proof of Control Audit''). One Proof of
Control Audit will be conducted at the end of each calendar year and
the other at random.
Net Asset Value
    According to the Registration Statement, on each Business Day, the
Administrator will use the Gemini Exchange Spot Price as measured at
4:00 p.m. Eastern time (the ``Evaluation Time'') to calculate the
Trust's NAV.
    At the Evaluation Time, the Administrator will value the bitcoin
held by the Trust using the Gemini Exchange Spot Price or such other
publicly available price as the Sponsor in good faith may deem fairly
represents the fair market value of the Trust's bitcoin. In the event
that the Sponsor determines that the Gemini Exchange Spot Price is not
an appropriate basis for evaluation of the Trust's bitcoin, the Sponsor
will instruct the Administrator to use the spot price of the itBit
bitcoin exchange (the ``itBit Exchange'') as an alternative basis for
calculating the Trust's NAV. The itBit Exchange is operated by the
itBit Trust Company, LLC, a New York State-chartered limited liability
trust company that, like the Gemini Exchange, operates under the direct
supervision and regulatory oversight of the NYSDFS. Any determination
that the Gemini Exchange Spot Price is unavailable or otherwise not an
appropriate basis for calculating the Trust's NAV would be based upon
extraordinary criteria in which the operation of Gemini Exchange is
disrupted or otherwise experiencing material calculation or reporting
irregularities. If the Sponsor determines in good faith that neither
the Gemini Exchange Spot Price nor the spot price on the itBit Exchange
is reliable for calculating the Trust's NAV on a particular Business
Day, including but not limited to situations where it does not reflect
material events occurring between the time of calculation of such
Gemini Exchange Spot Price or the spot price on the itBit Exchange and
the time the Trust's Shares are valued, bitcoin will be valued using
fair market value pricing as determined in good faith by the Sponsor
and calculated by the Administrator under procedures established in the
Trust Servicing Agreement. Determining the fair market value of bitcoin
involves the consideration of a number of subjective factors and thus
the prices for bitcoin may differ from the Gemini Exchange Spot Price
or the spot price on the itBit Exchange. The Sponsor may consider the
market price for bitcoin on other Bitcoin Exchanges, or in other forums
for which bitcoin prices are published publicly. Neither the
Administrator nor the Sponsor shall be liable to any person for the
determination that the Gemini Exchange Spot Price or an alternative
basis for a fair market value of bitcoin is not appropriate as a basis
for calculation of the Trust's NAV provided that such determination is
made in good faith.
    In order to calculate the Trust's NAV, the Administrator will first
determine the value of the Trust's bitcoin and then subtract all of the
Trust's liabilities (including accrued but unpaid fees and expenses) to
determine the Trust's net assets. The Administrator will calculate the
Trust's NAV by dividing the net assets of the Trust by the number of
the Shares outstanding as of the close of trading on the Exchange
(which includes the net number of any of the Shares created or redeemed
on such Business Day).
    The Sponsor will publish the Trust's NAV on the Trust's Web site as
soon as

practicable after determination by the Administrator. To the extent
that the NAV has been calculated using a price per bitcoin other than
the Gemini Exchange Spot Price for such Business Day, the publication
on the Trust's Web site will note the valuation methodology and the
price per bitcoin resulting from such calculation.
Creation and Redemption of Shares
    The Trust is expected to issue and redeem Shares from time to time
only in one or more whole Baskets. The Trust will issue and redeem the
Shares in Baskets only to certain Authorized Participants on an ongoing
basis. On a creation, Baskets will be distributed to the Authorized
Participants by the Trust in exchange for the delivery to the Trust of
the appropriate number of bitcoin (i.e., bitcoin equal in value to the
value of the Shares being purchased). On a redemption, the Trust will
distribute bitcoin equal in value to the value of the Shares being
redeemed to the redeeming Authorized Participant in exchange for the
delivery to the Trust of one or more Baskets. On each Business Day, the
value of each Basket accepted by the Administrator in a creation or
redemption transaction will be the same (i.e., each Basket will consist
of 50,000 Shares and the value of the Basket will be equal to the value
of 50,000 Shares at their net asset value per Share on that day). The
Trust will not issue or redeem fractions of a Basket.
    Only Authorized Participants will be able to place orders to create
or redeem Baskets. Authorized Participants must be (i) registered
broker-dealers or other securities market participants, such as banks
and other financial institutions, which are not required to register as
broker-dealers to engage in securities transactions, and (ii) DTC
Participants. A Transaction Fee may be imposed to offset the transfer
and other transaction costs associated with creation or redemption.
Authorized Participants or their affiliated market makers are expected
to have the facility to participate directly on one or more Bitcoin
Exchanges.
    The Trust currently expects that prior to the commencement of
trading on the Exchange, at least two Authorized Participants will have
signed an Authorized Participant Agreement with the Trust and may
create and redeem Baskets as described above. Persons interested in
placing orders to create or redeem Baskets should contact the Sponsor
or the Administrator to obtain the contact information for the
Authorized Participants. Shareholders who are not Authorized
Participants will only be able to redeem their Shares through an
Authorized Participant.
    Bitcoin will be (i) delivered to the Trust Custody Account from an
Authorized Participant in connection with the creation of one or more
Baskets and (ii) distributed by the Custodian from the Trust Custody
Account to the Authorized Participant in connection with the redemption
of one or more Baskets.
    Under the Authorized Participant Agreement, the Sponsor has agreed
to indemnify the Authorized Participants against certain liabilities,
including liabilities under the Securities Act.
    The following description of the procedures for the creation and
redemption of Baskets is only a summary and an investor should refer to
the relevant provisions of the Trust Agreement, the Trust Servicing
Agreement and the form of Authorized Participant Agreement for more
detail, each of which is attached as an exhibit to the Registration
Statement of which the prospectus is a part.
Creation Procedures
    On any Business Day, an Authorized Participant may place an order
with the Administrator to create one or more Baskets (each a ``Creation
Basket''). The settlement of Creation Basket orders, including the
delivery of bitcoin by the Authorized Participant and distribution of
Shares to the Authorized Participant, will occur only on days BZX is
open for regular trading.
Creation Basket Order Requirements
    The number of bitcoin required to be delivered to the Trust in
exchange for a Creation Basket is determined by the Trust Agreement.
All questions as to the amount of bitcoin necessary to deliver to
purchase a Creation Basket will be conclusively determined by the
Administrator. The Administrator's determination of the cost of a
Creation Basket shall be final and binding on all persons interested in
the Trust.
Creation Basket Distribution
    An Authorized Participant who places a Creation Basket order with
the Administrator is responsible for delivering the bitcoin to the
Trust required to purchase the Creation Basket on the order date.
Bitcoin delivered by an Authorized Participant will be considered
settled upon the completion of the Confirmation Protocol. Under the
Confirmation Protocol, the Custodian must wait until the bitcoin
delivery transaction has been confirmed by six (6) consecutive blocks
on the Blockchain before it is considered settled. The confirmation
process should take approximately one (1) hour depending upon the speed
with which Bitcoin Network miners add new blocks to the Blockchain. See
``Overview of the Bitcoin Industry and Market--Cryptographic Security
Used in the Bitcoin Network--Double-Spending and the Bitcoin Network
Confirmation System,'' above. An Authorized Participant shall not be
deemed to have fulfilled its bitcoin delivery requirement until the
completion of the Confirmation Protocol.
    Following confirmation of the receipt of bitcoin into the Trust
Custody Account by the Custodian, the Administrator will direct DTC to
credit the Authorized Participant's DTC account with the Shares
representing the number of Creation Baskets purchased. The expense and
risk of delivery, ownership and safekeeping of a bitcoin delivery until
it has been received by the Trust in the Trust Custody Account shall be
borne solely by the Authorized Participant.
    The Custodian may accept delivery of bitcoin by such other means as
the Sponsor, from time to time, may determine to be acceptable for the
Trust, provided that the same is disclosed in a prospectus relating to
the Trust filed with the Commission pursuant to Rule 424 under the
Securities Act. If bitcoin is to be delivered other than as described
above, the Sponsor is authorized to establish such procedures and to
appoint such custodians and establish such custody accounts in addition
to those described in this prospectus, as the Sponsor determines to be
desirable.
Suspension or Rejection of Creation Basket Orders
    The Administrator may, in its discretion, and when directed by the
Sponsor, suspend the right to place Creation Basket orders, or postpone
the Creation Basket settlement date, (i) for any period during which
BZX is closed other than customary weekend or holiday closings, or
trading on BZX is suspended or restricted or (ii) for any period during
which an emergency exists as a result of which receipt or evaluation of
bitcoin delivery is not reasonably practicable or presents, in the
judgment of the Administrator, the Custodian or the Sponsor or their
agents, a security risk to the Cold Storage System. The inability of
the Custodian to operate the Cold Storage System because of a failure
of hardware, software or personnel or an inability to access the Cold
Storage System (e.g., because of power failure or acts of God) are
examples of such emergencies. None of the Administrator, the Custodian,
the

Sponsor or their agents will be liable to any person or in any way for
any loss or damages that may result from any such suspension or
postponement.
    The Administrator may also reject a Creation Basket order if (i)
such order is not presented in proper form as described in the
Authorized Participant Agreements, (ii) such order is incorrect, (iii)
if the Creation Basket Order presents, in the opinion of the
Administrator, the Custodian, the Sponsor, or their agents, a security
risk to the Cold Storage System, or (iv) the fulfillment of the
Creation Basket order, in the opinion of counsel, might be unlawful.
None of the Trustee, Administrator, Trust Agency Service Provider,
Custodian, Sponsor, or their agents, will be liable for the rejection
of any Creation Basket order.
Redemption Procedures
    The procedures by which an Authorized Participant can redeem one or
more Baskets (each a ``Redemption Basket'') will mirror the procedures
for the creation of Baskets. On any Business Day, an Authorized
Participant may place a Redemption Basket order with the Administrator.
The settlement of Redemption Baskets orders, including the delivery of
Shares to the Trust and distribution of bitcoin to the Authorized
Participant, will only occur when BZX is open for regular trading.
Settlement of Redemption Baskets orders may be delayed longer than
three (3), but no more than five (5), Business Days following the
Redemption Basket order date. Settlement of Redemption Baskets may be
delayed only in the instance of administrative or custodial delays in
the processing of a distribution of bitcoin from the Trust Custody
Account, whether by reason of Bitcoin Network delays, mechanical or
clerical error or by act of God. Settlement of a Redemption Basket will
occur only on Business Days. Redemption Basket orders must be placed no
later than 4:00 p.m. Eastern time on a Business Day. A Redemption
Basket order so received will be effective on the date it is received
if the Administrator finds it to be in satisfactory form. The
redemption procedures allow only Authorized Participants to place
Redemption Basket orders and do not entitle an Authorized Participant
to receive a distribution of bitcoin in an amount that is different
than the value of a Redemption Basket.
    By placing a Redemption Basket order, an Authorized Participant
agrees to deliver the number of Shares in the Redemption Basket through
DTC's book-entry system to the Administrator's DTC account not later
than the third Business Day following the effective date of the
Redemption Basket order.
Redemption Basket Order Requirements
    The Redemption Basket distribution from the Trust will consist of a
transfer to the redeeming Authorized Participant of the number of the
bitcoin held by the Trust in the Trust Custody Account evidenced by the
Shares being delivered. Redemption distributions will be subject to the
deduction of any applicable taxes or other governmental charges that
may be due.
Redemption Basket Distribution
    The distribution of bitcoin representing a Redemption Basket will
be transferred to the Authorized Participant on the third Business Day
following the Redemption Basket order date if, by 9:00 a.m. Eastern
time on such third Business Day, the Administrator's DTC account has
been credited with the Redemption Baskets to be redeemed. Subsequently,
the Administrator will instruct the Custodian to transfer bitcoin from
the Trust Custody Account and distribute it to the redeeming Authorized
Participant. If the Administrator's DTC account has not been credited
with all of the Shares representative of the Redemption Baskets to be
redeemed by such time, the delivery will be considered unfulfilled. The
Administrator is also authorized to instruct the Custodian to transfer
to the Authorized Participant the distribution of bitcoin resulting
from the Redemption Basket order, notwithstanding that the Redemption
Baskets to be redeemed are not credited to the Administrator's DTC
account by 9:00 a.m. Eastern time on the third Business Day following
the Redemption Basket order date, if the Authorized Participant has
collateralized its obligation to deliver the Redemption Baskets through
DTC's book-entry system on such terms as the Sponsor and the
Administrator may from time to time agree upon.
    In order to facilitate the distribution of the bitcoin representing
a Redemption Basket order, the Administrator will calculate the number
of bitcoin representing the value of the Redemption Basket order and
instruct the Custodian to distribute that amount of bitcoin to the
redeeming Authorized Participant.
Suspension or Rejection of Redemption Basket Orders
    The Administrator may, in its discretion, and will, when directed
by the Sponsor, suspend the right to place Redemption Basket orders, or
postpone the Redemption Basket order settlement date, (i) for any
period during which BZX is closed other than customary weekend or
holiday closings, or trading on BZX is suspended or restricted or (ii)
for any period during which an emergency exists as a result of which
the distribution or evaluation of bitcoin is not reasonably practicable
or presents, in the judgment of Administrator, the Custodian, the
Sponsor or their agents, a security risk to the Cold Storage System.
The inability of the Custodian to operate the Cold Storage System
because of a failure of hardware, software or personnel or an inability
to access the Cold Storage System (e.g., because of power failure or
acts of God) are examples of such emergencies. None of the
Administrator, the Custodian, the Sponsor or their agents will be
liable to any person or in any way for any loss or damages that may
result from any such suspension or postponement.
    The Administrator will also reject a Redemption Basket order if the
order is not in proper form as described in the Authorized Participant
Agreement or if the fulfillment of the Redemption Basket order, in the
opinion of its counsel, might be unlawful.
Availability of Information
    The Trust's Web site, which will be publicly available prior to the
public offering of the Shares, will include a form of the prospectus
for the Trust that may be downloaded. The Web site will include
additional quantitative information updated on a daily basis,
including, for the Trust: (i) The prior Business Day's reported NAV,
the highest quoted bid price for the Shares (the ``Best Bid'') and
lowest quoted offer price for the Shares (the ``Best Ask''), the mid-
point of the spread between the Best Bid and the Best Ask at the time
of the NAV calculation (the ``Best Bid/Best Ask''),\35\ the daily
trading volume of the Shares, and the calculation of the premium and
discount of the Best Bid/Best Ask against the NAV; and (ii) data in
chart format displaying the frequency distribution of discounts and
premiums of the daily Best Bid/Best Ask against the NAV, within
appropriate ranges, for each of the four (4) previous calendar
quarters. Daily trading volume information for the Shares will also be
available in the financial section of newspapers, through subscription
services such as Bloomberg, Thomson

Reuters and International Data Corporation, which can be accessed by
Authorized Participants and other investors, as well as through other
electronic services, including major public Web sites.
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    \35\ The Best Bid/Best Ask of the Shares will be determined
using the midpoint of the spread between the Best Bid and the Best
Ask on the Exchange at the time of the NAV calculation. The records
relating to Best Bid/Best Ask will be retained by the Trust and its
service providers.
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    In addition, the Sponsor will calculate an estimated fair value of
the Shares based on the most recent Gemini Exchange Spot Price (the
``Intraday Indicative Value''), which will be updated and widely
disseminated by one or more major market data vendors at least every
fifteen (15) seconds during the Exchange's regular trading hours.\36\
The dissemination of the Intraday Indicative Value will provide
investors with an estimate of the fair value of the Shares throughout
the trading day.
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    \36\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
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    Investors may obtain bitcoin pricing information twenty-four (24)
hours a day or from various financial information service providers or
Bitcoin Network information sites such as BitcoinCharts.com or
bitcoinity.org. Bloomberg financial terminals include pricing data in
USD and in Euro from several Bitcoin Exchanges. Recently, the CME and
the ICE announced bitcoin pricing indices. Current Bitcoin market
prices are also generally available with bid/ask spreads directly from
Bitcoin Exchanges. In addition, on each Business Day, the Trust's Web
site will provide pricing information for the Gemini Exchange Spot
Price and the Shares. The Gemini Exchange itself provides comprehensive
last trade information as well as the aggregate quantity available at
each price level within its limit order book, all through its public
Web site (www.gemini.com) and public market data feeds.
    Additional information regarding the Trust and its Shares,
including risks, creation and redemption procedures, fees,
distributions and taxes, is included in the Registration Statement.
Arbitrage Mechanism
    Similar to other ETPs listed and traded on the Exchange, the Trust
will rely on the Basket creation and redemption process to reduce any
premium or discount that may occur in the Share trading prices on the
Exchange relative to the NAV. Baskets may be created or redeemed only
by Authorized Participants who have entered into an Authorized
Participant Agreement with the Trust and the Sponsor. The Basket
creation and redemption process is important for the Trust in providing
Authorized Participants with an arbitrage mechanism through which they
may keep Share trading prices in line with the NAV. See ``Overview of
the Bitcoin Industry and Market--Bitcoin Value--Gemini Exchange Spot
Price'' above.
    As the Shares trade intraday on the Exchange, their market prices
will fluctuate due to supply and demand, which will be driven in large
part by the price of bitcoin. The following examples generally describe
the conditions surrounding Basket creation and redemption:
     If the market price of the Shares is greater than the NAV,
an Authorized Participant can purchase sufficient bitcoin to create a
Basket, and then sell the new Shares on the secondary market at a
profit. This process increases the selling interest of the Shares and
is expected to decrease the market price of the Shares such that their
market price will be closer to the NAV.
 If the NAV is greater than the market price of the Shares, an
Authorized Participant can purchase Shares on the secondary market in
an amount equal to a Basket and redeem them for bitcoin, and then sell
the bitcoin at a profit. This process increases the buying interest for
the Shares and is expected to increase the market price of the Shares
such that their market price will be closer to the NAV.
    This process is referred to as the arbitrage mechanism (``Arbitrage
Mechanism''). The Arbitrage Mechanism helps to minimize the difference
between the trading price of a Share and the NAV. Over time, these
buying and selling pressures should balance, and a Share's market
trading price is expected to remain at a level that is at or close to
the NAV. The Arbitrage Mechanism provided by the Basket creation and
redemption process is designed, and required, in order to maintain the
relationship between the market trading price of the Shares and the
NAV. The Exchange expects that arbitrageurs will take advantage of
price variations between the Shares' market price and the NAV and that
the Arbitrage Mechanism will be facilitated by the transparency and
simplicity of the Trust's holdings, the availability of the Intraday
Indicative Value, the liquidity of the bitcoin market, each Authorized
Participant's ability to access the bitcoin market, and each Authorized
Participant's ability to create workable hedges.
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 \37\ 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. The Trust currently
expects that there will be at least 100,000 Shares outstanding at the
time of commencement of trading on the Exchange. Upon termination of
the Trust, the Shares will be removed from listing. The Trustee,
Delaware Trust Company, is a trust company having substantial capital
and surplus and the experience and facilities for handling corporate
trust business, as required under Rule 14.11(e)(4)(E)(iv)(a) and that
no change will be made to the trustee without prior notice to and
approval of the Exchange. The Exchange also notes that, pursuant to
Rule 14.11(e)(4)(F), neither the Exchange nor any agent of the Exchange
shall have any liability for damages, claims, losses or expenses caused
by any errors, omissions or delays in calculating or disseminating any
underlying commodity value, the current value of the underlying
commodity required to be deposited to the Trust in connection with
issuance of Commodity-Based Trust Shares; resulting from any negligent
act or omission by the Exchange, or any agent of the Exchange, or any
act, condition or cause beyond the reasonable control of the Exchange,
its agent, including, but not limited to, an act of God; fire; flood;
extraordinary weather conditions; war; insurrection; riot; strike;
accident; action of government; communications or power failure;
equipment or software malfunction; or any error, omission or delay in
the reports of transactions in an underlying commodity. Finally, as
required in Rule 14.11(e)(4)(G), the Exchange notes that any registered
market maker (``Market Maker'') in the

Shares must file with the Exchange in a manner prescribed by the
Exchange and keep current a list identifying all accounts for trading
in an underlying commodity, related commodity futures or options on
commodity futures, or any other related commodity derivatives, which
the registered Market Maker may have or over which it may exercise
investment discretion. No registered Market Maker shall trade in an
underlying commodity, related commodity futures or options on commodity
futures, or any other related commodity derivatives, in an account in
which a registered Market Maker, directly or indirectly, controls
trading activities, or has a direct interest in the profits or losses
thereof, which has not been reported to the Exchange as required by
this Rule. In addition to the existing obligations under Exchange rules
regarding the production of books and records (see, e.g., Rule 4.2),
the registered Market Maker in Commodity-Based 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.
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    \37\ For 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, supra note 13.
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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 from 8:00 a.m. until 5:00 p.m. Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange