disapproved the proposals related to these submissions, and the
Commission raised issues and criticisms with respect to these
submissions that the Exchange does not address. The Exchange does not
provide any additional evidence of an interrelationship between the CME
bitcoin futures market, which is the regulated market, and spot bitcoin
platforms, which are the markets on which the assets held by the
proposed ETP would trade. As in previous disapprovals, because the
lead/lag analysis regarding whether the CME bitcoin futures market
leads the spot market remains inconclusive,\165\ the Commission
determines that the evidence in the record is inadequate to conclude
that an interrelationship exists between the CME bitcoin futures market
and the spot bitcoin market such that it is reasonably likely that a
person attempting to manipulate the proposed ETP would have to trade on
the CME bitcoin futures market to successfully manipulate the proposed
ETP.
---------------------------------------------------------------------------

    \159\ See USBT Order, 85 FR at 12611; Wise Origin Order, 87 FR
at 5535; NYDIG Order, 87 FR at 14938; Global X Order, 87 FR at
14920; ARK 21Shares, 87 FR at 20024.
    \160\ See, e.g., USBT Order, 85 FR at 12612.
    \161\ See Amendment No. 1, 87 FR at 28054.
    \162\ Id.
    \163\ See Hunting Hill Letter, at 2. The Commission considers
the lead/lag relationship between the CME bitcoin futures market and
the spot bitcoin market to be central to understanding whether it is
reasonably likely that a would-be manipulator of a spot bitcoin ETP
would need to trade on the CME bitcoin futures market to
successfully manipulate the proposed ETP. See USBT Order, 85 FR at
12612. This commenter, however, does not explain its data,
methodology (such as why using only the first lag for each time
series was the appropriate model specification), or results to an
extent that can be assessed and/or verified. The commenter also
argues that the Commission should not require that the CME bitcoin
futures market ``always'' lead the spot market, as the commenter
believes that would be ``tantamount to requiring that an obvious
statistical arbitrage opportunity exists between two highly liquid
and automated markets'' from which any trader could ``profit
immensely,'' and would ``be the same as a declaration that bitcoin
ETPs will never be approved in the United States.'' See Hunting Hill
Letter, at 2. The Commission disagrees. A lead/lag statistical
result that CME bitcoin futures prices ``lead'' spot prices does not
mean that CME bitcoin futures prices ``always'' move before spot
prices--which would be the ``obvious'' and exploitable arbitrage
opportunity--or that there would never be a situation where the spot
price moves before the CME bitcoin futures price.
    \164\ See supra note 142.
    \165\ As the academic literature and listing exchanges' analyses
pertaining to the pricing relationship between the CME bitcoin
futures market and spot bitcoin market have developed, the
Commission has critically reviewed those materials. See ARK 21Shares
Order, 87 FR at 20024; Global X Order, 87 FR at 14920; Wise Origin
Order, 87 FR at 5535-36, 5539-40; Kryptoin Order, 86 FR at 74176;
WisdomTree Order, 86 FR at 69330-32; VanEck Order, 86 FR at 64547-
48; USBT Order, 85 FR at 12613.
---------------------------------------------------------------------------

    The Commission thus concludes that the information that NYSE Arca
provides is not sufficient to support a determination that it is
reasonably likely that a would-be manipulator of the proposed ETP would
have to trade on the CME bitcoin futures market to successfully
manipulate the proposed ETP. Therefore, the information in the record
also does not establish that the CME bitcoin futures market is a
``market of significant size'' related to the assets to be held by the
proposed ETP.
(ii) Whether It Is Unlikely That Trading in the Proposed ETP Would Be
the Predominant Influence on Prices in the CME Bitcoin Futures Market
    The second prong in establishing whether the CME bitcoin futures
market constitutes a ``market of significant size'' related to spot
bitcoin is the determination that it is unlikely that trading in the
proposed ETP would be the predominant influence on prices in the CME
bitcoin futures market.\166\
---------------------------------------------------------------------------

    \166\ See Winklevoss Order, 83 FR at 37594; USBT Order, 85 FR at
12596-97.
---------------------------------------------------------------------------

(a) Assertions Made and Comments Received
    NYSE Arca asserts that ``it is unlikely that the ETP would become
the predominant influence on prices in the market.'' \167\ In support,
NYSE Arca states that the Sponsor examined the change in ``market
capitalization of bitcoin'' with net inflows into the Trust, which
currently trades OTC,\168\ and found that from November 1, 2019, to
August 31, 2021, the market capitalization of bitcoin grew by $721
billion, while the Trust experienced $6.6 billion of inflows over the
same period.\169\ The Exchange states that the cumulative inflow into
the Trust over the stated time period was only 0.9% of the aggregate
growth of bitcoin's market capitalization.\170\ The Exchange also
states that ``the Trust experienced approximately $98.5 billion of
trading volume from November 1, 2019[,] to August 31, 2021, only 23% of
the CME futures market and 16% of the Index over the same period.''
\171\
---------------------------------------------------------------------------

    \167\ Amendment No. 1, 87 FR at 28054.
    \168\ The Exchange states that, compared with global commodity
ETPs, the Trust would rank fourth among global commodity ETPs in
assets under management and seventh in notional trading volume for
the period from November 1, 2019, to October 31, 2020. See id. at
28054 n.52.
    \169\ See id. at 28054.
    \170\ See id.
    \171\ Id.
---------------------------------------------------------------------------

(b) Analysis
    The record does not demonstrate that it is unlikely that trading in
the proposed ETP would be the predominant influence on prices in the
CME bitcoin futures market. First, the Sponsor's comparison of the
Trust's historical inflows to the growth of bitcoin's market
capitalization misapplies the second prong of the Commission's
analysis. As stated above, the second prong in establishing whether the
CME bitcoin futures market constitutes a ``market of significant size''
is the determination that it is unlikely that trading in the proposed
ETP would be the predominant influence on prices in the CME bitcoin
futures market. The Sponsor's analysis of the Trust's historical
inflows vis-[agrave]-vis the capitalization of the spot bitcoin market
considers neither the CME bitcoin futures market nor the CME bitcoin
futures market's prices. Accordingly, such statistics, without more,
are not relevant to the Commission's consideration of whether trading
in the ETP would be the predominant influence on prices in the CME
bitcoin futures market.
    Second, putting aside the question of the spot bitcoin market's
relevance to the second prong of the analysis, neither the Sponsor nor
the Exchange has adequately explained why historical inflows into the
OTC Trust is an appropriate proxy for trading in what would be
exchange-listed Shares. There is no limit on the amount of mined
bitcoins that the Trust may hold. Yet the Sponsor relies on the Trust's
historical inflows and does not provide any information on the expected
growth in the size of the Trust if the proposal is approved and the
resultant increase in

the amount of bitcoin that may be held by the Trust over time, or on
the overall expected number, size, and frequency of creations and
redemptions--or how any of the foregoing could (if at all) influence
prices in the CME bitcoin futures market. Moreover, the Trust's trading
volume cited by the Exchange only relates to the Trust as it trades OTC
and does not contemplate what may happen if the Trust converts to an
ETP.\172\ Commenters state that approval of a spot bitcoin ETP would
provide a simpler, safer, and more efficient way to obtain exposure to
bitcoin than the products that are currently available to retail
investors; \173\ and converting the Trust into an ETP would allow for
daily creations and redemptions.\174\ Further, the Sponsor itself
acknowledges that converting the Trust into an ETP would allow the
Shares to better track the Trust's net asset value (``NAV'') and reduce
discounts and premiums.\175\ Therefore, the Sponsor's use of historical
inflow data is questionable as a way to approximate trading that may
ensue in the proposed ETP.
---------------------------------------------------------------------------

    \172\ In addition, neither the Exchange nor the Sponsor
addresses the likely impact, if any, of the conversion itself on CME
bitcoin futures prices, such as whether there may be rapid inflows
into, or outflows from, the Trust upon conversion, and how long any
such impacts are expected to last.
    \173\ See infra note 237.
    \174\ See infra note 245 and accompanying text.
    \175\ See infra notes 245-246 and accompanying text.
---------------------------------------------------------------------------

    Third, NYSE Arca's assertions are general and conclusory. While
NYSE Arca recites data relating to the market capitalization of bitcoin
and inflows to the Trust, and trading volume of the Trust as compared
to the CME bitcoin futures market and the Constituent Platforms, NYSE
Arca provides no meaningful analysis of such data to support its
conclusion. For example, setting aside the issues with the relevance of
the data that the Sponsor chose to consider, the analysis performed on
such data is merely a comparison of the size of one data point (e.g.,
change in market capitalization) to the size of another (e.g., net
inflows). Such an analysis is, at best, a simple correlation between
the two data points; it provides no information relating to the impact
of one on the other--e.g., no information on the impact of the Trust's
historical inflows on market capitalization, or of the Trust's trading
volume on the CME bitcoin futures market (let alone, on the CME bitcoin
futures market's prices). In short, the analysis performed provides no
information on the influence that is central to the second prong.
    Fourth, the data that NYSE Arca provides indicate that the Trust's
trading volume from November 1, 2019, to August 31, 2021, was ``only''
23% of that of the CME bitcoin futures market.\176\ Even assuming that
this historical data is an accurate predictor of the future percentage,
neither the Sponsor nor the Exchange directly addresses why a single
bitcoin ETP with trading volume close to one-quarter that of the CME
bitcoin futures market is not likely to be the predominant influence on
prices in that market. Moreover, the Sponsor describes the Trust, as of
April 26, 2022, as holding approximately $30 billion in bitcoin, an
amount that constitutes 3.4% of all outstanding bitcoin \177\ and that
far exceeds the value of all open interest in CME bitcoin futures
contracts.\178\ Yet neither the Sponsor nor the Exchange directly
addresses why a spot bitcoin ETP whose assets under management would
similarly exceed the value of all open interest in CME bitcoin futures
contracts is not likely to be the predominant influence on prices in
that market.
---------------------------------------------------------------------------

    \176\ See Amendment No. 1, 87 FR at 28054.
    \177\ See Grayscale Submission, at 2.
    \178\ As of May 31, 2022, the value of open interest in the
front two month CME BTC contracts was approximately $1.7 billion
(source: CME Group).
---------------------------------------------------------------------------

    Thus, the Commission cannot conclude, based on the assertions in
the filing and absent sufficient evidence or analysis in support of
these assertions, that it is unlikely that trading in the proposed ETP
would be the predominant influence on prices in the CME bitcoin futures
market.\179\
---------------------------------------------------------------------------

    \179\ See VanEck Order, 86 FR at 64548-59; WisdomTree Order, 86
FR at 69332-33; Kryptoin Order, 86 FR at 74177; SkyBridge Order, 87
FR at 3879; Wise Origin Order, 87 FR at 5537; ARK 21Shares Order, 87
FR at 20025.
---------------------------------------------------------------------------

    Therefore, because NYSE Arca has not provided sufficient
information to establish both prongs of the ``market of significant
size'' determination, the Commission cannot conclude that the CME
bitcoin futures market is a ``market of significant size'' related to
spot bitcoin such that NYSE Arca would be able to rely on a
surveillance-sharing agreement with the CME to provide sufficient
protection against fraudulent and manipulative acts and practices.
(3) Assertions That the Proposed Spot Bitcoin ETP Is Comparable to
Bitcoin Futures-Based ETFs and ETPs
(i) Assertions Made and Comments Received
    The Exchange and the Sponsor argue that it would be inconsistent
for the Commission to allow the listing and trading of ETFs and ETPs
that provide exposure to bitcoin through CME bitcoin futures while
disapproving the current proposal.\180\
---------------------------------------------------------------------------

    \180\ See Amendment No. 1, 87 FR at 28055; Grayscale Letter I,
at 7-13; Letter from Davis Polk & Wardwell LLP, on behalf of the
Sponsor, dated Apr. 18, 2022 (``Grayscale Letter II'').
---------------------------------------------------------------------------

    The Sponsor asserts that CME bitcoin futures ETFs and ETPs and spot
bitcoin ETPs ``are the same in all relevant respects.'' \181\ In
support of this assertion, the Sponsor claims that CME bitcoin futures
ETFs and ETPs are ``priced according to the CME CF Bitcoin Reference
Rate'' (``BRR''), which, ``in turn, is determined according to pricing
data collected from digital asset trading platforms that include all
but one of those currently incorporated into [the Index].'' \182\ NYSE
Arca also states that spot bitcoin ETPs, including the Trust, ``would
be priced by referencing [spot bitcoin platforms] included in the BRR,
such as through the Index.'' \183\
---------------------------------------------------------------------------

    \181\ Grayscale Letter I, at 4.
    \182\ Id. at 7. See also Amendment No. 1, 87 FR at 28055;
Grayscale Letter II, at 2; Grayscale Submission, at 13-14; STA
Letter, at 2 (``both types of products use similar processes for
determining price on the underlying spot cash [b]itcoin markets'').
    \183\ Amendment No. 1, 87 FR at 28055. See also Grayscale Letter
I, at 7; Grayscale Letter II, at 2; Grayscale Submission, at 13;
Fortress Letter, at 2; Virtu Letter, at 3; Letter from Adam
Kornfield, dated Feb. 15, 2022 (``Kornfield Letter''), at 1; Letter
from Hashem Dezhbakhsh, Narasimhan Jegadeesh, and Juan Rubio-
Ramirez, Emory University, dated April 24, 2022, at 2 (``Emory
Letter''). The Sponsor states that the BRR and the Index have
significant overlap in constituents, resulting in prices that track
each other closely, with an average daily price difference over
trailing 12 months of 0.04%. See Grayscale Submission, at 13. See
also Whaley Letter, at 2-3 (presenting summary data relating to the
Index and the BRR and concluding that ``XBX and BRR are near perfect
substitutes'').
---------------------------------------------------------------------------

    The Sponsor further asserts that, because the BRR is based upon
``substantially the same [b]itcoin pricing data'' as the Index, both
CME bitcoin futures ETFs and ETPs and spot bitcoin ETPs are exposed to
the ``same risks relating to pricing data quality'' (``same data, same
risks'').\184\ Moreover, because of the ``almost complete overlap'' in
the platforms underlying the BRR and the Index, the Sponsor claims that
``the risks of fraud and manipulation in the [b]itcoin market impacting
spot [b]itcoin ETPs are indistinguishable from those same risks
impacting futures [b]itcoin ETPs.'' \185\ The Exchange also asserts

that, because of this overlap, any potential fraud or manipulation in
the underlying spot bitcoin market would impact both CME bitcoin
futures ETFs and ETPs and spot bitcoin ETPs.\186\ The Sponsor goes
further, asserting that ``any'' fraud or manipulation in the underlying
market ``will affect both products in the same way.'' \187\
---------------------------------------------------------------------------

    \184\ See Grayscale Letter I, at 7. See also, e.g., Letter from
Paul Grewal, Chief Legal Officer, Coinbase, dated Dec. 14, 2021
(``Coinbase Letter I''), at 4 (``the reference rate used to price
[b]itcoin contracts underlying futures-based ETPs is subject to the
same pricing quality risks as the index used to price spot [b]itcoin
and calculate net-asset value in spot ETPs.''); Letter from James J.
Angel, Associate Professor of Finance, Georgetown University, dated
Apr. 17, 2022 (``Angel Letter I''), at 6; Blockchain Association
Letter, at 3.
    \185\ Grayscale Letter I, at 9.
    \186\ See Amendment No. 1, 87 FR at 28055. See also Grayscale
Submission, at 14. Some commenters agree that bitcoin futures ETFs
and ETPs pose identical risks of fraud and manipulation as spot
bitcoin ETPs given their views that both products are priced based
on the spot bitcoin price. See, e.g., Blockchain Association Letter,
at 2; Coinbase Letter I, at 3; Coinbase Letter II, at 7; Virtu
Letter, at 3; Angel Letter I, at 5; BitGo Letter, at 2; Cumberland
Letter, at 2; Letter from Carol R. Goforth, University Professor and
Clayton N. Little Professor of Law, University of Arkansas, dated
May 3, 2022 (``Goforth Letter''), at 1; Kornfield Letter, at 2;
Letters from Brandon Gunderson (Feb. 4, 2022) (``Gunderson
Letter''), at 2; Kenneth L. Keiffer, dated May 3, 2022 (``Keiffer
Letter''), at 1; Robert L. DiLonardo and Donna S. DiLonardo, dated
May 3, 2022 (``DiLonardo Letter''); Bridget Metzger (May 9, 2022)
(``Metzger Letter''); Emory Letter, at 2; Letter from Sigal
Mandelker and Jessi Brooks, Ribbit Capital, dated June 20, 2022
(``Ribbit Capital Letter''), at 5. An affiliate of the Custodian
also states that prices and volumes in the bitcoin futures and spot
bitcoin markets ``are highly correlated, indicating very similar
market dynamics between the futures market, for which the Commission
has approved a [CME bitcoin futures ETF], and the spot market.''
Coinbase Letter II, at 3.
    \187\ Grayscale Letter II, at 2.
---------------------------------------------------------------------------

    Moreover, the Sponsor states that the Commission itself has
recognized that ``the CME bitcoin futures market is not insulated from
potential risks of fraud and manipulation in the underlying [b]itcoin
market.'' \188\ The Sponsor even asserts that, ``[i]f anything,
derivatives markets present additional opportunities for manipulation
on top of spot markets--which is why the derivatives markets have an
additional layer of federal regulation to begin with.'' \189\ According
to the Sponsor, the Commission has never found there to be any
meaningful difference in the risk of fraud or manipulation between spot
bitcoin and bitcoin futures markets.\190\ The Sponsor further asserts
that, ``[e]ven with regulation by the CFTC, limiting ETP exposure to
[b]itcoin futures does not address the risk of manipulation of
underlying [b]itcoin spot market prices--unless the Commission's view
is that CFTC regulation is adequate for all [b]itcoin spot markets,
including those in which [the Trust] invests.'' \191\
---------------------------------------------------------------------------

    \188\ Id. (referring to the Teucrium Order, supra note 11). See
also Grayscale Submission, at 14.
    \189\ See Grayscale Letter I, at 11. Some commenters make
similar arguments. For example, a commenter states that ``spot
markets may be less prone to manipulation given their daily notional
volumes in the range of $35 billion, with futures volumes in the
range of $1 billion daily notional.'' Virtu Letter, at 3. Another
commenter states that an ETP that actually holds bitcoin would be
less vulnerable to manipulation than an ETP that holds futures
contracts because, with respect to bitcoin futures, there is the
possibility of manipulation on the CME itself in addition to the
spot bitcoin trading platforms. See Angel Letter I, at 6. Another
commenter states that having a bitcoin futures ETF actually makes
the derivatives markets more liquid and easy to manipulate than the
spot market. See Dreyfuss Letter, at 2. See also, e.g., Letter from
Mary L. Holsinger, dated May 8, 2022.
    \190\ See Grayscale Letter I, at 11-12; Grayscale Letter II, at
2 (``The Commission's prior disapprovals of spot bitcoin ETPs have
not identified any distinct and significant additional risk of fraud
and manipulation that is somehow specific to spot [b]itcoin ETPs,
and none exists.''). See also, e.g., Blockchain Association Letter,
at 3.
    \191\ Grayscale Letter I, at 11. See also, e.g., Blockchain
Association Letter, at 3; Coinbase Letter I, at 3; Ribbit Capital
Letter, at 5.
---------------------------------------------------------------------------

    Given that CME bitcoin futures ETFs currently trade, the Sponsor
believes that the Commission's disapproval of the proposal would
violate Section 6(b)(5) of the Exchange Act's prohibition against
unfair discrimination among issuers, and would constitute an arbitrary
and capricious administrative action in violation of the Administrative
Procedure Act (``APA'').\192\ According to the Sponsor, ``[t]he
Commission has not offered any meaningful explanation for its
differential treatment of these competing products.'' \193\ The Sponsor
argues that regulation of bitcoin futures ETFs under the 1940 Act
offers no protections against fraudulent and manipulative trading in
the underlying bitcoin market and provides no basis for treating
bitcoin futures ETFs and spot bitcoin ETPs registered under the
Securities Act differently.\194\
---------------------------------------------------------------------------

    \192\ See Grayscale Letter I, at 8-9; 12-13; Grayscale
Submission, at 23; Grayscale Letter II, at 2-4 (stating, among other
things, that if the proposal ``were disapproved based on the
`significant market' test, without an independent evaluation of the
proposal's compliance with Section 6(b)(5) in light of the [Teucrium
Order], we believe the action would be inconsistent with the
requirements of both the Exchange Act and the [APA]''). Some
commenters agree that the Commission's disparate treatment of
bitcoin futures ETFs and ETPs and spot bitcoin ETPs results in
unfair discrimination amongst issuers in contravention of the
Exchange Act and/or is arbitrary and capricious in violation of the
APA. See, e.g., Blockchain Association Letter, at 3-4, Coinbase
Letter I, at 4; Virtu Letter, at 3; Angel Letter I, at 5; Fortress
Letter, at 3; Kornfield Letter; Keiffer Letter; Metzger Letter;
Goforth Letter, at 2; DiLonardo Letter; Letter from Michael D.
Moffitt, dated Mar. 13, 2022 (``Moffitt Letter II) (citing
transcript of Joseph Grundfest, former SEC Commissioner); Davenport
Letter; Letter from John Carlson, dated Feb. 22, 2022; Ribbit
Capital Letter, at 6; Letter from Alan J. Lane, Chief Executive
Officer, Silvergate Capital Corporation, dated June 21, 2022. See
also, e.g., ADAM Letter, at 6 (``a disapproval of Arca's proposal
would lead to the Commission picking winners based on its
preferential treatment of one product over another''). A commenter
asserts that ``it is not within [the Commission's mandate to
regulate the spot commodity markets upon which ETPs are based[,]''
that ``Section 6(b)(5) neither mentions underlying markets, nor an
exchange's obligations with respect to fraud within them[,]'' and
``[t]he Commission's apparent position that an exchange must
mitigate fraud and manipulation in an underlying market, or be
prohibited from listing a product based on a commodity in an
underlying market subject to fraud and manipulation not in the
exchange's control, stretches the Commission's authority beyond
existing statutory language.'' See Ribbit Capital Letter, at 5.
    \193\ Grayscale Letter I, at 8. Some commenters agree that the
Commission has not articulated a valid justification for treating
bitcoin futures ETFs and ETPs and spot bitcoin ETPs differently.
See, e.g., Blockchain Association Letter, at 3-4; Coinbase Letter I,
at 4; Cumberland Letter, at 2; STA Letter, at 2; Moffitt Letter II
(citing transcript of Joseph Grundfest, former SEC Commissioner);
Kornfield Letter; Goforth Letter; Chilson Letter, at 4.
    \194\ See Grayscale Letter I, at 9-11; Grayscale Submission, at
14. See also, e.g., Blockchain Association Letter, at 3; Coinbase
Letter I, at 5 n.11. The Sponsor states that the Commission's recent
approval of bitcoin futures ETPs registered under the Securities Act
``confirms that 1940 Act registration is not a basis for the
Commission to approve one product and reject another.'' See
Grayscale Letter II, at 1 (referring to the Teucrium Order, supra
note 11). See also Amendment No. 1, 87 FR at 28055; Goforth Letter,
at 1-2.
---------------------------------------------------------------------------

    The Sponsor also argues that the Commission's standard violates the
APA because it is illusory and cannot be satisfied.\195\ According to
the Sponsor, the framework that the Commission has articulated for
assessing whether a proposal to list and trade any bitcoin-based ETP
complies with the requirements of Exchange Act Section 6(b)(5) is ``so
ill-defined and unachievable as to be arbitrary.'' \196\ The Sponsor
continues to state that ``[t]he Commission has never quantified a
`significant market' or `market of significant size.' '' \197\
Moreover, according to the Sponsor, the Commission ``has never defined
or specified what would actually constitute `unique resistance to
manipulation' that is `beyond the protections of the traditional
commodities and equities markets,' nor has the Commission explained
what it

means for resistance to be `inherent' or `novel' in this context.''
\198\
---------------------------------------------------------------------------

    \195\ See Grayscale Letter I, at 12-13.
    \196\ See id. at 12. For a summary of the Commission's approach
to considering proposals to list bitcoin-based ETPs, see supra notes
11-27 and accompanying text. Some commenters agree that the
Commission's evaluation of spot bitcoin ETPs and bitcoin futures
ETFs and ETPs is ambiguous and inconsistent. See, e.g., Coinbase
Letter I, at 4 (``when market participants compare the Commission's
evaluation and approval of a futures-based [b]itcoin ETP to its
treatment of spot [bitcoin] ETP proposals, they will see a lack of
well-defined criteria and inconsistent application of the
criteria''); Fortress Letter, at 2 (``While the Commission has
stated that it considered each [spot bitcoin ETP] rule application
`on its own merits and under the standards applicable to it', the
Commission has itself devised those standards ambiguously and
inconsistently.'').
    \197\ Grayscale Letter I, at 12. See also Grayscale Letter II,
at 3 (``the Commission's reluctance to quantify the size a market
must achieve to be `significant,' and its reluctance to articulate
discernible standards for determining whether the market has the
requisite linkage to the ETP's assets, renders this test subjective,
arbitrary and effectively unachievable'').
    \198\ Grayscale Letter I, at 13.
---------------------------------------------------------------------------

(ii) Analysis
    The Commission disagrees with these assertions and conclusions. The
proposed rule change does not relate to the same underlying holdings as
either ETFs regulated under the 1940 Act that provide exposure to
bitcoin through CME bitcoin futures, or CME bitcoin futures-based ETPs
registered under the Securities Act but not regulated under the 1940
Act. The Commission considers the proposed rule change on its own
merits and under the standards applicable to it. Namely, with respect
to this proposed rule change, the Commission must apply the standards
as provided by Section 6(b)(5) of the Exchange Act, which it has
applied in connection with its orders considering previous proposals to
list bitcoin-based commodity trusts and bitcoin-based trust issued
receipts.\199\
---------------------------------------------------------------------------

    \199\ See supra note 11 and accompanying text. The Sponsor also
mischaracterizes the Teucrium Order. For example, the Sponsor states
that the Teucrium Order ``reflects plainly the Commission's
recognition that the CME bitcoin futures market is not insulated
from potential risks of fraud and manipulation in the underlying
[b]itcoin market,'' and that ``the Commission took pains to
`disagree[ ] with much of [NYSE] Arca's reasoning' about the
[b]itcoin futures market's separation from the underlying [b]itcoin
market.'' Grayscale Letter II, at 2. However, this discussion in the
Teucrium Order addresses whether NYSE Arca had supported its claim
that it is reasonably likely that a would-be manipulator of the CME
bitcoin futures ETP that was the subject of the Teucrium Order would
have to trade on the CME to manipulate that ETP. See Teucrium Order,
87 FR at 21679. In that context, NYSE Arca had not sufficiently
supported its statements that the CME bitcoin futures market
``stands alone'' or that ``[b]itcoin futures prices are not
specifically materially influenced by other [b]itcoin markets'' for
the Commission to be persuaded by such statements. See id. at 21680.
---------------------------------------------------------------------------

    In asserting that, for purposes of making a determination to
approve or disapprove proposals to list and trade bitcoin futures and
spot bitcoin ETPs, the Commission is drawing a distinction about the
potential for fraud and manipulation in the CME bitcoin futures market
vis-[agrave]-vis the spot bitcoin markets, the Exchange, Sponsor, and
commenters mischaracterize the framework that the Commission has
articulated in the Winklevoss Order. As stated in the Winklevoss Order,
the Commission is not applying a ``cannot be manipulated'' standard--
either on the CME bitcoin futures market or the spot bitcoin markets.
Rather, as the Commission has repeatedly emphasized, and also
summarized above, the Commission is examining whether the proposal
meets the requirements of the Exchange Act and, pursuant to its Rules
of Practice, is placing the burden on NYSE Arca to demonstrate the
validity of its contentions that bitcoin markets ``offer novel
protections beyond those that exist in traditional commodity markets or
equity markets'' such that the detection and deterrence of fraud and
manipulation provided by a comprehensive surveillance-sharing agreement
with a regulated market of significant size related to spot bitcoin is
unnecessary,\200\ or to establish that it has entered into such a
surveillance-sharing agreement.\201\
---------------------------------------------------------------------------

    \200\ See supra note 60 and accompanying text.
    \201\ Although the Sponsor claims that the Commission has never
defined or specified what would constitute ``unique resistance to
manipulation'' that is ``beyond the protections of the traditional
commodities and equities markets,'' or explained what it means for
resistance to be ``inherent'' or ``novel,'' the Sponsor
mischaracterizes the premise of its own argument. Listing exchanges,
not the Commission, have argued that other means besides
surveillance-sharing agreements may be sufficient to prevent
fraudulent and manipulative acts and practices, including by
asserting that the bitcoin market as a whole or the relevant
underlying bitcoin market is ``uniquely'' and ``inherently''
resistant to fraud and manipulation. In response, the Commission has
agreed with listing exchanges' posited hypothetical: that, if a
listing exchange could establish that the underlying market
inherently possesses a unique resistance to manipulation beyond the
protections that are utilized by traditional commodity or securities
markets--for which surveillance-sharing agreements in the context of
listing derivative securities products have been consistently
present--the exchange would not necessarily need to enter into a
surveillance-sharing agreement with a regulated significant market
related to the underlying bitcoin assets. See Winklevoss Order, 83
FR at 37580, 37582-91 (addressing assertions that ``bitcoin and
bitcoin [spot] markets'' generally, as well as one bitcoin trading
platform specifically, have unique resistance to fraud and
manipulation). See also USBT Order, 85 FR at 12597. Furthermore, a
listing exchange need not substantiate its claim that the underlying
bitcoin market is uniquely and inherently resistant to fraud in
addition to demonstrating that the listing exchange has a
surveillance-sharing agreement with a regulated significant market
related to the underlying bitcoin assets.
---------------------------------------------------------------------------

    Consistent with this approach, contrary to the Exchange's, the
Sponsor's, and some commenters' assertions, the Commission's
consideration (and approval) of proposals to list and trade CME bitcoin
futures ETPs, as well as the Commission's consideration (and thus far,
disapproval) of proposals to list and trade spot bitcoin ETPs, does not
focus on an assessment of the overall risk of fraud and manipulation in
the spot bitcoin or futures markets, or on the extent to which such
risks are similar.\202\ Rather, the Commission's focus has been
consistently on whether the listing exchange has a comprehensive
surveillance-sharing agreement with a regulated market of significant
size related to the underlying bitcoin assets of the ETP under
consideration, so that it would have the necessary ability to detect
and deter manipulative activity. For reasons articulated in the orders
approving proposals to list and trade CME bitcoin futures-based ETPs
(i.e., the Teucrium Order and the Valkyrie XBTO Order), the Commission
found that in each such case the listing exchange has entered into such
a surveillance-sharing agreement.\203\ Making the same assessment with
respect to this proposed spot bitcoin ETP, however, as discussed and
explained above, the Commission finds that NYSE Arca has not.
---------------------------------------------------------------------------

    \202\ The Commission's general discussion on the risk of fraud
and manipulation in the spot bitcoin or futures markets is only in
response to arguments raised by the proposing listing exchanges (or
commenters) that mitigating factors against fraud and manipulation
in the spot bitcoin or futures markets should compel the Commission
to dispense with the detection and deterrence of fraud and
manipulation provided by a comprehensive surveillance-sharing
agreement with a regulated market of significant size related to the
underlying bitcoin assets. But even in such instance, the central
issue is about the necessity of such a surveillance-sharing
agreement, not the overall risk of fraud and manipulation in the
spot bitcoin or futures markets, or the extent to which such risks
are similar.
    \203\ See Teucrium Order, 87 FR at 21678-81; Valkyrie XBTO
Order, 87 FR at 28850-53.
---------------------------------------------------------------------------

    Specifically, for the CME bitcoin futures ETPs under consideration
in the Teucrium Order and the Valkyrie XBTO Order, the proposed
``significant'' regulated market (i.e., the CME) with which the listing
exchange has a surveillance-sharing agreement is the same market on
which the underlying bitcoin assets (i.e., CME bitcoin futures
contracts) trade. As explained in those Orders, 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 CME
bitcoin 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.\204\ Regarding the approved Teucrium Bitcoin
Futures Fund in the Teucrium Order (``Fund''), for example, when the
CME shares its surveillance information with NYSE Arca (the listing
exchange for the Fund), the information would assist in detecting and
deterring fraudulent or manipulative misconduct related to the non-cash
assets held by the Fund.\205\ Accordingly, the Commission explains in
the Teucrium Order and the Valkyrie XBTO Order that it is unnecessary
for a listing exchange to establish a

reasonable likelihood that a would-be manipulator would have to trade
on the CME itself to manipulate a proposed ETP whose only non-cash
holdings would be CME bitcoin futures contracts.\206\
---------------------------------------------------------------------------

    \204\ See Teucrium Order, 87 FR at 21679; Valkyrie XBTO Order,
87 FR at 28851.
    \205\ See Teucrium Order, 87 FR at 21679.
    \206\ See id.
---------------------------------------------------------------------------

    However, as the Commission also states in those Orders, this
reasoning does not extend to spot bitcoin ETPs. Spot bitcoin markets
are not currently ``regulated.'' \207\ If an exchange seeking to list a
spot bitcoin ETP relies on the CME as the regulated market with which
it has a comprehensive surveillance-sharing agreement, the assets held
by the spot bitcoin ETP would not be traded on the CME. Because of this
significant difference, with respect to a spot bitcoin ETP, there would
be reason to question whether a surveillance-sharing agreement with the
CME would, in fact, assist in detecting and deterring fraudulent and
manipulative misconduct affecting the price of the spot bitcoin held by
that ETP. If, however, an exchange proposing to list and trade a spot
bitcoin ETP identifies the CME as the regulated market with which it
has a comprehensive surveillance-sharing agreement, the exchange could
overcome the Commission's concern by demonstrating that there is a
reasonable likelihood that a person attempting to manipulate the spot
bitcoin ETP would have to trade on the CME in order to manipulate the
ETP, because such demonstration would help establish that the
exchange's surveillance-sharing agreement with the CME would have the
intended effect of aiding in the detection and deterrence of fraudulent
and manipulative misconduct related to the spot bitcoin held by the
ETP.\208\
---------------------------------------------------------------------------

    \207\ See Teucrium Order, 87 FR at 21679 n.46 (citing USBT
Order, 85 FR at 12604; NYDIG Order, 87 FR at 14936 nn.65-67). See
also Valkyrie XBTO Order, 87 FR at 28851 n.42.
    \208\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42.
---------------------------------------------------------------------------

    Because, here, NYSE Arca is seeking to list a spot bitcoin ETP that
relies on the CME as the purported ``significant'' regulated market
with which it has a comprehensive surveillance-sharing agreement, the
assets held by the proposed ETP would not be traded on the CME. Thus
there is reason to question whether a surveillance-sharing agreement
with the CME would, in fact, assist in detecting and deterring
fraudulent and manipulative misconduct affecting the price of the spot
bitcoin held by the proposed ETP.\209\ The Exchange could have overcome
this concern by demonstrating that there is a reasonable likelihood
that a person attempting to manipulate the proposed ETP would have to
trade on the CME in order to manipulate the ETP because such
demonstration would help establish that the Exchange's surveillance-
sharing agreement with the CME would have the intended effect of aiding
in the detection and deterrence of fraudulent and manipulative
misconduct related to the spot bitcoin held by the proposed ETP.\210\
As discussed and explained above,\211\ the Commission finds that NYSE
Arca has not made such demonstration.
---------------------------------------------------------------------------

    \209\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42. There is reason to question whether the
CME's surveillance would capture manipulation of spot bitcoin that
occurs off of the CME, if, for example, off-CME manipulation of spot
bitcoin does not also similarly impact CME bitcoin futures
contracts. As discussed further below, see infra notes 224-225 and
accompanying text, the information in the record for this filing
does not sufficiently demonstrate that attempted manipulation of
spot bitcoin would also similarly impact CME bitcoin futures
contracts.
    \210\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42.
    \211\ See Section III.B.2.i, supra.
---------------------------------------------------------------------------

    To the extent that the Sponsor--by way of claiming that,
``[b]ecause both spot and futures-based [b]itcoin products face
exposure to the same underlying [b]itcoin market, any fraud or
manipulation in the underlying market will affect both products in the
same way'' \212\--is arguing that the CME's surveillance would, in
fact, assist in detecting and deterring fraudulent and manipulative
misconduct that impacts spot bitcoin ETPs in the same way as it would
for misconduct that impacts the CME bitcoin futures ETFs/ETPs, the
information in the record for this filing does not support such a
claim. Specifically, the Sponsor claims that (i) CME bitcoin futures
ETFs/ETPs are ``priced according to the [BRR];'' (ii) the proposed spot
bitcoin ETP would be priced based on the Index; and (iii) because of
the ``almost complete overlap'' between the spot platforms whose prices
are used to calculate the BRR and the Index, bitcoin futures ETFs/ETPs
and the proposed ETP are subject to the ``same risks relating to
pricing data quality.'' \213\ This logic, however, is flawed for the
following reasons.
---------------------------------------------------------------------------

    \212\ Grayscale Letter II, at 2.
    \213\ See id. at 7, 9.
---------------------------------------------------------------------------

    First, there is no evidence in the record that CME bitcoin futures
ETFs/ETPs are ``priced according to the [BRR].'' The BRR is a once-a-
day reference rate of the U.S. dollar price of one bitcoin as of 4
p.m., London time.\214\ The BRR aggregates the trade flow of its
constituent spot bitcoin platforms--Coinbase, Gemini, LMAX Digital,
itBit, Kraken, and Bitstamp \215\--during a specific one-hour
calculation window.\216\ While the BRR is used to value the final cash
settlement of CME bitcoin futures contracts, it is not generally used
for daily cash settlement of such contracts,\217\ nor is it claimed to
be used for any intra-day trading of such contracts. In addition, CME
bitcoin futures ETFs/ETPs do not hold their CME bitcoin futures
contracts to final cash settlement; rather, the contracts are rolled
prior to their settlement dates. Moreover, the shares of CME bitcoin
futures ETFs/ETPs trade in secondary markets, and there is no evidence
in the record for this filing that such intra-day, secondary market
trading prices are determined by the BRR.
---------------------------------------------------------------------------

    \214\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Reference+Rates+Methodology.pdf.
    \215\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges.pdf.
    \216\ See https://www.cmegroup.com/education/courses/introduction-to-bitcoin/introduction-to-bitcoin-reference-rate.html.
This one-hour window is partitioned into 12, five-minute intervals,
where the BRR is calculated as the equally-weighted average of the
volume-weighted medians of all 12 partitions. See id.
    \217\ Under normal procedures, daily cash settlements are
generally based on the volume-weighted average price of trading
activity on CME Globex between 2:59 p.m. and 3:00 p.m., Central
Time). See https://www.cmegroup.com/confluence/display/EPICSANDBOX/Bitcoin for a description of CME bitcoin futures daily settlement
procedures.
---------------------------------------------------------------------------

    Second, there is no evidence in the record that the Shares' prices
would be determined by the Index. The Index is a U.S. dollar-
denominated composite reference rate for the price of bitcoin
calculated at 4:00 p.m. New York time.\218\ As described above, the
Index applies an algorithm to the price of bitcoin on the Constituent
Platforms--Coinbase Pro, LMAX Digital, Kraken, and Bitstamp--calculated
on a per second basis over a 24-hour period. While the Index is used
daily to value the bitcoins held by the Trust,\219\ as discussed
above,\220\ the Index would not be used for the creation or redemption
of Shares, nor is the Index claimed to be used for any intra-day
secondary market trading of the Shares, either currently on the OTC
market or in the future on the Exchange. Rather, the Share price is
discovered through continuous intra-day, secondary market interactions
of buy and sell interests.\221\
---------------------------------------------------------------------------

    \218\ See Amendment No. 1, 87 FR at 28047.
    \219\ See id. at 28047, 28049.
    \220\ See supra notes 132-133 and accompanying text.
    \221\ As discussed above, the use of the Index by the Trust to
determine the value of its bitcoin does not support the finding that
the Exchange has established other means to prevent fraud and
manipulation that are sufficient to justify dispensing with the
detection and deterrence of fraud and manipulation provided by a
comprehensive surveillance-sharing agreement with a regulated market
of significant size related to spot bitcoin. See Section III.B.1.ii,
supra. Likewise, the Commission has previously rejected arguments by
listing exchanges that the use of a reference rate similar to the
BRR to value bitcoin held by proposed spot bitcoin ETPs provides
other means to prevent fraud and manipulation that are sufficient to
justify dispensing with the detection and deterrence of fraud and
manipulation provided by a comprehensive surveillance-sharing
agreement with a regulated market of significant size related to
spot bitcoin. See Wise Origin Order, 87 FR at 5532-33; SkyBridge
Order, 87 FR at 3877. Accordingly, the Index and the BRR, and the
similarities between the BRR and the Index, are not informative in
the Commission's determination of whether the Exchange has
established other means to prevent fraud and manipulation.

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

    Third, despite the Sponsor's claim of ``almost complete overlap''
between the spot platforms whose prices are used to calculate the BRR
and those platforms whose prices are used for the Index, the BRR
includes trade flow from Gemini and itBit, neither of which are
included as Constituent Platforms of the Index.\222\
---------------------------------------------------------------------------

    \222\ Although the Sponsor states that the BRR is ``determined
according to pricing data collected from digital asset trading
platforms that include all but one of those currently incorporated
into [the Index]'' (Grayscale Letter I, at 7), based on information
provided on the CME's website, the Sponsor's statement does not
appear to be correct. See https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html. It is
also unclear from the record whether Coinbase (used by the BRR) and
Coinbase Pro (used by the Index) are the same platform. Based on
recent press articles, it appears that Coinbase Pro will be
discontinued. See, e.g., https://cointelegraph.com/news/coinbase-to-shut-down-coinbase-pro-to-merge-trading-services; https://
www.forbesindia.com/article/crypto-made-easy/coinbase-to-shut-down-
coinbase-pro-to-merge-trading-services/77585/
1#:~:text=Coinbase%20Pro%2C%20the%20professional,them%20into%20a%20si
ngle%20platform.
---------------------------------------------------------------------------

    In short, and importantly, although the Exchange and the Sponsor
focus heavily on the similarities between the BRR and the Index, there
is no evidence in the record that the shares of any CME bitcoin futures
ETF/ETP, or the Shares of the proposed spot bitcoin ETP, would trade in
the secondary market at a price related to (or informed by) the BRR or
the Index.\223\
---------------------------------------------------------------------------

    \223\ A commenter provides a correlation analysis, using daily
price information between November 2021 and February 2022, which
purports to show high correlation (99.9%) between the price of CME
bitcoin futures contracts and a Coinbase spot price. See Coinbase
Letter II, at 7 and Figure 6. The same commenter also provides
correlation analysis, using daily price information between December
2021 and February 2022, which purports to show high correlation
between the prices of various non-U.S. spot bitcoin ETPs and a
Coinbase spot price. See id. at 8-9 and Figures 11-16. The
commenter, however, does not provide evidence with respect to price
correlation between shares of CME bitcoin futures ETFs and the BRR
or between the prices of various non-U.S. spot bitcoin ETPs and the
Index. Nor does correlation analysis, at daily intervals, provide
evidence of the causal economic relationship of interest: namely,
whether fraud or manipulation that impacts spot bitcoin would also
similarly impact CME bitcoin futures contracts. See infra notes 224-
225 and accompanying text.
---------------------------------------------------------------------------

    Fourth, the Commission's determination in the Teucrium Order and
the Valkyrie XBTO Order to approve the listing and trading of the
relevant CME bitcoin futures ETPs was not based on the ETPs' use--or
lack of use--of the BRR (or any other similar pricing mechanism) for
the calculation of NAV, or on the fact that the BRR is used for the
final cash settlement of CME bitcoin futures contracts. Rather, as
discussed above, the Commission approved the listing and trading of
such CME bitcoin futures ETPs, not because of the BRR, but because the
Commission found that the listing exchanges satisfy the requirement
pertaining to a surveillance-sharing agreement with a regulated market
of significant size related to the underlying bitcoin assets--which for
such ETPs are CME bitcoin futures contracts, not spot bitcoin.
    Fifth, even if the Exchange or the Sponsor had demonstrated a link
between the BRR and/or the Index and the prices of CME bitcoin futures
ETFs/ETPs and/or the proposed ETP, which they have not, it does not
necessarily follow that the CME's surveillance would, in fact, assist
in detecting and deterring fraudulent and manipulative misconduct that
impacts spot bitcoin ETPs in the same way as it would for misconduct
that impacts the CME bitcoin futures ETFs/ETPs--particularly when such
misconduct occurs off of the CME itself.\224\ For example, even
assuming, for the sake of argument, that the BRR and/or the Index is a
potential link between prices on certain spot bitcoin platforms and CME
bitcoin futures prices, it does not--absent supporting data--
necessarily follow that any manipulation that impacts spot bitcoin also
similarly impacts CME bitcoin futures contracts. Neither the Sponsor
nor the Exchange has provided any analysis or data that assesses the
reaction (if any) of CME bitcoin futures contracts to instances of
fraud and manipulation in spot bitcoin markets. Indeed, the only
analysis that the Sponsor itself provides is a summary of its lead/lag
analysis comparing CME bitcoin futures prices with the Index, from
which the Sponsor concludes that ``there does not appear to be a
significant lead/lag relationship between the two instruments.'' \225\
---------------------------------------------------------------------------

    \224\ See also supra note 209.
    \225\ See Amendment No. 1, 87 FR at 28054.
---------------------------------------------------------------------------

    In addition, the disapproval of the proposal would not violate the
requirement in Section 6(b)(5) of the Exchange Act \226\ that the rules
of an exchange not be designed to permit unfair discrimination between
issuers, nor would it constitute an arbitrary and capricious
administrative action in violation of the APA.\227\ Importantly, the
issuers are not similarly situated. The issuers of CME bitcoin futures-
based ETPs propose to hold only CME bitcoin futures contracts (which
are traded on the CME itself) as their only non-cash holdings, and the
Trust proposes to hold only spot bitcoin (which is not traded on the
CME). As explained in detail above and in the Teucrium Order and the
Valkyrie XBTO Order, because of this important difference, for a spot
bitcoin ETP, there is reason to question whether a surveillance-sharing
agreement with the CME would, in fact, assist in detecting and
deterring fraudulent and manipulative misconduct affecting the price of
the spot bitcoin held by that ETP.\228\ And as discussed above, neither
the Exchange, nor the Sponsor, nor any other evidence in the record for
this filing, sufficiently demonstrates that the CME's surveillance can
be reasonably relied upon to capture the effects of manipulation of the
spot bitcoin assets underlying the proposed ETP when such manipulation
is not attempted on the CME itself.
---------------------------------------------------------------------------

    \226\ 15 U.S.C. 78f(b)(5).
    \227\ The Sponsor argues that disapproval of the proposal would
constitute merit regulation, which is not authorized under the
Exchange Act. See Grayscale Letter I at 14-15. In addition, the
affiliate of the Custodian states that ``the Commission's role is
not to evaluate the characteristics and quality of the underlying
[b]itcoin market but instead to evaluate the [proposed] ETP, and the
role that [NYSE] Arca would play in monitoring trading in [the
Shares].'' Coinbase Letter I, at 5. See also, e.g., ADAM Letter, at
6; Ribbit Capital Letter, at 5. As previously stated, the Commission
is disapproving this proposed rule change because NYSE Arca has not
met its burden to demonstrate that its proposal is consistent with
the requirements of Exchange Act Section 6(b)(5). The Commission's
disapproval of this proposed rule change does not rest on an
evaluation of the relative investment quality of a product holding
spot bitcoin versus a product holding CME bitcoin futures, or an
assessment of whether bitcoin, or blockchain technology more
generally, has utility or value as an innovation or an investment.
See, e.g., Winklevoss Order, 83 FR at 37580; USBT Order, 85 FR at
12597; One River Order, 87 FR at 33550.
    \228\ See supra notes 208-209 and accompanying text.
---------------------------------------------------------------------------

    Moreover, the analytical framework for assessing compliance with
the requirements of Exchange Act Section 6(b)(5) that the Commission
applies here (i.e., comprehensive surveillance-sharing agreement with a
regulated market of significant size related to the underlying bitcoin
assets) is the same one that the Commission has applied in each of its
orders considering previous proposals to list bitcoin-based

commodity trusts and trust issued receipts.\229\ The Commission has
applied this framework to each proposal by analyzing the evidence
presented by the listing exchange and statements made by
commenters.\230\ Although the Sponsor states that the Commission's
approach to assessing compliance with Section 6(b)(5) has created a
standard that cannot be satisfied and therefore violates the APA, the
Commission has in fact recently approved proposals by the Exchange and
the Nasdaq Stock Market to list and trade shares of ETPs holding CME
bitcoin futures as their only non-cash holdings.\231\ And in the orders
approving these CME bitcoin futures-based ETPs, the Commission
explicitly discussed how an exchange seeking to list and trade a spot
bitcoin ETP could overcome the lack of a one-to-one relationship
between the regulated market with which it has a surveillance-sharing
agreement and the market(s) on which the assets held by a spot bitcoin
ETP could be traded: by demonstrating that there is a reasonable
likelihood that a person attempting to manipulate the spot bitcoin ETP
would have to trade on the regulated market (i.e., on the CME) to
manipulate the spot bitcoin ETP.\232\
---------------------------------------------------------------------------

    \229\ See supra notes 11-24 and accompanying text.
    \230\ See supra note 11.
    \231\ See Teucrium Order and Valkyrie XBTO Order, supra note 11.
    \232\ See supra note 208 and accompanying text.
---------------------------------------------------------------------------

    When considering past proposals for spot bitcoin ETPs, the
Commission has, in particular, reviewed the econometric and/or
statistical evidence in the record to determine whether the listing
exchange's proposal has met the applicable standard.\233\ The
Commission's assessment fundamentally presents quantitative, empirical
questions, but, as discussed above, the Exchange has not provided
evidence sufficient to support its arguments. Instead, the Exchange and
the Sponsor make various assertions that are not supported by the
limited data in the record regarding, among other things, trading
volume and bitcoin market capitalization, or the relationship between
spot bitcoin prices and CME bitcoin futures prices (including the lead/
lag relationship between the spot market and the CME bitcoin futures
market), and the record contains insufficient empirical analysis or
quantitative evidence of any such data to support the Exchange's
conclusions.\234\
---------------------------------------------------------------------------

    \233\ See, e.g., USBT Order, 85 FR at 12612-13; VanEck Order, 86
FR at 64547-48; WisdomTree Order, 86 FR at 69330-32; Kryptoin Order,
86 FR at 74175-76; NYDIG Order, 87 FR at 14938-39; Wise Origin
Order, 87 FR at 5534-36; Global X Order, 87 FR at 14919-20; ARK
21Shares Order, 87 FR at 20023-24.
    \234\ See Sections III.B.1 & III.B.2, supra.
---------------------------------------------------------------------------

    The requirements of Section 6(b)(5) of the Exchange Act apply to
the rules of national securities exchanges. Accordingly, the relevant
obligation to have a comprehensive surveillance-sharing agreement with
a regulated market of significant size related to spot bitcoin, or
other means to prevent fraudulent and manipulative acts and practices
that are sufficient to justify dispensing with such a surveillance-
sharing agreement, resides with the listing exchange. Because there is
insufficient evidence in the record demonstrating that NYSE Arca has
satisfied this obligation, the Commission cannot approve the proposed
ETP for listing and trading on NYSE Arca.

C. Whether NYSE Arca Has Met Its Burden to Demonstrate That the
Proposal Is Designed to Protect Investors and the Public Interest

    NYSE Arca contends that, if approved, the proposed ETP would
protect investors and the public interest. However, the Commission must
consider these potential benefits in the broader context of whether the
proposal meets each of the applicable requirements of the Exchange
Act.\235\ Because NYSE Arca has not demonstrated that its proposed rule
change is designed to prevent fraudulent and manipulative acts and
practices, the Commission must disapprove the proposal.
---------------------------------------------------------------------------

    \235\ See Winklevoss Order, 83 FR at 37602. See also
GraniteShares Order, 83 FR at 43931; ProShares Order, 83 FR at
43941; USBT Order, 85 FR at 12615; WisdomTree Order, 86 FR at 69333;
Valkyrie Order, 86 FR at 74163; Kryptoin Order, 86 FR at 74178;
SkyBridge Order, 87 FR at 3880; Wise Origin Order, 87 FR at 5537.
---------------------------------------------------------------------------

(1) Assertions Made and Comments Received
    Commenters argue that the Commission should approve the proposal
because doing so would satisfy investor demand for a U.S. regulated
investment vehicle with direct exposure to bitcoin.\236\ Commenters
state that approval of a spot bitcoin ETP would provide a simpler,
safer, and more efficient way to obtain exposure to bitcoin than the
products that are currently available to retail investors, such as
holding spot bitcoin, OTC bitcoin funds, bitcoin futures funds, or
foreign bitcoin funds.\237\ Some commenters state that approving a spot
bitcoin ETP would reduce the custody and cybersecurity risks to
investors of holding physical bitcoin.\238\
---------------------------------------------------------------------------

    \236\ See, e.g., Blockchain Association Letter, at 1-2; Virtu
Letter, at 2-4; BitGo Letter, at 1-2; STA Letter, at 2-3; ADAM
Letter, at 3-4; Harvey Letter, at 1-3; Shultz Letter; Letter from
Neil Chilson and Jonathan M. Zalewski, dated May 31, 2022 (``Chilson
Letter''), at 3; Letter from Jody Cryder, dated Apr. 25, 2022;
Letter from Rich Seils, dated Apr. 25, 2022 (``Seils Letter'');
Letter from Grant Johnson, dated Mar. 4, 2022 (``Johnson Letter'');
Letter from Evelyne Dandurand, dated Feb. 18, 2022; Letter from
David Brown, dated Apr. 19, 2022; Letter from Mark Reid, dated Feb.
28, 2022; Letter from William McPherson, dated Mar. 1, 2022; Letter
from Jalen Rose, dated Mar. 2, 2022; Letter from Brandon Gillet,
dated Feb. 22, 2022; Letter from Clint Jasperson, dated Feb. 18,
2022; Letter from Jason Miller, dated Feb. 17, 2022 (``Miller
Letter''); Letter from Michael Bielik, dated Feb. 18, 2022; Letter
from Joseph DeFilippis, dated Feb. 15, 2022; Letter from Peter C.,
dated Feb. 15, 2022; Letter from James P. Scofield, dated Feb. 14,
2022; Letter from Chris Smalley, dated Feb. 10, 2022; Letter from
Nico Peruzzi, dated Feb. 5, 2022; Letter from Matt Robins, dated May
10, 2022. See also Grayscale Submission, at 10.
    \237\ See, e.g., ADAM Letter, at 3-4; Harvey Letter, at 1-3;
BitGo Letter, at 1-2; Discovery Letter, at 2; Angel Letter, at 6-7;
Johnson Letter; Letter from Logan Kane, Writer, Seeking Alpha, dated
Feb. 19, 2022 (``Kane Letter''); Letter from Michael Falk, dated
Feb. 15, 2022; Letter from Andrew Farinelli, dated Feb. 10, 2022
(``Farinelli Letter''); Letter from Boris Hristov, dated May 18,
2022; Letter from Paul Smith, dated Feb. 28, 2022; Letter from Luke
Groom, dated Feb. 22, 2022; Emory Letter, at 2. In addition, some
commenters state that a spot bitcoin ETP would be just as, or less
risky than, other investments already trading in the U.S. See, e.g.,
Dreyfuss Letter; Miller Letter; Letter from Derek Serlet, dated Apr.
27, 2022; Letter from Monty Henry, dated Feb. 7, 2022 (``Henry
Letter''); Letter from Alexander, dated Feb. 22, 2022; Letter from
Martin Baer, dated Feb. 15, 2022; Letter from Gage Gorda, dated Feb.
14, 2022; Letter from Branon White, dated Feb. 10, 2022; Letter from
Nikolas Garcia, dated Mar. 4, 2022 (``Garcia Letter'').
    \238\ See, e.g., Angel Letter I, at 8; ADAM Letter; Kane Letter;
Henry Letter; Letter from Tim Crick, dated Mar. 21, 2022; Letter
from Michael David Spadaccini, dated Feb. 7, 2022; Letter from
Michael A. Rheintgen, dated Feb. 24, 2022; Letter from Richard
Arrett, dated Feb. 22, 2022 (``Arrett Letter''); Letter from Brian
Boerner, dated Feb. 14, 2022; Letter from William Perez, dated Feb.
12, 2022 (``Perez Letter''); Letter from Henry Chen, dated Feb. 26,
2022 (``Chen Letter'').
---------------------------------------------------------------------------

    Several commenters argue that a spot bitcoin ETP would provide
lower costs and less risk than bitcoin futures ETPs.\239\ The Sponsor
and some

commenters assert that disapproving spot bitcoin ETPs after approving
bitcoin futures ETFs and ETPs harms investors.\240\ In addition, the
Sponsor states that bitcoin futures ETPs present certain structural
disadvantages over spot bitcoin ETPs, such as monthly roll-costs \241\
and risks due to position limits.\242\
---------------------------------------------------------------------------

    \239\ See, e.g., Blockchain Association Letter, at 2 (``while
bitcoin futures ETPs have certain useful features, they are inferior
investment products for many Americans due to their relatively
higher cost and risk profile''); Angel Letter I, at 6-7 (stating
that ``[a] physical-based product in which the fund actually holds
the bitcoin is far less vulnerable to manipulation than the futures
contracts'' and that CME futures contracts experience roll costs,
lack liquidity, and have wide bid-ask spreads); Letter from Murray
Stahl, Chief Investment Officer, Horizon Kinetics Asset Management
LLC, dated Apr. 8, 2022 (``Horizon Kinetics Letter''), at 1-2
(stating that a futures-based bitcoin ETP is not suitable for long-
term investors since the performance deviates greatly from the
underlying asset and that a spot bitcoin ETP would eliminate such a
tracking error); Fortress Letter, at 2-3 (``Futures ETFs present
investors with a more costly and complex means of gaining exposure
to [b]itcoin while reflecting only a small portion of the actual
market for the digital asset''); Letter from Benjamin T. Fulton,
CEO, Elkhorn Consulting, LLC, dated Apr. 27, 2022 (``Elkhorn
Letter''), at 2-3; Harvey Letter, at 3; Whaley Letter, at 3-7;
Letter from Charles Hwang, Jason Albanese, Jock Percy, General
Partners, Lightning Capital, dated Mar. 21, 2022 (``Lightning
Capital Letter''), at 2-3; Discovery Letter, at 2 (``a spot
[b]itcoin ETP would provide a much better vehicle for investors due
to the vast liquidity, lower cost, and transparent Index pricing
than the current [f]utures based ETPs''); Kane Letter; Letter from
Ryan Wilday, dated Feb. 17, 2022; Letter from Michael Douglas Magee,
dated Apr. 19, 2022; Letter from Bryan Kelley, dated May 10, 2022.
    \240\ See, e.g., Grayscale Letter I, at 13-14 (``Continued
disparate treatment of [b]itcoin futures ETPs and spot [b]itcoin
ETPs would harm--rather than protect--investors by limiting their
choices without a reasoned basis.''); Cumberland Letter, at 1-2;
Harvey Letter, at 2-3; Lightning Capital Letter, at 1-3; ADAM
Letter, at 6; Fortress Letter, at 2; Letter from Justin Valdata,
dated Apr. 22, 2022 (``Valdata Letter''). A commenter argues that
such disparate treatment may undermine confidence in the Commission
and stifle innovation in the bitcoin and securities markets. See
Coinbase Letter I, at 4.
    \241\ See Grayscale Letter I, at 14. The Sponsor states that one
analysis showed that over the last year, a bitcoin futures ETP would
have lost 28% of its value just on roll costs (effectively, fees and
expenses being equal, a spot ETP would have performed around 28%
better). See id. (citing Michael J. Casey, Why a Bitcoin Futures ETF
is Bad for Investors, CoinDesk (last updated Oct. 22, 2021 at 4:29
p.m.), https://www.coindesk.com/policy/2021/10/22/why-a-bitcoin-futures-etf-is-bad-for-investors/). See also, e.g., Blockchain
Association Letter, at 2; Angel Letter I, at 7; Harvey Letter, at 3;
Elkhorn Letter, at 2; Fortress Letter, at 1-2; BitGo Letter, at 1-2;
Horizon Kinetics Letter, at 1-2.
    \242\ See Grayscale Letter I, at 14. According to the Sponsor,
position limits can cause a bitcoin futures ETP to experience
liquidity problems or losses, or have to halt new creations or
increase its fixed-income portfolio, thereby introducing tracking
error by diluting its exposure to bitcoin. The Sponsor states that,
alternatively, the CME may have to raise position limits to
accommodate increased demand in the absence of a spot bitcoin ETP
alternative, potentially increasing the concentration of economic
power of a few large market participants in the bitcoin futures
markets and reducing the resiliency of those markets against
manipulation. The Sponsor states that ``[t]hese risks--that
[b]itcoin futures ETPs could be constrained by position limits and
that the CME may raise those limits--are not purely speculative;
indeed, both have already occurred since the first [b]itcoin futures
ETP began trading.'' Id. See also, e.g., Blockchain Association
Letter, at 2 (``Futures ETPs are also subject to additional, unique
risks related to position limits, limited liquidity, dilution and
other factors.'').
---------------------------------------------------------------------------

    Commenters also emphasize that conversion of the existing Trust to
an ETP structure would be beneficial to its investors. The Sponsor, for
example, states that the Trust has grown to become the largest
publicly-traded digital asset fund in the world \243\ and that
approving the Trust to operate as an ETP traded on a national
securities exchange ``will provide investors with the additional
protections of [the Commission] and [NYSE Arca] while unlocking
billions of value for investors.'' \244\ Moreover, according to the
Sponsor, converting the Trust into an ETP would allow the Shares to
better track the Trust's NAV and reduce discounts and premiums, thereby
unlocking approximately $8 billion in value for investors.\245\
Similarly, commenters state that the proposal would protect investors
and help maintain fair and orderly markets by reducing premium and
discount volatility with respect to the Shares, thereby allowing
investors to gain access to bitcoin through an ETP structure at trading
prices that are more closely aligned with spot bitcoin trading
prices.\246\ Moreover, other commenters state that approving the
proposal and allowing the Trust to convert into an ETP would protect
investors by, among other things, lowering fees and providing
heightened regulation of the Shares.\247\
---------------------------------------------------------------------------

    \243\ See Grayscale Submission, at 2.
    \244\ Id. at 17.
    \245\ See id. at 9. The Sponsor states that, because the Shares
are not currently listed on a national securities exchange and the
Trust is therefore not permitted to operate an ongoing creation and
redemption program, arbitrage opportunities resulting from
differences between the price of the Shares and the price of bitcoin
are not available to keep the price of the Shares closely linked to
the Index Price for bitcoin. As a result, the Shares are usually
quoted at a premium over, or discount to, the value of the Trust's
bitcoin holdings. See Grayscale Letter I, at 5. See also Coinbase
Letter I, at 2.
    \246\ See, e.g., Coinbase Letter I, at 2-3; Virtu Letter, at 2;
Angel Letter I, at 7-8; BitGo Letter, at 1; ADAM Letter, at 4-5;
Cumberland Letter, at 1; Lightning Capital Letter, at 1-2; Gunderson
Letter; Discovery Letter, at 1; Henry Letter; Keiffer Letter; Perez
Letter; DiLonardo Letter; Kornfield Letter; Garcia Letter; Johnson
Letter; Arrett Letter; Emory Letter, at 2; Letter from Richard Leo,
dated Apr. 22, 2022; Letter from Joseph McDevitt, dated Apr. 22,
2022; Letter from Mitchell J. Brodie, dated Apr. 22, 2022; Letter
from Steve Axel, dated Feb. 18, 2022; Letter from Brent Zeigler,
dated Feb. 19, 2022; Letter from Jonas Lippuner, dated Apr. 21,
2022; Letter from David Lynch, dated Mar. 3, 2022; Letter from David
New, dated Feb. 23, 2022; Letter from Roger A. Rector, dated Feb.
22, 2022; Letter from Michael Charles, dated Feb. 19, 2022; Letter
from Scott Egon Roge, dated Feb. 15, 2022; Letter from Ozeir
Nassery, dated Feb. 11, 2022; Letter from Raj Lakkundi, dated Feb.
11, 2022. The affiliate of the Custodian states that the performance
of spot bitcoin ETPs in other countries confirms the ability of a
spot bitcoin ETP to appropriately reflect the underlying bitcoin
market. See Coinbase Letter II, at 3, 8. See also Virtu Letter, at 2
(``In our experience as a market maker and AP in spot cryptocurrency
ETPs in Canada, we have observed the positive impact of these
dynamics--as spot cryptocurrency ETP spreads to NAV are compressed
to levels observed for non-crypto ETPs.'').
    \247\ See, e.g., Angel Letter I, at 7-8; Horizon Kinetics
Letter, at 2-3; Shultz Letter; Johnson Letter; Arret Letter; Roge
Letter; Perez Letter; Letter from Keith Arvidson, dated Apr. 5,
2022; Letter from Rick Parker, dated Feb. 22, 2022; Letter from
Michael J. Sheslow, dated Feb. 22, 2022; Letter from Omid Jafari,
dated Feb. 18, 2022; Letter from Richard Payne, dated Feb. 19, 2022;
Letter from Sunjeev Konduru, dated Mar. 16, 2022 (``Konduru
Letter'').
---------------------------------------------------------------------------

    Several commenters further state that approval of a spot bitcoin
ETP would enhance the liquidity, price discovery, and efficiency of the
underlying bitcoin markets.\248\ The affiliate of the Custodian states
that the introduction of a spot bitcoin ETP with a robust create and
redeem arbitrage process can improve the price efficiency of an
underlying asset and thus further increase the resilience of bitcoin
trading in the spot market.\249\ This commenter believes the presence
of a spot bitcoin ETP ``may bolster and stabilize the broader [b]itcoin
derivatives market by encouraging a . . . greater volume of activity
and easier arbitrage between the two markets.'' \250\
---------------------------------------------------------------------------

    \248\ See, e.g., Cammarata Letter, Coinbase Letter I, at 3;
Coinbase Letter II, at 7; Fortress Letter, at 3; Harvey Letter, at 5
(stating ``financial derivatives, including ETPs, can generally
serve to enhance the liquidity and efficiency of the markets for
many asset classes and currencies, including bitcoins'' and ``[i]t
is difficult to imagine a scenario in which approval of [the Trust]
as a bona fide ETP on the NYSE Arca would not increase the number of
market participants, dollar-denominated liquidity, and other
competitive forces that would lead to more efficient price discovery
than currently exists in a semi-fragmented, global bitcoin spot
market that lacks a regulated, centralized trading venue or order
book''); Fortress Letter, at 3 (stating that the Trust can serve an
important price discovery purpose and that, because of its size, the
Trust will create additional liquidity and will allow for greater
transparency and efficiency in the bitcoin market); Dreyfuss Letter,
at 2 (stating that ``increasing the liquidity of [the spot bitcoin]
markets would actually reduce the influence of predatory forces by
encouraging long term ownership across a broader spectrum of
investors'').
    \249\ See Coinbase Letter I, at 3.
    \250\ Coinbase Letter II, at 7.
---------------------------------------------------------------------------

    Finally, some commenters argue that the proposal should be approved
because doing so would enhance investor choice,\251\ improve market
structure and competition for the benefit of investors,\252\ and
facilitate capital formation.\253\
---------------------------------------------------------------------------

    \251\ See, e.g., Blockchain Association Letter, at 1; Letter
from David Noble, Director, The Werth Institute, University of
Connecticut, dated Apr. 26, 2022 (``Noble Letter''); Letter from
John Shinkunas, dated Apr. 10, 2022; Letter from Karl J. Randall,
dated Feb. 28, 2022; Letter from Reginald M. Browne, Principal, GTS
Securities, LLC, dated June 10, 2022 (``GTS Letter''), at 2.
    \252\ See, e.g., BitGo Letter, at 1;Virtu Letter, at 3-4; Groom
Letter; Egan Letter; Angel Letter I; Chilson Letter; GTS Letter, at
2.
    \253\ See, e.g., Harvey Letter, at 5 (``as an ETP on the NYSE
Arca, [the Trust] would continue to serve as a liquid, but even more
regulated conduit for capital formation within the bitcoin
ecosystem''); ADAM Letter, at 5 (stating that approval of the
proposal would facilitate the Commission's mission of promoting
capital formation); GTS Letter, at 2; Emory Letter, at 1-2 (stating
that disapproval of the proposal would be ``contrary to the goal of
equitable access to means of wealth generation'').

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

(2) Analysis
    The Commission disagrees. Here, even if it were true that, compared
to trading in unregulated spot bitcoin markets or OTC bitcoin funds,
trading a spot bitcoin-based ETP on a national securities exchange
could provide some additional protection to investors, or that the
Shares would provide more efficient exposure to bitcoin than other
products on the market such as bitcoin futures ETPs, or that approval
of a spot bitcoin ETP could enhance competition or strengthen the
underlying spot bitcoin and derivatives markets, the Commission must
consider this potential benefit in the broader context of whether the
proposal meets each of the applicable requirements of the Exchange
Act.\254\ Pursuant to Section 19(b)(2) of the Exchange Act, the
Commission must approve a proposed rule change filed by a national
securities exchange if it finds that the proposed rule change is
consistent with the applicable requirements of the Exchange Act--
including the requirement under Section 6(b)(5) that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices--and it must disapprove the filing if
it does not make such a finding.\255\ Thus, even if a proposed rule
change purports to protect investors from a particular type of
investment risk--such as experiencing a potentially high premium/
discount by investing in an OTC bitcoin fund or roll costs by investing
in bitcoin futures ETPs--or purports to provide benefits to investors
and the public interest--such as enhancing competition and bolstering
resiliency in the underlying commodity or futures markets--the proposed
rule change may still fail to meet the requirements under the Exchange
Act.\256\
---------------------------------------------------------------------------

    \254\ See supra note 235.
    \255\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C.
78s(b)(2)(C). See also Affiliated Ute Citizens of Utah v. United
States, 406 U.S. 128, 151 (1972) (Congress enacted the Exchange Act
largely ``for the purpose of avoiding frauds''); Gabelli v. SEC, 568
U.S. 442, 451 (2013) (The ``SEC's very purpose'' is to detect and
mitigate fraud.).
    \256\ See SolidX Order, 82 FR at 16259; VanEck Order, 86 FR at
54550-51; WisdomTree Order, 86 FR at 69344; Kryptoin Order, 86 FR at
74179; Valkyrie Order, 86 FR at 74163; SkyBridge Order, 87 FR at
3881; Wise Origin Order, 87 FR at 5538; ARK 21Shares Order, 87 FR at
20026-27.
---------------------------------------------------------------------------

    For the reasons discussed above, NYSE Arca has not met its burden
of demonstrating an adequate basis in the record for the Commission to
find that the proposal is consistent with Exchange Act Section
6(b)(5),\257\ and, accordingly, the Commission must disapprove the
proposal.\258\
---------------------------------------------------------------------------

    \257\ 15 U.S.C. 78f(b)(5).
    \258\ In disapproving the proposed rule change, the Commission
has considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f). Some commenters state that approval
of the proposal would enhance market efficiency and facilitate
competition and capital formation. See supra notes 248-253 and
accompanying text. For the reasons discussed throughout, however
(see supra notes 56-57), the Commission is disapproving the proposed
rule change because it does not find that the proposed rule change
is consistent with the Exchange Act. See also USBT Order, 85 FR at
12615.
---------------------------------------------------------------------------

D. Other Comments

    Comment letters also address, among other things, the general
nature and uses of bitcoin and blockchain technology; \259\ the state
of development of bitcoin as an investment asset; \260\ beneficial tax
consequences of approval of a spot bitcoin ETP; \261\ the merits of an
investment in bitcoin; \262\ the nature and state of the bitcoin mining
network; \263\ the current failure, and potential promotion of, U.S.
competitiveness in the global marketplace relating to bitcoin; \264\
suggestions for improving regulation of bitcoin and other digital
assets markets and related market participants and criticisms of the
current regulatory approach; \265\ increasing education relating to,
and accessibility of, bitcoin; \266\ the merits of the Sponsor; \267\
and specific concerns relating to the Sponsor and its management of the
Trust.\268\ Ultimately, however, additional discussion of these topics
is unnecessary, as they do not bear on the basis for the Commission's
decision to disapprove the proposal.
---------------------------------------------------------------------------

    \259\ See, e.g., Angel Letter I, at 2-4, Letter from Thomas M.
Wynne, dated Apr. 9, 2022 (``Wynne Letter''); Chilson Letter, at 1.
    \260\ See, e.g., Moffitt Letter I; Letter from Patric Berger,
dated Feb. 23, 2022; Letter from Sundeep Bollineni, dated Feb. 22,
2022; Chilson Letter; Letter from James McClave, Jane Street
Capital, LLC, dated June 16, 2022.
    \261\ See, e.g., Chen Letter; Letter from John Berggren, dated
Feb. 14, 2022.
    \262\ See, e.g., Seils Letter; Konduru Letter; Emory Letter.
    \263\ See, e.g., Letters from David Bush, dated Feb. 22, 2022
(``Bush Letter''); Joseph D. Camp, Ph.D., Professor, Southern
Methodist University, dated Feb. 14, 2022.
    \264\ See, e.g., Elkhorn Letter; Johnson Letter; Valdata Letter;
Bush Letter; Letter from Milton W., dated Feb. 23, 2022; Letter from
Aaron Fenker, dated Feb. 23, 2022; Letter from Anil Gorania, dated
Feb. 18, 2022; Letter from Nirav Trivedi, dated Feb. 11, 2022;
Letter from Enrique Rea, Jr., dated Apr. 22, 2022; Chilson Letter,
at 3; GTS Letter, at 2; Emory Letter, at 2. The Sponsor states that
the U.S. lags global markets with respect to providing bitcoin and
other digital asset ETPs and argues that approval of the proposal
would support the White House Executive Order on Ensuring
Responsible Development of Digital Assets by further bringing
bitcoin into the regulatory perimeter. See Grayscale Submission, at
11-12. A commenter states that, ``as a global firm, it is concerning
to observe the U.S. lagging far behind such foreign capital market
competitors in offering regulated products for an emerging
technology like Blockchain.'' Fortress Letter, at 3.
    \265\ See, e.g., Angel Letter I, at 9-40; ADAM Letter, at 5;
Dreyfuss Letter; Kane Letter; Boyer Letter; Letter from James J.
Angel, Associate Professor of Finance, Georgetown University, dated
May 6, 2022 (``Angel Letter II''); Chilson Letter, at 1-2.
    \266\ See, e.g., Noble Letter; Letter from Julian Rogers, dated
Apr. 7, 2022.
    \267\ See, e.g., Wynne Letter; Henry Letter.
    \268\ See, e.g., Letter from David B. Hennes, Ropes & Gray LLP,
dated March 3, 2022 (expressing concern, on behalf of an unnamed
``interested investor,'' about the Sponsor's potential windfall if
the Trust were to be allowed to convert to an ETP); Kleinfelder
Letter.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange, and in
particular, with Section 6(b)(5) of the Exchange Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that proposed rule change SR-NYSEArca-2021-90, as
modified by Amendment No. 1, be, and hereby is, disapproved.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14310 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P