data collection process in connection with the Sponsor's earlier
analysis); Bitwise Submission I, supra note 6, at 41.
    \193\ See Bitwise Submission II, supra note 9, at 18. According
to the Sponsor, the data collection process would break if the html
structure of the web page being scraped changed in any meaningful
way, which was a common occurrence. See id.
    \194\ See id.
---------------------------------------------------------------------------

    Several commenters raise concerns about the Sponsor's data
collection methods. One commenter claims that accessing data through
trading

platforms' websites is more appropriate for illustration than research
because these websites are not updated in real time, or even within a
quarter of a second, and therefore this collection method can access
only a fraction of the trades.\195\ Another commenter asserts that it
is plausible that a group of bad of actors have used trading bots to
manipulate the data on the other platforms to secure approval of an
ETP.\196\ This commenter also states that it has concerns about the
data presented, because a single organization conducted the study, the
methodology and data source are unclear, and the traffic data are only
collected from a single source.\197\ A third commenter questions
whether the data used to identify the platforms reporting fake volume
are reliable.\198\
---------------------------------------------------------------------------

    \195\ See Arssov Letter, supra note 6.
    \196\ See Denscombe Letter, supra note 6.
    \197\ See id.
    \198\ See C. Ross Letter, supra note 6.
---------------------------------------------------------------------------

    The Sponsor states that it has selected the platforms to analyze by
creating a list of 83 platforms that represent the top bitcoin trading
pairs on coinmarketcap.com as of December 5, 2018.\199\ The Sponsor
adds that it has considered all trading pairs where bitcoin is the base
currency, or where the quote currency is either a fiat currency or a
stablecoin.\200\ Further, the Sponsor argues that, while new platforms
with astronomical volumes have appeared every week on
coinmarketcap.com, leading the list of platforms representing the top
bitcoin trading pairs to become stale quickly, that list is
sufficiently consistent that the core analysis remains relevant.\201\
---------------------------------------------------------------------------

    \199\ See Bitwise Submission II, supra note 9, at 15. With
respect to the Sponsor's earlier analysis, the Sponsor represents
that it has generated a list of 81 platforms to analyze at that time
by looking at all platforms reporting more than $1 million in
average daily volume for bitcoin-fiat and bitcoin-stablecoin pairs
to coinmarketcap.com on December 5, 2018. See Notice and OIP, supra
note 7, 84 FR at 23129; Bitwise Submission I, supra note 6, at 41.
    \200\ See Bitwise Submission II, supra note 9, at 15.
    \201\ See id. at 18.
---------------------------------------------------------------------------

    With respect to the bitcoin over-the-counter (``OTC'') market, the
Sponsor claims that its ``[c]onversations with leading market makers''
suggest that very little bitcoin OTC volume is crossed internally and
that most volume is settled on the spot platforms.\202\ The Sponsor
asserts that any incremental volume in the OTC or dark pool market is
not a significant fraction of the global spot market for bitcoin, and
that counting these trades separately would mostly lead to double
counting.\203\
---------------------------------------------------------------------------

    \202\ See Bitwise Submission III, supra note 9, at 133.
    \203\ See id. In this context, the term ``dark pool'' is used as
described in the registration statement for the Winklevoss Bitcoin
Trust, which described ``dark pools'' as bitcoin trading platforms
that do not publicly report limit order book data. See Winklevoss
Bitcoin Trust, Form S-1/A (File No. 333-189752), at 62.
---------------------------------------------------------------------------

    Several commenters question the Sponsor's selection of certain
bitcoin platforms for its analysis, to the exclusion of other platforms
and the OTC market. One commenter argues that the Sponsor selectively
analyzed data, excluding many factors.\204\ This commenter states that
the Sponsor excluded platforms from South Korea on the basis of capital
controls, but included platforms from China and Hong Kong, where
capital controls are also in place.\205\ This commenter also claims
that the Sponsor's selection of trading pairs is unusual because the
market is not based solely on the chosen trading pairs and there are
arbitrage opportunities in trading digital assets against other digital
assets.\206\ Another commenter argues that, while the Sponsor suggests
that virtually all trading occurs on non-Asian platforms, it is
unlikely that Asian investors would use United States or European
Union-based platforms and be subject to their capital controls, and
that the Sponsor ignores trading on both the Hong Kong-based platform
Bitmex and OTC trading.\207\ This commenter states that a previous ETP
filer claimed that OTC volume among United States-based brokers is $500
million a day, and that, even if this figure is overstated, it suggests
that global average daily volume in bitcoin is significantly higher
than $273 million.\208\ Another commenter argues that, even if capital-
controlled markets present difficulties for arbitrage, it does not mean
that market participants in these capital-controlled markets cannot
participate in, influence, or manipulate the bitcoin market.\209\ This
commenter asserts that market participants in Venezuela, Zimbabwe, and
other significant capital-controlled countries participate in the
bitcoin market and that getting around capital controls to participate
in and manipulate the market is not difficult.\210\
---------------------------------------------------------------------------

    \204\ See Fitzgerald Letter II, supra note 9. See also C. Ross
Letter, supra note 6 (asserting that the ten identified platforms
seem ``rather convenient'' for the Sponsor to build its case upon).
    \205\ See Fitzgerald Letter II, supra note 9.
    \206\ See id.
    \207\ See Blake Letter I, supra note 6. See also Arssov Letter,
supra note 6 (stating that two-thirds or more of digital asset
trading occurs outside of the United States, but most of the ten
identified platforms on the list are based in the United States and
reflect only a fraction of the total trades).
    \208\ See Blake Letter I, supra note 6. See also Shenoy Letter
III, supra note 69, at 6, 9 (claiming that OTC bitcoin volume
typically is 2-3 times larger than volumes on platforms and that an
estimated 1 to 1.5 billion bitcoins are traded on the OTC market
daily).
    \209\ See Robert Letter, supra note 9.
    \210\ See id.
---------------------------------------------------------------------------

    The Sponsor states that it used a single week time period--April
28, 2019, through May 5, 2019--for its visualized data to balance
concerns that too short a period may not give natural market patterns
enough time to develop, and that too long a period may make anomalous
patterns less distinct, because platforms attempting to fake volume may
periodically change their algorithms.\211\ According to the Sponsor, it
has based its analysis on data from the last week before it finalized
the research, to be as current as possible, but the Sponsor asserts
that any single week sample would lead to a similar conclusion.\212\
---------------------------------------------------------------------------

    \211\ See Bitwise Submission II, supra note 9, at 19. See also
Notice and OIP, supra note 7, 84 FR at 23129 (stating that when
selecting March 4, 2019, through March 8, 2019, as the time period
for its earlier analysis, the Sponsor deliberately utilized a short
time period to show that fake volume is a current problem in the
bitcoin market and because platforms change algorithms used to fake
volume over time, which obscures the results of data-driven analyses
that consider longer time periods).
    \212\ See Bitwise Submission II, supra note 9, at 19.
---------------------------------------------------------------------------

    The Sponsor states that one tool that it has used for its analysis
is a trade size histogram, which is a data visualization technique that
allows one to see the percentage of trading volume on a platform that
occurs at particular trade sizes over a specified period.\213\ The
Sponsor asserts that it has cut off the histograms after 10 bitcoins
because the vast majority of trade volume occurs in the 0-10 bitcoins
range, and the Sponsor finds it ``visually helpful'' to focus on this
range.\214\ The Sponsor has used the six platforms with BitLicenses as
a baseline for what a group of legitimate trade size histograms look
like, because, according to the Sponsor, the BitLicense establishes a
conservative set of platforms that are not likely to have pervasive
fake volume or wash trading.\215\ The Sponsor states that it finds two
patterns among the platforms with BitLicenses--trade volume percentages
generally trend downward as trade size increases and there are
behavioral preferences around round numbers--and that these patterns
are consistent with documented trading behavior in traditional
markets.\216\ The Sponsor argues that, in contrast, six platforms
outside the set of platforms with BitLicenses follow unnatural patterns
and that the only realistic

explanation is that these platforms are reporting artificial
volume.\217\
---------------------------------------------------------------------------

    \213\ See id.
    \214\ See id. at 20-21.
    \215\ See id. at 21.
    \216\ See id. at 22-23. See also Bitwise Submission I, supra
note 6, at 26 (stating that the ``real'' platform Coinbase Pro has
varying trade sizes, with a greater-than-random number of round
trade sizes).
    \217\ See Bitwise Submission II, supra note 9, at 23-24. The
Sponsor also argues that the discrepancy in trading patterns cannot
be attributed to low volume, because the six platforms outside the
reference set all report volumes that are greater than that of the
largest platform with a BitLicense. See id. at 24. The Sponsor
states that in its earlier analysis, it finds that the trade size
histograms for the platforms that have passed all of its data tests
show consistent, intuitive patterns, while those from other
platforms reflect patterns that are idiosyncratic and often
transparently programmatic (e.g., bell curve-like distributions or
increasing volume for larger trade sizes). See Notice and OIP, supra
note 7, 84 FR at 23129; Bitwise Submission I, supra note 6, at 42-
50. See also Bitwise Submission I, supra note 6, at 32, 55-57.
---------------------------------------------------------------------------

    The Sponsor states that the second tool it has used for its
analysis is an examination of the alignment of volume spikes, asserting
that, while the bitcoin spot market is fractured across multiple
platforms, all of these platforms should respond to the same
developments in the market.\218\ The Sponsor claims that the hourly
trade volume for one platform with a BitLicense, Coinbase Pro, shows
varying volume throughout the day, a pattern of volume that does not
repeat across days, and several large volume spikes.\219\ The Sponsor
further claims that the six platforms with BitLicenses all exhibit
similar patterns, with an obvious alignment of volume spikes,
particularly around May 3, 2019, and argues that this demonstrates a
connected market.\220\ In contrast, the Sponsor points to the volume
patterns of six platforms outside of the reference set of platforms
with BitLicenses and asserts that they exhibit idiosyncratic and highly
unusual volume patterns and lack volume spikes that align with
platforms in the ``real'' bitcoin market, strongly suggesting that
these platforms are posting fake volume.\221\
---------------------------------------------------------------------------

    \218\ See Bitwise Submission II, supra note 9, at 24.
    \219\ See id. at 25.
    \220\ See Bitwise Submission II, supra note 9, at 26-27. See
also Bitwise Submission I, supra note 6, at 25, 27 (stating the
``real'' platform Coinbase Pro has a trade volume that varies, with
a mix between buys and sells that is unequal and streaky).
    \221\ See Bitwise Submission II, supra note 9, at 27-29. The
Sponsor claims that none of the six platforms outside the reference
set have volume spikes that align with the May 3, 2019, spike that
was present in all platforms within the reference set. See id. at
29. The Sponsor states that in its earlier analysis, it finds that
volume spikes rise and fall concurrently across the platforms that
have passed all data tests, but other platforms have no discernable
volume spikes or patterns that are disconnected or wholly
idiosyncratic and do not repeat on other platforms. See Notice and
OIP, supra note 7, 84 FR at 23129; Bitwise Submission I, supra note
6, at 51-52. See also Bitwise Submission I, supra note 6, at 29-31,
35-36, 38-39, 55-57 (also noting that essentially all of the trades
on one ``suspicious'' platform print inside the prevailing bid and
ask).
---------------------------------------------------------------------------

    The third tool that the Sponsor says it has used for its analysis
is a spread patterning analysis based on the spread between the highest
price at which someone is willing to buy bitcoin and lowest price at
which someone is willing to sell bitcoin, denominated in dollars.\222\
The Sponsor asserts that the spread on Coinbase Pro shows price
oscillation and is generally quite low and anchored near zero.\223\ The
Sponsor further claims that the spreads on the six platforms with
BitLicenses generally have low spreads, that the spikes in spreads are
short-lived, and that the spreads exhibit a consistently spiky form,
suggesting that they are responding to current events.\224\ The Sponsor
asserts that the differences between the spreads on the platforms with
BitLicenses are driven by differences in fee structures, such as the
use of a maker-taker fee model by some platforms.\225\ In contrast, the
Sponsor claims that the spread analysis for six platforms outside the
reference set shows spreads that are anchored on high dollar amounts
and oscillate in artificial patterns.\226\ According to the Sponsor,
there is no economic reason for these spread patterns if there is true
liquidity on the platforms and these patterns indicate the presence of
automated bots that perform wash trading.\227\
---------------------------------------------------------------------------

    \222\ See Bitwise Submission II, supra note 9, at 29.
    \223\ See id. at 29-30. See also Bitwise Submission I, supra
note 6, at 28 (stating that the spread of bitcoin on the ``real''
platform Coinbase Pro was $0.01, or 0.0003% of bitcoin's current
trading price).
    \224\ See Bitwise Submission II, supra note 9, at 31-32.
    \225\ See id. at 32.
    \226\ See id. at 33-34.
    \227\ See id. at 34. The Sponsor states that, in its earlier
analysis, it finds that well-known platforms show a consistent
pattern of spreads, anchoring on zero, with random variability and
periodic spikes, while many platforms with very high levels of
volume report average spreads that are 1,000% to 35,000% higher than
spreads on platforms that have passed all of the Sponsor's tests and
exhibit spread patterns that reveal artificial, programmatic
drivers, including spreads that unnaturally anchor on arbitrarily
high dollar values or stay fixed for extended periods. See Notice
and OIP, supra note 7, 84 FR at 23130; Bitwise Submission I, supra
note 6, at 53-54. See also Bitwise Submission I, supra note 6, at
33, 37, 55-56.
---------------------------------------------------------------------------

    In conclusion, the Sponsor finds that only ten of the 83 platforms
it analyzed have ``real'' volume because they passed all three tests,
whereas 73 platforms failed one or more of its tests.\228\ As discussed
further below, the Sponsor subsequently removed one platform, Bitfinex,
from its selection of platforms used for the Trust's NAV and IIV
pricing, due to a court order obtained by the New York Attorney General
(``NYAG'') against Bitfinex's operator,\229\ but the Sponsor maintains
that Bitfinex's volume is ``real.'' \230\
---------------------------------------------------------------------------

    \228\ See Bitwise Submission II, supra note 9, at 34-35. For the
trade histograms, volume graphs, and spread graphs of all 83
platforms that the Sponsor has analyzed, see id. at 86-102. The
Sponsor states that it is excluding those platforms based in South
Korea, because their volumes are isolated from the global bitcoin
market due to capital controls. See id. at 34. However, the Sponsor
also states that 73 of the 83 platforms failed one or more of the
three tests (see id.), and the Commission notes that this figure
includes the South Korean platforms.
    \229\ See infra notes 325, 331-338, and accompanying text.
    \230\ See Bitwise Submission V, supra note 9, at 5. The Sponsor
argues that having real volume and being ineligible to contribute
prices to the Trust's pricing mechanism are not mutually exclusive,
and that Bitfinex has passed all of the Sponsor's tests for having
real volume. See id. The Sponsor asserts that the Bitwise Crypto
Index Committee reviewed the NYAG's court order against iFinex (the
operator of Bitfinex) and subsequent legal documents, and found no
evidence contradicting the Sponsor's finding that the Bitfinex
volume is real. See id. at 5-6 (arguing that, as further evidence
that trading on Bitfinex is real, the court documents confirm that
investors deposited billions of dollars with the platform).
---------------------------------------------------------------------------

    Two commenters raise specific concerns about the Sponsor's methods
of analysis.\231\ One commenter states that the Sponsor has not
provided a longitudinal picture of all of the platforms and that the
time period used for the visualized data is a very short snapshot.\232\
This commenter asserts that the narrative of the Sponsor's report could
look very different if trades larger than 10.0 bitcoins were included
and that the report is not complete due to this exclusion.\233\ This
commenter also notes that the Sponsor focuses most of its analysis on
the six platforms with a BitLicense, rather than all ten of the
platforms that the Sponsor identifies as ``real.'' \234\ Another
commenter disagrees with the Sponsor's assertion that market
participants are more likely to trade small amounts of bitcoin than
large amounts, and more likely to trade whole bitcoin than fractions of
bitcoin, and claims that the order books on the ten ``real'' platforms
show people trading more in fractions of bitcoin than whole amounts of
bitcoin.\235\ This commenter argues that before being used as a basis
for granting an ETP, the Sponsor's analysis should be scrutinized
regarding the methodology and where data was acquired, independent
verification of the claims, and multiple sources for data
collection.\236\
---------------------------------------------------------------------------

    \231\ See Denscombe Letter, supra note 6; Fitzgerald Letter II,
supra note 9.
    \232\ See Fitzgerald Letter II, supra note 9.
    \233\ See id.
    \234\ See id.
    \235\ See Denscombe Letter, supra note 6 (stating that the
platforms show orders of 15 to 33 bitcoins).
    \236\ See id. (asserting that, to be fair to all of the
organizations studied, there would need to be at least five years'
worth of longitudinal data from the ten ``real'' platforms for
independent analysis for any abnormalities and irregularities).
---------------------------------------------------------------------------

    Several commenters raise questions about specific platforms that
the

Sponsor identifies as ``real.'' \237\ One commenter asserts that
Bitfinex has long had questions raised about its operations, and that
while the Sponsor has sound reasoning for dropping Bitfinex from its
consolidated bitcoin price, the deletion raises questions about why the
Sponsor ever included Bitfinex in its consolidated price, along with
Binance, another non-United States domiciled platform with a ``colorful
past.'' \238\ Another commenter asserts that it is ``essential'' to
further analyze Binance and Kraken because Binance has not registered
as an MSB and Kraken has not pursued a BitLicense, and both platforms
have had recent negative press.\239\ A third commenter represents that,
in April 2018, Kraken refused to answer the NYAG's inquiry into the
bitcoin market, which heightens the need to independently analyze
longitudinal data from the ``real'' platforms.\240\
---------------------------------------------------------------------------

    \237\ See Blake Letter I, supra note 6; Blake Letter II, supra
note 9; Denscombe Letter, supra note 6; Fitzgerald Letter II, supra
note 9.
    \238\ See Blake Letter II, supra note 9 (stating that Tether and
Bitfinex's connections to Tether ``are just too painful to even
write about at this time''). See also Blake Letter I, supra note 6
(questioning the Sponsor's claim that Binance is a European Union-
based Maltese company).
    \239\ See Fitzgerald Letter II, supra note 9 (representing that
the Kraken CEO stated that, among other things, bitcoin traders want
minimal documentation for onboarding and do not care about many of
the things that concern regulators, including regulatory approval
and protection from risky investments and market manipulation).
    \240\ See Denscombe Letter, supra note 6.
---------------------------------------------------------------------------

    One commenter asserts that it seems unlikely that there are zero
platforms that have a mixture of some real and some fake volume, and
that the more likely scenario is that some platforms are faking some of
their volume and therefore the ``true'' volume in the ``real'' bitcoin
market is certainly higher than the Sponsor's calculation.\241\ In
response to this commenter, the Sponsor acknowledges that there is
likely a gray area between platforms with 100% real volume and 100%
fake volume.\242\ According to the Sponsor, the 73 platforms that it
has not identified as ``real'' platforms include an occasional example
that ``doesn't seem outright fake.'' \243\ The Sponsor cites as an
example its analysis of the Gate.io platform, and the Sponsor
acknowledges that there is room to reasonably argue whether Gate.io's
volume is fake or whether some percentage of its volume should be
included in the total ``real'' volume.\244\ However, the Sponsor
asserts that Gate.io does not have enough volume to meaningfully alter
the Sponsor's conclusions, which would not change even if the Sponsor
counted all of Gate.io's volume as ``real.'' \245\
---------------------------------------------------------------------------

    \241\ See Blake Letter I, supra note 6.
    \242\ See Bitwise Submission II, supra note 9, at 38.
    \243\ See id.
    \244\ See id. (stating that the trade size histogram for Gate.io
does not show the expected spikes around 1.0 or 2.0 bitcoins, that
the volume spike analysis shows hourly volume that seems more
patterned than the reference set with a muted volume peak on May 3,
2019, and that the spread patterning analysis shows a high median
spread around $4).
    \245\ See id. (comparing Gate.io's reported $12 million average
daily volume in April 2019 to the $554 million total daily volume of
the ten ``real'' platforms).
---------------------------------------------------------------------------

    The Sponsor argues that to address whether the total ``real''
volume should be higher, it should focus, among the platforms it has
identified as ``fake,'' on those platforms with more significant
reported volume.\246\ The Sponsor asserts that, when it shared its
initial analysis on Twitter, the public closely examined its work and
raised questions about certain platforms that were not included in the
list of ``real'' platforms but that the public believed had real-world
footprints; but only three of these platforms had ``meaningful''
volume--HitBTC, Huobi, and OKEx.\247\ The Sponsor claims that its
analysis for OKEx shows that the vast majority of OKEx's bitcoin volume
is entirely fake, based on the volume spike analysis for April 28,
2019, through May 5, 2019, showing a nearly constant hourly volume with
an extremely muted spike on May 3, 2019, along with a trade size
histogram that shows no round-number spikes, an atypical rise in volume
between 1 and 6 bitcoins, and an unusually long tail volume above 6
bitcoins.\248\ In addition, the Sponsor states that it believes that
HitBTC's volume is predominantly wash trading because the trade size
histogram shows almost no volume after 0.5 bitcoin, with no spikes at
round numbers, and the hourly volumes are completely detached from the
reference set of platforms, with most volume happening on April 29 and
30, 2019.\249\ The Sponsor further claims that while Huobi appeared to
fare well on the Sponsor's tests, weekly trade size histograms for
Huobi from the weeks before and after the Sponsor's initial analysis
became public indicate that those engaging in wash trading at Huobi
changed their trade size signatures to be more in line with, and
thereby evade, the Sponsor's detection methods for fake volume.\250\
---------------------------------------------------------------------------

    \246\ See id.
    \247\ See id. at 38-39 (stating that the April 2019 average
daily volume on HitBTC, Huobi, and OKEx was $127,010,643,
$128,043,683, and $228,879,610, respectively).
    \248\ See id. at 39.
    \249\ See id.
    \250\ See id. at 40-42 (stating that trade size histograms from
the period March 3, 2019, through April 14, 2019, show an anomalous
pattern with a resurgence of trade volume between 5-11 bitcoins
before the Sponsor's initial analysis became public on March 21,
2019, followed by the complete disappearance of this pattern in the
subsequent three weeks). The Sponsor asserts that while Huobi might
have taken action to clean up wash trading after the Sponsor's
initial analysis became public, that ``view is challenged'' because
Huobi's reported trade volume did not meaningfully drop during that
time period. See id. at 42-43. See also Bitwise Submission VI, supra
note 9, at 18-21 (asserting that the trade size histograms for the
platforms Coinsuper, CHAOEX, and IDAX similarly exhibited a change
within the three weeks after the Sponsor's further analysis became
public).
---------------------------------------------------------------------------

    The Sponsor also points to three independent, third-party
researchers that estimated the amount of real volume at HitBTC, Huobi,
and OKEx, and ``seem to agree'' that OKEx's volume is nearly entirely
fake and that the vast majority of volume on HitBTC and Huobi is
fake.\251\ The Sponsor states that, if it incorporates the simple
weighted average of these estimates (as applied to the reported volume
statistics for the three platforms for April 2019) to the Sponsor's
calculations of ``real'' trading volume, it would increase the ``real''
average daily spot bitcoin trading volume in April 2019 to $622
million, or 12% higher than the Sponsor's original figure.\252\ The
Sponsor argues that while this adjustment is non-negligible, it would
not materially change the Sponsor's conclusions.\253\
---------------------------------------------------------------------------

    \251\ See Bitwise Submission II, supra note 9, at 43.
    \252\ See id. at 43-44. See also Bitwise Submission VI, supra
note 9, at 17.
    \253\ See Bitwise Submission II, supra note 9, at 44.
---------------------------------------------------------------------------

    The commenter that raised the likely mix of real and fake volume
asserts in response to the Sponsor's argument that it ``seems a bit too
pat an answer'' for the Sponsor to essentially focus on three large
platforms that have mostly fake volume and conclude that any real
portion of the volume that the Sponsor identified as fake is too small
to matter.\254\ This commenter argues that the Sponsor's position
ignores the hundreds of smaller platforms that might have real volume
and that might, in the aggregate, make up a notable amount of total
volume.\255\ This commenter represents that three small platforms that
were not part of the Sponsor's analysis lost over $200 million in
investor funds and argues that, if the vast majority of platforms have
entirely fake volume or too little volume to matter, it could not be
the case that these three platforms obtained

over $200 million in client funds to lose or steal.\256\
---------------------------------------------------------------------------

    \254\ See Blake Letter II, supra note 9.
    \255\ See id.
    \256\ See id.
---------------------------------------------------------------------------

    Finally, the Sponsor asserts that the fake or non-economic trading
volume does not influence price discovery in the ``real'' bitcoin spot
market represented by the ten identified platforms.\257\ According to
the Sponsor, the only ways that prices on platforms with fake volume
could influence prices on platforms with real volume are: (1) If
arbitrage exists between platforms with fake volume and the ``real''
spot market, thus spreading the impact of the ``fake'' platforms'
prices; or (2) if market participants take prices on platforms with
fake volume as a legitimate market signal and adjust their view of the
market as a result.\258\ The Sponsor argues that arbitrage cannot exist
between two platforms if one platform does not have real and meaningful
liquidity.\259\ Therefore, according to the Sponsor, platforms with a
preponderance of fake volume cannot and do not participate in the
coordinated central liquidity pool or ``automatically influence'' the
consolidated price just by having a different price.\260\
---------------------------------------------------------------------------

    \257\ See Bitwise Submission II, supra note 9, at 2.
    \258\ See id. at 69.
    \259\ See id.
    \260\ See id.
---------------------------------------------------------------------------

    With respect to whether market participants view platforms with
fake volume as providing legitimate market signals, the Sponsor asserts
that a ``preponderance of the evidence'' suggests that investors do not
view prices or volumes on platforms with fake volume as legitimate
market signals.\261\ Instead, according to the Sponsor, ``real
investors simply ignore these fake exchanges.'' \262\ In support of its
argument, the Sponsor represents that all regulated financial products,
including regulated bitcoin futures in the United States and listed
bitcoin ETPs in Europe, draw prices almost exclusively from a subset of
the bitcoin platforms that the Sponsor identifies as having real
volume.\263\ The Sponsor states that Coinbase Pro has the highest
volume amongst platforms used for pricing regulated bitcoin products,
but was ranked as the 37th largest platform by average daily volume on
coinmarketcap.com in April 2019.\264\ According to the Sponsor, the
absence of any of the platforms with larger reported volumes from the
pricing mechanisms for regulated financial products suggests that the
institutional investor marketplace understands that real price
discovery does not take place on these platforms and chooses to ignore
them.\265\
---------------------------------------------------------------------------

    \261\ See id. at 69, 71.
    \262\ Id. at 71.
    \263\ See id. at 69.
    \264\ See id.
    \265\ See id. The Sponsor identifies the current pricing sources
for CME bitcoin futures, CFE bitcoin futures, XBT Bitcoin Tracker
One, and Amun Bitcoin ETF, and represents that these are all a
subset of the platforms that the Sponsor identifies as ``real.'' See
id. at 69-70.
---------------------------------------------------------------------------

    In further support of its argument, the Sponsor asserts that
leading digital asset arbitrage and execution-focused firms track only
those platforms that the Sponsor identifies as having real volume.\266\
The Sponsor represents that, for example, a digital asset dealer and
trading platform, SFOX, tracks prices on only eight platforms, all of
which are among the ten platforms that the Sponsor identifies as having
real volume.\267\ The Sponsor asserts that, as a leading digital asset
dealer, SFOX has every incentive to identify as many arbitrage
opportunities as possible, so its focus on these platforms ``is
telling.'' \268\ Finally, the Sponsor argues that data aggregator
league tables are extremely volatile and that the volatility of the
league tables ``stretches the boundaries of credulity.'' \269\
According to the Sponsor, volatility in reported volume rank has
``historically strengthened'' the market's understanding that these
platforms are fake and ``can safely be ignored.'' \270\
---------------------------------------------------------------------------

    \266\ See id. at 70.
    \267\ See id.
    \268\ See id. With respect to the two platforms that the Sponsor
identifies as ``real'' platforms but SFOX does not include, Poloniex
and Bitfinex, the Sponsor states that it ``guesses'' that SFOX
excludes these because of difficulties conducting arbitrage. See id.
at 70 n.182.
    \269\ See id. at 71. The Sponsor represents that the spot
bitcoin platform Fcoin had $12 million, $802 million, and $1.7
billion reported average daily volume in February, March, and April
2019, respectively. See id. The Sponsor argues that it is ``hard to
believe'' this rise in volume. See id.
    \270\ See id.
---------------------------------------------------------------------------

    One commenter states that, in a global digital asset market, if
prices move on platforms with allegedly fake volume, the platforms with
``good'' volume must follow or experience losses.\271\ Another
commenter states that the bitcoin market is global and interconnected,
and that if 95% of platforms are reporting fake volume, then it is
unwise for the proposed ETP to be based on the remaining 5%.\272\
---------------------------------------------------------------------------

    \271\ See Arssov Letter, supra note 6.
    \272\ See C. Ross Letter, supra note 6.
---------------------------------------------------------------------------

(ii) Analysis
    The Sponsor asserts that 95% of reported bitcoin spot volume
represents fake or non-economic trading, yet bases the proposed ETP on
a set of platforms that the Sponsor has identified as representing real
volume, will use these platforms for NAV and IIV pricing, and argues
that this ``real'' portion of the bitcoin market is uniquely resistant
to manipulation and not affected by the other 95%.\273\ The Sponsor and
commenters recognize that a significant amount of fraudulent,
manipulative, fake, or otherwise non-economic trading activity has
occurred in the bitcoin market.\274\ Because Section 6(b)(5) of the
Exchange Act requires that the proposal must be designed ``to prevent
fraudulent and manipulative acts and practices,'' NYSE Arca and the
Sponsor must show in this case that this fraudulent, manipulative,
fake, or otherwise non-economic trading activity in the broader bitcoin
market does not affect the smaller ``real'' portion of the bitcoin
market on which the proposed ETP is based. Therefore, as a threshold
matter, before discussing the Sponsor's methods of analysis or its
conclusions regarding which platforms represent ``real'' trading
volume, the Commission considers whether the record supports the
Sponsor's assertion that ``fake volume does not influence price
discovery in the real bitcoin spot market.'' \275\ In the absence of
this showing, NYSE Arca and the Sponsor will not be able to establish
that the identified ``real'' bitcoin market is uniquely resistant to
fraud and manipulation, because prices based on fraudulent and
manipulative activity on platforms with fake or non-economic volume
could be used to affect prices on the identified ``real'' platforms.
---------------------------------------------------------------------------

    \273\ See supra notes 172, 257, and accompanying text.
    \274\ See supra notes 69-73, 176-186 and accompanying text. The
Commission notes that while the Sponsor provides a response to a
discussion in the Winklevoss Order about certain commenters and the
concerns they raised about specific instances of manipulation (see
Bitwise Submission III, supra note 9, at 41, 45, 49), those comments
are not part of the record of the current proposed rule change under
consideration.
    \275\ See Bitwise Submission II, supra note 9, at 2.
---------------------------------------------------------------------------

(A) Influence of Prices on Platforms With Fake or Non-Economic Volume
on Prices on Platforms With ``Real'' Volume
    NYSE Arca and the Sponsor have failed to support the Sponsor's
assertions that the prices on platforms with fake volume do not
influence prices on the ``real'' platforms. In particular, the record
contains no data on where in the bitcoin market price formation occurs
and whether or not price movements on the ``real'' spot platforms
evidence correlation with price movements on the platforms with
``fake'' or non-economic volume, with one set of platforms moving at a
later time than the other (i.e., a ``lead-lag

relationship''). Without data to show the lead-lag relationship between
prices on the two sets of platforms or any evidence about the
directionality of the lead-lag relationship--which might indicate that
changes in prices on platforms with fake volume are or are not leading
to changes in prices on the ``real'' platforms--the Commission has no
basis on which to conclude that prices on the ``real'' platforms are
insulated from prices in the rest of the market. Thus the Commission
cannot conclude that it would be appropriate to consider the nature of
these platforms alone in an analysis of whether the bitcoin market is
uniquely resistant to manipulation.
    The Sponsor makes many unsupported, conclusory statements to
support its contention that ``everyone knows where the real market
is.'' \276\ The Sponsor argues that arbitrage ``cannot exist'' between
platforms with real volume and platforms with a preponderance of fake
volume,\277\ without presenting any data or real-world examples that
might indicate the presence or absence of arbitrage between such
platforms. Moreover, the Sponsor's contention that such arbitrage
cannot exist rests on an assumption that platforms with a
``preponderance of fake volume'' do not have any ``real and meaningful
liquidity'' that could support arbitrage,\278\ without support for that
assumption. As discussed further below, the Sponsor acknowledges that
there is a gray area between platforms with entirely real volume and
platforms with entirely fake volume.\279\ Yet the Sponsor does not
address whether the presence of real volume on platforms with a
significant amount of fake volume would significantly affect pricing.
---------------------------------------------------------------------------

    \276\ See id. at 71. See also supra notes 257-270 and
accompanying text.
    \277\ See supra notes 259-260 and accompanying text.
    \278\ See supra notes 259-260 and accompanying text.
    \279\ See supra note 242 and accompanying text. See infra notes
305-314 and accompanying text for discussion of whether the Sponsor
has identified all ``real'' volume on the bitcoin spot platforms
included in its analysis and whether ``real'' volume on other
portions of the bitcoin spot market might undercut its assertions.
---------------------------------------------------------------------------

    In addition, the Sponsor concludes that the evidence that it cites
``suggests'' that investors do not look to platforms with fake volume
for legitimate market signals, but does not persuasively address
alternative explanations for the cited evidence that would lead to a
different conclusion.\280\ The Sponsor looks at which platforms other
providers of financial products select for their pricing
mechanisms,\281\ but other providers' reliance on certain bitcoin
trading platforms does not demonstrate that prices on platforms with
purportedly fake volume do not influence prices on the purportedly
``real'' platforms. The Sponsor also fails to address alternative
reasons for these products' reliance on certain platforms, including
the presence of a degree of regulation on these platforms. Moreover,
the platforms used for these pricing mechanisms do not line up exactly
with the Sponsor's ten identified ``real'' platforms,\282\ indicating
that at least some institutional market participants do not agree that
all of the Sponsor's identified ``real'' platforms provide the most
reliable prices. Further, while the Sponsor points to the platforms
tracked by digital asset dealer and trading platform SFOX, the overlap
with the Sponsor's ``real'' platforms is anecdotal evidence at best,
and any incentives SFOX may have to identify arbitrage opportunities is
not a substitute for an analysis of whether prices on certain platforms
have an influence on general market pricing.\283\ And while the
volatility of data aggregator league tables raises questions about
reported trading volume that may be relevant to probe,\284\ mere belief
that the reported trading volume is questionable is no substitute for
data-driven analysis of how other market participants would adjust
their pricing in response to prices on other platforms, even if they
agree that those platforms have predominantly--but not entirely--fake
volume. Further, the Sponsor's arguments rely on a description of how
institutional market participants behave, but the Sponsor does not
provide information regarding what portion of the market is made up of
institutional versus retail participants. The Commission also notes
that while the Sponsor asserts that coinmarketcap.com is the most
widely cited source for bitcoin volume,\285\ as of October 6, 2019,
coinmarketcap.com does not separate ``real'' versus ``fake'' platforms
and prices.\286\ This shows that the focus on the Sponsor's identified
``real'' platforms or a subset thereof, to the exclusion of the vast
majority of platforms with reported volume on data aggregators such as
coinmarketcap.com, is not necessarily shared by other participants in
the bitcoin market.
---------------------------------------------------------------------------

    \280\ See supra notes 261-270 and accompanying text.
    \281\ See supra notes 263-265 and accompanying text.
    \282\ See supra note 265.
    \283\ See supra notes 266-268 and accompanying text.
    \284\ See supra notes 269-270 and accompanying text.
    \285\ See Bitwise Submission I, supra note 6, at 23.
    \286\ As of October 6, 2019, coinmarketcap.com lists the top 100
digital asset platforms by reported volume and by ``adjusted
volume,'' the latter of which it represents is ``[v]olume from spot
markets excluding markets with no fees and transaction mining.'' See
Top 100 Currency Exchanges by Trade Volume, CoinMarketCap, available
at https://coinmarketcap.com/rankings/exchanges (last visited Oct.
6, 2019). Although the ``adjusted volume list indicates some
adjustment for certain types of trading activity, the identification
of at least 100 platforms with ``adjusted volume'' differs
considerably from the Sponsor's identification of only ten ``real''
platforms.
---------------------------------------------------------------------------

    For the reasons above, the Commission does not believe that NYSE
Arca and the Sponsor have demonstrated that prices on platforms with
fake or non-economic volume do not influence prices on platforms with
real volume. Given the Sponsor's claims about the prevalence of fake or
non-economic trading activity within the overall bitcoin market, the
Commission considers this lack of proof to fundamentally undercut the
Sponsor's contention that the ``real'' bitcoin market is uniquely
resistant to fraudulent and manipulative activity.\287\
---------------------------------------------------------------------------

    \287\ If the platforms with fake or non-economic volume cannot
be disambiguated from the platforms with ``real'' volume, this also
undercuts the Sponsor's assertions about whether NYSE Arca has a
surveillance-sharing agreement with a significant, regulated market.
For further discussion, see infra Section III.B.3.
---------------------------------------------------------------------------

(B) The Sponsor's Identification of Platforms With Predominantly
``Real'' Volume
    NYSE Arca and the Sponsor have not provided sufficient data to
substantiate the Sponsor's claims that it has identified the ten
platforms that have ``real'' volume, as distinguished from those
platforms dominated by fake or non-economic trading \288\ and the
Sponsor's data analysis is incomplete or inconsistent and limits the
Commission's ability to evaluate the Sponsor's claims.\289\ For
example, the Sponsor asserts that its data analysis of trade size
distribution only includes trade sizes of 0 to 10 bitcoins because the
vast majority of trade volume occurs in the lower range and because the
Sponsor finds the histogram presentation of this range ``visually
helpful.'' \290\ As two commenters recognize, however, this data
presentation cuts off larger orders that occur in the bitcoin market,
and the inclusion of larger orders could make

the Sponsor's analysis look materially different.\291\
---------------------------------------------------------------------------

    \288\ See supra notes 172-176, 191-194, 199-203, 211-228, and
accompanying text.
    \289\ See supra notes 151-156 and accompanying text.
    \290\ See supra note 214 and accompanying text.
    \291\ See supra notes 233, 235, and accompanying text.
---------------------------------------------------------------------------

    Further, the Sponsor admits that the inability to gather
comprehensive market data ``has made proving the existence of fake
volume on exchanges in a comprehensive manner difficult.'' \292\ The
Sponsor acknowledges that its data scraping methodology broke down
frequently, resulting in gaps in the data that it accounted for in the
analytical phase,\293\ but does not address what steps it took to
ensure that these data gaps did not affect its analysis. The use here
of a single one-week period of data may reflect selection bias and is
insufficient to reveal the full picture regarding platforms over time
or during different periods.\294\ While the Sponsor asserts that any
single week sample would ``exhibit the same characteristics and lead to
a similar conclusion,'' \295\ the Sponsor has not provided any support
for this assertion or any explanation why the selected one-week period
is or is not representative of the properties of the bitcoin spot
market in other periods. Several commenters also raise questions and
concerns about the Sponsor's methodology for selecting what data to
collect and analyze, collecting the data, and analyzing the data.\296\
For many parts of the analysis, the Sponsor first looks to the trade
sizes, volume spikes, and spread patterns for its reference set of
platforms with BitLicenses, and then compares these to other
platforms.\297\ The Sponsor makes observations about how trade sizes,
volume spikes, or spread patterns differ for platforms outside of its
reference set of platforms with BitLicenses, and assumes that these
differences are indications of fake or non-economic volume. The Sponsor
does not appear to acknowledge that there could be other reasons for
observed differences in trading patterns among the platforms, such as
artefacts of algorithmic trading. In addition, the Commission notes
that anecdotal recitations of support for the Sponsor's initial
analysis in the news or social media are no substitute for full,
independent analysis or replication of the results.\298\
---------------------------------------------------------------------------

    \292\ See supra note 191.
    \293\ See supra note 193 and accompanying text.
    \294\ See supra notes 211-212 and accompanying text. See also
supra note 232 and accompanying text (asserting that the time period
used is a ``very short snapshot'' and a longitudinal picture is
lacking).
    \295\ Bitwise Submission II, supra note 9, at 19.
    \296\ See supra notes 195-198, 204-210, 231-236, and
accompanying text.
    \297\ See supra notes 215-217, 219-221, 223-227, and
accompanying text.
    \298\ See supra notes 182-183 and accompanying text. But see
supra notes 187-190 and accompanying text (questioning the Sponsor's
findings in its initial analysis).
---------------------------------------------------------------------------

    The Commission notes that the Sponsor relies heavily on conclusory
statements that are insufficient to support its findings. For example,
the Sponsor's assertions that the findings in its initial analysis are
consistent with the ``common institutional understanding of the true
nature of the actual market'' are conclusory and unsupported.\299\ The
Commission notes that several commenters raise questions about specific
platforms that the Sponsor identifies as having ``real'' volume,
casting doubt on the contention that there is common understanding of
the ``real'' market.\300\ With respect to the Sponsor's initial
selection of platforms to analyze, the Sponsor states that its list of
platforms became stale quickly, but asserts that its ``core analysis''
remains relevant.\301\ This representation simply assumes without any
support that significant volume on new platforms would be fake or non-
economic volume, and it provides the Commission with no basis to
conclude that this would be the case. Similarly, the Sponsor's
statement that any incremental volume in the OTC dark pool market is
not a significant fraction of the spot market and would mostly lead to
double-counting is conclusory, relies solely on anecdotal
evidence,\302\ and is inconsistent with a commenter's estimate of the
size of the OTC bitcoin market.\303\ Moreover, with respect to the
Sponsor's argument that the NYAG's inquiry concerning Bitfinex's
operator does not alter the Sponsor's conclusion that Bitfinex has real
volume, the Sponsor makes the conclusory and insufficient assertion
that it found no evidence in legal documents contradicting this
finding, without describing the types of evidence it found and why such
evidence would not change the Sponsor's analysis.\304\
---------------------------------------------------------------------------

    \299\ See supra note 186 and accompanying text.
    \300\ See supra notes 237-240 and accompanying text.
    \301\ See supra note 201 and accompanying text.
    \302\ See supra notes 202-203 and accompanying text.
    \303\ See supra note 208 and accompanying text (asserting that
U.S.-based OTC volume in bitcoin may be as high as $500 million a
day; the Commission notes that this volume is comparable to the $554
million in total daily volume for the same period across all ten of
the ``real'' platforms). See also Registration Statement, supra note
31, at 20 (``OTC trading tends to be in large blocks of bitcoin.'').
    \304\ See supra note 230 and accompanying text; infra notes 331-
338 and accompanying text (discussing, among other things, the NYAG
allegations). See also supra note 238 and accompanying text
(asserting that the recent actions regarding Bitfinex raises
questions about why it was ever included in the Sponsor's list of
``real'' platforms).
---------------------------------------------------------------------------

    Further, the Sponsor has not shown that it has identified all
``real'' volume on the bitcoin spot platforms included in its analysis.
In response to a commenter, the Sponsor acknowledges that there is a
``gray area'' between platforms with all real volume and all fake
volume, and that some of the 73 platforms that failed one or more of
its tests may include some amount of real volume.\305\ The Sponsor
cites one example, the Gate.io platform, and asserts that Gate.io does
not have enough volume to meaningfully alter the Sponsor's conclusion,
even if it was made up of entirely real volume, because Gate.io's
reported average daily volume in April 2019 of $12 million is
significantly lower than the $554 million in total daily volume for the
same period across all ten of the ``real'' platforms.\306\ However, the
Sponsor does not acknowledge that the average daily volume per platform
within its set of ten selected platforms was $55.4 million in April
2019, or that $12 million is higher than the average daily volume for
two of the ten platforms and almost as much average daily volume as a
third.\307\ This shows that the inclusion of an additional $12 million
in real volume is not immaterial to the Sponsor's claims. Further, the
Sponsor does not consider the possibility that any other platform with
volume comparable to that found on Gate.io would also have a material
amount of ``real'' trading.
---------------------------------------------------------------------------

    \305\ See supra notes 241-243 and accompanying text.
    \306\ See supra notes 244-245 and accompanying text.
    \307\ See Bitwise Submission II, supra note 9, at 35 (providing
a table with the average daily volume on each of the ten ``real''
platforms for April 2019).
---------------------------------------------------------------------------

    The Sponsor then discusses the HitBTC, Huobi, and OKEx platforms,
because, according to the Sponsor, these were the only platforms that
were cited by ``the public'' as having ``real-world footprints'' that
have ``meaningful'' volume but that were excluded from the Sponsor's
list of ``real'' platforms.\308\ Reliance on the set of platforms that
``the public'' raised to set the scope for further analysis presents an
incomplete picture. The Sponsor does not describe any means by which it
might know what motivations other individuals had to identify
particular platforms as having a real-world footprint or how extensive
those individuals' efforts were to identify other platforms for

consideration. Moreover, the Sponsor does not define what it considers
to be ``meaningful'' volume. The Commission notes that the April 2019
average daily volume for each of HitBTC, Huobi, and OKEx is
significantly higher than the April 2019 average daily volume for all
but one of the identified ``real'' platforms.\309\
---------------------------------------------------------------------------

    \308\ See supra notes 246-247 and accompanying text.
    \309\ See supra notes 247, 307.
---------------------------------------------------------------------------

    The Sponsor's analysis of HitBTC and OKEx relies on circular
reasoning and uses evidence that suggests the presence of fake or non-
economic trading to conclude that the trading volume on these platforms
is ``almost entirely fake,'' without discussing how the presence of
some real volume affects the results.\310\ The Sponsor further
dismisses volume on Huobi as fake based on trade size histograms over
time, suggesting that changes in the trade size histograms after the
Sponsor's initial analysis became public indicate that wash traders
adjusted their trade size signatures to avoid the Sponsor's detection
methods.\311\ The Sponsor's assertion is conclusory and does not
address the possible presence of real volume on Huobi. Moreover, the
Commission notes that, if market participants changed their trading
behavior to avoid detection of fake or non-economic trading after the
Sponsor's first analysis became public, the Sponsor's methodology may
have been tainted when it conducted its later analysis, and these
efforts to disguise fake or non-economic volume may prevent the Sponsor
or market participants from distinguishing ``real'' volume from
``fake'' volume in the future.
---------------------------------------------------------------------------

    \310\ See supra notes 248-249 and accompanying text.
    \311\ See supra note 250 and accompanying text.
---------------------------------------------------------------------------

    The Sponsor then considers estimates from third-party researchers
about the amount of real volume on these three platforms and
acknowledges that the estimated amounts might increase the Sponsor's
calculated real volume in the spot market by a non-negligible amount,
but asserts that this volume would not ``materially'' change the
Sponsor's conclusions.\312\ The Sponsor's assertion is unsupported and
does not address that the researchers' estimated real volume, at
between approximately $16 million and $25 million per platform, is
similar to the average daily volume reported for the individual
``real'' platforms. The presence of this volume indicates that there
may be more non-negligible real volume on other platforms, but the
Sponsor does not explain whether or how more real volume from other
platforms would change its analysis.\313\ Instead, the Sponsor merely
asserts in conclusory fashion that the additional real volume, as
estimated by the third-party researchers, would not ``materially''
impact its analysis and does not address how real volume on a platform
dominated by fake or non-economic volume would interact with the
market.
---------------------------------------------------------------------------

    \312\ See supra notes 251-253 and accompanying text.
    \313\ The Commission notes that a commenter questions the
Sponsor's focus on three large platforms and argues that the Sponsor
has ignored smaller platforms that might, in the aggregate, contain
a notable amount of real volume. See supra notes 254-256 and
accompanying text.
---------------------------------------------------------------------------

    Finally, NYSE Arca and the Sponsor do not address the potential
effect on the ten identified platforms of real volume on other portions
of the bitcoin spot market not included in the set of 83 platforms that
the Sponsor analyzed. For example, the Sponsor does not consider real
volume on newer platforms or the OTC market and how such volume would
affect its analysis. Moreover, while the Sponsor excludes South Korean
platforms on the basis that trading volumes on those platforms are
isolated from the globally connected market due to capital controls,
this does not mean that the trading volume is not real.\314\ The
Sponsor also does not indicate whether trading on those portions of the
market represents ``real'' trading or fake or non-economic trading, or
address whether pricing on those segments of the market would affect
prices on the ``real'' platforms.
---------------------------------------------------------------------------

    \314\ See supra note 228 and accompanying text. The Commission
notes that the Sponsor does not clearly explain how it handled the
South Korean platforms in its analysis. While the Sponsor states
that it has excluded these platforms, it still includes the trade
size histograms, volume graphs, and spread graphs for the South
Korean platforms, and its statement that 73 platforms have failed
one or more of its tests includes the South Korean platforms among
the 73. In contrast, when describing its first analysis, the Sponsor
indicates that it has excluded the South Korean platforms at the
outset. See supra note 181.
---------------------------------------------------------------------------

    For these reasons, the Commission determines that the record does
not support a conclusion that the Sponsor has identified a segment of
the bitcoin spot market, representing real volume and forming the basis
of the Trust's NAV and IIV pricing, that is uniquely resistant to
manipulation.\315\
---------------------------------------------------------------------------

    \315\ For discussion about how the Sponsor's analysis impacts
arguments about whether the bitcoin futures market is a market of
significant size, see infra Section III.B.3.
---------------------------------------------------------------------------

(d) Features of the Bitwise Bitcoin ETF Trust
(i) Representations Made and Comments Received
    NYSE Arca represents that the Sponsor believes that several
additional features of the structure of the Trust would provide unique
resistance to fraudulent and manipulative practices.\316\ The Sponsor
asserts that, because the Trust's NAV is based on substantially all
``real'' spot bitcoin trading volume and is volume-weighted, any
attempt to manipulate the NAV must involve a majority of spot bitcoin
trading volume over a significant period of time.\317\ The Sponsor also
asserts that the unique design of the Bitwise Daily Bitcoin Reference
Price, and thus the Trust's NAV, the exclusive use of in-kind creations
and redemptions, and the decision to accrue fees in bitcoin, provide
unique resistance to short term attempts at manipulation.\318\
---------------------------------------------------------------------------

    \316\ See Notice and OIP, supra note 7, 84 FR at 23133. See also
Bitwise Submission III, supra note 9, at 13 (arguing that the
Trust's pricing methodology makes market manipulation of the NAV
more difficult, because a bad actor must manipulate the majority of
trading volume to impact the price, and easier to identify, because
the manipulative activity must be repeated to have a significant
effect). See supra Section III.B.1(b) for additional discussion
about how the ``exchange-tradability'' of bitcoin and the nature of
the bitcoin market impact the proposed ETP's resistance to
manipulation.
    \317\ See Notice and OIP, supra note 7, 84 FR at 23133.
    \318\ See id.
---------------------------------------------------------------------------

    The Sponsor represents that the Trust will value its shares daily
based on the Bitwise Daily Bitcoin Reference Price, which is based on
prices drawn from selected platforms that represent substantially all
of the economically significant spot trading volume on global bitcoin
platforms, excluding those in countries that impose capital
controls.\319\ The Sponsor describes the calculation of the Bitwise
Daily Bitcoin Reference Price separately from its description of how it
has identified the ``real'' market for bitcoin, as discussed
above.\320\ The Sponsor states that to calculate the Bitwise Daily
Bitcoin Reference Price, it relies on a methodology that begins with
the Sponsor's tracking of over 200 on-line digital-asset trading
platforms and eliminating a significant portion of those platforms,
based on a number of factors.\321\ According to the Sponsor, these
factors serve to eliminate platforms that, for example, are domiciled
in emerging market countries or countries that have capital controls;
lack a functioning and stable Application Programming Interface \322\

for the transmission of price and volume data; have issues with
significant downtime, problems with customer withdrawals, or known
security issues; are or may be subject to extraordinary legal or
regulatory activity; or do not have at least $1 million average daily
volume for bitcoin-fiat or bitcoin-stablecoin trading pairs over the
past calendar quarter.\323\ The Sponsor represents that, at least
quarterly, the Bitwise Crypto Index Committee reviews published trading
data from all platforms that pass this screening process and removes
platforms that show persistent signs of artificial or inflated
volume.\324\ The Sponsor further represents that, through this process,
it has identified ten platforms to use for the Bitwise Daily Bitcoin
Reference Price, and has more recently eliminated one platform,
Bitfinex, due to the recent NYAG inquiry of its operator.\325\
---------------------------------------------------------------------------

    \319\ See id. at 23126, 23128.
    \320\ See supra notes 172-176 and accompanying text.
    \321\ See Notice and OIP, supra note 7, 84 FR at 23131.
    \322\ An ``Application Programming Interface,'' or ``API,'' is
``a set of clearly defined methods of communication between various
software components which can make it easier to develop a computer
program by providing all the building blocks, which are then put
together by programmers.'' Securities Exchange Act Release No. 82873
(Mar. 14, 2018), 83 FR 13008, 13028 n.158 (Mar. 26, 2018)
(Transaction Fee Pilot for NMS Stocks Proposing Release) (File No.
S7-05-18).
    \323\ See Notice and OIP, supra note 7, 84 FR at 23131.
    \324\ See id. The Sponsor states that this analysis includes a
review of bid/ask spreads, actual claimed executed trades with price
and volume, and any other factors that the Committee deems relevant.
See id.
    \325\ See id. at 23130 n.20, 23131.
---------------------------------------------------------------------------

    As noted above, the Sponsor argues that the ten platforms it
selected for the Bitwise Daily Bitcoin Reference Price's pricing
mechanism currently account for substantially all of the ``real'' spot
global volume of bitcoin, excluding capital-controlled countries,
although the number of platforms and percentage of global volume
represented is subject to change.\326\ The Sponsor asserts that this
composition mitigates against idiosyncratic platform risk because the
failure of any individual platform will not materially affect pricing
for the Trust.\327\ Moreover, the Sponsor asserts that using a larger
number of platforms to calculate the NAV supports liquidity of the
Trust and mitigates idiosyncratic risks that can exist at an individual
platform over short periods of time.\328\ The Sponsor also asserts that
the use of a large number of platforms contributing prices to the NAV,
in a well-arbitraged and fractured market, makes market manipulation
more difficult because the malicious actor would need to manipulate
multiple platforms simultaneously or dramatically skew the historical
distribution of volume to impact the NAV.\329\ The Sponsor further
asserts that the reliance on substantially all of spot trading volume
in bitcoin for pricing the Trust increases this difficulty, because
significantly more capital would be required to attempt to influence
NAV and it would be difficult to profit from that manipulation.\330\
---------------------------------------------------------------------------

    \326\ See id. at 23131.
    \327\ See id. at 23131-32; Bitwise Submission I, supra note 6,
at 92. See also Bitwise Submission III, supra note 9, at 171
(asserting that the Trust's procedures to incorporate prices from a
large number of spot bitcoin platforms, and allow the Bitwise Crypto
Index Committee to remove a platform from contributing to prices
when it faces a disruption, ensures that the Trust's NAV always
draws prices from platforms trading at a globally integrated price).
The Sponsor represents that, while in the past trading has been
disrupted at individual bitcoin platforms, there is no history of
systemic disruptions across all platforms in the ``modern
evolution'' of the bitcoin market. See Bitwise Submission III, supra
note 9, at 171.
    \328\ See Bitwise Submission III, supra note 9, at 127. See also
Bitwise Submission V, supra note 9, at 2-3 (representing that
individual platforms may experience idiosyncratic issues, including
hacking, withdrawal issues, regulatory actions, and legal actions,
that cause their prices to temporarily detach from the globally
integrated price when the idiosyncratic issues break or weaken the
arbitrage mechanism). One commenter asserts that it agrees with the
Sponsor that a benefit of a multi-platform approach is that it
minimizes the potential adverse impact of any single platform going
off-line due to technical problems or other concerns, and mutes the
impact of potentially manipulated prices or volume stemming from a
single platform. See Omniex Letter, supra note 9, at 3.
    \329\ See Notice and OIP, supra note 7, 84 FR at 23132; Bitwise
Submission I, supra note 6, at 96.
    \330\ See Notice and OIP, supra note 7, 84 FR at 23132; Bitwise
Submission I, supra note 6, at 93, 97.
---------------------------------------------------------------------------

    The Sponsor states that on April 25, 2019, the Bitwise Crypto Index
Committee voted to immediately remove Bitfinex from the list of
platforms that contribute prices to the Bitwise Daily Bitcoin Reference
Price, along with other Bitwise Crypto Indexes, because the NYAG had
obtained a court order against iFinex Inc., operator of Bitfinex, based
on allegations of fraudulent conduct.\331\ The Sponsor asserts that the
removal of Bitfinex was in keeping with the committee's rule to exclude
platforms subject to extraordinary regulatory action, which requirement
exists to limit platforms included in the pricing mechanism to those
that are positive actors in the market and limit the potential for
interruptions in service or unusual pricing due to government or
regulatory enforcement actions.\332\ According to the Sponsor,
extraordinary legal or regulatory action increases the risk that a
platform will exhibit idiosyncratic pricing issues or have to halt
withdrawals, shut down, or face other challenges.\333\ The Sponsor
asserts that the removal of Bitfinex from the pricing mechanism on the
same day that the extraordinary legal threat emerged suggests that the
screening rules and ongoing monitoring process are useful, proactive,
and constructive, and protect the Bitwise Daily Bitcoin Reference Price
from the ``slightest possibility'' of anomalous pricing arising from
the developments.\334\ The Sponsor further asserts that heightened
scrutiny of stablecoins after this incident makes it extremely unlikely
that the fraudulent printing of a stablecoin asset could easily happen
in the future.\335\
---------------------------------------------------------------------------

    \331\ See Bitwise Submission III, supra note 9, at 47; Bitwise
Submission V, supra note 9, at 1. See also Notice and OIP, supra
note 7, 84 FR at 23130 n.20. The NYAG, which began its investigation
in November 2018, alleges ``that the operators of the `Bitfinex'
trading platform, who also control the `tether' virtual currency,
engaged in a cover-up to hide the apparent loss of $850 million of
co-mingled client and corporate funds.'' Press Release, New York
State Office of the Attorney General, Attorney General James
Announces Court Order Against ``Crypto'' Currency Company under
Investigation for Fraud (Apr. 25, 2019), available at https://ag.ny.gov/press-release/2019/attorney-general-james-announces-court-order-against-crypto-currency-company. The NYAG further alleges,
``The filings explain how Bitfinex no longer has access to over $850
million dollars of co-mingled client and corporate funds that it
handed over, without any written contract or assurance, to a
Panamanian entity . . . a loss Bitfinex never disclosed to
investors. In order to fill the gap, executives of Bitfinex and
Tether engaged in a series of conflicted corporate transactions
whereby Bitfinex gave itself access to up to $900 million of
Tether's cash reserves, which Tether for years repeatedly told
investors fully backed the tether virtual currency `1-to-1.' '').
Id. The NYAG explained, however, that it ``does not seek to enjoin
or interfere with the orderly operations of Bitfinex or Tether's
legitimate businesses, if any, including orders by legitimate
traders on the Bitfinex platform, or legitimate tether holders, to
redeem their tethers for dollars. Indeed, protecting legitimate
traders using the Bitfinex platform, and legitimate holders of
tether, primarily those residing in New York, is why a preliminary
injunction is necessary now to preserve the status quo pending the
completion of OAG's investigation.'' Affirmation of Brian M.
Whitehurst in Support of OAG's Ex Parte Application for an Order
Pursuant to General Business Law Sec.  354, James v. iFinex, Inc.,
et al., No. 450545/2019, 2019 WL 2176835 (N.Y. Sup. Ct. Apr. 25,
2019), Doc. No. 1, at para. 96. The court subsequently denied a
motion to dismiss brought by iFinex Inc. and its related entities.
James v. iFinex Inc., et al., No. 450545/2019, 2019 WL 3891172 (N.Y.
Sup. Ct. Aug. 19, 2019). iFinex Inc. and its related entities have
appealed the court's denial of their motion to dismiss. Notice of
Appeal, James v. iFinex Inc., et al., No. 450545/2019 (N.Y. Sup. Ct.
Aug. 19, 2019), Doc. No. 117.
    \332\ See Bitwise Submission V, supra note 9, at 1.
    \333\ See id. at 3.
    \334\ See id. at 5-6. See also id. at 3 (asserting that the
benefit of proactively removing Bitfinex as a pricing source is that
it protects against potential short-term downstream impacts if a
negative idiosyncratic event occurs in the future). One commenter
states that the Sponsor's reasons for removing Bitfinex are sound
and follow the outlined index procedures, but raise a flag. See
Blake Letter II, supra note 9.
    \335\ See Bitwise Submission III, supra note 9, at 47.
---------------------------------------------------------------------------

    With respect to the removal of Bitfinex, which represented 14.1% of
all ``real'' spot bitcoin volume in April 2019, the Sponsor argues that
``the loss

of any single exchange does not impact the Bitwise Daily Bitcoin
Reference Price in a meaningful way.'' \336\ The Sponsor asserts that,
with prices tightly aligned, removing one or two platforms would not
meaningfully impact the calculated price.\337\ In addition, the Sponsor
states that, while having more platforms to calculate the price is
better, there are diminishing returns for each additional platform and
at some point it is enough to calculate a good price and not be exposed
to idiosyncratic risk, especially with a pricing methodology that
mitigates against the impact of outlier prices.\338\
---------------------------------------------------------------------------

    \336\ See Bitwise Submission V, supra note 9, at 4.
    \337\ See id. (representing that the average deviation in price
as compared to the consolidated price in 2019 was 0.11% for
Bitfinex, which falls in the middle of the 0.05% to 0.20% range seen
across the ten ``real'' platforms).
    \338\ See id. at 4-5.
---------------------------------------------------------------------------

    The Sponsor asserts that the procedures by which it relies on the
prices and volumes from the selected platforms to calculate the Bitwise
Daily Bitcoin Reference Price are designed to protect the price, and
thereby the Trust's NAV, from potential manipulation.\339\ The Sponsor
argues that the use of six consecutive five-minute segments over a
thirty-minute period means that malicious actors would need to sustain
efforts to manipulate the market over an extended period of time or
replicate efforts multiple times, which could trigger review by
platforms, market participants, and regulators.\340\ The Sponsor
asserts that the use of a median price eliminates the ability of
outlier prices to impact the NAV, because the methodology
systematically excludes outliers from the NAV calculation.\341\ The
Sponsor also asserts that the use of a volume-weighted median, instead
of a traditional median, protects against attempts to manipulate the
NAV by executing multiple low-dollar trades, because any manipulation
attempt would have to involve a majority of global spot bitcoin volume
in a five-minute window to impact the pricing mechanism.\342\ According
to the Sponsor, the methodology it uses for the Bitwise Daily Bitcoin
Reference Price is similar to the settlement pricing methodology for
the CME CF Bitcoin Reference Rate used for CME futures, which the
Sponsor represents has documented protection against the impact of
pricing variance.\343\ Finally, the Sponsor asserts that the
``carefully designed lag'' between the strike time of the NAV at 4:00
p.m. E.T. and the time the NAV is distributed allows time for the
Sponsor to algorithmically and manually review contributed prices for
any anomalous behavior and correct unusual pricing if it occurs.\344\
---------------------------------------------------------------------------

    \339\ See Notice and OIP, supra note 7, 84 FR at 23131.
    \340\ See id.; Bitwise Submission I, supra note 6, at 98
(asserting that the extended thirty-minute period supports
Authorized Participant activity by capturing volume over a longer
time period, rather than forcing Authorized Participants to mark an
individual close or auction). See also Omniex Letter, supra note 9,
at 4 (asserting that the Trust's NAV process is uniquely resistant
to manipulation because a bad actor would need to manipulate
multiple platforms over an extended period of time to impact the
NAV).
    \341\ See Notice and OIP, supra note 7, 84 FR at 23131; Bitwise
Submission I, supra note 6, at 99. See also Bitwise Submission III,
supra note 9, at 127 (asserting that the Sponsor's pricing
methodology is designed to systematically exclude aberrant prices as
an extra protection against idiosyncratic platform risks at
individual platforms).
    \342\ See Notice and OIP, supra note 7, 84 FR at 23131; Bitwise
Submission I, supra note 6, at 99.
    \343\ See Notice and OIP, supra note 7, 84 FR at 23131; Bitwise
Submission I, supra note 6, at 99; Bitwise Submission III, supra
note 9, at 15. The Sponsor argues that a cited study shows the
protective qualities of using volume-weighted median pricing, and
that while the Sponsor's approach differs in drawing from a larger
number of platforms and using a shorter time window, the shorter
time window maintains the protective qualities of the approach while
improving the timeliness of the NAV price. See Bitwise Submission I,
supra note 6, at 99 (citing Andrew Paine and William J. Knottenbelt,
Imperial College Centre for Cryptocurrency Research and Engineering,
``Analysis of the CME CF Bitcoin Reference Rate and CME CF Bitcoin
Real Time Index'' (Nov. 14, 2016)).
    \344\ See Notice and OIP, supra note 7, 84 FR at 23133; Bitwise
Submission I, supra note 6, at 100. The Sponsor notes that the NAV
would generally be distributed by 5:30 p.m. E.T. See Notice and OIP,
supra note 7, 84 FR at 23133; Bitwise Submission I, supra note 6, at
100.
---------------------------------------------------------------------------

    The Sponsor asserts that the Trust's method of calculating the NAV
differs from that proposed for use by the Winklevoss Bitcoin Trust, and
that these differences help make the NAV calculation and the Trust
itself uniquely resistant to manipulation.\345\ One commenter asserts
that the current proposal is better than that discussed in the
Winklevoss Order because the Trust proposes to use many bitcoin
platforms that account for a majority of total global volume of
bitcoin, as compared to using a small related platform that represents
perhaps 1% of global bitcoin trading.\346\
---------------------------------------------------------------------------

    \345\ See Bitwise Submission III, supra note 9, at 81. The
Commission notes that the Sponsor discusses several points of
comparison between the specifics of its proposal and the Winklevoss
Trust, see supra note 9, at 75, 77, 79, and 81, but these particular
comparisons are not relevant to the question of whether the proposal
is consistent with the standards of the Exchange Act.
    \346\ See Anonymous Letter I, supra note 6. This commenter
favorably compares the proposal to United States bitcoin futures,
which also use a ``tiny'' number of platforms for their pricing
methodology, and the now-withdrawn proposal from Cboe BZX Exchange,
Inc., for another bitcoin ETP (the VanEck SolidX Bitcoin Trust) that
would have used prices from a few OTC desks, when there is no reason
to use OTC pricing due to lack of an alternative. See id. See also
Securities Exchange Act Release No. 85119 (Feb. 13, 2019), 84 FR
5140 (Feb. 20, 2019) (Notice of Filing of Proposed Rule Change to
List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck
SolidX Bitcoin Trust, Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares) (SR-CboeBZX-2019-004).
---------------------------------------------------------------------------

    Other commenters also support the Sponsor's proposed method of
calculating the Trust's NAV.\347\ One commenter argues that to the
extent that the NAV becomes aberrant, stale, or incorrect, the real
price discovery would occur in the proposed ETP.\348\ This commenter
cites as an example ETPs with foreign-listed equities that have NAVs
that are out-of-sync with the trading day in the United States.\349\
However, another commenter points to risks disclosed in a prior version
of the Trust's registration statement that states that the NAV may not
always correspond to market price and investors may be adversely
affected.\350\
---------------------------------------------------------------------------

    \347\ See Omniex Letter, supra note 9, at 3-4; Donostia Ventures
Letter, supra note 9, at 3-4.
    \348\ See Donostia Ventures Letter, supra note 9, at 3-4.
    \349\ See id.
    \350\ See C. Ross Letter, supra note 6.
---------------------------------------------------------------------------

    The Sponsor asserts that its methodology for calculating the
Bitwise Real-Time Bitcoin Price, which will be the basis for the
Trust's IIV, is similar to the approach used for the NAV, but brought
into real time.\351\ The Sponsor argues that the use of ten platforms
to calculate the Bitwise Real-Time Bitcoin Price mitigates against
idiosyncratic platform risk and against pricing disruptions at an
individual platform due to a halt, hacking, or data error.\352\ The
Sponsor also argues that the use of contributory weights based on the
trailing thirty-minute volume, rather than the last trade size or
volume over a short time period, protects against attempts to
manipulate the IIV by capturing more volume, while using the price of
the most recent trade on each platform ensures the timeliness of the
IIV.\353\ The Sponsor asserts that the use of a median price eliminates
the influence of outlier prices and the use of a volume-weighted median
protects against attempts to manipulate the price by executing multiple
low-dollar trades.\354\ According to the Sponsor, it expects the IIV
will closely track the globally integrated bitcoin price on the

selected platforms, but that the IIV may differ from the NAV due to the
IIV's use of real-time prices.\355\ The Sponsor asserts that this will
not create confusion in the marketplace, because Authorized
Participants are the only investors that interact with the NAV and the
Sponsor will communicate clearly its NAV calculation method.\356\
---------------------------------------------------------------------------

    \351\ See Bitwise Submission I, supra note 6, at 174-181. The
Commission notes that the Sponsor uses the terminology ``Indicative
Index Value'' in Bitwise Submission I, but the terminology ``Bitwise
Real-Time Bitcoin Price'' in other places. For consistency, in this
Order the Commission will refer to this price as the ``Bitwise Real-
Time Bitcoin Price.''
    \352\ See id. at 176.
    \353\ See id. at 177-178.
    \354\ See id. at 179.
    \355\ See id. at 180-181.
    \356\ See id. at 181. The Sponsor represents that there are many
instances in the ETP market where the IIV and NAV differ due to the
calculation methodology, market hours overlap, or other factors, and
the Sponsor does not observe negative impacts on trading, liquidity,
or otherwise for these ETFs. See id. The Sponsor further represents
that the CME bitcoin futures market similarly relies on and
distributes a Reference Rate (comparable to the NAV) and a Real-Time
Rate (similar to the IIV), and the market is able to understand and
evaluate the differences between these two rates. See id.
---------------------------------------------------------------------------

    One commenter states that an inaccurate NAV will break the
arbitrage mechanism because redemptions are made based on NAV.\357\
According to this commenter, while most ETPs have NAVs that are
calculated once per day, the bitcoin market is so volatile that intra-
day NAV measures are required for an ETP with bitcoin as the underlying
asset.\358\ This commenter also represents that non-concurrent trading
hours between digital asset platforms and the ETP market may increase
the gap between the ETP price and the NAV.\359\
---------------------------------------------------------------------------

    \357\ See Shenoy Letter III, supra note 69, at 6.
    \358\ See id.
    \359\ See id. at 6-7.
---------------------------------------------------------------------------

    The Sponsor argues that the exclusive use of in-kind creations,
redemptions, and fee accruals (except in the case of liquidation)
provides long-term investors in the Trust with significant, redundant,
and strong protection against attempts to manipulate the Bitwise Daily
Bitcoin Reference Price and thus the NAV.\360\ According to the
Sponsor, denominating those transactions exclusively in bitcoin ensures
that the Trust would maintain the appropriate amount of bitcoin-per-
Share, even if the NAV or the Bitwise Daily Bitcoin Reference Price
were manipulated.\361\ The Sponsor also asserts that exclusive use of
in-kind creations and redemptions externalizes the cost and risk of
transacting in the underlying spot market for bitcoin.\362\
---------------------------------------------------------------------------

    \360\ See Notice and OIP, supra note 7, 84 FR at 23132-33;
Bitwise Submission I, supra note 6, at 103-104 (citing letter from
Jeffrey Yass, Managing Director, Susquehanna International Group,
LLP (May 15, 2017), regarding SR-BatsBZX-2016-30 (``Susquehanna
Letter''), available at https://www.sec.gov/comments/sr-batsbzx-2016-30/batsbzx201630-1761310-152159.pdf, for additional explanation
of the protective benefits of in-kind creations and redemptions). A
commenter on a previous bitcoin ETP proposal asserts that in-kind
creation and redemption allows market participants to source primary
market liquidity freely and at the most efficiently priced levels
across multiple platforms and OTC counterparties, thus largely
insulating investors from manipulative activity on any single
platform. See Susquehanna Letter, id. at 6.
    \361\ See Notice and OIP, supra note 7, 84 FR at 23133; Bitwise
Submission III, supra note 9, at 13.
    \362\ See Bitwise Submission III, supra note 9, at 13.
---------------------------------------------------------------------------

    One commenter supports the Sponsor's assertions and argues that
processing all creations and redemptions in-kind and requiring payment
of the Trust's expenses exclusively in bitcoin would ``cause[ ] the
fund to exist in a `bitcoin-denominated world,' where even grotesque
manipulation of the Trust's NAV would not harm holders of the fund.''
\363\ This commenter represents that the current proposal is unique in
promising to accrue all fees in bitcoin, in addition to exclusively
using in-kind creations and redemptions, meaning that the Trust's
entire economic life would be denominated in bitcoin and the Trust
would insulate investors from the potential negative long-term impact
of NAV manipulation.\364\ In addition, this commenter asserts that
investors on the secondary market would ignore an incorrect NAV and
instead focus price discovery efforts on the proposed ETP itself.\365\
---------------------------------------------------------------------------

    \363\ Donostia Ventures Letter, supra note 9, at 2. See also
Castle Island Ventures Letter, supra note 9, at 3 (asserting that
the exclusive use of in-kind creations and redemptions, and accrual
of all fees in-kind, provides significant protections to investors
against an attempt to manipulate the NAV, and citing the Donostia
Ventures Letter for further articulation of the reasons).
    \364\ See Donostia Ventures Letter, supra note 9, at 3.
    \365\ See id. at 3-4. Another commenter questions this
assertion, asks how an investor would know the actual price of
bitcoin, and disputes that market participants are always rational.
See Robert Letter, supra note 9. This commenter also questions
whether traders on the CME bitcoin futures market who own bitcoin on
the spot market could be actively involved in price manipulation
through mechanisms available on CME and simultaneous trading across
global platforms. See Robert Letter, supra note 9.
---------------------------------------------------------------------------

    The Sponsor asserts that it does not anticipate a situation in
which it would need to fair-value bitcoin, because the loss of one,
two, or even many platforms would still leave the Sponsor with
sufficient pricing feeds to adequately price bitcoin according to its
rules.\366\ According to the Sponsor, in the extraordinarily unlikely
event that all, or all but one, of the platforms stopped providing
prices, the Sponsor's pricing procedures allow for fair valuing the
asset based on all available pricing inputs, which would likely include
prices on the remaining platform (if one exists), futures prices,
exchange-traded swap prices, or other sources.\367\ The Sponsor asserts
that it could also temporarily halt creations and redemptions in such
circumstances.\368\
---------------------------------------------------------------------------

    \366\ See Bitwise Submission I, supra note 6, at 212.
    \367\ See id.
    \368\ See id. The Sponsor represents that, in the past, other
ETPs have halted creation and redemption activity due to fundamental
disruptions of their underlying markets, such as was the case for
the Van Eck Vectors Egypt Index ETF during the spring of 2014, when
the Egyptian stock market closed for multiple days. See id.
---------------------------------------------------------------------------

(ii) Analysis
    The Commission concludes that NYSE Arca has not demonstrated that
additional features of the Trust, including its NAV and IIV pricing and
its use of in-kind creations, redemptions, and accrual of fees, would
make the proposed ETP uniquely resistant to manipulation. Specifically,
NYSE Arca has not demonstrated that the design of the Bitwise Daily
Bitcoin Reference Price, and the Trust's NAV, would make the proposed
ETP uniquely resistant to manipulation. The Trust's Registration
Statement acknowledges risks associated with the Bitwise Daily Bitcoin
Reference Price--specifically, that the Bitwise Daily Bitcoin Reference
Price ``was recently developed,'' ``has a limited history,'' and ``is
based on a new and untested calculation methodology.'' \369\ NYSE Arca
and the Sponsor do not address these representations in the
Registration Statement or why a new and untested pricing methodology
could be counted upon to provide unique resistance to manipulation. As
discussed elsewhere, the Trust's Registration Statement also
acknowledges that bitcoin spot platforms are ``relatively new, and in
some cases, largely unregulated,'' and that the bitcoin futures market
has ``limited trading history and operational experience.'' \370\ The
Sponsor has made sweeping claims that up to 95% of the volume reported
by bitcoin platforms is wash trading or simply fabricated, while asking
the Commission to approve a bitcoin ETP based upon a small segment of
the market that it asserts is uniquely resistant to the influence of
this activity.\371\ These untested claims, when combined with
statements regarding the relatively new state of the bitcoin market and
the proposed ETP's pricing mechanism, show that further

development of the market is needed to establish the Sponsor's
representations.
---------------------------------------------------------------------------

    \369\ See Registration Statement, supra note 31, at 6, 9-10
(stating that the Sponsor ``does not guarantee the validity of any
of these [pricing] inputs, which may be subject to technological
error, manipulative activity, or fraudulent reporting from their
initial source''). The Trust's Registration Statement contains
similar stated risks for the Bitwise Real-Time Bitcoin Price, which
the Trust would use to calculate the IIV. See id. at 10.
    \370\ See supra note 123 and accompanying text; infra note 465
and accompanying text.
    \371\ See supra Section III.B.1(c).
---------------------------------------------------------------------------

    In addition, the Sponsor's use of the Bitwise Crypto Index
Committee to remove platforms facing a disruption from the Trust's
pricing mechanism, such as what occurred with the removal of
Bitfinex,\372\ is an ad hoc, ex post adjustment and cannot be counted
upon to provide unique resistance to manipulation. Moreover, the
Sponsor's assertion that--after the court order against Bitfinex's
operator--fraudulent printing of a stablecoin asset in the future is
extremely unlikely, is unpersuasive.\373\ The Commission does not
believe that the deterrent value, if any, of past accusations of fraud
involving stablecoins on future stablecoin schemes is sufficient to
show resistance, let alone unique resistance, to manipulation.
Additionally, even assuming that the designed lag time between the
strike time of the NAV and the time of NAV distribution may allow a
limited period of time for the Sponsor to review for and correct some
anomalous behavior before the NAV is distributed, this ad hoc process
cannot be relied upon as a sufficient antidote to fraud and
manipulation on the underlying platforms, especially sustained
manipulation, and is no substitute for a comprehensive surveillance-
sharing agreement.\374\
---------------------------------------------------------------------------

    \372\ See supra notes 331-334 and accompanying text.
    \373\ See supra note 335 and accompanying text.
    \374\ See supra note 344 and accompanying text. The Sponsor also
describes that in certain circumstances it could fair-value bitcoin
or temporarily halt creations and redemptions, see supra notes 366-
368 and accompanying text, but does not assert that these
characteristics would make the Trust uniquely resistant to
manipulation.
---------------------------------------------------------------------------

    Further, the record does not demonstrate that the Sponsor's
proposed methodology for calculating the Bitwise Daily Bitcoin
Reference Price, and thus the Trust's NAV, using prices and volumes
from the selected platforms would make the proposed ETP uniquely
resistant to manipulation. As discussed above, NYSE Arca and the
Sponsor have not shown that fake or non-economic volume in the spot
market would not affect prices on the selected platforms used to
calculate the Bitwise Daily Bitcoin Reference Price, including
prolonged effects.\375\ Moreover, NYSE Arca and the Sponsor have not
shown that other parts of the spot market, including OTC trading, and
trading in capital-controlled countries, would not affect the prices on
the selected platforms.\376\ To the extent that trading on platforms
not used to calculate the Bitwise Daily Bitcoin Reference Price affects
prices on the selected platforms, the characteristics of those other
platforms affect whether the Trust is uniquely resistant to
manipulation. While the proposed procedures for calculating the Trust's
NAV using prices from the selected platforms might provide some
protections against attempts at manipulation,\377\ these procedures
would not sufficiently reduce the risk of fraudulent or manipulative
trading activity or the need to monitor this risk through a
surveillance-sharing agreement with a regulated market of significant
size. In particular, the Sponsor has not shown that its proposed use of
six consecutive five-minute segments over a thirty-minute period to
calculate the Trust's NAV would effectively be able to eliminate
fraudulent or manipulative activity that is not transient.\378\ The
Sponsor does not connect the five or thirty minute windows to the
duration of the effects of the wash and fictitious trading that the
Sponsor concedes exists in the bitcoin spot market. Indeed, the Sponsor
recognizes that many bitcoin trading platforms in what it calls the
``fake and non-economic'' bitcoin market engage in sustained
manipulation every hour of every day, and often for the entire week the
Sponsor examined.\379\ Because the Sponsor concedes that bitcoin
trading platforms with ``fake and non-economic'' trading manipulate
their prices every hour of every day, and the Commission has concluded
that the Sponsor has failed to isolate the pricing on these ``fake''
platforms that the Sponsor eschews and the ``real'' platforms that the
Sponsor employs, the Commission concludes that the Sponsor has not
demonstrated that its NAV pricing--including its use of five and thirty
minute windows--make the proposed ETP uniquely resistant to
manipulation.
---------------------------------------------------------------------------

    \375\ See supra notes 276-287 and accompanying text.
    \376\ See supra Section III.B.1(c).
    \377\ See supra notes 339-343 and accompanying text.
    \378\ See supra note 340 and accompanying text.
    \379\ See Bitwise Submission I, supra note 6, at 43-50, 52, 54-
57; Bitwise Submission II, supra note 9, at 28-29, 33-34. While the
Sponsor's own analysis of wash trading sufficiently demonstrates
that fraud or manipulation of bitcoin spot pricing could exceed
thirty minutes, evidence of other types of fraud and manipulation
provide additional support. See supra notes 69-73, 138, 140-145,
331. See also Winklevoss Order, supra note 12, 83 FR at 37585
(discussing an academic paper concluding that hacking and
manipulation of the Mt. Gox bitcoin trading platform affected the
global price of bitcoin between April 2011 and November 2013),
37586-87 (stating that a person or persons with a dominant position
in bitcoin would be able to hold that position for longer than
thirty minutes and that ``early bitcoin adopters'' have held such a
position for a much longer period), 37585-86 (noting an academic
paper, the ``Griffin-Shams Paper,'' suggesting that the price of
bitcoin was manipulated with Tether from March 1, 2017, to March 31,
2018); Affirmation of Brian M. Whitehurst in Support of OAG's Ex
Parte Application for an Order Pursuant to General Business Law
Sec.  354, James v. iFinex, Inc., et al., No. 450545/2019, 2019 WL
2176835 (N.Y. Sup. Ct. Apr. 25, 2019), Doc. No. 1, at paras. 48-93
(describing allegedly improper conduct over the course of many
months involving Bitfinex). Regarding the academic findings that the
price of bitcoin was manipulated with Tether, the Sponsor contends
that these ``findings unwind if you assume that all (or even most)
of the growth in issuance of Tether . . . reflects organic demand,''
but the Sponsor does not offer any support for such an assumption.
Bitwise Submission III, supra note 9, at 47. Instead, the Sponsor
claims that allegations in the NYAG investigation, see supra note
331, do not in and of themselves ``suggest that the Tether issuance
was fraudulent or reflected anything other than organic investor
demand,'' and therefore, ``while worrisome, do not support the
accusations in the Griffin-Shams paper at this time,'' but nothing
in the NYAG action casts any doubt on the conclusion that the price
of bitcoin is susceptible to manipulation through activity on
bitcoin trading venues. See Winklevoss Order, supra note 12, 83 FR
at 37585-86.
---------------------------------------------------------------------------

    Moreover, the Sponsor's identification of differences between the
NAV process for another proposed bitcoin ETP and the NAV process for
the current proposal does not establish that the Sponsor's proposed NAV
process would make the Trust uniquely resistant to manipulation.\380\
In addition, these concerns about the Sponsor's process for calculating
the NAV would apply to the IIV, which would be calculated using a
similar process, and the Commission notes that publishing the IIV every
fifteen seconds would not ameliorate the risk of manipulation if the
underlying pricing mechanism is not demonstrably resistant to
manipulation.\381\
---------------------------------------------------------------------------

    \380\ See supra note 345 and accompanying text. The Commission
notes that, in the Winklevoss Order, the Commission raised concerns
based on the relative size of the volume of the auction that would
serve as the basis for the pricing mechanism as compared to the size
of the creation or redemption basket. See Winklevoss Order, supra
note 12, 83 FR at 37589-90. While the Sponsor and a commenter
provide comparative information about the liquidity of the Trust's
proposed pricing mechanism (see supra notes 345-346 and accompanying
text), the Commission concludes that this is not a relevant
comparison because the Commission does not use the liquidity of the
platforms selected for the Trust's pricing mechanism as a basis for
its current decision.
    \381\ See supra notes 351-356 and accompanying text.
---------------------------------------------------------------------------

    Because, as discussed above, the Sponsor has not established that
its research identified those platforms in the spot market with
``real'' trading volume,\382\ NYSE Arca and the Sponsor have also
failed to demonstrate that the Bitwise Daily Bitcoin Reference Price
would draw prices from selected platforms that represent
``substantially all'' of the economically significant spot trading
volume, outside of capital-

controlled countries.\383\ The Sponsor acknowledges that there is some
additional real volume to be found on other platforms, but simply
asserts that any adjustments to account for such additional real volume
would not materially change the Sponsor's conclusions.\384\ In
addition, in response to a law enforcement action by the NYAG, the
Sponsor removed the second largest ``real'' bitcoin platform from the
calculation of the Bitwise Daily Bitcoin Reference Price--Bitfinex, at
purportedly 14.1% of the ``real'' market in April 2019--but provides
only a cursory and insufficient analysis to support its assertion that
this removal does not meaningfully impact the Bitwise Daily Bitcoin
Reference Price.\385\ The Sponsor asserts that Bitfinex's average
deviation from the consolidated price falls ``comfortably in the
middle'' of the average deviation from the consolidated price for each
of the ten identified ``real'' platforms,\386\ but does not, for
example, provide any data about how this might translate to any price
difference in the Bitwise Daily Bitcoin Reference Price if calculated
with and without Bitfinex. The Sponsor asserts that there are
diminishing returns to the value of each additional platform in
protecting against idiosyncratic platform risk.\387\ But the Sponsor
does not adequately address the effect of the reliance on less of the
``real'' volume in the spot market to support the Trust's pricing
mechanism, including the impact of removal of this segment of ``real''
volume from the Trust's pricing mechanism on the Sponsor's assertion
that any attempt to manipulate the NAV must involve a majority of spot
bitcoin trading volume.\388\
---------------------------------------------------------------------------

    \382\ See supra Section III.B.1(c).
    \383\ See supra notes 319-338 and accompanying text.
    \384\ See supra notes 242-253 and accompanying text.
    \385\ See supra notes 331-338 and accompanying text. The
Commission notes that Amendment No. 1 states throughout that the
Trust's pricing mechanism will be based on ten platforms and that
these ten platforms represent substantially all of the ``real'' spot
market for bitcoin, and contains only one reference in a footnote to
the removal of Bitfinex and reduction in the number of platforms
contributing to the Bitwise Daily Bitcoin Reference Price from ten
to nine. See Notice and OIP, supra note 7, 84 FR at 23130 n.20. In
addition, the Sponsor's submission detailing its analysis of the
bitcoin spot market does not mention the removal of Bitfinex from
the Trust's pricing mechanism. See Bitwise Submission II, supra note
9. The Commission does not believe that the Sponsor has fully
explained the impact of removing Bitfinex on many of its
representations and assertions.
    \386\ See supra note 337 and accompanying text.
    \387\ See supra note 338 and accompanying text.
    \388\ See supra note 317 and accompanying text.
---------------------------------------------------------------------------

    In addition, while the Sponsor describes at length the analysis
that it conducted to identify spot platforms with real volume, NYSE
Arca and the Sponsor have not established that the Bitwise Daily
Bitcoin Reference Price would continue to rely on those platforms that
the Sponsor identifies (or might in the future identify) as
representing substantially all of the ``real'' spot trading volume. The
Sponsor acknowledges that the number of platforms used to construct the
Bitwise Daily Bitcoin Reference Price and the percentage of global
volume that they represent is subject to change.\389\
---------------------------------------------------------------------------

    \389\ See supra note 326 and accompanying text.
---------------------------------------------------------------------------

    Moreover, the methodology the Sponsor uses to select the platforms
from which it draws the Bitwise Daily Bitcoin Reference Price differs
from the methodology it uses for the analysis that purports to identify
those spot platforms with real volume.\390\ For example, one factor for
eliminating platforms from the Trust's pricing mechanism is whether the
platform is domiciled in an emerging market country,\391\ but the
Sponsor does not articulate this factor as a basis for considering a
platform's volume not to be ``real.'' While the Sponsor has currently
identified the same ten platforms for inclusion in the Bitwise Daily
Bitcoin Reference Price as it designated as ``real'' during the course
of its described analysis--before removing one platform due to a state
law enforcement action--the current overlap does not demonstrate that
the methodologies would generate the same results. And the Sponsor has
not explained how--if the differing methodologies identify different
sets of bitcoin platforms in the future--such divergences would affect
its representations that the Bitwise Daily Bitcoin Reference Price is
based on platforms that represent substantially all of the ``real''
spot trading volume.
---------------------------------------------------------------------------

    \390\ Compare supra notes 321-325 and accompanying text with
supra notes 199-200, 211-228 and accompanying text.
    \391\ See supra note 323 and accompanying text.
---------------------------------------------------------------------------

    Finally, the record does not demonstrate that in-kind creations and
redemptions, or the decision to accrue the Trust's fees exclusively in
bitcoin, would provide unique resistance to manipulation.\392\ In-kind
creations and redemptions are a common feature of ETPs, and the
Commission has not excused exchanges that list ETPs that rely on this
mechanism from the need to enter into surveillance-sharing agreements
with regulated markets related to the portfolios assets.\393\ Further,
the accrual of the Trust's fees in bitcoin does not protect buyers and
sellers of the Shares in the secondary market, because these secondary
market participants will not trade at NAV but at market-based
prices.\394\ Moreover, the Trust's Registration Statement recognizes
the risk that disruptions at bitcoin trading platforms ``could
adversely affect the availability of bitcoin and the ability of
Authorized Participants to purchase or sell bitcoin and therefore their
ability to create and redeem shares of the Trust.'' \395\
---------------------------------------------------------------------------

    \392\ See supra notes 360-362 and accompanying text. See also
supra notes 363-365 and accompanying text.
    \393\ See, e.g., iShares COMEX Gold Trust, Securities Exchange
Act Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751-55 (Jan. 26,
2005) (SR-Amex-2004-38); iShares Silver Trust, Securities Exchange
Act Release No. 53521 (Mar. 20, 2006), 71 FR 14969, 14974 (Mar. 24,
2006) (SR-Amex-2005-072).
    \394\ The Sponsor emphasizes that, at most, only ``shareholders
[of the Trust] would be protected'' by in-kind creations and
redemptions. Bitwise Submission III, supra note 9, at 13. See also
Registration Statement, supra note 31, at 28 (in-kind creation and
redemptions protect ``shareholders of the Trust'').
    \395\ Registration Statement, supra note 31, at 6.
---------------------------------------------------------------------------

    Therefore the Commission concludes that the record does not
establish that features of the Trust would make the Trust's NAV or the
proposed ETP uniquely resistant to manipulation.
2. Assertions That Other Means Are Available To Detect and Deter Fraud
and Manipulation
(a) Comment Received
    One commenter asserts that NYSE Arca's rules are designed to
prevent fraudulent and manipulative acts and practices, because trading
in the Shares would be subject to rules governing equity securities
that are aimed at preventing fraud and manipulation.\396\ This
commenter represents that such rules include regulations addressing
initial and continued listing standards, restrictions on market maker
accounts, trading halt procedures, and trading surveillance.\397\ With
respect to surveillance, the commenter states that trading in the
Shares will be subject to trading surveillances by NYSE Arca, and the
Financial Industry Regulatory Authority (``FINRA'') on NYSE Arca's
behalf, and that NYSE Arca and FINRA can communicate with Intermarket
Surveillance Group members and obtain information regarding trading in
the Shares and underlying bitcoin from NYSE Arca members registered as
market makers.\398\ This commenter further asserts that NYSE Arca can
obtain trading surveillance from a

regulated bitcoin futures market of significant size.\399\
---------------------------------------------------------------------------

    \396\ See Omniex Letter, supra note 9, at 3.
    \397\ See id.
    \398\ See id. See also Notice and OIP, supra note 7, 84 FR at
23135.
    \399\ See Omniex Letter, supra note 9, at 3-4.
---------------------------------------------------------------------------

(b) Analysis
    The Commission finds that, although one commenter raises aspects of
NYSE Arca's existing rules that it asserts might provide other means to
prevent fraud and manipulation,\400\ these alternative procedures would
not, without a surveillance-sharing agreement with a regulated market
of significant size, be sufficient to satisfy the requirement of
Exchange Act Section 6(b)(5) that an exchange's rules be designed to
prevent fraudulent and manipulative acts and practices.\401\ In the
Winklevoss Order, the Commission considered an assertion by the listing
exchange that its surveillance procedures, which included pre-existing
procedures, information available from the Bitcoin blockchain, and a
surveillance-sharing agreement with a spot bitcoin platform, would
provide ``traditional means'' of preventing fraud and manipulation,
sufficient to prevent fraudulent and manipulative acts and
practices.\402\ The Commission found that the listing exchange had not
demonstrated that the alternative surveillance procedures would be, by
themselves, sufficient to satisfy Exchange Act Section 6(b)(5).\403\
---------------------------------------------------------------------------

    \400\ See supra notes 396-399 and accompanying text.
    \401\ See 15 U.S.C. 78f(b)(5). See infra Section 0 for further
discussion about whether NYSE Arca's surveillance-sharing agreement
with the bitcoin futures market is with a regulated market of
significant size.
    \402\ See Winklevoss Order, supra note 12, 83 FR at 37590-91.
    \403\ See id. at 37591.
---------------------------------------------------------------------------

    Here, as in the Winklevoss Order, while NYSE Arca would, pursuant
to its listing rules, be able to obtain certain information regarding
trading in the Shares and in the underlying bitcoin or any bitcoin
derivative through registered market makers,\404\ this trade
information would be limited to the activities of members who were
registered with NYSE Arca as market makers in the Shares and would not
encompass all NYSE Arca market participants.\405\ Furthermore, as in
the Winklevoss Order, neither NYSE Arca's ability to surveil trading in
the Shares nor its ability to share information with other securities
exchanges trading the Shares would give NYSE Arca insight into the
activity and identity of market participants trading in the underlying
bitcoin in the OTC market or on other bitcoin trading platforms.\406\
Additionally, while the commenter asserts that NYSE Arca rules
addressing initial and continued listing standards and trading halt
procedures also are aimed at preventing fraud and manipulation,\407\
these aspects of NYSE Arca's rules, on their own, would not be
sufficient to detect, investigate, or prevent fraudulent and
manipulative acts and practices. The Commission finds that the argument
raised by the commenter that NYSE Arca's rules would prevent fraud and
manipulation are essentially the same as those arguments made by the
listing exchange in the Winklevoss Order, and therefore the Commission
must reach the same conclusion that the alternative surveillance
procedures raised by the commenter are not sufficient, by themselves,
to satisfy Exchange Act Section 6(b)(5).\408\
---------------------------------------------------------------------------

    \404\ See supra note 398 and accompanying text.
    \405\ See Winklevoss Order, supra note 12, 83 FR at 37591.
    \406\ See supra note 398 and accompanying text. See also
Winklevoss Order, supra note 12, 83 FR at 37591.
    \407\ See supra note 396-397 and accompanying text.
    \408\ See Winklevoss Order, supra note 12, 83 FR at 37591.
---------------------------------------------------------------------------

3. Assertions That NYSE Arca Has Entered Into a Surveillance-Sharing
Agreement With a Regulated Market of Significant Size Related to
Bitcoin
(a) Representations Made and Comments Received
    The Sponsor asserts that, in light of its understanding of the
small size of the ``real'' bitcoin spot market, the bitcoin futures
market represents a large, surveilled, and regulated market, as the
Commission has defined that requirement.\409\ The Sponsor further
asserts that, given the significant size of the bitcoin futures market,
and the close relationship in prices between the derivatives market and
the spot market, there is a reasonable likelihood that a person
attempting to manipulate the proposed ETP would have to trade on that
market to successfully manipulate the proposed ETP, because arbitrage
between the derivative and spot markets would tend to counter an
attempt to manipulate the spot market alone.\410\ According to the
Sponsor, NYSE Arca's ability to obtain information regarding trading in
the Shares and futures from markets and other entities that are members
of the Intermarket Surveillance Group, which includes CME (and CFE),
would assist NYSE Arca in detecting and deterring misconduct.\411\
---------------------------------------------------------------------------

    \409\ See Notice and OIP, supra note 7, 84 FR at 23134. In this
context, the Sponsor refers to the bitcoin futures market as
consisting of the market for cash-settled bitcoin futures contracts
on CFE and CME. See Bitwise Submission II, supra note 9, at 56. As
noted above, CFE ceased offering new bitcoin futures contracts as of
March 2019, see supra note 38, and therefore the Commission
considers here whether CME bitcoin futures market is a regulated
market of significant size. See infra note 457.
    \410\ See Notice and OIP, supra note 7, 84 FR at 23134.
    \411\ See id. See also Omniex Letter, supra note 9, at 5
(asserting that NYSE Arca would have the ability itself to obtain
information regarding trading in the Shares and could obtain
information regarding futures trading from CME as a member of
Intermarket Surveillance Group); Collaborative Funds Letter, supra
note 9, at 2 (asserting that NYSE Arca's surveillance agreement with
CME and CFE satisfies the concerns in the Winklevoss Order regarding
mitigation of market manipulation). But see Ahn Letter II, supra
note 9 (questioning the presumption that the bitcoin futures market
is regulated because, according to the commenter, the bitcoin
futures market does not contain all the regulatory features that the
Commission requires in the context of a surveillance-sharing
agreement).
---------------------------------------------------------------------------

    The Sponsor asserts that its assessment that the CME bitcoin
futures market is significant is based on its understanding of the true
size of the bitcoin spot market, which, according to the Sponsor, is
significantly smaller than commonly understood, as well as on the
recent and significant growth in trading volume on the CME bitcoin
futures exchange.\412\ The Sponsor argues that, while the bitcoin
futures market volume appears to be small in comparison to the reported
spot bitcoin volume, it looks ``much more important'' in comparison to
the ``real'' bitcoin spot market.\413\ In particular, the Sponsor
represents that the combined average daily volume for the CME and CFE
futures markets in April 2019 was $268 million, which is 2.4% of
April's reported spot market volume (approximately $11 billion), but
48.4% of the Sponsor's calculated ``real'' spot market volume
(approximately $554 million).\414\ The Sponsor asserts that in April
2019, the average daily volume on the CME of $258 million was larger
than that of any of the ten identified ``real'' spot bitcoin platforms,
ahead of Binance and more than twice as large as Bitfinex.\415\ The
Sponsor also asserts that the bitcoin futures market compares similarly
to the ``real'' bitcoin spot

market in surrounding months.\416\ According to the Sponsor, while the
bitcoin futures market ``would clearly not satisfy'' the requirement
that someone attempting to manipulate the spot market would be
reasonably likely to have to trade in the derivatives market if the
bitcoin spot market were trading $11 billion per day, the Sponsor's
``new understanding of the true size of the bitcoin spot market
reshapes this discussion considerably.'' \417\
---------------------------------------------------------------------------

    \412\ See Bitwise Submission III, supra note 9, at 97.
    \413\ See Bitwise Submission II, supra note 9, at 57; Bitwise
Submission III, supra note 9, at 11.
    \414\ See Bitwise Submission II, supra note 9, at 57; Bitwise
Submission III, supra note 9, at 11. The Sponsor also asserts that
in April 2019, the CME futures contract traded an average daily
volume of over 67,000 bitcoin (on a notional basis), while
coinmarketcap.com reported an average daily volume of over 2.2
million bitcoin, but the ``real'' average daily spot volume was
roughly 108,000 bitcoin. See Bitwise Submission III, supra note 9,
at 155.
    \415\ See Bitwise Submission II, supra note 9, at 58; Bitwise
Submission III, supra note 9, at 11.
    \416\ The Sponsor asserts that at the time of its first
analysis, in March 2019, the average daily volume of the bitcoin
futures market was $91 million, as compared to reported daily volume
in the spot market of approximately $6 billion and ``real'' daily
volume in the spot market of around $273 million. See Notice and
OIP, supra note 7, 84 FR at 23134; Bitwise Submission I, supra note
6, at 121. The Sponsor further asserts that bitcoin futures market
average daily volume in March 2019 was nearly as large as the
average daily volume for the largest ``real'' spot platform,
Binance, and larger than the rest. See Notice and OIP, supra note 7,
84 FR at 23134; Bitwise Submission I, supra note 6, at 65, 123. The
Sponsor has graphed futures volume as expressed as a percentage of
``real'' spot volume from December 2017 through February 2019 and
asserts that this chart shows an increase to approximately 35% in
February 2019. See Bitwise Submission I, supra note 6, at 122. The
Sponsor asserts that, while in earlier periods bitcoin futures
volume was consistently less than 10% the size of ``real'' spot
volume, since February 2019, bitcoin futures volume has consistently
averaged more than 25% as a percentage of ``real'' spot volume, and
was more than 50% of ``real'' spot volume in May 2019. See Bitwise
Submission III, supra note 9, at 157, 159. The Sponsor also asserts
that in May 2019, the CME bitcoin futures market had a higher
average daily trading volume than any of the ten ``real'' bitcoin
spot platforms and set new average daily trading volume records. See
Bitwise Submission IV, supra note 9, at 5. In addition, the Sponsor
asserts that in August 2019, the average daily volume of the bitcoin
futures market was $234 million, as compared to reported daily
volume in the spot market of approximately $17 billion and ``real''
daily volume in the spot market of around $1 billion. See Bitwise
Submission VI, supra note 9, at 29. See also id. at 25 (showing
aggregate average daily volume of the ten ``real'' spot bitcoin
platforms from December 2017 through August 2019 and asserting that,
since March 2019, volume has increased substantially).
    \417\ Bitwise Submission II, supra note 9, at 59.
---------------------------------------------------------------------------

    In addition, the Sponsor asserts that, since the CME and CFE
contracts launched in December 2017, the volume and significance of
bitcoin futures contracts has grown substantially, with the vast
majority of the volume linked to CME's contract.\418\ The Sponsor
represents that, from December 2017 to April 2019, the combined average
daily notional volume of CME and CFE bitcoin futures grew from 9,286
bitcoin to 69,177 bitcoin, showing a growth of 645%.\419\ The Sponsor
asserts that, while CME's bitcoin futures notional volume in dollars
has shown some variability, and declined along with a decline in prices
in late 2018, volumes have strongly picked up in 2019.\420\ The Sponsor
also asserts that CME's bitcoin futures notional volume in bitcoin
shows strong and steady growth, with a ``remarkable'' expansion in
2019.\421\ The Sponsor further asserts that CME bitcoin futures
notional volume as a percentage of ``real'' bitcoin spot volume has
been strong and steadily growing, with further acceleration in April
and May 2019.\422\
---------------------------------------------------------------------------

    \418\ See id. at 56, 58-59; Bitwise Submission III, supra note
9, at 11.
    \419\ See Bitwise Submission II, supra note 9, at 56. See also
Bitwise Submission III, supra note 9, at 155 (asserting that in
April 2019, the CME futures contract traded an average daily volume
of more than 67,000 bitcoin on a notional basis, representing a
roughly 630% increase over the median daily notional trading volume
on CME since inception). The Sponsor also has graphed the average
number of futures contracts traded daily and regulated bitcoin
futures volume as a percentage of ``real'' bitcoin spot volume from
December 2017 through May 2019. See Bitwise Submission II, supra
note 9, at 56, 59.
    \420\ See Bitwise Submission II, supra note 9, at 74-75. The
Sponsor represents that in the first 20 days of May 2019, the
average daily volume for CME futures contracts was $517 million, the
highest level ever for a month, and dollar volume hit an all-time
high on May 13, 2019, with $1.3 billion in notional volume traded
and a record of 33,677 bitcoin contracts traded. See id. at 74;
Bitwise Submission III, supra note 9, at 11. The Sponsor has graphed
CME average daily volume in USD to provide more detail on this
trend. See Bitwise Submission II, supra note 9, at 75; Bitwise
Submission VI, supra note 9, at 26. In addition, the Sponsor
represents that the average daily volume for CME futures contracts
in August 2019 was $234,385,300 and that the volume ``increased
substantially'' since March 2019. See Bitwise Submission VI, supra
note 9, at 9, 26.
    \421\ See Bitwise Submission II, supra note 9, at 75-76. The
Sponsor has graphed CME average daily volume in bitcoin. See id. at
76.
    \422\ See id. at 76-77. The Sponsor represents that in April and
May 2019, volumes on the CME bitcoin futures market often exceeded
those on the largest ``real'' spot platform, and sometimes
significantly. See id. at 77. According to the Sponsor, on May 13,
2019, CME volumes, at $1.3 billion, were two times as large as the
largest spot bitcoin platform, Binance, at approximately $650
million. See id.; Bitwise Submission III, supra note 9, at 11. The
Sponsor has graphed CME bitcoin futures volume as a percentage of
``real'' bitcoin spot volume. See Bitwise Submission II, supra note
9, at 77; Bitwise Submission VI, supra note 9, at 9, 28.
---------------------------------------------------------------------------

    With respect to CFE's decision in March 2019 to stop further
issuance of its bitcoin futures, the Sponsor asserts that the consensus
is that the limited volume on CFE will migrate to the already dominant
CME contract.\423\ The Sponsor argues that CFE's decision to stop
offering new bitcoin futures contracts suggests that CFE lost a