[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Notices]
[Pages 47214-47230]
[FR Doc No: 2023-15474]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97922; File No. SR-NASDAQ-2023-019]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of a Proposed Rule Change To List and Trade Shares of
the Valkyrie Bitcoin Fund Under Nasdaq Rule 5711(d), Commodity-Based
Trust Shares

July 17, 2023.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 3, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the Valkyrie
Bitcoin Fund (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-
Based Trust Shares''). The shares of the Trust are referred to herein
as the ``Shares.''

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

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

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

1. Purpose
    The Exchange proposes to list and trade Shares of the Trust under
Nasdaq Rule 5711(d), which governs the listing and trading of
Commodity-Based Trust Shares on the Exchange.\3\
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    \3\ Nasdaq Rule 5711(d)(iv)(A) defines Commodity-Based Trust
Shares as ``a security (1) that is issued by a trust (``Trust'')
that holds a specified commodity deposited with the Trust; (2) that
is issued by such Trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity; and
(3) that, 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.''
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Description of the Trust
    The Shares will be issued by the Trust, a Delaware statutory trust.
The Trust will operate pursuant to a trust agreement (the ``Trust
Agreement'') between Valkyrie Digital Assets, LLC (the ``Sponsor'') and
Delaware Trust Company, as the Trust's trustee (the ``Trustee''). The
Shares will be registered with the Commission by means of the Trust's
registrations statement on Form S-1 (the ``Registration
Statement'').\4\ Pursuant to the Trust Agreement, the Sponsor will
enter into a custodian agreement (the ``Custodian Agreement'') with a
qualified custodian (the ``Custodian'') to act as custodian for the
Trust's bitcoins. Pursuant to the Custodian Agreement, the Custodian
will establish accounts that hold the bitcoins deposited with the
Custodian on behalf of the Trust. U.S. Bancorp Fund Services, LLC will
act as the transfer agent for the Trust (the ``Transfer Agent'') and as
the administrator of the Trust (the ``Administrator'') to perform
various administrative, accounting and recordkeeping functions on
behalf of the Trust.
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    \4\ See Amendment No. 2 to Registration Statement on Form S-1,
dated May 8, 2023 filed with the Commission by the Sponsor on behalf
of the Trust (File No. 333-252344). The descriptions of the Trust
contained herein are based, in part, on information in the
Registration Statement. The Registration Statement in not yet
effective and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
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    The investment objective of the Trust is for the Shares to reflect
the performance of the value of a bitcoin as represented by the CME CF
Bitcoin Reference Rate--New York Variant (the ``Index''), less the
Trust's liabilities and expenses. The purpose of the Trust is to
provide investors with a cost-effective and convenient way to invest in
bitcoin in a manner that is more efficient and convenient than the
purchase of a stand-alone bitcoin, while also mitigating some of the
risk by reducing the volatility typically associated with the purchase
of stand-alone bitcoin and without the uncertain and often complex
requirements relating to acquiring and/or holding bitcoin.
    The Trust will only hold bitcoin, and will, from time to time,
issue Baskets \5\ in exchange for deposits of bitcoins and to
distribute bitcoins in connection with redemptions of Baskets. The
Shares of the Trust represent units of fractional undivided beneficial
interest in, and ownership of, the Trust. The bitcoins held by the
Custodian on behalf of the Trust will be transferred out of the Bitcoin
Account only in the following circumstances: transferred to pay the
Sponsor's Fee, distributed to Authorized Participants or Liquidity
Providers, as applicable, in connection with the redemption of Baskets,
transferred to be sold on an as-needed basis to pay Additional Trust
Expenses, sold on behalf of the Trust in the event the Trust terminates
and liquidates its assets or as otherwise required by law or
regulation.
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    \5\ A Basket equals a block of 50,000 Shares.
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Custody of the Trust's Bitcoins
    The Trust will engage a Custodian to custody the Trust's bitcoin.
The Trust will select a Custodian that is a qualified custodian under
the Investment Advisers Act of 1940. Under the Custodian Agreement, the
Custodian will be responsible for the safety and security of the
Trust's Bitcoins as well as overseeing the process of deposit,
withdrawal, sale and purchase of the Trust's bitcoins. The Custodian
will custody the bitcoin in accordance with the terms of the Custodian
Agreement.
    All bitcoins exist and are stored on the Blockchain, the
decentralized transaction ledger of the Bitcoin Network. The Blockchain
records most transactions (including mining of new bitcoins) for all
bitcoins in existence, and in doing so verifies the location of each
bitcoin (or fraction thereof) in a particular digital wallet. The
Bitcoin Account will be maintained by the Custodian and cold storage
\6\ mechanisms will be used for the Vault Account by the Custodian.
Each digital wallet of the Trust may be accessed

using its corresponding private key. The Custodian's custodial
operations will maintain custody of the private keys that have been
deposited in cold storage at its various vaulting premises which are
located in geographically dispersed locations across the world,
including but not limited to the United States, Europe, including
Switzerland, and South America. The locations of the vaulting premises
may change regularly and are kept confidential by the Custodian for
security purposes.
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    \6\ The term ``cold storage'' refers to a safeguarding method by
which the private keys corresponding to bitcoins stored on a digital
wallet are removed from any computers actively connected to the
internet. Cold storage of private keys may involve keeping such
wallet on a non-networked computer or electronic device or storing
the public key and private keys relating to the digital wallet on a
storage device (for example, a USB thumb drive) or printed medium
(for example, papyrus or paper) and deleting the digital wallet from
all computers.
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    The Custodian is the custodian of the Trust's private keys in
accordance with the terms and provisions of the Custodian Agreement and
will utilize the certain security procedures such as algorithms, codes,
passwords, encryption or telephone call-backs (together, the ``Security
Procedures'') in the administration and operation of the Trust and the
safekeeping of its bitcoins and private keys. The Custodian will create
a Vault Account for the Trust assets in which private keys are placed
in cold storage. The Custodian will segregate the private keys stored
with it from any other assets it holds or holds for others. Further,
multiple distinct private keys must sign any transaction in order to
transfer the Trust's bitcoins from a multi-signature address to any
other address on the Bitcoin blockchain. Distinct private keys required
for multi-signature address transfers reside in geographically
dispersed vault locations, known as ``signing vaults.'' In addition to
multiple signing vaults, the Custodian maintains multiple ``back-up
vaults'' in which backup private keys are stored. In the event that one
or more of the ``signing vaults'' is compromised, the back-up vaults
would be activated and used as signing vaults to complete a transaction
within 72 hours. As such, if any one signing vault is compromised, it
would have no impact on the ability of the Trust to access its
bitcoins, other than a possible delay in operations of 72 hours, while
one or more of the ``backup vaults'' is transitioned to a signing
vault. These Security Procedures ensure that there is no single point
of failure in the protection of the Trust's assets.
Calculation of Net Asset Value
    The Trust's net asset value (``NAV'') is calculated by taking the
current market value of its total assets, less any liabilities of the
Trust, and dividing that total by the total number of outstanding
Shares. The bitcoin held by the Trust will be valued based on the price
set by the Index. The Administrator will calculate the NAV of the Trust
once each Exchange trading day. The Exchange's Regular Market Session
closes at 4:00 p.m. EST. The NAV for a normal trading day will be
released after the end of the Regular Market Session. However, NAVs are
not officially struck until later in the day (often by 5:30 p.m. EST
and almost always by 8:00 p.m. EST). The pause between 4:00 p.m. EST
and 5:30 p.m. EST provides an opportunity to algorithmically detect,
flag, investigate, and correct unusual pricing should it occur. The NAV
for the Trust's Shares will be disseminated daily to all market
participants at the same time. The Sponsor anticipates that the Index
will be reflective of a reasonable valuation of the average spot price
of bitcoin. However, in the event the Index is not available or
determined by the Sponsor to not be reliable, the Sponsor would ``fair
value'' the Trust's bitcoin holdings. The Sponsor does not anticipate
that the need to ``fair value'' bitcoin will be a common occurrence.
The Sponsor will publish the NAV and NAV per Share at https://valkyrieinvest.com/ as soon as practicable after their determination
and availability.
Intraday Indicative Value
    In order to provide updated information relating to the Trust for
use by Shareholders and market professionals, the Trust will
disseminate an updated intraday indicative value (``IIV'') per Share
updated every 15 seconds by one of more major market data vendors
during the Exchange's Regular Market Session.\7\ The IIV will be
calculated by a third-party financial data provider during the
Exchange's Regular Market Session. The IIV will be calculated by using
the prior day's closing NAV per Share of the Trust as a base and
updating that value throughout the trading day to reflect changes in
the most recently reported price level of the CME CF Bitcoin Real-Time
Index (``BRTI''), as reported by CME Group, Inc., Bloomberg, L.P. or
another reporting service. The BRTI is calculated in real time based on
the Relevant Order Books of all Constituent Bitcoin Exchanges. A
``Relevant Order Book'' is the universe of the currently unmatched
limit orders to buy or sell in the BTC/USD pair that is reported and
disseminated by CF Benchmarks Ltd., as the BRTI calculation agent.
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    \7\ Several major market data vendors display and/or make widely
available IIVs taken from the Consolidated Tape Association
(``CTA'') or other data feeds. In addition, the indicative fund
value will be available through on-line information services such as
Bloomberg and Reuters.
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Creation and Redemption of Shares
    The Trust will issue Shares on an ongoing basis, but only in one or
more Baskets. The creation and redemption of a Basket requires the
delivery to the Trust, or the distribution by the Trust, of the number
of whole and fractional bitcoins represented by each Basket being
created or redeemed, the number of which is determined by dividing the
number of bitcoins owned by the Trust at 4:00 p.m., New York time, on
the trade date of a creation or redemption order, as adjusted for the
number of whole and fractional bitcoins constituting accrued but unpaid
fees and expenses of the Trust, by the number of Shares outstanding at
such time (the quotient so obtained calculated to one-hundred-millionth
of one bitcoin), and multiplying such quotient by 50,000 (the ``Basket
Bitcoin Amount''). The Basket Bitcoin Amount multiplied by the number
of Baskets being created or redeemed is the ``Total Basket Bitcoin
Amount.''
    Authorized Participants are the only persons that may place orders
to crate or redeem Baskets. Each Authorized Participant must (i) be a
registered broker-dealer, (ii) enter into a Participant Agreement with
the Sponsor, the Administrator, the Marketing Agent and the Liquidity
Providers and (iii) in the case of the creation or redemption of
Baskets that do not use the Conversion Procedures, own a bitcoin wallet
address that is recognized by the Custodian as belonging to the
Authorized Participant (an ``Authorized Participant Self-Administered
Account''). Authorized Participants may act for their own accounts or
as agents for broker-dealers, custodians and other securities market
participants that wish to create or redeem Baskets. Shareholders who
are not Authorized Participants will only be able to redeem their
Shares through an Authorized Participant.
    Although the Trust will create Baskets only upon the receipt of
bitcoins, and will redeem Baskets only by distributing bitcoins, an
Authorized Participant may deposit cash with the Administrator, which
will facilitate the purchase or sale of bitcoins through a Liquidity
Provider on behalf of an Authorized Participant (the ``Conversion
Procedures''). Liquidity Providers must (i) enter into a Participant
Agreement with the Sponsor, the Administrator, the Marketing Agent and
each Authorized Participant and (ii) own a Liquidity Provider Account.
    The Conversion Procedures will be facilitated by a single Liquidity
Provider. On an order-by-order basis, the Sponsor will select the
Liquidity Provider that it believes will provide the best execution of
the Conversion Procedures, and will base its decision on factors such
as the Liquidity

Provider's creditworthiness, financial stability, the timing and speed
of execution, liquidity and the likelihood of, and capabilities in,
execution, clearance and settlement. In the event that an order cannot
be filled in its entirety by a single Liquidity Provider, additional
Liquidity Provider(s) will be selected by the Sponsor to fill the
remaining amount based on the criteria above.
Creation Procedures
    On any Business Day, an Authorized Participant may order one or
more Creation Baskets from the Trust by placing a creation order with
the Administrator. Creation orders may be placed either ``in-kind'' or
``in-cash.'' Creation orders must be placed no later than 3:59:59 p.m.,
New York time, for in-kind creations, and 4:59:59 p.m., New York time,
for in-cash creations, on each Business Day. Authorized Participants
may only create Baskets and cannot create any Shares in an amount less
than a Basket.
In-Kind Creations
    In-kind creations will take place as follows, where ``T'' is the
trade date and each day in the sequence is a Business Day:
T
     The Authorized Participant places a creation order with
the Administrator.
     The Marketing Agent accepts (or rejects) the creation
order, which is communicated to the Authorized Participant by the
Administrator.
     The Total Basket Bitcoin Amount is determined as soon as
practicable after 4:00 p.m., New York time.
T + 1
     The Authorized Participant transfers the Total Basket
Bitcoin Amount from its Authorized Participant Self-Administered
Account to the Custodian.
     Once the Total Basket Bitcoin Amount is received by the
Custodian, the Administrator directs the Transfer Agent to credit the
Creation Baskets to the Authorized Participant's DTC account.
In-Cash Creations
    Upon receiving instruction from the Administrator that a creation
order has been accepted by the Marketing Agent, the Authorized
Participant will send 110% of the U.S. Dollar value of the Total Basket
Bitcoin Amount, as calculated using the most recently published Bitcoin
Index Price (the ``Cash Collateral Amount''). Once the Cash Collateral
Amount is received by the Administrator, the Sponsor will notify the
Liquidity Provider of the creation order. The Liquidity Provider will
then (i) determine the Cash Exchange Rate, which, in the case of a
creation order, is the Index spot price at the time at which the Cash
Collateral Amount is received by the Administrator, plus the 1%
Liquidity Provider Fee, and (ii) provide a firm quote to the Authorized
Participant for the Total Basket Bitcoin Amount, determined by using
the Cash Exchange Rate. If the Liquidity Provider's quote is greater
than the Cash Collateral Amount received, the Authorized Participant
will be required to pay the difference on the same day. Under the
Conversion Procedures, the Authorized Participant does not pay more
than the firm quote provided by the Liquidity Provider. The Liquidity
Provider bears the risk of any change in the Total Basket Bitcoin
Amount and of any change in the price of bitcoin once the Cash Exchange
Rate has been determined. Provided that payment for the Total Basket
Bitcoin Amount is received by the Administrator, the Liquidity Provider
will deliver the bitcoins to the Custodian on the settlement date on
behalf of the Authorized Participant. After the Custodian receives the
Total Basket Bitcoin Amount, the Administrator will instruct the
Transfer Agent to deliver the Creation Baskets to the Authorized
Participant. The Administrator will then send the Liquidity Provider
the cash equal to the Cash Exchange Rate times the Total Basket Bitcoin
Amount, plus the 1% Liquidity Provider Fee. The Administrator will
return any remaining amount of the Cash Collateral Amount to the
Authorized Participant.
Redemption Procedures
    The procedures by which an Authorized Participant can redeem one or
more Baskets mirror the procedures for the creation of Baskets. On any
Business Day, an Authorized Participant may place a redemption order
specifying the number of Redemption Baskets to be redeemed. Redemption
orders may be placed either ``in-kind'' or ``in-cash.'' Redemption
orders must be placed no later than 3:59:59 p.m., New York time, for
in-kind redemptions, and 4:59:59 p.m., New York time, for in-cash
redemption, on each Business Day. Authorized Participants may only
redeem Baskets and cannot redeem any Shares in an amount less than a
Basket.
In-Kind Redemptions
    In-kind redemptions will take place as follows, where ``T'' is the
trade date and each day in the sequence is a Business Day:
T
     The Authorized Participant places a redemption order with
the Administrator.
     The Marketing Agent accepts (or rejects) the redemption
order.
     The Total Basket Bitcoin Amount is determined as soon as
practicable after 4:00 p.m., New York time.
T + 1
     The Authorized Participant delivers to the Transfer Agent
Redemption Baskets from its DTC account.
     Once the Redemption Baskets are received by the Transfer
Agent, the Custodian transfers the Total Basket Bitcoin Amount to the
Authorized Participant and the Transfer Agent cancels the Shares.
In-Cash Redemptions
    To redeem Baskets using the Conversion Procedures, Authorized
Participants will send the Administrator a redemption order. The
Marketing Agent will accept or reject the redemption order on that same
date. A Liquidity Provider will then (i) determine the Cash Exchange
Rate, which, in the case of a redemption order, is the Index spot price
minus the 1% Liquidity Provider Fee at the time at which the
Administrator notifies the Authorized Participant that an order has
been accepted and (ii) provide a firm quote to an Authorized
Participant for the Total Basket Bitcoin Amount, determined by using
the Cash Exchange Rate. Under the Conversion Procedures, the Authorized
Participant does not receive less than the firm quote provided by the
Liquidity Provider. The Liquidity Provider bears the risk of any change
in the Total Basket Bitcoin Amount and of any change in the price of
bitcoin once the Cash Exchange Rate has been determined. The Liquidity
Provider will send the Administrator the cash proceeds equal to the
Cash Exchange Rate times the Total Basket Bitcoin Amount, minus the 1%
Liquidity Provider Fee. Once the Authorized Participant delivers the
Redemption Baskets to the Transfer Agent, the Administrator will send
the cash proceeds to the Authorized Participant and the Transfer Agent
will cancel the Shares. At the instruction of the Administrator, the
Custodian will then send the Liquidity Provider the Total Basket
Bitcoin Amount.

Overview of the Bitcoin Industry and Market \8\
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    \8\ For the purpose of this section, Bitcoin with an upper case
``B'' is used to describe the system as a whole that is involved in
maintaining the ledger of bitcoin ownership and facilitating the
transfer of bitcoin among parties. When referring to the digital
asset within the bitcoin network, bitcoin is written with a lower
case ``b'' (except, at the beginning of sentences or paragraph
sections).
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Bitcoin
    Bitcoin is the digital asset that is native to, and created and
transmitted through the operations of, the peer-to-peer Bitcoin
network, a decentralized network of computers that operates on
cryptographic protocols. No single entity owns or operates the Bitcoin
network, the infrastructure of which is collectively maintained by a
decentralized user base. The Bitcoin network allows people to exchange
tokens of value, called bitcoin, which are recorded on a public
transaction ledger known as the Blockchain. Bitcoin can be used to pay
for goods and services, or it can be converted to fiat currencies, such
as the U.S. dollar, at rates determined on bitcoin trading platforms or
in individual end-user-to-end-user transactions under a barter system.
    The value of bitcoin is determined by the supply of and demand for
bitcoin. New bitcoins are created and rewarded to the parties providing
the Bitcoin network's infrastructure (``miners'') in exchange for their
expending computational power to verifying transactions and add them to
the Blockchain. The Blockchain is effectively a decentralized database
that includes all blocks that have been solved by miners and it is
updated to include new blocks as they are solved. Each bitcoin
transaction is broadcast to the Bitcoin network and, when included in a
block, recorded in the Blockchain. As each new block records
outstanding bitcoin transactions, and outstanding transactions are
settled and validated through such recording, the Blockchain represents
a complete, transparent and unbroken history of all transactions of the
Bitcoin network.
Bitcoin Network
    Bitcoin was first described in a white paper released in 2008 and
published under the pseudonym ``Satoshi Nakamoto.'' The protocol
underlying Bitcoin was subsequently released in 2009 as open source
software and currently operates on a worldwide network of computers.
    The first step in directly using the Bitcoin network for
transactions is to download specialized software referred to as a
``bitcoin wallet.'' A user's bitcoin wallet can run on a computer or
smartphone, and can be used both to send and to receive bitcoin. Within
a bitcoin wallet, a user can generate one or more unique ``bitcoin
addresses,'' which are conceptually similar to bank account numbers.
After establishing a bitcoin address, a user can send or receive
bitcoin from his or her bitcoin address to another user's address.
Sending bitcoin from one bitcoin address to another is similar in
concept to sending a bank wire from one person's bank account to
another person's bank account; provided, however, that such
transactions are not managed by an intermediary and erroneous
transactions generally may not be reversed or remedied once sent.
    The amount of bitcoin associated with each bitcoin address, as well
as each bitcoin transaction to or from such address, is transparently
reflected in the Blockchain and can be viewed by websites that operate
as ``blockchain explorers.'' Copies of the Blockchain exist on
thousands of computers on the Bitcoin network. A user's bitcoin wallet
will either contain a copy of the blockchain or be able to connect with
another computer that holds a copy of the blockchain. The innovative
design of the Bitcoin network protocol allows each Bitcoin user to
trust that their copy of the Blockchain will generally be updated
consistent with each other user's copy.
Bitcoin Protocol
    The Bitcoin protocol is open source software, meaning any developer
can review the underlying code and suggest changes. There is no
official company or group that is responsible for making modifications
to Bitcoin. There are, however, a number of individual developers that
regularly contribute to a specific distribution of Bitcoin software
known as the ``Bitcoin Core,'' which is maintained in an open-source
repository on the website Github. There are many other compatible
versions of Bitcoin software, but Bitcoin Core provides the de-facto
standard for the Bitcoin protocol, also known as the ``reference
software.'' The core developers for Bitcoin Core operate under a
volunteer basis and without strict hierarchical administration.
    Significant changes to the Bitcoin protocol are typically
accomplished through a so-called ``Bitcoin Improvement Proposal'' or
BIP. Such proposals are generally posted on websites, and the proposals
explain technical requirements for the protocol change as well as
reasons why the change should be accepted. Upon its inclusion in the
most recent version of Bitcoin Core, a new BIP becomes part of the
reference software's Bitcoin protocol. Several BIPs have been
implemented since 2011 and have provided various new features and
scaling improvements.
    Because Bitcoin has no central authority, updating the reference
software's Bitcoin protocol will not immediately change the Bitcoin
network's operations. Instead, the implementation of a change is
achieved by users and miners downloading and running updated versions
of Bitcoin Core or other Bitcoin software that abides by the new
Bitcoin protocol. Users and miners must accept any changes made to the
Bitcoin source code by downloading a version of their Bitcoin software
that incorporates the proposed modification of the Bitcoin network's
source code. A modification of the Bitcoin network's source code is
only effective with respect to the Bitcoin users and miners that
download it. If an incompatible modification is accepted only by a
percentage of users and miners, a division in the Bitcoin network will
occur such that one 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.
    Such a fork in the Bitcoin network occurred on August 1, 2017, when
a group of developers and miners accepted certain changes to the
Bitcoin network software intended to increase transaction capacity.
Blocks mined on this network now diverge from blocks mined on the
Bitcoin network, which has resulted in the creation of a new blockchain
whose digital asset is referred to as ``bitcoin cash.'' Bitcoin and
bitcoin cash now operate as separate, independent networks, and have
distinct related assets (bitcoin and bitcoin cash). Additional forks
have followed the Bitcoin Cash fork, including those for Bitcoin Gold
and Bitcoin SegWit2X, in the months after the creation of Bitcoin Cash.
Bitcoin Transactions
    A bitcoin transaction contains the sender's bitcoin address, the
recipient's bitcoin address, the amount of bitcoin to be sent, a
transaction fee and the sender's digital signature. Bitcoin
transactions are secured by cryptography known as public-private key
cryptography, represented by the bitcoin addresses and digital
signature in a transaction's data file. Each Bitcoin network address,
or wallet, is associated with a unique ``public key'' and ``private
key'' pair, both of which are lengthy

alphanumeric codes, derived together and possessing a unique
relationship. The public key is visible to the public and analogous to
the Bitcoin network address. The private key is a secret and may be
used to digitally sign a transaction in a way that proves the
transaction has been signed by the holder of the public-private key
pair, without having to reveal the private key.
    The Bitcoin network incorporates a system to prevent double-
spending of a single bitcoin. To prevent the possibility of double-
spending a single bitcoin, each validated transaction is recorded, time
stamped and publicly displayed in a ``block'' in the Blockchain, which
is publicly available. Any user may validate, through their Bitcoin
wallet or a blockchain explorer, that each transaction in the Bitcoin
network was authorized by the holder of the applicable private key, and
Bitcoin network mining software consistent with reference software
requirements typically validates each such transaction before including
it in the Blockchain.
Bitcoin Mining--Creation of New Bitcoins
    The process by which bitcoins are created and bitcoin transactions
are verified is called mining. To begin mining, a user, or ``miner,''
can download and run a mining client, which, like regular Bitcoin
network software, turns the user's computer into a ``node'' on the
Bitcoin network that validates blocks. Each time transactions are
validated and bundled into new blocks added to the Blockchain, the
Bitcoin network awards the miner solving such blocks with newly issued
bitcoin and any transaction fees paid by bitcoin transaction senders.
This reward system is the method by which new bitcoins enter into
circulation to the public.
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 210,000 blocks. Thus, the current
fixed reward for solving a new block is 6.25 bitcoin per block; the
reward decreased from twenty-five (25) bitcoin in July 2016 and 12.5 in
May 2020. It is estimated to halve again at the start of 2024. 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. As of January 1, 2023, approximately 19,250,000
bitcoin have been mined.
Bitcoin Value
    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 (e.g., Bitstamp, Coinbase, Kraken, itBit, Gemini and LMAX
Digital). Additionally, in parallel to the open bitcoin exchanges,
informal ``over-the-counter'' or ``OTC markets'' for bitcoin trading
also exist as a result of the peer-to-peer nature of the Bitcoin
Network, which allows direct transactions between any seller and buyer.
    On each exchange, bitcoin is traded with publicly disclosed
valuations for each executed trade, measured by one or more fiat
currencies such as the U.S. dollar or Euro. OTC markets do not
typically disclose their trade data. Currently, there are many
exchanges operating worldwide, and each such exchange represents a
substantial percentage of bitcoin buying and selling activity.
The Index
    As described in the Registration Statement, the Fund will use the
Index to calculate the Trust's NAV. The Index is not affiliated with
the Sponsor and was created and is administered by CF Benchmarks Ltd.
(the ``Benchmark Administrator''), an independent entity, to facilitate
financial products based on bitcoin. The Index is designed based on the
IOSCO Principals for Financial Benchmarks and serves as a once-a-day
benchmark rate of the U.S. dollar price of bitcoin (USD/BTC),
calculated as of 4 p.m. Eastern time. The Index is based on materially
the same methodology (except calculation time) \9\ as the Benchmark
Administrator's CME CF Bitcoin Reference Rate (the ``BRR''), which was
first introduced on November 14, 2016 and is the rate on which bitcoin
futures contracts (``Bitcoin Futures'') are cash-settled in U.S.
dollars at the CME. The Index aggregates the trade flow of several
bitcoin exchanges, during an observation window between 3:00 p.m. and
4:00 p.m. Eastern time into the U.S. dollar price of one bitcoin at
4:00 p.m. Eastern time. The current constituent bitcoin exchanges of
the Index are Bitstamp, Coinbase, Gemini, itBit, Kraken and LMAX
Digital (the ``Constituent Bitcoin Exchanges'').
---------------------------------------------------------------------------

    \9\ The Index is calculated as of 4 p.m. Eastern Time, whereas
the BRR is calculated as of 4 p.m. London Time.
---------------------------------------------------------------------------

    The Index is calculated based on the ``Relevant Transactions'' \10\
of all of its Constituent Bitcoin Exchanges, as follows:
---------------------------------------------------------------------------

    \10\ A ``Relevant Transaction'' is any cryptocurrency versus
U.S. dollar spot trade that occurs during the observation window
between 3:00 p.m. and 4:00 p.m. Eastern time on a Constituent
Bitcoin Exchange in the BTC/USD pair that is reported and
disseminated by a Constituent Bitcoin Exchange through its publicly
available API and observed by the Benchmark Administrator, CF
Benchmarks Ltd.
---------------------------------------------------------------------------

     All Relevant Transactions are added to a joint list,
recording the time of execution, trade price and size for each
transaction.
     The list is partitioned by timestamp into 12 equally-sized
time intervals of 5 (five) minute length.
     For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Transactions, i.e., across all Constituent Bitcoin Exchanges.
A volume-weighted median differs from a standard median in that a
weighting factor, in this case trade size, is factored into the
calculation.
     The Index is then determined by the arithmetic mean of the
volume-weighted medians of all partitions.
    By employing the foregoing steps, the Index thereby seeks to ensure
that transactions in bitcoin conducted at outlying prices do not have
an undue effect on the value of a specific partition, large trades or
clusters of trades transacted over a short period of time will not have
an undue influence on the index level, and the effect of large trades
at prices that deviate from the prevailing price are mitigated from
having an undue influence on the benchmark level. In addition, the
Sponsor notes that an oversight function is implemented by the
Benchmark Administrator in seeking to ensure that the Index is
administered through codified policies for Index integrity.
    The Index provides an accurate reference to the average spot price
of Bitcoin and the methodology employed in constructing the Index,
specifically its use of medians in filtering out small trades, makes
the Index more resistant to manipulation than other measurements that
employ different methodologies. In addition, the Index included over
$375 billion in bitcoin trades (approximately 12,500 bitcoins) during
the one-year period ended December 31, 2022. Finally, an oversight
committee is responsible for regularly reviewing and overseeing the

methodology, practice, standards and scope of the Index to ensure that
it continues to accurately track the spot prices of Bitcoin.
Background
    The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held.\11\ Prior orders from the Commission
have pointed out that in every prior approval order for Commodity-Based
Trust Shares, there has been a derivatives market that represents the
regulated market of significant size, generally a Commodity Futures
Trading Commission regulated futures market.\12\ Further to this point,
the Commission's prior orders have noted that the spot commodities and
currency markets for which it has previously approved spot ETPs are
generally unregulated and that the Commission relied on the underlying
futures market as the regulated market of significant size that formed
the basis for approving the series of Currency and Commodity-Based
Trust Shares, including gold, silver, platinum, palladium, copper, and
other commodities and currencies. The Commission specifically noted in
the Winklevoss Order that the First Gold Approval Order ``was based on
an assumption that the currency market and the spot gold market were
largely unregulated.'' \13\
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently
disapproved by the Commission. See Securities Exchange Act Release
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the
``Winklevoss Order'').
    \12\ See streetTRACKS Gold Shares, Exchange Act Release No.
50603 (Oct. 28, 2004), 69 FR 64614, 64618-19 (Nov. 5, 2004) (SR-
NYSE-2004-22) (the ``First Gold Approval Order''); iShares COMEX
Gold Trust, Exchange Act Release No. 51058 (Jan. 19, 2005), 70 FR
3749, 3751, 3754-55 (Jan. 26, 2005) (SR-Amex-2004-38); iShares
Silver Trust, Exchange Act Release No. 53521 (Mar. 20, 2006), 71 FR
14967, 14968, 14973-74 (Mar. 24, 2006) (SR-Amex-2005-072); ETFS Gold
Trust, Exchange Act Release No. 59895 (May 8, 2009), 74 FR 22993,
22994-95, 22998, 23000 (May 15, 2009) (SR-NYSEArca-2009-40); ETFS
Silver Trust, Exchange Act Release No. 59781 (Apr. 17, 2009), 74 FR
18771, 18772, 18775-77 (Apr. 24, 2009) (SR-NYSEArca-2009-28); ETFS
Palladium Trust, Exchange Act Release No. 61220 (Dec. 22, 2009), 74
FR 68895, 68896 (Dec. 29, 2009) (SR-NYSEArca-2009-94) (notice of
proposed rule change included NYSE Arca's representation that
``[t]he most significant palladium futures exchanges are the NYMEX
and the Tokyo Commodity Exchange,'' that ``NYMEX is the largest
exchange in the world for trading precious metals futures and
options,'' and that NYSE Arca ``may obtain trading information via
the Intermarket Surveillance Group,'' of which NYMEX is a member,
Exchange Act Release No. 60971 (Nov. 9, 2009), 74 FR 59283, 59285-
86, 59291 (Nov. 17, 2009)); ETFS Platinum Trust, Exchange Act
Release No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887-88 (Dec. 29,
2009) (SR-NYSEArca-2009-95) (notice of proposed rule change included
NYSE Arca's representation that ``[t]he most significant platinum
futures exchanges are the NYMEX and the Tokyo Commodity Exchange,''
that ``NYMEX is the largest exchange in the world for trading
precious metals futures and options,'' and that NYSE Arca ``may
obtain trading information via the Intermarket Surveillance Group,''
of which NYMEX is a member, Exchange Act Release No. 60970 (Nov. 9,
2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); Sprott Physical
Gold Trust, Exchange Act Release No. 61496 (Feb. 4, 2010), 75 FR
6758, 6760 (Feb. 10, 2010) (SR-NYSEArca-2009-113) (notice of
proposed rule change included NYSE Arca's representation that the
COMEX is one of the ``major world gold markets,'' that NYSE Arca
``may obtain trading information via the Intermarket Surveillance
Group,'' and that NYMEX, of which COMEX is a division, is a member
of the Intermarket Surveillance Group, Exchange Act Release No.
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4, 2010));
    Sprott Physical Silver Trust, Exchange Act Release No. 63043
(Oct. 5, 2010), 75 FR 62615, 62616, 62619, 62621 (Oct. 12, 2010)
(SR-NYSEArca-2010-84); ETFS Precious Metals Basket Trust, Exchange
Act Release No. 62692 (Aug. 11, 2010), 75 FR 50789, 50790 (Aug. 17,
2010) (SR-NYSEArca-2010-56) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant gold, silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62402 (Jun. 29, 2010), 75 FR 39292, 39295,
39298 (July 8, 2010)); ETFS White Metals Basket Trust, Exchange Act
Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 56158 (Sept. 15,
2010) (SR-NYSEArca-2010-71) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62620 (July 30, 2010), 75 FR 47655, 47657,
47660 (Aug. 6, 2010)); ETFS Asian Gold Trust, Exchange Act Release
No. 63464 (Dec. 8, 2010), 75 FR 77926, 77928 (Dec. 14, 2010) (SR-
NYSEArca-2010-95) (notice of proposed rule change included NYSE
Arca's representation that ``the most significant gold futures
exchanges are the COMEX and the Tokyo Commodity Exchange,'' that
``COMEX is the largest exchange in the world for trading precious
metals futures and options,'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which COMEX is a member, Exchange Act Release No. 63267 (Nov. 8,
2010), 75 FR 69494, 69496, 69500-01 (Nov. 12, 2010)); Sprott
Physical Platinum and Palladium Trust, Exchange Act Release No.
68430 (Dec. 13, 2012), 77 FR 75239, 75240-41 (Dec. 19, 2012) (SR-
NYSEArca-2012-111) (notice of proposed rule change included NYSE
Arca's representation that ``[f]utures on platinum and palladium are
traded on two major exchanges: The New York Mercantile Exchange . .
. and Tokyo Commodities Exchange'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which COMEX is a member, Exchange Act Release No. 68101 (Oct. 24,
2012), 77 FR 65732, 65733, 65739 (Oct. 30, 2012)); APMEX Physical--1
oz. Gold Redeemable Trust, Exchange Act Release No. 66930 (May 7,
2012), 77 FR 27817, 27818 (May 11, 2012) (SR-NYSEArca-2012-18)
(notice of proposed rule change included NYSE Arca's representation
that NYSE Arca ``may obtain trading information via the Intermarket
Surveillance Group,'' of which COMEX is a member, and that gold
futures are traded on COMEX and the Tokyo Commodity Exchange, with a
cross- reference to the proposed rule change to list and trade
shares of the ETFS Gold Trust, in which NYSE Arca represented that
COMEX is one of the ``major world gold markets,'' Exchange Act
Release No. 66627 (Mar. 20, 2012), 77 FR 17539, 17542-43, 17547
(Mar. 26, 2012)); JPM XF Physical Copper Trust, Exchange Act Release
No. 68440 (Dec. 14, 2012), 77 FR 75468, 75469-70, 75472, 75485-86
(Dec. 20, 2012) (SR-NYSEArca-2012-28); iShares Copper Trust,
Exchange Act Release No. 68973 (Feb. 22, 2013), 78 FR 13726, 13727,
13729-30, 13739-40 (Feb. 28, 2013) (SR-NYSEArca-2012-66); First
Trust Gold Trust, Exchange Act Release No. 70195 (Aug. 14, 2013), 78
FR 51239, 51240 (Aug. 20, 2013) (SR-NYSEArca-2013-61) (notice of
proposed rule change included NYSE Arca's representation that FINRA,
on behalf of the exchange, may obtain trading information regarding
gold futures and options on gold futures from members of the
Intermarket Surveillance Group, including COMEX, or from markets
``with which [NYSE Arca] has in place a comprehensive surveillance
sharing agreement,'' and that gold futures are traded on COMEX and
the Tokyo Commodity Exchange, with a cross-reference to the proposed
rule change to list and trade shares of the ETFS Gold Trust, in
which NYSE Arca represented that COMEX is one of the ``major world
gold markets,'' Exchange Act Release No. 69847 (June 25, 2013), 78
FR 39399, 39400, 39405 (July 1, 2013)); Merk Gold Trust, Exchange
Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 4786-87 (Jan. 29,
2014) (SR-NYSEArca-2013-137) (notice of proposed rule change
included NYSE Arca's representation that ``COMEX is the largest gold
futures and options exchange'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,''
including with respect to transactions occurring on COMEX pursuant
to CME and NYMEX's membership, or from exchanges ``with which [NYSE
Arca] has in place a comprehensive surveillance sharing agreement,''
Exchange Act Release No. 71038 (Dec. 11, 2013), 78 FR 76367, 76369,
76374 (Dec. 17, 2013)); Long Dollar Gold Trust, Exchange Act Release
No. 79518 (Dec. 9, 2016), 81 FR 90876, 90881, 90886, 90888 (Dec. 15,
2016) (SR-NYSEArca-2016-84).
    \13\ See Winklevoss Order at 37592.
---------------------------------------------------------------------------

    As such, the regulated market of significant size test does not
require that the spot bitcoin market be regulated in order for the
Commission to approve this proposal, and precedent makes clear that an
underlying market for a spot commodity or currency being a regulated
market would actually be an exception to the norm. These largely
unregulated currency and commodity markets do not provide the same
protections as the markets that are subject to the Commission's
oversight, but the Commission has consistently looked to surveillance
sharing agreements with the underlying futures market in order to
determine whether such products were consistent with the Act. With this
in mind, the Bitcoin Futures market, as defined below, is the proper
market to consider in determining whether there is a related regulated
market of significant size.

    Further to this point, the Exchange notes that the Commission has
recently approved proposals related to the listing and trading of funds
that would primarily hold Bitcoin Futures that are registered under the
Securities Act of 1933 instead of the Investment Company Act of 1940,
as amended (the ``1940 Act'').\14\ In the Teucrium Approval, the
Commission found the Bitcoin Futures market to be a regulated market of
significant size as it relates to Bitcoin Futures, an odd tautological
truth that is also inconsistent with prior disapproval orders for
exchange traded products (``ETPs'') that would hold actual bitcoin
instead of derivatives contracts (``Spot Bitcoin ETPs'') that use the
exact same pricing methodology as the Bitcoin Futures. As further
discussed below, both the Exchange and the Sponsor believe that this
proposal and the included analysis are sufficient to establish that the
Bitcoin Futures market represents a regulated market of significant
size as it relates both to the Bitcoin Futures market and to the spot
bitcoin market and that this proposal should be approved.
---------------------------------------------------------------------------

    \14\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR
21676 (April 12, 2022) (the ``Teucrium Approval'') and 94853 (May 5,
2022) (collectively, with the Teucrium Approval, the ``Bitcoin
Futures Approvals'').
---------------------------------------------------------------------------

Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the
launch of ETFs registered under the 1940 Act and the recent Bitcoin
Futures Approvals that provide exposure to bitcoin primarily through
Bitcoin Futures (``Bitcoin Futures ETFs''). Allowing such products to
list and trade is a productive first step in providing U.S. investors
and traders with transparent, exchange-listed tools for expressing a
view on bitcoin. The Bitcoin Futures Approvals, however, have created a
logical inconsistency in the application of the standard the Commission
applies when considering bitcoin ETP proposals.
    As discussed further below, the standard applicable to bitcoin ETPs
is whether the listing exchange has in place a comprehensive
surveillance sharing agreement with a regulated market of significant
size in the underlying asset. Previous disapproval orders have made
clear that a market that constitutes a regulated market of significant
size is generally a futures and/or options market based on the
underlying reference asset rather than the spot commodity markets,
which are often unregulated.\15\ Leaving aside the analysis of that
standard until later in this proposal,\16\ the Exchange believes that
the following rationale that the Commission applied to a Bitcoin
Futures ETF should result in the Commission approving this and other
Spot Bitcoin ETP proposals:
---------------------------------------------------------------------------

    \15\ See Winklevoss Order at 37593, specifically footnote 202,
which includes the language from numerous approval orders for which
the underlying futures markets formed the basis for approving series
of ETPs that hold physical metals, including gold, silver,
palladium, platinum, and precious metals more broadly; and 37600,
specifically where the Commission provides that ``when the spot
market is unregulated--the requirement of preventing fraudulent and
manipulative acts may possibly be satisfied by showing that the ETP
listing market has entered into a surveillance-sharing agreement
with a regulated market of significant size in derivatives related
to the underlying asset.'' As noted above, the Exchange believes
that these citations are particularly helpful in making clear that
the spot market for a spot commodity ETP need not be ``regulated''
in order for a spot commodity ETP to be approved by the Commission,
and in fact that it's been the common historical practice of the
Commission to rely on such derivatives markets as the regulated
market of significant size because such spot commodities markets are
largely unregulated.
    \16\ As further outlined below, both the Exchange and the
Sponsor believe that the Bitcoin Futures market represents a
regulated market of significant size and that this proposal and
others like it should be approved on this basis.

    The CME ``comprehensively surveils futures market conditions and
price movements on a real-time and ongoing basis in order to detect
and prevent price distortions, including price distortions caused by
manipulative efforts.'' Thus, the CME's surveillance can reasonably
be relied upon to capture the effects on the CME bitcoin futures
market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures
contracts, whether that attempt is made by directly trading on the
CME bitcoin futures market or indirectly by trading outside of the
CME bitcoin futures market. As such, when the CME shares its
surveillance information with Arca, the information would assist in
detecting and deterring fraudulent or manipulative misconduct
related to the non-cash assets held by the proposed ETP.\17\
---------------------------------------------------------------------------

    \17\ See Teucrium Approval at 21679.

    Bitcoin Futures pricing is based on pricing from spot bitcoin
markets. The statement from the Teucrium Approval that ``CME's
surveillance can reasonably be relied upon to capture the effects on
the CME bitcoin futures market caused by a person attempting to
manipulate the proposed futures ETP by manipulating the price of CME
bitcoin futures contracts . . . indirectly by trading outside of the
CME bitcoin futures market,'' makes clear that the Commission believes
that CME's surveillance can capture the effects of trading on the
relevant spot markets on the pricing of Bitcoin Futures. If CME is able
to detect such attempts at manipulation in the complex and
interconnected spot bitcoin market, how would such an ability to detect
attempted manipulation and the utility in sharing that information with
the listing exchange apply only to Bitcoin Futures ETFs and not Spot
Bitcoin ETPs? Stated a different way, given that there is significant
trading volume on numerous bitcoin exchanges that are not part of the
CME CF Bitcoin Reference Rate and that arbitrage opportunities across
bitcoin exchanges means that such trading volume will influence spot
bitcoin prices across the market and, despite this, the Commission
still believes that CME can detect attempted manipulation of the
Bitcoin Futures through ``trading outside of the CME bitcoin futures
market,'' it is clear that such ability would apply equally to both
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further,
such an ability would also seem to be a strong indication that the CME
Bitcoin Futures market represents a regulated market of significant
size. To be clear, the Exchange agrees with the Commission on this
point (and the implications of their conclusions) and notes that the
pricing mechanism applicable to the Shares is similar to the CME CF
Bitcoin Reference Rate, as further discussed below.
    The Exchange also notes that a Bitcoin Futures ETF may also be more
susceptible to potential manipulation than a Spot Bitcoin ETP that
offers only in-kind creation and redemption because Bitcoin Futures
pricing (and thus the value of the underlying holdings of a Bitcoin
Futures ETF) is based on a single price derived from spot bitcoin
pricing, while shares of a Spot Bitcoin ETP would represent interest in
bitcoin directly and authorized participants for a Spot Bitcoin ETP (as
proposed herein) would be able to source bitcoin from any exchange and
create or redeem with the applicable trust regardless of the price of
the underlying index. As such, the Exchange believes that, in addition
to the CME Bitcoin Futures market representing a regulated market of
significant size as it relates to the spot bitcoin market, in-kind Spot
Bitcoin ETPs are likely less susceptible to manipulation than Bitcoin
Futures ETFs because of the underlying creation and redemption
arbitrage mechanism that will operate in the same manner as it does for
all other ETFs.
    In addition to potentially being more susceptible to manipulation
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides
negative outcomes for buy and hold investors as

compared to a Spot Bitcoin ETP.\18\ Specifically, the cost of rolling
Bitcoin Futures contracts will cause the Bitcoin Futures ETFs to lag
the performance of bitcoin itself and, at over a billion dollars in
assets under management, would cost U.S. investors significant amounts
of money on an annual basis compared to Spot Bitcoin ETPs. Such rolling
costs would not be required for Spot Bitcoin ETPs that hold bitcoin.
Further, Bitcoin Futures ETFs could potentially hit CME position
limits, which would force a Bitcoin Futures ETF to invest in non-
futures assets for bitcoin exposure and cause potential investor
confusion and lack of certainty about what such Bitcoin Futures ETFs
are actually holding to try to get exposure to bitcoin, not to mention
completely changing the risk profile associated with such an ETF. While
Bitcoin Futures ETFs represent a useful trading tool, they are clearly
a sub-optimal structure for U.S. investors that are looking for long-
term exposure to bitcoin that will, based on the calculations above,
unnecessarily cost U.S. investors significant amounts of money every
year compared to Spot Bitcoin ETPs and the Exchange believes that any
proposal to list and trade a Spot Bitcoin ETP should be reviewed by the
Commission with this important investor protection context in mind.
---------------------------------------------------------------------------

    \18\ See e.g., ``Bitcoin ETF's Success Could Come at
Fundholders' Expense,'' Wall Street Journal (October 24, 2021),
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&_cf_chl_jschl_tk_=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that any
objective review of the proposals to list Spot Bitcoin ETPs compared to
the Bitcoin Futures ETFs and the Bitcoin Futures Approvals would lead
to the conclusion that Spot Bitcoin ETPs should be available to U.S.
investors and, as such, this proposal and other comparable proposals to
list and trade Spot Bitcoin ETPs should be approved by the Commission.
Stated simply, U.S. investors will continue to lose significant amounts
of money from holding Bitcoin Futures ETFs as compared to Spot Bitcoin
ETPs, losses which could be prevented by the Commission approving Spot
Bitcoin ETPs. Additionally, any concerns related to preventing
fraudulent and manipulative acts and practices related to Spot Bitcoin
ETPs would apply equally to the spot markets underlying the futures
contracts held by a Bitcoin Futures ETF. While the 1940 Act does offer
certain investor protections, those protections do not relate to
mitigating potential manipulation of the holdings of an ETF in a way
that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin
ETPs. To be clear, both the Exchange and Sponsor believe that the
Bitcoin Futures market is a regulated market of significant size and
that such manipulation concerns are mitigated as described throughout
this proposal. After issuing the Bitcoin Futures Approvals which
conclude the CME Bitcoin Futures market is a regulated market of
significant size as it relates to Bitcoin Futures, the only consistent
outcome would be approving Spot Bitcoin ETPs on the basis that the
Bitcoin Futures market is also a regulated market of significant size
as it relates to the bitcoin spot market. Including in the analysis the
significant and preventable losses to U.S. investors that comes with
Bitcoin Futures ETFs, disapproving Spot Bitcoin ETPs seems even more
arbitrary and capricious. Given the current landscape, approving this
proposal (and others like it) and allowing Spot Bitcoin ETPs to be
listed and traded alongside Bitcoin Futures ETFs would establish a
consistent regulatory approach, provide U.S. investors with choice in
product structures for bitcoin exposure, and offer flexibility in the
means of gaining exposure to bitcoin through transparent, regulated,
U.S. exchange-listed vehicles.
Spot and Proxy Exposure to Bitcoin
    Exposure to bitcoin through an ETP also presents certain advantages
for retail investors compared to buying spot bitcoin directly. The most
notable advantage from the Sponsor's perspective is the elimination of
the need for an individual retail investor to either manage their own
private keys or to hold bitcoin through a cryptocurrency exchange that
lacks sufficient protections. Typically, retail exchanges hold most, if
not all, retail investors' bitcoin in ``hot'' (internet-connected)
storage and do not make any commitments to indemnify retail investors
or to observe any particular cybersecurity standard. Meanwhile, a
retail investor holding spot bitcoin directly in a self-hosted wallet
may suffer from inexperience in private key management (e.g.,
insufficient password protection, lost key, etc.), which could cause
them to lose some or all of their bitcoin holdings. Thus, with respect
to custody of the Trust's bitcoin assets, the Trust presents advantages
from an investment protection standpoint for retail investors compared
to owning spot bitcoin directly.
    Finally, a number of operating companies largely engaged in
unrelated businesses--such as Tesla (a car manufacturer) and
MicroStrategy (an enterprise software company)--have announced
significant investments in bitcoin. Without access to bitcoin exchange-
traded products, retail investors seeking investment exposure to
bitcoin may end up purchasing shares in these companies in order to
gain the exposure to bitcoin that they seek.\19\ In fact, mainstream
financial news networks have written a number of articles providing
investors with guidance for obtaining bitcoin exposure through publicly
traded companies (such as MicroStrategy, Tesla, and bitcoin mining
companies, among others) instead of dealing with the complications
associated with buying spot bitcoin in the absence of a bitcoin
ETP.\20\ Such operating companies, however, are imperfect bitcoin
proxies and provide investors with partial bitcoin exposure paired with
a host of additional risks associated with whichever operating company
they decide to purchase. Additionally, the disclosures provided by the
aforementioned operating companies with respect to risks relating to
their bitcoin holdings are generally substantially smaller than the
registration statement of a bitcoin ETP, including the Registration
Statement, typically amounting to a few sentences of narrative
description and a handful of risk factors.\21\ In other words,
investors seeking bitcoin exposure through publicly traded companies
are gaining only partial exposure to bitcoin and are not fully
benefitting from the risk disclosures and associated investor
protections that come from the securities registration process.
---------------------------------------------------------------------------

    \19\ In August 2017, the Commission's Office of Investor
Education and Advocacy warned investors about situations where
companies were publicly announcing events relating to digital coins
or tokens in an effort to affect the price of the company's publicly
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
    \20\ See e.g., ``7 public companies with exposure to bitcoin''
(February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want
to get in the crypto trade without holding bitcoin yourself? Here
are some investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \21\ See, e.g. Tesla 10-K for the year ended December 31, 2020,
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.

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

Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each
contract represents five bitcoin and is based on the CME CF Bitcoin
Reference Rate.\22\ The contracts trade and settle like other cash-
settled commodity futures contracts. Nearly every measurable metric
related to Bitcoin Futures has generally trended up since launch,
although certain notional volume calculations have decreased roughly in
line with the decrease in the price of bitcoin. For example, there were
276,542 Bitcoin Futures contracts traded in March 2023 compared to
165,567, 233,345, and 183,131 contracts traded in March 2020, March
2021, and March 2023, respectively.
---------------------------------------------------------------------------

    \22\ The CME CF Bitcoin Reference Rate is based on a publicly
available calculation methodology based on pricing sourced from
several crypto exchanges and trading platforms, including Bitstamp,
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN21JY23.001

BILLING CODE 8011-01-C
    The Sponsor further believes that publicly available research,
including research done as part of rule filings proposing to list and
trade shares of Spot Bitcoin ETPs, corroborates the overall trend
outlined above and supports the thesis that the Bitcoin Futures pricing
leads the spot market and, thus, a person attempting to manipulate the
Shares would also have to trade on that market to manipulate the ETP.
Specifically, the Sponsor believes that such research indicates that
bitcoin futures lead the bitcoin spot market in price formation.\23\
---------------------------------------------------------------------------

    \23\ See Exchange Act Releases No. 94080 (January 27, 2022), 87
FR 5527 (April 12, 2022) (specifically ``Amendment No. 1 to the
Proposed Rule Change To List and Trade Shares of the Wise Origin
Bitcoin Trust Under BZX Rule 14.11(3)(4), Commodity-Based Trust
Shares''); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844
(May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28,
2021), 86 FR 60695 (November 3, 2021). See also Hu, Y., Hou, Y. and
Oxley, L. (2019). ``What role do futures markets play in Bitcoin
pricing? Causality, cointegration and price discovery from a time-
varying perspective'' (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic research paper concludes
that ``There exist no episodes where the Bitcoin spot markets
dominates the price discovery processes with regard to Bitcoin
futures. This points to a conclusion that the price formation
originates solely in the Bitcoin futures market. We can, therefore,
conclude that the Bitcoin futures markets dominate the dynamic price
discovery process based upon time- varying information share
measures. Overall, price discovery seems to occur in the Bitcoin
futures markets rather than the underlying spot market based upon a
time-varying perspective.''
---------------------------------------------------------------------------

Preventing Fraudulent and Manipulative Practices
    In order for any proposed rule change from an exchange to be
approved, the Commission must determine that, among other things, the
proposal is consistent with the requirements of section 6(b)(5) of the
Act, specifically including: (i) the requirement that a national
securities exchange's rules are designed to prevent fraudulent and
manipulative acts and practices; \24\ and (ii) the requirement that an
exchange proposal be designed, in general, to protect investors and the
public interest. The Exchange believes that this proposal is consistent
with the requirements of section 6(b)(5) of the Act and that this
filing sufficiently demonstrates that the Bitcoin Futures market
represents a regulated market of significant size and that, on the
whole, the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal.
---------------------------------------------------------------------------

    \24\ The Exchange believes that bitcoin is resistant to price
manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the price of
bitcoin on other markets, such pricing does not normally impact
prices on other exchange because participants will generally ignore
markets with quotes that they deem non-executable. Moreover, the
linkage between the bitcoin markets and the presence of arbitrageurs
in those markets means that the manipulation of the price of bitcoin
price on any single venue would require manipulation of the global
bitcoin price in order to be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a result, the
potential for manipulation on a trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \25\ with a regulated market of significant size.
Both the Exchange and CME are members of ISG.\26\ The only remaining
issue to be addressed is whether the Bitcoin Futures market constitutes
a market of significant size, which both the Exchange and the Sponsor
believe that it does. The terms ``significant market'' and ``market of
significant size'' include a market (or group of markets) as to which:
(a) there is a reasonable likelihood that a person attempting to
manipulate the ETP would also have to trade on that market to
manipulate the ETP, so that a surveillance-sharing agreement would
assist the listing exchange in detecting and deterring misconduct; and
(b) it is unlikely that trading in the ETP would be the predominant
influence on prices in that market.\27\
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    \25\ As previously articulated by the Commission, ``The standard
requires such surveillance-sharing agreements since ``they provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to fully investigate a
manipulation if it were to occur.'' The Commission has emphasized
that it is essential for an exchange listing a derivative securities
product to enter into a surveillance--sharing agreement with markets
trading underlying securities for the listing exchange to have the
ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of
exchange rules and applicable federal securities laws and rules. The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties
to the agreement have reasonable ability to obtain access to and
produce requested information; and that no existing rules, laws, or
practices would impede one party to the agreement from obtaining
this information from, or producing it to, the other party.'' The
Commission has historically held that joint membership in the
Intermarket Surveillance Group (``ISG'') constitutes such a
surveillance sharing agreement. See Securities Exchange Act Release
No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval'').
    \26\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
    \27\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\28\
---------------------------------------------------------------------------

    \28\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
---------------------------------------------------------------------------

(a) Reasonable Likelihood That a Person Attempting To Manipulate the
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the
spot bitcoin market as has been laid out above and in other proposals
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is
based on pricing from spot bitcoin markets. As noted above, the
statement from the Teucrium Approval that ``CME's surveillance can
reasonably be relied upon to capture the effects on the CME bitcoin
futures market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures contracts
. . . indirectly by trading outside of the CME bitcoin futures
market,'' makes clear that the Commission believes that CME's
surveillance can capture the effects of trading on the relevant spot
markets on the pricing of Bitcoin Futures. While the Commission makes
clear in the Teucrium Approval that the analysis only applies to the
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin
Futures as its only non-cash or cash equivalent holding, if

CME's surveillance is sufficient to mitigate concerns related to
trading in Bitcoin Futures for which the pricing is based directly on
pricing from spot bitcoin markets, it's not clear how such a conclusion
could apply only to ETPs based on Bitcoin Futures and not extend to
Spot Bitcoin ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more
susceptible to manipulation than a Spot Bitcoin ETP where the
underlying trust offers only in-kind creation and redemption.
Specifically, the pricing of Bitcoin Futures is based on prices from
spot bitcoin markets, while shares of a Spot Bitcoin ETP would
represent an interest in bitcoin directly and authorized participants
for a Spot Bitcoin ETP would be able to source bitcoin from any
exchange and create or redeem with the applicable trust regardless of
the price of the underlying index. Potential manipulation of a Bitcoin
Futures ETF would require manipulation on the spot markets on which the
pricing for Bitcoin Futures are based while the in-kind creation and
redemption process and fungibility of bitcoin means that a would be
manipulator of a Spot Bitcoin ETP would need to manipulate the price
across all bitcoin markets or risk simply providing arbitrage
opportunities for authorized participants. Further to this point, this
arbitrage opportunity also acts to reduce any incentives to manipulate
the price of a Spot Bitcoin ETP because the underlying trust will
create and redeem shares at set rates of bitcoin per share without
regard to the price that the ETP is trading at in the secondary market
or the price of the underlying index. As such, the Exchange believes
that part (a) of the significant market test outlined above is
satisfied and that common membership in ISG between the Exchange and
CME would assist the listing exchange in detecting and deterring
misconduct in the Shares.
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant force on prices in the Bitcoin Futures
market or spot market for a number of reasons, including the in-kind
creation and redemption process, the spot market arbitrage
opportunities that such in-kind creation and redemption process
creates, the significant volume in the Bitcoin Futures market, the size
of bitcoin's market cap, and the significant liquidity available in the
spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid. According
to data from Skew, the cost to buy or sell $5 million worth of bitcoin
averages roughly 48 basis points with a market impact of $139.08.\29\
Stated another way, a market participant could enter a market buy or
sell order for $5 million of bitcoin and only move the market 0.48%.
More strategic purchases or sales (such as using limit orders and
executing through OTC bitcoin trade desks) would likely have less
obvious impact on the market--which is consistent with MicroStrategy,
Tesla, and Square being able to collectively purchase billions of
dollars in bitcoin.
---------------------------------------------------------------------------

    \29\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase, FTX and Kraken during the one year period ending
May 2022.
---------------------------------------------------------------------------

    As such, the combination of the in-kind creation and redemption
process, the Bitcoin Futures leading price discovery, the overall size
of the bitcoin market, and the ability for market participants,
including authorized participants creating and redeeming in-kind with
the Trust, to buy or sell large amounts of bitcoin without significant
market impact will help prevent the Shares from becoming the
predominant force on pricing in either the bitcoin spot or Bitcoin
Futures markets, satisfying part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
SSA With Bitcoin Spot Market
    The Exchange is also proposing to take additional steps to those
described above to supplement its ability to obtain information that
would be helpful in detecting, investigating, and deterring fraud and
market manipulation in the Commodity-Based Trust Shares.
    On June 30, 2023, the Exchange executed a term sheet with Coinbase,
Inc. (``Coinbase'') to enter into a surveillance-sharing agreement
(``Spot BTC SSA''). Based on this agreement, the Exchange and Coinbase
will finalize and execute a definitive agreement that the parties
expect to be executed prior to allowing trading of the Commodity-Based
Trust Shares. Trading of Bitcoin on Coinbase represents a significant
portion of US-based Bitcoin trading. According to the Sponsor, the
Exchange aims to enter into a surveillance-sharing agreement with
Coinbase, the operator of the largest United States-based spot trading
platform for Bitcoin representing a majority of global spot BTC trading
paired with USD. The surveillance-sharing agreement would give the
Exchange supplemental access to data regarding spot Bitcoin trades
occurring on Coinbase if it is determined to be a necessary as part of
its surveillance program for the Commodity-Based Trust Shares. Trading
on Coinbase consistently accounts for over 50% of market share of BTC-
USD spot trading volume.
    The Spot BTC SSA is expected to be a bilateral surveillance-sharing
agreement between Nasdaq and Coinbase that is intended to supplement
the Exchange's market surveillance program. The Spot BTC SSA is
expected to have the hallmarks of a surveillance-sharing agreement
between two members of the ISG, which would give the Exchange
supplemental access to data regarding spot Bitcoin trades on Coinbase
where the Exchange determines it is necessary as part of its
surveillance program for the Commodity-Based Trust Shares. This means
that the Exchange expects to receive market data for orders and trades
from Coinbase, which it will utilize in surveillance of the trading of
Commodity-Based Trust Shares. In addition, the Exchange can request
further information from Coinbase related to spot bitcoin trading
activity on the Coinbase exchange platform, if the Exchange determines
that such information would be necessary to detect and investigate
potential manipulation in the trading of the Commodity-Based Trust
Shares.
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange and Sponsor
believe that such conditions are present. Consistent with prior points
above, offering only in-kind creation and redemption will provide
unique protections against potential attempts to manipulate the Shares.
While the Sponsor believes that the Benchmark which it uses to value
the Trust's bitcoin is itself resistant to manipulation based on the
methodology further described below, the fact that creations and
redemptions are only available in-kind makes the manipulability of the
Benchmark significantly less important. Specifically, because the Trust
will not accept cash to buy bitcoin in order to create new shares or,
barring a forced redemption of the Trust or under other extraordinary
circumstances, be forced to sell bitcoin to pay cash for redeemed
shares, the price that the Sponsor uses to value the Trust's bitcoin is
not

particularly important.\30\ When authorized participants are creating
with the Trust, they need to deliver a certain number of bitcoin per
share (regardless of the valuation used) and when they're redeeming,
they can similarly expect to receive a certain number of bitcoin per
share. As such, even if the price used to value the Trust's bitcoin is
manipulated (which the Sponsor believes that its methodology is
resistant to), the ratio of bitcoin per Share does not change and the
Trust will either accept (for creations) or distribute (for
redemptions) the same number of bitcoin regardless of the value. This
not only mitigates the risk associated with potential manipulation, but
also discourages and disincentivizes manipulation of the Benchmark
because there is little financial incentive to do so.
---------------------------------------------------------------------------

    \30\ While the Benchmark will not be particularly important for
the creation and redemption process, it will be used for calculating
fees.
---------------------------------------------------------------------------

Availability of Information
    The Trust's website (https://valkyrieinvest.com/) will include
quantitative information on a per Share basis updated on a daily basis,
including (i) the current NAV per Share daily and the prior business
day's NAV and the reported closing price; (ii) the mid-point of the
bid-ask price \31\ in relation to the NAV as of the time the NAV is
calculated (``Bid-Ask Price'') and a calculation of the premium or
discount of such price against such NAV; and (iii) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid-Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter). In addition, on each business day the Trust's
website will provide pricing information for the Shares. Also, an
estimated value that reflects an estimated intraday value of the
Trust's portfolio (the ``Intraday Indicative Value''), will be
disseminated.
---------------------------------------------------------------------------

    \31\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    The Trust's website will provide an IIV per Share updated every 15
seconds, as calculated by the Exchange or a third-party financial data
provider during the Exchange's Regular Market Session (9:30 a.m. to
4:00 p.m. (Eastern time)).\32\ The IIV will be calculated by using the
prior day's closing NAV per Share as a base and updating that value
during the Exchange's Regular Market Session to reflect changes in the
value of the Trust's NAV during the trading day.
---------------------------------------------------------------------------

    \32\ The IIV on a per Share basis disseminated during the
Regular Market Session should not be viewed as a real-time update of
the NAV, which is calculated once a day.
---------------------------------------------------------------------------

    The IIV disseminated during the Exchange's Regular Market Session
should not be viewed as an actual real-time update of the NAV, which
will be calculated only once at the end of each trading day. The IIV
will be widely disseminated on a per Share basis every 15 seconds
during the Exchange's Regular Market Session by one or more major
market data vendors. In addition, the IIV will be available through on-
line information services.
    The NAV for the Trust will be calculated by the Sponsor once a day
and will be disseminated daily to all market participants at the same
time. Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
Initial and Continued Listing
    The Shares will be subject to Nasdaq Rule 5711(d)(vi), 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 will be made
available to all market participants at the same time. 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 Nasdaq Rule 5711(d)(vi)(D) and no
change will be made to the trustee without prior notice to and approval
of the Exchange.
    As required in Nasdaq Rule 5711(d)(vii), 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 the underlying
commodity, related futures or options on futures, or any other related
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker in
the Shares shall trade in the underlying commodity, related futures or
options on futures, or any other related 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
Nasdaq Rule 5711(d). In addition to the existing obligations under
Exchange rules regarding the production of books and records, the
registered Market Maker in the Shares shall make available to the
Exchange such books, records or other information pertaining to
transactions by such entity or any limited partner, officer or approved
person thereof, registered or non-registered employee affiliated with
such entity for its or their own accounts in the underlying commodity,
related futures or options on futures, or any other related
derivatives, as may be requested by the Exchange.
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. The Exchange will
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. (Eastern time).
The Exchange has appropriate rules to facilitate transactions in the
Shares during all trading sessions. The Shares of the Trust will
conform to the initial and continued listing criteria set forth in
Nasdaq Rule 5711(d).
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 Nasdaq Rules 4120 and 4121, including
without limitation the conditions specified in Nasdaq Rule 4120(a)(9)
and the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
    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.
    If the IIV or the value of the underlying futures contract is not
being disseminated as required, the Exchange may halt trading during
the day in which the interruption to the dissemination of the IIV or
the value of the underlying futures contract occurs. If the
interruption to the dissemination of the IIV or the value of the
underlying bitcoin persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption. In addition, if the Exchange
becomes aware that the NAV

with respect to the Shares is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV is available to all market participants.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of Shares on
the Exchange will be subject to the Exchange's surveillance procedures
for derivative products. The Exchange will require the Trust to
represent to the Exchange that it will advise the Exchange of any
failure by the Trust to comply with the continued listing requirements,
and, pursuant to its obligations under section 19(g)(1) of the Exchange
Act, the Exchange will surveil for compliance with the continued
listing requirements. If the Trust is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under the Nasdaq 5800 Series. In addition, the Exchange also
has a general policy prohibiting the distribution of material, non-
public information by its employees.
    On June 30, 2023, the Exchange executed a term sheet with Coinbase
to enter into a Spot BTC SSA. Based on this agreement, the Exchange and
Coinbase will finalize and execute a definitive agreement that the
parties expect to be executed prior to allowing trading of the
Commodity-Based Trust Shares. Trading of Bitcoin on Coinbase represents
a significant portion of US-based Bitcoin trading. According to the
Sponsor, the Exchange aims to enter into a surveillance-sharing
agreement with Coinbase, the operator of the largest United States-
based spot trading platform for Bitcoin representing a majority of
global spot BTC trading paired with USD. The surveillance-sharing
agreement would give the Exchange supplemental access to data regarding
spot Bitcoin trades occurring on Coinbase if it is determined to be a
necessary as part of its surveillance program for the Commodity-Based
Trust Shares. Trading on Coinbase consistently accounts for over 50% of
market share of BTC-USD spot trading volume.
    The Spot BTC SSA is expected to be a bilateral surveillance-sharing
agreement between Nasdaq and Coinbase that is intended to supplement
the Exchange's market surveillance program. The Spot BTC SSA is
expected to have the hallmarks of a surveillance-sharing agreement
between two members of the ISG, which would give the Exchange
supplemental access to data regarding spot Bitcoin trades on Coinbase
where the Exchange determines it is necessary as part of its
surveillance program for the Commodity-Based Trust Shares. This means
that the Exchange expects to receive market data for orders and trades
from Coinbase, which it will utilize in surveillance of the trading of
Commodity-Based Trust Shares. In addition, the Exchange can request
further information from Coinbase related to spot bitcoin trading
activity on the Coinbase exchange platform, if the Exchange determines
that such information would be necessary to detect and investigate
potential manipulation in the trading of the Commodity-Based Trust
Shares.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) the procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Section 10 of Nasdaq General Rule 9,
which imposes suitability obligations on Nasdaq members with respect to
recommending transactions in the Shares to customers; (3) how
information regarding the IIV is disseminated; (4) the risks involved
in trading the Shares during the Pre-Market and Post-Market Sessions
when an updated IIV will not be calculated or publicly disseminated;
(5) the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
    Additionally, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the Draft
Registration Statement. The Information Circular will also disclose the
trading hours of the Shares. The Information Circular will disclose
that information about the Shares will be publicly available on the
Trust's website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with section
6(b) of the Act \33\ in general and section 6(b)(5) of the Act \34\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f.
    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued
Receipts,\35\ including Commodity-Based Trust Shares,\36\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices; and
(ii) the requirement that an exchange proposal be designed, in general,
to protect investors and the public interest. The Exchange believes
that this proposal is consistent with the requirements of section
6(b)(5) of the Act because this filing sufficiently demonstrates that
the standard that has previously been articulated by the Commission
applicable to Commodity-Based Trust Shares has been met as outlined
below.
---------------------------------------------------------------------------

    \35\ See Exchange Rule 5720.
    \36\ Commodity-Based Trust Shares, as described in Exchange Rule
5711(d), are a type of Trust Issued Receipt.
---------------------------------------------------------------------------

Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order for a proposal to list and trade a series of Commodity-
Based Trust Shares to be deemed consistent with the Act, the Commission
requires that an exchange demonstrate that there is a comprehensive
surveillance-sharing agreement in place with a regulated market of
significant size. Both the Exchange and CME are members of ISG.\37\ As
such, the only remaining issue to be addressed is whether the Bitcoin
Futures market constitutes a market of significant size, which the
Exchange believes that it does. The terms ``significant market'' and
``market of significant size'' include a market (or group of markets)
as to which: (a) there is a reasonable likelihood that a person

attempting to manipulate the ETP would also have to trade on that
market to manipulate the ETP, so that a surveillance-sharing agreement
would assist the listing exchange in detecting and deterring
misconduct; and (b) it is unlikely that trading in the ETP would be the
predominant influence on prices in that market.\38\
---------------------------------------------------------------------------

    \37\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
    \38\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\39\
---------------------------------------------------------------------------

    \39\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a ``cannot be
manipulated'' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.
Id. at 37582.
---------------------------------------------------------------------------

(a) Reasonable Likelihood That a Person Attempting To Manipulate the
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the
spot bitcoin market as has been laid out above and in other proposals
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is
based on pricing from spot bitcoin markets. As noted above, the
statement from the Teucrium Approval that ``CME's surveillance can
reasonably be relied upon to capture the effects on the CME bitcoin
futures market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures contracts
. . . indirectly by trading outside of the CME bitcoin futures
market,'' makes clear that the Commission believes that CME's
surveillance can capture the effects of trading on the relevant spot
markets on the pricing of Bitcoin Futures. While the Commission makes
clear in the Teucrium Approval that the analysis only applies to the
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin
Futures as its only non-cash or cash equivalent holding, if CME's
surveillance is sufficient to mitigate concerns related to trading in
Bitcoin Futures for which the pricing is based directly on pricing from
spot bitcoin markets, it's not clear how such a conclusion could apply
only to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin
ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more
susceptible to manipulation than a Spot Bitcoin ETP where the
underlying trust offers only in-kind creation and redemption.
Specifically, the pricing of Bitcoin Futures is based on prices from
spot bitcoin markets, while shares of a Spot Bitcoin ETP would
represent an interest in bitcoin directly and authorized participants
for a Spot Bitcoin ETP would be able to source bitcoin from any
exchange and create or redeem with the applicable trust regardless of
the price of the underlying index. Potential manipulation of a Bitcoin
Futures ETF would require manipulation on the spot markets on which the
pricing for Bitcoin Futures are based while the in-kind creation and
redemption process and fungibility of bitcoin means that a would be
manipulator of a Spot Bitcoin ETP would need to manipulate the price
across all bitcoin markets or risk simply providing arbitrage
opportunities for authorized participants. Further to this point, this
arbitrage opportunity also acts to reduce any incentives to manipulate
the price of a Spot Bitcoin ETP because the underlying trust will
create and redeem shares at set rates of bitcoin per share without
regard to the price that the ETP is trading at in the secondary market
or the price of the underlying index. As such, the Exchange believes
that part (a) of the significant market test outlined above is
satisfied and that common membership in ISG between the Exchange and
CME would assist the listing exchange in detecting and deterring
misconduct in the Shares.
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant force on prices in the Bitcoin Futures
market or spot market for a number of reasons, including the in-kind
creation and redemption process, the spot market arbitrage
opportunities that such in-kind creation and redemption process
creates, the significant volume in the Bitcoin Futures market, the size
of bitcoin's market cap, and the significant liquidity available in the
spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid. According
to data from Skew, the cost to buy or sell $5 million worth of bitcoin
averages roughly 48 basis points with a market impact of $139.08.\40\
Stated another way, a market participant could enter a market buy or
sell order for $5 million of bitcoin and only move the market 0.48%.
More strategic purchases or sales (such as using limit orders and
executing through OTC bitcoin trade desks) would likely have less
obvious impact on the market--which is consistent with MicroStrategy,
Tesla, and Square being able to collectively purchase billions of
dollars in bitcoin.
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    \40\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase, FTX and Kraken during the one year period ending
May 2022.
---------------------------------------------------------------------------

    As such, the combination of the in-kind creation and redemption
process, the Bitcoin Futures leading price discovery, the overall size
of the bitcoin market, and the ability for market participants,
including authorized participants creating and redeeming in-kind with
the Trust, to buy or sell large amounts of bitcoin without significant
market impact will help prevent the Shares from becoming the
predominant force on pricing in either the bitcoin spot or Bitcoin
Futures markets, satisfying part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
SSA With Bitcoin Spot Market
    The Exchange is also proposing to take additional steps to those
described above to supplement its ability to obtain information that
would be helpful in detecting, investigating, and deterring fraud and
market manipulation in the Commodity-Based Trust Shares.
    On June 30, 2023, the Exchange executed a term sheet with Coinbase
to enter into a Spot BTC SSA. Based on this agreement, the Exchange and
Coinbase will finalize and execute a definitive agreement that the
parties expect to be executed prior to allowing trading of the
Commodity-Based Trust Shares. Trading of Bitcoin on Coinbase represents
a significant portion of U.S.-based Bitcoin trading. According to the
Sponsor, the Exchange aims to enter into a surveillance-sharing
agreement with Coinbase, the operator of the largest United States-
based spot trading platform for Bitcoin representing a majority of
global spot BTC trading paired with USD. The surveillance-sharing
agreement would give the Exchange supplemental access to data regarding
spot Bitcoin trades occurring on Coinbase if it is determined to be a
necessary as part of its surveillance program for the Commodity-Based
Trust Shares. Trading on Coinbase

consistently accounts for over 50% of market share of BTC-USD spot
trading volume.
    The Spot BTC SSA is expected to be a bilateral surveillance-sharing
agreement between Nasdaq and Coinbase that is intended to supplement
the Exchange's market surveillance program. The Spot BTC SSA is
expected to have the hallmarks of a surveillance-sharing agreement
between two members of the ISG, which would give the Exchange
supplemental access to data regarding spot Bitcoin trades on Coinbase
where the Exchange determines it is necessary as part of its
surveillance program for the Commodity-Based Trust Shares. This means
that the Exchange expects to receive market data for orders and trades
from Coinbase, which it will utilize in surveillance of the trading of
Commodity-Based Trust Shares. In addition, the Exchange can request
further information from Coinbase related to spot bitcoin trading
activity on the Coinbase exchange platform, if the Exchange determines
that such information would be necessary to detect and investigate
potential manipulation in the trading of the Commodity-Based Trust
Shares.
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange and Sponsor
believe that such conditions are present. Consistent with prior points
above, offering only in-kind creation and redemption will provide
unique protections against potential attempts to manipulate the Shares.
While the Sponsor believes that the Benchmark which it uses to value
the Trust's bitcoin is itself resistant to manipulation based on the
methodology further described below, the fact that creations and
redemptions are only available in-kind makes the manipulability of the
Benchmark significantly less important. Specifically, because the Trust
will not accept cash to buy bitcoin in order to create new shares or,
barring a forced redemption of the Trust or under other extraordinary
circumstances, be forced to sell bitcoin to pay cash for redeemed
shares, the price that the Sponsor uses to value the Trust's bitcoin is
not particularly important.\41\ When authorized participants are
creating with the Trust, they need to deliver a certain number of
bitcoin per share (regardless of the valuation used) and when they're
redeeming, they can similarly expect to receive a certain number of
bitcoin per share. As such, even if the price used to value the Trust's
bitcoin is manipulated (which the Sponsor believes that its methodology
is resistant to), the ratio of bitcoin per Share does not change and
the Trust will either accept (for creations) or distribute (for
redemptions) the same number of bitcoin regardless of the value. This
not only mitigates the risk associated with potential manipulation, but
also discourages and disincentivizes manipulation of the Benchmark
because there is little financial incentive to do so.
---------------------------------------------------------------------------

    \41\ While the Benchmark will not be particularly important for
the creation and redemption process, it will be used for calculating
fees.
---------------------------------------------------------------------------

    The Exchange also believes that reviewing this proposal through the
lens of the Bitcoin Futures Approvals would also lead the Commission to
approving this proposal. Previous disapproval orders have made clear
that a market that constitutes a regulated market of significant size
is generally a futures and/or options market based on the underlying
reference asset rather than the spot commodity markets, which are often
unregulated.\42\ The Exchange believes that the following excerpt from
the Teucrium Approval is particular informative:
---------------------------------------------------------------------------

    \42\ See Winklevoss Order at 37593, specifically footnote 202,
which includes the language from numerous approval orders for which
the underlying futures markets formed the basis for approving series
of ETPs that hold physical metals, including gold, silver,
palladium, platinum, and precious metals more broadly; and 37600,
specifically where the Commission provides that ``when the spot
market is unregulated--the requirement of preventing fraudulent and
manipulative acts may possibly be satisfied by showing that the ETP
listing market has entered into a surveillance-sharing agreement
with a regulated market of significant size in derivatives related
to the underlying asset.'' As noted above, the Exchange believes
that these citations are particularly helpful in making clear that
the spot market for a spot commodity ETP need not be ``regulated''
in order for a spot commodity ETP to be approved by the Commission,
and in fact that it's been the common historical practice of the
Commission to rely on such derivatives markets as the regulated
market of significant size because such spot commodities markets are
largely unregulated.

    The CME ``comprehensively surveils futures market conditions and
price movements on a real-time and ongoing basis in order to detect
and prevent price distortions, including price distortions caused by
manipulative efforts.'' Thus, the CME's surveillance can reasonably
be relied upon to capture the effects on the CME bitcoin futures
market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures
contracts, whether that attempt is made by directly trading on the
CME bitcoin futures market or indirectly by trading outside of the
CME bitcoin futures market. As such, when the CME shares its
surveillance information with Arca, the information would assist in
detecting and deterring fraudulent or manipulative misconduct
---------------------------------------------------------------------------
related to the non-cash assets held by the proposed ETP.43

    Bitcoin Futures pricing is based on pricing from spot bitcoin
markets. The statement from the Teucrium Approval that ``CME's
surveillance can reasonably be relied upon to capture the effects on
the CME bitcoin futures market caused by a person attempting to
manipulate the proposed futures ETP by manipulating the price of CME
bitcoin futures contracts . . . indirectly by trading outside of the
CME bitcoin futures market,'' makes clear that the Commission believes
that CME's surveillance can capture the effects of trading on the
relevant spot markets on the pricing of Bitcoin Futures. If CME is able
to detect such attempts at manipulation in the complex and
interconnected spot bitcoin market, how would such an ability to detect
attempted manipulation and the utility in sharing that information with
the listing exchange apply only to Bitcoin Futures ETFs and not Spot
Bitcoin ETPs? Stated a different way, given that there is significant
trading volume on numerous bitcoin exchanges that are not part of the
CME CF Bitcoin Reference Rate and that arbitrage opportunities across
bitcoin exchanges means that such trading volume will influence spot
bitcoin prices across the market and, despite this, the Commission
still believes that CME can detect attempted manipulation of the
Bitcoin Futures through ``trading outside of the CME bitcoin futures
market,'' it is clear that such ability would apply equally to both
Bitcoin Futures ETFs and Spot Bitcoin ETPs To take it a step further,
such an ability would also seem to be a strong indication that the CME
Bitcoin Futures market represents a regulated market of significant
size. To be clear, the Exchange agrees with the Commission on this
point (and the implications of their conclusions) and notes that the
pricing mechanism applicable to the Shares is similar to the CME CF
Bitcoin Reference Rate, as further discussed below.
    The Exchange also notes that a Bitcoin Futures ETF may also be more
susceptible to potential manipulation than a Spot Bitcoin ETP that
offers only in-kind creation and redemption because Bitcoin Futures
pricing (and thus the value of the underlying holdings of a Bitcoin
Futures ETF) is based on a single price derived from spot bitcoin
pricing, while shares of a Spot Bitcoin ETP would represent

interest in bitcoin directly and authorized participants for a Spot
Bitcoin ETP (as proposed herein) would be able to source bitcoin from
any exchange and create or redeem with the applicable trust regardless
of the price of the underlying index. As such, the Exchange believes
that, in addition to the CME Bitcoin Futures market representing a
regulated market of significant size as it relates to the spot bitcoin
market, in-kind Spot Bitcoin ETPs are likely less susceptible to
manipulation than Bitcoin Futures ETFs because of the underlying
creation and redemption arbitrage mechanism that will operate in the
same manner as it does for all other ETFs.
    In addition to potentially being more susceptible to manipulation
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides
negative outcomes for buy and hold investors as compared to a Spot
Bitcoin ETP.\44\ Specifically, the cost of rolling Bitcoin Futures
contracts will cause the Bitcoin Futures ETFs to lag the performance of
bitcoin itself and, at over a billion dollars in assets under
management, would cost U.S. investors significant amounts of money on
an annual basis compared to Spot Bitcoin ETPs. Such rolling costs would
not be required for Spot Bitcoin ETPs that hold bitcoin. Further,
Bitcoin Futures ETFs could potentially hit CME position limits, which
would force a Bitcoin Futures ETF to invest in non-futures assets for
bitcoin exposure and cause potential investor confusion and lack of
certainty about what such Bitcoin Futures ETFs are actually holding to
try to get exposure to bitcoin, not to mention completely changing the
risk profile associated with such an ETF. While Bitcoin Futures ETFs
represent a useful trading tool, they are clearly a sub-optimal
structure for U.S. investors that are looking for long-term exposure to
bitcoin that will, based on the calculations above, unnecessarily cost
U.S. investors significant amounts of money every year compared to Spot
Bitcoin ETPs and the Exchange believes that any proposal to list and
trade a Spot Bitcoin ETP should be reviewed by the Commission with this
important investor protection context in mind.
---------------------------------------------------------------------------

    \44\ See e.g., ``Bitcoin ETF's Success Could Come at
Fundholders' Expense,'' Wall Street Journal (October 24, 2021),
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&_cf_chl_jschl_tk_=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that any
objective review of the proposals to list Spot Bitcoin ETPs compared to
the Bitcoin Futures ETFs and the Bitcoin Futures Approvals would lead
to the conclusion that Spot Bitcoin ETPs should be available to U.S.
investors and, as such, this proposal and other comparable proposals to
list and trade Spot Bitcoin ETPs should be approved by the Commission.
Stated simply, U.S. investors will continue to lose significant amounts
of money from holding Bitcoin Futures ETFs as compared to Spot Bitcoin
ETPs, losses which could be prevented by the Commission approving Spot
Bitcoin ETPs. Additionally, any concerns related to preventing
fraudulent and manipulative acts and practices related to Spot Bitcoin
ETPs would apply equally to the spot markets underlying the futures
contracts held by a Bitcoin Futures ETF. While the 1940 Act does offer
certain investor protections, those protections do not relate to
mitigating potential manipulation of the holdings of an ETF in a way
that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin
ETPs. To be clear, both the Exchange and Sponsor believe that the
Bitcoin Futures market is a regulated market of significant size and
that such manipulation concerns are mitigated as described throughout
this proposal. After issuing the Bitcoin Futures Approvals which
conclude the CME Bitcoin Futures market is a regulated market of
significant size as it relates to Bitcoin Futures, the only consistent
outcome would be approving Spot Bitcoin ETPs on the basis that the
Bitcoin Futures market is also a regulated market of significant size
as it relates to the bitcoin spot market. Including in the analysis the
significant and preventable losses to U.S. investors that comes with
Bitcoin Futures ETFs, disapproving Spot Bitcoin ETPs seems even more
arbitrary and capricious. Given the current landscape, approving this
proposal (and others like it) and allowing Spot Bitcoin ETPs to be
listed and traded alongside Bitcoin Futures ETFs would establish a
consistent regulatory approach, provide U.S. investors with choice in
product structures for bitcoin exposure, and offer flexibility in the
means of gaining exposure to bitcoin through transparent, regulated,
U.S. exchange-listed vehicles.
Spot and Proxy Exposure to Bitcoin
    Exposure to bitcoin through an ETP also presents certain advantages
for retail investors compared to buying spot bitcoin directly. The most
notable advantage from the Sponsor's perspective is the elimination of
the need for an individual retail investor to either manage their own
private keys or to hold bitcoin through a cryptocurrency exchange that
lacks sufficient protections. Typically, retail exchanges hold most, if
not all, retail investors' bitcoin in ``hot'' (internet-connected)
storage and do not make any commitments to indemnify retail investors
or to observe any particular cybersecurity standard. Meanwhile, a
retail investor holding spot bitcoin directly in a self-hosted wallet
may suffer from inexperience in private key management (e.g.,
insufficient password protection, lost key, etc.), which could cause
them to lose some or all of their bitcoin holdings. Thus, with respect
to custody of the Trust's bitcoin assets, the Trust presents advantages
from an investment protection standpoint for retail investors compared
to owning spot bitcoin directly.
    Finally, a number of operating companies largely engaged in
unrelated businesses--such as Tesla (a car manufacturer) and
MicroStrategy (an enterprise software company)--have announced
significant investments in bitcoin. Without access to bitcoin exchange-
traded products, retail investors seeking investment exposure to
bitcoin may end up purchasing shares in these companies in order to
gain the exposure to bitcoin that they seek.\45\ In fact, mainstream
financial news networks have written a number of articles providing
investors with guidance for obtaining bitcoin exposure through publicly
traded companies (such as MicroStrategy, Tesla, and bitcoin mining
companies, among others) instead of dealing with the complications
associated with buying spot bitcoin in the absence of a bitcoin
ETP.\46\ Such operating companies, however, are imperfect bitcoin
proxies and provide investors with partial bitcoin exposure paired with
a host of additional risks associated with whichever operating company
they

decide to purchase. Additionally, the disclosures provided by the
aforementioned operating companies with respect to risks relating to
their bitcoin holdings are generally substantially smaller than the
registration statement of a bitcoin ETP, including the Registration
Statement, typically amounting to a few sentences of narrative
description and a handful of risk factors.\47\ In other words,
investors seeking bitcoin exposure through publicly traded companies
are gaining only partial exposure to bitcoin and are not fully
benefitting from the risk disclosures and associated investor
protections that come from the securities registration process.
---------------------------------------------------------------------------

    \45\ In August 2017, the Commission's Office of Investor
Education and Advocacy warned investors about situations where
companies were publicly announcing events relating to digital coins
or tokens in an effort to affect the price of the company's publicly
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
    \46\ See e.g., ``7 public companies with exposure to bitcoin''
(February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want
to get in the crypto trade without holding bitcoin yourself? Here
are some investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \47\ See, e.g., Tesla 10-K for the year ended December 31, 2020,
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
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Commodity-Based Trust Shares
    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 5711(d). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 5800 and following.
The Exchange may obtain information regarding trading in the Shares and
listed bitcoin derivatives via the ISG, from other exchanges who are
members or affiliates of the ISG, or with which the Exchange has
entered into a comprehensive surveillance sharing agreement.

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

    The Exchange does not believe that the proposed rule change will