Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1, and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Listing and Trading of Shares of the Bitcoin Investment Trust Under NYSE Arca Equities Rule 8.201, 19398-19412 [2017-08462]

Download as PDF 19398 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices III. Procedure: Request for Written Comments Commission, 100 F Street NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5) or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.14 Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by May 18, 2017. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by June 1, 2017. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal, which are set forth in the Notice.15 In addition to any other comments commenters may wish to submit about the proposed rule change, the Commission invites commenters’ views concerning any features that distinguish the Exchange’s proposal from other proposals to list and trade shares of commodity-trust ETPs. Comments may be submitted by any of the following methods: All submissions should refer to File Numbers SR–NYSEArca–2016–176. 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 Web site (https:// 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 Web site 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 these filings also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2016–176 and should be submitted on or before May 18, 2017. Rebuttal comments should be submitted by June 1, 2017. [Release No. 34–80502; File No. SR– NYSEArca–2017–06] Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2016–176 on the subject line. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–08461 Filed 4–26–17; 8:45 am] BILLING CODE 8011–01–P Paper Comments mstockstill on DSK30JT082PROD with NOTICES • Send paper comments in triplicate to Secretary, Securities and Exchange 14 Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 15 See supra note 3. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 16 17 PO 00000 CFR 200.30–3(a)(57). Frm 00049 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1, and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, Relating to the Listing and Trading of Shares of the Bitcoin Investment Trust Under NYSE Arca Equities Rule 8.201 April 21, 2017. On January 25, 2017, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the Bitcoin Investment Trust under NYSE Arca Equities Rule 8.201. The proposed rule change was published for comment in the Federal Register on February 9, 2017.3 On March 22, 2017, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.5 The Commission received four comment letters on the proposed rule change.6 On April 6, 2017, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comment on the proposed rule change, as modified by Amendment No. 1,7 from interested 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79955 (Feb. 3, 2017), 82 FR 10086 (Feb. 9, 2017) (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 80297 (Mar. 22, 2017), 82 FR 15408 (Mar. 28, 2017). The Commission designated May 10, 2017, as the date by which it should approve, disapprove, or institute proceedings to determine whether to approve or disapprove the proposed rule change. 6 See Letters from Joseph Stephen White (Feb. 5, 2017); Anonymous (Feb. 8, 2017) (purportedly from Jeffrey Wilcke, Ethereum Foundation); Mark T. Williams, Finance Professor, Boston University (Mar. 13, 2017); Clark J. Haley (Apr. 17, 2017). All comments on the proposed rule change are available on the Commission’s Web site at https:// www.sec.gov/comments/sr-nysearca-2017-06/ nysearca201706.htm. 7 The Exchange’s description of the proposed rule change, as modified by Amendment No. 1, is described in Sections I and II below, which Sections have been prepared by the Exchange. In 2 17 E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices persons and is instituting proceedings under Section 19(b)(2)(B) of the Act 8 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.201: Bitcoin Investment Trust (‘‘Trust’’). The proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change mstockstill on DSK30JT082PROD with NOTICES 1. Purpose Under NYSE Arca Equities Rule 8.201, the Exchange may propose to list and/or trade pursuant to unlisted Amendment No. 1, the Exchange, among other things (a) added content relating to the Trust’s security arrangements (see Section II.A.1, infra (discussion in subheading ‘‘Bitcoin Security and Storage’’)); (b) added content relating to changes in transactions fees and trading volumes on Chinabased bitcoin exchanges (see Section II.A.1, infra (discussion in subheading ‘‘Bitcoin Exchanges’’)); (c) revised information and statistics relating to the trading volumes on, and market shares of, the largest U.S. dollar denominated bitcoin exchanges (see Section II.A.1, infra (table entitled ‘‘Eight Largest U.S. Dollar-Denominated Bitcoin Exchanges by Trade Volume’’ under subheading ‘‘Bitcoin Exchanges’’)); (d) deleted content relating to a platform license agreement between the Index Provider and Genesis (see Section II.A.1, infra (discussion in subheading ‘‘Bitcoin Index Price’’)); and (e) clarified and added content relating to the Trust’s creation and redemption processes, particularly the Conversion Procedures (see Section II.A.1, infra (discussion in subheading ‘‘Creation and Redemption of Shares’’)). Amendment No. 1, which superseded and replaced the proposed rule change in its entirety, is available on the Commission’s Web site at: https://www.sec.gov/ comments/sr-nysearca-2017-06/nysearca2017061689847-149663.pdf. 8 15 U.S.C. 78s(b)(2)(B). VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 trading privileges (‘‘UTP’’) ‘‘Commodity-Based Trust Shares.’’ 9 The Exchange proposes to list and trade shares (‘‘Shares’’) of the Trust pursuant to NYSE Arca Equities Rule 8.201.10 The sponsor of the Trust is Grayscale Investments, LLC (‘‘Sponsor’’), a Delaware limited liability company. The Sponsor is a wholly-owned subsidiary of Digital Currency Group, Inc. (‘‘Digital Currency Group’’). The trustee for the Trust is Delaware Trust Company (‘‘Trustee’’). The Bank of New York Mellon will be the Trust’s transfer agent (in such capacity, ‘‘Transfer Agent’’) and the administrator of the Trust (in such capacity, ‘‘Administrator’’). Xapo Inc. is the custodian for the Trust (‘‘Custodian’’).11 ALPS Portfolio Solutions Distributor, Inc. will be the marketing agent for the Trust (‘‘Marketing Agent’’). The Trust is a Delaware statutory trust, organized on September 13, 2013, that operates pursuant to a trust agreement between the Sponsor and the Trustee. The Trust has no fixed termination date. According to the Registration Statement, each Share will represent a proportional interest, based on the total 9 Commodity-Based Trust Shares are securities issued by a trust that represent investors’ discrete identifiable and undivided beneficial ownership interest in the commodities deposited into the Trust. 10 On March 24, 2017, the Trust filed Amendment No. 1 to its registration statement (‘‘Registration Statement’’) on Form S–1 under the Securities Act of 1933 (15 U.S.C. 77a) (File No. 333–215627). The descriptions of the Trust, the Shares and bitcoin contained herein are based, in part, on the Registration Statement. This Amendment No. 1 to SR–NYSEArca–2017–06 replaces SR–NYSEArca– 2017–06 as originally filed and supersedes such filing in its entirety. On March 4, 2016, the Trust submitted to the Commission an amended Form D as a business trust. Shares of the Trust have been quoted on OTC Market’s OTCQX Best Marketplace under the symbol ‘‘GBTC’’ since March 26, 2015. On November 11, 2016, the Trust also published a quarterly report for GBTC for the period ended September 30, 2016, which can be found on OTC Market’s Web site: https://www.otcmarkets.com/ stock/GBTC/filings. The Shares will be of the same class and will have the same rights as shares of GBTC. Effective October 28, 2014, the Trust suspended its redemption program for shares of GBTC, in which shareholders were permitted to request the redemption of their shares through Genesis Global Trading, Inc. (formerly known as SecondMarket, Inc.), an affiliate of the Sponsor and the Trust (‘‘Genesis’’). According to the Sponsor, freely tradeable shares of GBTC will remain unregistered freely tradeable Shares on the date of the listing of the Shares unless, if authorized by the Trust, holders of GBTC sell the shares in the initial public offering. Restricted shares of GBTC will remain subject to private placement restrictions and the holders of such restricted shares may either (i) continue to hold those shares subject to those restrictions or (ii) if authorized by the Trust, sell the restricted shares in the initial public offering. 11 According to the Registration Statement, Digital Currency Group owns a minority interest in the Custodian that represents less than 1.0% of the Custodian’s equity. PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 19399 number of Shares outstanding, in the bitcoins held by the Trust, less the Trust’s liabilities, which include accrued but unpaid fees and expenses. The Trust’s assets will consist solely of bitcoins held on the Trust’s behalf by the Custodian. The Trust has not had a cash balance at any time since inception. When selling bitcoins to pay expenses, the Sponsor will endeavor to sell the exact number of bitcoins needed to pay expenses in order to minimize the Trust’s holdings of assets other than bitcoin. As a consequence, the Trust expects that it will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period. The activities of the Trust will be limited to (i) issuing ‘‘Baskets’’ (as defined below) in exchange for bitcoins deposited by the ‘‘Authorized Participants’’ (as defined below) or ‘‘Liquidity Providers’’ (as defined below), as applicable, with the Custodian as consideration, (ii) transferring actual bitcoins as necessary to cover the Sponsor’s management fee and selling bitcoins as necessary to pay certain other fees that are not contractually assumed by the Sponsor, (iii) transferring actual bitcoins in exchange for Baskets surrendered for redemption by the Authorized Participants, (iv) causing the Sponsor to sell bitcoins on the termination of the Trust and (v) engaging in all administrative and custodial procedures necessary to accomplish such activities in accordance with the provisions of applicable agreements. The Trust is not actively managed. It will not engage in any activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the market price of bitcoins. According to the Registration Statement, the Trust is neither an investment company registered under the Investment Company Act of 1940, as amended, (‘‘1940 Act’’) 12 nor a commodity pool for purposes of the Commodity Exchange Act,13 and neither the Sponsor nor the Trustee is subject to regulation as a commodity pool operator or a commodity trading adviser in connection with the Shares. Investment Objective According to the Registration Statement, and as further described below, the investment objective of the Trust will be for the Shares to reflect the performance of the value of a bitcoin as represented by the TradeBlock XBX 12 15 13 17 E:\FR\FM\27APN1.SGM U.S.C. 80a–1. U.S.C. 1. 27APN1 19400 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices Index (‘‘Index’’),14 less the Trust’s liabilities and expenses. The Shares are designed to provide investors with a cost-effective and convenient way to invest in bitcoin. A substantial direct investment in bitcoins may require expensive and sometimes complicated arrangements in connection with the acquisition, security and safekeeping of the bitcoins and may involve the payment of substantial fees to acquire such bitcoins from third-party facilitators through cash payments of U.S. dollars. Although the Shares will not be the exact equivalent of a direct investment in bitcoins, they will provide investors with an alternative that constitutes a relatively cost-effective way to participate in bitcoin markets through the securities market. Overview of the Bitcoin Industry and Market The following is a brief introduction to the bitcoin industry and the bitcoin market based on information provided in the Registration Statement. mstockstill on DSK30JT082PROD with NOTICES The Bitcoin Network A bitcoin is a decentralized digital currency that is issued by, and transmitted through, an open-source digital protocol platform using cryptographic security that is known as the ‘‘Bitcoin Network.’’ The Bitcoin Network is an online, peer-to-peer user network that hosts a public transaction ledger, known as the ‘‘Blockchain,’’ and the source code that comprises the basis for the cryptography and digital protocols governing the Bitcoin Network. No single entity owns or operates the Bitcoin Network, the infrastructure of which is collectively maintained by a decentralized user base. Bitcoins can be used to pay for goods and services or can be converted to fiat currencies, such as the U.S. dollar, at rates determined on electronic marketplaces where exchange participants may first use fiat currency to trade, buy and sell bitcoins based on bid-ask trading (‘‘Bitcoin Exchanges’’) or in individual end-user-to-end-user transactions under a barter system. The Blockchain is comprised of a digital file, downloaded and stored, in whole or in part, on all bitcoin users’ software programs. The file includes all 14 The Index is a U.S. dollar-denominated composite reference rate for the price of bitcoin based on the volume-weighted price at trading venues selected by TradeBlock, Inc. (‘‘Index Provider’’). According to the Registration Statement, Digital Currency Group, Inc. owns approximately 2.4% of the Index Provider’s voting equity and warrants representing approximately 1.4% of the Index Provider’s voting equity. See ‘‘Bitcoin Index Price’’ below. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 ‘‘blocks’’ that have been solved by miners and is updated to include new blocks as they are solved. As each newly solved block refers back to and ‘‘connects’’ with the immediately prior solved block, the addition of a new block adds to the Blockchain in a manner similar to a new link being added to a chain. Because each new block records outstanding bitcoin transactions, and outstanding transactions are settled and validated through such recording, the Blockchain represents a complete, transparent and unbroken history of all transactions on the Bitcoin Network. Bitcoins are ‘‘stored’’ or reflected on the Blockchain. The Blockchain records the transaction history of all bitcoins in existence and, through the transparent reporting of transactions, allows the Bitcoin Network to verify the association of each bitcoin with the digital wallet that owns them. The Bitcoin Network and bitcoin software programs can interpret the Blockchain to determine the exact bitcoin balance of any digital wallet listed in the Blockchain as having taken part in a transaction on the Bitcoin Network. In order to own, transfer or use bitcoins, a person generally must have internet access to connect to the Bitcoin Network. Bitcoin transactions between parties occur rapidly (typically between a few seconds and a few minutes) and may be made directly between endusers without the need for a third-party intermediary, although there are entities that provide third-party intermediary services. To prevent the possibility of double-spending a single bitcoin, each transaction is recorded, time stamped and publicly displayed in a block in the publicly available Blockchain. Thus, the Bitcoin Network provides confirmation against double-spending by memorializing every transaction in the Blockchain, which is publicly accessible and downloaded in part or in whole by all users’ Bitcoin Network software programs as described above. The Bitcoin Network is decentralized and does not rely on either governmental authorities or financial institutions to create, transmit or determine the value of bitcoins. Rather, bitcoins are created and allocated by the Bitcoin Network protocol through a ‘‘mining’’ process subject to a strict, well-known issuance schedule. The value of bitcoins is determined by the supply of and demand for bitcoins in the bitcoin exchange market (and in private end-user-to-end-user transactions), as well as the number of merchants that accept them. As bitcoin transactions can be broadcast to the Bitcoin Network by any user’s bitcoin PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 software and bitcoins can be transferred without the involvement of intermediaries or third parties, there are little or no transaction costs in direct peer-to-peer transactions on the Bitcoin Network. Third-party service providers such as Bitcoin Exchanges and bitcoin third-party payment processing services may charge significant fees for processing transactions and for converting, or facilitating the conversion of, bitcoins to or from fiat currency. ‘‘Off-Blockchain transactions’’ involve the transfer of control over, or ownership of, a specific digital wallet holding bitcoins, or of the reallocation of ownership of certain bitcoins in a pooled-ownership digital wallet, such as a digital wallet owned by a Bitcoin Exchange. Off-Blockchain transactions are not truly bitcoin transactions in that they do not involve the transfer of transaction data on the Bitcoin Network and do not reflect a movement of bitcoins between addresses recorded in the Blockchain. Information and data regarding Off-Blockchain transactions are generally not publicly available in contrast to ‘‘true’’ bitcoin transactions, which are publicly recorded on the Blockchain. Off-Blockchain transactions are subject to risks as any such transfer of bitcoin ownership is not protected by the protocol behind the Bitcoin Network or recorded in and validated through the Blockchain mechanism. Overview of Bitcoin Transactions Prior to engaging in bitcoin transactions, a user must first obtain a digital bitcoin ‘‘wallet’’ (analogous to a bitcoin account) in which to store bitcoins. A wallet can be obtained, among other ways, through an opensource software program that generates bitcoin addresses and enables users to engage in the transfer of bitcoins with other users. A user may install a bitcoin software program on a computer or mobile device that will generate a bitcoin wallet or, alternatively, a user may retain a third party to create a digital wallet to be used for the same purpose. There is no limit on the number of digital wallets a user can have, and each such wallet includes one or more unique addresses and a verification system for each address consisting of a ‘‘public key’’ and a ‘‘private key,’’ which are mathematically related. In a typical bitcoin transaction, the bitcoin recipient must provide the spending party with the recipient’s digital wallet address, an identifying series of 27 to 34 alphanumeric characters that represents the wallet’s routing number on the Bitcoin Network and allows the Blockchain to record the E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices sending of bitcoins to the recipient’s wallet. The receiving party can provide this address to the spending party in alphanumeric format or an encoded format such as a Quick Response Code (commonly known as a QR Code), which may be scanned by a smartphone or other device to quickly transmit the information. This activity is analogous to a recipient providing an address in wire instructions to the payor so that cash may be wired to the recipient’s account. After the provision of the receiving wallet’s digital address, the spending party must enter the address into its bitcoin software program along with the number of bitcoins to be sent. The number of bitcoins to be sent will typically be agreed upon between the two parties based on a set number of bitcoins or an agreed upon conversion of the value of fiat currency to bitcoins. Most bitcoin software programs also allow, and often suggest, the payment of a transaction fee (also known as a miner’s fee). Transaction fees are not required to be included by many bitcoin software programs, but, when they are included, they are paid by the spending party on top of the specified amount of bitcoins being sent in the transaction. Transaction fees, if any, are typically a fractional number of bitcoins (for example, 0.005 or 0.0005 bitcoins) and are automatically transferred by the Bitcoin Network to the bitcoin miner that solves and adds the block recording the spending transaction on the Blockchain. After the entry of the receiving wallet’s address, the number of bitcoins to be sent and the transaction fees, if any, to be paid, the spending party will transmit the spending transaction. The transmission of the spending transaction results in the creation of a data packet by the spending party’s bitcoin software program. The data packet includes data showing (i) the receiving wallet’s address, (ii) the number of bitcoins being sent, (iii) the transaction fees, if any, and (iv) the spending party’s digital signature, verifying the authenticity of the transaction. The data packet also includes references called ‘‘inputs’’ and ‘‘outputs,’’ which are used by the Blockchain to identify the source of the bitcoins being spent and record the flow of bitcoins from one transaction to the next transaction in which the bitcoins are spent. The digital signature exposes the spending party’s digital wallet address and public key to the Bitcoin Network, though, for the receiving party, only its digital wallet address is revealed. The spending party’s bitcoin software will transmit the data packet onto the decentralized Bitcoin Network, VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 resulting in the propagation of the information among the software programs of bitcoin users across the Bitcoin Network for eventual inclusion in the Blockchain. Typically, the data will spread to a vast majority of bitcoin miners within the course of less than one minute. Bitcoin miners record transactions when they solve for and add blocks of information to the Blockchain. When a miner solves for a block, it creates that block, which includes data relating to (i) the solution to the block, (ii) a reference to the prior block in the Blockchain to which the new block is being added and (iii) all transactions that have occurred but have not yet been added to the Blockchain. The miner becomes aware of outstanding, unrecorded transactions through the data packet transmission and propagation discussed above. Typically, bitcoin transactions will be recorded in the next chronological block if the spending party has an internet connection and at least one minute has passed between the transaction’s data packet transmission and the solution of the next block. If a transaction is not recorded in the next chronological block, it is usually recorded in the next block thereafter. Bitcoin transactions that are micropayments (typically, less than 0.01 bitcoins) and that do not include transaction fees to miners are currently deprioritized for recording, meaning that, depending on bitcoin miner policies, these transactions may take longer to record than typical transactions if the transactions do not include a transaction fee. Additionally, transactions initiated by spending wallets with poor connections to the Bitcoin Network (i.e., few or poor quality connections to nodes or ‘‘supernodes’’ that relay transaction data) may be delayed in the propagation of their transaction data and, therefore, transaction recording on the Blockchain. Finally, to the extent that a miner chooses to limit the transactions it includes in a solved block (whether by the payment of transaction fees or otherwise), a transaction not meeting that miner’s criteria will not be included. To the extent that a transaction has not yet been recorded, there is a greater chance that the spending wallet can double-spend the bitcoins sent in the original transaction. If the next block solved is by an honest miner not involved in the attempt to double-spend bitcoin and if the transaction data for both the original and double-spend transactions have been propagated onto the Bitcoin Network, the transaction that is received with the earlier time PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 19401 stamp will be recorded by the solving miner, regardless of whether the doublespending transaction includes a larger transaction fee. If the double-spend transaction propagates to the solving miner and the original transaction has not, then the double-spending has a greater chance of success. As a result of the high difficulty in successfully initiating a double-spend without the assistance of a coordinated attack, the probability of success for a doublespend transaction attempt is limited. Upon the addition of a block included in the Blockchain, the bitcoin software program of both the spending party and the receiving party will show confirmation of the transaction on the Blockchain and reflect an adjustment to the bitcoin balance in each party’s digital wallet, completing the bitcoin transaction. Typically, bitcoin software programs will automatically check for and display additional confirmations of six or more blocks in the Blockchain. To ensure the integrity of bitcoin transactions from the recipient’s side (i.e., to prevent double-spending by a payor), every bitcoin transaction is broadcast to the Bitcoin Network and recorded in the Blockchain through the mining process, which time-stamps the transaction and memorializes the change in the ownership of the bitcoin(s) transferred. Adding a block to the Blockchain requires bitcoin miners to exert significant computational effort to verify it is a valid transaction. According to the Registration Statement, requiring this computational effort, or ‘‘proof of work,’’ prevents a malicious actor from either adding fraudulent blocks to generate bitcoins (i.e., counterfeit bitcoins) or overwriting existing valid blocks to reverse its prior transactions. A transaction in bitcoins between two parties is recorded in the Blockchain in a block only if that block is accepted as valid by a majority of the nodes on the Bitcoin Network. Validation of a block is achieved by confirming the cryptographic ‘‘hash value’’ included in the block’s solution and by the block’s addition to the longest confirmed Blockchain on the Bitcoin Network. For a transaction, inclusion in a block on the Blockchain constitutes a ‘‘confirmation’’ of the bitcoin transaction. As each block contains a reference to the immediately preceding block, additional blocks appended to and incorporated into the Blockchain constitute additional confirmations of the transactions in such prior blocks, and a transaction included in a block for the first time is confirmed once against double-spending. The layered confirmation process makes changing E:\FR\FM\27APN1.SGM 27APN1 19402 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES historical blocks (and reversing transactions) exponentially more difficult the further back one goes in the Blockchain. Bitcoin Exchanges and users can set their own threshold as to how many confirmations are required until funds from the transferor are considered valid. However, statistically speaking, a transaction is virtually final after six confirmations as it would be extremely difficult to challenge the validity of the transaction at that point. According to the Registration Statement, at this point in the evolution of the Bitcoin Network, bitcoin transactions are considered irreversible. Once a transaction appears in the Blockchain, no one has the authority to reverse it. If someone were to attempt to undo a past transaction in a block recorded on the Blockchain, such individual would have to exert tremendous processing power in a series of complicated transactions that may not be achieved at this point in the Bitcoin Network’s development. Bitcoin Security and Storage According to the Registration Statement, all transactions on the Bitcoin Network are secured using public-key cryptography, a technique which underpins many online transactions. Public-key cryptography works by generating two mathematically related keys (one a public key and the other a private key). One of these, the private key, is retained in the individual’s digital wallet and the other key is made public and serves as the address to which bitcoin(s) can be transferred and from which money can be transferred by the owner of the bitcoin wallet. In the case of bitcoin transactions, the public key is an address (a string of letters and numbers) that is used to encode payments, which can then only be retrieved with its associated private key, which is used to authorize the transaction. In other words, the payor uses his private key to approve any transfers to a recipient’s account. Users on the Bitcoin Network can confirm that the user signed the transaction with the appropriate private key, but cannot reverse engineer the private key from the signature. According to the Registration Statement, the Custodian is responsible for keeping the private key or keys that provide access to the Trust’s digital wallets and vaults secure. Pursuant to a request from the Sponsor or the Trust, the Custodian will establish and maintain an account with one or more wallets (‘‘Wallet Account’’) and one or more cold-storage vault accounts (‘‘Vault Account’’ and, together with the Wallet Account and any subaccounts VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 associated therewith, the ‘‘Bitcoin Account’’) in the name of the Sponsor and the Trust. The Custodian deposits and withdraws bitcoins to and from the Bitcoin Account at the instruction of the Sponsor. The Custodian is responsible for administering the Bitcoin Account. The Bitcoin Account is maintained by the Custodian and cold storage mechanisms are used for the Vault Account by the Custodian. Each digital wallet of the Trust may be accessed using its corresponding private key. The Custodian’s custodial operations maintain custody of the private keys that have been deposited in cold storage at its various vaulting premises which are located in geographically dispersed locations across the world, including but not limited to the United States, Europe (including Switzerland) and South America. According to the Registration Statement, the locations of the vaulting premises change regularly and are kept confidential by the Custodian for security purposes. The term ‘‘cold storage’’ refers to a safeguarding method by which the private keys corresponding to bitcoins stored on a digital wallet are removed from any computers actively connected to the internet. Cold storage of private keys may involve keeping such wallet on a non-networked computer or electronic device or storing the public key and private keys relating to the digital wallet on a storage device (for example, a USB thumb drive) or printed medium (for example, papyrus or paper) and deleting the digital wallet from all computers. According to the Registration Statement, most of the private keys in the Wallet Account and all of the private keys in the Vault Account are kept in cold storage. A digital wallet may receive deposits of bitcoins but may not send bitcoins without use of the bitcoins’ corresponding private keys. In order to send bitcoin from a digital wallet in which the private keys are kept in cold storage, either the private keys must be retrieved from cold storage and entered into a bitcoin software program to sign the transaction, or the unsigned transaction must be sent to the ‘‘cold’’ server in which the private keys are held for signature by the private keys. At that point, the user of the digital wallet can transfer its bitcoins. According to the Registration Statement, the Custodian is the custodian of the Trust’s private keys and will utilize certain security procedures such as algorithms, codes, passwords, encryption or telephone call-backs in the administration and operation of the Trust and the safekeeping of its bitcoins and private keys. The Custodian has PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 created a Vault Account for the Trust assets in which private keys are placed in cold storage. According to the Registration Statement, the Custodian segregates the private keys stored with it from any other assets it holds or holds for others. According to the Registration Statement, multiple distinct private keys must sign any transaction in order to transfer the Trust’s bitcoins from a multi-signature address to any other address on the Bitcoin blockchain. Distinct private keys required for multisignature address transfers reside in geographically dispersed vault locations. The Custodian refers to these vault locations, where transactions are signed by private keys, as ‘‘signing vaults.’’ In addition to multiple signing vaults, the Custodian maintains multiple ‘‘back-up vaults’’ in which backup private keys are stored. According to the Registration Statement, in the event that one or more of the ‘‘signing vaults’’ were to be compromised, back-up vaults can be activated and used as signing vaults to complete a transaction within 72 hours. Therefore, according to the Registration Statement, if any one signing vault were to be compromised, it would have no impact on the ability of the Trust to access its bitcoins, other than a possible delay in operations of 72 hours, while one or more of the backup vaults was transitioned to a signing vault. According to the Registration Statement, these security procedures ensure that there is no single point of failure in the protection of the Trust’s assets. The Custodian is authorized to accept, on behalf of the Trust, deposits of bitcoins from ‘‘Authorized Participant Self-Administered Accounts’’ (as defined below) or ‘‘Liquidity Provider Accounts’’ (as defined below), as applicable, held with the Custodian and transfer such bitcoins into the Bitcoin Account. Deposits of bitcoins will be immediately available to the Trust to the extent such bitcoins have not already been transferred to the Vault Account. Bitcoins transferred to the Bitcoin Account will be directly deposited into digital wallets for which the keys are already in cold storage. According to the Registration Statement, if bitcoins need to be withdrawn from the Trust in connection with a redemption, the Custodian will ensure that the private keys to those bitcoins sign the withdrawal transaction. E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices Bitcoin Mining and Creation of New Bitcoins According to the Registration Statement, the process by which bitcoins are created and bitcoin transactions are verified is called mining.15 To begin mining, a miner can download and run a mining client, which, like regular Bitcoin Network software programs, turns the user’s computer into a ‘‘node’’ on the Bitcoin Network that validates blocks. Bitcoin transactions are recorded in new blocks that are added to the Blockchain and new bitcoins being issued to the miners. Miners, through the use of the bitcoin software program, engage in a set of prescribed complex mathematical calculations in order to add a block to the Blockchain and thereby confirm bitcoin transactions included in that block’s data. In order to add blocks to the Blockchain, a miner must map an input data set (i.e., the Blockchain, plus a block of the most recent Bitcoin Network transactions and an arbitrary number called a ‘‘nonce’’) to a desired output data set of a predetermined length, i.e., a hash value, using the SHA–256 cryptographic hash algorithm. Each unique block can only be solved and added to the Blockchain by one miner; therefore, all individual miners and mining pools on the Bitcoin Network are engaged in a competitive process of constantly increasing their computing power to improve their likelihood of solving for new blocks. According to the Registration Statement, as more miners join the Bitcoin Network and its processing power increases, the Bitcoin Network adjusts the complexity of the block-solving equation to maintain a predetermined pace of adding a new block to the Blockchain approximately every ten minutes. A miner’s proposed block is added to the Blockchain once a majority of the nodes on the Bitcoin Network confirms the miner’s work. Miners that are successful in adding a block to the Blockchain are automatically awarded bitcoins for their effort plus any transaction fees paid by transferors whose transactions are recorded in the block. This reward system is the method by which new bitcoins enter into circulation to the public. The supply of new bitcoins is mathematically controlled in a manner so that the number of bitcoins grows at a limited rate pursuant to a pre-set schedule. The number of bitcoins awarded for solving a new block is 15 None of the Trust, Sponsor or Genesis currently participates in mining or has plans to engage in mining in the future. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 automatically halved after every 210,000 blocks are added to the Blockchain. Recently, in July 2016, the fixed reward for solving a new block decreased from 25 bitcoins to 12.5 bitcoins per block and this is expected to decrease by half to become 6.25 bitcoins after the next 210,000 blocks have entered the Bitcoin Network, which is expected to be July 2020. This deliberately controlled rate of bitcoin creation means that the number of bitcoins in existence will increase at a controlled rate until the number of bitcoins in existence reaches the pre-determined 21 million bitcoins. According to the Registration Statement, as of March 15, 2017, approximately 16.22 million bitcoins have been mined, and estimates of when the 21 million bitcoin limitation will be reached range up to the year 2140. Bitcoin Exchanges According to the Registration Statement, due to the peer-to-peer framework of the Bitcoin Network and the protocols thereunder, transferors and recipients of bitcoins are able to determine the value of the bitcoins transferred by mutual agreement or barter with respect to their transactions. As a result, the most common means of determining the value of a bitcoin is by surveying one or more Bitcoin Exchanges where bitcoins are bought, sold and traded. On each Bitcoin Exchange, bitcoins are traded with publicly disclosed valuations for each transaction, measured by one or more fiat currencies such as the U.S. dollar or the Chinese yuan. According to the Registration Statement, historically, a large percentage of the global trading volume occurred on self-reported, unregulated exchanges located in China. In January 2017, some of the largest China-based Bitcoin Exchanges implemented certain adjustments to their terms, including the introduction of a 0.2% fixed-rate transaction fee for all bitcoin buy and sell orders. In February 2017, certain smaller China-based Bitcoin Exchanges also imposed or increased trading fees on their respective exchanges. In the subsequent weeks, some of the largest China-based Bitcoin Exchanges halted bitcoin withdrawals. According to the Registration Statement, these events have substantially reduced the volume traded on Chinese exchanges and changed the global liquidity profile for bitcoins. For example, according to the Registration Statement, from May 10, 2015 to January 24, 2017, the three primary China-based Bitcoin Exchanges, BTCC, Huobi and OKCoin, reported a total trade volume of approximately PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 19403 1.35 billion bitcoins and an average daily trade volume of 2.16 million bitcoins, comprising more than 95% of the global exchange-traded volume based on data from the Index Provider. According to the Registration Statement, during this period, the exchanges that comprised the Index, reported a total trade volume of 33.03 million bitcoins and an average daily trade volume of approximately 53,000 bitcoins, accounting for approximately 2.3% of the global exchange-traded volume and 78.5% of the U.S. dollar-denominated trade volume. However, according to the Registration Statement, from January 25, 2017 to March 15, 2017, following the introduction of fixed-rate transaction fees in response, the three primary China-based Bitcoin Exchanges, BTCC, Huobi and OKCoin, reported a total trade volume of approximately 1.35 million bitcoins and an average daily trade volume of approximately 27,000 bitcoins, comprising only 25.2% of the global exchange-traded volume based on data from the Index Provider. During this period, the exchanges that comprised the Index, reported a total trade volume of approximately 1.89 million bitcoins and an average daily trade volume of nearly 39,000 bitcoins, accounting for 35.2% of the global exchange-traded volume and 73.6% of the U.S. dollar-denominated trade volume. According to the Registration Statement, similar to other currency pairs, such as euro to bitcoin, movements in pricing on the Chinese exchanges are generally in line with U.S. dollar-denominated exchanges. For example, according to the Registration Statement, based on data from the Index Provider, from May 10, 2015 to March 15, 2017, the 4:00 p.m., Eastern Time (‘‘E.T.’’), spot price on the three primary Chinese yuan-denominated exchanges (BTC China, Huobi and OKCoin) differed from the ‘‘Bitcoin Index Price’’ (as defined below) by only 1.6% on average. According to the Registration Statement, bitcoin price indexes have also been developed by a number of service providers in the bitcoin space. For example, Coindesk, a digital currency content provider and whollyowned subsidiary of Digital Currency Group, launched a proprietary bitcoin price index in September 2013, and bitcoinaverage.com provides an average of all bitcoin prices on several Bitcoin Exchanges. The Sponsor uses the Index calculated by the Index Provider to determine the ‘‘Bitcoin Index Price,’’ as described below under ‘‘Bitcoin Index Price.’’ E:\FR\FM\27APN1.SGM 27APN1 19404 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices Currently, there are numerous Bitcoin Exchanges operating worldwide in a number of currency pairs including, among others, bitcoin to U.S. dollar, bitcoin to euro, bitcoin to Chinese yuan and bitcoin to Indian rupee. According to the Registration Statement, most of the data with respect to prevailing valuations of bitcoin come from such Bitcoin Exchanges. These exchanges include established exchanges such as Bitstamp, GDAX and Bitfinex, which provide a number of options for buying and selling bitcoins. Among the Bitcoin Exchanges eligible for inclusion in the Index, domicile, regulation and legal compliance varies. The table below sets forth (1) the aggregate number of bitcoin trades made on the eight largest U.S. dollardenominated Bitcoin Exchanges by trade volume from May 10, 2015 to March 15, 2017 and (2) the market share of trade volume of each such Bitcoin Exchange. Volume (BTC) 17 18 Eight largest U.S. dollar-denominated bitcoin exchanges by trade volume 16 Bitcoin Exchanges included in the Index as of March 15, 2017: Bitfinex ..................................................................................................................................................................... BitStamp .................................................................................................................................................................. GDAX (formerly known as Coinbase Exchange) .................................................................................................... ItBit ........................................................................................................................................................................... Market share (percent) 13,953,081 6,447,743 4,874,681 3,275,893 32.10 14.83 11.22 7.54 Total U.S. dollar-bitcoin trade volume included in the Index as of March 15, 2017 ....................................... Bitcoin Exchanges not included in the Index as of March 15, 2017: OKCoin .................................................................................................................................................................... BTC–E ..................................................................................................................................................................... LakeBTC .................................................................................................................................................................. Gemini ...................................................................................................................................................................... 28,551,399 65.69 6,444,440 4,643,767 2,978,524 846,464 14.83 10.68 6.85 1.95 Total U.S. dollar-bitcoin trade volume not included in the Index as of March 15, 2017 ................................. 14,913,196 34.31 Total U.S. dollar-bitcoin trade volume ....................................................................................................... 43,464,594 100.00 Information regarding each Bitcoin Exchange may be found, where available, on the Web sites for such Bitcoin Exchanges, among other places. mstockstill on DSK30JT082PROD with NOTICES Off-Exchange Bitcoin Trading According to the Registration Statement, in addition to open online Bitcoin Exchanges, there are ‘‘dark pools,’’ which are bitcoin trading platforms that do not publicly report bitcoin trade data. Market participants have the ability to execute large block trades on a dark pool without revealing those trades and the related price data to the public bitcoin exchange market, although any withdrawal from or deposit to a dark pool platform may be recorded on the Blockchain.19 16 According to the Registration Statement, although the Bitcoin Exchange, LocalBitcoins, accounts for approximately 3% of the U.S. dollarbitcoin trade volume, the Sponsor does not consider it an appropriate Bitcoin Exchange to include in this analysis because LocalBitcoins does not have an online electronic trading platform that allows for the prices and volumes of bitcoin traded to be reliably tracked. 17 According to the Registration Statement, these figures reflect the aggregate number of bitcoins traded on each named U.S. dollar-denominated Bitcoin Exchange from May 10, 2015 to March 15, 2017. 18 According to the Registration Statement, as of May 10, 2015, Kraken EUR (U.S. dollar equivalent) was a component of the Index but was removed from the Index on May 11, 2015. The transactions on Kraken EUR were not a material component to the Index. 19 According to the Registration Statement, Genesis operates an OTC trading desk that buys and sells large blocks of bitcoins without publicly reporting trade data. Informal dark pools are VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 Bitcoin may also be traded over-thecounter (‘‘OTC’’). OTC trades are not required to be reported through any facilities. However, according to the Sponsor, based on publicly available information, OTC trading may not represent a material volume of overall bitcoin trading. The OTC markets operate in a similar manner to dark pools. However, typically, OTC trades are institutional size block transactions (though on a much lower scale relative to the size of block transactions for other commodities or industries) or transactions made on behalf of high-net worth individuals. According to the Sponsor, some OTC intermediaries that facilitate OTC trading, such as Genesis and itBit, provide summary statistics on an ad hoc basis. For instance, in April 2016, itBit reported that it had traded approximately 25,500 bitcoins, valued at approximately $10.3 million U.S. dollars, which would account for roughly 1.94% of the bitcoin trading volume across the eight highest volume U.S. dollar-denominated exchanges. For the fourth quarter of 2016, Genesis reported trading approximately 70,326 bitcoins, valued at approximately $51.4 million U.S. dollars. According to the currently believed to exist, particularly among wholesale buyers of bitcoin and bitcoin mining groups that obtain large supplies of bitcoin through mining. Such informal dark pools function as a result of the peer-to-peer nature of the Bitcoin Network, which allows direct transactions between any seller and buyer. PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 Sponsor, the reported Genesis volume would comprise roughly 2.33% of the trading volume across the eight highest volume U.S. dollar-denominated exchanges during that time period. Bitcoin Price Volatility 20 According to the Sponsor, volatility in bitcoin was pronounced in its earliest days through late 2013. According to the Sponsor, during that time period, almost all bitcoin trading activity centered on two exchanges, which centralized the global order book and led to large price movements. Since then, the bitcoin trading environment has matured with the development of dozens of exchanges around the world, resulting in more transparency with respect to bitcoin pricing, in increased trading volume and in greater liquidity. Additionally, the globalization of bitcoin exchanges, ranging from those domiciled in the United States to other areas of the globe, such as China, has led to development of many bitcoin currency pairs, garnering more market participants. Today, the largest trading pairs are bitcoin to Chinese yuan, bitcoin to U.S. dollars and bitcoin to euro. 20 Attached as Exhibit 3 hereto are tables relating to: (i) Rolling 3-month volatility of bitcoin and other commodities; (ii) average 3-month correlation of bitcoin to other commodities; (iii) rolling 6-month volatility of bitcoin and other commodities; (iv) average 6-month correlation of bitcoin to other commodities; (v) rolling 12-month volatility of bitcoin and other commodities; and (vi) average 12month correlation of bitcoin to other commodities. E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices Bitcoin price volatility has declined since the inception of bitcoin. According to the Sponsor and as detailed in Exhibit 3, recent figures, such as the three, six and twelve-month volatility charts, show that the volatility of bitcoin is now at levels comparable to those seen for other commodities such as natural gas and continues to trend downward. According to the Sponsor, while bitcoin price volatility has declined and its volatility approximately corresponds to that of certain commodities, the volatility of bitcoin is not correlated with the volatility of other commodities over shorter- (i.e., three to six months) and longer-term (i.e., longer than one year) investment horizons, reinforcing the important role bitcoin can play as a diversifying asset in an investor’s portfolio. mstockstill on DSK30JT082PROD with NOTICES Demand for Bitcoin According to the Sponsor, demand for bitcoins is based on several factors. Demand may be based on speculation regarding the future appreciation of the value of bitcoins. Continuing development of various applications utilizing the Bitcoin Network for uses such as remittance, payment for goods and services, recording transfer of ownership of certain assets and settlement of both financial and nonfinancial assets have led many investors to speculate that the price of bitcoins will appreciate as use of these applications increases. As additional applications are developed, demand may increase. Additionally, some investors have developed analogs between bitcoin and other scarce assets such as gold. Bitcoin shares many of the same characteristics as gold, e.g., scarcity, but has superior utility, portability and divisibility. If investors shift a portion of their asset allocations from gold to bitcoin, the demand for bitcoins could increase. Furthermore, bitcoins are used in day-to-day transactions for the purchase of goods and services. As additional merchants continue to accept bitcoins for the purchase of goods and services, demand for bitcoins may increase. Relatedly, as merchants accept bitcoins for sales of goods and services, supply of bitcoins could increase on the exchange markets as these merchants look to liquidate their bitcoin for fiat currencies. Bitcoin Index Price The ‘‘Bitcoin Index Price’’ is the U.S. dollar value of a bitcoin as represented by the Index, calculated at 4:00 p.m., E.T., on each business day. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 does not reflect an accurate bitcoin value, then the Sponsor will, on a best efforts basis, contact the Index Provider in order to obtain the Bitcoin Index Price. If after such contact the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate bitcoin value, then the Administrator will utilize the following cascading set of rules to calculate the Bitcoin Index Price. For the avoidance of doubt, the Sponsor will employ the below rules sequentially and in the order presented below, should one or more specific rule(s) fail: (i) Bitcoin Index Price = The price set by the Index as of 4:00 p.m., E.T., on the valuation date. According to the Registration Statement, the Index is a U.S. dollar-denominated composite reference rate for the price of bitcoin based on the volume-weighted price at trading venues selected by the Index Provider. Trading venues used to calculate the Index may include Bitcoin Exchanges, OTC markets or derivative platforms. According to the Registration Statement, to ensure that the Index Provider’s trading venue selection process is impartial, the Index Provider considers depth of liquidity, compliance with applicable legal and regulatory requirements, data availability, U.S. domicile and acceptance of U.S. dollar deposits. The Index Provider conducts a quarterly review of these criteria. According to the Registration Statement, as of the date of the Registration Statement, the eligible Bitcoin Exchanges selected by the Index Provider include Bitfinex, Bitstamp, GDAX (formerly known as Coinbase Exchange) and itBit.21 Bitfinex is a trading platform based in Hong Kong for digital currencies, including bitcoin, that offers many advanced features such as margin and exchange trading and margin funding. Bitstamp is a European Union-based bitcoin marketplace that enables people from all around the world to safely buy and sell bitcoins. GDAX, based in San Francisco, California, is a digital currency exchange. itBit is a New York Citybased, regulated global exchange that offers retail and institutional investors a powerful platform to buy and sell bitcoin. According to the Registration Statement, in the calculation of the Bitcoin Index Price, the Index Provider cleanses the trade data and compiles it in such a manner as to algorithmically 21 According to the Registration Statement, Digital Currency Group owns a minority interest in Coinbase, which operates the GDAX, representing approximately 0.5% of its equity and a minority interest in Paxos, which operates itBit, representing less than 0.3% of its equity. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 19405 reduce the impact of anomalistic or manipulative trading. This is accomplished by adjusting the weight of each input based on price deviation relative to the observable set of data for the relevant trading venue, as well as recent and long-term trading volume at each venue relative to the observable set for the relevant trading venues. The Index Provider reduces the weighting of data inputs as they get further from the mean price across the trading venues and ultimately excludes any trade with a price that deviates beyond a certain predetermined threshold level from the mean. In addition, the Index groups ‘‘trade bursts’’ (i.e., a group of small-size trades in a short period of time, typically under one second) and movements during off-peak trading hours on any given venue into single data inputs, which reduces the potentially erratic price movements caused by small, individual orders. The Index Provider formally reevaluates the weighting algorithm quarterly, but maintains discretion to change the way in which the Index is calculated based on its periodic review or in extreme circumstances. The precise formula underlying the Index is proprietary. According to the Registration Statement, the Index Provider does not currently include data from OTC markets or derivative platforms. OTC data is not currently included because of the potential for trades to include a significant premium or discount paid for larger liquidity, which creates an uneven comparison relative to more active markets. There is also a higher potential for OTC transactions to not be arms-length and thus not be representative of a true market price. Bitcoin derivative markets are also not currently included as the markets remain relatively thin. According to the Registration Statement, the Index Provider will consider International Organization of Securities Commissions (‘‘IOSCO’’) principles for financial benchmarks and the management of trading venues of bitcoin derivatives when considering inclusion of OTC or derivative platform data in the future. According to the Registration Statement, to calculate the Bitcoin Index Price, the weighting algorithm is applied to the price and volume of all inputs for the immediately preceding 24-hour period as of 4:00 p.m., E.T., on the valuation date. According to the Registration Statement, to measure volume data and trading halts, the Index Provider monitors trading activity and regards as eligible those Bitcoin Exchanges that it determines represent a substantial portion of U.S. dollardenominated trading over a sustained E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES 19406 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices period on a platform without a significant history of trading disruptions. The Index Provider maintains a monitoring system that tests for these criteria on an ongoing basis. The description of the Index is based on information publicly available at the Index Provider’s Web site at https:// tradeblock.com/markets/index/. The Index spot price will be available on the Index Provider’s Web site and/or from one or more major market data vendors. If the Index becomes unavailable, or if the Sponsor determines in good faith that the Index does not reflect an accurate bitcoin value, then the Sponsor will, on a best efforts basis, contact the Index Provider to obtain the Bitcoin Index Price directly from the Index Provider. If after such contact, the Index remains unavailable or the Sponsor continues to believe in good faith that the Index does not reflect an accurate bitcoin value, then the Sponsor will employ the next rule to determine the Bitcoin Index Price. (ii) Bitcoin Index Price = The volumeweighted average bitcoin price for the immediately preceding 24-hour period as of 4:00 p.m., E.T., on the valuation date as calculated based upon the volume-weighted average bitcoin prices of the Major Bitcoin Exchanges as published by an alternative third party’s public data feed that the Sponsor believes is accurately and reliably providing market data (i.e., is receiving up-to-date and timely market data from constituent exchanges) (‘‘Second Source’’). ‘‘Major Bitcoin Exchanges’’ are those Bitcoin Exchanges that are online, trade on a 24-hour basis and make transaction price and volume data publicly available. Subject to the next sentence, if the Second Source becomes unavailable (for example, data sources from the Second Source for bitcoin prices become unavailable, unwieldy or otherwise impractical for use), or if the Sponsor determines in good faith that the Second Source does not reflect an accurate bitcoin value, then the Sponsor will, on a best efforts basis, contact the Second Source in an attempt to obtain the relevant data. If after such contact the Second Source remains unavailable or the Sponsor continues to believe in good faith that the Second Source does not reflect an accurate bitcoin price, then the Sponsor will employ the next rule to determine the Bitcoin Index Price. (iii) Bitcoin Index Price = The volume-weighted average bitcoin price as calculated by dividing (a) the U.S. dollar value of the bitcoin transactions on the Major Bitcoin Exchanges by (b) the total number of bitcoins traded on the Major Bitcoin Exchanges, in each VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 case for the 24-hour period from 4:00 p.m., E.T. (or as soon as practicable thereafter), on the business day prior to the valuation date to 4:00 p.m., E.T. (or as soon as practicable thereafter), on the valuation date as published by a third party’s public data feed that the Sponsor believes is accurately and reliably providing market data (i.e., is receiving up-to-date and timely market data from eligible exchanges), subject to the requirement that such data is calculated based upon a volume-weighted average bitcoin price obtained from the Major Bitcoin Exchanges (‘‘Third Source’’). Subject to the next sentence, if the Third Source becomes unavailable (for example, data sources from the Third Source become unavailable, unwieldy or otherwise impractical for use), or if the Sponsor determines in good faith that the Third Source does not reflect an accurate bitcoin price, then the Sponsor will, on a best efforts basis, contact the Third Source in an attempt to obtain the relevant data. If after such contact the Third Source remains unavailable or the Sponsor continues to believe in good faith that the Third Source does not reflect an accurate bitcoin value then the Sponsor will employ the next rule to determine the Bitcoin Index Price. (iv) Bitcoin Index Price = The volumeweighted average bitcoin price as calculated by dividing (a) the U.S. dollar value of the bitcoin transactions on the Bitcoin Benchmark Exchanges by (b) the total number of bitcoins traded on the Bitcoin Benchmark Exchanges, in each case for the 24-hour period from 4:00 p.m., E.T. (or as soon as practicable thereafter), on the business day prior to the valuation date to 4:00 p.m., E.T. (or as soon as practicable thereafter), on the valuation date. A ‘‘Bitcoin Benchmark Exchange’’ is a Bitcoin Exchange that represents at least 25% of the aggregate U.S. dollar-denominated trading volume of the bitcoin market during the last 30 consecutive calendar days and that to the knowledge of the Sponsor is in substantial compliance with the laws, rules and regulations, including any anti-money laundering (‘‘AML’’) and know-your-customer (‘‘KYC’’) procedures, of such Bitcoin Exchange’s applicable jurisdiction; provided that if there are fewer than three such Bitcoin Exchanges, then the Bitcoin Benchmark Exchanges will include such Bitcoin Exchange or Bitcoin Exchanges that meet the above-described requirements as well as one or more additional Bitcoin Exchanges, selected by the Sponsor, that have had monthly trading volume of at least 50,000 bitcoins during the last 30 consecutive calendar days and that to the knowledge of the PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 Sponsor is in substantial compliance with the laws, rules and regulations, including any AML and KYC procedures, of such Bitcoin Exchange’s applicable jurisdiction. The Sponsor will review the composition of the exchanges that comprise the Bitcoin Benchmark Exchanges at the beginning of each month, or more frequently if necessary, in order to ensure the accuracy of its composition. Subject to the next sentence, if one or more of the Bitcoin Benchmark Exchanges become unavailable (for example, data sources from the Bitcoin Benchmark Exchanges of bitcoin prices become unavailable, unwieldy or otherwise impractical for use), or if the Sponsor determines in good faith that the Bitcoin Benchmark Exchange does not reflect an accurate bitcoin value, then the Sponsor will, on a best efforts basis, contact the Bitcoin Benchmark Exchange that is experiencing the service outages in an attempt to obtain the relevant data. If after such contact one or more of the Bitcoin Benchmark Exchanges remain unavailable or the Sponsor continues to believe in good faith that the Bitcoin Benchmark Exchange does not reflect an accurate bitcoin price, then the Sponsor will employ the next rule to determine the Bitcoin Index Price. (v) Bitcoin Index Price = The Sponsor will use its best judgment to determine a good faith estimate of the Bitcoin Index Price. Data used for the above calculation of the Bitcoin Index Price is gathered by the Administrator or its delegate who calculates the Bitcoin Index Price each business day as of 4:00 p.m., E.T., or as soon thereafter as practicable. The Administrator will disseminate the Bitcoin Index Price each business day. The Index Provider may change the trading venues that are used to calculate the Index, or otherwise change the way in which the Index is calculated at any time. The Index Provider does not have any obligation to consider the interests of the Sponsor, the Administrator, the Trust, the shareholders or anyone else in connection with such changes. The Index Provider is not required to publicize or explain the changes, or to alert the Sponsor or the Administrator to such changes. The Index Provider will consider IOSCO principles for financial benchmarks and the management of trading venues of bitcoin derivatives when considering inclusion of OTC or derivative platform data in the future. Bitcoin Holdings According to the Registration Statement, the Trust’s assets will consist E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices solely of bitcoin. The Administrator will determine the value of the Trust for operational purposes (herein referred to as ‘‘Bitcoin Holdings’’), which is the aggregate U.S. dollar value, based on the Bitcoin Index Price, of the Trust’s bitcoins less its liabilities, on each day the Shares trade on the Exchange as of 4:00 p.m. E.T., or as soon thereafter as practicable.22 The Administrator will also determine the Bitcoin Holdings per Share, which equals the Trust’s Bitcoin Holdings divided by the number of outstanding Shares. The Sponsor will publish the Bitcoin Holdings and the Bitcoin Holdings per Share each business day at 4:00 p.m., E.T., or as soon thereafter as practicable at the Trust’s Web site at https://grayscale.co/ bitcoin-investment-trust/#marketperformance. To calculate the Bitcoin Holdings, the Administrator will determine the Bitcoin Index Price and multiply the Bitcoin Index Price by the aggregate number of bitcoins owned by the Trust as of 4:00 p.m., E.T., on the immediately preceding day. The Administrator will add the U.S. dollar value of any bitcoins, as calculated using the Bitcoin Index Price, receivable under pending creation orders, if any, determined by multiplying the number of creation Baskets represented by such creation orders by the Basket Bitcoin Amount and then multiplying such product by the Bitcoin Index Price. The Administrator will subtract (i) the U.S. dollar value of the bitcoins, as calculated using the Bitcoin Price Index, constituting any accrued but unpaid fees, (ii) the U.S. dollar value of the bitcoins to be distributed under pending redemption orders, determined by multiplying the number of redemption Baskets represented by such redemption orders by the Basket Bitcoin Amount and then multiplying such product by the Bitcoin Index Price and (iii) certain expenses of the Trust. The Sponsor will publish the Bitcoin Index Price, the Bitcoin Holdings and the Bitcoin Holdings per Share on the Trust’s Web site as soon as practicable after its determination. If the Bitcoin Holdings and Bitcoin Holdings per Share have been calculated using a price per bitcoin other than the Bitcoin Index Price, the publication on the Trust’s Web site will note the valuation methodology used and the price per bitcoin resulting from such calculation. While the Trust’s investment objective is for the Shares to reflect the performance of the value of a bitcoin as represented by the Index, less the 22 Bitcoin Holdings is different than the GAAP net asset value referenced in the Registration Statement. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 Trust’s liabilities and expenses, the Shares may trade in the secondary market at prices that are lower or higher than the Bitcoin Holdings per Share. The amount of the discount or premium in the trading price relative to the Bitcoin Holdings per Share may be influenced by non-concurrent trading hours and liquidity between the secondary market and larger Bitcoin Exchanges in the bitcoin exchange market. While the Shares will be listed and trade on the Exchange from 9:30 a.m. until 4:00 p.m., E.T., liquidity in the global bitcoin markets may fluctuate depending upon the volume and availability of larger Bitcoin Exchanges. As a result, during periods in which bitcoin exchange market liquidity is limited or a major Bitcoin Exchange is off-line, trading spreads, and the resulting premium or discount, on the Shares may widen. Impact on Arbitrage Because of the potential for arbitrage inherent in the structure of the Trust, the Sponsor believes that the Shares will not trade at a material discount or premium to the underlying bitcoin held by the Trust. The arbitrage process, which in general provides investors the opportunity to profit from differences in prices of assets, increases the efficiency of the markets, serves to prevent potentially manipulative efforts, and can be expected to operate efficiently in the case of the Shares and bitcoin. If the price of the Shares deviates enough from the price of bitcoin to create a material discount or premium, an arbitrage opportunity is created. If the Shares are inexpensive compared to the bitcoin that underlies them, an arbitrageur may buy the Shares at a discount, immediately redeem them in exchange for bitcoin, and sell the bitcoin in the cash market at a profit. If the Shares are expensive compared to the bitcoin that underlies them, an arbitrageur may sell the Shares short, buy enough bitcoin to acquire the number of Shares sold short, acquire the Shares through the creation process, and deliver the Shares to close out the short position.23 In both instances, the arbitrageur serves to efficiently correct price discrepancies between the Shares and the underlying bitcoin. 23 The Exchange states that the Trust, which will only hold bitcoin, differs from index-based exchange-traded funds, which may involve a trust holding hundreds or even thousands of underlying component securities, necessarily involving in the arbitrage process movements in a large number of security positions. See, e.g., Securities Exchange Act Release No. 46306 (August 2, 2002) (approving the UTP trading of Vanguard Total Market VIPERs based on the Wilshire 5000 Total Market Index). PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 19407 Creation and Redemption of Shares According to the Registration Statement, the Trust will issue and redeem ‘‘Baskets,’’ each equal to a block of 100 Shares, only to Authorized Participants. The size of a Basket is subject to change. The creation and redemption of a Basket require the delivery to the Trust, or the distribution by the Trust, of the number of whole and fractional bitcoins represented by each Basket being created or redeemed, the number of which is determined by dividing the number of bitcoins owned by the Trust at 4:00 p.m., E.T., on the trade date of a creation or redemption order, by the number of Shares outstanding at such time (calculated to one one-hundred-millionth of one bitcoin), as adjusted for the number of whole and fractional bitcoins constituting accrued but unpaid fees and expenses of the Trust and multiplying the quotient obtained by 100 (‘‘Basket Bitcoin Amount’’). The Basket Bitcoin Amount multiplied by the number of Baskets being created or redeemed is the ‘‘Total Basket Bitcoin Amount.’’ The Basket Bitcoin Amount will gradually decrease over time as the Trust’s bitcoins are used to pay the Trust’s expenses. According to the Registration Statement, as of the date of the Registration Statement, each Share currently represents approximately 0.093 of a bitcoin. Authorized Participants are the only persons that may place orders to create and redeem Baskets. Each Authorized Participant must (i) be a registered broker-dealer, (ii) enter into a participant agreement with the Sponsor, the Administrator, the Marketing Agent and the Liquidity Providers (‘‘Participant Agreement’’) and (iii) in the case of the creation or redemption of Baskets that do not use the ‘‘Conversion Procedures’’ (as defined below), own a bitcoin wallet address that is recognized by the Custodian as belonging to the Authorized Participant (‘‘Authorized Participant SelfAdministered Account’’). Authorized Participants may act for their own accounts or as agents for broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets. Shareholders who are not Authorized Participants will only be able to redeem their Shares through an Authorized Participant. Although the Trust will create Baskets only upon the receipt of bitcoins, and will redeem Baskets only by distributing bitcoins, an Authorized Participant may deposit cash with the Administrator, which will facilitate the purchase or sale of bitcoins through a Liquidity E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES 19408 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices Provider on behalf of an Authorized Participant (‘‘Conversion Procedures’’). ‘‘Liquidity Providers’’ must (i) enter into a Participant Agreement with the Sponsor, the Trust, the Marketing Agent and each Authorized Participant and (ii) own a bitcoin wallet address that is recognized by the Custodian as belonging to a Liquidity Provider (‘‘Liquidity Provider Account’’). The Conversion Procedures will be facilitated by a single Liquidity Provider. On an order-by-order basis, the Sponsor will select the Liquidity Provider that it believes will provide the best execution of the Conversion Procedures, and will base its decision on factors such as the Liquidity Provider’s creditworthiness, financial stability, ability to obtain the best price, the timing and speed of execution, liquidity and the likelihood of, and capabilities in, execution, clearance and settlement. In the event that an order cannot be filled in its entirety by a single Liquidity Provider, additional Liquidity Provider(s) will be selected by the Sponsor to fill the remaining amount based on the criteria above. The trade date on which the Basket Bitcoin Amount is determined is different for in-kind and in-cash orders. For in-kind orders, the trade date is the day on which an order is placed, whereas the trade date for in-cash orders is the day after which an order is placed. This could result in a different execution price for in-kind and in-cash orders. For example, if an Authorized Participant submits an in-kind order at 2:00 p.m., E.T., on a Monday, the Basket Bitcoin Amount required to purchase a Basket of Shares will be determined at 4:00 p.m., E.T., or as soon as practicable thereafter, on that same day. Alternatively, for in-cash orders, if an Authorized Participant submits an order at 2:00 p.m., E.T., on a Monday and pays the requisite Cash Collateral Amount (as defined below) at 3:00 p.m., E.T., on that same date, the Total Basket Bitcoin Amount will nevertheless be determined at 4:00 p.m., E.T., or as soon as practicable thereafter, on Tuesday. Pursuant to the Conversion Procedures, the Authorized Participant is obligated to pay the Cash Exchange Rate (as defined below) which is calculated on Monday, times the Total Basket Bitcoin Amount, which is calculated on Tuesday. The Liquidity Provider is required to deposit the Total Basket Bitcoin Amount as calculated on Tuesday, even if there were a chance [sic] in the price of bitcoin since Monday. To create Baskets in-kind, Authorized Participants will send the Administrator VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 a creation order on the trade date. Inkind creation orders must be placed no later than 3:59:59 p.m., E.T., on each business day. The Marketing Agent will accept or reject the creation order, and this determination will be communicated to the Authorized Participant by the Administrator on that same date. The Total Basket Bitcoin Amount will be determined as soon as practicable after 4:00 p.m., E.T., on that date. On the business day following the trade date, the Authorized Participant will transfer the Total Basket Bitcoin Amount to the Custodian. Once the Total Basket Bitcoin Amount is received by the Custodian, the Administrator will instruct the Transfer Agent to deliver the creation Baskets to the Authorized Participant. To create Baskets using the Conversion Procedures, Authorized Participants will send the Administrator a creation order on the business day preceding the trade date. In-cash creation orders must be placed no later than 4:59:59 p.m., E.T., on each business day. The Marketing Agent will accept or reject the creation order, and this determination will be communicated to the Authorized Participants by the Administrator on that same date. Upon receiving instruction from the Administrator that a creation order has been accepted by the Marketing Agent, the Authorized Participant will send 110% of the U.S. dollar value of the Total Basket Bitcoin Amount (‘‘Cash Collateral Amount’’). The Total Basket Bitcoin Amount will be determined as soon as practicable after 4:00 p.m., E.T., the following day. Once the Cash Collateral Amount is received by the Administrator, the Sponsor will notify the Liquidity Provider of the creation order. The Liquidity Provider will then provide a firm quote to the Authorized Participant for the Total Basket Bitcoin Amount, determined by using the ‘‘Cash Exchange Rate,’’ which, in the case of a creation order, is the Index spot price at the time at which the Cash Collateral Amount is received by the Administrator, plus applicable fees. If the Liquidity Provider’s quote is greater than the Cash Collateral Amount received, the Authorized Participant will be required to pay the difference. Provided that payment for the Total Basket Bitcoin Amount is received by the Administrator, the Liquidity Provider will deliver the bitcoins to the Custodian on the settlement date on behalf of the Authorized Participant. The Liquidity Provider may realize any arbitrage opportunity between the firm quote that it provides to the Authorized PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 Participant and the price at which it sources the requisite bitcoin for the Total Basket Bitcoin Amount. After the Custodian receives the Total Basket Bitcoin Amount, the Administrator will instruct the Transfer Agent to deliver the Creation Baskets to the Authorized Participant. The Administrator will then send the Liquidity Provider the cash equal to the Cash Exchange Rate times the Total Basket Bitcoin Amount, plus applicable fees. The Administrator will return any remaining amount of the Cash Collateral Amount to the Authorized Participant. To redeem Baskets in-kind, Authorized Participants will send the Administrator a redemption order on the trade date. In-kind redemption orders must be placed no later than 3:59:59 p.m., E.T., on each business day. The Marketing Agent will accept or reject the redemption order and the Total Basket Bitcoin Amount will be determined as soon as practicable after 4:00 p.m., E.T., on that same date. On the second business day following the trade date, the Authorized Participant will deliver to the Transfer Agent redemption Baskets from its account. Once the redemption Baskets are received by the Transfer Agent, the Custodian will transfer the Total Basket Bitcoin Amount to the Authorized Participant and the Transfer Agent will cancel the Shares. To redeem Baskets using the Conversion Procedures, Authorized Participants will send the Administrator a redemption order. In-cash redemption orders must be placed no later than 4:59:59 p.m., E.T., on each business day. The Marketing Agent will accept or reject the redemption order on that same date. A Liquidity Provider will then provide a firm quote to an Authorized Participant for the Total Basket Bitcoin Amount, determined by using the ‘‘Cash Exchange Rate,’’ which, in the case of a redemption order, is the Index spot price minus applicable fees at the time at which the Administrator notifies the Authorized Participant that an order has been accepted. The Liquidity Provider will send the Administrator the cash proceeds equal to the Cash Exchange Rate times the Total Basket Bitcoin Amount, minus applicable fees. The Liquidity Provider may realize any arbitrage opportunity between the firm quote that it provides to the Authorized Participant and the price at which it sells the requisite bitcoin for the Total Basket Bitcoin Amount. Once the Authorized Participant delivers the redemption Baskets to the Transfer Agent, the Administrator will send the cash proceeds to the Authorized Participant E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices The Trust’s Web site (https:// grayscale.co/bitcoin-investment-trust/) will include quantitative information on a per-Share basis updated on a daily basis, including, for the Trust (i) the current Bitcoin Holdings per Share daily and the prior business day’s Bitcoin Holdings and the reported closing price, (ii) the mid-point of the bid-ask price 24 in relation to the Bitcoin Holdings as of the time the Bitcoin Holdings is calculated (‘‘Bid-Ask Price’’) and a calculation of the premium or discount of such price against such Bitcoin Holdings and (iii) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid-Ask Price against the Bitcoin Holdings, within appropriate ranges, for each of the four previous calendar quarters (or for the life of the Trust, if shorter). In addition, on each business day the Trust’s Web site will provide pricing information for the Shares. The Trust’s Web site will provide an intra-day indicative value (‘‘IIV’’) per Share updated every 15 seconds, as calculated by the Exchange or a third party financial data provider during the Exchange’s Core Trading Session (9:30 a.m. to 4:00 p.m., E.T.) 25 The IIV will be calculated by using the prior day’s closing Bitcoin Holdings per Share as a base and updating that value during the NYSE Arca Core Trading Session to reflect changes in the value of the Trust’s bitcoin holdings during the trading day. The IIV disseminated during the NYSE Arca Core Trading Session should not be viewed as an actual real time update of the Bitcoin Holdings, which will be calculated only once at the end of each trading day. The IIV will be widely disseminated on a per Share basis every 15 seconds during the NYSE Arca Core Trading Session by one or more major market data vendors. In addition, the IIV will be available through on-line information services. The Bitcoin Holdings 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. To the extent that the Administrator has utilized the cascading set of rules described in ‘‘Bitcoin Index Price’’ above, the Trust’s Web site will note the valuation methodology used and the price per bitcoin resulting from such calculation. Quotation and lastsale information regarding the Shares will be disseminated through the facilities of the Consolidated Tape Association (‘‘CTA’’). Quotation and last sale information for bitcoin will be widely disseminated through a variety of major market data vendors, including Bloomberg and Reuters. In addition, the complete realtime price (and volume) data for bitcoin is available by subscription from Reuters and Bloomberg. The spot price of bitcoin is available on a 24-hour basis from major market data vendors, including Bloomberg and Reuters. Information relating to trading, including price and volume information, in bitcoin will be available from major market data vendors and from the exchanges on which bitcoin are traded. The normal trading hours for bitcoin exchanges are 24-hours per day, 365-days per year. The Trust will provide Web site disclosure of its Bitcoin Holdings daily. The Web site disclosure of the Trust’s Bitcoin Holdings will occur at the same 24 The bid-ask price of the Trust is determined using the highest bid and lowest offer on the Consolidated Tape as of the time of calculation of the closing day Bitcoin Holdings. 25 The IIV on a per Share basis disseminated during the Core Trading Session should not be viewed as a real-time update of the Bitcoin Holdings, which is calculated once a day. and the Transfer Agent will cancel the Shares. At the instruction of the Administrator, the Custodian will then send the Liquidity Provider the Total Basket Bitcoin Amount. The Sponsor represents that Liquidity Providers will only transact with exchanges and OTC trading partners that have met AML and KYC regulatory requirements. Authorized Participants that create and redeem Baskets using the Conversion Procedures will be responsible for reimbursing the relevant Liquidity Provider for any expenses incurred in connection with the Conversion Procedures. The Authorized Participants will also pay a variable fee to the Administrator for its facilitation of the Conversion Procedures. There are no other fees related to the Conversion Procedures that will be charged by the Sponsor or the Custodian. The creation or redemption of Shares may be suspended generally, or refused with respect to particular requested creations or redemptions, during any period when the transfer books of the Transfer Agent are closed or if circumstances outside the control of the Sponsor or its delegates make it for all practical purposes not feasible to process creation orders or redemption orders. The Administrator may reject an order if such order is not presented in proper form as described in the Participant Agreement or if the fulfillment of the order, in the opinion of counsel, might be unlawful. mstockstill on DSK30JT082PROD with NOTICES Availability of Information VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 19409 time as the disclosure by the Sponsor of the Bitcoin Holdings to Authorized Participants so that all market participants are provided such portfolio information at the same time. Therefore, the same portfolio information will be provided on the public Web site as well as in electronic files provided to Authorized Participants. Accordingly, each investor will have access to the current Bitcoin Holdings of the Trust through the Trust’s Web site. Additional information regarding the Index may be found at https:// tradeblock.com/markets/index/. Trading Rules The Trust will be subject to the criteria in NYSE Arca Equities Rule 8.201, including 8.201(e), for initial and continued listing of the Shares. A minimum of 100,000 Shares will be required to be outstanding at the start of trading. With respect to application of Rule 10A–3 under the Act, the Trust will rely on the exception contained in Rule 10A–3(c)(7). The Exchange believes that the anticipated minimum number of Shares outstanding at the start of trading is sufficient to provide adequate market liquidity. 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. Trading in the Shares on the Exchange will occur in accordance with NYSE Arca Equities Rule 7.34(a).26 The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Equities Rule 7.6, the minimum price variation (‘‘MPV’’) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001. Further, NYSE Arca Equities Rule 8.201 sets forth certain restrictions on Equity Trading Permit Holders (‘‘ETP Holders’’) acting as registered Market Makers in the Shares to facilitate surveillance. Pursuant to NYSE Arca Equities Rule 8.201(g), an ETP Holder acting as a registered Market Maker in 26 The Exchange has three trading sessions for Commodity-Based Trust Shares each day the Corporation is open for business unless otherwise determined by the Corporation: (i) The Opening Session begins at 1:00 a.m., Pacific Time (‘‘P.T.’’), and conclude at the commencement of the Core Trading Session; (ii) the Core Trading Session begins for each security at 6:30 a.m., P.T., or at the conclusion of the Market Order Auction, whichever comes later, and conclude at 1:15 p.m., P.T.; and (iii) the Late Trading Session begins following the conclusion of the Core Trading Session and concludes at 5:00 p.m., P.T. E:\FR\FM\27APN1.SGM 27APN1 mstockstill on DSK30JT082PROD with NOTICES 19410 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices the Shares is required to provide the Exchange with information relating to its trading in the underlying bitcoin, related futures or options on futures, or any other related derivatives. Commentary .04 of NYSE Arca Equities Rule 6.3 requires an ETP Holder acting as a registered Market Maker, and its affiliates, in the Shares to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of any material nonpublic information with respect to such products, any components of the related products, any physical asset or commodity underlying the product, applicable currencies, underlying indexes, related futures or options on futures and any related derivative instruments (including the Shares). As a general matter, the Exchange has regulatory jurisdiction over its ETP Holders and their associated persons, which include any person or entity controlling an ETP Holder. A subsidiary or affiliate of an ETP Holder that does business only in commodities or futures contracts would not be subject to Exchange jurisdiction, but the Exchange could obtain information regarding the activities of such subsidiary or affiliate through surveillance sharing agreements with regulatory organizations of which such subsidiary or affiliate is a member. With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares. Trading on the Exchange in the Shares 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 conditions in the underlying bitcoin markets have caused disruptions and/or lack of trading or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Shares will be subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s ‘‘circuit breaker’’ rule.27 The Exchange will halt trading in the Shares if the Bitcoin Holdings of the Trust is not calculated or disseminated daily. The Exchange may halt trading during the day in which an interruption occurs to the dissemination of the IIV or the Index spot price, as discussed above. If the interruption to the dissemination of the IIV or the Index spot price persists past the trading day in which it occurs, the Exchange will halt trading no later than the beginning of the 27 See NYSE Arca Equities Rule 7.12. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 trading day following the interruption.28 In addition, if the Exchange becomes aware that the Bitcoin Holdings with respect to the Shares is not disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the Bitcoin Holdings is available to all market participants. Surveillance The Exchange represents that trading in the Shares will be subject to the existing trading surveillances administered by the Exchange, as well as cross-market surveillances administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.29 The Exchange represents that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange. The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the Intermarket Surveillance Group (‘‘ISG’’), and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading in the Shares from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement (‘‘CSSA’’).30 28 The Exchange notes that the Exchange may halt trading during the day in which an interruption to the dissemination of the IIV or the Index spot price occurs. 29 FINRA conducts cross market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. 30 For the list of current members of ISG, see https://www.isgportal.org/home.html. PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 Also, pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is able to obtain information regarding trading in the Shares and the underlying bitcoin or any bitcoin derivative through ETP Holders acting as registered Market Makers, in connection with such ETP Holders’ proprietary or customer trades through ETP Holders which they effect on any relevant market. The Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. All statements and representations made in this filing regarding (i) the description of the portfolio, (ii) limitations on portfolio holdings or reference assets or (iii) the applicability of Exchange rules and surveillance procedures shall constitute continued listing requirements for listing the Shares on the Exchange. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Trust to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If the Trust is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Equities Rule 5.5(m). Information Bulletin Prior to the commencement of trading, the Exchange will inform its ETP Holders in an ‘‘Information Bulletin’’ of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Baskets (including noting that the Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) how information regarding how the Index and the IIV are disseminated; (4) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (5) the possibility that trading spreads and the resulting premium or discount on the Shares may widen during the Opening and Late Trading Sessions, when an updated IIV will not be calculated or publicly disseminated; and (6) trading information. For example, the Information Bulletin will advise ETP Holders, prior to the commencement of E:\FR\FM\27APN1.SGM 27APN1 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES trading, of the prospectus delivery requirements applicable to the Trust. The Exchange notes that investors purchasing Shares directly from the Trust will receive a prospectus. ETP Holders purchasing Shares from the Trust for resale to investors will deliver a prospectus to such investors. In addition, the Information Bulletin will reference that the Trust is subject to various fees and expenses as described in the Registration Statement. The Information Bulletin will disclose that information about the Shares of the Trust is publicly available on the Trust’s Web site. The Information Bulletin will also discuss any relief, if granted, by the Commission or the staff from any rules under the Act. 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5) 31 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.201. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares with other markets that are members of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading in the Shares from such markets. In addition, the Exchange may obtain information regarding trading in the Shares from markets that are members of ISG or with which the Exchange has in place a CSSA. Also, pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is able to obtain information regarding trading in the Shares and the underlying bitcoin or any bitcoin derivative through ETP Holders acting as registered Market Makers, in connection with such ETP Holders’ proprietary or customer trades 31 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 through ETP Holders which they effect on any relevant market. The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that there is a considerable amount of bitcoin price and bitcoin market information available on public Web sites and through professional and subscription services. Investors may obtain on a 24hour basis bitcoin pricing information based on the spot price for bitcoin from various financial information service providers. The closing price and settlement prices of bitcoin are readily available from the bitcoin exchanges and other publicly available Web sites. In addition, such prices are published in public sources, or on-line information services such as Bloomberg and Reuters. The Trust will provide Web site disclosure of its bitcoin holdings daily. Quotation and last-sale information regarding the Shares will be disseminated through the facilities of the CTA. The IIV will be widely disseminated on a per Share basis every 15 seconds during the NYSE Arca Core Trading Session (normally 9:30 a.m., E.T., to 4:00 p.m., E.T.) by one or more major market data vendors. In addition, the IIV will be available through on-line information services. The Exchange represents that the Exchange may halt trading during the day in which an interruption to the dissemination of the IIV or the Index spot price occurs. If the interruption to the dissemination of the IIV or the Index spot price persists past the trading day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. In addition, if the Exchange becomes aware that the Bitcoin Holdings with respect to the Shares is not disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the Bitcoin Holdings is available to all market participants. The Bitcoin Holdings per Share will be calculated daily and made available to all market participants at the same time. One or more major market data vendors will disseminate for the Trust on a daily basis information with respect to the most recent Bitcoin Holdings per Share and Shares outstanding. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an additional type of exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 19411 place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a CSSA. In addition, as noted above, investors will have ready access to information regarding the Trust’s bitcoin holdings, IIV and quotation and last sale information for the Shares. 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 purposes of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of an additional type of exchange-traded product, and the first such product based on bitcoin, which will enhance competition among market participants, 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 No written comments were solicited or received with respect to the proposed rule change. III. Proceedings To Determine Whether To Approve or Disapprove SR– NYSEArca–2017–06 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 32 to determine whether the proposed rule change, as modified by Amendment No. 1, should be approved or disapproved. Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change, as discussed below. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,33 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a 32 15 U.S.C. 78s(b)(2)(B). 33 Id. E:\FR\FM\27APN1.SGM 27APN1 19412 Federal Register / Vol. 82, No. 80 / Thursday, April 27, 2017 / Notices national securities exchange be ‘‘designed to prevent fraudulent and manipulative acts and practices’’ and ‘‘to protect investors and the public interest.’’ 34 • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2017–06 on the subject line. IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal, as modified by Amendment No. 1. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5) or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.35 Interested persons are invited to submit written data, views, and arguments regarding whether the proposal, as modified by Amendment No. 1, should be approved or disapproved by May 18, 2017. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by June 1, 2017. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal and statements of commenters.36 In addition to any other comments commenters may wish to submit about the proposed rule change, the Commission invites commenters’ views concerning any features that distinguish the Exchange’s proposal from other proposals to list and trade shares of commodity-trust ETPs. Comments may be submitted by any of the following methods: • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Paper Comments Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or All submissions should refer to File Numbers SR–NYSEArca–2017–06. 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 Web site (https://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 Web site 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 these filings also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2017–06 and should be submitted on or before May 18, 2017. Rebuttal comments should be submitted by June 1, 2017. 35 Section mstockstill on DSK30JT082PROD with NOTICES 34 15 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–08462 Filed 4–26–17; 8:45 am] U.S.C. 78f(b)(5). 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 36 See supra notes 6 & 7. VerDate Sep<11>2014 17:07 Apr 26, 2017 Jkt 241001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80506; File No. SR–ICC– 2017–003] Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of Designation of Longer Period for Commission Action on Proposed Rule Change, Security-Based Swap Submission, or Advance Notice Relating to ICC’s End-of-Day Price Discovery Policies and Procedures April 21, 2017. On February 16, 2017, ICE Clear Credit LLC (‘‘ICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change (SR–ICC–2017–003) to amend ICC’s End-of-Day Price Discovery Policies and Procedures to implement a new price submission process for Clearing Participants (‘‘CP’’). The proposed rule change was published for comment in the Federal Register on March 9, 2017.3 The Commission received no comments regarding the proposed changes. Section 19(b)(2) of the Act provides that within 45 days of the publication of the notice of the filing or a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding, or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved.4 The 45th day from the publication of the Notice is April 23, 2017. The Commission is extending the 45day time period for Commission action on the proposed rule change. ICC proposes to revise its End of Day Price Discovery Policies and Procedures to implement a new Clearing Participant price submission process to remove the intermediary agent through which Clearing Participants currently submit required prices, and replace it with a process through which Clearing Participants submit prices directly to ICC. The Commission finds that it is appropriate to designate a longer period 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–80150 (March 3, 2017), 82 FR 13173 (March 9, 2017) (SR– ICC–2017–003) (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 2 17 37 17 CFR 200.30–3(a)(12) and 17 CFR 200.30– 3(a)(57). PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 E:\FR\FM\27APN1.SGM 27APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 80 (Thursday, April 27, 2017)]
[Notices]
[Pages 19398-19412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08462]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80502; File No. SR-NYSEArca-2017-06]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1, and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, Relating to the Listing and Trading of Shares of the
Bitcoin Investment Trust Under NYSE Arca Equities Rule 8.201

April 21, 2017.
On January 25, 2017, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares of the Bitcoin Investment
Trust under NYSE Arca Equities Rule 8.201. The proposed rule change was
published for comment in the Federal Register on February 9, 2017.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 79955 (Feb. 3,
2017), 82 FR 10086 (Feb. 9, 2017) (``Notice'').
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On March 22, 2017, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\5\ The Commission received four comment letters on the
proposed rule change.\6\ On April 6, 2017, the Exchange filed Amendment
No. 1 to the proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 80297 (Mar. 22,
2017), 82 FR 15408 (Mar. 28, 2017). The Commission designated May
10, 2017, as the date by which it should approve, disapprove, or
institute proceedings to determine whether to approve or disapprove
the proposed rule change.
\6\ See Letters from Joseph Stephen White (Feb. 5, 2017);
Anonymous (Feb. 8, 2017) (purportedly from Jeffrey Wilcke, Ethereum
Foundation); Mark T. Williams, Finance Professor, Boston University
(Mar. 13, 2017); Clark J. Haley (Apr. 17, 2017). All comments on the
proposed rule change are available on the Commission's Web site at
https://www.sec.gov/comments/sr-nysearca-2017-06/nysearca201706.htm.
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The Commission is publishing this notice to solicit comment on the
proposed rule change, as modified by Amendment No. 1,\7\ from
interested

[[Page 19399]]

persons and is instituting proceedings under Section 19(b)(2)(B) of the
Act \8\ to determine whether to approve or disapprove the proposed rule
change, as modified by Amendment No. 1.
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\7\ The Exchange's description of the proposed rule change, as
modified by Amendment No. 1, is described in Sections I and II
below, which Sections have been prepared by the Exchange. In
Amendment No. 1, the Exchange, among other things (a) added content
relating to the Trust's security arrangements (see Section II.A.1,
infra (discussion in subheading ``Bitcoin Security and Storage''));
(b) added content relating to changes in transactions fees and
trading volumes on China-based bitcoin exchanges (see Section
II.A.1, infra (discussion in subheading ``Bitcoin Exchanges'')); (c)
revised information and statistics relating to the trading volumes
on, and market shares of, the largest U.S. dollar denominated
bitcoin exchanges (see Section II.A.1, infra (table entitled ``Eight
Largest U.S. Dollar-Denominated Bitcoin Exchanges by Trade Volume''
under subheading ``Bitcoin Exchanges'')); (d) deleted content
relating to a platform license agreement between the Index Provider
and Genesis (see Section II.A.1, infra (discussion in subheading
``Bitcoin Index Price'')); and (e) clarified and added content
relating to the Trust's creation and redemption processes,
particularly the Conversion Procedures (see Section II.A.1, infra
(discussion in subheading ``Creation and Redemption of Shares'')).
Amendment No. 1, which superseded and replaced the proposed rule
change in its entirety, is available on the Commission's Web site
at: https://www.sec.gov/comments/sr-nysearca-2017-06/nysearca201706-1689847-149663.pdf.
\8\ 15 U.S.C. 78s(b)(2)(B).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.201: Bitcoin Investment Trust
(``Trust''). The proposed rule change is available on the Exchange's
Web site at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

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

1. Purpose
Under NYSE Arca Equities Rule 8.201, the Exchange may propose to
list and/or trade pursuant to unlisted trading privileges (``UTP'')
``Commodity-Based Trust Shares.'' \9\ The Exchange proposes to list and
trade shares (``Shares'') of the Trust pursuant to NYSE Arca Equities
Rule 8.201.\10\
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\9\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
Trust.
\10\ On March 24, 2017, the Trust filed Amendment No. 1 to its
registration statement (``Registration Statement'') on Form S-1
under the Securities Act of 1933 (15 U.S.C. 77a) (File No. 333-
215627). The descriptions of the Trust, the Shares and bitcoin
contained herein are based, in part, on the Registration Statement.
This Amendment No. 1 to SR-NYSEArca-2017-06 replaces SR-NYSEArca-
2017-06 as originally filed and supersedes such filing in its
entirety. On March 4, 2016, the Trust submitted to the Commission an
amended Form D as a business trust. Shares of the Trust have been
quoted on OTC Market's OTCQX Best Marketplace under the symbol
``GBTC'' since March 26, 2015. On November 11, 2016, the Trust also
published a quarterly report for GBTC for the period ended September
30, 2016, which can be found on OTC Market's Web site: https://www.otcmarkets.com/stock/GBTC/filings. The Shares will be of the
same class and will have the same rights as shares of GBTC.
Effective October 28, 2014, the Trust suspended its redemption
program for shares of GBTC, in which shareholders were permitted to
request the redemption of their shares through Genesis Global
Trading, Inc. (formerly known as SecondMarket, Inc.), an affiliate
of the Sponsor and the Trust (``Genesis''). According to the
Sponsor, freely tradeable shares of GBTC will remain unregistered
freely tradeable Shares on the date of the listing of the Shares
unless, if authorized by the Trust, holders of GBTC sell the shares
in the initial public offering. Restricted shares of GBTC will
remain subject to private placement restrictions and the holders of
such restricted shares may either (i) continue to hold those shares
subject to those restrictions or (ii) if authorized by the Trust,
sell the restricted shares in the initial public offering.
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The sponsor of the Trust is Grayscale Investments, LLC
(``Sponsor''), a Delaware limited liability company. The Sponsor is a
wholly-owned subsidiary of Digital Currency Group, Inc. (``Digital
Currency Group''). The trustee for the Trust is Delaware Trust Company
(``Trustee''). The Bank of New York Mellon will be the Trust's transfer
agent (in such capacity, ``Transfer Agent'') and the administrator of
the Trust (in such capacity, ``Administrator''). Xapo Inc. is the
custodian for the Trust (``Custodian'').\11\ ALPS Portfolio Solutions
Distributor, Inc. will be the marketing agent for the Trust
(``Marketing Agent'').
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\11\ According to the Registration Statement, Digital Currency
Group owns a minority interest in the Custodian that represents less
than 1.0% of the Custodian's equity.
---------------------------------------------------------------------------

The Trust is a Delaware statutory trust, organized on September 13,
2013, that operates pursuant to a trust agreement between the Sponsor
and the Trustee. The Trust has no fixed termination date.
According to the Registration Statement, each Share will represent
a proportional interest, based on the total number of Shares
outstanding, in the bitcoins held by the Trust, less the Trust's
liabilities, which include accrued but unpaid fees and expenses. The
Trust's assets will consist solely of bitcoins held on the Trust's
behalf by the Custodian. The Trust has not had a cash balance at any
time since inception. When selling bitcoins to pay expenses, the
Sponsor will endeavor to sell the exact number of bitcoins needed to
pay expenses in order to minimize the Trust's holdings of assets other
than bitcoin. As a consequence, the Trust expects that it will not
record any cash flow from its operations and that its cash balance will
be zero at the end of each reporting period.
The activities of the Trust will be limited to (i) issuing
``Baskets'' (as defined below) in exchange for bitcoins deposited by
the ``Authorized Participants'' (as defined below) or ``Liquidity
Providers'' (as defined below), as applicable, with the Custodian as
consideration, (ii) transferring actual bitcoins as necessary to cover
the Sponsor's management fee and selling bitcoins as necessary to pay
certain other fees that are not contractually assumed by the Sponsor,
(iii) transferring actual bitcoins in exchange for Baskets surrendered
for redemption by the Authorized Participants, (iv) causing the Sponsor
to sell bitcoins on the termination of the Trust and (v) engaging in
all administrative and custodial procedures necessary to accomplish
such activities in accordance with the provisions of applicable
agreements. The Trust is not actively managed. It will not engage in
any activities designed to obtain a profit from, or to ameliorate
losses caused by, changes in the market price of bitcoins.
According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended, (``1940 Act'') \12\ nor a commodity pool for purposes of
the Commodity Exchange Act,\13\ and neither the Sponsor nor the Trustee
is subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the Shares.
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\12\ 15 U.S.C. 80a-1.
\13\ 17 U.S.C. 1.
---------------------------------------------------------------------------

Investment Objective
According to the Registration Statement, and as further described
below, the investment objective of the Trust will be for the Shares to
reflect the performance of the value of a bitcoin as represented by the
TradeBlock XBX

[[Page 19400]]

Index (``Index''),\14\ less the Trust's liabilities and expenses.
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\14\ The Index is a U.S. dollar-denominated composite reference
rate for the price of bitcoin based on the volume-weighted price at
trading venues selected by TradeBlock, Inc. (``Index Provider'').
According to the Registration Statement, Digital Currency Group,
Inc. owns approximately 2.4% of the Index Provider's voting equity
and warrants representing approximately 1.4% of the Index Provider's
voting equity. See ``Bitcoin Index Price'' below.
---------------------------------------------------------------------------

The Shares are designed to provide investors with a cost-effective
and convenient way to invest in bitcoin. A substantial direct
investment in bitcoins may require expensive and sometimes complicated
arrangements in connection with the acquisition, security and
safekeeping of the bitcoins and may involve the payment of substantial
fees to acquire such bitcoins from third-party facilitators through
cash payments of U.S. dollars. Although the Shares will not be the
exact equivalent of a direct investment in bitcoins, they will provide
investors with an alternative that constitutes a relatively cost-
effective way to participate in bitcoin markets through the securities
market.
Overview of the Bitcoin Industry and Market
The following is a brief introduction to the bitcoin industry and
the bitcoin market based on information provided in the Registration
Statement.
The Bitcoin Network
A bitcoin is a decentralized digital currency that is issued by,
and transmitted through, an open-source digital protocol platform using
cryptographic security that is known as the ``Bitcoin Network.'' The
Bitcoin Network is an online, peer-to-peer user network that hosts a
public transaction ledger, known as the ``Blockchain,'' and the source
code that comprises the basis for the cryptography and digital
protocols governing the Bitcoin Network. No single entity owns or
operates the Bitcoin Network, the infrastructure of which is
collectively maintained by a decentralized user base. Bitcoins can be
used to pay for goods and services or can be converted to fiat
currencies, such as the U.S. dollar, at rates determined on electronic
marketplaces where exchange participants may first use fiat currency to
trade, buy and sell bitcoins based on bid-ask trading (``Bitcoin
Exchanges'') or in individual end-user-to-end-user transactions under a
barter system.
The Blockchain is comprised of a digital file, downloaded and
stored, in whole or in part, on all bitcoin users' software programs.
The file includes all ``blocks'' that have been solved by miners and is
updated to include new blocks as they are solved. As each newly solved
block refers back to and ``connects'' with the immediately prior solved
block, the addition of a new block adds to the Blockchain in a manner
similar to a new link being added to a chain. Because each new block
records outstanding bitcoin transactions, and outstanding transactions
are settled and validated through such recording, the Blockchain
represents a complete, transparent and unbroken history of all
transactions on the Bitcoin Network.
Bitcoins are ``stored'' or reflected on the Blockchain. The
Blockchain records the transaction history of all bitcoins in existence
and, through the transparent reporting of transactions, allows the
Bitcoin Network to verify the association of each bitcoin with the
digital wallet that owns them. The Bitcoin Network and bitcoin software
programs can interpret the Blockchain to determine the exact bitcoin
balance of any digital wallet listed in the Blockchain as having taken
part in a transaction on the Bitcoin Network.
In order to own, transfer or use bitcoins, a person generally must
have internet access to connect to the Bitcoin Network. Bitcoin
transactions between parties occur rapidly (typically between a few
seconds and a few minutes) and may be made directly between end-users
without the need for a third-party intermediary, although there are
entities that provide third-party intermediary services. To prevent the
possibility of double-spending a single bitcoin, each transaction is
recorded, time stamped and publicly displayed in a block in the
publicly available Blockchain. Thus, the Bitcoin Network provides
confirmation against double-spending by memorializing every transaction
in the Blockchain, which is publicly accessible and downloaded in part
or in whole by all users' Bitcoin Network software programs as
described above.
The Bitcoin Network is decentralized and does not rely on either
governmental authorities or financial institutions to create, transmit
or determine the value of bitcoins. Rather, bitcoins are created and
allocated by the Bitcoin Network protocol through a ``mining'' process
subject to a strict, well-known issuance schedule. The value of
bitcoins is determined by the supply of and demand for bitcoins in the
bitcoin exchange market (and in private end-user-to-end-user
transactions), as well as the number of merchants that accept them. As
bitcoin transactions can be broadcast to the Bitcoin Network by any
user's bitcoin software and bitcoins can be transferred without the
involvement of intermediaries or third parties, there are little or no
transaction costs in direct peer-to-peer transactions on the Bitcoin
Network. Third-party service providers such as Bitcoin Exchanges and
bitcoin third-party payment processing services may charge significant
fees for processing transactions and for converting, or facilitating
the conversion of, bitcoins to or from fiat currency.
``Off-Blockchain transactions'' involve the transfer of control
over, or ownership of, a specific digital wallet holding bitcoins, or
of the reallocation of ownership of certain bitcoins in a pooled-
ownership digital wallet, such as a digital wallet owned by a Bitcoin
Exchange. Off-Blockchain transactions are not truly bitcoin
transactions in that they do not involve the transfer of transaction
data on the Bitcoin Network and do not reflect a movement of bitcoins
between addresses recorded in the Blockchain. Information and data
regarding Off-Blockchain transactions are generally not publicly
available in contrast to ``true'' bitcoin transactions, which are
publicly recorded on the Blockchain. Off-Blockchain transactions are
subject to risks as any such transfer of bitcoin ownership is not
protected by the protocol behind the Bitcoin Network or recorded in and
validated through the Blockchain mechanism.

Overview of Bitcoin Transactions

Prior to engaging in bitcoin transactions, a user must first obtain
a digital bitcoin ``wallet'' (analogous to a bitcoin account) in which
to store bitcoins. A wallet can be obtained, among other ways, through
an open-source software program that generates bitcoin addresses and
enables users to engage in the transfer of bitcoins with other users. A
user may install a bitcoin software program on a computer or mobile
device that will generate a bitcoin wallet or, alternatively, a user
may retain a third party to create a digital wallet to be used for the
same purpose. There is no limit on the number of digital wallets a user
can have, and each such wallet includes one or more unique addresses
and a verification system for each address consisting of a ``public
key'' and a ``private key,'' which are mathematically related.
In a typical bitcoin transaction, the bitcoin recipient must
provide the spending party with the recipient's digital wallet address,
an identifying series of 27 to 34 alphanumeric characters that
represents the wallet's routing number on the Bitcoin Network and
allows the Blockchain to record the

[[Page 19401]]

sending of bitcoins to the recipient's wallet. The receiving party can
provide this address to the spending party in alphanumeric format or an
encoded format such as a Quick Response Code (commonly known as a QR
Code), which may be scanned by a smartphone or other device to quickly
transmit the information. This activity is analogous to a recipient
providing an address in wire instructions to the payor so that cash may
be wired to the recipient's account.
After the provision of the receiving wallet's digital address, the
spending party must enter the address into its bitcoin software program
along with the number of bitcoins to be sent. The number of bitcoins to
be sent will typically be agreed upon between the two parties based on
a set number of bitcoins or an agreed upon conversion of the value of
fiat currency to bitcoins. Most bitcoin software programs also allow,
and often suggest, the payment of a transaction fee (also known as a
miner's fee). Transaction fees are not required to be included by many
bitcoin software programs, but, when they are included, they are paid
by the spending party on top of the specified amount of bitcoins being
sent in the transaction. Transaction fees, if any, are typically a
fractional number of bitcoins (for example, 0.005 or 0.0005 bitcoins)
and are automatically transferred by the Bitcoin Network to the bitcoin
miner that solves and adds the block recording the spending transaction
on the Blockchain.
After the entry of the receiving wallet's address, the number of
bitcoins to be sent and the transaction fees, if any, to be paid, the
spending party will transmit the spending transaction. The transmission
of the spending transaction results in the creation of a data packet by
the spending party's bitcoin software program. The data packet includes
data showing (i) the receiving wallet's address, (ii) the number of
bitcoins being sent, (iii) the transaction fees, if any, and (iv) the
spending party's digital signature, verifying the authenticity of the
transaction. The data packet also includes references called ``inputs''
and ``outputs,'' which are used by the Blockchain to identify the
source of the bitcoins being spent and record the flow of bitcoins from
one transaction to the next transaction in which the bitcoins are
spent. The digital signature exposes the spending party's digital
wallet address and public key to the Bitcoin Network, though, for the
receiving party, only its digital wallet address is revealed. The
spending party's bitcoin software will transmit the data packet onto
the decentralized Bitcoin Network, resulting in the propagation of the
information among the software programs of bitcoin users across the
Bitcoin Network for eventual inclusion in the Blockchain. Typically,
the data will spread to a vast majority of bitcoin miners within the
course of less than one minute.
Bitcoin miners record transactions when they solve for and add
blocks of information to the Blockchain. When a miner solves for a
block, it creates that block, which includes data relating to (i) the
solution to the block, (ii) a reference to the prior block in the
Blockchain to which the new block is being added and (iii) all
transactions that have occurred but have not yet been added to the
Blockchain. The miner becomes aware of outstanding, unrecorded
transactions through the data packet transmission and propagation
discussed above. Typically, bitcoin transactions will be recorded in
the next chronological block if the spending party has an internet
connection and at least one minute has passed between the transaction's
data packet transmission and the solution of the next block. If a
transaction is not recorded in the next chronological block, it is
usually recorded in the next block thereafter.
Bitcoin transactions that are micropayments (typically, less than
0.01 bitcoins) and that do not include transaction fees to miners are
currently deprioritized for recording, meaning that, depending on
bitcoin miner policies, these transactions may take longer to record
than typical transactions if the transactions do not include a
transaction fee. Additionally, transactions initiated by spending
wallets with poor connections to the Bitcoin Network (i.e., few or poor
quality connections to nodes or ``supernodes'' that relay transaction
data) may be delayed in the propagation of their transaction data and,
therefore, transaction recording on the Blockchain. Finally, to the
extent that a miner chooses to limit the transactions it includes in a
solved block (whether by the payment of transaction fees or otherwise),
a transaction not meeting that miner's criteria will not be included.
To the extent that a transaction has not yet been recorded, there
is a greater chance that the spending wallet can double-spend the
bitcoins sent in the original transaction. If the next block solved is
by an honest miner not involved in the attempt to double-spend bitcoin
and if the transaction data for both the original and double-spend
transactions have been propagated onto the Bitcoin Network, the
transaction that is received with the earlier time stamp will be
recorded by the solving miner, regardless of whether the double-
spending transaction includes a larger transaction fee. If the double-
spend transaction propagates to the solving miner and the original
transaction has not, then the double-spending has a greater chance of
success. As a result of the high difficulty in successfully initiating
a double-spend without the assistance of a coordinated attack, the
probability of success for a double-spend transaction attempt is
limited.
Upon the addition of a block included in the Blockchain, the
bitcoin software program of both the spending party and the receiving
party will show confirmation of the transaction on the Blockchain and
reflect an adjustment to the bitcoin balance in each party's digital
wallet, completing the bitcoin transaction. Typically, bitcoin software
programs will automatically check for and display additional
confirmations of six or more blocks in the Blockchain.
To ensure the integrity of bitcoin transactions from the
recipient's side (i.e., to prevent double-spending by a payor), every
bitcoin transaction is broadcast to the Bitcoin Network and recorded in
the Blockchain through the mining process, which time-stamps the
transaction and memorializes the change in the ownership of the
bitcoin(s) transferred. Adding a block to the Blockchain requires
bitcoin miners to exert significant computational effort to verify it
is a valid transaction. According to the Registration Statement,
requiring this computational effort, or ``proof of work,'' prevents a
malicious actor from either adding fraudulent blocks to generate
bitcoins (i.e., counterfeit bitcoins) or overwriting existing valid
blocks to reverse its prior transactions.
A transaction in bitcoins between two parties is recorded in the
Blockchain in a block only if that block is accepted as valid by a
majority of the nodes on the Bitcoin Network. Validation of a block is
achieved by confirming the cryptographic ``hash value'' included in the
block's solution and by the block's addition to the longest confirmed
Blockchain on the Bitcoin Network. For a transaction, inclusion in a
block on the Blockchain constitutes a ``confirmation'' of the bitcoin
transaction. As each block contains a reference to the immediately
preceding block, additional blocks appended to and incorporated into
the Blockchain constitute additional confirmations of the transactions
in such prior blocks, and a transaction included in a block for the
first time is confirmed once against double-spending. The layered
confirmation process makes changing

[[Page 19402]]

historical blocks (and reversing transactions) exponentially more
difficult the further back one goes in the Blockchain. Bitcoin
Exchanges and users can set their own threshold as to how many
confirmations are required until funds from the transferor are
considered valid. However, statistically speaking, a transaction is
virtually final after six confirmations as it would be extremely
difficult to challenge the validity of the transaction at that point.
According to the Registration Statement, at this point in the
evolution of the Bitcoin Network, bitcoin transactions are considered
irreversible. Once a transaction appears in the Blockchain, no one has
the authority to reverse it. If someone were to attempt to undo a past
transaction in a block recorded on the Blockchain, such individual
would have to exert tremendous processing power in a series of
complicated transactions that may not be achieved at this point in the
Bitcoin Network's development.
Bitcoin Security and Storage
According to the Registration Statement, all transactions on the
Bitcoin Network are secured using public-key cryptography, a technique
which underpins many online transactions. Public-key cryptography works
by generating two mathematically related keys (one a public key and the
other a private key). One of these, the private key, is retained in the
individual's digital wallet and the other key is made public and serves
as the address to which bitcoin(s) can be transferred and from which
money can be transferred by the owner of the bitcoin wallet. In the
case of bitcoin transactions, the public key is an address (a string of
letters and numbers) that is used to encode payments, which can then
only be retrieved with its associated private key, which is used to
authorize the transaction. In other words, the payor uses his private
key to approve any transfers to a recipient's account. Users on the
Bitcoin Network can confirm that the user signed the transaction with
the appropriate private key, but cannot reverse engineer the private
key from the signature.
According to the Registration Statement, the Custodian is
responsible for keeping the private key or keys that provide access to
the Trust's digital wallets and vaults secure. Pursuant to a request
from the Sponsor or the Trust, the Custodian will establish and
maintain an account with one or more wallets (``Wallet Account'') and
one or more cold-storage vault accounts (``Vault Account'' and,
together with the Wallet Account and any subaccounts associated
therewith, the ``Bitcoin Account'') in the name of the Sponsor and the
Trust. The Custodian deposits and withdraws bitcoins to and from the
Bitcoin Account at the instruction of the Sponsor. The Custodian is
responsible for administering the Bitcoin Account.
The Bitcoin Account is maintained by the Custodian and cold storage
mechanisms are used for the Vault Account by the Custodian. Each
digital wallet of the Trust may be accessed using its corresponding
private key. The Custodian's custodial operations maintain custody of
the private keys that have been deposited in cold storage at its
various vaulting premises which are located in geographically dispersed
locations across the world, including but not limited to the United
States, Europe (including Switzerland) and South America. According to
the Registration Statement, the locations of the vaulting premises
change regularly and are kept confidential by the Custodian for
security purposes.
The term ``cold storage'' refers to a safeguarding method by which
the private keys corresponding to bitcoins stored on a digital wallet
are removed from any computers actively connected to the internet. Cold
storage of private keys may involve keeping such wallet on a non-
networked computer or electronic device or storing the public key and
private keys relating to the digital wallet on a storage device (for
example, a USB thumb drive) or printed medium (for example, papyrus or
paper) and deleting the digital wallet from all computers. According to
the Registration Statement, most of the private keys in the Wallet
Account and all of the private keys in the Vault Account are kept in
cold storage. A digital wallet may receive deposits of bitcoins but may
not send bitcoins without use of the bitcoins' corresponding private
keys. In order to send bitcoin from a digital wallet in which the
private keys are kept in cold storage, either the private keys must be
retrieved from cold storage and entered into a bitcoin software program
to sign the transaction, or the unsigned transaction must be sent to
the ``cold'' server in which the private keys are held for signature by
the private keys. At that point, the user of the digital wallet can
transfer its bitcoins.
According to the Registration Statement, the Custodian is the
custodian of the Trust's private keys and will utilize certain security
procedures such as algorithms, codes, passwords, encryption or
telephone call-backs in the administration and operation of the Trust
and the safekeeping of its bitcoins and private keys. The Custodian has
created a Vault Account for the Trust assets in which private keys are
placed in cold storage. According to the Registration Statement, the
Custodian segregates the private keys stored with it from any other
assets it holds or holds for others.
According to the Registration Statement, multiple distinct private
keys must sign any transaction in order to transfer the Trust's
bitcoins from a multi-signature address to any other address on the
Bitcoin blockchain. Distinct private keys required for multi-signature
address transfers reside in geographically dispersed vault locations.
The Custodian refers to these vault locations, where transactions are
signed by private keys, as ``signing vaults.'' In addition to multiple
signing vaults, the Custodian maintains multiple ``back-up vaults'' in
which backup private keys are stored. According to the Registration
Statement, in the event that one or more of the ``signing vaults'' were
to be compromised, back-up vaults can be activated and used as signing
vaults to complete a transaction within 72 hours.
Therefore, according to the Registration Statement, if any one
signing vault were to be compromised, it would have no impact on the
ability of the Trust to access its bitcoins, other than a possible
delay in operations of 72 hours, while one or more of the back-up
vaults was transitioned to a signing vault. According to the
Registration Statement, these security procedures ensure that there is
no single point of failure in the protection of the Trust's assets.
The Custodian is authorized to accept, on behalf of the Trust,
deposits of bitcoins from ``Authorized Participant Self-Administered
Accounts'' (as defined below) or ``Liquidity Provider Accounts'' (as
defined below), as applicable, held with the Custodian and transfer
such bitcoins into the Bitcoin Account. Deposits of bitcoins will be
immediately available to the Trust to the extent such bitcoins have not
already been transferred to the Vault Account. Bitcoins transferred to
the Bitcoin Account will be directly deposited into digital wallets for
which the keys are already in cold storage.
According to the Registration Statement, if bitcoins need to be
withdrawn from the Trust in connection with a redemption, the Custodian
will ensure that the private keys to those bitcoins sign the withdrawal
transaction.

[[Page 19403]]

Bitcoin Mining and Creation of New Bitcoins
According to the Registration Statement, the process by which
bitcoins are created and bitcoin transactions are verified is called
mining.\15\ To begin mining, a miner can download and run a mining
client, which, like regular Bitcoin Network software programs, turns
the user's computer into a ``node'' on the Bitcoin Network that
validates blocks. Bitcoin transactions are recorded in new blocks that
are added to the Blockchain and new bitcoins being issued to the
miners. Miners, through the use of the bitcoin software program, engage
in a set of prescribed complex mathematical calculations in order to
add a block to the Blockchain and thereby confirm bitcoin transactions
included in that block's data.
---------------------------------------------------------------------------

\15\ None of the Trust, Sponsor or Genesis currently
participates in mining or has plans to engage in mining in the
future.
---------------------------------------------------------------------------

In order to add blocks to the Blockchain, a miner must map an input
data set (i.e., the Blockchain, plus a block of the most recent Bitcoin
Network transactions and an arbitrary number called a ``nonce'') to a
desired output data set of a predetermined length, i.e., a hash value,
using the SHA-256 cryptographic hash algorithm. Each unique block can
only be solved and added to the Blockchain by one miner; therefore, all
individual miners and mining pools on the Bitcoin Network are engaged
in a competitive process of constantly increasing their computing power
to improve their likelihood of solving for new blocks. According to the
Registration Statement, as more miners join the Bitcoin Network and its
processing power increases, the Bitcoin Network adjusts the complexity
of the block-solving equation to maintain a predetermined pace of
adding a new block to the Blockchain approximately every ten minutes.
A miner's proposed block is added to the Blockchain once a majority
of the nodes on the Bitcoin Network confirms the miner's work. Miners
that are successful in adding a block to the Blockchain are
automatically awarded bitcoins for their effort plus any transaction
fees paid by transferors whose transactions are recorded in the block.
This reward system is the method by which new bitcoins enter into
circulation to the public.
The supply of new bitcoins is mathematically controlled in a manner
so that the number of bitcoins grows at a limited rate pursuant to a
pre-set schedule. The number of bitcoins awarded for solving a new
block is automatically halved after every 210,000 blocks are added to
the Blockchain. Recently, in July 2016, the fixed reward for solving a
new block decreased from 25 bitcoins to 12.5 bitcoins per block and
this is expected to decrease by half to become 6.25 bitcoins after the
next 210,000 blocks have entered the Bitcoin Network, which is expected
to be July 2020. This deliberately controlled rate of bitcoin creation
means that the number of bitcoins in existence will increase at a
controlled rate until the number of bitcoins in existence reaches the
pre-determined 21 million bitcoins. According to the Registration
Statement, as of March 15, 2017, approximately 16.22 million bitcoins
have been mined, and estimates of when the 21 million bitcoin
limitation will be reached range up to the year 2140.
Bitcoin Exchanges
According to the Registration Statement, due to the peer-to-peer
framework of the Bitcoin Network and the protocols thereunder,
transferors and recipients of bitcoins are able to determine the value
of the bitcoins transferred by mutual agreement or barter with respect
to their transactions. As a result, the most common means of
determining the value of a bitcoin is by surveying one or more Bitcoin
Exchanges where bitcoins are bought, sold and traded. On each Bitcoin
Exchange, bitcoins are traded with publicly disclosed valuations for
each transaction, measured by one or more fiat currencies such as the
U.S. dollar or the Chinese yuan.
According to the Registration Statement, historically, a large
percentage of the global trading volume occurred on self-reported,
unregulated exchanges located in China. In January 2017, some of the
largest China-based Bitcoin Exchanges implemented certain adjustments
to their terms, including the introduction of a 0.2% fixed-rate
transaction fee for all bitcoin buy and sell orders. In February 2017,
certain smaller China-based Bitcoin Exchanges also imposed or increased
trading fees on their respective exchanges. In the subsequent weeks,
some of the largest China-based Bitcoin Exchanges halted bitcoin
withdrawals. According to the Registration Statement, these events have
substantially reduced the volume traded on Chinese exchanges and
changed the global liquidity profile for bitcoins.
For example, according to the Registration Statement, from May 10,
2015 to January 24, 2017, the three primary China-based Bitcoin
Exchanges, BTCC, Huobi and OKCoin, reported a total trade volume of
approximately 1.35 billion bitcoins and an average daily trade volume
of 2.16 million bitcoins, comprising more than 95% of the global
exchange-traded volume based on data from the Index Provider. According
to the Registration Statement, during this period, the exchanges that
comprised the Index, reported a total trade volume of 33.03 million
bitcoins and an average daily trade volume of approximately 53,000
bitcoins, accounting for approximately 2.3% of the global exchange-
traded volume and 78.5% of the U.S. dollar-denominated trade volume.
However, according to the Registration Statement, from January 25,
2017 to March 15, 2017, following the introduction of fixed-rate
transaction fees in response, the three primary China-based Bitcoin
Exchanges, BTCC, Huobi and OKCoin, reported a total trade volume of
approximately 1.35 million bitcoins and an average daily trade volume
of approximately 27,000 bitcoins, comprising only 25.2% of the global
exchange-traded volume based on data from the Index Provider. During
this period, the exchanges that comprised the Index, reported a total
trade volume of approximately 1.89 million bitcoins and an average
daily trade volume of nearly 39,000 bitcoins, accounting for 35.2% of
the global exchange-traded volume and 73.6% of the U.S. dollar-
denominated trade volume.
According to the Registration Statement, similar to other currency
pairs, such as euro to bitcoin, movements in pricing on the Chinese
exchanges are generally in line with U.S. dollar-denominated exchanges.
For example, according to the Registration Statement, based on data
from the Index Provider, from May 10, 2015 to March 15, 2017, the 4:00
p.m., Eastern Time (``E.T.''), spot price on the three primary Chinese
yuan-denominated exchanges (BTC China, Huobi and OKCoin) differed from
the ``Bitcoin Index Price'' (as defined below) by only 1.6% on average.
According to the Registration Statement, bitcoin price indexes have
also been developed by a number of service providers in the bitcoin
space. For example, Coindesk, a digital currency content provider and
wholly-owned subsidiary of Digital Currency Group, launched a
proprietary bitcoin price index in September 2013, and
bitcoinaverage.com provides an average of all bitcoin prices on several
Bitcoin Exchanges. The Sponsor uses the Index calculated by the Index
Provider to determine the ``Bitcoin Index Price,'' as described below
under ``Bitcoin Index Price.''

[[Page 19404]]

Currently, there are numerous Bitcoin Exchanges operating worldwide
in a number of currency pairs including, among others, bitcoin to U.S.
dollar, bitcoin to euro, bitcoin to Chinese yuan and bitcoin to Indian
rupee. According to the Registration Statement, most of the data with
respect to prevailing valuations of bitcoin come from such Bitcoin
Exchanges. These exchanges include established exchanges such as
Bitstamp, GDAX and Bitfinex, which provide a number of options for
buying and selling bitcoins. Among the Bitcoin Exchanges eligible for
inclusion in the Index, domicile, regulation and legal compliance
varies.
The table below sets forth (1) the aggregate number of bitcoin
trades made on the eight largest U.S. dollar-denominated Bitcoin
Exchanges by trade volume from May 10, 2015 to March 15, 2017 and (2)
the market share of trade volume of each such Bitcoin Exchange.

------------------------------------------------------------------------
Eight largest U.S. dollar-denominated Volume (BTC) Market share
bitcoin exchanges by trade volume \16\ \17\ \18\ (percent)
------------------------------------------------------------------------
Bitcoin Exchanges included in the Index
as of March 15, 2017:
Bitfinex................................ 13,953,081 32.10
BitStamp................................ 6,447,743 14.83
GDAX (formerly known as Coinbase 4,874,681 11.22
Exchange)..............................
ItBit................................... 3,275,893 7.54
-------------------------------
Total U.S. dollar-bitcoin trade 28,551,399 65.69
volume included in the Index as of
March 15, 2017.....................
Bitcoin Exchanges not included in the
Index as of March 15, 2017:
OKCoin.................................. 6,444,440 14.83
BTC-E................................... 4,643,767 10.68
LakeBTC................................. 2,978,524 6.85
Gemini.................................. 846,464 1.95
-------------------------------
Total U.S. dollar-bitcoin trade 14,913,196 34.31
volume not included in the Index as
of March 15, 2017..................
===============================
Total U.S. dollar-bitcoin trade 43,464,594 100.00
volume.........................
------------------------------------------------------------------------

Information regarding each Bitcoin Exchange may be found, where
available, on the Web sites for such Bitcoin Exchanges, among other
places.
---------------------------------------------------------------------------

\16\ According to the Registration Statement, although the
Bitcoin Exchange, LocalBitcoins, accounts for approximately 3% of
the U.S. dollar-bitcoin trade volume, the Sponsor does not consider
it an appropriate Bitcoin Exchange to include in this analysis
because LocalBitcoins does not have an online electronic trading
platform that allows for the prices and volumes of bitcoin traded to
be reliably tracked.
\17\ According to the Registration Statement, these figures
reflect the aggregate number of bitcoins traded on each named U.S.
dollar-denominated Bitcoin Exchange from May 10, 2015 to March 15,
2017.
\18\ According to the Registration Statement, as of May 10,
2015, Kraken EUR (U.S. dollar equivalent) was a component of the
Index but was removed from the Index on May 11, 2015. The
transactions on Kraken EUR were not a material component to the
Index.
---------------------------------------------------------------------------

Off-Exchange Bitcoin Trading
According to the Registration Statement, in addition to open online
Bitcoin Exchanges, there are ``dark pools,'' which are bitcoin trading
platforms that do not publicly report bitcoin trade data. Market
participants have the ability to execute large block trades on a dark
pool without revealing those trades and the related price data to the
public bitcoin exchange market, although any withdrawal from or deposit
to a dark pool platform may be recorded on the Blockchain.\19\
---------------------------------------------------------------------------

\19\ According to the Registration Statement, Genesis operates
an OTC trading desk that buys and sells large blocks of bitcoins
without publicly reporting trade data. Informal dark pools are
currently believed to exist, particularly among wholesale buyers of
bitcoin and bitcoin mining groups that obtain large supplies of
bitcoin through mining. Such informal dark pools function as a
result of the peer-to-peer nature of the Bitcoin Network, which
allows direct transactions between any seller and buyer.
---------------------------------------------------------------------------

Bitcoin may also be traded over-the-counter (``OTC''). OTC trades
are not required to be reported through any facilities. However,
according to the Sponsor, based on publicly available information, OTC
trading may not represent a material volume of overall bitcoin trading.
The OTC markets operate in a similar manner to dark pools. However,
typically, OTC trades are institutional size block transactions (though
on a much lower scale relative to the size of block transactions for
other commodities or industries) or transactions made on behalf of
high-net worth individuals.
According to the Sponsor, some OTC intermediaries that facilitate
OTC trading, such as Genesis and itBit, provide summary statistics on
an ad hoc basis. For instance, in April 2016, itBit reported that it
had traded approximately 25,500 bitcoins, valued at approximately $10.3
million U.S. dollars, which would account for roughly 1.94% of the
bitcoin trading volume across the eight highest volume U.S. dollar-
denominated exchanges. For the fourth quarter of 2016, Genesis reported
trading approximately 70,326 bitcoins, valued at approximately $51.4
million U.S. dollars. According to the Sponsor, the reported Genesis
volume would comprise roughly 2.33% of the trading volume across the
eight highest volume U.S. dollar-denominated exchanges during that time
period.
Bitcoin Price Volatility \20\
---------------------------------------------------------------------------

\20\ Attached as Exhibit 3 hereto are tables relating to: (i)
Rolling 3-month volatility of bitcoin and other commodities; (ii)
average 3-month correlation of bitcoin to other commodities; (iii)
rolling 6-month volatility of bitcoin and other commodities; (iv)
average 6-month correlation of bitcoin to other commodities; (v)
rolling 12-month volatility of bitcoin and other commodities; and
(vi) average 12-month correlation of bitcoin to other commodities.
---------------------------------------------------------------------------

According to the Sponsor, volatility in bitcoin was pronounced in
its earliest days through late 2013. According to the Sponsor, during
that time period, almost all bitcoin trading activity centered on two
exchanges, which centralized the global order book and led to large
price movements. Since then, the bitcoin trading environment has
matured with the development of dozens of exchanges around the world,
resulting in more transparency with respect to bitcoin pricing, in
increased trading volume and in greater liquidity. Additionally, the
globalization of bitcoin exchanges, ranging from those domiciled in the
United States to other areas of the globe, such as China, has led to
development of many bitcoin currency pairs, garnering more market
participants. Today, the largest trading pairs are bitcoin to Chinese
yuan, bitcoin to U.S. dollars and bitcoin to euro.

[[Page 19405]]

Bitcoin price volatility has declined since the inception of
bitcoin. According to the Sponsor and as detailed in Exhibit 3, recent
figures, such as the three, six and twelve-month volatility charts,
show that the volatility of bitcoin is now at levels comparable to
those seen for other commodities such as natural gas and continues to
trend downward.
According to the Sponsor, while bitcoin price volatility has
declined and its volatility approximately corresponds to that of
certain commodities, the volatility of bitcoin is not correlated with
the volatility of other commodities over shorter- (i.e., three to six
months) and longer-term (i.e., longer than one year) investment
horizons, reinforcing the important role bitcoin can play as a
diversifying asset in an investor's portfolio.
Demand for Bitcoin
According to the Sponsor, demand for bitcoins is based on several
factors. Demand may be based on speculation regarding the future
appreciation of the value of bitcoins. Continuing development of
various applications utilizing the Bitcoin Network for uses such as
remittance, payment for goods and services, recording transfer of
ownership of certain assets and settlement of both financial and non-
financial assets have led many investors to speculate that the price of
bitcoins will appreciate as use of these applications increases. As
additional applications are developed, demand may increase.
Additionally, some investors have developed analogs between bitcoin and
other scarce assets such as gold. Bitcoin shares many of the same
characteristics as gold, e.g., scarcity, but has superior utility,
portability and divisibility. If investors shift a portion of their
asset allocations from gold to bitcoin, the demand for bitcoins could
increase. Furthermore, bitcoins are used in day-to-day transactions for
the purchase of goods and services. As additional merchants continue to
accept bitcoins for the purchase of goods and services, demand for
bitcoins may increase. Relatedly, as merchants accept bitcoins for
sales of goods and services, supply of bitcoins could increase on the
exchange markets as these merchants look to liquidate their bitcoin for
fiat currencies.
Bitcoin Index Price
The ``Bitcoin Index Price'' is the U.S. dollar value of a bitcoin
as represented by the Index, calculated at 4:00 p.m., E.T., on each
business day. If the Index becomes unavailable, or if the Sponsor
determines in good faith that the Index does not reflect an accurate
bitcoin value, then the Sponsor will, on a best efforts basis, contact
the Index Provider in order to obtain the Bitcoin Index Price. If after
such contact the Index remains unavailable or the Sponsor continues to
believe in good faith that the Index does not reflect an accurate
bitcoin value, then the Administrator will utilize the following
cascading set of rules to calculate the Bitcoin Index Price. For the
avoidance of doubt, the Sponsor will employ the below rules
sequentially and in the order presented below, should one or more
specific rule(s) fail:
(i) Bitcoin Index Price = The price set by the Index as of 4:00
p.m., E.T., on the valuation date. According to the Registration
Statement, the Index is a U.S. dollar-denominated composite reference
rate for the price of bitcoin based on the volume-weighted price at
trading venues selected by the Index Provider. Trading venues used to
calculate the Index may include Bitcoin Exchanges, OTC markets or
derivative platforms. According to the Registration Statement, to
ensure that the Index Provider's trading venue selection process is
impartial, the Index Provider considers depth of liquidity, compliance
with applicable legal and regulatory requirements, data availability,
U.S. domicile and acceptance of U.S. dollar deposits. The Index
Provider conducts a quarterly review of these criteria. According to
the Registration Statement, as of the date of the Registration
Statement, the eligible Bitcoin Exchanges selected by the Index
Provider include Bitfinex, Bitstamp, GDAX (formerly known as Coinbase
Exchange) and itBit.\21\ Bitfinex is a trading platform based in Hong
Kong for digital currencies, including bitcoin, that offers many
advanced features such as margin and exchange trading and margin
funding. Bitstamp is a European Union-based bitcoin marketplace that
enables people from all around the world to safely buy and sell
bitcoins. GDAX, based in San Francisco, California, is a digital
currency exchange. itBit is a New York City-based, regulated global
exchange that offers retail and institutional investors a powerful
platform to buy and sell bitcoin. According to the Registration
Statement, in the calculation of the Bitcoin Index Price, the Index
Provider cleanses the trade data and compiles it in such a manner as to
algorithmically reduce the impact of anomalistic or manipulative
trading. This is accomplished by adjusting the weight of each input
based on price deviation relative to the observable set of data for the
relevant trading venue, as well as recent and long-term trading volume
at each venue relative to the observable set for the relevant trading
venues. The Index Provider reduces the weighting of data inputs as they
get further from the mean price across the trading venues and
ultimately excludes any trade with a price that deviates beyond a
certain predetermined threshold level from the mean. In addition, the
Index groups ``trade bursts'' (i.e., a group of small-size trades in a
short period of time, typically under one second) and movements during
off-peak trading hours on any given venue into single data inputs,
which reduces the potentially erratic price movements caused by small,
individual orders. The Index Provider formally reevaluates the
weighting algorithm quarterly, but maintains discretion to change the
way in which the Index is calculated based on its periodic review or in
extreme circumstances. The precise formula underlying the Index is
proprietary.
According to the Registration Statement, the Index Provider does
not currently include data from OTC markets or derivative platforms.
OTC data is not currently included because of the potential for trades
to include a significant premium or discount paid for larger liquidity,
which creates an uneven comparison relative to more active markets.
There is also a higher potential for OTC transactions to not be arms-
length and thus not be representative of a true market price. Bitcoin
derivative markets are also not currently included as the markets
remain relatively thin. According to the Registration Statement, the
Index Provider will consider International Organization of Securities
Commissions (``IOSCO'') principles for financial benchmarks and the
management of trading venues of bitcoin derivatives when considering
inclusion of OTC or derivative platform data in the future.
---------------------------------------------------------------------------

\21\ According to the Registration Statement, Digital Currency
Group owns a minority interest in Coinbase, which operates the GDAX,
representing approximately 0.5% of its equity and a minority
interest in Paxos, which operates itBit, representing less than 0.3%
of its equity.
---------------------------------------------------------------------------

According to the Registration Statement, to calculate the Bitcoin
Index Price, the weighting algorithm is applied to the price and volume
of all inputs for the immediately preceding 24-hour period as of 4:00
p.m., E.T., on the valuation date. According to the Registration
Statement, to measure volume data and trading halts, the Index Provider
monitors trading activity and regards as eligible those Bitcoin
Exchanges that it determines represent a substantial portion of U.S.
dollar-denominated trading over a sustained

[[Page 19406]]

period on a platform without a significant history of trading
disruptions. The Index Provider maintains a monitoring system that
tests for these criteria on an ongoing basis.
The description of the Index is based on information publicly
available at the Index Provider's Web site at https://tradeblock.com/markets/index/. The Index spot price will be available on the Index
Provider's Web site and/or from one or more major market data vendors.
If the Index becomes unavailable, or if the Sponsor determines in
good faith that the Index does not reflect an accurate bitcoin value,
then the Sponsor will, on a best efforts basis, contact the Index
Provider to obtain the Bitcoin Index Price directly from the Index
Provider. If after such contact, the Index remains unavailable or the
Sponsor continues to believe in good faith that the Index does not
reflect an accurate bitcoin value, then the Sponsor will employ the
next rule to determine the Bitcoin Index Price.
(ii) Bitcoin Index Price = The volume-weighted average bitcoin
price for the immediately preceding 24-hour period as of 4:00 p.m.,
E.T., on the valuation date as calculated based upon the volume-
weighted average bitcoin prices of the Major Bitcoin Exchanges as
published by an alternative third party's public data feed that the
Sponsor believes is accurately and reliably providing market data
(i.e., is receiving up-to-date and timely market data from constituent
exchanges) (``Second Source''). ``Major Bitcoin Exchanges'' are those
Bitcoin Exchanges that are online, trade on a 24-hour basis and make
transaction price and volume data publicly available. Subject to the
next sentence, if the Second Source becomes unavailable (for example,
data sources from the Second Source for bitcoin prices become
unavailable, unwieldy or otherwise impractical for use), or if the
Sponsor determines in good faith that the Second Source does not
reflect an accurate bitcoin value, then the Sponsor will, on a best
efforts basis, contact the Second Source in an attempt to obtain the
relevant data. If after such contact the Second Source remains
unavailable or the Sponsor continues to believe in good faith that the
Second Source does not reflect an accurate bitcoin price, then the
Sponsor will employ the next rule to determine the Bitcoin Index Price.
(iii) Bitcoin Index Price = The volume-weighted average bitcoin
price as calculated by dividing (a) the U.S. dollar value of the
bitcoin transactions on the Major Bitcoin Exchanges by (b) the total
number of bitcoins traded on the Major Bitcoin Exchanges, in each case
for the 24-hour period from 4:00 p.m., E.T. (or as soon as practicable
thereafter), on the business day prior to the valuation date to 4:00
p.m., E.T. (or as soon as practicable thereafter), on the valuation
date as published by a third party's public data feed that the Sponsor
believes is accurately and reliably providing market data (i.e., is
receiving up-to-date and timely market data from eligible exchanges),
subject to the requirement that such data is calculated based upon a
volume-weighted average bitcoin price obtained from the Major Bitcoin
Exchanges (``Third Source''). Subject to the next sentence, if the
Third Source becomes unavailable (for example, data sources from the
Third Source become unavailable, unwieldy or otherwise impractical for
use), or if the Sponsor determines in good faith that the Third Source
does not reflect an accurate bitcoin price, then the Sponsor will, on a
best efforts basis, contact the Third Source in an attempt to obtain
the relevant data. If after such contact the Third Source remains
unavailable or the Sponsor continues to believe in good faith that the
Third Source does not reflect an accurate bitcoin value then the
Sponsor will employ the next rule to determine the Bitcoin Index Price.
(iv) Bitcoin Index Price = The volume-weighted average bitcoin
price as calculated by dividing (a) the U.S. dollar value of the
bitcoin transactions on the Bitcoin Benchmark Exchanges by (b) the
total number of bitcoins traded on the Bitcoin Benchmark Exchanges, in
each case for the 24-hour period from 4:00 p.m., E.T. (or as soon as
practicable thereafter), on the business day prior to the valuation
date to 4:00 p.m., E.T. (or as soon as practicable thereafter), on the
valuation date. A ``Bitcoin Benchmark Exchange'' is a Bitcoin Exchange
that represents at least 25% of the aggregate U.S. dollar-denominated
trading volume of the bitcoin market during the last 30 consecutive
calendar days and that to the knowledge of the Sponsor is in
substantial compliance with the laws, rules and regulations, including
any anti-money laundering (``AML'') and know-your-customer (``KYC'')
procedures, of such Bitcoin Exchange's applicable jurisdiction;
provided that if there are fewer than three such Bitcoin Exchanges,
then the Bitcoin Benchmark Exchanges will include such Bitcoin Exchange
or Bitcoin Exchanges that meet the above-described requirements as well
as one or more additional Bitcoin Exchanges, selected by the Sponsor,
that have had monthly trading volume of at least 50,000 bitcoins during
the last 30 consecutive calendar days and that to the knowledge of the
Sponsor is in substantial compliance with the laws, rules and
regulations, including any AML and KYC procedures, of such Bitcoin
Exchange's applicable jurisdiction.
The Sponsor will review the composition of the exchanges that
comprise the Bitcoin Benchmark Exchanges at the beginning of each
month, or more frequently if necessary, in order to ensure the accuracy
of its composition. Subject to the next sentence, if one or more of the
Bitcoin Benchmark Exchanges become unavailable (for example, data
sources from the Bitcoin Benchmark Exchanges of bitcoin prices become
unavailable, unwieldy or otherwise impractical for use), or if the
Sponsor determines in good faith that the Bitcoin Benchmark Exchange
does not reflect an accurate bitcoin value, then the Sponsor will, on a
best efforts basis, contact the Bitcoin Benchmark Exchange that is
experiencing the service outages in an attempt to obtain the relevant
data. If after such contact one or more of the Bitcoin Benchmark
Exchanges remain unavailable or the Sponsor continues to believe in
good faith that the Bitcoin Benchmark Exchange does not reflect an
accurate bitcoin price, then the Sponsor will employ the next rule to
determine the Bitcoin Index Price.
(v) Bitcoin Index Price = The Sponsor will use its best judgment to
determine a good faith estimate of the Bitcoin Index Price.
Data used for the above calculation of the Bitcoin Index Price is
gathered by the Administrator or its delegate who calculates the
Bitcoin Index Price each business day as of 4:00 p.m., E.T., or as soon
thereafter as practicable. The Administrator will disseminate the
Bitcoin Index Price each business day.
The Index Provider may change the trading venues that are used to
calculate the Index, or otherwise change the way in which the Index is
calculated at any time. The Index Provider does not have any obligation
to consider the interests of the Sponsor, the Administrator, the Trust,
the shareholders or anyone else in connection with such changes. The
Index Provider is not required to publicize or explain the changes, or
to alert the Sponsor or the Administrator to such changes. The Index
Provider will consider IOSCO principles for financial benchmarks and
the management of trading venues of bitcoin derivatives when
considering inclusion of OTC or derivative platform data in the future.

Bitcoin Holdings

According to the Registration Statement, the Trust's assets will
consist

[[Page 19407]]

solely of bitcoin. The Administrator will determine the value of the
Trust for operational purposes (herein referred to as ``Bitcoin
Holdings''), which is the aggregate U.S. dollar value, based on the
Bitcoin Index Price, of the Trust's bitcoins less its liabilities, on
each day the Shares trade on the Exchange as of 4:00 p.m. E.T., or as
soon thereafter as practicable.\22\ The Administrator will also
determine the Bitcoin Holdings per Share, which equals the Trust's
Bitcoin Holdings divided by the number of outstanding Shares. The
Sponsor will publish the Bitcoin Holdings and the Bitcoin Holdings per
Share each business day at 4:00 p.m., E.T., or as soon thereafter as
practicable at the Trust's Web site at https://grayscale.co/bitcoin-investment-trust/#market-performance.
---------------------------------------------------------------------------

\22\ Bitcoin Holdings is different than the GAAP net asset value
referenced in the Registration Statement.
---------------------------------------------------------------------------

To calculate the Bitcoin Holdings, the Administrator will determine
the Bitcoin Index Price and multiply the Bitcoin Index Price by the
aggregate number of bitcoins owned by the Trust as of 4:00 p.m., E.T.,
on the immediately preceding day. The Administrator will add the U.S.
dollar value of any bitcoins, as calculated using the Bitcoin Index
Price, receivable under pending creation orders, if any, determined by
multiplying the number of creation Baskets represented by such creation
orders by the Basket Bitcoin Amount and then multiplying such product
by the Bitcoin Index Price. The Administrator will subtract (i) the
U.S. dollar value of the bitcoins, as calculated using the Bitcoin
Price Index, constituting any accrued but unpaid fees, (ii) the U.S.
dollar value of the bitcoins to be distributed under pending redemption
orders, determined by multiplying the number of redemption Baskets
represented by such redemption orders by the Basket Bitcoin Amount and
then multiplying such product by the Bitcoin Index Price and (iii)
certain expenses of the Trust.
The Sponsor will publish the Bitcoin Index Price, the Bitcoin
Holdings and the Bitcoin Holdings per Share on the Trust's Web site as
soon as practicable after its determination. If the Bitcoin Holdings
and Bitcoin Holdings per Share have been calculated using a price per
bitcoin other than the Bitcoin Index Price, the publication on the
Trust's Web site will note the valuation methodology used and the price
per bitcoin resulting from such calculation.
While the Trust's investment objective is for the Shares to reflect
the performance of the value of a bitcoin as represented by the Index,
less the Trust's liabilities and expenses, the Shares may trade in the
secondary market at prices that are lower or higher than the Bitcoin
Holdings per Share. The amount of the discount or premium in the
trading price relative to the Bitcoin Holdings per Share may be
influenced by non-concurrent trading hours and liquidity between the
secondary market and larger Bitcoin Exchanges in the bitcoin exchange
market. While the Shares will be listed and trade on the Exchange from
9:30 a.m. until 4:00 p.m., E.T., liquidity in the global bitcoin
markets may fluctuate depending upon the volume and availability of
larger Bitcoin Exchanges. As a result, during periods in which bitcoin
exchange market liquidity is limited or a major Bitcoin Exchange is
off-line, trading spreads, and the resulting premium or discount, on
the Shares may widen.
Impact on Arbitrage
Because of the potential for arbitrage inherent in the structure of
the Trust, the Sponsor believes that the Shares will not trade at a
material discount or premium to the underlying bitcoin held by the
Trust. The arbitrage process, which in general provides investors the
opportunity to profit from differences in prices of assets, increases
the efficiency of the markets, serves to prevent potentially
manipulative efforts, and can be expected to operate efficiently in the
case of the Shares and bitcoin. If the price of the Shares deviates
enough from the price of bitcoin to create a material discount or
premium, an arbitrage opportunity is created. If the Shares are
inexpensive compared to the bitcoin that underlies them, an arbitrageur
may buy the Shares at a discount, immediately redeem them in exchange
for bitcoin, and sell the bitcoin in the cash market at a profit. If
the Shares are expensive compared to the bitcoin that underlies them,
an arbitrageur may sell the Shares short, buy enough bitcoin to acquire
the number of Shares sold short, acquire the Shares through the
creation process, and deliver the Shares to close out the short
position.\23\ In both instances, the arbitrageur serves to efficiently
correct price discrepancies between the Shares and the underlying
bitcoin.
---------------------------------------------------------------------------

\23\ The Exchange states that the Trust, which will only hold
bitcoin, differs from index-based exchange-traded funds, which may
involve a trust holding hundreds or even thousands of underlying
component securities, necessarily involving in the arbitrage process
movements in a large number of security positions. See, e.g.,
Securities Exchange Act Release No. 46306 (August 2, 2002)
(approving the UTP trading of Vanguard Total Market VIPERs based on
the Wilshire 5000 Total Market Index).
---------------------------------------------------------------------------

Creation and Redemption of Shares
According to the Registration Statement, the Trust will issue and
redeem ``Baskets,'' each equal to a block of 100 Shares, only to
Authorized Participants. The size of a Basket is subject to change. The
creation and redemption of a Basket require the delivery to the Trust,
or the distribution by the Trust, of the number of whole and fractional
bitcoins represented by each Basket being created or redeemed, the
number of which is determined by dividing the number of bitcoins owned
by the Trust at 4:00 p.m., E.T., on the trade date of a creation or
redemption order, by the number of Shares outstanding at such time
(calculated to one one-hundred-millionth of one bitcoin), as adjusted
for the number of whole and fractional bitcoins constituting accrued
but unpaid fees and expenses of the Trust and multiplying the quotient
obtained by 100 (``Basket Bitcoin Amount''). The Basket Bitcoin Amount
multiplied by the number of Baskets being created or redeemed is the
``Total Basket Bitcoin Amount.'' The Basket Bitcoin Amount will
gradually decrease over time as the Trust's bitcoins are used to pay
the Trust's expenses. According to the Registration Statement, as of
the date of the Registration Statement, each Share currently represents
approximately 0.093 of a bitcoin.
Authorized Participants are the only persons that may place orders
to create and redeem Baskets. Each Authorized Participant must (i) be a
registered broker-dealer, (ii) enter into a participant agreement with
the Sponsor, the Administrator, the Marketing Agent and the Liquidity
Providers (``Participant Agreement'') and (iii) in the case of the
creation or redemption of Baskets that do not use the ``Conversion
Procedures'' (as defined below), own a bitcoin wallet address that is
recognized by the Custodian as belonging to the Authorized Participant
(``Authorized Participant Self-Administered Account''). Authorized
Participants may act for their own accounts or as agents for broker-
dealers, custodians and other securities market participants that wish
to create or redeem Baskets. Shareholders who are not Authorized
Participants will only be able to redeem their Shares through an
Authorized Participant.
Although the Trust will create Baskets only upon the receipt of
bitcoins, and will redeem Baskets only by distributing bitcoins, an
Authorized Participant may deposit cash with the Administrator, which
will facilitate the purchase or sale of bitcoins through a Liquidity

[[Page 19408]]

Provider on behalf of an Authorized Participant (``Conversion
Procedures''). ``Liquidity Providers'' must (i) enter into a
Participant Agreement with the Sponsor, the Trust, the Marketing Agent
and each Authorized Participant and (ii) own a bitcoin wallet address
that is recognized by the Custodian as belonging to a Liquidity
Provider (``Liquidity Provider Account'').
The Conversion Procedures will be facilitated by a single Liquidity
Provider. On an order-by-order basis, the Sponsor will select the
Liquidity Provider that it believes will provide the best execution of
the Conversion Procedures, and will base its decision on factors such
as the Liquidity Provider's creditworthiness, financial stability,
ability to obtain the best price, the timing and speed of execution,
liquidity and the likelihood of, and capabilities in, execution,
clearance and settlement. In the event that an order cannot be filled
in its entirety by a single Liquidity Provider, additional Liquidity
Provider(s) will be selected by the Sponsor to fill the remaining
amount based on the criteria above.
The trade date on which the Basket Bitcoin Amount is determined is
different for in-kind and in-cash orders. For in-kind orders, the trade
date is the day on which an order is placed, whereas the trade date for
in-cash orders is the day after which an order is placed. This could
result in a different execution price for in-kind and in-cash orders.
For example, if an Authorized Participant submits an in-kind order
at 2:00 p.m., E.T., on a Monday, the Basket Bitcoin Amount required to
purchase a Basket of Shares will be determined at 4:00 p.m., E.T., or
as soon as practicable thereafter, on that same day. Alternatively, for
in-cash orders, if an Authorized Participant submits an order at 2:00
p.m., E.T., on a Monday and pays the requisite Cash Collateral Amount
(as defined below) at 3:00 p.m., E.T., on that same date, the Total
Basket Bitcoin Amount will nevertheless be determined at 4:00 p.m.,
E.T., or as soon as practicable thereafter, on Tuesday. Pursuant to the
Conversion Procedures, the Authorized Participant is obligated to pay
the Cash Exchange Rate (as defined below) which is calculated on
Monday, times the Total Basket Bitcoin Amount, which is calculated on
Tuesday. The Liquidity Provider is required to deposit the Total Basket
Bitcoin Amount as calculated on Tuesday, even if there were a chance
[sic] in the price of bitcoin since Monday.
To create Baskets in-kind, Authorized Participants will send the
Administrator a creation order on the trade date. In-kind creation
orders must be placed no later than 3:59:59 p.m., E.T., on each
business day. The Marketing Agent will accept or reject the creation
order, and this determination will be communicated to the Authorized
Participant by the Administrator on that same date. The Total Basket
Bitcoin Amount will be determined as soon as practicable after 4:00
p.m., E.T., on that date. On the business day following the trade date,
the Authorized Participant will transfer the Total Basket Bitcoin
Amount to the Custodian. Once the Total Basket Bitcoin Amount is
received by the Custodian, the Administrator will instruct the Transfer
Agent to deliver the creation Baskets to the Authorized Participant.
To create Baskets using the Conversion Procedures, Authorized
Participants will send the Administrator a creation order on the
business day preceding the trade date. In-cash creation orders must be
placed no later than 4:59:59 p.m., E.T., on each business day. The
Marketing Agent will accept or reject the creation order, and this
determination will be communicated to the Authorized Participants by
the Administrator on that same date. Upon receiving instruction from
the Administrator that a creation order has been accepted by the
Marketing Agent, the Authorized Participant will send 110% of the U.S.
dollar value of the Total Basket Bitcoin Amount (``Cash Collateral
Amount''). The Total Basket Bitcoin Amount will be determined as soon
as practicable after 4:00 p.m., E.T., the following day. Once the Cash
Collateral Amount is received by the Administrator, the Sponsor will
notify the Liquidity Provider of the creation order. The Liquidity
Provider will then provide a firm quote to the Authorized Participant
for the Total Basket Bitcoin Amount, determined by using the ``Cash
Exchange Rate,'' which, in the case of a creation order, is the Index
spot price at the time at which the Cash Collateral Amount is received
by the Administrator, plus applicable fees. If the Liquidity Provider's
quote is greater than the Cash Collateral Amount received, the
Authorized Participant will be required to pay the difference. Provided
that payment for the Total Basket Bitcoin Amount is received by the
Administrator, the Liquidity Provider will deliver the bitcoins to the
Custodian on the settlement date on behalf of the Authorized
Participant. The Liquidity Provider may realize any arbitrage
opportunity between the firm quote that it provides to the Authorized
Participant and the price at which it sources the requisite bitcoin for
the Total Basket Bitcoin Amount. After the Custodian receives the Total
Basket Bitcoin Amount, the Administrator will instruct the Transfer
Agent to deliver the Creation Baskets to the Authorized Participant.
The Administrator will then send the Liquidity Provider the cash equal
to the Cash Exchange Rate times the Total Basket Bitcoin Amount, plus
applicable fees. The Administrator will return any remaining amount of
the Cash Collateral Amount to the Authorized Participant.
To redeem Baskets in-kind, Authorized Participants will send the
Administrator a redemption order on the trade date. In-kind redemption
orders must be placed no later than 3:59:59 p.m., E.T., on each
business day. The Marketing Agent will accept or reject the redemption
order and the Total Basket Bitcoin Amount will be determined as soon as
practicable after 4:00 p.m., E.T., on that same date. On the second
business day following the trade date, the Authorized Participant will
deliver to the Transfer Agent redemption Baskets from its account. Once
the redemption Baskets are received by the Transfer Agent, the
Custodian will transfer the Total Basket Bitcoin Amount to the
Authorized Participant and the Transfer Agent will cancel the Shares.
To redeem Baskets using the Conversion Procedures, Authorized
Participants will send the Administrator a redemption order. In-cash
redemption orders must be placed no later than 4:59:59 p.m., E.T., on
each business day. The Marketing Agent will accept or reject the
redemption order on that same date. A Liquidity Provider will then
provide a firm quote to an Authorized Participant for the Total Basket
Bitcoin Amount, determined by using the ``Cash Exchange Rate,'' which,
in the case of a redemption order, is the Index spot price minus
applicable fees at the time at which the Administrator notifies the
Authorized Participant that an order has been accepted.
The Liquidity Provider will send the Administrator the cash
proceeds equal to the Cash Exchange Rate times the Total Basket Bitcoin
Amount, minus applicable fees. The Liquidity Provider may realize any
arbitrage opportunity between the firm quote that it provides to the
Authorized Participant and the price at which it sells the requisite
bitcoin for the Total Basket Bitcoin Amount. Once the Authorized
Participant delivers the redemption Baskets to the Transfer Agent, the
Administrator will send the cash proceeds to the Authorized Participant

[[Page 19409]]

and the Transfer Agent will cancel the Shares. At the instruction of
the Administrator, the Custodian will then send the Liquidity Provider
the Total Basket Bitcoin Amount.
The Sponsor represents that Liquidity Providers will only transact
with exchanges and OTC trading partners that have met AML and KYC
regulatory requirements. Authorized Participants that create and redeem
Baskets using the Conversion Procedures will be responsible for
reimbursing the relevant Liquidity Provider for any expenses incurred
in connection with the Conversion Procedures. The Authorized
Participants will also pay a variable fee to the Administrator for its
facilitation of the Conversion Procedures. There are no other fees
related to the Conversion Procedures that will be charged by the
Sponsor or the Custodian.
The creation or redemption of Shares may be suspended generally, or
refused with respect to particular requested creations or redemptions,
during any period when the transfer books of the Transfer Agent are
closed or if circumstances outside the control of the Sponsor or its
delegates make it for all practical purposes not feasible to process
creation orders or redemption orders. The Administrator may reject an
order if such order is not presented in proper form as described in the
Participant Agreement or if the fulfillment of the order, in the
opinion of counsel, might be unlawful.
Availability of Information
The Trust's Web site (https://grayscale.co/bitcoin-investment-trust/) will include quantitative information on a per-Share basis
updated on a daily basis, including, for the Trust (i) the current
Bitcoin Holdings per Share daily and the prior business day's Bitcoin
Holdings and the reported closing price, (ii) the mid-point of the bid-
ask price \24\ in relation to the Bitcoin Holdings as of the time the
Bitcoin Holdings is calculated (``Bid-Ask Price'') and a calculation of
the premium or discount of such price against such Bitcoin Holdings and
(iii) data in chart format displaying the frequency distribution of
discounts and premiums of the daily Bid-Ask Price against the Bitcoin
Holdings, within appropriate ranges, for each of the four previous
calendar quarters (or for the life of the Trust, if shorter). In
addition, on each business day the Trust's Web site will provide
pricing information for the Shares.
---------------------------------------------------------------------------

\24\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day Bitcoin Holdings.
---------------------------------------------------------------------------

The Trust's Web site will provide an intra-day indicative value
(``IIV'') per Share updated every 15 seconds, as calculated by the
Exchange or a third party financial data provider during the Exchange's
Core Trading Session (9:30 a.m. to 4:00 p.m., E.T.) \25\ The IIV will
be calculated by using the prior day's closing Bitcoin Holdings per
Share as a base and updating that value during the NYSE Arca Core
Trading Session to reflect changes in the value of the Trust's bitcoin
holdings during the trading day.
---------------------------------------------------------------------------

\25\ The IIV on a per Share basis disseminated during the Core
Trading Session should not be viewed as a real-time update of the
Bitcoin Holdings, which is calculated once a day.
---------------------------------------------------------------------------

The IIV disseminated during the NYSE Arca Core Trading Session
should not be viewed as an actual real time update of the Bitcoin
Holdings, which will be calculated only once at the end of each trading
day. The IIV will be widely disseminated on a per Share basis every 15
seconds during the NYSE Arca Core Trading Session by one or more major
market data vendors. In addition, the IIV will be available through on-
line information services.
The Bitcoin Holdings 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. To the extent that the Administrator has
utilized the cascading set of rules described in ``Bitcoin Index
Price'' above, the Trust's Web site will note the valuation methodology
used and the price per bitcoin resulting from such calculation.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
Quotation and last sale information for bitcoin will be widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters. In addition, the complete real-time price (and
volume) data for bitcoin is available by subscription from Reuters and
Bloomberg. The spot price of bitcoin is available on a 24-hour basis
from major market data vendors, including Bloomberg and Reuters.
Information relating to trading, including price and volume
information, in bitcoin will be available from major market data
vendors and from the exchanges on which bitcoin are traded. The normal
trading hours for bitcoin exchanges are 24-hours per day, 365-days per
year.
The Trust will provide Web site disclosure of its Bitcoin Holdings
daily. The Web site disclosure of the Trust's Bitcoin Holdings will
occur at the same time as the disclosure by the Sponsor of the Bitcoin
Holdings to Authorized Participants so that all market participants are
provided such portfolio information at the same time. Therefore, the
same portfolio information will be provided on the public Web site as
well as in electronic files provided to Authorized Participants.
Accordingly, each investor will have access to the current Bitcoin
Holdings of the Trust through the Trust's Web site.
Additional information regarding the Index may be found at https://tradeblock.com/markets/index/.
Trading Rules
The Trust will be subject to the criteria in NYSE Arca Equities
Rule 8.201, including 8.201(e), for initial and continued listing of
the Shares. A minimum of 100,000 Shares will be required to be
outstanding at the start of trading. With respect to application of
Rule 10A-3 under the Act, the Trust will rely on the exception
contained in Rule 10A-3(c)(7). The Exchange believes that the
anticipated minimum number of Shares outstanding at the start of
trading is sufficient to provide adequate market liquidity.
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. Trading in the Shares
on the Exchange will occur in accordance with NYSE Arca Equities Rule
7.34(a).\26\ The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, the minimum price variation (``MPV'') for
quoting and entry of orders in equity securities traded on the NYSE
Arca Marketplace is $0.01, with the exception of securities that are
priced less than $1.00 for which the MPV for order entry is $0.0001.
---------------------------------------------------------------------------

\26\ The Exchange has three trading sessions for Commodity-Based
Trust Shares each day the Corporation is open for business unless
otherwise determined by the Corporation: (i) The Opening Session
begins at 1:00 a.m., Pacific Time (``P.T.''), and conclude at the
commencement of the Core Trading Session; (ii) the Core Trading
Session begins for each security at 6:30 a.m., P.T., or at the
conclusion of the Market Order Auction, whichever comes later, and
conclude at 1:15 p.m., P.T.; and (iii) the Late Trading Session
begins following the conclusion of the Core Trading Session and
concludes at 5:00 p.m., P.T.
---------------------------------------------------------------------------

Further, NYSE Arca Equities Rule 8.201 sets forth certain
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting
as registered Market Makers in the Shares to facilitate surveillance.
Pursuant to NYSE Arca Equities Rule 8.201(g), an ETP Holder acting as a
registered Market Maker in

[[Page 19410]]

the Shares is required to provide the Exchange with information
relating to its trading in the underlying bitcoin, related futures or
options on futures, or any other related derivatives. Commentary .04 of
NYSE Arca Equities Rule 6.3 requires an ETP Holder acting as a
registered Market Maker, and its affiliates, in the Shares to
establish, maintain and enforce written policies and procedures
reasonably designed to prevent the misuse of any material nonpublic
information with respect to such products, any components of the
related products, any physical asset or commodity underlying the
product, applicable currencies, underlying indexes, related futures or
options on futures and any related derivative instruments (including
the Shares).
As a general matter, the Exchange has regulatory jurisdiction over
its ETP Holders and their associated persons, which include any person
or entity controlling an ETP Holder. A subsidiary or affiliate of an
ETP Holder that does business only in commodities or futures contracts
would not be subject to Exchange jurisdiction, but the Exchange could
obtain information regarding the activities of such subsidiary or
affiliate through surveillance sharing agreements with regulatory
organizations of which such subsidiary or affiliate is a member.
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading on the Exchange in the Shares 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 conditions in the underlying bitcoin
markets have caused disruptions and/or lack of trading or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In addition,
trading in Shares will be subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange's ``circuit
breaker'' rule.\27\
---------------------------------------------------------------------------

\27\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

The Exchange will halt trading in the Shares if the Bitcoin
Holdings of the Trust is not calculated or disseminated daily. The
Exchange may halt trading during the day in which an interruption
occurs to the dissemination of the IIV or the Index spot price, as
discussed above. If the interruption to the dissemination of the IIV or
the Index spot price persists past the trading day in which it occurs,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption.\28\ In addition, if the
Exchange becomes aware that the Bitcoin Holdings with respect to the
Shares is not disseminated to all market participants at the same time,
it will halt trading in the Shares until such time as the Bitcoin
Holdings is available to all market participants.
---------------------------------------------------------------------------

\28\ The Exchange notes that the Exchange may halt trading
during the day in which an interruption to the dissemination of the
IIV or the Index spot price occurs.
---------------------------------------------------------------------------

Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\29\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
---------------------------------------------------------------------------

\29\ FINRA conducts cross market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------

The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and the Exchange or FINRA, on behalf of
the Exchange, or both, may obtain trading information regarding trading
in the Shares from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement
(``CSSA'').\30\
---------------------------------------------------------------------------

\30\ For the list of current members of ISG, see https://www.isgportal.org/home.html.
---------------------------------------------------------------------------

Also, pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is
able to obtain information regarding trading in the Shares and the
underlying bitcoin or any bitcoin derivative through ETP Holders acting
as registered Market Makers, in connection with such ETP Holders'
proprietary or customer trades through ETP Holders which they effect on
any relevant market.
The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees.
All statements and representations made in this filing regarding
(i) the description of the portfolio, (ii) limitations on portfolio
holdings or reference assets or (iii) the applicability of Exchange
rules and surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Trust to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Trust is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
The procedures for purchases and redemptions of Shares in Baskets
(including noting that the Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (3) how information regarding how
the Index and the IIV are disseminated; (4) the requirement that ETP
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
(5) the possibility that trading spreads and the resulting premium or
discount on the Shares may widen during the Opening and Late Trading
Sessions, when an updated IIV will not be calculated or publicly
disseminated; and (6) trading information. For example, the Information
Bulletin will advise ETP Holders, prior to the commencement of

[[Page 19411]]

trading, of the prospectus delivery requirements applicable to the
Trust. The Exchange notes that investors purchasing Shares directly
from the Trust will receive a prospectus. ETP Holders purchasing Shares
from the Trust for resale to investors will deliver a prospectus to
such investors.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the
Registration Statement. The Information Bulletin will disclose that
information about the Shares of the Trust is publicly available on the
Trust's Web site.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \31\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\31\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.201. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares with other markets that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares from such markets.
In addition, the Exchange may obtain information regarding trading in
the Shares from markets that are members of ISG or with which the
Exchange has in place a CSSA. Also, pursuant to NYSE Arca Equities Rule
8.201(g), the Exchange is able to obtain information regarding trading
in the Shares and the underlying bitcoin or any bitcoin derivative
through ETP Holders acting as registered Market Makers, in connection
with such ETP Holders' proprietary or customer trades through ETP
Holders which they effect on any relevant market.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that there is a considerable amount of bitcoin price and bitcoin market
information available on public Web sites and through professional and
subscription services. Investors may obtain on a 24-hour basis bitcoin
pricing information based on the spot price for bitcoin from various
financial information service providers. The closing price and
settlement prices of bitcoin are readily available from the bitcoin
exchanges and other publicly available Web sites. In addition, such
prices are published in public sources, or on-line information services
such as Bloomberg and Reuters. The Trust will provide Web site
disclosure of its bitcoin holdings daily. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The IIV will be widely disseminated on a per
Share basis every 15 seconds during the NYSE Arca Core Trading Session
(normally 9:30 a.m., E.T., to 4:00 p.m., E.T.) by one or more major
market data vendors. In addition, the IIV will be available through on-
line information services. The Exchange represents that the Exchange
may halt trading during the day in which an interruption to the
dissemination of the IIV or the Index spot price occurs. If the
interruption to the dissemination of the IIV or the Index spot price
persists past the trading day in which it occurred, the Exchange will
halt trading no later than the beginning of the trading day following
the interruption. In addition, if the Exchange becomes aware that the
Bitcoin Holdings with respect to the Shares is not disseminated to all
market participants at the same time, it will halt trading in the
Shares until such time as the Bitcoin Holdings is available to all
market participants. The Bitcoin Holdings per Share will be calculated
daily and made available to all market participants at the same time.
One or more major market data vendors will disseminate for the Trust on
a daily basis information with respect to the most recent Bitcoin
Holdings per Share and Shares outstanding.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,
investors will have ready access to information regarding the Trust's
bitcoin holdings, IIV and quotation and last sale information for the
Shares.

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 purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded product, and the first such product
based on bitcoin, which will enhance competition among market
participants, 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

No written comments were solicited or received with respect to the
proposed rule change.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2017-06 and Grounds for Disapproval Under Consideration

The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \32\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposed rule change,
as discussed below. Institution of proceedings does not indicate that
the Commission has reached any conclusions with respect to any of the
issues involved. Rather, as described below, the Commission seeks and
encourages interested persons to provide comments on the proposed rule
change.
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\32\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\33\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a

[[Page 19412]]

national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \34\
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\33\ Id.
\34\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments

The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal, as modified by Amendment No. 1. In particular, the
Commission invites the written views of interested persons concerning
whether the proposal is consistent with Section 6(b)(5) or any other
provision of the Act, or the rules and regulations thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval which would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\35\
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\35\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal, as modified by Amendment No.
1, should be approved or disapproved by May 18, 2017. Any person who
wishes to file a rebuttal to any other person's submission must file
that rebuttal by June 1, 2017. The Commission asks that commenters
address the sufficiency of the Exchange's statements in support of the
proposal and statements of commenters.\36\ In addition to any other
comments commenters may wish to submit about the proposed rule change,
the Commission invites commenters' views concerning any features that
distinguish the Exchange's proposal from other proposals to list and
trade shares of commodity-trust ETPs.
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\36\ See supra notes 6 & 7.
---------------------------------------------------------------------------

Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2017-06 on the subject line.

Paper Comments

Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-NYSEArca-2017-06. 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 Web site (https://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 Web site 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 these filings also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2017-06 and should
be submitted on or before May 18, 2017. Rebuttal comments should be
submitted by June 1, 2017.
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\37\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(57).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08462 Filed 4-26-17; 8:45 am]
BILLING CODE 8011-01-P

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