[Federal Register Volume 86, Number 80 (Wednesday, April 28, 2021)]
[Notices]
[Pages 22485-22498]
[FR Doc No: 2021-08855]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91646; File No. SR-CboeBZX-2021-029]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
Kryptoin Bitcoin ETF Trust Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares

April 22, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 9, 2021, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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\ 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 a rule change to list and trade shares of the
Kryptoin Bitcoin ETF Trust (the ``Trust''),\3\ under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares. The shares of the Trust are
referred to herein as the ``Shares.''
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    \3\ The Trust was formed as a Delaware statutory trust on
October 28, 2019 and is operated as a grantor trust for U.S. federal
tax purposes. The Trust has no fixed termination date.
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    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ Kryptoin Investment Advisors,
LLC is the sponsor of the Trust (the ``Sponsor''). The Shares will be
registered with the Commission by means of the Trust's registration
statement on Form S-1 (the ``Registration Statement'').\6\
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    \4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
    \5\ All statements and representations made in this filing
regarding (a) the description of the portfolio, (b) limitations on
portfolio holdings or reference assets, or (c) the applicability of
Exchange rules and surveillance procedures shall constitute
continued listing requirements for listing the Shares on the
Exchange.
    \6\ See Registration Statement on Form S-1, dated April 9, 2021
submitted to the Commission by the Sponsor on behalf of the Trust.
The descriptions of the Trust, the Shares, and the Reference Rate
(as defined below) contained herein are based, in part, on
information in the Registration Statement. The Registration
Statement is not yet effective and the Shares will not trade on the
Exchange until such time that the Registration Statement is
effective.
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Background
    Bitcoin is a digital asset based on the decentralized, open source
protocol of the peer-to-peer computer network launched in 2009 that
governs the creation, movement, and ownership of bitcoin and hosts the
public ledger, or ``blockchain,'' on which all bitcoin transactions are
recorded (the ``Bitcoin Network'' or ``Bitcoin''). The decentralized
nature of the Bitcoin Network allows parties to transact directly with
one another based on cryptographic proof instead of relying on a
trusted third party. The protocol also lays out the rate of issuance of
new bitcoin within the Bitcoin Network, a rate that is reduced by half
approximately every four years with an eventual hard cap of 21 million.
It's generally understood that the combination of these two features--a
systemic hard cap of 21 million bitcoin and the ability to transact
trustlessly with anyone connected to the Bitcoin Network--gives bitcoin
its value.\7\ The first rule filing proposing to list an exchange-
traded product to provide exposure to bitcoin in the U.S. was submitted
by the Exchange on June 30, 2016.\8\ At that time, blockchain
technology, and digital assets that utilized it, were relatively new to
the broader public. The market cap of all bitcoin in existence at that
time was approximately $10 billion. No registered offering of digital
asset securities or shares in an investment vehicle with exposure to
bitcoin or any other cryptocurrency had yet been conducted, and the
regulated infrastructure for conducting a digital asset securities
offering had not begun to develop.\9\ Similarly, regulated U.S. bitcoin
futures contracts did not exist. The Commodity Futures Trading
Commission (the ``CFTC'') had determined that bitcoin is a
commodity,\10\ but had not engaged in significant enforcement actions
in the space. The New York Department of Financial Services (``NYDFS'')
adopted its final BitLicense regulatory framework in 2015, but had only
approved four entities to engage in activities relating to virtual
currencies (whether through granting a BitLicense or a limited-purpose
trust charter) as of June 30, 2016.\11\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and
the fund had only $60 million in assets.\12\ There were very few, if
any, traditional financial institutions engaged in the space, whether
through investment or providing services to digital asset

companies. In January 2018, the Staff of the Commission noted in a
letter to the Investment Company Institute and SIFMA that it was not
aware, at that time, of a single custodian providing fund custodial
services for digital assets.\13\ Fast forward to the first quarter of
2021 and the digital assets financial ecosystem, including bitcoin, has
progressed significantly. The development of a regulated market for
digital asset securities has significantly evolved, with market
participants having conducted registered public offerings of both
digital asset securities \14\ and shares in investment vehicles holding
bitcoin futures.\15\ Additionally, licensed and regulated service
providers have emerged to provide fund custodial services for digital
assets, among other services. For example, in December 2020, the
Commission adopted a conditional no-action position permitting certain
special purpose broker-dealers to custody digital asset securities
under Rule 15c3-3 under the Exchange Act; \16\ in September 2020, the
Staff of the Commission released a no-action letter permitting certain
broker-dealers to operate a non-custodial Alternative Trading System
(``ATS'') for digital asset securities, subject to specified
conditions; \17\ and in October 2019, the Staff of the Commission
granted temporary relief from the clearing agency registration
requirement to an entity seeking to establish a securities clearance
and settlement system based on distributed ledger technology,\18\ and
multiple transfer agents who provide services for digital asset
securities registered with the Commission.\19\
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    \7\ For additional information about bitcoin and the Bitcoin
Network, see https://bitcoin.org/en/getting-started; https://www.fidelitydigitalassets.com/articles/addressing-bitcoin-criticisms; and https://www.vaneck.com/education/investment-ideas/investing-in-bitcoin-and-digital-assets/.
    \8\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently
disapproved by the Commission. See Securities Exchange Act Release
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the
``Winklevoss Order'').
    \9\ Digital assets that are securities under U.S. law are
referred to throughout this proposal as ``digital asset
securities.'' All other digital assets, including bitcoin, are
referred to interchangeably as ``cryptocurrencies'' or ``virtual
currencies.'' The term ``digital assets'' refers to all digital
assets, including both digital asset securities and
cryptocurrencies, together.
    \10\ See ``In the Matter of Coinflip, Inc.'' (``Coinflip'')
(CFTC Docket 15-29 (September 17, 2015)) (order instituting
proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making
findings and imposing remedial sanctions), in which the CFTC stated:
     ``Section 1a(9) of the CEA defines `commodity' to include,
among other things, `all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.' 7 U.S.C. 1a(9). The definition of a `commodity' is broad. See,
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142
(7th Cir. 1982). Bitcoin and other virtual currencies are
encompassed in the definition and properly defined as commodities.''
    \11\ A list of virtual currency businesses that are entities
regulated by the NYDFS is available on the NYDFS website. See
https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/regulated_entities.
    \12\ Data as of March 31, 2016 according to publicly available
filings. See Bitcoin Investment Trust Form S-1, dated May 27, 2016,
available: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm.
    \13\ See letter from Dalia Blass, Director, Division of
Investment Management, U.S. Securities and Exchange Commission to
Paul Schott Stevens, President & CEO, Investment Company Institute
and Timothy W. Cameron, Asset Management Group--Head, Securities
Industry and Financial Markets Association (January 18, 2018),
available at https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
    \14\ See Prospectus supplement filed pursuant to Rule 424(b)(1)
for INX Tokens (Registration No. 333-233363), available at: https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm.
    \15\ See Prospectus filed by Stone Ridge Trust VI on behalf of
NYDIG Bitcoin Strategy Fund Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
    \16\ See Securities Exchange Act Release No. 90788, 86 FR 11627
(February 26, 2021) (File Number S7-25-20) (Custody of Digital Asset
Securities by Special Purpose Broker-Dealers).
    \17\ See letter from Elizabeth Baird, Deputy Director, Division
of Trading and Markets, U.S. Securities and Exchange Commission to
Kris Dailey, Vice President, Risk Oversight & Operational
Regulation, Financial Industry Regulatory Authority (September 25,
2020), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.
    \18\ See letter from Jeffrey S. Mooney, Associate Director,
Division of Trading and Markets, U.S. Securities and Exchange
Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos
Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
    \19\ See, e.g., Form TA-1/A filed by Tokensoft Transfer Agent
LLC (CIK:<PHONE_NUMBER>) on January 8, 2021, available at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
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    Outside the Commission's purview, the regulatory landscape has
changed significantly since 2016, and cryptocurrency markets have grown
and evolved as well. The market for bitcoin is approximately 100 times
larger, having recently reached a market cap of over $1 trillion. As of
February 27, 2021, bitcoin's market cap is greater than companies such
as Facebook, Inc., Berkshire Hathaway Inc., and JP Morgan Chase & Co.
CFTC regulated bitcoin futures represented approximately $28 billion in
notional trading volume on Chicago Mercantile Exchange (``CME'')
(``Bitcoin Futures'') in December 2020 compared to $737 million, $1.4
billion, and $3.9 billion in total trading in December 2017, December
2018, and December 2019, respectively. Bitcoin Futures traded over $1.2
billion per day in December 2020 and represented $1.6 billion in open
interest compared to $115 million in December 2019, which the Exchange
believes represents a regulated market of significant size, as further
discussed below.\20\ The CFTC has exercised its regulatory jurisdiction
in bringing a number of enforcement actions related to bitcoin and
against trading platforms that offer cryptocurrency trading.\21\ The
U.S. Office of the Comptroller of the Currency (the ``OCC'') has made
clear that federally-chartered banks are able to provide custody
services for cryptocurrencies and other digital assets.\22\ The OCC
recently granted conditional approval of two charter conversions by
state-chartered trust companies to national banks, both of which
provide cryptocurrency custody services.\23\ NYDFS has granted no fewer
than twenty-five BitLicenses, including to established public payment
companies like PayPal Holdings, Inc. and Square, Inc., and limited
purpose trust charters to entities providing cryptocurrency custody
services, including the Trust's Custodian. The U.S. Treasury Financial
Crimes Enforcement Network (``FinCEN'') has released extensive guidance
regarding the applicability of the Bank Secrecy Act (``BSA'') and
implementing regulations to virtual currency businesses,\24\ and has
proposed rules imposing requirements on entities subject to the BSA
that are specific to the technological context of virtual
currencies.\25\ In addition, the Treasury's Office of Foreign Assets
Control (``OFAC'') has brought enforcement actions over apparent
violations of the sanctions laws in connection with the provision of
wallet management services for digital assets.\26\
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    \20\ All statistics and charts included in this proposal are
sourced from https://www.cmegroup.com/trading/bitcoin-futures.html.
    \21\ The CFTC's annual report for Fiscal Year 2020 (which ended
on September 30, 2020) noted that the CFTC ``continued to
aggressively prosecute misconduct involving digital assets that fit
within the CEA's definition of commodity'' and ``brought a record
setting seven cases involving digital assets.'' See CFTC FY2020
Division of Enforcement Annual Report, available at: https://www.cftc.gov/media/5321/DOE_FY2020_AnnualReport_120120/download.
Additionally, the CFTC filed on October 1, 2020, a civil enforcement
action against the owner/operators of the BitMEX trading platform,
which was one of the largest bitcoin derivative exchanges. See CFTC
Release No. 8270-20 (October 1, 2020) available at: https://www.cftc.gov/PressRoom/PressReleases/8270-20.
    \22\ See OCC News Release 2021-2 (January 4, 2021) available at:
https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.
    \23\ See OCC News Release 2021-6 (January 13, 2021) available
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-6.html and OCC News Release 2021-19 (February 5, 2021)
available at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-19.html.
    \24\ See FinCEN Guidance FIN-2019-G001 (May 9, 2019)
(Application of FinCEN's Regulations to Certain Business Models
Involving Convertible Virtual Currencies) available at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf.
    \25\ See U.S. Department of the Treasury Press Release: ``The
Financial Crimes Enforcement Network Proposes Rule Aimed at Closing
Anti-Money Laundering Regulatory Gaps for Certain Convertible
Virtual Currency and Digital Asset Transactions'' (December 18,
2020), available at: https://home.treasury.gov/news/press-releases/sm1216.
    \26\ See U.S. Department of the Treasury Enforcement Release:
``OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent
Violations of Multiple Sanctions Programs Related to Digital
Currency Transactions'' (December 30, 2020) available at: https://home.treasury.gov/system/files/126/20201230_bitgo.pdf.
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    In addition to the regulatory developments laid out above, more
traditional financial market participants appear to be embracing
cryptocurrency: Large insurance companies,\27\ asset

managers,\28\ university endowments,\29\ pension funds,\30\ and even
historically bitcoin skeptical fund managers \31\ are allocating to
bitcoin. The largest over-the-counter bitcoin fund previously filed a
Form 10 registration statement, which the Staff of the Commission
reviewed and which took effect automatically, and is now a reporting
company.\32\ Established companies like Tesla, Inc.,\33\ MicroStrategy
Incorporated,\34\ and Square, Inc.,\35\ among others, have recently
announced substantial investments in bitcoin in amounts as large as
$1.5 billion (Tesla) and $425 million (MicroStrategy). Suffice to say,
bitcoin is on its way to gaining mainstream usage.
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    \27\ On December 10, 2020, Massachusetts Mutual Life Insurance
Company (MassMutual) announced that it had purchased $100 million in
bitcoin for its general investment account. See MassMutual Press
Release ``Institutional Bitcoin provider NYDIG announces minority
stake purchase by MassMutual'' (December 10, 2020) available at:
https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2020/12/institutional-bitcoin-provider-nydig-announces-minority-stake-purchase-by-massmutual.
    \28\ See e.g., ``BlackRock's Rick Rieder says the world's
largest asset manager has `started to dabble' in bitcoin'' (February
17, 2021) available at: https://www.cnbc.com/2021/02/17/blackrock-has-started-to-dabble-in-bitcoin-says-rick-rieder.html and
``Guggenheim's Scott Minerd Says Bitcoin Should Be Worth $400,000''
(December 16, 2020) available at: https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-000.
    \29\ See e.g., ``Harvard and Yale Endowments Among Those
Reportedly Buying Crypto'' (January 25, 2021) available at: https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yale-endowments-among-those-reportedly-buying-crypto.
    \30\ See e.g., ``Virginia Police Department Reveals Why its
Pension Fund is Betting on Bitcoin'' (February 14, 2019) available
at: https://finance.yahoo.com/news/virginia-police-department-reveals-why-194558505.html.
    \31\ See e.g., ``Bridgewater: Our Thoughts on Bitcoin'' (January
28, 2021) available at: https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin and ``Paul Tudor Jones says he
likes bitcoin even more now, rally still in the `first inning'''
(October 22, 2020) available at: https://www.cnbc.com/2020/10/22/-paul-tudor-jones-says-he-likes-bitcoin-even-more-now-rally-still-in-the-first-inning.html.
    \32\ See Letter from Division of Corporation Finance, Office of
Real Estate & Construction to Barry E. Silbert, Chief Executive
Officer, Grayscale Bitcoin Trust (January 31, 2020) https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
    \33\ See Form 10-K submitted by Tesla, Inc. for the fiscal year
ended December 31, 2020 at 23: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
    \34\ See Form 10-Q submitted by MicroStrategy Incorporated for
the quarterly period ended September 30, 2020 at 8: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q_20200930.htm.
    \35\ See Form 10-Q submitted by Square, Inc. for the quarterly
period ended September 30, 2020 at 51: https://www.sec.gov/ix?doc=/Archives/edgar/data/1512673/000151267320000012/sq-20200930.htm.
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    Despite these developments, access for U.S. retail investors to
gain exposure to bitcoin via a transparent and regulated exchange-
traded vehicle remains limited. As investors and advisors increasingly
utilize ETPs to manage diversified portfolios (including equities,
fixed income securities, commodities, and currencies) quickly, easily,
relatively inexpensively, and without having to hold directly any of
the underlying assets, options for bitcoin exposure for U.S. investors
remain limited to: (i) Investing in over-the-counter bitcoin funds
(``OTC Bitcoin Funds'') that are subject to high premium/discount
volatility (and high management fees) to the advantage of more
sophisticated investors that are able to create and redeem shares at
net asset value (``NAV'') directly with the issuing trust; (ii) facing
the technical risk, complexity and generally high fees associated with
buying spot bitcoin; or (iii) purchasing shares of operating companies
that they believe will provide proxy exposure to bitcoin with limited
disclosure about the associated risks. Meanwhile, investors in many
other countries, including Canada,\36\ are able to use more traditional
exchange listed and traded products to gain exposure to bitcoin,
disadvantaging U.S. investors and leaving them with riskier and more
expensive means of getting bitcoin exposure.\37\
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    \36\ The Exchange notes that the Purpose Bitcoin ETF, a retail
physical bitcoin ETP recently launched in Canada, reportedly reached
$421.8 million in assets under management (``AUM'') in two days,
demonstrating the demand for a North American market listed bitcoin
exchange-traded product (``ETP''). The Purpose Bitcoin ETF also
offers a class of units that is U.S. dollar denominated, which could
appeal to U.S. investors. Without an approved bitcoin ETP in the
U.S. as a viable alternative, U.S. investors could seek to purchase
these shares in order to get access to bitcoin exposure. Given the
separate regulatory regime and the potential difficulties associated
with any international litigation, such an arrangement would create
more risk exposure for U.S. investors than they would otherwise have
with a U.S. exchange listed ETP.
    \37\ The Exchange notes that securities regulators in a number
of other countries have either approved or otherwise allowed the
listing and trading of bitcoin ETPs. Specifically, these funds
include the Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors Bitcoin
ETN, WisdomTree Bitcoin ETP, Bitcoin Tracker One, BTCetc bitcoin
ETP, Amun Bitcoin ETP, Amun Bitcoin Suisse ETP, 21Shares Short
Bitcoin ETP, and CoinShares Physical Bitcoin ETP.
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OTC Bitcoin Funds and Investor Protection
    Over the past year, U.S. investor exposure to bitcoin through OTC
Bitcoin Funds has grown into the tens of billions of dollars. With that
growth, so too has grown the potential risk to U.S. investors. As
described below, premium and discount volatility, high fees,
insufficient disclosures, and technical hurdles are putting U.S.
investor money at risk on a daily basis that could potentially be
eliminated through access to a bitcoin ETP. The Exchange understands
the Commission's previous focus on potential manipulation of a bitcoin
ETP in prior disapproval orders, but now believes that such concerns
have been sufficiently mitigated and that the growing and quantifiable
investor protection concerns should be the central consideration as the
Commission reviews this proposal. As such, the Exchange believes that
approving this proposal (and comparable proposals submitted hereafter)
provides the Commission with the opportunity to allow U.S. investors
with access to bitcoin in a regulated and transparent exchange-traded
vehicle that would act to limit risk to U.S. investors by: (i) Reducing
premium and discount volatility; (ii) reducing management fees through
meaningful competition; (iii) reducing risks associated with investing
in operating companies that are imperfect proxies for bitcoin exposure;
and (iv) providing an alternative to custodying spot bitcoin.
(i) OTC Bitcoin Funds and Premium/Discount Volatility
    OTC Bitcoin Funds are generally designed to provide exposure to
bitcoin in a manner similar to the Shares. However, unlike the Shares,
OTC Bitcoin Funds are unable to freely offer creation and redemption in
a way that incentivizes market participants to keep their shares
trading in line with their NAV \38\ and, as such, frequently trade at a
price that is out of line with the value of their assets held.
Historically, OTC Bitcoin Funds have traded at a significant premium to
NAV.\39\
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    \38\ Because OTC Bitcoin Funds are not listed on an exchange,
they are also not subject to the same transparency and regulatory
oversight by a listing exchange as the Shares would be. In the case
of the Trust, the existence of a surveillance-sharing agreement
between the Exchange and the Bitcoin Futures market results in
increased investor protections compared to OTC Bitcoin Funds.
    \39\ The inability to trade in line with NAV may at some point
result in OTC Bitcoin Funds trading at a discount to their NAV,
which has occurred more recently with respect to one prominent OTC
Bitcoin Fund. While that has not historically been the case, and it
is not clear whether such discounts will continue, such a prolonged,
significant discount scenario would give rise to nearly identical
potential issues related to trading at a premium as described below.
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    Trading at a premium or a discount is not unique to OTC Bitcoin
Funds and is not in itself problematic, but the size of such premiums/
discounts and volatility thereof highlight the key differences in
operations and market structure of OTC Bitcoin Funds as compared to
ETPs. This, combined with the significant increase in AUM for OTC
Bitcoin Funds over the past year, has given rise to significant and
quantifiable investor protection issues, as further described below. In
fact, the largest OTC Bitcoin Fund has grown to $35.0 billion in

AUM \40\ and has historically traded at a premium of between roughly
five and 40%, though it has seen premiums at times above 100%.\41\
Recently, however, it has traded at a discount. As of March 24, 2021,
the discount was approximately 14%,\42\ representing around $4.9
billion in market value less than the bitcoin actually held by the
fund. If premium/discount numbers move back to the middle of its
historical range to a 20% premium (which historically could occur at
any time and overnight), it would represent a swing of approximately
$11.9 billion in value unrelated to the value of bitcoin held by the
fund and if the premium returns to the upper end of its typical range,
that number increases to $18.9 billion. These numbers are only
associated with a single OTC Bitcoin Fund--as more and more OTC Bitcoin
Funds come to market and more investor assets flood into them to get
access to bitcoin exposure, the potential dollars at risk will only
increase.
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    \40\ As of February 19, 2021. Compare to an AUM of approximately
$2.6 billion on February 26, 2020, the date on which the Commission
issued the most recent disapproval order for a bitcoin ETP. See
Securities Exchange Act Release No. 88284 (February 26, 2020), 85 FR
12595 (March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix
Disapproval''). While the price of one bitcoin has increased
approximately 400% in the intervening period, the total AUM has
increased by approximately 1240%, indicating that the increase in
AUM was created beyond just price appreciation in bitcoin.
    \41\ See ``Traders Piling Into Overvalued Crypto Funds Risk a
Painful Exit'' (February 4, 2021) available at: https://www.bloomberg.com/news/articles/2021-02-04/bitcoin-one-big-risk-when-investing-in-crypto-funds.
    \42\ This is compared to another OTC Bitcoin Product which had a
premium of over 60% on the same day, with a premium of over 200% a
few days earlier.
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    This raises significant investor protection issues in several ways.
First, the most obvious issue is that investors are buying shares of a
fund for a price that is not reflective of the per share value of the
fund's underlying assets. Even operating within the normal premium
range, it's possible for an investor to buy shares of an OTC Bitcoin
Fund only to have those shares quickly lose 10% or more in dollar value
excluding any movement of the price of bitcoin. That is to say--the
price of bitcoin could have stayed exactly the same from market close
on one day to market open the next, yet the value of the shares held by
the investor decreased only because of the fluctuation of the premium/
discount. As more investment vehicles, including mutual funds and ETFs,
seek to gain exposure to bitcoin, the easiest option for a buy and hold
strategy is often an OTC Bitcoin Fund, meaning that even investors that
do not directly buy OTC Bitcoin Funds can be disadvantaged by extreme
premiums (or discounts) and premium volatility.
    The second issue is related to the first and explains how the
premium in OTC Bitcoin Funds essentially creates a direct payment from
retail investors to more sophisticated investors. Generally speaking,
only accredited investors are able to create or redeem shares with the
issuing trust, which means that they are able to buy or sell shares
directly with the trust at NAV (in exchange for either cash or bitcoin)
without having to pay the premium or sell into the discount. While
there are often minimum holding periods for shares, an investor that is
allowed to interact directly with the trust is able to hedge their
bitcoin exposure as needed to satisfy the holding requirements and
collect on the premium or discount opportunity.
    As noted above, the existence of a premium or discount and the
premium/discount collection opportunity is not unique to OTC Bitcoin
Funds and does not in itself warrant the approval of an ETP.\43\ What
makes this situation unique is that such significant and persistent
premiums and discounts can exist in a product with $35 billion in
assets under management,\44\ that billions of retail investor dollars
are constantly under threat of premium/discount volatility,\45\ and
that premium/discount volatility is generally captured by more
sophisticated investors on a riskless basis. The Exchange understands
the Commission's focus on potential manipulation of a bitcoin ETP in
prior disapproval orders, but now believes that current circumstances
warrant that this direct, quantifiable investor protection issue should
be the central consideration as the Commission determines whether to
approve this proposal, particularly when the Trust as a bitcoin ETP is
designed to reduce the likelihood of significant and prolonged premiums
and discounts with its open-ended nature as well as the ability of
market participants (i.e., market makers and authorized participants)
to create and redeem on a daily basis.
---------------------------------------------------------------------------

    \43\ The Exchange notes, for example, that similar premiums/
discounts and premium/discount volatility exist for other non-
bitcoin cryptocurrency related over-the-counter funds, but that the
size and investor interest in those funds does not give rise to the
same investor protection concerns that exist for OTC Bitcoin Funds.
    \44\ At $35 billion in AUM, the largest OTC Bitcoin Fund would
be the 32nd largest out of roughly 2,400 U.S. listed ETPs.
    \45\ The Exchange notes that in two recent incidents, the
premium dropped from 28.28% to 12.29% from the close on 3/19/20 to
the close on 3/20/20 and from 38.40% to 21.05% from the close on 5/
13/19 to the close on 5/14/19. Similarly, over the period of 12/21/
20 to 1/21/20, the premium went from 40.18% to 2.79%. While the
price of bitcoin appreciated significantly during this period and
NAV per share increased by 41.25%, the price per share increased by
only 3.58%.
---------------------------------------------------------------------------

(ii) Spot and Proxy Exposure
    Exposure to bitcoin through an ETP also presents certain advantages
for retail investors compared to buying spot bitcoin directly. The most
notable advantage is the use of the Custodian to custody the Trust's
bitcoin assets. The Sponsor has carefully selected the Custodian, a
third party custodian that carries insurance covering both hot and cold
storage and is chartered as a trust company and will custody the
Trust's bitcoin assets in a manner so that it meets the definition of
qualified custodian under the Investment Advisers Act of 1940, as
amended. This includes, among others, the use of ``cold'' (offline)
storage to hold private keys and the employment by the Custodian of a
certain degree of cybersecurity measures and operational best
practices. By contrast, an individual retail investor holding bitcoin
through a cryptocurrency exchange lacks these protections. Typically,
retail exchanges hold most, if not all, retail investors' bitcoin in
``hot'' (internet-connected) storage and do not make any commitments to
indemnify retail investors or to observe any particular cybersecurity
standard. Meanwhile, a retail investor holding spot bitcoin directly in
a self-hosted wallet may suffer from inexperience in private key
management (e.g., insufficient password protection, lost key, etc.),
which could cause them to lose some or all of their bitcoin holdings.
In the Custodian, the Trust has engaged a regulated and licensed entity
highly experienced in bitcoin custody, with dedicated, trained
employees and procedures to manage the private keys to the Trust's
bitcoin, and which is accountable for failures. Thus, with respect to
custody of the Trust's bitcoin assets, the Trust presents advantages
from an investment protection standpoint for retail investors compared
to owning spot bitcoin directly.
    Finally, as described in the Background section above, recently a
number of operating companies engaged in unrelated businesses--such as
Tesla (a car manufacturer) and MicroStrategy (an enterprise software
company)--have announced investments as large as $1.5 billion in
bitcoin.\46\ Without access to

bitcoin exchange-traded products, retail investors seeking investment
exposure to bitcoin may end up purchasing shares in these companies in
order to gain the exposure to bitcoin that they seek.\47\ In fact,
mainstream financial news networks have written a number of articles
providing investors with guidance for obtaining bitcoin exposure
through publicly traded companies (such as MicroStrategy, Tesla, and
bitcoin mining companies, among others) instead of dealing with the
complications associated with buying spot bitcoin in the absence of a
bitcoin ETP.\48\ Such operating companies, however, are imperfect
bitcoin proxies and provide investors with partial bitcoin exposure
paired with a host of additional risks associated with whichever
operating company they decide to purchase. Additionally, the
disclosures provided by the aforementioned operating companies with
respect to risks relating to their bitcoin holdings are generally
substantially smaller than the registration statement of a bitcoin ETP,
including the Registration Statement, typically amounting to a few
sentences of narrative description and a handful of risk factors.\49\
In other words, investors seeking bitcoin exposure through publicly
traded companies are gaining only partial exposure to bitcoin and are
not fully benefitting from the risk disclosures and associated investor
protections that come from the securities registration process.
---------------------------------------------------------------------------

    \46\ It's been announced that MicroStrategy is currently
contemplating a $600 million convertible note offering for the
purpose of acquiring bitcoin. See: https://www.cnbc.com/2021/02/16/microstrategy-shares-rise-after-revealing-plans-to-buy-more-bitcoin.html.
    \47\ In August 2017, the Commission's Office of Investor
Education and Advocacy warned investors about situations where
companies were publicly announcing events relating to digital coins
or tokens in an effort to affect the price of the company's publicly
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
    \48\ See e.g., ``7 public companies with exposure to bitcoin''
(February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want
to get in the crypto trade without holding bitcoin yourself? Here
are some investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \49\ See e.g., Tesla 10-K for the year ended December 31, 2020,
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
---------------------------------------------------------------------------

Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each
contract represents five bitcoin and is based on the CME CF Bitcoin
Reference Rate.\50\ The contracts trade and settle like other cash-
settled commodity futures contracts. Nearly every measurable metric
related to Bitcoin Futures has trended consistently up since launch
and/or accelerated upward in the past year. For example, there was
approximately $28 billion in trading in Bitcoin Futures in December
2020 compared to $737 million, $1.4 billion, and $3.9 billion in total
trading in December 2017, December 2018, and December 2019,
respectively. Bitcoin Futures traded over $1.2 billion per day on the
CME in December 2020 and represented $1.6 billion in open interest
compared to $115 million in December 2019. This general upward trend in
trading volume and open interest is captured in the following chart.
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    \50\ According to CME, the CME CF Bitcoin Reference Rate
aggregates the trade flow of major bitcoin spot exchanges during a
specific calculation window into a once-a-day reference rate of the
U.S. dollar price of bitcoin. Calculation rules are geared toward
maximum transparency and real-time replicability in underlying spot
markets, including Bitstamp, Coinbase, Gemini, itBit, and Kraken.
For additional information, refer to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.
[GRAPHIC] [TIFF OMITTED] TN28AP21.010

    Similarly, the number of large open interest holders \51\ has
continued to increase even as the price of bitcoin has risen, as have
the number of unique accounts trading Bitcoin Futures.
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    \51\ A large open interest holder in Bitcoin Futures is an
entity that holds at least 25 contracts, which is the equivalent of
125 bitcoin. At a price of approximately $30,000 per bitcoin on
December 31, 2020, more than 80 firms had outstanding positions of
greater than $3.8 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN28AP21.011

    The Sponsor further believes that academic research corroborates
the overall trend outlined above and supports the thesis that the
Bitcoin Futures pricing leads the spot market and, thus, a person
attempting to manipulate the Shares would also have to trade on that
market to manipulate the ETP. Specifically, the Sponsor believes that
such research indicates that bitcoin futures lead the bitcoin spot
market in price formation.\52\
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    \52\ See Hu, Y., Hou, Y. and Oxley, L. (2019). ``What role do
futures markets play in Bitcoin pricing? Causality, cointegration
and price discovery from a time-varying perspective'' (available at:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This
academic research paper concludes that ``There exist no episodes
where the Bitcoin spot markets dominates the price discovery
processes with regard to Bitcoin futures. This points to a
conclusion that the price formation originates solely in the Bitcoin
futures market. We can, therefore, conclude that the Bitcoin futures
markets dominate the dynamic price discovery process based upon
time-varying information share measures. Overall, price discovery
seems to occur in the Bitcoin futures markets rather than the
underlying spot market based upon a time-varying perspective.''
---------------------------------------------------------------------------

Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued
Receipts,\53\ including Commodity-Based Trust Shares,\54\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
The requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\55\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that it has sufficiently demonstrated
that, on the whole, the manipulation concerns previously articulated by
the Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal. Specifically, the Exchange lays
out below why it believes that the significant increase in trading
volume in Bitcoin Futures, the growth of liquidity at the inside in the
spot market for bitcoin, and certain features of the Shares and the
Reference Rate (as defined below) mitigate potential manipulation
concerns to the point that the investor protection issues that have
arisen from the rapid growth of over-the-counter bitcoin funds since
the Commission last reviewed an exchange proposal to list and trade a
bitcoin ETP, including premium/discount volatility and management fees,
should be the central consideration as the Commission determines
whether to approve this proposal.
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    \53\ See Exchange Rule 14.11(f).
    \54\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
    \55\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the price of
bitcoin on other markets, such pricing does not normally impact
prices on other exchange because participants will generally ignore
markets with quotes that they deem non-executable. Moreover, the
linkage between the bitcoin markets and the presence of arbitrageurs
in those markets means that the manipulation of the price of bitcoin
price on any single venue would require manipulation of the global
bitcoin price in order to be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a result, the
potential for manipulation on a trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \56\ with a regulated market of significant size.
Both the Exchange and CME are members of the Intermarket Surveillance
Group (the ``ISG'').\57\ The only remaining issue to be addressed is
whether the Bitcoin Futures market constitutes a market of significant
size, which the Exchange believes that it does. The terms ``significant
market'' and ``market of significant size'' include a market (or group
of markets) as to which: (a) There is a reasonable likelihood that a
person attempting to manipulate the ETP would also have to trade on
that market to manipulate the ETP, so that a surveillance-sharing
agreement would assist the listing exchange in detecting and deterring
misconduct; and (b) it is unlikely that trading in the ETP would be the
predominant influence on prices in that market.\58\
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    \56\ As previously articulated by the Commission, ``The standard
requires such surveillance-sharing agreements since ``they provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to fully investigate a
manipulation if it were to occur.'' The Commission has emphasized
that it is essential for an exchange listing a derivative securities
product to enter into a surveillance-sharing agreement with markets
trading underlying securities for the listing exchange to have the
ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of
exchange rules and applicable federal securities laws and rules. The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties
to the agreement have reasonable ability to obtain access to and
produce requested information; and that no existing rules, laws, or
practices would impede one party to the agreement from obtaining
this information from, or producing it to, the other party.'' The
Commission has historically held that joint membership in ISG
constitutes such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval.
    \57\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
    \58\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\59\
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    \59\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    The significant growth in Bitcoin Futures across each of trading
volumes, open interest, large open interest holders, and total market
participants since the Wilshire Phoenix Disapproval was issued are
reflective of that market's growing influence on the spot price, which
according to the academic research cited above, was already leading the
spot price in 2018 and 2019. Where Bitcoin Futures lead the price in
the spot market such that a potential manipulator of the bitcoin spot
market (beyond just the constituents of the Reference Rate \60\) would
have to

participate in the Bitcoin Futures market, it follows that a potential
manipulator of the Shares would similarly have to transact in the
Bitcoin Futures market because the Reference Rate is based on spot
prices. Further, the Trust only allows for in-kind creation and
redemption, which, as further described below, reduces the potential
for manipulation of the Shares through manipulation of the Reference
Rate or any of its individual constituents, again emphasizing that a
potential manipulator of the Shares would have to manipulate the
entirety of the bitcoin spot market, which is led by the Bitcoin
Futures market. As such, the Exchange believes that part (a) of the
significant market test outlined above is satisfied and that common
membership in ISG between the Exchange and CME would assist the listing
exchange in detecting and deterring misconduct in the Shares.
---------------------------------------------------------------------------

    \60\ As further described below, the Reference Rate for the Fund
is based on materially the same methodology (except calculation
time) as the CME CF Bitcoin Reference Rate, which is the rate on
which Bitcoin Futures contracts are cash-settled in U.S. dollars at
the CME.
---------------------------------------------------------------------------

(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange also believes that trading in the Shares would not be
the predominant force on prices in the Bitcoin Futures market (or spot
market) for a number of reasons, including the significant volume in
the Bitcoin Futures market, the size of bitcoin's market cap
(approximately $1 trillion), and the significant liquidity available in
the spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid. According
to data from CoinRoutes from February 2021, the cost to buy or sell $5
million worth of bitcoin averages roughly 10 basis points with a market
impact of 30 basis points.\61\ For a $10 million market order, the cost
to buy or sell is roughly 20 basis points with a market impact of 50
basis points. Stated another way, a market participant could enter a
market buy or sell order for $10 million of bitcoin and only move the
market 0.5%. More strategic purchases or sales (such as using limit
orders and executing through OTC bitcoin trade desks) would likely have
less obvious impact on the market--which is consistent with
MicroStrategy, Tesla, and Square being able to collectively purchase
billions of dollars in bitcoin. As such, the combination of Bitcoin
Futures leading price discovery, the overall size of the bitcoin
market, and the ability for market participants, including authorized
participants creating and redeeming in-kind with the Trust, to buy or
sell large amounts of bitcoin without significant market impact will
help prevent the Shares from becoming the predominant force on pricing
in either the bitcoin spot or Bitcoin Futures markets, satisfying part
(b) of the test outlined above.
---------------------------------------------------------------------------

    \61\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange believes that
such conditions are present. Specifically, the significant liquidity in
the spot market and the impact of market orders on the overall price of
bitcoin mean that attempting to move the price of bitcoin is costly and
has grown more expensive over the past year. In January 2020, for
example, the cost to buy or sell $5 million worth of bitcoin averaged
roughly 30 basis points (compared to 10 basis points in 2/2021) with a
market impact of 50 basis points (compared to 30 basis points in 2/
2021).\62\ For a $10 million market order, the cost to buy or sell was
roughly 50 basis points (compared to 20 basis points in 2/2021) with a
market impact of 80 basis points (compared to 50 basis points in 2/
2021). As the liquidity in the bitcoin spot market increases, it
follows that the impact of $5 million and $10 million orders will
continue to decrease the overall impact in spot price.
---------------------------------------------------------------------------

    \62\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

    Additionally, offering only in-kind creation and redemption will
provide unique protections against potential attempts to manipulate the
Shares. While the Sponsor believes that the Reference Rate which it
uses to value the Trust's bitcoin is itself resistant to manipulation
based on the methodology further described below, the fact that
creations and redemptions are only available in-kind makes the
manipulability of the Reference Rate significantly less important.
Specifically, because the Trust will not accept cash to buy bitcoin in
order to create new shares or, barring a forced redemption of the Trust
or under other extraordinary circumstances, be forced to sell bitcoin
to pay cash for redeemed shares, the price that the Sponsor uses to
value the Trust's bitcoin is not particularly important.\63\ When
authorized participants are creating with the Trust, they need to
deliver a certain number of bitcoin per share (regardless of the
valuation used) and when they're redeeming, they can similarly expect
to receive a certain number of bitcoin per share. As such, even if the
price used to value the Trust's bitcoin is manipulated (which the
Sponsor believes that its methodology is resistant to), the ratio of
bitcoin per Share does not change and the Trust will either accept (for
creations) or distribute (for redemptions) the same number of bitcoin
regardless of the value. This not only mitigates the risk associated
with potential manipulation, but also discourages and disincentivizes
manipulation of the Reference Rate because there is little financial
incentive to do so.
---------------------------------------------------------------------------

    \63\ While the Reference Rate will not be particularly important
for the creation and redemption process, it will be used for
calculating fees.
---------------------------------------------------------------------------

Kryptoin Bitcoin ETF Trust
    Delaware Trust is the trustee (``Trustee''). The Bank of New York
Mellon will be the administrator (``Administrator'') and transfer agent
(``Transfer Agent''). Foreside Fund Services, LLC will be the marketing
agent (``Marketing Agent'') in connection with the creation and
redemption of ``Baskets'' of Shares. Kryptoin Investment Advisors, LLC
(``Kryptoin'') will provide assistance in the marketing of the Shares.
Gemini Trust Company, LLC, a third-party regulated custodian (the
``Custodian''), will be responsible for custody of the Trust's bitcoin.
    According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in the bitcoin held by the
Trust. The Trust's assets will consist of bitcoin held by the Custodian
on behalf of the Trust. The Trust generally does not intend to hold
cash or cash equivalents. However, there may be situations where the
Trust will unexpectedly hold cash on a temporary basis.
    According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\64\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''), and neither the Trust nor the Sponsor is
subject to regulation as a commodity pool operator or a

commodity trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 50,000 Shares (a ``Creation Basket'')
at the Trust's NAV. Authorized participants will deliver, or facilitate
the delivery of, bitcoin to the Trust's account with the Custodian in
exchange for Shares when they purchase Shares, and the Trust, through
the Custodian, will deliver bitcoin to such authorized participants
when they redeem Shares with the Trust. Authorized participants may
then offer Shares to the public at prices that depend on various
factors, including the supply and demand for Shares, the value of the
Trust's assets, and market conditions at the time of a transaction.
Shareholders who buy or sell Shares during the day from their broker
may do so at a premium or discount relative to the NAV of the Shares of
the Trust.
Investment Objective
    According to the Registration Statement and as further described
below, the investment objective of the Trust is to provide exposure to
bitcoin at a price that is reflective of the actual bitcoin market
where investors purchase and sell bitcoin, less the expense of the
Trust's operations. In seeking to achieve its investment objective, the
Trust will hold bitcoin and will value its Shares daily based on the
reported CF Bitcoin US Settlement Price (the ``Reference Rate''), which
is an independently calculated value based on an aggregation of
executed trade flow of major bitcoin spot exchanges. The Trust will
process all creations and redemptions in-kind in transactions with
authorized participants. The Trust is not actively managed.
The Reference Rate
    As described in the Registration Statement, the Fund will use the
Reference Rate to calculate the Trust's NAV. The Reference Rate was
created to facilitate financial products based on bitcoin. It serves as
a once-a-day benchmark rate of the U.S. dollar price of bitcoin (USD/
BTC), calculated as of 4 p.m. Eastern time. The Reference Rate is based
on materially the same methodology (except calculation time) \65\ as
the Administrator's CME CF Bitcoin Reference Rate (``BRR''), which was
first introduced on November 14, 2016 and is the rate on which bitcoin
futures contracts are cash-settled in U.S. dollars at the CME. The
Reference Rate aggregates the trade flow of several bitcoin exchanges,
during an observation window between 3:00 p.m. and 4:00 p.m. Eastern
time into the U.S. dollar price of one bitcoin at 4:00 p.m. Eastern
time. The current constituent bitcoin exchanges of the Reference Rate
are Bitstamp, Coinbase, Gemini, itBit and Kraken (the ``Constituent
Bitcoin Exchanges''). The administrator of the Reference Rate is CF
Benchmarks Ltd. (the ``Benchmark Administrator'').
---------------------------------------------------------------------------

    \65\ The Reference Rate is calculated as of 4 p.m. Eastern Time,
whereas the BRR is calculated as of 4 p.m. London Time.
---------------------------------------------------------------------------

    The Reference Rate is calculated based on the ``Relevant
Transactions'' \66\ of all of its Constituent Bitcoin Exchanges, as
follows:
---------------------------------------------------------------------------

    \66\ A ``Relevant Transaction'' is any cryptocurrency versus
U.S. dollar spot trade that occurs during the observation window
between 3:00 p.m. and 4:00 p.m. Eastern time on a Constituent
Bitcoin Exchange in the BTC/USD pair that is reported and
disseminated by a Constituent Bitcoin Exchange through its publicly
available API and observed by the Benchmark Administrator, CF
Benchmarks Ltd.
---------------------------------------------------------------------------

     All Relevant Transactions are added to a joint list,
recording the time of execution, trade price and size for each
transaction.
     The list is partitioned by timestamp into 12 equally-sized
time intervals of 5 minute length.
     For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Transactions, i.e., across all Constituent Bitcoin Exchanges.
A volume-weighted median differs from a standard median in that a
weighting factor, in this case trade size, is factored into the
calculation.
     The Reference Rate is then determined by the arithmetic
mean of the volume-weighted medians of all partitions.
    By employing the foregoing steps, the Reference Rate thereby seeks
to ensure that transactions in bitcoin conducted at outlying prices do
not have an undue effect on the value of a specific partition, large
trades or clusters of trades transacted over a short period of time
will not have an undue influence on the index level, and the effect of
large trades at prices that deviate from the prevailing price are
mitigated from having an undue influence on the benchmark level. In
addition, the Sponsor notes that an oversight function is implemented
by the Benchmark Administrator in seeking to ensure that the Reference
Rate is administered through codified policies for Reference Rate
integrity.
Availability of Information
    In addition to the price transparency of the Reference Rate, the
Trust will provide information regarding the Trust's bitcoin holdings
as well as additional data regarding the Trust. The Trust will provide
an Intraday 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 Regular Trading Hours (9:30 a.m. to 4:00
p.m. E.T.). The IIV will be calculated by using the prior day's closing
NAV per Share as a base and updating that value during Regular Trading
Hours to reflect changes in the value of the Trust's bitcoin holdings
during the trading day.
    The IIV disseminated during Regular Trading Hours should not be
viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV will be
widely disseminated on a per Share basis every 15 seconds during the
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
    The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) The current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the BZX Official Closing Price \67\ in relation to the NAV
as of the time the NAV is calculated and a calculation of the premium
or discount of such price against such NAV; (c) data in chart form
displaying the frequency distribution of discounts and premiums of the
Official Closing Price against the NAV, within appropriate ranges for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter); (d) the prospectus; and (e) other applicable
quantitative information. The Trust will also post the Trust's updated
holdings on the Trust's website prior to the commencement of trading.
The price of bitcoin will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours. Information about the Reference Rate, including key elements of
how the Reference Rate is calculated, will be publicly available at
https://www.cfbenchmarks.com.
---------------------------------------------------------------------------

    \67\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of

the Consolidated Tape Association (``CTA'').
    Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Reference Rate. Information
relating to trading, including price and volume information, in bitcoin
is available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
Net Asset Value
    The NAV of the Trust is the aggregate value of the Trust's assets
less its liabilities (which include estimated accrued but unpaid fees
and expenses). In determining the NAV of the Trust, the Administrator
values the bitcoin held by the Trust on the basis of the price of
bitcoin as determined by the Reference Rate. The Administrator will
determine the NAV of the Trust on each day that the Exchange is open
for regular trading, after 4:00 p.m. EST. The Administrator also
determines the NAV per Share, which equals the NAV of the Trust,
divided by the number of outstanding Shares.
Creation and Redemption of Shares
    According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
baskets. Purchase orders must be placed by 4:00 p.m. Eastern Time, or
the close of regular trading on the Exchange, whichever is earlier. The
day on which an order is received is considered the purchase order
date. The total deposit of bitcoin required is an amount of bitcoin
that is in the same proportion to the total assets of the Trust, net of
accrued expenses and other liabilities, on the date the order to
purchase is properly received, as the number of Shares to be created
under the purchase order is in proportion to the total number of Shares
outstanding on the date the order is received. Each night, the Sponsor
will publish the amount of bitcoin that will be required in exchange
for each creation order. The Administrator determines the required
deposit for a given day by dividing the number of bitcoin held by the
Trust as of the opening of business on that business day, adjusted for
the amount of bitcoin constituting estimated accrued but unpaid fees
and expenses of the Trust as of the opening of business on that
business day, by the quotient of the number of Shares outstanding at
the opening of business divided by 50,000. The procedures by which an
authorized participant can redeem one or more Creation Baskets mirror
the procedures for the creation of Creation Baskets.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
    The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange will obtain a representation
that the Trust's NAV will be calculated daily and that these values and
information about the assets of the Trust will be made available to all
market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) Issued by a
trust that holds a specified commodity \68\ deposited with the trust;
(b) issued by such trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity; and (c)
when aggregated in the same specified minimum number, may be redeemed
at a holder's request by such trust which will deliver to the redeeming
holder the quantity of the underlying commodity.
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    \68\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act. As noted above, the CFTC has opined that Bitcoin is a commodity
as defined in Section 1a(9) of the Commodity Exchange Act. See
Coinflip.
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    Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) The extent to which trading is not occurring in the bitcoin
underlying the Shares; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.

Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a), the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Commodity-Based Trust
Shares. The issuer has represented to the Exchange that it will advise
the Exchange of any failure by the Trust or the Shares to comply with
the continued listing requirements, and, pursuant to its obligations
under Section 19(g)(1) of the Exchange Act, the Exchange will surveil
for compliance with the continued listing requirements. If the Trust or
the Shares are not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under
Exchange Rule 14.12. The Exchange may obtain information regarding
trading in the Shares and Bitcoin Futures via ISG, from other exchanges
who are members or affiliates of the ISG, or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.\69\
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    \69\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) The procedures for the
creation and redemption of Baskets (and that the Shares are not
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (iii) how information
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks
involved in trading the Shares outside of Regular Trading Hours \70\
when an updated IIV will not be calculated or publicly disseminated;
(v) the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (vi) trading information.
---------------------------------------------------------------------------

    \70\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \71\ in general and Section 6(b)(5) of the Act \72\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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    \71\ 15 U.S.C. 78f.
    \72\ 15 U.S.C. 78f(b)(5).
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    The Commission has approved numerous series of Trust Issued
Receipts,\73\ including Commodity-Based Trust Shares,\74\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
The requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\75\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest.
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    \73\ See Exchange Rule 14.11(f).
    \74\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
    \75\ See note 54.
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    The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. With the growth of OTC
Bitcoin Funds over the past year, so too has grown the potential risk
to U.S. investors. Significant and prolonged premiums and discounts,
significant premium/discount volatility, high fees, insufficient
disclosures, and technical hurdles are putting U.S. investor money at
risk on a daily basis that could potentially be eliminated through
access to a bitcoin ETP. As such, the Exchange believes that this
proposal acts to limit the risk to U.S. investors that are increasingly
seeking exposure to bitcoin through the elimination of significant and
prolonged premiums and discounts, significant premium/discount
volatility, the reduction of management fees through meaningful
competition, the avoidance of risks associated with investing in
operating companies that are imperfect proxies for bitcoin exposure,
and protection from risk associated with custodying spot bitcoin by
providing direct, 1-for-1 exposure to bitcoin in a regulated,
transparent, exchange-traded vehicle designed to reduce the likelihood
of significant and prolonged premiums and discounts with its open-ended
nature as well as the ability of market participants (i.e., market
makers and authorized participants) to create and redeem on a daily
basis.
    The Exchange also believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act and that it has
sufficiently demonstrated that, on the whole, the manipulation concerns
previously articulated by the Commission are sufficiently mitigated to
the point that they are outweighed by quantifiable investor protection
issues that would be resolved by approving this proposal. Specifically,
the Exchange believes that the significant increase in trading volume
in Bitcoin Futures, the growth of liquidity at the inside in the spot
market for bitcoin, and certain features of the Shares and the
Reference Rate mitigate potential manipulation concerns to the point
that the investor protection issues that have arisen from the rapid
growth of over-the-counter bitcoin funds since the Commission last
reviewed an exchange proposal to list and trade a bitcoin ETP,
including premium/discount volatility and management fees, should be
the central consideration as the Commission determines whether to
approve this proposal.

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \76\ with a regulated market of significant size.
Both the Exchange and CME are members of ISG.\77\ The only remaining
issue to be addressed is whether the Bitcoin Futures market constitutes
a market of significant size, which the Exchange believes that it does.
The terms ``significant market'' and ``market of significant size''
include a market (or group of markets) as to which: (a) There is a
reasonable likelihood that a person attempting to manipulate the ETP
would also have to trade on that market to manipulate the ETP, so that
a surveillance-sharing agreement would assist the listing exchange in
detecting and deterring misconduct; and (b) it is unlikely that trading
in the ETP would be the predominant influence on prices in that
market.\78\
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    \76\ As previously articulated by the Commission, ``The standard
requires such surveillance-sharing agreements since ``they provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to fully investigate a
manipulation if it were to occur.'' The Commission has emphasized
that it is essential for an exchange listing a derivative securities
product to enter into a surveillance-sharing agreement with markets
trading underlying securities for the listing exchange to have the
ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of
exchange rules and applicable federal securities laws and rules. The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties
to the agreement have reasonable ability to obtain access to and
produce requested information; and that no existing rules, laws, or
practices would impede one party to the agreement from obtaining
this information from, or producing it to, the other party.'' The
Commission has historically held that joint membership in ISG
constitutes such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval.
    \77\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
    \78\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\79\
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    \79\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a ``cannot be
manipulated'' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.
Id. at 37582.
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(a) Manipulation of the ETP
    The significant growth in Bitcoin Futures across each of trading
volumes, open interest, large open interest holders, and total market
participants since the Wilshire Phoenix Disapproval was issued are
reflective of that market's growing influence on the spot price, which
according to the academic research cited above, was already leading the
spot price in 2018 and 2019. Where Bitcoin Futures lead the price in
the spot market such that a potential manipulator of the bitcoin spot
market (beyond just the constituents of the Reference Rate \80\) would
have to participate in the Bitcoin Futures market, it follows that a
potential manipulator of the Shares would similarly have to transact in
the Bitcoin Futures market because the Reference Rate is based on spot
prices. Further, the Trust only allows for in-kind creation and
redemption, which, as further described below, reduces the potential
for manipulation of the Shares through manipulation of the Reference
Rate or any of its individual constituents, again emphasizing that a
potential manipulator of the Shares would have to manipulate the
entirety of the bitcoin spot market, which is led by the Bitcoin
Futures market. As such, the Exchange believes that part (a) of the
significant market test outlined above is satisfied and that common
membership in ISG between the Exchange and CME would assist the listing
exchange in detecting and deterring misconduct in the Shares.
---------------------------------------------------------------------------

    \80\ As described above, the Constitutent Bitcoin Exchanges are
Bitstamp, Coinbase, Gemini, itBit, and Kraken.
---------------------------------------------------------------------------

(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange also believes that trading in the Shares would not be
the predominant force on prices in the Bitcoin Futures market (or spot
market) for a number of reasons, including the significant volume in
the Bitcoin Futures market, the size of bitcoin's market cap
(approximately $1 trillion), and the significant liquidity available in
the spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid. According
to data from CoinRoutes from February 2021, the cost to buy or sell $5
million worth of bitcoin averages roughly 10 basis points with a market
impact of 30 basis points.\81\ For a $10 million market order, the cost
to buy or sell is roughly 20 basis points with a market impact of 50
basis points. Stated another way, a market participant could enter a
market buy or sell order for $10 million of bitcoin and only move the
market 0.5%. More strategic purchases or sales (such as using limit
orders and executing through OTC bitcoin trade desks) would likely have
less obvious impact on the market--which is consistent with
MicroStrategy, Tesla, and Square being able to collectively purchase
billions of dollars in bitcoin. As such, the combination of Bitcoin
Futures leading price discovery, the overall size of the bitcoin
market, and the ability for market participants, including authorized
participants creating and redeeming in-kind with the Trust, to buy or
sell large amounts of bitcoin without significant market impact will
help prevent the Shares from becoming the predominant force on pricing
in either the bitcoin spot or Bitcoin Futures markets, satisfying part
(b) of the test outlined above.
---------------------------------------------------------------------------

    \81\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange believes that
such conditions are present. Specifically, the significant liquidity in
the spot market and the impact of market orders on the overall price of
bitcoin mean that attempting to move the price of bitcoin is costly and
has grown more expensive over the past year. In January 2020, for
example, the cost to buy or sell $5 million worth of bitcoin averaged
roughly 30 basis points (compared to 10 basis points in 2/2021) with a
market impact of 50 basis points (compared to 30 basis points in 2/
2021).\82\ For a $10 million market order, the cost to buy or sell was
roughly 50 basis points (compared to 20 basis points in 2/2021) with a
market impact of 80 basis points (compared to 50 basis points in 2/
2021). As the liquidity in the bitcoin spot market increases, it
follows that the impact of $5 million and $10

million orders will continue to decrease the overall impact in spot
price.
---------------------------------------------------------------------------

    \82\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------

    Additionally, offering only in-kind creation and redemption will
provide unique protections against potential attempts to manipulate the
Shares. While the Sponsor believes that the Reference Rate which it
uses to value the Trust's bitcoin is itself resistant to manipulation
based on the methodology further described below, the fact that
creations and redemptions are only available in-kind makes the
manipulability of the Reference Rate significantly less important.
Specifically, because the Trust will not accept cash to buy bitcoin in
order to create new shares or, barring a forced redemption of the Trust
or under other extraordinary circumstances, be forced to sell bitcoin
to pay cash for redeemed shares, the price that the Sponsor uses to
value the Trust's bitcoin is not particularly important.\83\ When
authorized participants are creating with the Trust, they need to
deliver a certain number of bitcoin per share (regardless of the
valuation used) and when they're redeeming, they can similarly expect
to receive a certain number of bitcoin per share. As such, even if the
price used to value the Trust's bitcoin is manipulated (which the
Sponsor believes that its methodology is resistant to), the ratio of
bitcoin per Share does not change and the Trust will either accept (for
creations) or distribute (for redemptions) the same number of bitcoin
regardless of the value. This not only mitigates the risk associated
with potential manipulation, but also discourages and disincentivizes
manipulation of the Reference Rate because there is little financial
incentive to do so.
---------------------------------------------------------------------------

    \83\ While the Reference Rate will not be particularly important
for the creation and redemption process, it will be used for
calculating fees.
---------------------------------------------------------------------------

Commodity-Based Trust Shares
    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed
bitcoin derivatives via the ISG, from other exchanges who are members
or affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Availability of Information
    The Exchange also believes that the proposal promotes market
transparency in that a large amount of information is currently
available about bitcoin and will be available regarding the Trust and
the Shares. In addition to the price transparency of the Reference
Rate, the Trust will provide information regarding the Trust's bitcoin
holdings as well as additional data regarding the Trust. The Trust will
provide an IIV per Share updated every 15 seconds, as calculated by the
Exchange or a third-party financial data provider during the Exchange's
Regular Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be
calculated by using the prior day's closing NAV per Share as a base and
updating that value during Regular Trading Hours to reflect changes in
the value of the Trust's bitcoin holdings during the trading day.
    The IIV disseminated during Regular Trading Hours should not be
viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV will be
widely disseminated on a per Share basis every 15 seconds during the
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
    The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) The current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the BZX Official Closing Price in relation to the NAV as of
the time the NAV is calculated and a calculation of the premium or
discount of such price against such NAV; (c) data in chart form
displaying the frequency distribution of discounts and premiums of the
Official Closing Price against the NAV, within appropriate ranges for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter); (d) the prospectus; and (e) other applicable
quantitative information. The Trust will also disseminate the Trust's
holdings on a daily basis on the Trust's website. The price of bitcoin
will be made available by one or more major market data vendors,
updated at least every 15 seconds during Regular Trading Hours.
Information about the Reference Rate, including key elements of how the
Reference Rate is calculated, will be publicly available at https://www.cfbenchmarks.com.
    The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the CTA.
    Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Reference Rate. Information
relating to trading, including price and volume information, in bitcoin
is available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-CboeBZX-2021-029 on the subject line.
Paper Comments
     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2021-029. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2021-029 and should be submitted
on or before May 19, 2021.
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    \84\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\84\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08855 Filed 4-27-21; 8:45 am]
BILLING CODE 8011-01-P