[Federal Register Volume 86, Number 213 (Monday, November 8, 2021)]
[Notices]
[Pages 61804-61820]
[FR Doc No: 2021-24323]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93504; File No. SR-NYSEArca-2021-90]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of Grayscale Bitcoin
Trust (BTC) Under NYSE Arca Rule 8.201-E

November 2, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 19, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following
under NYSE Arca Rule 8.201-E: Grayscale Bitcoin Trust (BTC) (the
``Trust'').\4\ The proposed change is available on the Exchange's
website at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
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    \4\ The Trust was previously named Bitcoin Investment Trust,
whose name was changed pursuant to a Certificate of Amendment to the
Certificate of Trust of Bitcoin Investment Trust filed with the
Delaware Secretary of State on January 11, 2019.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges ``Commodity-Based
Trust Shares.'' \5\ The Exchange proposes to list and trade shares
(``Shares'') \6\ of the Trust pursuant to NYSE Arca Rule 8.201-E.\7\
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    \5\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
Trust.
    \6\ The Shares are expected to be listed under the ticker symbol
``BTC.''
    \7\ On March 22, 2016, the Trust confidentially filed its draft
registration statement on Form 10 under the Securities Act of 1933
(15 U.S.C. 77a) (the ``Securities Act'') (File No. 377-01289) (the
``Draft Registration Statement on Form S-1''). On May 31, 2016, the
Trust confidentially filed Amendment No. 1 to the Draft Registration
Statement on Form S-1. On July 29, 2016, the Trust confidentially
filed Amendment No. 2 to the Draft Registration Statement on Form S-
1. On November 2, 2016, the Trust confidentially filed Amendment No.
3 to the Draft Registration Statement on Form S-1. The Jumpstart Our
Business Startups Act (the ``JOBS Act''), enacted on April 5, 2012,
added Section 6(e) to the Securities Act. Section 6(e) of the
Securities Act provides that an ``emerging growth company'' may
confidentially submit to the Commission a draft registration
statement for confidential, non-public review by the Commission
staff prior to public filing, provided that the initial confidential
submission and all amendments thereto shall be publicly filed not
later than 21 days before the date on which the issuer conducts a
road show, as such term is defined in Securities Act Rule 433(h)(4).
An emerging growth company is defined in Section 2(a)(19) of the
Securities Act as an issuer with less than $1,000,000,000 total
annual gross revenues during its most recently completed fiscal
year. The Trust meets the definition of an emerging growth company
and consequently submitted its Draft Registration Statement on Form
S-1 to the Commission on a confidential basis.
    On January 20, 2017, the Trust filed its registration statement
on Form S-1 under the Securities Act (File No. 333-215627) (the
``Registration Statement on Form S-1''). On March 24, 2017, the
Trust filed Amendment No. 1 to the Registration Statement on Form S-
1. On May 4, 2017, the Trust filed Amendment No. 2 to the
Registration Statement on Form S-1. On October 25, 2017, the Trust
requested the withdrawal of the Registration Statement on Form S-1.
    On October 3, 2018, the Trust confidentially filed its draft
registration statement on Form 10 under the Securities Act (File No.
377-02297) (the ``Draft Registration Statement on Form 10''). On
December 6, 2018, the Trust confidentially filed Amendment No. 1 to
the Draft Registration Statement on Form 10. On February 25, 2019
the Trust confidentially filed Amendment No. 2 to the Draft
Registration Statement on Form 10. On April 15, 2019, the Trust
confidentially filed Amendment No. 3 to the Draft Registration
Statement on Form 10. On September 9, 2019, the Trust confidentially
filed Amendment No. 4 to the Draft Registration Statement on Form
10. As noted above, the Trust meets the definition of an emerging
growth company under the JOBS Act and consequently submitted its
Draft Registration Statement on Form 10 to the Commission on a
confidential basis.
    On November 19, 2019, the Trust filed its registration statement
on Form 10 under the Securities Act (File No. 000-56121) (the
``Registration Statement on Form 10''). On December 31, 2019, the
Trust filed Amendment No. 1 to the Registration Statement on Form
10. On January 21, 2020, the Registration Statement on Form 10 was
automatically deemed effective.
    On March 20, 2020, the Trust filed its annual report on Form 10-
K under the Securities Act (File No. 000-56121). On May 8, 2020,
August 7, 2020 and November 6, 2020, the Trust filed its quarterly
reports on Form 10-Q under the Securities Act (File No. 000-56121).
On March 5, 2021, the Trust filed its annual report on Form 10-K
under the Securities Act (File No. 000-56121) (the ``Annual
Report''). On May 7, 2021 and August 6, 2021, the Trust filed its
quarterly reports on Form 10-Q under the Securities Act (File No.
000-56121) (the ``Quarterly Reports''). The descriptions of the
Trust, the Shares, and Bitcoin contained herein are based, in part,
on the Annual Report and Quarterly Reports.
    On January 17, 2019, the Trust submitted to the Commission an
amended Form D as a business trust. Shares of the Trust have been
quoted on OTC Market's OTCQX Best Marketplace under the symbol
``GBTC'' since March 26, 2015. On February 22, 2019 and March 20,
2020, the Trust published annual reports for GBTC for the periods
ended December 31, 2018 and December 31, 2019, respectively. On May
14, 2019, August 8, 2019, November 14, 2019, May 8, 2020, August 7,
2020 and November 6, 2020, the Trust published quarterly reports for
GBTC for the periods ended March 31, 2019, June 30, 2019, September
30, 2019, March 31, 2020, June 30, 2020 and September 30, 2020
respectively. Reports published before January 11, 2020, the date on
which the Trust's Shares became registered pursuant to Section 12(g)
of the Act, can be found on OTC Market's website (http://www.otcmarkets.com/stock/GBTC/disclosure), and reports published on
or after January 11, 2020 can be found on OTC Market's website
(http://www.otcmarkets.com/stock/GBTC/disclosure) and the
Commission's website (https://www.sec.gov/cgi-bin/browse-edgar?CIK=gbtc&owner=exclude&action=getcompany). The Shares will be
of the same class and will have the same rights as shares of GBTC.
Effective October 28, 2014, the Trust suspended its redemption
program for shares of GBTC, in which shareholders were permitted to
request the redemption of their shares through Genesis Global
Trading, Inc. (formerly known as SecondMarket, Inc.), an affiliate
of the Sponsor and the Trust (``Genesis''). According to the
Sponsor, freely tradeable shares of GBTC will remain freely
tradeable Shares on the date of the listing of the Shares that are
unregistered under the Securities Act. Restricted shares of GBTC
will remain subject to private placement restrictions and the
holders of such restricted shares will continue to hold those Shares
subject to those restrictions until they become freely tradable
Shares.

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    The sponsor of the Trust is Grayscale Investments, LLC
(``Sponsor''), a Delaware limited liability company. The Sponsor is a
wholly-owned subsidiary of Digital Currency Group, Inc. (``Digital
Currency Group''). The trustee for the Trust is Delaware Trust Company
(``Trustee''). The custodian for the Trust is Coinbase Custody Trust
Company, LLC (``Custodian'').\8\ The distribution and marketing agent
for the Trust is Genesis. The index provider for the Trust is
TradeBlock, Inc. (the ``Index Provider'').
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    \8\ According to the Annual Report, Digital Currency Group owns
a minority interest in Coinbase, Inc., which is the parent company
of the Custodian, representing less than 1.0% of its equity.
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    The Trust is a Delaware statutory trust, organized on September 13,
2013, that operates pursuant to a trust agreement between the Sponsor
and the Trustee (``Trust Agreement''). The Trust has no fixed
termination date.
Operation of the Trust
    According to the Annual Report, the Trust's assets consist solely
of Bitcoins, Incidental Rights,\9\ IR Virtual Currency,\10\ proceeds
from the sale of Bitcoins, Incidental Rights, and IR Virtual Currency
pending use of such cash for payment of Additional Trust Expenses \11\
or distribution to shareholders, and any rights of the Trust pursuant
to any agreements, other than the Trust Agreement, to which the Trust
is a party. Each Share represents a proportional interest, based on the
total number of Shares outstanding, in each of the Trust's assets as
determined by reference to the Index Price,\12\ less the Trust's
expenses and other liabilities (which include accrued but unpaid fees
and expenses). The Sponsor expects that the market price of the Shares
will fluctuate over time in response to the market prices of Bitcoin.
In addition, because the Shares reflect the estimated accrued but
unpaid expenses of the Trust, the number of Bitcoins represented by a
Share will gradually decrease over time as the Trust's Bitcoins are
used to pay the Trust's expenses. The Trust does not expect to take any
Incidental Rights or IR Virtual Currency it may hold into account for
purposes of determining the Trust's ``Digital Asset Holdings'' (as
described below) or the Digital Asset Holdings per Share.
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    \9\ ``Incidental Rights'' are rights to acquire, or otherwise
establish dominion and control over, any virtual currency or other
asset or right, which rights are incident to the Trust's ownership
of Bitcoins and arise without any action of the Trust, or of the
Sponsor or Trustee on behalf of the Trust.
    \10\ ``IR Virtual Currency'' is any virtual currency tokens, or
other asset or right, acquired by the Trust through the exercise
(subject to the applicable provisions of the Trust Agreement) of any
Incidental Right.
    \11\ ``Additional Trust Expenses'' are any expenses incurred by
the Trust in addition to the Sponsor's Fee that are not Sponsor-paid
Expenses, including, but not limited to, (i) taxes and governmental
charges, (ii) expenses and costs of any extraordinary services
performed by the Sponsor (or any other service provider) on behalf
of the Trust to protect the Trust or the interests of shareholders
(including in connection with any Incidental Rights and any IR
Virtual Currency), (iii) any indemnification of the Custodian or
other agents, service providers or counterparties of the Trust, (iv)
the fees and expenses related to the listing, quotation or trading
of the Shares on any Secondary Market (including legal, marketing
and audit fees and expenses) to the extent exceeding $600,000 in any
given fiscal year and (v) extraordinary legal fees and expenses,
including any legal fees and expenses incurred in connection with
litigation, regulatory enforcement or investigation matters.
    \12\ The ``Index Price'' means the U.S. dollar value of a
Bitcoin derived from the Digital Asset Exchanges that are reflected
in the Index, calculated at 4:00 p.m., New York time, on each
business day. For purposes of the Trust Agreement, the term Bitcoin
Index Price has the same meaning as the Index Price as defined
herein.
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    The activities of the Trust are limited to (i) issuing ``Baskets''
(as defined below) in exchange for Bitcoins transferred to the Trust as
consideration in connection with the creations, (ii) transferring or
selling Bitcoins, Incidental Rights, and IR Virtual Currency as
necessary to cover the ``Sponsor's Fee'' and/or certain Trust expenses,
(iii) transferring Bitcoins in exchange for Baskets surrendered for
redemption (subject to obtaining regulatory approval from the SEC and
approval of the Sponsor), (iv) causing the Sponsor to sell Bitcoins,
Incidental Rights, and IR Virtual Currency on the termination of the
Trust, (v) making distributions of Incidental Rights and/or IR Virtual
Currency or cash from the sale thereof, and (vi) engaging in all
administrative and security procedures necessary to accomplish such
activities in accordance with the provisions of the Trust Agreement,
the Custodian Agreement, the Index License Agreement and the
Participant Agreements.
    In addition, the Trust may engage in any lawful activity necessary
or desirable in order to facilitate shareholders' access to Incidental
Rights or IR Virtual Currency, provided that such activities do not
conflict with the terms of the Trust Agreement. The Trust will not be
actively managed. It will not engage in any activities designed to
obtain a profit from, or to ameliorate losses caused by, changes in the
market prices of Bitcoins.
Investment Objective
    According to the Annual Report, and as further described below, the
Trust's investment objective is for the value of the Shares (based on
Bitcoin per Share) to reflect the value of the Bitcoins held by the
Trust, as determined by reference to the Index Price, less the Trust's
expenses and other liabilities. While an investment in the Shares is
not a direct investment in Bitcoin, the Shares are designed to provide
investors with a cost-effective and convenient way to gain investment
exposure to Bitcoin. A substantial direct investment in Bitcoin may
require expensive and sometimes complicated arrangements in connection
with the acquisition, security and safekeeping of the Bitcoin and may
involve the payment of substantial fees to acquire such Bitcoin

from third-party facilitators through cash payments of U.S. dollars.
Because the value of the Shares is correlated with the value of Bitcoin
held by the Trust, it is important to understand the investment
attributes of, and the market for, Bitcoin.
Bitcoin and the Bitcoin Network
    According to the Annual Report, Bitcoin is a digital asset that is
created and transmitted through the operations of the peer-to-peer
``Bitcoin Network,'' a decentralized network of computers that operates
on cryptographic protocols. No single entity owns or operates the
Bitcoin Network, the infrastructure of which is collectively maintained
by a decentralized user base. The Bitcoin Network allows people to
exchange tokens of value, called Bitcoin, which are recorded on a
public transaction ledger known as a Blockchain. Bitcoin can be used to
pay for goods and services, or it can be converted to fiat currencies,
such as the U.S. dollar, at rates determined on ``Digital Asset
Markets'' \13\ that trade Bitcoin or in individual end-user-to-end-user
transactions under a barter system.
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    \13\ A ``Digital Asset Market'' is a ``Brokered Market,''
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange
Market,'' as each such term is defined in the Financial Accounting
Standards Board Accounting Standards Codification Master Glossary.
The ``Digital Asset Exchange Market'' is the global exchange market
for the trading of Bitcoins, which consists of transactions on
electronic Digital Asset Exchanges. A ``Digital Asset Exchange'' is
an electronic marketplace where exchange participants may trade, buy
and sell Bitcoins based on bid-ask trading. The largest Digital
Asset Exchanges are online and typically trade on a 24-hour basis,
publishing transaction price and volume data.
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    The Bitcoin Network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit, or determine the value of Bitcoin. Rather, Bitcoin is
created and allocated by the Bitcoin Network protocol through a
``mining'' process. The value of Bitcoin is determined by the supply of
and demand for Bitcoin on the Digital Asset Markets or in private end-
user-to-end-user transactions.
    New Bitcoin are created and rewarded to the miners of a block in
the Blockchain for verifying transactions. The Blockchain is
effectively a decentralized database that includes all blocks that have
been solved by miners, and it is updated to include new blocks as they
are solved. Each Bitcoin transaction is broadcast to the Bitcoin
Network and, when included in a block, recorded in the Blockchain. As
each new block records outstanding Bitcoin transactions, and
outstanding transactions are settled and validated through such
recording, the Blockchain represents a complete, transparent and
unbroken history of all transactions of the Bitcoin Network.
Summary of a Bitcoin Transaction
    Prior to engaging in Bitcoin transactions directly on the Bitcoin
Network, a user generally must first install on its computer or mobile
device a Bitcoin Network software program that will allow the user to
generate a private and public key pair associated with a Bitcoin
address, commonly referred to as a ``wallet.'' The Bitcoin Network
software program and the Bitcoin address also enable the user to
connect to the Bitcoin Network and transfer Bitcoin to, and receive
Bitcoin from, other users.
    Each Bitcoin Network address, or wallet, is associated with a
unique ``public key'' and ``private key'' pair. To receive Bitcoin, the
Bitcoin recipient must provide its public key to the party initiating
the transfer. This activity is analogous to a recipient for a
transaction in U.S. dollars providing a routing address in wire
instructions to the payor so that cash may be wired to the recipient's
account. The payor approves the transfer to the address provided by the
recipient by ``signing'' a transaction that consists of the recipient's
public key with the private key of the address from where the payor is
transferring the Bitcoin. The recipient, however, does not make public
or provide to the sender its related private key.
    Neither the recipient nor the sender reveal their private keys in a
transaction, because the private key authorizes transfer of the funds
in that address to other users. Therefore, if a user loses his private
key, the user may permanently lose access to the Bitcoin contained in
the associated address. Likewise, Bitcoin is irretrievably lost if the
private key associated with them is deleted and no backup has been
made. When sending Bitcoin, a user's Bitcoin Network software program
must validate the transaction with the associated private key. In
addition, since every computation on the Bitcoin Network requires
processing power, there is a transaction fee involved with the transfer
that is paid by the payor. The resulting digitally validated
transaction is sent by the user's Bitcoin Network software program to
the Bitcoin Network miners to allow transaction confirmation.
    Bitcoin Network miners record and confirm transactions when they
mine and add blocks of information to the Blockchain. When a miner
mines a block, it creates that block, which includes data relating to
(i) the satisfaction of the consensus mechanism to mine the block, (ii)
a reference to the prior block in the Blockchain to which the new block
is being added and (iii) transactions that have submitted to the
Bitcoin Network but have not yet been added to the Blockchain. The
miner becomes aware of outstanding, unrecorded transactions through the
data packet transmission and distribution discussed above.
    Upon the addition of a block included in the Blockchain, the
Bitcoin Network software program of both the spending party and the
receiving party will show confirmation of the transaction on the
Blockchain and reflect an adjustment to the Bitcoin balance in each
party's Bitcoin Network public key, completing the Bitcoin transaction.
Once a transaction is confirmed on the Blockchain, it is irreversible.
    Some Bitcoin transactions are conducted ``off-blockchain'' and are
therefore not recorded in the Blockchain. Some ``off-blockchain
transactions'' involve the transfer of control over, or ownership of, a
specific digital wallet holding Bitcoin or the reallocation of
ownership of certain Bitcoin in a pooled-ownership digital wallet, such
as a digital wallet owned by a Digital Asset Exchange. In contrast to
on-blockchain transactions, which are publicly recorded on the
Blockchain, information and data regarding off-blockchain transactions
are generally not publicly available. Therefore, off-blockchain
transactions are not truly Bitcoin transactions in that they do not
involve the transfer of transaction data on the Bitcoin Network and do
not reflect a movement of Bitcoin between addresses recorded in the
Blockchain. For these reasons, off-blockchain transactions are subject
to risks, as any such transfer of Bitcoin ownership is not protected by
the protocol behind the Bitcoin Network or recorded in, and validated
through, the blockchain mechanism.
Custody of the Trust's Bitcoins
    Digital assets and digital asset transactions are recorded and
validated on blockchains, the public transaction ledgers of a digital
asset network. Each digital asset blockchain serves as a record of
ownership for all of the units of such digital asset, even in the case
of certain privacy-focused digital assets, where the transactions
themselves are not publicly viewable. All digital assets recorded on a
blockchain are associated with a public blockchain address, also
referred to as a digital wallet. Digital assets held at a particular
public blockchain address may be accessed and

transferred using a corresponding private key.
Key Generation
    Public addresses and their corresponding private keys are generated
by the Custodian in secret key generation ceremonies at secure
locations inside faraday cages, which are enclosures used to block
electromagnetic fields and mitigate attacks. The Custodian uses quantum
random number generators to generate the public and private key pairs.
    Once generated, private keys are encrypted, separated into
``shards,'' and then further encrypted. After the key generation
ceremony, all materials used to generate private keys, including
computers, are destroyed. All key generation ceremonies are performed
offline. No party other than the Custodian has access to the private
key shards of the Trust.
Key Storage
    Private key shards are distributed geographically in secure vaults
around the world, including in the United States. The locations of the
secure vaults may change regularly and are kept confidential by the
Custodian for security purposes.
    The Digital Asset Account \14\ uses offline storage, or ``cold
storage'', mechanisms to secure the Trust's private keys. The term cold
storage refers to a safeguarding method by which the private keys
corresponding to digital assets are disconnected and/or deleted
entirely from the internet. Cold storage of private keys may involve
keeping such keys on a non-networked (or ``airgapped'') computer or
electronic device or storing the private keys on a storage device (for
example, a USB thumb drive) or printed medium (for example, papyrus,
paper, or a metallic object). A digital wallet may receive deposits of
digital assets but may not send digital assets without use of the
digital assets' corresponding private keys. In order to send digital
assets from a digital wallet in which the private keys are kept in cold
storage, either the private keys must be retrieved from cold storage
and entered into an online, or ``hot,'' digital asset software program
to sign the transaction, or the unsigned transaction must be
transferred to the cold server in which the private keys are held for
signature by the private keys and then transferred back to the online
digital asset software program. At that point, the user of the digital
wallet can transfer its digital assets.
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    \14\ The Digital Asset Account is a segregated custody account
controlled and secured by the Custodian to store private keys, which
allows for the transfer of ownership or control of the Trust's
Bitcoins on the Trust's behalf.
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Security Procedures
    The Custodian is the custodian of the Trust's private keys in
accordance with the terms and provisions of the Custodian Agreement.
Transfers from the Digital Asset Account require certain security
procedures, including, but not limited to, multiple encrypted private
key shards, usernames, passwords and 2-step verification. Multiple
private key shards held by the Custodian must be combined to
reconstitute the private key to sign any transaction in order to
transfer the Trust's assets. Private key shards are distributed
geographically in secure vaults around the world, including in the
United States.
    As a result, if any one secure vault is ever compromised, this
event will have no impact on the ability of the Trust to access its
assets, other than a possible delay in operations, while one or more of
the other secure vaults is used instead. These security procedures are
intended to remove single points of failure in the protection of the
Trust's assets.
    Transfers of Bitcoins to the Digital Asset Account will be
available to the Trust once processed on the Blockchain.
    Subject to obtaining regulatory approval to operate a redemption
program and authorization of the Sponsor, the process of accessing and
withdrawing Bitcoin from the Trust to redeem a Basket by an Authorized
Participant will follow the same general procedure as transferring
Bitcoins to the Trust to create a Basket by an Authorized Participant,
only in reverse.
Digital Asset Holdings
    According to the Annual Report, the Trust's assets consist solely
of Bitcoins, Incidental Rights, IR Virtual Currency, proceeds from the
sale of Bitcoins, Incidental Rights, and IR Virtual Currency pending
use of such cash for payment of Additional Trust Expenses or
distribution to the shareholders, and any rights of the Trust pursuant
to any agreements, other than the Trust Agreement, to which the Trust
is a party. Each Share represents a proportional interest, based on the
total number of Shares outstanding, in each of the Trust's assets as
determined in the case of Bitcoin by reference to the Index Price, less
the Trust's expenses and other liabilities (which include accrued but
unpaid fees and expenses). The Sponsor expects that the market price of
the Shares will fluctuate over time in response to the market prices of
Bitcoin. In addition, because the Shares reflect the estimated accrued
but unpaid expenses of the Trust, the number of Bitcoin represented by
a Share will gradually decrease over time as the Trust's Bitcoin is
used to pay the Trust's expenses. The Trust does not expect to take any
Incidental Rights or IR Virtual Currency it may hold into account for
purposes of determining the Trust's Digital Asset Holdings or the
Digital Asset Holdings per Share.
    The Sponsor will evaluate the Bitcoin held by the Trust and
determine the Digital Asset Holdings of the Trust in accordance with
the relevant provisions of the Trust Documents. The following is a
description of the material terms of the Trust Documents as they relate
to valuation of the Trust's Bitcoin and the Digital Asset Holdings
calculations.
    On each business day at 4:00 p.m., New York time, or as soon
thereafter as practicable (the ``Evaluation Time''), the Sponsor will
evaluate the Bitcoin held by the Trust and calculate and publish the
Digital Asset Holdings of the Trust. To calculate the Digital Asset
Holdings, the Sponsor will:

    1. Determine the Index Price as of such business day.
    2. Multiply the Index Price by the Trust's aggregate number of
Bitcoins owned by the Trust as of 4:00 p.m., E.T. on the immediately
preceding day, less the aggregate number of Bitcoins payable as the
accrued and unpaid Sponsor's Fee as of 4:00 p.m., E.T. on the
immediately preceding day.
    3. Add the U.S. dollar value of Bitcoins, calculated using the
Index Price, receivable under pending creation orders, if any,
determined by multiplying the number of the Baskets represented by
such creation orders by the Basket Amount and then multiplying such
product by the Index Price.\15\
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    \15\ ``Baskets'' and ``Basket Amount'' have the meanings set
forth in ``Creation of Shares'' below.
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    4. Subtract the U.S. dollar amount of accrued and unpaid
Additional Trust Expenses, if any.
    5. Subtract the U.S. dollar value of the Bitcoins, calculated
using the Index Price, to be distributed under pending redemption
orders, if any, determined by multiplying the number of Baskets to
be redeemed represented by such redemption orders by the Basket
Amount and then multiplying such product by the Index Price (the
amount derived from steps 1 through 5 above, the ``Digital Asset
Holdings Fee Basis Amount'').
    6. Subtract the U.S. dollar amount of the Sponsor's Fee that
accrues for such business day, as calculated based on the Digital
Asset Holdings Fee Basis Amount for such business day.

    In the event that the Sponsor determines that the primary
methodology used to determine the Index Price is not an appropriate
basis for valuation of the Trust's Bitcoins, the Sponsor will utilize
the cascading set of rules as described in ``Trust Valuation of

Bitcoin'' below. In addition, in the event that the Trust holds any
Incidental Rights and/or IR Virtual Currency, the Sponsor may, at its
discretion, include the value of such Incidental Rights and/or IR
Virtual Currency in the determination of the Digital Asset Holdings,
provided that the Sponsor has determined in good faith a method for
assigning an objective value to such Incidental Rights and/or IR
Virtual Currency. At this time, the Trust does not expect to take any
Incidental Rights or IR Virtual Currency it may hold into account for
the purposes of determining the Digital Asset Holdings or the Digital
Asset Holdings per Share.
Limits on Bitcoin Supply
    The supply of new Bitcoin is mathematically controlled so that the
number of Bitcoin grows at a limited rate pursuant to a pre-set
schedule. The number of Bitcoin awarded for solving a new block is
automatically halved after every 210,000 blocks are added to the
Blockchain. Currently, the fixed reward for solving a new block is 6.25
Bitcoin per block and this is expected to decrease by half to become
3.125 Bitcoin after the next 210,000 blocks have entered the Bitcoin
Network, which is expected to be mid-2024. This deliberately controlled
rate of Bitcoin creation means that the number of Bitcoin in existence
will increase at a controlled rate until the number of Bitcoin in
existence reaches the pre-determined 21 million Bitcoin. As of June 30,
2021, approximately 18.7 million Bitcoins were outstanding and the date
when the 21 million Bitcoin limitation will be reached is estimated to
be the year 2140.
Bitcoin Value
Digital Asset Exchange Valuation
    According to the Annual Report, the value of Bitcoin is determined
by the value that various market participants place on Bitcoin through
their transactions. The most common means of determining the value of a
Bitcoin is by surveying one or more Digital Asset Exchanges where
Bitcoin is traded publicly (e.g., Coinbase Pro, Bitstamp, Kraken, and
LMAX Digital). Additionally, there are over-the-counter dealers or
market makers that transact in Bitcoin.
Digital Asset Exchange Public Market Data
    On each online Digital Asset Exchange, Bitcoin is traded with
publicly disclosed valuations for each executed trade, measured by one
or more fiat currencies such as the U.S. dollar or Euro. Over-the-
counter dealers or market makers do not typically disclose their trade
data.
    As of June 30, 2021, the Digital Asset Exchanges included in the
Index are Coinbase Pro, Bitstamp, Kraken and LMAX Digital. As further
described below, each of these Digital Asset Exchanges are in
compliance with applicable U.S. federal and state licensing
requirements and practices regarding AML and KYC regulations.
    Coinbase Pro: A U.S.-based exchange registered as a money services
business (``MSB'') with FinCen and licensed as a virtual currency
business under the NYDFS BitLicense as well as money transmitter in
various U.S. states.
    Bitstamp: A U.K.-based exchange registered as an MSB with FinCen
and licensed as a virtual currency business under the NYDFS BitLicense
as well as money transmitter in various U.S. states.
    Kraken: A U.S.-based exchange registered as an MSB with FinCen and
licensed as money transmitter in various U.S. states. Kraken does not
hold a BitLicense.
    LMAX Digital: A U.K.-based exchange registered as a broker with
FCA. LMAX Digital does not hold a BitLicense.
    Currently, there are several Digital Asset Exchanges operating
worldwide, and online Digital Asset Exchanges represent a substantial
percentage of Bitcoin buying and selling activity and provide the most
data with respect to prevailing valuations of Bitcoins. These exchanges
include established exchanges such as exchanges included in the Index,
which provide a number of options for buying and selling Bitcoins. The
below table reflects the trading volume in Bitcoins and market share of
the BTC-U.S. dollar trading pair of each of the Digital Asset Exchanges
included in the Index as of June 30, 2021 using data reported by the
Index Provider from May 1, 2015 to June 30, 2021:

------------------------------------------------------------------------
 Digital asset exchanges included
 in the index as of June 30, 2021      Volume (BTC)    Market share \17\
               \16\                                           (%)
------------------------------------------------------------------------
Coinbase Pro......................         29,508,974              19.96
Bitstamp..........................         21,579,385              14.60
Kraken............................         10,433,760               7.06
LMAX Digital......................          5,336,911               3.61
                                   -------------------------------------
    Total BTC-U.S. dollar trading          66,859,030              45.23
     pair.........................
------------------------------------------------------------------------
\16\ On January 15, 2019, the Index Provider added Kraken back to the
  Index and also added Bittrex to the Index. On January 19, 2020, the
  Index Provider removed Bittrex and added LMAX Digital as part of its
  scheduled quarterly review. On April 6, 2020, the Index Provider
  removed itBit and did not add any constituents as part of its
  scheduled quarterly review.
\17\ Market share is calculated using trading volume data (in Bitcoins)
  provided by the Index Provider for certain Digital Asset Exchanges,
  including Coinbase Pro, Bitstamp, Kraken, and LMAX Digital, as well as
  certain other large U.S.-dollar denominated Digital Asset Exchanges
  that are not currently included in the Index, including Binance. U.S.
  (data included from April 1, 2020), Bitfinex, Bitflyer (data included
  from December 24, 2018), Bittrex (data included from July 31, 2018),
  ErisX (data included from October 1, 2020), Gemini, itBit, LakeBTC
  (data included from May 1, 2015 to June 1, 2018 and from January 27,
  2019), HitBTC (data included from April 1, 2019 to March 31, 2020) and
  OKCoin.

    On January 19, 2020, as part of a scheduled quarterly review, the
Index Provider delisted the Bittrex constituent and related BTC/USD
currency pair and added the LMAX Digital constituent and related BTC/
USD currency pair.
    The domicile, regulation, and legal compliance of the Digital Asset
Exchanges included in the Index varies. Information regarding each
Digital Asset Exchange may be found, where available, on the websites
for such Digital Asset Exchanges, among other places.
The Index and the Index Price
    The Index is a U.S. dollar-denominated composite reference rate for
the price of Bitcoin. The Index is designed to (i) mitigate the effects
of fraud, manipulation and other anomalous trading activity from
impacting the Bitcoin reference rate, (ii) provide a real-time, volume-
weighted fair value of Bitcoin and (iii) appropriately handle and
adjust for non-market related events.
    The Index Price is determined by the Index Provider through a
process in which trade data is cleansed and

compiled in such a manner as to algorithmically reduce the impact of
anomalistic or manipulative trading. This is accomplished by adjusting
the weight of each data input based on price deviation relative to the
observable set, as well as recent and long-term trading volume at each
venue relative to the observable set. To calculate volume weighted
price, the weighting algorithm is applied to the price and volume of
all inputs for the immediately preceding 24-hour period at 4:00 p.m.,
New York time, on the trade date.
Constituent Exchange Selection
    According to the Annual Report, the Digital Asset Exchanges that
are included in the Index are selected by the Index Provider utilizing
a methodology that is guided by the International Organization of
Securities Commissions (``IOSCO'') principles for financial benchmarks.
For an exchange to become a Digital Asset Exchange included in the
Index (a ``Constituent Exchange''), it must satisfy the criteria listed
below (the ``Inclusion Criteria''):
     Compliance with applicable U.S. federal and state
licensing requirements and practices regarding anti-money laundering
(``AML'') and know-your-customer (``KYC'') regulations;
     Publicly known ownership;
     No restrictions on deposits and/or withdrawals of Bitcoin;
     No restrictions on deposits and/or withdrawals of U.S.
dollars;
     Reliably displays new trade prices and volumes on a real-
time basis through APIs;
     Programmatic trading \18\ of the Bitcoin/U.S. dollar spot
price;
---------------------------------------------------------------------------

    \18\ Exchanges with programmatic trading offer traders an
application programming interface that permits trading by sending
programmed commands to the exchange.
---------------------------------------------------------------------------

     Liquid market in the Bitcoin/U.S. dollar spot price;
     Trading volume must represent a minimum of total Bitcoin/
U.S. dollar trading volumes (5% for U.S. exchanges and 10% non-U.S.
exchanges); and
     Discretion of the Index Provider's analysts \19\
---------------------------------------------------------------------------

    \19\ This includes additional due diligence conducted by the
Index Provider's analysts.
---------------------------------------------------------------------------

    A Digital Asset Exchange is removed from the Index when it no
longer satisfies the Inclusion Criteria. The Index Provider does not
currently include data from over-the-counter markets or derivatives
platforms among the Constituent Exchanges. According to the Annual
Report, over-the-counter data is not currently included because of the
potential for trades to include a significant premium or discount paid
for larger liquidity, which creates an uneven comparison relative to
more active markets. There is also a higher potential for over-the-
counter transactions to not be arms-length, and thus not be
representative of a true market price. Bitcoin derivative markets are
also not currently included as the markets remain relatively thin. The
Index Provider will consider IOSCO principles for financial benchmarks
and the management of trading venues of Bitcoin derivatives when
considering inclusion of over-the-counter or derivative platform data
in the future.
    The Index Provider and the Sponsor have entered into an index
license agreement (the ``Index License Agreement'') governing the
Sponsor's use of the Index Price. The Index Provider may adjust the
calculation methodology for the Index Price without notice to, or
consent of, the Trust or its shareholders. The Index Provider may
decide to change the calculation methodology to maintain the integrity
of the Index Price calculation should it identify or become aware of
previously unknown variables or issues with the existing methodology
that it believes could materially impact its performance and/or
reliability. The Index Provider has sole discretion over the
determination of Index Price and may change the methodologies for
determining the Index Price from time to time. Shareholders will be
notified of any material changes to the calculation methodology or the
Index Price in the Trust's current reports and will be notified of all
other changes that the Sponsor considers significant in the Trust's
periodic reports. The Trust will determine the materiality of any
changes to the Index Price on a case-by-case basis, in consultation
with external counsel.
    The Index Provider may change the trading venues that are used to
calculate the Index or otherwise change the way in which the Index is
calculated at any time. For example, the Index Provider has scheduled
quarterly reviews in which it may add or remove Constituent Exchanges
that satisfy or fail the Inclusion Criteria. The Index Provider does
not have any obligation to consider the interests of the Sponsor, the
Trust, the shareholders, or anyone else in connection with such
changes. The Index Provider is not required to publicize or explain the
changes or to alert the Sponsor to such changes. Although the Index
methodology is designed to operate without any manual intervention,
rare events would justify manual intervention. Intervention of this
kind would be in response to non-market-related events, such as the
halting of deposits or withdrawals of funds on a Digital Asset
Exchange, the unannounced closure of operations on a Digital Asset
Exchange, insolvency or the compromise of user funds. In the event that
such an intervention is necessary, the Index Provider would issue a
public announcement through its website, API and other established
communication channels with its clients.
Determination of the Index Price
    The Index applies an algorithm to the 24-hour volume-weighted
average price of Bitcoin on the Constituent Exchanges calculated on a
per second basis. The Index's algorithm is expected to reflect a four-
pronged methodology to calculate the Index Price from the Constituent
Exchanges:
     Volume Weighting: Constituent Exchanges with greater
liquidity receive a higher weighting in the Index Price, increasing the
ability to execute against (i.e., replicate) the Index in the
underlying spot markets.
     Price-Variance Weighting: The Index Price reflects data
points that are discretely weighted in proportion to their variance
from the rest of the other Constituent Exchanges. As the price at a
particular exchange diverges from the prices at the rest of the
Constituent Exchanges, its weight in the Index Price consequently
decreases.
     Inactivity Adjustment: The Index Price algorithm penalizes
stale activity from any given Constituent Exchange. When a Constituent
Exchange does not have recent trading data, its weighting in the Index
Price is gradually reduced until it is de-weighted entirely. Similarly,
once trading activity at a Constituent Exchange resumes, the
corresponding weighting for that Constituent Exchange is gradually
increased until it reaches the appropriate level.
     Manipulation Resistance: In order to mitigate the effects
of wash trading and order book spoofing, the Index Price only includes
executed trades in its calculation. Additionally, the Index Price only
includes Constituent Exchanges that charge trading fees to its users in
order to attach a real, quantifiable cost to any manipulation attempts.
    The Index Provider formally re-evaluates the weighting algorithm
quarterly, but maintains discretion to change the way in which an Index
Price is calculated based on its periodic review or in extreme
circumstances. The Index is designed to limit exposure to trading or
price distortion of any individual Digital Asset Exchange that
experiences periods of unusual activity or limited liquidity by
discounting, in

real-time, anomalous price movements at individual Digital Asset
Exchanges.
    The Sponsor believes the Index Provider's selection process for
Constituent Exchanges as well as the methodology of the Index Price's
algorithm provides a more accurate picture of Bitcoin price movements
than a simple average of Digital Asset Exchange spot prices, and that
the weighting of Bitcoin prices on the Constituent Exchanges limits the
inclusion of data that is influenced by temporary price dislocations
that may result from technical problems, limited liquidity or
fraudulent activity elsewhere in the Bitcoin spot market. By
referencing multiple trading venues and weighting them based on trade
activity, the Sponsor believes that the impact of any potential fraud,
manipulation or anomalous trading activity occurring on any single
venue is reduced.
    If the Index Price becomes unavailable, or if the Sponsor
determines in good faith that such Index Price does not reflect an
accurate price for Bitcoin, then the Sponsor will, on a best efforts
basis, contact the Index Provider to obtain the Index Price directly
from the Index Provider. If after such contact such Index Price remains
unavailable or the Sponsor continues to believe in good faith that such
Index Price does not reflect an accurate price for the relevant digital
asset, then the Sponsor will employ a cascading set of rules to
determine the Index Price, as described below in ``--Determination of
the Index Price When Index Prices are Unavailable.''
    The Trust values its Bitcoin for operational purposes by reference
to the Index Price. The Index Price is the value of a Bitcoin as
represented by the Index, calculated at 4:00 p.m., New York time, on
each business day. The Index Provider develops, calculates and
publishes the Index on a continuous basis using the volume-weighted
price at the Digital Asset Benchmark Exchanges, as selected by the
Index Provider.
Illustrative Example
    For the purposes of illustration, outlined below are examples of
how the attributes that impact weighting and adjustments in the
aforementioned methodology may be utilized to generate the Index Price
for a digital asset. For example, the Constituent Exchanges for the
Index Price of the digital asset are Coinbase Pro, Kraken, LMAX Digital
and Bitstamp.
    The Index Price algorithm, as described above, accounts for
manipulation at the outset by only including data from executed trades
on Constituent Exchanges that charge trading fees. Then, the below-
listed elements may impact the weighting of the Constituent Exchanges
on the Index price as follows:
     Volume Weighting: Each Constituent Exchange will be
weighted to appropriately reflect the trading volume share of the
Constituent Exchange relative to all the Constituent Exchanges during
this same period. For example, an average hourly weighting of 52.17%,
11.88%, 24.46% and 11.49% for Coinbase Pro, Kraken, LMAX Digital and
Bitstamp, respectively, would represent each Constituent Exchange's
share of trading volume during the same period.
     Inactivity Adjustment: Assume that a Constituent
Exchange's trading engine represented a 14% influence on the trading
price of the digital asset and then went offline for approximately two
hours. The index algorithm automatically recognizes inactivity and de-
weights that Constituent Exchange's influence in the Index Price--for
example, from 14% to 0%--until trading activity resumes. At which point
it would re-weight the Constituent Exchange activity to a weight lower
than its original weighting--for example, to 12%.
     Price-Variance Weighting: Assume that for a one-hour
period, the digital asset's execution prices on one Constituent
Exchange were trading more than 7% higher than the average execution
prices on another Constituent Exchange. The algorithm will
automatically detect the anomaly and reduce that specific Constituent
Exchange's weighting to 0% for that one-hour period, ensuring a
reliable spot reference unaffected by the localized event.
Determination of the Index Price When Index Price Is Unavailable
    In case of the unavailability of the Index Price, the Sponsor will
use the following cascading set of rules to calculate the Index Price.
For the avoidance of doubt, the Sponsor will employ the below rules
sequentially and in the order as presented below, should one or more
specific rule(s) fail:

    1. Index Price = The price set by the Index as of 4:00 p.m.,
E.T., on the valuation date. If the Index becomes unavailable, or if
the Sponsor determines in good faith that the Index does not reflect
an accurate Bitcoin price, then the Sponsor will, on a best efforts
basis, contact the Index Provider to obtain the Index Price directly
from the Index Provider. If after such contact the Index remains
unavailable or the Sponsor continues to believe in good faith that
the Index does not reflect an accurate Bitcoin price, then the
Sponsor will employ the next rule to determine the Index Price.
    2. Index Price = The volume-weighted average Bitcoin price for
the immediately preceding 24-hour period at 4:00 p.m., E.T., on the
trade date as published by a third party's public data feed that is
reasonably reliable, subject to the requirement that such data is
calculated based upon a volume-weighted price obtained from the
major Digital Asset Exchanges (the ``Source''). Subject to the next
sentence, if the Source becomes unavailable (e.g., data sources from
the Source for Bitcoin prices become unavailable, unwieldy or
otherwise impractical for use) or if the Sponsor determines in good
faith that the Source does not reflect an accurate Bitcoin price,
then the Sponsor will, on a best efforts basis, contact the Source
in an attempt to obtain the relevant data. If after such contact the
Source remains unavailable after such contact or the Sponsor
continues to believe in good faith that the Source does not reflect
an accurate Bitcoin price, then the Sponsor will employ the next
rule to determine the Index Price.
    3. Index Price = The volume-weighted average price as calculated
by dividing the sum of the total volume of Bitcoin transactions in
U.S. dollar by the total volume of transactions in Bitcoin, in each
case for the immediately preceding 24-hour period as of 4:00 p.m.,
E.T., on the trade date as published by a third party's public data
feed that is reasonably reliable, subject to the requirement that
such data is calculated based upon a volume-weighted price obtained
from the major Digital Asset Exchanges (the ``Second Source'').
Subject to the next sentence, if the Second Source becomes
unavailable (e.g., data sources from the Second Source become
unavailable, unwieldy or otherwise impractical for use) or if the
Sponsor determines in good faith that the Second Source does not
reflect an accurate Bitcoin price, then the Sponsor will, on a best
efforts basis, contact the Second Source in an attempt to obtain the
relevant data. If after such contact the Second Source remains
unavailable after such contact or the Sponsor continues to believe
in good faith that the Second Source does not reflect an accurate
Bitcoin price, then the Sponsor will employ the next rule to
determine the Index Price.
    4. Index Price = The volume-weighted average price as calculated
by dividing the sum of the total volume of Bitcoin transactions in
U.S. dollar by the total volume of transactions in Bitcoin, in each
case for the immediately preceding 24-hour period as of 4:00 p.m.,
E.T., on the trade date on the Digital Asset benchmark exchanges
that represent at least 25% of the aggregate trading volume of the
Digital Asset Exchange Market during the last 30 consecutive
calendar days and that to the knowledge of the Sponsor are in
substantial compliance with the laws, rules and regulations,
including any anti-money laundering and know-your-customer
procedures (collectively, ``Digital Asset Benchmark Exchanges''). If
there are fewer than three individual Digital Asset Benchmark
Exchanges each of which represent at least 25% of the aggregate
trading volume on the

Digital Asset Exchange Market during the last 30 consecutive
calendar days, then the Digital Asset Benchmark Exchanges that will
serve as the basis for the Index Price calculation will be those
Digital Asset Benchmark Exchanges that meet the above-described
requirements, as well as one or more additional Digital Asset
Exchanges, as selected by the Sponsor, that has had a monthly
trading volume of at least 50,000 Bitcoin during the last 30
consecutive calendar days.
    The Sponsor will review the composition of the exchanges that
comprise the Digital Asset Benchmark Exchanges at the beginning of
each month in order to ensure the accuracy of such composition.
    Subject to the next sentence, if one or more of the Digital
Asset Benchmark Exchanges become unavailable (e.g., data sources
from the Digital Asset Benchmark Exchanges of Bitcoin prices becomes
unavailable, unwieldy or otherwise impractical for use) or if the
Sponsor determines in good faith that one or more Digital Asset
Benchmark Exchanges do not reflect an accurate Bitcoin price, then
the Sponsor will, on a best efforts basis, contact the Digital Asset
Benchmark Exchange that is experiencing the service outages in an
attempt to obtain the relevant data. If after such contact one or
more of the Digital Asset Benchmark Exchanges remain unavailable
after such contact or the Sponsor continues to believe in good faith
that one or more Digital Asset Benchmark Exchanges do not reflect an
accurate Bitcoin price, then the Sponsor will employ the next rule
to determine the Index Price
    5. Index Price = The Sponsor will use its best judgment to
determine a good faith estimate of the Index Price.

    In the event of a fork, the Index Provider may calculate the Index
Price based on a virtual currency that the Sponsor does not believe to
be the appropriate asset that is held by the Trust.\20\ In this event,
the Sponsor has full discretion to use a different index provider or
calculate the Index Price itself using its best judgment.
---------------------------------------------------------------------------

    \20\ According to the Annual Report, when a modification is
introduced and a substantial majority of users and miners consent to
the modification, the change is implemented and the network remains
uninterrupted. However, if less than a substantial majority of users
and miners consent to the proposed modification, and the
modification is not compatible with the software prior to its
modification, the consequence would be what is known as a ``hard
fork'' of the Bitcoin Network, with one group running the pre-
modified software and the other running the modified software. The
effect of such a fork would be the existence of two versions of
Bitcoin running in parallel, yet lacking interchangeability. For
example, in August 2017, Bitcoin ``forked'' into Bitcoin and a new
digital asset, Bitcoin Cash, as a result of a several-year dispute
over how to increase the rate of transactions that the Bitcoin
Network can process. In the event of a hard fork of the Bitcoin
Network, the Sponsor will, if permitted by the terms of the Trust
Agreement, use its discretion to determine, in good faith, which
peer-to-peer network, among a group of incompatible forks of the
Bitcoin Network, is generally accepted as the Bitcoin Network and
should therefore be considered the appropriate network for the
Trust's purposes. The Sponsor will base its determination on a
variety of then relevant factors, including, but not limited to, the
Sponsor's beliefs regarding expectations of the core developers of
Bitcoin, users, services, businesses, miners, and other
constituencies, as well as the actual continued acceptance of,
mining power on, and community engagement with, the Bitcoin Network.
There is no guarantee that the Sponsor will choose the digital asset
that is ultimately the most valuable fork, and the Sponsor's
decision may adversely affect the value of the Shares as a result.
The Sponsor may also disagree with shareholders, security vendors,
and the Index Provider on what is generally accepted as Bitcoin and
should therefore be considered ``Bitcoin'' for the Trust's purposes,
which may also adversely affect the value of the Shares as a result.
---------------------------------------------------------------------------

The Structure and Operation of the Trust Protects Investors and
Satisfies Commission Requirements for Bitcoin-Based Exchange Traded
Products
    The Commission has expressed legitimate concerns about the
underlying Digital Asset Market due to the potential for fraud and
manipulation and has clearly outlined the reasons why prior Bitcoin-
based ETP proposals have been unable to satisfy these concerns in
orders disapproving the proposed listing and trading of the Winklevoss
Bitcoin Trust, Bitwise Bitcoin ETF Trust, United States Bitcoin and
Treasury Investment Trust, and various Bitcoin-based trust issued
receipts.\21\
---------------------------------------------------------------------------

    \21\ See Order Setting Aside Action by Delegated Authority and
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust,
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (the ``Winklevoss
Order''); Order Disapproving a Proposed Rule Change, as Modified by
Amendment No. 1, Relating to the Listing and Trading of Shares of
the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E,
Securities Exchange Act Release No. 87267 (Oct. 9, 2019), 84 FR
55382 (Oct. 16, 2019) (SR-NYSEArca-2019-01) (the ``Bitwise Order'');
Order Disapproving a Proposed Rule Change, as Modified by Amendment
No. 1, to Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) and to List and Trade Shares of the United States Bitcoin
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E,
Securities Exchange Act Release No. 88284 (February 26, 2020), 85 FR
12595 (March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix
Order''); Order Disapproving a Proposed Rule Change to List and
Trade the Shares of the ProShares Bitcoin ETF and the ProShares
Short Bitcoin ETF, Securities Exchange Act Release No. 83904 (Aug.
22, 2018), 83 FR 43934 (Aug. 28, 2018) (SR-NYSEArca-2017-139) (the
``ProShares Order''); Order Disapproving a Proposed Rule Change
Relating to Listing and Trading of the Direxion Daily Bitcoin Bear
1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily
Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E,
Securities Exchange Act Release No. 83912 (Aug. 22, 2018), 83 FR
43912 (Aug. 28, 2018) (SR-NYSEArca-2018-02) (the ``Direxion
Order''); Order Disapproving a Proposed Rule Change to List and
Trade the Shares of the GraniteShares Bitcoin ETF and the
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No.
83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR-CboeBZX-2018-
01) (the ``GraniteShares Order'').
---------------------------------------------------------------------------

    In these disapproval orders, the Commission outlined that a
proposal relating to a Bitcoin-based ETP could satisfy its concerns
regarding potential for fraud and manipulation by demonstrating:

    (1) Inherent Resistance to Fraud and Manipulation: that the
underlying commodity market is inherently resistant to fraud and
manipulation;
    (2) Other Means to Prevent Fraud and Manipulation: that there
are other means to prevent fraudulent and manipulative acts and
practices that are sufficient; or
    (3) Surveillance Sharing: that the listing exchange has entered
into a surveillance sharing agreement with a regulated market of
significant size relating to the underlying or reference assets.

    As described below, the Sponsor believes the structure and
operation of the Trust are designed to prevent fraudulent and
manipulative acts and practices, to protect investors and the public
interest, and to respond to the specific concerns that the Commission
has identified with respect to potential fraud and manipulation in the
context of a Bitcoin-based ETP.
How the Trust Meets Standards in the Winklevoss Order, Bitwise Order
and Wilshire Phoenix Order
1. Resistance to or Prevention of Fraud and Manipulation
    In the Bitwise Order, the Commission disagreed with the proposition
that Bitcoin's fungibility, transportability and exchange tradability
combine to provide unique protections against, and allow Bitcoin to be
uniquely resistant to, attempts at price manipulation. The Commission
reached its conclusion based on concessions by Bitwise that 95% of the
reported trading in Bitcoin is ``fake'' or non-economic, effectively
admitting that the properties of Bitcoin do not make it inherently
resistant to manipulation. Bitwise's concessions were further
compounded by evidence of potential and actual fraud and manipulation
in the historical trading of Bitcoin on certain marketplaces such as
(1) ``wash'' trading, (2) trading based on material, non-public
information, including the dissemination of false and misleading
information, (3) manipulative activity involving Tether, and (4) fraud
and manipulation.\22\
---------------------------------------------------------------------------

    \22\ See Bitwise Order, 84 FR 55383 (discussing analysis of the
Bitcoin spot market that asserts that 95% of the spot market is
dominated by fake and non-economic activity, such as wash trades),
55391 (discussing possible sources of fraud and manipulation in the
bitcoin spot market). See also Winklevoss Order, 83 FR 37585-86
(discussing pending litigation against a Bitcoin trading platform
for fraudulent conduct relating to Tether); Bitwise Order, 84 FR
55391 n.140, 55402 & n.331 (same); Winklevoss Order, 83 FR 37584-86
(discussing potential types of manipulation in the Bitcoin spot
market). The Commission has also noted that fraud and manipulation
in the Bitcoin spot market could persist for a significant duration.
See, e.g., Bitwise Order, 84 FR 55405 & n.379.

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

    The Sponsor acknowledges the possibility that fraud and
manipulation may exist and that Bitcoin trading on any given exchange
may be no more uniquely resistant to fraud and manipulation than other
commodity markets.\23\ However, the Sponsor believes that the
fundamental features of Bitcoin's fungibility, transportability and
exchange tradability offer novel protections beyond those that exist in
traditional commodity markets or equity markets when combined with
other means, as discussed further below.
---------------------------------------------------------------------------

    \23\ See generally Bitwise Order.
---------------------------------------------------------------------------

2. Other Means To Prevent Fraud and Manipulation
    The Commission has recognized that a listing exchange could
demonstrate that other means to prevent fraudulent and manipulative
acts and practices are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\24\ In evaluating the
effectiveness of this type of resistance, the Commission does not apply
a ``cannot be manipulated'' standard. Instead, the Commission requires
that such resistance to fraud and manipulation be novel and beyond
those protections that exist in traditional commodity markets or equity
markets for which the Commission has long required surveillance-sharing
agreements in the context of listing derivative securities
products.\25\
---------------------------------------------------------------------------

    \24\ See Winklevoss Order, 84 FR 37580, 37582-91; Bitwise Order,
84 FR 55383, 55385-406; Wilshire Phoenix Order, 85 FR 12597.
    \25\ See Winklevoss Order, 84 FR 37582; Wilshire Phoenix Order,
85 FR 12597.
---------------------------------------------------------------------------

    The Sponsor believes the Index represents a novel means to prevent
fraud and manipulation from impacting a reference price for Bitcoin and
that it offers protections beyond those that exist in traditional
commodity markets or equity markets. Specifically, Bitcoin is novel and
exists outside traditional commodity markets. It therefore stands to
reason that the methods in which it trades will be novel and that the
market for Bitcoin will have different attributes than traditional
commodity markets. Bitcoin was only introduced within the past decade,
twenty years after the first U.S. ETFs were offered \26\ and 150 years
after the first futures were offered.\27\ In contrast to older
commodities such as gold, silver, platinum, palladium or copper, which
the Commission has noted all had at least one significant, regulated
market for trading futures on the underlying commodity at the time
commodity trust ETPs were approved for listing and trading, the first
trading in Bitcoin took place entirely in an open, transparent and
online setting where other commodities cannot trade.
---------------------------------------------------------------------------

    \26\ SEC, ``Investor Bulletin: Exchange-Traded Funds (ETFs),''
August 2012, https://www.sec.gov/investor/alerts/etfs.pdf.
    \27\ CFTC, ``History of the CFTC,'' https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html.
---------------------------------------------------------------------------

    The Trust has priced its Shares consistently for more than six
years based on the Index. The Sponsor believes the Trust's use of the
Index specifically addresses the Commission's concerns in that the
Index serves as an alternative means to prevent fraud and manipulation.
Specifically, the Index can (i) mitigate the effects of fraud,
manipulation and other anomalous trading activity on the Bitcoin
reference rate, (ii) provide a real-time, volume-weighted fair value of
Bitcoin and (iii) appropriately handle and adjust for non-market
related events.
    As described in more detail below, the Sponsor believes that the
Index accomplishes those objectives in the following ways:

    1. The Index tracks the Digital Asset Exchange Market Price
through trading activity at ``U.S.-Compliant Exchanges''; \28\
---------------------------------------------------------------------------

    \28\ ``U.S.-Compliant Exchanges'' are exchanges in the Digital
Asset Exchange Market that are compliant with applicable U.S.
federal and state licensing requirements and practices regarding AML
and KYC regulations. All Constituent Exchanges are U.S.-Compliant
Exchanges.
    ``Non-U.S.-Compliant Exchanges'' are all other exchanges in the
Digital Asset Exchange Market.
    As of June 30, 2021, the U.S.-Compliant Exchanges that the Index
Provider considered for inclusion in the Index were Bitstamp,
Coinbase Pro, Kraken and LMAX Digital.
    From these U.S.-Compliant Exchanges, the Index Provider then
applies additional Inclusion Criteria to determine the Constituent
Exchange. As of June 30, 2021, the Constituent Exchanges were
Bitstamp, Coinbase Pro, Kraken, and LMAX Digital.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity in real-time
through systematic adjustments;
    3. The Index is constructed and maintained by an expert third-
party index provider, allowing for prudent handling of non-market-
related events;
    4. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity concentrated on
any one specific exchange through a cross-exchange composite index
rate; and
    5. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity occurring on
multiple exchanges by using a 24-hour window to weight the activity
at each exchange through a 24-hour Volume Weighted Average Price
(``VWAP'').

    1. The Index tracks the Digital Asset Exchange Market Price through
trading activity at ``U.S.-Compliant Exchanges''.
    To reduce the risk of fraud, manipulation, and other anomalous
trading activity from impacting the Index, only U.S.-Compliant
Exchanges are eligible to be included in the Index.
    The Index maintains a minimum number of three exchanges and a
maximum number of five exchanges to track the Digital Asset Exchange
Market while offering replicability for traders and market makers.\29\
---------------------------------------------------------------------------

    \29\ According to the Sponsor, the more exchanges included in
the Index, the more ability there is for traders and market makers
to trade against the Index by arbitraging price differences. For
example, in the event of variances between Bitcoin prices on
Constituent Exchanges and non-Constituent Exchanges, arbitrage
trading opportunities would exist. These discrepancies generally
consolidate over time, as price differences across exchanges are
realized and capitalized upon by traders and market makers.
---------------------------------------------------------------------------

    U.S.-Compliant Exchanges possess safeguards that protect against
fraud and manipulation. For example, U.S.-Compliant Exchanges regulated
by the New York State Department of Financial Services (``NYDFS'')
under the BitLicense program have regulatory requirements to implement
measures designed to effectively detect, prevent, and respond to fraud,
attempted fraud, market manipulation, and similar wrongdoing, and to
monitor, control, investigate and report back to the NYDFS regarding
any wrongdoing.\30\ These exchanges also have the following
obligations: \31\
---------------------------------------------------------------------------

    \30\ See, e.g., ``DFS Takes Action to Deter Fraud and
Manipulation in Virtual Currency Markets,'' available at https://www.dfs.ny.gov/about/press/pr1802071.htm.
    \31\ See ``New York's Final ``BitLicense'' Rule: Overview and
Changes from July 2014 Proposal,'' June 5, 2015, Davis Polk,
available at https://www.davispolk.com/files/new_yorks_final_bitlicense_rule_overview_changes_july_2014_proposal.pdf.
---------------------------------------------------------------------------

     Submission of audited financial statements including
income statements, statement of assets/liabilities, insurance, and
banking;
     Compliance with capitalization requirements set at NYDFS's
discretion;
     Prohibitions against the sale or encumbrance to protect
full reserves of custodian assets;
     Fingerprints and photographs of employees with access to
customer funds;
     Retention of a qualified Chief Information Security
Officer and annual penetration testing/audits;
     Documented business continuity and disaster recovery plan,
independently tested annually; and

     Participation in an independent exam by NYDFS.
    Other U.S.-Compliant Exchanges have voluntarily implemented
measures to protect against common forms of market manipulation.\32\
---------------------------------------------------------------------------

    \32\ As of the date of filing, two of the four Constituent
Exchanges, Bitstamp and Coinbase Pro, are regulated by NYDFS.
---------------------------------------------------------------------------

    Furthermore, all U.S.-Compliant Exchanges are considered Money
Services Businesses (``MSBs'') that are subject to federal and state
reporting requirements of the U.S Department of Treasury's FinCEN
division that provide additional safeguards. For example, unscrupulous
traders may be less likely to engage in fraudulent or manipulative acts
and practices on exchanges that (1) report suspicious activity to
FinCEN as money services businesses, (2) report to state regulators as
money transmitters, and/or (3) require customer identification through
KYC procedures. U.S.-Compliant Exchanges are required to: \33\
---------------------------------------------------------------------------

    \33\ See BSA Requirements for MSBs, FinCEN website: https://www.fincen.gov/bsarequirements-msbs.
---------------------------------------------------------------------------

     Identify people with ownership stakes or controlling roles
in the MSB;
     Establish a formal Anti-Money Laundering (AML) policy in
place with documentation, training, independent review, and a named
compliance officer;
     Implement strict customer identification and verification
policies and procedures;
     File Suspicious Activity Reports (SARs) for suspicious
customer transactions;
     File Currency Transaction Reports (CTRs) for cash-in or
cash-out transactions greater than $10,000; and
     Maintain a five-year record of currency exchanges greater
than $1,000 and money transfers greater than $3,000.
    Lastly, because of Bitcoin's classification as a commodity, the
CFTC has authority to police fraud and manipulation on U.S.-Compliant
Exchanges.
    The Sponsor acknowledges that there are substantial differences
between FinCEN and New York state regulations and the Commission's
regulation of the national securities exchanges.\34\ The Sponsor does
not believe the inclusion of U.S.-Compliant Exchanges is in and of
itself sufficient to prove that the Index is an alternative means to
prevent fraud and manipulation such that surveillance sharing
agreements are not required, but does believe that the inclusion of
only U.S.-Compliant Exchanges in the Index is one significant way in
which the Index is protected from the potential impacts of fraud and
manipulation.
---------------------------------------------------------------------------

    \34\ See Bitwise Order, 84 FR 55392; Wilshire Phoenix Order, 85
FR 12603.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity in real-time through
systematic adjustments.
    The Index is calculated once every second according to a systematic
methodology that relies on observed trading activity on the Constituent
Exchanges. While the precise methodology underlying the Index is
currently proprietary, the key elements of the Index are outlined
below:
     Volume Weighting: Constituent Exchanges with greater
liquidity receive a higher weighting in the Index, increasing the
ability to execute against (i.e., replicate) the Index in the
underlying spot markets.
     Price-Variance Weighting: The Index reflects data points
that are discretely weighted in proportion to their variance from the
rest of the Constituent Exchanges. As the price at a Constituent
Exchange diverges from the prices at the rest of the Constituent
Exchanges, its weight in the Index consequently decreases.
     Inactivity Adjustment: The Index algorithm penalizes stale
activity from any given Constituent Exchange. When a Constituent
Exchange does not have recent trading data, its weighting in the Index
is gradually reduced, until it is de-weighted entirely. Similarly, once
trading activity at the Constituent Exchange resumes, the corresponding
weighting for that Constituent Exchange is gradually increased until it
reaches the appropriate level.
     Manipulation Resistance: In order to mitigate the effects
of wash trading and order book spoofing, the Index only includes
executed trades in its calculation. Additionally, the Index only
includes Constituent Exchanges that charge trading fees to its users in
order to attach a real, quantifiable cost to any manipulation attempts.
    The Index Provider reviews and periodically updates the exchanges
included in the Index by utilizing a methodology that is guided by the
IOSCO principles for financial benchmarks.
    3. The Index is constructed and maintained by an expert third-party
index provider, allowing for prudent handling of non-market-related
events.
    The Index Provider reviews and periodically updates which exchanges
are included in the Index by utilizing a methodology that is guided by
the IOSCO principles for financial benchmarks.
    For an exchange to become a Constituent Exchange, it must satisfy
the following Inclusion Criteria:
     Compliance with any applicable U.S. federal and state
licensing requirements and practices regarding AML and KYC regulations
(i.e., the Constituent Exchange must be a U.S.-Compliant Exchange);
     Publicly known ownership entity;
     No restrictions on deposits and/or withdrawals of Bitcoin;
     No restrictions on deposits and/or withdrawals of USD;
     Reliably publish trade prices and volumes on a real-time
basis through APIs;
     Charges trading fees to its users in order to attach a
real, quantifiable cost to any manipulation attempts;
     Offer programmatic trading of the Bitcoin/USD spot price;
     Liquid market in the Bitcoin/USD pair;
     Trading volume that represents a minimum of total Bitcoin/
USD trading volumes (5% for U.S. exchanges and 10% non-U.S. exchanges);
and
     Discretion of the Index Provider's analysts.
    Although the Index methodology is designed to operate without any
human interference, rare events would justify manual intervention.
Manual intervention would only be in response to ``non-market-related
events'' (e.g., halting of deposits or withdrawals of funds,
unannounced closure of exchange operations, insolvency, compromise of
user funds, etc.). In the event that such an intervention is necessary,
the Index Provider would issue a public announcement through its
website, API and other established communication channels with its
clients.\35\
---------------------------------------------------------------------------

    \35\ To the extent any such intervention has a material impact
on the Trust, the Sponsor will also issue a public announcement.
---------------------------------------------------------------------------

    4. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity concentrated on any
one specific exchange through a cross-exchange composite index rate.
    The Index is based on the price and volume data of multiple U.S.-
Compliant Exchanges that satisfy the Index Provider's Inclusion
Criteria. By referencing multiple trading venues and weighting them
based on trade activity, the impact of any potential fraud,
manipulation, or anomalous trading activity occurring on any single
venue is reduced. Specifically, the effects of fraud, manipulation, or
anomalous trading activity occurring on any single venue are de-
weighted and consequently diluted by non-anomalous trading activity
from other Constituent Exchanges.

    Although the Index is designed to accurately capture the market
price of Bitcoin, third parties may be able to purchase and sell
Bitcoin on public or private markets included or not included among the
Constituent Exchanges, and such transactions may take place at prices
materially higher or lower than the Index Price. For example, based on
data provided by the Index Provider, on any given day during the six
months ended June 30, 2021, the maximum differential between the 4:00
p.m., New York time spot price of any single Digital Asset Exchange
included in the Index and the Index Price was 8.50% and the average of
the maximum differentials of the 4:00 p.m., New York time spot price of
each Digital Asset Exchange included in the Index and the Index Price
was 8.47%. During this same period, the average differential between
the 4:00 p.m., New York time spot prices of all the Digital Asset
Exchanges included in the Index and the Index Price was 0.27%.\36\
---------------------------------------------------------------------------

    \36\ The timeframe chosen reflects the longest continuous period
during which the Digital Asset Exchanges that are currently included
in the Index have been constituents. All Digital Asset Exchanges
that were included in the Index throughout the period were
considered in this analysis.
---------------------------------------------------------------------------

    5. The Index mitigates the impact of instances of fraud,
manipulation and other anomalous trading activity occurring on multiple
exchanges by using a 24-hour window to weight the activity at each
exchange through a 24-hour VWAP.
    In addition to the methodological enhancements offered by the
Index, the Index Price represents a weighted average of the mean
Bitcoin/USD price of all its Constituent Exchanges, calculated on a
second per second basis, using observed trading activity on the
Constituent Exchanges over the preceding 24-hour period.
    The Sponsor believes that applying a 24-hour VWAP to the Index
ensures that any fraudulent, manipulative or anomalous trading activity
across the multiple Constituent Exchanges would have a negligible
impact on the Index Price unless sustained for an extended period of
time, and such a manipulation attempt would be prohibitively expensive
to sustain over 24-hour period.
    The effectiveness of a 24-hour VWAP as a ``smoothing'' mechanism to
mitigate the impact of instances of fraud, manipulation or anomalous
trading activity on the price of an asset can be measured as
``Volatility Reduction'' or ``Improvement.'' The Sponsor represents
that the Index Price experienced 12.1% lower annualized volatility
(i.e., a 16.5% improvement) as compared to the Global Digital Asset
Market Price.
    Since November 1, 2014, the Trust has consistently priced its
Shares at 4:00 p.m., E.T. based on the Index Price. While that pricing
would be known to the market, the Sponsor believes that, even if
efforts to manipulate the price of Bitcoin at 4:00 p.m., E.T. were
successful on any exchange, such activity would have had a negligible
effect on the pricing of the Trust, due to the controls embedded in the
structure of the Index.
    Accordingly, the Sponsor believes that the Index has proven its
ability to (i) mitigate the effects of fraud, manipulation and other
anomalous trading activity on the Bitcoin reference rate, (ii) provide
a real-time, volume-weighted fair value of Bitcoin and (iii)
appropriately handle and adjust for non-market related events. For
these reasons, the Sponsor believes that the Index represents an
effective alternative means to prevent fraud and manipulation and the
Trust's reliance on the Index addresses the Commission's concerns with
respect to potential fraud and manipulation.
3. A Significant, Regulated and Surveilled Market Exists and Is Closely
Connected With Spot Market for Bitcoin
    In the Winklevoss Order, Bitwise Order and Wilshire Phoenix Order,
the Commission described both the need for and the definition of a
surveilled market of significant size for commodity-trust ETPs like the
Trust to date.\37\ Specifically, the Commission explained that:
---------------------------------------------------------------------------

    \37\ See Winklevoss Order, 83 FR 37593-94; Bitwise Order, 84 FR
55383, 55410; Wilshire Phoenix Order, 85 FR 12609.

for the commodity-trust ETPs approved to date for listing and
trading, there has been in every case at least one significant,
regulated market for trading futures on the underlying commodity--
whether gold, silver, platinum, palladium, or copper--and the ETP
listing exchange has entered into surveillance-sharing agreements
with, or held Intermarket Surveillance Group membership in common
with, that market.\38\
---------------------------------------------------------------------------

    \38\ See Winklevoss Order, 83 FR 37594.

    Further, the Commission stated that its interpretation of the term
``market of significant size'' depends on the interrelationship between
the market with which the listing exchange has a surveillance-sharing
agreement and the proposed ETP.\39\ Accordingly, the terms
``significant market'' and ``market of significant size'' could mean:
---------------------------------------------------------------------------

    \39\ See Winklevoss Order, 83 FR 37594; Bitwise Order, 84 FR
55410; ProShares Order, 83 FR 43936; GraniteShares Order, 83 FR
43925; Direxion Order, 83 FR 43914; Wilshire Phoenix Order, 85 FR
12609.

a market (or group of markets) as to which (a) there is a reasonable
likelihood that a person attempting to manipulate the ETP would also
have to trade on that market to successfully manipulate the ETP, so
that a surveillance-sharing agreement would assist in detecting and
deterring misconduct, and (b) it is unlikely that trading in the ETP
would be the predominant influence on prices in that market.\40\
---------------------------------------------------------------------------

    \40\ See Winklevoss Order, 83 FR 37594. This definition is
illustrative and not exclusive. There could be other types of
``significant markets'' and ``markets of significant size,'' but
this definition is an example that will provide guidance to market
participants.

    In the context of Bitcoin-based ETPs specifically, the Commission
has stated that establishing a lead-lag relationship between the
Bitcoin futures market and the spot market is central to understanding
whether it is reasonably likely that a would-be manipulator of the ETP
would need to trade on the Bitcoin futures market to successfully
manipulate prices on those spot platforms that feed into the proposed
ETP's pricing mechanism such that a surveillance-sharing agreement
would assist the ETP listing market in detecting and deterring
misconduct.\41\ In particular, if the spot market leads the futures
market, this would indicate that it would not be necessary to trade on
the futures market to manipulate the proposed ETP, even if arbitrage
worked efficiently, because the futures price would move to meet the
spot price.
---------------------------------------------------------------------------

    \41\ See Bitwise Order, 84 FR 55411; Wilshire Phoenix Order, 85
FR 12612.
---------------------------------------------------------------------------

    The Sponsor has conducted a lead/lag analysis of per minute data
comparing the Bitcoin futures market, as represented by the CME futures
market, to the Bitcoin spot market, as represented by the Index. Based
on this analysis, the Sponsor has concluded that there does not appear
to be a significant lead/lag relationship between the two instruments
for the period of November 1, 2019 to August 31, 2021.
    Although there is no significant lead/lag relationship, the Sponsor
believes that the CME futures market represents a large, surveilled and
regulated market. For example, from November 1, 2019 to August 31,
2021, the CME futures market trading volume was over $432 billion,
compared to $624 billion in trading volume across the Constituent
Exchanges included in the Index. With over 69% of the Index trading
volume, the CME futures market represents significant coverage of U.S.-
Compliant Exchanges in the Bitcoin market. In addition, the CME futures
market

trading volume from November 1, 2019 to August 31, 2021 was
approximately 50% of the trading volume of the U.S. dollar-denominated
Bitcoin spot markets referenced in the Bitwise Order.\42\
---------------------------------------------------------------------------

    \42\ These Bitcoin spot markets include Binance, Coinbase Pro,
Bitfinex, Kraken, Bitstamp, BitFlyer, Poloniex, Bittrex and itBit.
---------------------------------------------------------------------------

    Given the significant size of the CME futures markets, the Sponsor
believes there is a reasonable likelihood that a person attempting to
manipulate the ETP would also have to trade on that market to
successfully manipulate the ETP, since arbitrage between the derivative
and spot markets would tend to counter an attempt to manipulate the
spot market alone. As a result, the Exchange's ability to obtain
information regarding trading in the Shares and futures from markets
and other entities that are members of the Intermarket Trading Group
(``ISG''), including the CME, would assist the Exchange in detecting
and deterring misconduct.
    The Sponsor also believes it is unlikely that the ETP would become
the predominant influence on prices in the market.
    While future inflows to the proposed Trust cannot be predicted, to
provide comparable data, the Sponsor examined the change in market
capitalization of Bitcoin with net inflows into the Trust, which
currently trades on OTC Markets and is largest and most liquid Bitcoin
investment product in the world.\43\ From November 1, 2019 to August
31, 2021, the market capitalization of Bitcoin grew from $166 billion
to $888 billion, a $721 billion increase. Over the same period, the
Trust experienced $6.6 billion of inflows. The cumulative inflow into
the Trust over the stated time period was only 0.9% of the aggregate
growth of Bitcoin's market capitalization.
---------------------------------------------------------------------------

    \43\ To further illustrate the size and liquidity of the Trust,
as of October 31, 2020, compared with global commodity ETPs, the
Trust would rank fourth in assets under management and seventh in
notional trading volume from November 1, 2019 to October 31, 2020.
---------------------------------------------------------------------------

    Additionally, the Trust experienced approximately $98.5 billion of
trading volume from November 1, 2019 to August 31, 2021, only 23% of
the CME futures market and 16% of the Index over the same period.
* * * * *
    In summary, the Sponsor believes that the foregoing responds to the
Commission's articulated concerns with respect to potential fraud and
manipulation in Bitcoin-based ETPs. Specifically, the Sponsor believes
that, although Bitcoin is not itself inherently resistant to fraud and
manipulation, the Index represents an effective means to prevent
fraudulent and manipulative acts and practices. As discussed above, the
Trust has used the Index to price the Shares for more than six years,
and the Index has proven its ability to (i) mitigate the effects of
fraud, manipulation and other anomalous trading activity on the Bitcoin
reference rate, (ii) provide a real-time, volume-weighted fair value of
bitcoin and (iii) appropriately handle and adjusts for non-market
related events. The Sponsor also believes that the CME futures market
is a significant, surveilled and regulated market that is closely
connected with the spot market for Bitcoin and may fulfill the
requirements for surveillance sharing given the Exchange's ability to
obtain information from markets and other entities that are members of
the ISG to assist in detecting and deterring misconduct.
The Chair's Remarks Regarding Bitcoin-Based ETP Proposals Registered
Under the Investment Company Act of 1940
    In an August 3, 2021 speech at the Aspen Security Forum, the Chair
stated that he looked forward to the Commission's review of Bitcoin-
based ETP proposals registered under the Investment Company Act of 1940
(the `` '40 Act''), ``particularly if those are limited to [the] CME-
traded Bitcoin futures,'' noting the ``significant investor
protection'' offered by the '40 Act.\44\ In this same speech, the Chair
specifically identified the Trust in the context of existing investment
vehicles that provide exposure to Bitcoin, noting that the Trust, which
is a Bitcoin-based ETP proposal that would be registered under the
Securities Act of 1933 (the `` '33 Act''), rather than the '40 Act, is
``the largest among them having been around for eight years and worth
more than $20 billion.'' \45\
---------------------------------------------------------------------------

    \44\ Chair Gary Gensler Public Statement, ``Remarks Before the
Aspen Security Forum,'' (Aug. 3, 2021), https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03.
    \45\ Id.
---------------------------------------------------------------------------

    As described above, the Commission has outlined the reasons why
prior Bitcoin-based ETP proposals registered under both the '40 Act and
'33 Act have been unable to satisfy its concerns about pricing in the
underlying Digital Asset Market due to the potential for fraud and
manipulation and described how such concerns could be addressed. It has
been the Sponsor's understanding that none of the stated requirements
have indicated a preference for Bitcoin-based ETP proposals registered
under the '40 Act versus the '33 Act. Nor does the Sponsor believe that
such requirements can be addressed by gaining exposure to Bitcoin
through Bitcoin futures in an ETP registered under the '40 Act rather
than physical Bitcoin in an ETP registered under the '33 Act because
both products would be reliant on Bitcoin's underlying price in the
spot markets.
    For instance, Bitcoin-based ETP proposals registered under the '40
Act that hold Bitcoin futures would be priced by referencing the CME CF
Bitcoin Reference Rate (``BRR''), which itself references the Digital
Asset Markets: Bitstamp, Coinbase, Gemini, itBit, and Kraken.
Similarly, Bitcoin-based ETPs that would be registered under the '33
Act, like the Trust, would be priced by referencing Digital Asset
Markets included in the BRR, such as through the Index. As a result,
the Sponsor believes that any potential fraud or manipulation in the
underlying Digital Asset Market would impact both types of ETP
proposals.
    The Sponsor believes that if it is the case that the Commission is
open to reviewing and potentially approving proposals for Bitcoin-based
ETPs registered under the '40 Act, then it should take a similar view
towards proposals for Bitcoin-based ETPs registered under the '33 Act,
given that both products would be reliant on Bitcoin's underlying price
in the spot markets. Alternatively, if this is not the case, the
Sponsor nonetheless believes that the foregoing responds to the
Commission's articulated concerns with respect to potential fraud and
manipulation in Bitcoin-based ETPs.
Creation of Shares
    According to the Annual Report, the Trust will issue Shares to
Authorized Participants from time to time, but only in one or more
Baskets (with a Basket being a block of 100 Shares). The Trust will not
issue fractions of a Basket. The creation of Baskets will be made only
in exchange for the delivery to the Trust, or the distribution by the
Trust, of the number of whole and fractional Bitcoins represented by
each Basket being created, which is determined by dividing (x) the
number of Bitcoins owned by the Trust at 4:00 p.m., E.T., on the trade
date of a creation order, after deducting the number of Bitcoins
representing the U.S. dollar value of accrued but unpaid fees and
expenses of the Trust (converted using the Index Price at such time,
and carried to the eighth decimal place), by (y) the number of Shares
outstanding at such time (with the quotient so obtained calculated to
one one-hundred-millionth of one Bitcoin (i.e., carried to the eighth
decimal place)), and multiplying such quotient by 100 (the ``Basket
Amount'').

All questions as to the calculation of the Basket Amount will be
conclusively determined by the Sponsor and will be final and binding on
all persons interested in the Trust. The Basket Amount multiplied by
the number of Baskets being created is the ``Total Basket Amount.'' The
number of Bitcoins represented by a Share will gradually decrease over
time as the Trust's Bitcoins are used to pay the Trust's expenses. As
of June 30, 2021, each Share represented approximately 0.0009 of one
Bitcoin.
    Authorized Participants are the only persons that may place orders
to create Baskets. Each Authorized Participant must (i) be a registered
broker-dealer, (ii) enter into a Participant Agreement with the Sponsor
and (iii) own a Bitcoin wallet address that is recognized by the
Custodian as belonging to the Bitcoin wallet address that is known to
the Custodian as belonging to the Authorized Participant. An Authorized
Participant may act for its own account or as agent for broker-dealers,
custodians and other securities market participants that wish to create
or redeem Baskets. Shareholders who are not Authorized Participants
will only be able to redeem their Shares through an Authorized
Participant
    The creation of Baskets requires the delivery to the Trust of the
Total Basket Amount.
    The Participant Agreement provides the procedures for the creation
of Baskets and for the delivery of the whole and fractional Bitcoins
required for such creations. The Participant Agreement and the related
procedures attached thereto may be amended by the Sponsor and the
relevant Authorized Participant. Under the Participant Agreement, the
Sponsor has agreed to indemnify each Authorized Participant against
certain liabilities, including liabilities under the Securities Act.
    Authorized Participants do not pay a transaction fee to the Trust
in connection with the creation of Baskets, but there may be
transaction fees associated with the validation of the transfer of
Bitcoins by the Bitcoin Network. Authorized Participants who deposit
Bitcoins with the Trust in exchange for Baskets will receive no fees,
commissions or other form of compensation or inducement of any kind
from either the Sponsor or the Trust, and no such person has any
obligation or responsibility to the Sponsor or the Trust to effect any
sale or resale of Shares.
Creation Procedures
    On any business day, an Authorized Participant may order one or
more creation Baskets from the Trust by placing a creation order with
the Sponsor no later than 4:00 p.m., New York time, which the Sponsor
will accept or reject. By placing a creation order, an Authorized
Participant agrees to transfer the Total Basket Amount from the Bitcoin
wallet address that is known to the Custodian as belonging to the
Authorized Participant to the Digital Asset Account.
    All creation orders are accepted (or rejected) by the Sponsor on
the business day on which the relevant creation order is placed. If a
creation order is accepted, the Sponsor will calculate the Total Basket
Amount on the same business day, which will be the trade date, and will
communicate the Total Basket Amount to the Authorized Participant. The
Authorized Participant must transfer the Total Basket Amount to the
Trust no later than 6:00 p.m., E.T., on the trade date. The expense and
risk of delivery, ownership and safekeeping of Bitcoins will be borne
solely by the Authorized Participant until such Bitcoin have been
received by the Trust.
    Following receipt of the Total Basket Amount by the Custodian, the
Trust's transfer agent (``Transfer Agent'') will credit the number of
Shares to the account of the Investor on behalf of which the Authorized
Participant placed the creation order by no later than 6:00 p.m., E.T.,
on the trade date.
Redemption of Shares
    The Trust may redeem Shares from time to time but only in Baskets.
A Basket equals a block of 100 Shares. The number of outstanding Shares
is expected to decrease from time to time as a result of the redemption
of Baskets. The redemption of Baskets requires the distribution by the
Trust of the number of Bitcoins represented by the Baskets being
redeemed. The redemption of a Basket will be made only in exchange for
the distribution by the Trust of the number of whole and fractional
Bitcoins represented by each Basket being redeemed, the number of which
is determined by dividing (x) the number of Bitcoins owned by the Trust
at 4:00 p.m., New York time, on the relevant trade date of a redemption
order, after deducting the number of Bitcoins representing the U.S.
dollar value of accrued but unpaid fees and expenses of the Trust
(converted using the Index Price at such time, and carried to the
eighth decimal place) by (y) the number of Shares outstanding at such
time (with the quotient so obtained calculated to one one-hundred-
millionth of one Bitcoin (i.e., carried to the eighth decimal place)),
and multiplying such quotient by 100.
    Authorized Participants are the only persons that may place orders
to redeem Baskets. Shareholders who are not Authorized Participants
will be able to redeem their Shares only through an Authorized
Participant.
    Each Participant Agreement provides the procedures for the
redemption of Baskets and for the delivery of the whole and fractional
Bitcoins required for such redemption. The Participant Agreement and
the related procedures attached thereto may be amended by the Sponsor
and the relevant Authorized Participant.
    Authorized Participants do not pay a transaction fee to the Trust
in connection with the redemption of Baskets, but there may be
transaction fees associated with the validation of the transfer of
Bitcoins by the Bitcoin Network.
Redemption Procedures
    On any business day, an Authorized Participant may place a
redemption order no later than 4:00 p.m., New York time, which the
Sponsor will accept or reject. By placing a redemption order, an
Authorized Participant agrees to deliver to the Sponsor the Baskets to
be redeemed through the book-entry system to the Trust. The redemption
procedures do not allow a shareholder other than an Authorized
Participant to redeem Shares. All redemption orders are accepted (or
rejected) by the Sponsor on the business day on which the relevant
redemption order is placed. If a redemption order is accepted, the
Sponsor will calculate the Total Basket Amount on the same business
day, which will be the trade date, and will communicate the Total
Basket Amount to the Authorized Participant. The Sponsor will then
direct the Transfer Agent to debit the account of the Authorized
Participant the number of Baskets ordered no later than 6:00 p.m., New
York time, on the trade date.
    Following receipt of confirmation by the Transfer Agent that the
Baskets have been debited, the Sponsor or its delegates will instruct
the Custodian to send the Authorized Participant the Total Basket
Amount by no later than 6:00 p.m., New York time, on the trade date.
    The redemption of Shares may be suspended generally, or refused
with respect to particular requested redemptions, during any period
when the transfer books of the Transfer Agent are closed or if
circumstances outside the control of the Sponsor or its delegates make
it for all practical purposes not feasible to process such redemption
orders. The Sponsor may reject an order or, after accepting an

order, may cancel such order by rejecting the Baskets to be redeemed if
(i) such order is not presented in proper form as described in the
Participant Agreement or (ii) the fulfillment of the order, in the
opinion of counsel, might be unlawful, among other reasons. None of the
Sponsor or its delegates will be liable for the suspension, rejection
or acceptance of any redemption order. In particular, upon the Trust's
receipt of any Incidental Rights and/or IR Virtual Currency in
connection with a fork, airdrop or similar event, the Sponsor may
suspend redemptions until it is able to cause the Trust to sell or
distribute such Incidental Rights and/or IR Virtual Currency.
Availability of Information
    The Trust's website (https://grayscale.com/products/grayscale-bitcoin-trust/) will include quantitative information on a per Share
basis updated on a daily basis, including, (i) the current Digital
Asset Holdings per Share daily and the prior business day's Digital
Asset Holdings and the reported closing price; (ii) the mid-point of
the bid-ask price \46\ in relation to the Digital Asset Holdings as of
the time the Digital Asset Holdings is calculated (``Bid-Ask Price'')
and a calculation of the premium or discount of such price against such
Digital Asset Holdings; and (iii) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid-Ask
Price against the Digital Asset Holdings, within appropriate ranges,
for each of the four previous calendar quarters (or for the life of the
Trust, if shorter). In addition, on each business day the Trust's
website will provide pricing information for the Shares.
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    \46\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day Digital Asset Holdings.
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    The Trust's website, as well as one or more major market data
vendors, will provide an intra-day indicative value (``IIV'') per Share
updated every 15 seconds, as calculated by the Exchange or a third
party financial data provider during the Exchange's Core Trading
Session (9:30 a.m. to 4:00 p.m., E.T.).\47\ The IIV will be calculated
using the same methodology as the Digital Asset Holdings of the Trust
(as described above), specifically by using the prior day's closing
Digital Asset Holdings per Share as a base and updating that value
during the NYSE Arca Core Trading Session to reflect changes in the
value of the Trust's Digital Asset Holdings during the trading day.
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    \47\ The IIV on a per Share basis disseminated during the Core
Trading Session should not be viewed as a real-time update of the
Digital Asset Holdings, which is calculated once a day.
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    The IIV disseminated during the NYSE Arca Core Trading Session
should not be viewed as an actual real-time update of the Digital Asset
Holdings, which will be calculated only once at the end of each trading
day. The IIV will be widely disseminated on a per Share basis every 15
seconds during the NYSE Arca Core Trading Session by one or more major
market data vendors. In addition, the IIV will be available through on-
line information services.
    The Digital Asset Holdings for the Trust will be calculated by the
Sponsor once a day and will be disseminated daily to all market
participants at the same time. To the extent that the Sponsor has
utilized the cascading set of rules described in ``Index Price'' above,
the Trust's website will note the valuation methodology used and the
price per Bitcoin resulting from such calculation. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA'').
    Quotation and last sale information for Bitcoin will be widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters. In addition, the complete real-time price (and
volume) data for Bitcoin is available by subscription from Reuters and
Bloomberg. The spot price of Bitcoin is available on a 24-hour basis
from major market data vendors, including Bloomberg and Reuters.
Information relating to trading, including price and volume
information, in Bitcoin will be available from major market data
vendors and from the exchanges on which Bitcoin are traded. The normal
trading hours for Digital Asset Exchanges are 24-hours per day, 365-
days per year.
    The Sponsor will publish the Index Price, the Trust's Digital Asset
Holdings, and the Digital Asset Holdings per Share on the Trust's
website as soon as practicable after its determination. If the Digital
Asset Holdings and Digital Asset Holdings per Share have been
calculated using a price per Bitcoin other than the Index Price for
such Evaluation Time, the publication on the Trust's website will note
the valuation methodology used and the price per Bitcoin resulting from
such calculation.
    The Trust will provide website disclosure of its Digital Asset
Holdings daily. The website disclosure of the Trust's Digital Asset
Holdings will occur at the same time as the disclosure by the Sponsor
of the Digital Asset Holdings to Authorized Participants so that all
market participants are provided such portfolio information at the same
time. Therefore, the same portfolio information will be provided on the
public website as well as in electronic files provided to Authorized
Participants. Accordingly, each investor will have access to the
current Digital Asset Holdings of the Trust through the Trust's
website, as well as from one or more major market data vendors.
    The value of the Index, as well as additional information regarding
the Index, may be found at https://tradeblock.com/markets/index/xbx.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m., E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00, for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain
restrictions on Equity Trading Permit (``ETP'') Holders acting as
registered Market Makers in Commodity-Based Trust Shares to facilitate
surveillance. The Exchange represents that, for initial and continued
listing, the Trust will be in compliance with Rule 10A-3 \48\ under the
Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 100,000 Shares
of the Trust will be outstanding at the commencement of trading on the
Exchange.
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    \48\ 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Trust.\49\ Trading in Shares of the Trust
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the

Exchange, make trading in the Shares inadvisable.
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    \49\ See NYSE Arca Rule 7.12-E.
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    The Exchange may halt trading during the day in which an
interruption to the dissemination of the IIV or the value of the Index
occurs. If the interruption to the dissemination of the IIV or the
value of the Index persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption. In addition, if the Exchange
becomes aware that the Digital Asset Holdings per Share is not
disseminated to all market participants at the same time, it will halt
trading in the Shares until such time as the Digital Asset Holdings per
Share is available to all market participants.
Surveillance
    The Exchange represents that trading in the Shares of the Trust
will be subject to the existing trading surveillances administered by
the Exchange, as well as cross-market surveillances administered by
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities
laws.\50\ The Exchange represents that these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange.
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    \50\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares from such markets
and other entities. In addition, the Exchange may obtain information
regarding trading in the Shares from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement (``CSSA'').\51\ The
Exchange is also able to obtain information regarding trading in the
Shares in connection with such ETP Holders' proprietary or customer
trades which they effect through ETP Holders on any relevant market.
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    \51\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Trust may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA.
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    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding
(a) the description of the portfolios of the Trust, (b) limitations on
portfolio holdings or reference assets, or (c) the applicability of
Exchange listing rules specified in this rule filing shall constitute
continued listing requirements for listing the Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Trust is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
The procedures for creations of Shares in Baskets; (2) NYSE Arca Rule
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) information regarding how the value of the Index and
the IIV are disseminated; (4) the possibility that trading spreads and
the resulting premium or discount on the Shares may widen during the
Opening and Late Trading Sessions, when an updated IIV will not be
calculated or publicly disseminated; and (5) trading information. The
Exchange notes that investors purchasing Shares directly from the Trust
will receive a prospectus.
    In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the Annual
Report. The Information Bulletin will disclose that information about
the Shares of the Trust is publicly available on the Trust's website.
    The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \52\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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    \52\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws. The Exchange or FINRA, on behalf of the Exchange, or
both, will communicate as needed regarding trading in the Shares with
other markets that are members of the ISG, and the Exchange or FINRA,
on behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares from such markets. In addition, the
Exchange may obtain information regarding trading in the Shares from
markets that are members of ISG or with which the Exchange has in place
a CSSA. Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is
able to obtain information regarding trading in the Shares and the
underlying Bitcoin or any Bitcoin derivative through ETP Holders acting
as registered Market Makers, in connection with such ETP Holders'
proprietary or customer trades through ETP Holders which they effect on
any relevant market.
    The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because, although the Digital Asset
Exchange Market is not inherently resistant to fraud and manipulation,
the Index serves as a means sufficient to mitigate the impact of
instances of fraud and manipulation on a reference price for Bitcoin.
Specifically, the Index provides a better benchmark for the

price of Bitcoin than the Digital Asset Exchange Market Price because
it (1) tracks the Digital Asset Exchange Market Price through trading
activity at U.S.-Compliant Exchanges; (2) mitigates the impact of
instances of fraud, manipulation and other anomalous trading activity
in real-time through systematic adjustments; (3) is constructed and
maintained by an expert third-party index provider, allowing for
prudent handling of non-market-related events; (4) mitigates the impact
of instances of fraud, manipulation and other anomalous trading
activity concentrated on any one specific exchange through a cross-
exchange composite index rate; and (5) mitigates the impact of
instances of fraud, manipulation and other anomalous trading activity
occurring on multiple exchanges by using a 24-hour window to weight the
activity at each exchange through a VWAP. The Trust has used the Index
to price the Shares for more than six years, and the Index has proven
its ability to (i) mitigate the effects of fraud, manipulation and
other anomalous trading activity from impacting the Bitcoin reference
rate, (ii) provide a real-time, volume-weighted fair value of bitcoin
and (iii) appropriately handle and adjusts for non-market related
events, such that efforts to manipulate the price of Bitcoin would have
had a negligible effect on the pricing of the Trust, due to the
controls embedded in the structure of the Index. In addition, certain
of the Index's Constituent Exchanges also have or have begun to
implement market surveillance infrastructure to further detect,
prevent, and respond to fraud, attempted fraud, and similar wrongdoing,
including market manipulation. The proposed rule change is also
designed to prevent fraudulent and manipulative acts and practices
based on the existence of the CME futures market as a large, surveilled
and regulated market that is closely connected with the spot market for
Bitcoin and through which the Exchange could obtain information to
assist in detecting and deterring potential fraud or manipulation.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that there is a considerable amount of Bitcoin price and market
information available on public websites and through professional and
subscription services. Investors may obtain, on a 24-hour basis,
Bitcoin pricing information based on the spot price for Bitcoin from
various financial information service providers. The closing price and
settlement prices of Bitcoin are readily available from the Digital
Asset Exchanges and other publicly available websites. In addition,
such prices are published in public sources, or on-line information
services such as Bloomberg and Reuters. The Digital Asset Holdings per
Share will be calculated daily and made available to all market
participants at the same time. The Trust will provide website
disclosure of its Digital Asset Holdings daily. One or more major
market data vendors will disseminate for the Trust on a daily basis
information with respect to the most recent Digital Asset Holdings per
Share and Shares outstanding. In addition, if the Exchange becomes
aware that the Digital Asset Holdings per Share is not disseminated to
all market participants at the same time, it will halt trading in the
Shares until such time as the Digital Asset Holdings is available to
all market participants. Quotation and last-sale information regarding
the Shares will be disseminated through the facilities of the CTA. The
IIV will be widely disseminated on a per Share basis every 15 seconds
during the NYSE Arca Core Trading Session (normally 9:30 a.m., E.T., to
4:00 p.m., E.T.) by one or more major market data vendors. In addition,
the IIV will be available on the Trust's website through on-line
information services. The Exchange represents that the Exchange may
halt trading during the day in which an interruption to the
dissemination of the IIV or the value of the Index occurs. If the
interruption to the dissemination of the IIV or the value of the Index
persists past the trading day in which it occurred, the Exchange will
halt trading no later than the beginning of the trading day following
the interruption.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,