Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 to a Proposed Rule Change To List and Trade Shares of Grayscale Bitcoin Trust Under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), 2661-2680 [2024-00636]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 10 (Tuesday, January 16, 2024)]
[Notices]
[Pages 2661-2680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00636]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99298; File No. SR-NYSEARCA-2021-90]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 2 to a Proposed Rule Change To List and Trade Shares 
of Grayscale Bitcoin Trust Under NYSE Arca Rule 8.201-E (Commodity-
Based Trust Shares)

January 9, 2024.
    On October 19, 2021, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of Grayscale Bitcoin Trust (``Trust'') under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares). The proposed rule change 
was published for comment in the Federal Register on November 8, 
2021.\3\ On December 15, 2021, pursuant to Section 19(b)(2) of the 
Exchange 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 disapprove the 
proposed rule change.\5\ On February 4, 2022, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to 
determine whether to disapprove the proposed rule change.\7\ On April 
21, 2022, the Exchange filed Amendment

[[Page 2662]]

No. 1, which amended and replaced the proposed rule change in its 
entirety, and on May 4, 2022, the Commission provided notice of 
Amendment No. 1 to the proposed rule change and designated a longer 
period for Commission action on the proposed rule change, as modified 
by Amendment No. 1.\8\ On June 29, 2022, the Commission disapproved the 
proposed rule change, as modified by Amendment No. 1.\9\ Thereafter, 
the U.S. Court of Appeals for the D.C. Circuit vacated the Commission's 
order disapproving the proposed rule change and remanded the matter to 
the Commission.\10\ On January 5, 2024, the Exchange filed Amendment 
No. 2 to the proposed rule change as described in Items I and II below, 
which Items have been prepared by the self-regulatory organization. 
Amendment No. 2 amended and replaced the proposed rule change, as 
modified by Amendment No. 1, in its entirety. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 2, from interested persons.
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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. 93504 (Nov. 2, 
2021), 86 FR 61804. Comments received on the proposed rule change 
are available at: https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93788, 86 FR 72291 
(Dec. 21, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 94151, 87 FR 7889 
(Feb. 10, 2022).
    \8\ See Securities Exchange Act Release No. 94844, 87 FR 28043 
(May 10, 2022).
    \9\ See Securities Exchange Act Release No. 95180, 87 FR 40299 
(July 6, 2022).
    \10\ See Grayscale Investments, LLC v. SEC, 82 F.4th 1239 (D.C. 
Cir. 2023).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Rule 8.201-E: Grayscale Bitcoin Trust (BTC) (the 
``Trust'').\11\ This Amendment No. 2 to SR-NYSEArca-2021-90 replaces 
SR-NYSEArca-2021-90 as originally filed and supersedes such filing in 
its entirety The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.
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    \11\ The Trust was previously named Bitcoin Investment Trust, 
whose name was changed pursuant to a Certificate of Amendment to the 
Certificate of Trust of Bitcoin Investment Trust filed with the 
Delaware Secretary of State on January 11, 2019.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges ``Commodity-Based 
Trust Shares.'' \12\ The Exchange proposes to list and trade shares 
(``Shares'') \13\ of the Trust pursuant to NYSE Arca Rule 8.201-E.\14\
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    \12\ 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.
    \13\ The Shares are expected to be listed under the ticker 
symbol ``GBTC.''
    \14\ On March 22, 2016, the Trust confidentially filed its draft 
registration statement on Form 10 under the Securities Act of 1933 
(15 U.S.C. 77a) (the ``Securities Act'' or ``'33 Act'') (File No. 
377-01289) (the ``Draft Registration Statement on Form S-1''). On 
May 31, 2016, the Trust confidentially filed Amendment No. 1 to the 
Draft Registration Statement on Form S-1. On July 29, 2016, the 
Trust confidentially filed Amendment No. 2 to the Draft Registration 
Statement on Form S-1. On November 2, 2016, the Trust confidentially 
filed Amendment No. 3 to the Draft Registration Statement on Form S-
1. The Jumpstart Our Business Startups Act (the ``JOBS Act''), 
enacted on April 5, 2012, added Section 6(e) to the Securities Act. 
Section 6(e) of the Securities Act provides that an ``emerging 
growth company'' may confidentially submit to the Commission a draft 
registration statement for confidential, non-public review by the 
Commission staff prior to public filing, provided that the initial 
confidential submission and all amendments thereto shall be publicly 
filed not later than 21 days before the date on which the issuer 
conducts a road show, as such term is defined in Securities Act Rule 
433(h)(4). An emerging growth company is defined in Section 2(a)(19) 
of the Securities Act as an issuer with less than $1,000,000,000 
total annual gross revenues during its most recently completed 
fiscal year. The Trust meets the definition of an emerging growth 
company and consequently submitted its Draft Registration Statement 
on Form S-1 to the Commission on a confidential basis. On January 
20, 2017, the Trust filed its registration statement on Form S-1 
under the Securities Act (File No. 333-215627) (the ``Registration 
Statement on Form S-1''). On March 24, 2017, the Trust filed 
Amendment No. 1 to the Registration Statement on Form S-1. On May 4, 
2017, the Trust filed Amendment No. 2 to the Registration Statement 
on Form S-1. On October 25, 2017, the Trust requested the withdrawal 
of the Registration Statement on Form S-1. On October 3, 2018, the 
Trust confidentially filed its draft registration statement on Form 
10 under the Securities Act (File No. 377-02297) (the ``Draft 
Registration Statement on Form 10''). On December 6, 2018, the Trust 
confidentially filed Amendment No. 1 to the Draft Registration 
Statement on Form 10. On February 25, 2019 the Trust confidentially 
filed Amendment No. 2 to the Draft Registration Statement on Form 
10. On April 15, 2019, the Trust confidentially filed Amendment No. 
3 to the Draft Registration Statement on Form 10. On September 9, 
2019, the Trust confidentially filed Amendment No. 4 to the Draft 
Registration Statement on Form 10. As noted above, the Trust meets 
the definition of an emerging growth company under the JOBS Act and 
consequently submitted its Draft Registration Statement on Form 10 
to the Commission on a confidential basis. On November 19, 2019, the 
Trust filed its registration statement on Form 10 under the 
Securities Act (File No. 000-56121) (the ``Registration Statement on 
Form 10''). On December 31, 2019, the Trust filed Amendment No. 1 to 
the Registration Statement on Form 10. On January 21, 2020, the 
Registration Statement on Form 10 was automatically deemed 
effective. On March 20, 2020, March 5, 2021, February 25, 2022 and 
March 1, 2023, the Trust filed its annual reports on Form 10-K under 
the Securities Act (File No. 000-56121) (the ``Annual Reports''). On 
May 8, 2020, August 7, 2020, November 6, 2020, May 7, 2021, August 
6, 2021, November 5, 2021, May 6, 2022, August 5, 2022, November 4, 
2022, May 5, 2023, August 4, 2023, and November 3, 2023, the Trust 
filed its quarterly reports on Form 10-Q under the Securities Act 
(File No. 000-56121) (the ``Quarterly Reports''). On October 19, 
2023, the Trust filed a registration statement on Form S-3 under the 
Securities Act (File No. 333-275079) (the ``Registration 
Statement''). On November 22, 2023, the Trust filed Amendment No. 1 
to the Registration Statement on Form S-3. On December 26, 2023, the 
Trust filed Amendment No. 2 to the Registration Statement on Form S-
3. On January 2, 2024, the Trust filed Amendment No. 3 to the 
Registration Statement on Form S-3. The descriptions of the Trust, 
the Shares, and Bitcoin contained herein are based, in part, on the 
Annual Report, Quarterly Reports and Registration Statement. On 
January 17, 2019, the Trust submitted to the Commission an amended 
Form D as a business trust. Shares of the Trust have been quoted on 
OTC Market's OTCQX Best Marketplace under the symbol ``GBTC'' since 
March 26, 2015. On February 22, 2019 and March 20, 2020, the Trust 
published annual reports for GBTC for the periods ended December 31, 
2018 and December 31, 2019, respectively. On May 14, 2019, August 8, 
2019, November 14, 2019, May 8, 2020, August 7, 2020 and November 6, 
2020, the Trust published quarterly reports for GBTC for the periods 
ended March 31, 2019, June 30, 2019, September 30, 2019, March 31, 
2020, June 30, 2020 and September 30, 2020 respectively. Reports 
published before January 11, 2020, the date on which the Trust's 
Shares became registered pursuant to Section 12(g) of the Act, can 
be found on OTC Market's website (https://www.otcmarkets.com/stock/GBTC/disclosure), and reports published on or after January 11, 2020 
can be found on OTC Market's website (https://www.otcmarkets.com/stock/GBTC/disclosure) and the Commission's website (https://www.sec.gov/cgi-bin/browse-edgar?CIK=gbtc&owner=exclude&action=getcompany). The Shares will be 
of the same class and will have the same rights as Shares of GBTC. 
Effective October 28, 2014, the Trust suspended its redemption 
program for shares of GBTC, in which shareholders were permitted to 
request the redemption of their shares through Genesis Global 
Trading, Inc. (formerly known as SecondMarket, Inc.), an affiliate 
of the Sponsor and the Trust. According to the Sponsor, freely 
tradeable shares of GBTC will remain freely tradeable Shares on the 
date of the listing of the Shares that are unregistered under the 
Securities Act. Restricted shares of GBTC will remain subject to 
private placement restrictions and the holders of such restricted 
shares will continue to hold those Shares subject to those 
restrictions until they become freely tradable Shares.
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    The Trust is the world's largest Bitcoin investment fund by assets 
under management as of the date of this filing. The Trust has 
approximately $21.9 billion in assets under management \15\

[[Page 2663]]

(representing 3.1% of all Bitcoin in circulation), and its Shares trade 
millions of dollars in daily volume and are held by nearly a million 
American investor accounts seeking exposure to Bitcoin without the cost 
and complexity of purchasing the asset directly. However, because the 
Trust is not currently listed as an exchange-traded product (``ETP''), 
the value of the Shares has not been able to closely track the value of 
the Trust's underlying Bitcoin. The Sponsor thus believes that allowing 
Shares of the Trust to list and trade on the Exchange as an ETP (i.e., 
converting the Trust to a spot Bitcoin ETP) would unlock over $2.9 
billion of value \16\ for the Trust's shareholders and provide other 
investors with a safe and secure way to invest in Bitcoin on a 
regulated national securities exchange.
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    \15\ As of November 14, 2023.
    \16\ Based on a discount of 13.4% as of November 14, 2023.
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    The sponsor of the Trust is Grayscale Investments, LLC 
(``Sponsor''), a Delaware limited liability company. The Sponsor is a 
wholly-owned subsidiary of Digital Currency Group, Inc. (``Digital 
Currency Group''). The trustee for the Trust is Delaware Trust Company 
(``Trustee''). The custodian for the Trust's Bitcoin is Coinbase 
Custody Trust Company, LLC (``Custodian'').\17\ The administrator and 
transfer agent of the Trust is BNY Mellon Asset Servicing, a division 
of The Bank of New York Mellon (the ``Transfer Agent''). The 
distribution and marketing agent for the Trust will be Foreside Fund 
Services, LLC (the ``Marketing Agent''). The index provider for the 
Trust is CoinDesk Indices, Inc. (the ``Index Provider'').
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    \17\ According to the Annual Report, Digital Currency Group owns 
a minority interest in Coinbase, Inc., which is the parent company 
of the Custodian, representing less than 1.0% of its equity.
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    The Trust is a Delaware statutory trust, organized on September 13, 
2013, that operates pursuant to a trust agreement between the Sponsor 
and the Trustee (``Trust Agreement''). The Trust has no fixed 
termination date.
Operation of the Trust
    According to the Annual Report and Registration Statement, the 
Trust's assets consist solely of Bitcoins.\18\
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    \18\ The Trust may from time to time come into possession of 
Incidental Rights and/or IR Virtual Currency by virtue of its 
ownership of Bitcoins, generally through a fork in the Bitcoin 
Blockchain, an airdrop offered to holders of Bitcoins or other 
similar event. ``Incidental Rights'' are rights to acquire, or 
otherwise establish dominion and control over, any virtual currency 
or other asset or right, which rights are incident to the Trust's 
ownership of Bitcoins and arise without any action of the Trust, or 
of the Sponsor or Trustee on behalf of the Trust. ``IR Virtual 
Currency'' is any virtual currency tokens, or other asset or right, 
acquired by the Trust through the exercise (subject to the 
applicable provisions of the Trust Agreement) of any Incidental 
Right. Although the Trust is permitted to take certain actions with 
respect to Incidental Rights and IR Virtual Currency in accordance 
with its Trust Agreement, at this time the Trust will prospectively 
irrevocably abandon any Incidental Rights and IR Virtual Currency. 
In the event the Trust seeks to change this position, the Exchange 
would file a subsequent proposed rule change with the Commission.
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    Each Share represents a proportional interest, based on the total 
number of Shares outstanding, in the Trust's assets as determined by 
reference to the Index Price,\19\ less the Trust's expenses and other 
liabilities (which include accrued but unpaid fees and expenses). The 
Sponsor expects that the market price of the Shares will fluctuate over 
time in response to the market prices of Bitcoin. In addition, because 
the Shares reflect the estimated accrued but unpaid expenses of the 
Trust, the number of Bitcoins represented by a Share will gradually 
decrease over time as the Trust's Bitcoins are used to pay the Trust's 
expenses.
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    \19\ The ``Index Price'' means the U.S. dollar value of a 
Bitcoin derived from the Digital Asset Trading Platforms that are 
reflected in the CoinDesk Bitcoin Price Index (XBX) (the ``Index''), 
calculated at 4:00 p.m., New York time, each day. For purposes of 
the Trust Agreement, the term Bitcoin Index Price has the same 
meaning as the Index Price as defined herein.
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    The activities of the Trust will be limited to (i) issuing 
``Baskets'' (as defined below) in exchange for Bitcoins transferred to 
the Trust as consideration in connection with creations, (ii) 
transferring or selling Bitcoins as necessary to cover the Sponsor's 
Fee \20\ and/or certain Trust expenses, (iii) transferring Bitcoins in 
exchange for Baskets surrendered for redemption (subject to obtaining 
regulatory approval from the SEC and approval of the Sponsor), (iv) 
causing the Sponsor to sell Bitcoins on the termination of the Trust, 
and (v) engaging in all administrative and security procedures 
necessary to accomplish such activities in accordance with the 
provisions of the Trust Agreement, the Custodian Agreement, the Index 
License Agreement and the Participant Agreements (each as defined 
below).
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    \20\ The Sponsor's Fee means a fee, payable in Bitcoins, which 
accrues daily in U.S. dollars at an annual rate of currently 2.0%, 
but which will be lowered in connection with the Trust becoming an 
ETP, of the NAV Fee Basis Amount of the Trust as of 4:00 p.m., New 
York time, on each day; provided that for a day that is not a 
business day, the calculation of the Sponsor's Fee will be based on 
the NAV Fee Basis Amount from the most recent business day, reduced 
by the accrued and unpaid Sponsor's Fee for such most recent 
business day and for each day after such most recent business day 
and prior to the relevant calculation date. The ``NAV Fee Basis 
Amount'' is calculated in the manner set forth under ``Valuation of 
Bitcoin and Determination of NAV'' below.
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    The Trust will not be actively managed. It will not engage in any 
activities designed to obtain a profit from, or to ameliorate losses 
caused by, changes in the market prices of Bitcoins.
Investment Objective
    According to the Annual Report and Registration Statement, the 
Trust's investment objective is for the value of the Shares (based on 
Bitcoin per Share) to reflect the value of the Bitcoins held by the 
Trust, determined by reference to the Index Price, less the Trust's 
expenses and other liabilities.
    While an investment in the Shares is not a direct investment in 
Bitcoin, the Shares are designed to provide investors with a cost-
effective and convenient way to gain investment exposure to Bitcoin. 
Generally speaking, a substantial direct investment in Bitcoin may 
require expensive and sometimes complicated arrangements in connection 
with the acquisition, security and safekeeping of the Bitcoin and may 
involve the payment of substantial fees to acquire such Bitcoin from 
third-party facilitators through cash payments of U.S. dollars. Because 
the value of the Shares is correlated with the value of Bitcoin held by 
the Trust, it is important to understand the investment attributes of, 
and the market for, Bitcoin.
    The Trust uses the Index Price to calculate its ``NAV,'' which is 
the aggregate value, expressed in U.S. dollars, of the Trust's assets 
(other than U.S. dollars or other fiat currency), less the U.S. dollar 
value of the Trust's expenses and other liabilities calculated in the 
manner set forth under ``Valuation of Bitcoin and Determination of 
NAV.'' ``NAV per Share'' is calculated by dividing NAV by the number of 
Shares then outstanding.
Valuation of Bitcoin and Determination of NAV
    The following is a description of the material terms of the Trust 
Agreement as it relates to valuation of the Trust's Bitcoin and the NAV 
calculations.\21\
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    \21\ While the Sponsor uses the terminology ``NAV'' in this 
filing, the term used in the Trust Agreement is ``Digital Asset 
Holdings.''
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    On each business day at 4:00 p.m., New York time, or as soon 
thereafter as practicable (the ``Evaluation Time''), the Sponsor will 
evaluate the Bitcoins held by the Trust and calculate and publish the 
NAV of the Trust. To calculate the NAV, the Sponsor will:
    1. Determine the Index Price as of such business day.

[[Page 2664]]

    2. Multiply the Index Price by the Trust's aggregate number of 
Bitcoins owned by the Trust as of 4:00 p.m., New York time, on the 
immediately preceding day, less the aggregate number of Bitcoins 
payable as the accrued and unpaid Sponsor's Fee as of 4:00 p.m., New 
York time, on the immediately preceding day.
    3. Add the U.S. dollar value of Bitcoins, calculated using the 
Index Price, receivable under pending creation orders, if any, 
determined by multiplying the number of the Baskets represented by such 
creation orders by the Basket Amount and then multiplying such product 
by the Index Price.\22\
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    \22\ ``Baskets'' and ``Basket Amount'' have the meanings set 
forth in ``Creation and Redemption of Shares'' below.
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    4. Subtract the U.S. dollar amount of accrued and unpaid Additional 
Trust Expenses,\23\ if any.
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    \23\ ``Additional Trust Expenses'' are any expenses incurred by 
the Trust in addition to the Sponsor's Fee that are not Sponsor-paid 
expenses, including, but not limited to, (i) taxes and governmental 
charges, (ii) expenses and costs of any extraordinary services 
performed by the Sponsor (or any other service provider) on behalf 
of the Trust to protect the Trust or the interests of shareholders, 
(iii) any indemnification of the Custodian or other agents, service 
providers or counterparties of the Trust, (iv) the fees and expenses 
related to the listing, quotation or trading of the Shares on any 
marketplace or other alternative trading system, as determined by 
the Sponsor, on which the Shares may then be listed, quoted or 
traded, including but not limited to, NYSE Arca, Inc. (including 
legal, marketing and audit fees and expenses) to the extent 
exceeding $600,000 in any given fiscal year and (v) extraordinary 
legal fees and expenses, including any legal fees and expenses 
incurred in connection with litigation, regulatory enforcement or 
investigation matters.
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    5. Subtract the U.S. dollar value of the Bitcoins, calculated using 
the Index Price, to be distributed under pending redemption orders, if 
any, determined by multiplying the number of Baskets to be redeemed 
represented by such redemption orders by the Basket Amount and then 
multiplying such product by the Index Price (the amount derived from 
steps 1 through 5 above, the ``NAV Fee Basis Amount'').
    6. Subtract the U.S. dollar amount of the Sponsor's Fee that 
accrues for such business day, as calculated based on the NAV Fee Basis 
Amount for such business day.
    In the event that the Sponsor determines that the primary 
methodology used to determine the Index Price is not an appropriate 
basis for valuation of the Trust's Bitcoins, the Sponsor will utilize 
the cascading set of rules as described in ``Determination of the Index 
Price When Index Price is Unavailable'' below.
Bitcoin and the Bitcoin Network
    According to the Annual Report, Bitcoin is a digital asset that is 
created and transmitted through the operations of the peer-to-peer 
``Bitcoin Network,'' a decentralized network of computers that operates 
on cryptographic protocols. No single entity owns or operates the 
Bitcoin Network, the infrastructure of which is collectively maintained 
by a decentralized user base. The Bitcoin Network allows people to 
exchange tokens of value, called Bitcoin, which are recorded on a 
public transaction ledger known as a Blockchain. Bitcoin can be used to 
pay for goods and services, or it can be converted to fiat currencies, 
such as the U.S. dollar, at rates determined on ``Digital Asset 
Markets'' \24\ that trade Bitcoin or in individual end-user-to-end-user 
transactions under a barter system.
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    \24\ A ``Digital Asset Market'' is a ``Brokered Market,'' 
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange 
Market,'' as each such term is defined in the Financial Accounting 
Standards Board Accounting Standards Codification Master Glossary. 
The ``Digital Asset Trading Platform Market'' is the global trading 
platform market for the trading of Bitcoins, which consists of 
transactions on electronic Digital Asset Trading Platforms. A 
``Digital Asset Trading Platform'' is an electronic marketplace 
where participants may trade, buy and sell Bitcoins based on bid-ask 
trading. The largest Digital Asset Trading Platforms are online and 
typically trade on a 24-hour basis, publishing transaction price and 
volume data.
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    The Bitcoin Network is decentralized in that it does not require 
governmental authorities or financial institution intermediaries to 
create, transmit or determine the value of Bitcoin. Rather, Bitcoin is 
created and allocated by the Bitcoin Network protocol through a 
``mining'' process. The value of Bitcoin is determined by the supply of 
and demand for Bitcoin on the Digital Asset Markets or in private end-
user-to-end-user transactions.
    New Bitcoin are created and rewarded to the miners of a block in 
the Blockchain for verifying transactions. The Blockchain is 
effectively a decentralized database that includes all blocks that have 
been mined by miners and it is updated to include new blocks as they 
are solved. Each Bitcoin transaction is broadcast to the Bitcoin 
Network and, when included in a block, recorded in the Blockchain. As 
each new block records outstanding Bitcoin transactions, and 
outstanding transactions are settled and validated through such 
recording, the Blockchain represents a complete, transparent and 
unbroken history of all transactions of the Bitcoin Network.
Overview of the Bitcoin Network's Operations
    In order to own, transfer or use Bitcoin directly on the Bitcoin 
Network (as opposed to through an intermediary, such as a custodian), a 
person generally must have internet access to connect to the Bitcoin 
Network. Bitcoin transactions may be made directly between end-users 
without the need for a third-party intermediary. To prevent the 
possibility of double-spending Bitcoin, a user must notify the Bitcoin 
Network of the transaction by broadcasting the transaction data to its 
network peers. The Bitcoin Network provides confirmation against 
double-spending by memorializing every transaction in the Blockchain, 
which is publicly accessible and transparent. This memorialization and 
verification against double-spending is accomplished through the 
Bitcoin Network mining process, which adds ``blocks'' of data, 
including recent transaction information, to the Blockchain.
Summary of a Bitcoin Transaction
    Prior to engaging in Bitcoin transactions directly on the Bitcoin 
Network, a user generally must first install on its computer or mobile 
device a Bitcoin Network software program that will allow the user to 
generate a private and public key pair associated with a Bitcoin 
address, commonly referred to as a ``wallet.'' The Bitcoin Network 
software program and the Bitcoin address also enable the user to 
connect to the Bitcoin Network and transfer Bitcoin to, and receive 
Bitcoin from, other users.
    Each Bitcoin Network address, or wallet, is associated with a 
unique ``public key'' and ``private key'' pair. To receive Bitcoin, the 
Bitcoin recipient must provide its public key to the party initiating 
the transfer. This activity is analogous to a recipient for a 
transaction in U.S. dollars providing a routing address in wire 
instructions to the payor so that cash may be wired to the recipient's 
account. The payor approves the transfer to the address provided by the 
recipient by ``signing'' a transaction that consists of the recipient's 
public key with the private key of the address from where the payor is 
transferring the Bitcoin. The recipient, however, does not make public 
or provide to the sender its related private key.
    Neither the recipient nor the sender reveal their private keys in a 
transaction, because the private key authorizes transfer of the funds 
in that address to other users. Therefore, if a user loses his private 
key, the user may

[[Page 2665]]

permanently lose access to the Bitcoin contained in the associated 
address. Likewise, Bitcoin is irretrievably lost if the private key 
associated with them is deleted and no backup has been made. When 
sending Bitcoin, a user's Bitcoin Network software program must 
validate the transaction with the associated private key. In addition, 
since every computation on the Bitcoin Network requires processing 
power, there is a transaction fee involved with the transfer that is 
paid by the payor. The resulting digitally validated transaction is 
sent by the user's Bitcoin Network software program to the Bitcoin 
Network miners to allow transaction confirmation.
    Bitcoin Network miners record and confirm transactions when they 
mine and add blocks of information to the Blockchain. When a miner 
mines a block, it creates that block, which includes data relating to 
(i) newly submitted and accepted transactions; (ii) a reference to the 
prior block in the Bitcoin Blockchain; and (iii) the satisfaction of 
the consensus mechanism to mine the block. The miner becomes aware of 
outstanding, unrecorded transactions through the data packet 
transmission and distribution discussed above.
    Upon the addition of a block included in the Blockchain, the 
Bitcoin Network software program of both the spending party and the 
receiving party will show confirmation of the transaction on the 
Blockchain and reflect an adjustment to the Bitcoin balance in each 
party's Bitcoin Network public key, completing the Bitcoin transaction. 
Once a transaction is confirmed on the Blockchain, it is irreversible.
    Some Bitcoin transactions are conducted ``off-blockchain'' and are 
therefore not recorded in the Blockchain. Some ``off-blockchain 
transactions'' involve the transfer of control over, or ownership of, a 
specific digital wallet holding Bitcoin or the reallocation of 
ownership of certain Bitcoin in a pooled-ownership digital wallet, such 
as a digital wallet owned by a Digital Asset Trading Platform. In 
contrast to on-blockchain transactions, which are publicly recorded on 
the Blockchain, information and data regarding off-blockchain 
transactions are generally not publicly available. Therefore, off-
blockchain transactions are not truly Bitcoin transactions in that they 
do not involve the transfer of transaction data on the Bitcoin Network 
and do not reflect a movement of Bitcoin between addresses recorded in 
the Blockchain. For these reasons, off-blockchain transactions are 
subject to risks, as any such transfer of Bitcoin ownership is not 
protected by the protocol behind the Bitcoin Network or recorded in, 
and validated through, the blockchain mechanism.
Limits on Bitcoin Supply
    The supply of new Bitcoin is mathematically controlled so that the 
number of Bitcoin grows at a limited rate pursuant to a pre-set 
schedule. The number of Bitcoin awarded for solving a new block is 
automatically halved after every 210,000 blocks are added to the 
Blockchain. Currently, the fixed reward for solving a new block is 6.25 
Bitcoin per block and this is expected to decrease by half to become 
3.125 Bitcoin after the next 210,000 blocks have entered the Bitcoin 
Network, which is expected to be mid-2024. This deliberately controlled 
rate of Bitcoin creation means that the number of Bitcoin in existence 
will increase at a controlled rate until the number of Bitcoin in 
existence reaches the pre-determined 21 million Bitcoin. As of 
September 30, 2023, approximately 19.5 million Bitcoins were 
outstanding and the date when the 21 million Bitcoin limitation will be 
reached is estimated to be the year 2140.
Custody of the Trust's Bitcoins
    Digital assets and digital asset transactions are recorded and 
validated on blockchains, the public transaction ledgers of a digital 
asset network. Each digital asset blockchain serves as a record of 
ownership for all of the units of such digital asset, even in the case 
of certain privacy-preserving digital assets, where the transactions 
themselves are not publicly viewable. All digital assets recorded on a 
blockchain are associated with a public blockchain address, also 
referred to as a digital wallet. Digital assets held at a particular 
public blockchain address may be accessed and transferred using a 
corresponding private key.
Key Generation
    Public addresses and their corresponding private keys are generated 
by the Custodian in secret key generation ceremonies at secure 
locations inside faraday cages, which are enclosures used to block 
electromagnetic fields and thus mitigate against attacks. The Custodian 
uses quantum random number generators to generate the public and 
private key pairs.
    Once generated, private keys are encrypted, separated into 
``shards,'' and then further encrypted. After the key generation 
ceremony, all materials used to generate private keys, including 
computers, are destroyed. All key generation ceremonies are performed 
offline. No party other than the Custodian has access to the private 
key shards of the Trust.
Key Storage
    Private key shards are distributed geographically in secure vaults 
around the world, including in the United States. The locations of the 
secure vaults may change regularly and are kept confidential by the 
Custodian for security purposes.
    The ``Digital Asset Account'' is a segregated custody account 
controlled and secured by the Custodian to store private keys, which 
allows for the transfer of ownership or control of the Trust's Bitcoins 
on the Trust's behalf. The Digital Asset Account uses offline storage, 
or ``cold'' storage, mechanisms to secure the Trust's private keys. The 
term cold storage refers to a safeguarding method by which the private 
keys corresponding to digital assets are disconnected and/or deleted 
entirely from the internet. Cold storage of private keys may involve 
keeping such keys on a non-networked (or ``air-gapped'') computer or 
electronic device or storing the private keys on a storage device (for 
example, a USB thumb drive) or printed medium (for example, papyrus, 
paper or a metallic object). A digital wallet may receive deposits of 
digital assets but may not send digital assets without use of the 
digital assets' corresponding private keys. In order to send digital 
assets from a digital wallet in which the private keys are kept in cold 
storage, either the private keys must be retrieved from cold storage 
and entered into an online, or ``hot,'' digital asset software program 
to sign the transaction, or the unsigned transaction must be 
transferred to the cold server in which the private keys are held for 
signature by the private keys and then transferred back to the online 
digital asset software program. At that point, the user of the digital 
wallet can transfer its digital assets.
Security Procedures
    The Custodian is the custodian of the Trust's private keys (which, 
as noted above, facilitate the transfer of ownership or control of the 
Trust's Bitcoins) in accordance with the terms and provisions of the 
custodian agreement by and between the Custodian, the Sponsor and the 
Trust (the ``Custodian Agreement''). Transfers from the Digital Asset 
Account require certain security procedures, including, but not limited 
to, multiple encrypted private key shards, usernames, passwords and 2-
step verification. Multiple private key shards held by the

[[Page 2666]]

Custodian must be combined to reconstitute the private key to sign any 
transaction in order to transfer the Trust's assets. Private key shards 
are distributed geographically in secure vaults around the world, 
including in the United States.
    As a result, if any one secure vault is ever compromised, this 
event will have no impact on the ability of the Trust to access its 
assets, other than a possible delay in operations, while one or more of 
the other secure vaults is used instead. These security procedures are 
intended to remove single points of failure in the protection of the 
Trust's assets.
    Transfers of Bitcoins to the Digital Asset Account will be 
available to the Trust once processed on the Blockchain.
    Subject to obtaining regulatory approval to operate a redemption 
program and authorization of the Sponsor, the process of accessing and 
withdrawing Bitcoins from the Trust to redeem a Basket by an Authorized 
Participant \25\ will follow the same general procedure as transferring 
Bitcoins to the Trust to create a Basket by an Authorized Participant, 
only in reverse.
---------------------------------------------------------------------------

    \25\ ``Authorized Participant'' has the meaning set forth in 
``Creation and Redemption of Shares'' below.
---------------------------------------------------------------------------

    The Sponsor will maintain ownership and control of the Trust's 
Bitcoin in a manner consistent with good delivery requirements for spot 
commodity transactions.
Bitcoin Value
Digital Asset Trading Platform Valuation
    According to the Annual Report and Registration Statement, the 
value of Bitcoin is determined by the value that various market 
participants place on Bitcoin through their transactions. The most 
common means of determining the value of a Bitcoin is by surveying one 
or more Digital Asset Trading Platforms where Bitcoin is traded 
publicly (e.g., Coinbase, Bitstamp, Kraken, and LMAX Digital). 
Additionally, there are over-the-counter dealers or market makers that 
transact in Bitcoin.
Digital Asset Trading Platforms Public Market Data
    On each online Digital Asset Trading Platforms, Bitcoin is traded 
with publicly disclosed valuations for each executed trade, measured by 
one or more fiat currencies such as the U.S. dollar or Euro. Over-the-
counter dealers or market makers do not typically disclose their trade 
data.
    As of September 30, 2023, the Digital Asset Trading Platforms 
included in the Index are Coinbase, Bitstamp, Kraken and LMAX Digital. 
As further described below, the Sponsor and the Trust reasonably 
believe each of these Digital Asset Trading Platforms are in material 
compliance with applicable U.S. federal and state licensing 
requirements and maintain practices and policies designed to comply 
with know-your-customer (``KYC''), anti-money-laundering (``AML'') 
regulations.
    Coinbase: A U.S.-based trading platform registered as a money 
services business (``MSB'') with the U.S. Department of Treasury's 
Financial Crimes Enforcement Network (``FinCEN'') and licensed as a 
virtual currency business under the New York State Department of 
Financial Services (``NYDFS'') BitLicense and as a money transmitter in 
various U.S. states.
    Bitstamp: A U.K.-based trading platform registered as an MSB with 
FinCen and licensed as a virtual currency business under the NYDFS 
BitLicense and as a money transmitter in various U.S. states.
    Kraken: A U.S.-based trading platform registered as an MSB with 
FinCEN and licensed as a money transmitter in various U.S. states. 
Kraken does not hold a BitLicense.
    LMAX Digital: A U.K.-based trading platform registered as a broker 
with the Financial Conduct Authority. LMAX Digital does not hold a 
BitLicense.
    Currently, there are several Digital Asset Trading Platforms 
operating worldwide, and online Digital Asset Trading Platforms 
represent a substantial percentage of Bitcoin buying and selling 
activity and provide the most data with respect to prevailing 
valuations of Bitcoins. These trading platforms include established 
trading platforms such as trading platforms included in the Index, 
which provide a number of options for buying and selling Bitcoins. The 
below table reflects the trading volume in Bitcoins and market share 
\26\ of the BTC-U.S. dollar trading pairs of each of the Digital Asset 
Trading Platforms included in the Index as of September 30, 2023 \27\ 
using data reported by the Index Provider from May 1, 2015 to September 
30, 2023:
---------------------------------------------------------------------------

    \26\ Market share is calculated using trading volume data (in 
Bitcoins) for certain Digital Asset Trading Platforms, including 
Coinbase, Bitstamp, Kraken, and LMAX Digital, as well as certain 
other large U.S.-dollar denominated Digital Asset Trading Platforms 
that were not included in the Index as of September 30, 2023, 
including Binance.US (data included from April 1, 2020), Bitfinex, 
Bitflyer (data included from December 24, 2018), Bittrex (data 
included from July 31, 2018), Cboe Digital (data included from 
October 1, 2020), FTX.US (data included from July 1, 2021 through 
November 10, 2022), Gemini (data included from October 7, 2015), 
itBit, LakeBTC (data included from May 1, 2015 to June 1, 2018 and 
from January 27, 2019 to May 6, 2021), HitBTC (data included from 
April 1, 2019 to March 31, 2020) and OKCoin (data included through 
March 31, 2023).
    \27\ On January 19, 2020, the Index Provider removed Bittrex due 
to a lack of trading volume and added LMAX Digital based on its 
meeting the liquidity thresholds for inclusion in the Index. On 
April 6, 2020, the Index Provider removed itBit due to a lack of 
trading volume and did not add any constituents as part of its 
scheduled quarterly review. On October 29, 2022, the Index Provider 
removed Bitstamp from the Index due to its failure to meet the 
minimum liquidity requirement and added Binance.US as a Constituent 
Trading Platform based on its satisfaction of the minimum liquidity 
requirement as part of its scheduled quarterly review. On June 17, 
2023, the Index Provider removed Binance.US from the Index, due to 
Binance.US's announcement that it was suspending U.S. dollar 
deposits and withdrawals and planned to delist its U.S. dollar 
trading pairs and did not add any Constituent Trading Platforms as 
part of its review. Effective July 29, 2023, the Index Provider 
added Bitstamp to the Index based on its satisfaction of the Index 
Provider's minimum liquidity requirement and did not remove any 
Constituent Trading Platforms as part of its scheduled quarterly 
review. On October 28, 2023, the Index Provider added Crypto.com to 
the Index based on its satisfaction of the Index Provider's minimum 
liquidity requirement and did not remove any Constituent Trading 
Platforms as part of its scheduled quarterly review.

Digital Trading Platforms Included in the Index as of September 30, 2023
------------------------------------------------------------------------
                                                           Market share
                                           Volume (BTC)         (%)
------------------------------------------------------------------------
Coinbase................................      44,082,174           24.33
Bitstamp................................      23,391,038           12.91
Kraken..................................      13,173,711            7.27
LMAX Digital............................       8,929,858            4.93
                                         -------------------------------
    Total BTC-U.S. dollar trading pair..      89,576,781           49.44
------------------------------------------------------------------------


[[Page 2667]]

    The domicile, regulation, and legal compliance of the Digital Asset 
Trading Platforms included in the Index varies. Information regarding 
each Digital Asset Trading Plaform may be found, where available, on 
the websites for such Digital Asset Trading Platforms, among other 
places.
The Index and the Index Price
    The Index is a U.S. dollar-denominated composite reference rate for 
the price of Bitcoin. The Index is designed to (i) mitigate the effects 
of fraud, manipulation and other anomalous trading activity from 
impacting the Bitcoin reference rate, (ii) provide a real-time, volume-
weighted fair value of Bitcoin and (iii) appropriately handle and 
adjust for non-market related events.
    The Index Price is determined by the Index Provider through a 
process in which trade data is cleansed and compiled in such a manner 
as to algorithmically reduce the impact of anomalistic or manipulative 
trading. This is accomplished by adjusting the weight of each data 
input based on price deviation relative to the observable set, as well 
as recent and long-term trading volume at each venue relative to the 
observable set.
    The value of the Index is calculated and disseminated on a 24-hour 
basis and will be available on a continuous basis at https://www.coindesk.com/indices.
Constituent Trading Platform Selection
    According to the Annual Report and Registration Statement, the 
Digital Asset Trading Platforms that are included in the Index are 
selected by the Index Provider utilizing a methodology that is guided 
by the International Organization of Securities Commissions (``IOSCO'') 
principles for financial benchmarks. For a trading platform to become a 
Digital Asset Trading Platform included in the Index (a ``Constituent 
Trading Platform''), it must satisfy the criteria listed below (the 
``Inclusion Criteria''):
     Sufficient USD liquidity relative to the size of the 
listed assets;
     No evidence in the past 12 months of trading restrictions 
on individuals or entities that would otherwise meet the trading 
platform's eligibility requirements to trade;
     No evidence in the past 12 months of undisclosed 
restrictions on deposits or withdrawals from user accounts;
     Real-time price discovery;
     Limited or no capital controls; \28\
---------------------------------------------------------------------------

    \28\ ``Capital controls'' in this context means governmental 
sanctions that would limit the movement of capital into, or out of, 
the jurisdiction in which such Digital Asset Trading Platforms 
operate.
---------------------------------------------------------------------------

     Transparent ownership including a publicly-owned ownership 
entity;
     Publicly available language and policies addressing legal 
and regulatory compliance in the US, including KYC (Know Your 
Customer), AML (Anti-Money Laundering) and other policies designed to 
comply with relevant regulations that might apply to it;
     Be a US-domiciled trading platform or a non-US domiciled 
trading platform that is able to service US investors;
     Offer programmatic spot trading of the trading pair,\29\ 
and reliably publish trade prices and volumes on a real-time basis 
through Rest and Websocket APIs.
---------------------------------------------------------------------------

    \29\ Trading platforms with programmatic trading offer traders 
an application programming interface that permits trading by sending 
programmed commands to the trading platform.
---------------------------------------------------------------------------

    A Digital Asset Trading Platform is removed from the Constituent 
Trading Platforms when it no longer satisfies the Inclusion Criteria. 
The Index Provider does not currently include data from non-Digital 
Asset Trading Platforms (or over-the-counter markets) or derivatives 
platforms among the Constituent Trading Platforms. According to the 
Annual Report and Registration Statement, over-the-counter data is not 
currently included because of the potential for trades to include a 
significant premium or discount paid for larger liquidity, which 
creates an uneven comparison relative to more active markets. There is 
also a higher potential for over-the-counter transactions to not be 
arms-length, and thus not be representative of a true market price. 
Bitcoin derivative markets data, including Bitcoin futures markets and 
perpetuals markets data, are also not currently included as the markets 
remain relatively thin. The Index Provider will consider IOSCO 
principles for financial benchmarks and the management of trading 
venues of Bitcoin derivatives and the aforementioned Inclusion Criteria 
when considering inclusion of over-the-counter or derivative platform 
data in the future.
    The Index Provider and the Sponsor have entered into the index 
license agreement, dated as of February 1, 2022 (as amended, the 
``Index License Agreement''), governing the Sponsor's use of the Index 
Price.\30\ Pursuant to the terms of the Index License Agreement, the 
Index Provider may adjust the calculation methodology for the Index 
Price without notice to, or consent of, the Trust or its shareholders. 
The Index Provider may decide to change the calculation methodology to 
maintain the integrity of the Index Price calculation should it 
identify or become aware of previously unknown variables or issues with 
the existing methodology that it believes could materially impact its 
performance and/or reliability. The Index Provider has sole discretion 
over the determination of Index Price and may change the methodologies 
for determining the Index Price from time to time. Shareholders will be 
notified of any material changes to the calculation methodology or the 
Index Price in the Trust's current reports and will be notified of all 
other changes that the Sponsor considers significant in the Trust's 
periodic or current reports. The Trust will determine the materiality 
of any changes to the Index Price on a case-by-case basis, in 
consultation with external counsel.
---------------------------------------------------------------------------

    \30\ Upon entering into the Index License Agreement, the Sponsor 
and the Index Provider terminated the license agreement between the 
parties dated as of February 28, 2019.
---------------------------------------------------------------------------

    The Index Provider may change the trading venues that are used to 
calculate the Index or otherwise change the way in which the Index is 
calculated at any time. For example, the Index Provider has scheduled 
quarterly reviews in which it may add or remove Constituent Trading 
Platforms that satisfy or fail the Inclusion Criteria. The Index 
Provider does not have any obligation to consider the interests of the 
Sponsor, the Trust, the shareholders, or anyone else in connection with 
such changes. Although the Index Provider is not required to publicize 
or explain the changes or to alert the Sponsor to such changes, it has 
historically notified the Trust (and other subscribers to the Index) of 
any material changes to the Constituent Trading Platforms, including 
any additions or removals, contemporaneous with its issuance of press 
releases in connection with the same. The Sponsor will notify investors 
of any such material event by filing a current report on Form 8-K. 
Although the Index methodology is designed to operate without any 
manual intervention, rare events would justify manual intervention. 
Intervention of this kind would be in response to non-market-related 
events, such as the halting of deposits or withdrawals of funds on a 
Digital Asset Trading Platform, the unannounced closure of operations 
on a Digital Asset Trading Platform, insolvency or the compromise of 
user funds. In the event that such an intervention is necessary, the 
Index Provider would issue a public announcement through its website, 
API and other established communication channels with its clients.

[[Page 2668]]

Determination of the Index Price
    The Index applies an algorithm to the price of Bitcoin on the 
Constituent Trading Platforms calculated on a per second basis over a 
24-hour period. The Index's algorithm is expected to reflect a four-
pronged methodology to calculate the Index Price from the Constituent 
Trading Platforms:
     Volume Weighting: Constituent Trading Platforms with 
greater liquidity receive a higher weighting in the Index, increasing 
the ability to execute against (i.e., replicate) the Index in the 
underlying spot markets.
     Price-Variance Weighting: The Index Price reflects data 
points that are discretely weighted in proportion to their variance 
from the rest of the Constituent Trading Platforms. As the price at a 
particular trading platform diverges from the prices at the rest of the 
Constituent Trading Platforms, its weight in the Index Price 
consequently decreases.
     Inactivity Adjustment: The Index Price algorithm penalizes 
stale activity from any given Constituent Trading Platform. When a 
Constituent Trading Platform does not have recent trading data, its 
weighting in the Index Price is gradually reduced until it is de-
weighted entirely. Similarly, once trading activity at a Constituent 
Trading Platform resumes, the corresponding weighting for that 
Constituent Trading Platform is gradually increased until it reaches 
the appropriate level.
     Manipulation Resistance: In order to mitigate the effects 
of wash trading and order book spoofing, the Index only includes 
executed trades in its calculation. Additionally, the Index only 
includes Constituent Trading Platforms that charge trading fees to its 
users in order to attach a real, quantifiable cost to any manipulation 
attempts.
    The Index Provider re-evaluates the weighting algorithm on a 
periodic basis, but maintains discretion to change the way in which an 
Index Price is calculated based on its periodic review or in extreme 
circumstances and does not make the exact methodology to calculate the 
Index Price publicly available. Nonetheless, the Sponsor believes that, 
the Index is designed to limit exposure to trading or price distortion 
of any individual Digital Asset Trading Platform that experiences 
periods of unusual activity or limited liquidity by discounting, in 
real-time, anomalous price movements at individual Digital Asset 
Trading Platforms.
    The Sponsor believes the Index Provider's selection process for 
Constituent Trading Platforms as well as the methodology of the Index 
Price's algorithm provides a more accurate picture of Bitcoin price 
movements than a simple average of Digital Asset Trading Platform spot 
prices, and that the weighting of Bitcoin prices on the Constituent 
Trading Platforms limits the inclusion of data that is influenced by 
temporary price dislocations that may result from technical problems, 
limited liquidity or fraudulent activity elsewhere in the Bitcoin spot 
market. By referencing multiple trading venues and weighting them based 
on trade activity, the Sponsor believes that the impact of any 
potential fraud, manipulation or anomalous trading activity occurring 
on any single venue is reduced.
    If the Index Price becomes unavailable, or if the Sponsor 
determines in good faith that such Index Price does not reflect an 
accurate price for Bitcoin, then the Sponsor will, on a best efforts 
basis, contact the Index Provider to obtain the Index Price directly 
from the Index Provider. If after such contact such Index Price remains 
unavailable or the Sponsor continues to believe in good faith that such 
Index Price does not reflect an accurate price for the relevant digital 
asset, then the Sponsor will employ a cascading set of rules to 
determine the Index Price, as described below in ``Determination of the 
Index Price When Index Price is Unavailable.''
    The Trust values its Bitcoin for operational purposes by reference 
to the Index Price. The Index Price is the value of a Bitcoin as 
represented by the Index, calculated at 4:00 p.m., New York time, on 
each business day.
Illustrative Example
    For the purposes of illustration, outlined below are examples of 
how the attributes that impact weighting and adjustments in the 
aforementioned methodology may be utilized to generate the Index Price 
for a digital asset. For example, the Constituent Trading Platforms for 
the Index Price for a digital asset are Coinbase, Kraken, LMAX Digital 
and Bitstamp.
    The Index Price algorithm, as described above, accounts for 
manipulation at the outset by only including data from executed trades 
on Constituent Trading Platforms that charge trading fees. Then, the 
below-listed elements may impact the weighting of the Constituent 
Trading Platforms on the Index price as follows:
     Volume Weighting: Each Constituent Trading Platform will 
be weighted to appropriately reflect the trading volume share of the 
Constituent Trading Platform relative to all the Constituent Trading 
Platforms during this same period. For example, an average hourly 
weighting of 67.06%, 14.57%, 11.88% and 6.49% for Coinbase, Kraken, 
LMAX Digital and Bitstamp, respectively, would represent each 
Constituent Trading Platform's share of trading volume during the same 
period.
     Inactivity Adjustment: Assume that a Constituent Trading 
Platform represented a 14% weighting on the Index Price of the digital 
asset, which is based on the per-second calculations of its trading 
volume and price-variance relative to the cohort of Constituent Trading 
Platforms included in such Index, and then went offline for 
approximately two hours. The index algorithm would automatically 
recognize inactivity and start de-weighting the Constituent Trading 
Platform at the 3-minute mark and continue to do so over a 7-minute 
period until its influence was effectively zero, 10 minutes after 
becoming inactive. As soon as trading activity resumed at the 
Constituent Trading Platform, the index algorithm would re-weight it to 
the appropriate weighting based on trading volume and price-variance 
relative to the cohort of Constituent Trading Platforms included in the 
Index. Due to the period of inactivity, it would re-weight the 
Constituent Trading Platform activity to a weight lower than its 
original weighting--for example, to 12%.
     Price-Variance Weighting: Assume that for a one-hour 
period, the digital asset's execution prices on one Constituent Trading 
Platform were trading more than 7% higher than the average execution 
prices on another Constituent Trading Platform. The algorithm will 
automatically detect the anomaly and reduce that specific Constituent 
Trading Platform's weighting to 0% for that one-hour period, ensuring a 
reliable spot reference unaffected by the localized event.
Determination of the Index Price When Index Price Is Unavailable
    The Sponsor uses the following cascading set of rules to calculate 
the Index Price when the Index Price is unavailable.\31\ For the 
avoidance of doubt, the Sponsor will employ the below rules 
sequentially and in the order as presented below, should one or more 
specific rule(s) fail.
---------------------------------------------------------------------------

    \31\ The Sponsor updated these rules on January 11, 2022.
---------------------------------------------------------------------------

    1. Index Price = The price set by the Index as of 4:00 p.m., New 
York time,

[[Page 2669]]

on the valuation date.\32\ If the Index becomes unavailable, or if the 
Sponsor determines in good faith that the Index does not reflect an 
accurate price, then the Sponsor will, on a best efforts basis, contact 
the Index Provider to obtain the Index Price directly from the Index 
Provider. If after such contact the Index remains unavailable or the 
Sponsor continues to believe in good faith that the Index does not 
reflect an accurate price, then the Sponsor will employ the next rule 
to determine the Index Price. There are no predefined criteria to make 
a good faith assessment and it will be made by the Sponsor in its sole 
discretion.
---------------------------------------------------------------------------

    \32\ The valuation date is any day for which the value of the 
Bitcoin in the Trust may be calculated utilizing the Index Price. 
This calculation may be performed on business days for creation or 
redemption procedures or on non-business days in relation to 
calculating information that may be included in SEC reports 
comparing the GAAP and non-GAAP prices on period end dates that are 
non-business days. The cascading rule set is consistent for 
determining the value of the Bitcoin in the Trust on both business 
days and non-business days.
---------------------------------------------------------------------------

    2. Index Price = The price set by Coin Metrics Real-Time Rate (the 
``Secondary Index'') as of 4:00 p.m., New York time, on the valuation 
date (the ``Secondary Index Price''). The Secondary Index Price is a 
real-time reference rate price, calculated using trade data from 
constituent markets selected by Coin Metrics (the ``Secondary Index 
Provider''). The Secondary Index Price is calculated by applying 
weighted-median techniques to such trade data where half the weight is 
derived from the trading volume on each constituent market and half is 
derived from inverse price variance, where a constituent market with 
high price variance as a result of outliers or market anomalies 
compared to other constituent markets is assigned a smaller weight. If 
the Secondary Index becomes unavailable, or if the Sponsor determines 
in good faith that the Secondary Index does not reflect an accurate 
price, then the Sponsor will, on a best efforts basis, contact the 
Secondary Index Provider to obtain the Secondary Index Price directly 
from the Secondary Index Provider. If after such contact the Secondary 
Index remains unavailable or the Sponsor continues to believe in good 
faith that the Secondary Index does not reflect an accurate price, then 
the Sponsor will employ the next rule to determine the Index Price. 
There are no predefined criteria to make a good faith assessment and it 
will be made by the Sponsor in its sole discretion.
    3. Index Price = The price set by the Trust's principal market (as 
defined in the Annual Report) (the ``Tertiary Pricing Option'') as of 
4:00 p.m., New York time, on the valuation date. The Tertiary Pricing 
Option is a spot price derived from the principal market's public data 
feed that is believed to be consistently publishing pricing information 
as of 4:00 p.m., New York time, and is provided to the Sponsor via an 
application programming interface. If the Tertiary Pricing Option 
becomes unavailable, or if the Sponsor determines in good faith that 
the Tertiary Pricing Option does not reflect an accurate price, then 
the Sponsor will, on a best efforts basis, contact the Tertiary Pricing 
Provider to obtain the Tertiary Pricing Option directly from the 
Tertiary Pricing Provider. If after such contact the Tertiary Pricing 
Option remains unavailable after such contact or the Sponsor continues 
to believe in good faith that the Tertiary Pricing Option does not 
reflect an accurate price, then the Sponsor will employ the next rule 
to determine the Index Price. There are no predefined criteria to make 
a good faith assessment and it will be made by the Sponsor in its sole 
discretion.
    4. Index Price = The Sponsor will use its best judgment to 
determine a good faith estimate of the Index Price. There are no 
predefined criteria to make a good faith assessment and it will be made 
by the Sponsor in its sole discretion.
    In the event of a fork, the Index Provider may calculate the Index 
Price based on a digital asset that the Sponsor does not believe to be 
an appropriate asset of the Trust (i.e., a digital asset other than 
Bitcoin).\33\ In this event, the Sponsor has full discretion to use a 
different index provider or calculate the Index Price itself using its 
best judgment. In such an event, the Exchange will submit a proposed 
rule filing to contemplate the assets that would subsequently be held 
by the Trust.\34\
---------------------------------------------------------------------------

    \33\ According to the Annual Report, when a modification is 
introduced and a substantial majority of users and miners consent to 
the modification, the change is implemented and the network remains 
uninterrupted. However, if less than a substantial majority of users 
and miners consent to the proposed modification, and the 
modification is not compatible with the software prior to its 
modification, the consequence would be what is known as a ``hard 
fork'' of the Bitcoin Network, with one group running the pre-
modified software and the other running the modified software. The 
effect of such a fork would be the existence of two versions of 
Bitcoin running in parallel, yet lacking interchangeability. For 
example, in August 2017, Bitcoin ``forked'' into Bitcoin and a new 
digital asset, Bitcoin Cash, as a result of a several-year dispute 
over how to increase the rate of transactions that the Bitcoin 
Network can process. In the event of a hard fork of the Bitcoin 
Network, the Sponsor will, consistent with its obligations pursuant 
to the Trust Agreement, use its discretion to determine, in good 
faith, which peer-to-peer network, among a group of incompatible 
forks of the Bitcoin Network, is generally accepted as the Bitcoin 
Network and should therefore be considered the appropriate network 
for the Trust's purposes. The Sponsor will base its determination on 
a variety of then relevant factors, including, but not limited to, 
the Sponsor's beliefs regarding expectations of the core developers 
of Bitcoin, users, services, businesses, miners, and other 
constituencies, as well as the actual continued acceptance of, 
mining power on, and community engagement with, the Bitcoin Network. 
There is no guarantee that the Sponsor will choose the digital asset 
that is ultimately the most valuable fork, and the Sponsor's 
decision may adversely affect the value of the Shares as a result. 
The Sponsor may also disagree with shareholders, security vendors, 
and the Index Provider on what is generally accepted as Bitcoin and 
should therefore be considered ``Bitcoin'' for the Trust's purposes, 
which may also adversely affect the value of the Shares as a result.
    \34\ See supra note 18.
---------------------------------------------------------------------------

    The Sponsor may, in its sole discretion, select a different index 
provider, select a different index price provided by the Index 
Provider, calculate the Index Price by using the cascading set of rules 
set forth above, or change the cascading set of rules set forth above 
at any time.\35\
---------------------------------------------------------------------------

    \35\ The Sponsor will provide notice of any such changes in the 
Trust's periodic or current reports and, if the Sponsor makes such a 
change other than on an ad hoc or temporary basis, it will file a 
proposed rule change under Section 19(b) with the Commission.
---------------------------------------------------------------------------

The Impact of the Approval of Bitcoin Futures ETFs and ETPs on Spot 
Bitcoin ETPs Like the Trust
    On October 19, 2021, the date of the Exchange's initial submission 
of this proposed rule change,\36\ the first Bitcoin-based exchange-
traded fund (``ETF'') was approved by the Commission for trading.\37\ 
Additional Bitcoin-based ETFs and ETPs were subsequently approved for 
trading.\38\ All of those approved ETFs and ETPs hold Bitcoin futures 
contracts that trade on the CME and many settle using the CME CF 
Bitcoin Reference Rate (``BRR''), which is priced based on the spot 
Bitcoin markets Coinbase, Kraken, LMAX, Bitstamp, Gemini, and itBit, 
essentially the same spot markets that are included in the Index that 
the Trust uses to value its Bitcoin holdings. Given that the Commission 
has approved ETFs

[[Page 2670]]

and ETPs that offer exposure to Bitcoin futures, which themselves are 
priced based on the underlying spot Bitcoin market, the Sponsor 
believes that the Commission must also approve ETPs that offer exposure 
to spot Bitcoin, like the Trust.
---------------------------------------------------------------------------

    \36\ See Securities Exchange Act Release No. 93504 (November 2, 
2021), 86 FR 61804 (November 8, 2021) (Notice of Filing of Proposed 
Rule Change to List and Trade Shares of the Grayscale Bitcoin Trust 
(BTC) Under NYSE Arca Rule 8.201-E).
    \37\ ProShares Bitcoin Strategy ETF (BITO).
    \38\ See, e.g., Securities Exchange Act Release No. 94620 (April 
6, 2022), 87 FR 21676 (April 12, 2022) (SR-NYSEArca-2021-53) (Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2, to List and Trade Shares of the Teucrium Bitcoin 
Futures Fund under NYSE ARCA Rule 8.200-E, Commentary .02 (Trust 
Issued Receipts)) (``Teucrium Order''); VanEck Bitcoin Strategy ETF 
(XBTF); Valkyrie Bitcoin Strategy ETF (BTF).
---------------------------------------------------------------------------

    The Commission has historically sought to justify treating futures-
based ETFs and ETPs differently from spot-based ETPs because of (i) 
distinctions between the regulations under which the two products would 
be registered (the Investment Company Act of 1940 (the ``'40 Act'') for 
digital-asset futures ETFs and '33 Act for spot digital-asset ETPs) 
and/or (ii) the existence of regulation and surveillance-sharing over 
the CME digital-asset futures market through the Intermarket 
Surveillance Group (``ISG''), as compared to the spot market for those 
digital assets.\39\ The Sponsor believes that this reasoning is 
unsupported for the following reasons.
---------------------------------------------------------------------------

    \39\ See, e.g., Chair Gary Gensler Public Statement, ``Remarks 
Before the Aspen Security Forum,'' (August 3, 2021), stating that 
the Chair looked forward to the Commission's review of Bitcoin-based 
ETF proposals registered under the '40 Act, ``particularly if those 
are limited to [the] CME-traded Bitcoin futures,'' noting the 
``significant investor protection'' offered by the '40 Act, https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03; Securities Exchange Act Release No. 93559 (November 12, 
2021), 86 FR 64539 (November 18, 2021) (SR-CboeBZX-2021-019) (Order 
Disapproving a Proposed Rule Change to List and Trade Shares of the 
VanEck Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-Based 
Trust Shares) (``VanEck Order'') (denying the first spot bitcoin ETP 
registered under the '33 Act following the first approval of a 
bitcoin futures ETF registered under the `40 Act, noting the 
differences in the standard of review that applies to such 
products); Teucrium Order (approving the first bitcoin futures ETP 
registered under the '33 Act).
---------------------------------------------------------------------------

The '40 Act Offers No More Investor Protections Than the '33 Act in the 
Context of Bitcoin-Based ETF and ETP Proposals
    While the '40 Act has certain added investor protections that the 
'33 Act does not require, these protections do not seek to allay harms 
arising from underlying assets or markets of assets that ETFs hold, 
such as the potential for fraud or manipulation in such markets. In 
other words, the Sponsor does not believe that the application of the 
'40 Act supports the purported justifications the Commission has made 
in denying other spot digital asset ETPs. Instead, the '40 Act seeks to 
remedy certain abusive practices in the management of investment 
companies such as ETFs, and thus places certain restrictions on ETFs 
and ETF sponsors. The '40 Act explicitly lists out the types of abuses 
it seeks to prevent, and places certain restrictions related to 
accounting, borrowing, custody, fees, and independent boards, among 
others. Notably, none of these restrictions address an ETF's underlying 
assets, whether Bitcoin futures or spot Bitcoin, or the markets from 
which such assets' pricing is derived, whether the CME Bitcoin futures 
market or spot Bitcoin markets. As a result, the Sponsor believes that 
the distinction between registration of Bitcoin futures ETFs under the 
'40 Act and the registration of spot Bitcoin ETPs under the '33 Act is 
one without a difference in the context of Bitcoin-based ETP proposals.
    Indeed, the Sponsor believes that the Commission implicitly 
confirmed as much in the April 2022 Teucrium Order.\40\ Much like prior 
approved Bitcoin-based ETFs, the Teucrium ETP holds only Bitcoin 
futures, rather than spot Bitcoin. Unlike previous filings, however, 
the Teucrium ETP was filed under the '33 Act, rather than the '40 Act. 
The Sponsor believes that, by approving the Teucrium ETP, the 
Commission has indicated that registration under the '40 Act and the 
registration under the '33 Act is a distinction without a difference.
---------------------------------------------------------------------------

    \40\ Teucrium Order, 87 FR 21678 (``With respect to the proposed 
ETP, the underlying bitcoin assets are CME bitcoin futures 
contracts. The relevant analysis, therefore, is whether Arca has a 
comprehensive surveillance sharing agreement with a regulated market 
of significant size related to CME bitcoin futures contracts. As 
discussed below, taking into consideration the direct relationship 
between the regulated market with which Arca has a surveillance-
sharing agreement and the assets held by the proposed ETP, as well 
as developments with respect to the CME bitcoin futures market--
including the launch of exchange-traded funds registered under the 
Investment Company Act of 1940 (`1940 Act') that hold CME bitcoin 
futures (`Bitcoin Futures ETFs')--the Commission concludes that the 
Exchange has the requisite surveillance-sharing agreement.'').
---------------------------------------------------------------------------

Surveillance-Sharing With the CME Bitcoin Futures Market Is Sufficient 
To Protect Against Fraud and Manipulation in the Underlying Spot 
Bitcoin Market
    The Sponsor believes that, because the CME Bitcoin futures market 
is priced based on the underlying spot Bitcoin market, any fraud or 
manipulation in the spot market would necessarily affect the price of 
Bitcoin futures, thereby affecting the net asset value of an ETP 
holding spot Bitcoin or an ETF holding Bitcoin futures, as well as the 
price investors pay for such product's shares.
    This conclusion has been corroborated by a study conducted by 
Professor Robert E. Whaley, a finance professor and expert on 
derivative contract valuation, which found that the BRR, the index 
underlying many of the Bitcoin-futures based ETFs, and the Index 
underlying the Trust, are near perfect substitutes.\41\ In fact, 
according to the study, there is a 99.9% correlation between prices in 
the Bitcoin futures market and the spot Bitcoin market.
---------------------------------------------------------------------------

    \41\ See Comment Letter from Robert E. Whaley (May 25, 2022), 
available at: https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190-20129557-295794.pdf.
---------------------------------------------------------------------------

    Nevertheless, the Commission denied the Exchange's original 
proposed rule change.\42\ In its petition for review in the D.C. 
Circuit challenging the Grayscale Order, the Sponsor argued that the 
Trust and the approved Bitcoin futures ETPs (the Teucrium and Valkyrie 
Futures ETPs) rely on nearly identical sets of spot-market Bitcoin 
pricing data to calculate the value of their holdings.\43\ The D.C. 
Circuit agreed--in the court's unanimous decision vacating the 
Grayscale Order, the Court held the Sponsor ``presented uncontested 
evidence that there is a 99.9 percent correlation between bitcoin's 
spot market and CME futures contract prices'' and that the ``tight 
correlation is not a coincidence: bitcoin futures prices are ultimately 
based on spot market prices.'' \44\ In fact, the Court held the 
Sponsor's proposed spot Bitcoin ETP and approved Bitcoin futures ETPs, 
were ``materially similar across relevant regulatory factors.'' \45\
---------------------------------------------------------------------------

    \42\ See Securities Exchange Act Release No. 95180 (June 29, 
2022), 87 FR 40299 (July 6, 2022) (SR-NYSEArca-2021-90) (Order 
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, 
to List and Trade Share of Grayscale Bitcoin Trust Under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares)) (``Grayscale Order'').
    \43\ Grayscale Investments, LLC v. Securities and Exchange 
Commission (``Grayscale v. SEC''), No. 22-1142, Brief of Petitioner 
Grayscale Investments, LLC (October 11, 2022).
    \44\ Grayscale v. SEC, No. 22-1142, Opinion at 10 (August 29, 
2023) (``Grayscale presented uncontested evidence that there is a 
99.9 percent correlation between bitcoin's spot market and CME 
futures contract prices. This tight correlation is not a 
coincidence: bitcoin futures prices are ultimately based on spot 
market prices. Bitcoin futures trade based on predicted settlement 
prices that are in turn calculated using the Bitcoin Reference Rate. 
The Reference Rate, like the CoinDesk Index, aggregates spot prices 
from multiple exchanges. Four of the six exchanges are shared 
between the indexes. A study conducted by a finance professor and 
expert on derivative contract valuation found the CoinDesk Index and 
the Reference Rate are `near perfect substitutes.''') (internal 
citations omitted).
    \45\ Id. at 11.
---------------------------------------------------------------------------

    Given the similarity between the two types of products, the Sponsor 
believes that it must be the case that CME surveillance can either 
detect spot-market fraud that affects both futures ETFs and spot ETPs, 
or that such surveillance cannot do so for either type of product. 
Having approved Bitcoin futures ETFs in part on the basis of such 
surveillance, the Commission has clearly determined that CME 
surveillance can detect spot-market fraud that would affect spot ETPs, 
and

[[Page 2671]]

the Sponsor thus believes that it must also approve spot Bitcoin ETPs 
on that basis.
* * * * *
    In summary, the Sponsor believes that the distinctions between the 
'40 Act and the '33 Act, and the surveillance-sharing available for the 
CME Bitcoin futures market versus the spot Bitcoin market, are not 
meaningful in the context of Bitcoin-based ETF and ETP proposals, and 
that such reasoning cannot be a basis for the Commission treating 
Bitcoin futures ETFs differently from spot Bitcoin ETPs like the Trust. 
The Sponsor believes that the Commission's approval of Bitcoin futures 
ETFs means it must also approve spot Bitcoin ETPs like the Trust.
The Structure and Operation of the Trust Protects Investors and 
Satisfies Commission Requirements for Bitcoin-Based Exchange Traded 
Products
    Even if the Commission had not approved Bitcoin futures ETFs and 
ETPs, the Sponsor still believes the Commission should approve the 
listing and trading of Shares of the Trust. The Commission has 
expressed legitimate concerns about the underlying Digital Asset Market 
due to the potential for fraud and manipulation and has clearly 
outlined the reasons why prior Bitcoin-based ETP proposals have been 
unable to satisfy these concerns in orders disapproving the proposed 
listing and trading of the Winklevoss Bitcoin Trust, Bitwise Bitcoin 
ETF Trust, United States Bitcoin and Treasury Investment Trust, and 
various Bitcoin-based trust issued receipts.\46\
---------------------------------------------------------------------------

    \46\ See Order Setting Aside Action by Delegated Authority and 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (the ``Winklevoss 
Order''); Order Disapproving a Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to the Listing and Trading of Shares of 
the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E, 
Securities Exchange Act Release No. 87267 (Oct. 9, 2019), 84 FR 
55382 (Oct. 16, 2019) (SR-NYSEArca-2019-01) (the ``Bitwise Order''); 
Order Disapproving a Proposed Rule Change, as Modified by Amendment 
No. 1, to Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) and to List and Trade Shares of the United States Bitcoin 
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E, 
Securities Exchange Act Release No. 88284 (February 26, 2020), 85 FR 
12595 (March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix 
Order''); Order Disapproving a Proposed Rule Change to List and 
Trade the Shares of the ProShares Bitcoin ETF and the ProShares 
Short Bitcoin ETF, Securities Exchange Act Release No. 83904 (Aug. 
22, 2018), 83 FR 43934 (Aug. 28, 2018) (SR-NYSEArca-2017-139) (the 
``ProShares Order''); Order Disapproving a Proposed Rule Change 
Relating to Listing and Trading of the Direxion Daily Bitcoin Bear 
1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily 
Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and 
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E, 
Securities Exchange Act Release No. 83912 (Aug. 22, 2018), 83 FR 
43912 (Aug. 28, 2018) (SR-NYSEArca-2018-02) (the ``Direxion 
Order''); Order Disapproving a Proposed Rule Change to List and 
Trade the Shares of the GraniteShares Bitcoin ETF and the 
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No. 
83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR-CboeBZX-2018-
01) (the ``GraniteShares Order'').
---------------------------------------------------------------------------

    In these disapproval orders, the Commission outlined that a 
proposal relating to a Bitcoin-based ETP could satisfy its concerns 
regarding potential for fraud and manipulation by demonstrating:
    (1) Inherent Resistance to Fraud and Manipulation: that the 
underlying commodity market is inherently resistant to fraud and 
manipulation;
    (2) Other Means to Prevent Fraud and Manipulation: that there are 
other means to prevent fraudulent and manipulative acts and practices 
that are sufficient; or
    (3) Surveillance Sharing: that the listing exchange has entered 
into a surveillance sharing agreement with a regulated market of 
significant size relating to the underlying or reference assets.
    As described below, the Sponsor believes the structure and 
operation of the Trust are designed to prevent fraudulent and 
manipulative acts and practices, to protect investors and the public 
interest, and to respond to the specific concerns that the Commission 
has identified with respect to potential fraud and manipulation in the 
context of a Bitcoin-based ETP.
How the Trust Meets Standards in the Winklevoss Order, Bitwise Order 
and Wilshire Phoenix Order and Vacated Grayscale Order
1. Resistance to or Prevention of Fraud and Manipulation
    In the Bitwise Order, the Commission disagreed with the proposition 
that Bitcoin's fungibility, transportability and exchange tradability 
combine to provide unique protections against, and allow Bitcoin to be 
uniquely resistant to, attempts at price manipulation. The Commission 
reached its conclusion based on concessions by Bitwise that 95% of the 
reported trading in Bitcoin is ``fake'' or non-economic, effectively 
admitting that the properties of Bitcoin do not make it inherently 
resistant to manipulation. Bitwise's concessions were further 
compounded by evidence of potential and actual fraud and manipulation 
in the historical trading of Bitcoin on certain marketplaces such as 
(1) ``wash'' trading, (2) trading based on material, non-public 
information, including the dissemination of false and misleading 
information, (3) manipulative activity involving Tether, and (4) fraud 
and manipulation.\47\
---------------------------------------------------------------------------

    \47\ See Bitwise Order, 84 FR 55383 (discussing analysis of the 
Bitcoin spot market that asserts that 95% of the spot market is 
dominated by fake and non-economic activity, such as wash trades), 
55391 (discussing possible sources of fraud and manipulation in the 
bitcoin spot market). See also Winklevoss Order, 83 FR 37585-86 
(discussing pending litigation against a Bitcoin trading platform 
for fraudulent conduct relating to Tether); Bitwise Order, 84 FR 
55391 n.140, 55402 & n.331 (same); Winklevoss Order, 83 FR 37584-86 
(discussing potential types of manipulation in the Bitcoin spot 
market). The Commission has also noted that fraud and manipulation 
in the Bitcoin spot market could persist for a significant duration. 
See, e.g., Bitwise Order, 84 FR 55405 & n.379.
---------------------------------------------------------------------------

    The Sponsor acknowledges the possibility that fraud and 
manipulation may exist and that Bitcoin trading on any given exchange 
may be no more uniquely resistant to fraud and manipulation than other 
commodity markets.\48\ However, the Sponsor believes that the 
fundamental features of Bitcoin's fungibility, transportability and 
exchange tradability offer novel protections beyond those that exist in 
traditional commodity markets or equity markets when combined with 
other means, as discussed further below.
---------------------------------------------------------------------------

    \48\ See generally Bitwise Order.
---------------------------------------------------------------------------

2. Other Means To Prevent Fraud and Manipulation
    The Commission has recognized that a listing exchange could 
demonstrate that other means to prevent fraudulent and manipulative 
acts and practices are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement.\49\ In evaluating the 
effectiveness of this type of resistance, the Commission does not apply 
a ``cannot be manipulated'' standard. Instead, the Commission requires 
that such resistance to fraud and manipulation be novel and beyond 
those protections that exist in traditional commodity markets or equity 
markets for which the Commission has long required surveillance-sharing 
agreements in the context of listing derivative securities 
products.\50\
---------------------------------------------------------------------------

    \49\ See Winklevoss Order, 84 FR 37580, 37582-91; Bitwise Order, 
84 FR 55383, 55385-406; Wilshire Phoenix Order, 85 FR 12597.
    \50\ See Winklevoss Order, 84 FR 37582; Wilshire Phoenix Order, 
85 FR 12597.
---------------------------------------------------------------------------

    The Sponsor believes the Index represents a novel means to prevent 
fraud and manipulation from impacting a reference price for Bitcoin and 
that it offers protections beyond those that exist in traditional 
commodity markets or equity markets. Specifically, Bitcoin is novel and 
exists outside traditional commodity markets. It therefore stands to 
reason that the methods in which it

[[Page 2672]]

trades will be novel and that the market for Bitcoin will have 
different attributes than traditional commodity markets. Bitcoin was 
only introduced within the past decade, twenty years after the first 
U.S. ETFs were offered \51\ and 150 years after the first futures were 
offered.\52\ In contrast to older commodities such as gold, silver, 
platinum, palladium or copper, which the Commission has noted all had 
at least one significant, regulated market for trading futures on the 
underlying commodity at the time commodity trust ETPs were approved for 
listing and trading, the first trading in Bitcoin took place entirely 
in an open, transparent and online setting where other commodities 
cannot trade.
---------------------------------------------------------------------------

    \51\ SEC, ``Investor Bulletin: Exchange-Traded Funds (ETFs),'' 
August 2012, https://www.sec.gov/investor/alerts/etfs.pdf.
    \52\ Commodity Futures Trading Commission (``CFTC''), ``History 
of the CFTC,'' https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html.
---------------------------------------------------------------------------

    The Trust has priced its Shares consistently for more than seven 
years based on the Index. The Sponsor believes the Trust's use of the 
Index specifically addresses the Commission's concerns in that the 
Index serves as an alternative means to prevent fraud and manipulation. 
Specifically, the Index can (i) mitigate the effects of fraud, 
manipulation and other anomalous trading activity on the Bitcoin 
reference rate, (ii) provide a real-time, volume-weighted fair value of 
Bitcoin and (iii) appropriately handle and adjust for non-market 
related events.
    As described in more detail below, the Sponsor believes that the 
Index accomplishes those objectives in the following ways:
    1. The Index tracks the Digital Asset Trading Platform Market price 
through trading activity at ``U.S.-Compliant Trading Platforms''; \53\
---------------------------------------------------------------------------

    \53\ ``U.S.-Compliant Trading Platforms'' are trading platforms 
in the Digital Asset Trading Platform Market are in material 
compliance with applicable U.S. federal and state licensing 
requirements and maintain practices and policies designed to comply 
with AML and KYC regulations. All Constituent Trading Platforms are 
U.S.-Compliant Trading Platforms. ``Non-U.S.-Compliant Trading 
Platforms'' are all other trading platforms in the Digital Asset 
Trading Platform Market. As of September 30, 2023, the U.S.-
Compliant Trading Platforms that the Index Provider considered for 
inclusion in the Index were Coinbase, Bitstamp, Kraken and LMAX 
Digital. On October 29, 2022, the Index Provider removed Bitstamp 
due to its failure to meet the minimum liquidity requirement and 
added Binance.US as a Constituent Trading Platform based on its 
satisfaction of the minimum liquidity requirement as part of its 
scheduled quarterly review. On June 17, 2023, the Index Provider 
removed Binance.US from the Index, due to Binance.US's announcement 
that it was suspending U.S. dollar deposits and withdrawals and 
planned to delist its U.S. dollar trading pairs and did not add any 
Constituent Trading Platforms as part of its review. On July 29, 
2023, the Index Provider added Bitstamp to the Index based on its 
satisfaction of the Index Provider's minimum liquidity requirement 
and did not remove any Constituent Trading Platforms as part of its 
scheduled quarterly review. On October 28, 2023, the Index Provider 
added Crypto.com to the Index based on its satisfaction of the Index 
Provider's minimum liquidity requirement and did not remove any 
Constituent Trading Platforms as part of its scheduled quarterly 
review. From these U.S.-Compliant Trading Platforms, the Index 
Provider then applies additional Inclusion Criteria to determine the 
Constituent Trading Platforms. As of September 30, 2023, the 
Constituent Trading Platforms were Coinbase, Bitstamp, Kraken, and 
LMAX Digital. As of the date of filing, the Constituent Trading 
Platforms were Coinbase, Bitstamp, Crypto.com, Kraken, and LMAX 
Digital.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity in real-time through 
systematic adjustments;
    3. The Index is constructed and maintained by an expert third-party 
index provider, allowing for prudent handling of non-market-related 
events; and
    4. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity concentrated on any 
one specific trading platform through a cross-trading platform 
composite index rate.
    1. The Index tracks the Digital Asset Trading Platform Market price 
through trading activity at ``U.S.-Compliant Trading Platforms''.
    To reduce the risk of fraud, manipulation, and other anomalous 
trading activity from impacting the Index, only U.S.-Compliant Trading 
Platforms are eligible to be included in the Index.
    The Index maintains a minimum number of three trading platforms and 
a maximum number of five trading platforms to track the Digital Asset 
Trading Platform Market while offering replicability for traders and 
market makers.\54\
---------------------------------------------------------------------------

    \54\ According to the Sponsor, the more trading platforms 
included in the Index, the more ability there is for traders and 
market makers to arbitrage price differences. For example, in the 
event of variances between Bitcoin prices on Constituent Trading 
Platforms and non-Constituent Trading Platforms, arbitrage trading 
opportunities would exist. These discrepancies generally consolidate 
over time, as traders and market makers trade against the Index to 
realize price differences across trading platforms and capitalize 
upon arbitrage opportunities.
---------------------------------------------------------------------------

    U.S.-Compliant Trading Platforms possess safeguards that protect 
against fraud and manipulation. For example, U.S.-Compliant Trading 
Platforms regulated by the NYDFS under the BitLicense program have 
regulatory requirements to implement measures designed to effectively 
detect, prevent, and respond to fraud, attempted fraud, market 
manipulation, and similar wrongdoing, and to monitor, control, 
investigate and report back to the NYDFS regarding any wrongdoing.\55\ 
These trading platforms also have the following obligations: \56\
---------------------------------------------------------------------------

    \55\ See, e.g., ``DFS Takes Action to Deter Fraud and 
Manipulation in Virtual Currency Markets,'' available at: https://www.dfs.ny.gov/about/press/pr1802071.htm.
    \56\ See ``New York's Final ``BitLicense'' Rule: Overview and 
Changes from July 2014 Proposal,'' June 5, 2015, Davis Polk, 
available at: https://www.davispolk.com/files/new_yorks_final_bitlicense_rule_overview_changes_july_2014_proposal.pdf.
---------------------------------------------------------------------------

     Submission of audited financial statements including 
income statements, statements of assets/liabilities, insurance, and 
banking;
     Compliance with capitalization requirements set at NYDFS's 
discretion;
     Prohibitions against the sale or encumbrance to protect 
full reserves of custodian assets;
     Fingerprints and photographs of employees with access to 
customer funds;
     Retention of a qualified Chief Information Security 
Officer and annual penetration testing/audits;
     Documented business continuity and disaster recovery plan, 
independently tested annually; and
     Participation in an independent exam by NYDFS.
    Other U.S.-Compliant Trading Platforms have voluntarily implemented 
measures to protect against common forms of market manipulation.\57\
---------------------------------------------------------------------------

    \57\ As of the date of filing, two of the five Constituent 
Trading Platforms, Coinbase and Bitstamp, are regulated by NYDFS.
---------------------------------------------------------------------------

    Furthermore, all U.S.-Compliant Trading Platforms are considered 
MSBs that are subject to FinCEN's federal and state reporting 
requirements that provide additional safeguards. For example, 
unscrupulous traders may be less likely to engage in fraudulent or 
manipulative acts and practices on trading platforms that (1) report 
suspicious activity to FinCEN as money services businesses, (2) report 
to state regulators as money transmitters, and/or (3) require customer 
identification through KYC procedures. U.S.-Compliant Trading Platforms 
are required to: \58\
---------------------------------------------------------------------------

    \58\ See BSA Requirements for MSBs, FinCEN website: https://www.fincen.gov/bsarequirements-msbs.
---------------------------------------------------------------------------

     Identify people with ownership stakes or controlling roles 
in the MSB;
     Establish a formal AML policy in place with documentation, 
training, independent review, and a named compliance officer;
     Implement strict customer identification and verification 
policies and procedures;

[[Page 2673]]

     File Suspicious Activity Reports (SARs) for suspicious 
customer transactions;
     File Currency Transaction Reports (CTRs) for cash-in or 
cash-out transactions greater than $10,000; and
     Maintain a five-year record of currency exchanges greater 
than $1,000 and money transfers greater than $3,000.
    Lastly, because of Bitcoin's classification as a commodity,\59\ the 
CFTC has authority to police fraud and manipulation on U.S.-Compliant 
Trading Platforms.
---------------------------------------------------------------------------

    \59\ CFTC, What is a Bitcoin Futures ETF?, https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/BitcoinFuturesETF.html.
---------------------------------------------------------------------------

    The Sponsor acknowledges that there are substantial differences 
between FinCEN and New York state regulations and the Commission's 
regulation of the national securities exchanges.\60\ The Sponsor does 
not believe the inclusion of U.S.-Compliant Trading Platforms is in and 
of itself sufficient to prove that the Index is an alternative means to 
prevent fraud and manipulation such that surveillance sharing 
agreements are not required, but does believe that the inclusion of 
only U.S.-Compliant Trading Platforms in the Index is one significant 
way in which the Index is protected from the potential impacts of fraud 
and manipulation.
---------------------------------------------------------------------------

    \60\ See Bitwise Order, 84 FR 55392; Wilshire Phoenix Order, 85 
FR 12603.
---------------------------------------------------------------------------

    2. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity in real-time through 
systematic adjustments.
    The Index is calculated once every second according to a systematic 
methodology that relies on observed trading activity on the Constituent 
Trading Platforms. While the precise methodology underlying the Index 
is currently proprietary, the key elements of the Index are outlined 
below:
     Volume Weighting: Constituent Trading Platforms with 
greater liquidity receive a higher weighting in the Index, increasing 
the ability to execute against (i.e., replicate) the Index in the 
underlying spot markets.
     Price-Variance Weighting: The Index reflects data points 
that are discretely weighted in proportion to their variance from the 
rest of the Constituent Trading Platforms. As the price at a 
Constituent Trading Platform diverges from the prices at the rest of 
the Constituent Trading Platforms, its weight in the Index consequently 
decreases.
     Inactivity Adjustment: The Index algorithm penalizes stale 
activity from any given Constituent Trading Platform. When a 
Constituent Trading Platform does not have recent trading data, its 
weighting in the Index is gradually reduced, until it is de-weighted 
entirely. Similarly, once trading activity at the Constituent Trading 
Platform resumes, the corresponding weighting for that Constituent 
Trading Platform is gradually increased until it reaches the 
appropriate level.
     Manipulation Resistance: In order to mitigate the effects 
of wash trading and order book spoofing, the Index only includes 
executed trades in its calculation. Additionally, the Index only 
includes Constituent Trading Platforms that charge trading fees to its 
users in order to attach a real, quantifiable cost to any manipulation 
attempts.
    3. The Index is constructed and maintained by an expert third-party 
index provider, allowing for prudent handling of non-market-related 
events.
    The Index Provider reviews and periodically updates which trading 
platforms are included in the Index by utilizing a methodology that is 
guided by the IOSCO principles for financial benchmarks.
    For a trading platform to become a Constituent Trading Platform, it 
must satisfy the following Inclusion Criteria:
     Sufficient USD liquidity relative to the size of the 
listed assets;
     No evidence in the past 12 months of trading restrictions 
on individuals or entities that would otherwise meet the trading 
platform's eligibility requirements to trade;
     No evidence in the past 12 months of undisclosed 
restrictions on deposits or withdrawals from user accounts;
     Real-time price discovery;
     Limited or no capital controls;
     Transparent ownership including a publicly-owned ownership 
entity;
     Publicly available language and policies addressing legal 
and regulatory compliance in the US, including KYC (Know Your 
Customer), AML (Anti-Money Laundering) and other policies designed to 
comply with relevant regulations that might apply to it;
     Be a US-domiciled trading platform or a non-US domiciled 
trading platform that is able to service US investors;
     Offer programmatic spot trading of the trading pair, and 
reliably publish trade prices and volumes on a real-time basis through 
Rest and Websocket APIs.
    Although the Index methodology is designed to operate without any 
human interference, rare events would justify manual intervention. 
Manual intervention would only be in response to ``non-market-related 
events'' (e.g., halting of deposits or withdrawals of funds, 
unannounced closure of trading platform operations, insolvency, 
compromise of user funds, etc.). In the event that such an intervention 
is necessary, the Index Provider would issue a public announcement 
through its website, API and other established communication channels 
with its clients.\61\
---------------------------------------------------------------------------

    \61\ To the extent any such intervention has a material impact 
on the Trust, the Sponsor will also issue a public announcement.
---------------------------------------------------------------------------

    4. The Index mitigates the impact of instances of fraud, 
manipulation and other anomalous trading activity concentrated on any 
one specific trading platform through a cross-trading platform 
composite index rate.
    The Index is based on the price and volume data of multiple U.S.-
Compliant Trading Platforms that satisfy the Index Provider's Inclusion 
Criteria. By referencing multiple trading venues and weighting them 
based on trade activity, the impact of any potential fraud, 
manipulation, or anomalous trading activity occurring on any single 
venue is reduced. Specifically, the effects of fraud, manipulation, or 
anomalous trading activity occurring on any single venue are de-
weighted and consequently diluted by non-anomalous trading activity 
from other Constituent Trading Platforms.
    Although the Index is designed to accurately capture the market 
price of Bitcoin, third parties may be able to purchase and sell 
Bitcoin on public or private markets included or not included among the 
Constituent Trading Platforms, and such transactions may take place at 
prices materially higher or lower than the Index Price. For example, 
based on data provided by the Index Provider, on any given day during 
the twelve months ended September 30, 2023, the maximum differential 
between the 4:00 p.m., New York time spot price of any single Digital 
Asset Trading Platform included in the Index and the Index Price was 
3.18% and the average of the maximum differentials of the 4:00 p.m., 
New York time spot price of each Digital Asset Trading Platform 
included in the Index and the Index Price was 0.83%. During this same 
period, the average differential between the 4:00 p.m., New York time 
spot prices of all the Digital Asset Trading Platforms included in the 
Index and the Index Price was 0.01%.\62\
---------------------------------------------------------------------------

    \62\ All Digital Asset Trading Platforms that were included in 
the Index throughout the period were considered in this analysis.
---------------------------------------------------------------------------

    Since November 1, 2014, the Trust has consistently priced its 
Shares at 4:00 p.m., New York time based on the Index Price.\63\ While 
that pricing would be

[[Page 2674]]

known to the market, the Sponsor believes that, even if efforts to 
manipulate the price of Bitcoin at 4:00 p.m., E.T. were successful on 
any trading platform, such activity would have had a negligible effect 
on the pricing of the Trust, due to the controls embedded in the 
structure of the Index.
---------------------------------------------------------------------------

    \63\ Prior to February 1, 2022, the Trust valued its Bitcoins 
for operational purposes by reference to the volume-weighted average 
Index Price (the ``Old Index Price''). The Old Index Price was 
calculated by applying a weighting algorithm to the price and 
trading volume data for the immediately preceding 24-hour period as 
of 4:00 p.m., New York time, derived from the Constituent Trading 
Platforms reflected in the Index on such trade date, and overlaying 
an averaging mechanism to the price produced. Thus, whereas the Old 
Index Price reflected the price of a Bitcoin at 4:00 p.m., New York 
time, calculated by taking the average of each price of a Bitcoin 
produced by the Index over the preceding 24-hour period, the Index 
Price now is the price of a Bitcoin at 4:00 p.m., New York time, 
calculated based on the price and trading volume data of the Digital 
Asset Trading Platforms included in the Index over the preceding 24-
hour period. The Index Price differs from the Old Index Price only 
in that it does not use an additional averaging mechanism; the Index 
Price otherwise uses the same methodology as the Old Index Price, 
and there has been no change to the Index used to determine the 
Index Price or the criteria used to select the Constituent Trading 
Platforms.
---------------------------------------------------------------------------

    Accordingly, the Sponsor believes that the Index has proven its 
ability to (i) mitigate the effects of fraud, manipulation and other 
anomalous trading activity on the Bitcoin reference rate, (ii) provide 
a real-time, volume-weighted fair value of Bitcoin and (iii) 
appropriately handle and adjust for non-market related events. For 
these reasons, the Sponsor believes that the Index represents an 
effective alternative means to prevent fraud and manipulation and the 
Trust's reliance on the Index addresses the Commission's concerns with 
respect to potential fraud and manipulation.
3. A Significant, Regulated and Surveilled Market Exists and Is Closely 
Connected With Spot Market for Bitcoin
    In the Winklevoss Order, Bitwise Order, Wilshire Phoenix Order and 
vacated Grayscale Order, the Commission described both the need for and 
the definition of a surveilled market of significant size for 
commodity-trust ETPs like the Trust to date.\64\ Specifically, the 
Commission explained that:
---------------------------------------------------------------------------

    \64\ See Winklevoss Order, 83 FR 37593-94; Bitwise Order, 84 FR 
55383, 55410; Wilshire Phoenix Order, 85 FR 12609; Grayscale Order, 
87 FR 40300.


for the commodity-trust ETPs approved to date for listing and 
trading, there has been in every case at least one significant, 
regulated market for trading futures on the underlying commodity--
whether gold, silver, platinum, palladium, or copper--and the ETP 
listing exchange has entered into surveillance-sharing agreements 
with, or held Intermarket Surveillance Group membership in common 
with, that market.\65\
---------------------------------------------------------------------------

    \65\ See Winklevoss Order, 83 FR 37594.


    Further, the Commission stated that its interpretation of the term 
``market of significant size'' depends on the interrelationship between 
the market with which the listing exchange has a surveillance-sharing 
agreement and the proposed ETP.\66\ Accordingly, the terms 
``significant market'' and ``market of significant size'' could mean:
---------------------------------------------------------------------------

    \66\ See Winklevoss Order, 83 FR 37594; Bitwise Order, 84 FR 
55410; ProShares Order, 83 FR 43936; GraniteShares Order, 83 FR 
43925; Direxion Order, 83 FR 43914; Wilshire Phoenix Order, 85 FR 
12609.

a market (or group of markets) as to which (a) there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to successfully manipulate the ETP, so 
that a surveillance-sharing agreement would assist in detecting and 
deterring misconduct, and (b) it is unlikely that trading in the ETP 
would be the predominant influence on prices in that market.\67\
---------------------------------------------------------------------------

    \67\ See Winklevoss Order, 83 FR 37594. This definition is 
illustrative and not exclusive. There could be other types of 
``significant markets'' and ``markets of significant size,'' but 
this definition is an example that will provide guidance to market 
participants.

    In the context of Bitcoin-based ETPs specifically, the Commission 
has stated that establishing a lead-lag relationship between the 
Bitcoin futures market and the spot market is central to understanding 
whether it is reasonably likely that a would-be manipulator of the ETP 
would need to trade on the Bitcoin futures market to successfully 
manipulate prices on those spot platforms that feed into the proposed 
ETP's pricing mechanism such that a surveillance-sharing agreement 
would assist the ETP listing market in detecting and deterring 
misconduct.\68\ In particular, if the spot market leads the futures 
market, this would indicate that it would not be necessary to trade on 
the futures market to manipulate the proposed ETP, even if arbitrage 
worked efficiently, because the futures price would move to meet the 
spot price.
---------------------------------------------------------------------------

    \68\ See Bitwise Order, 84 FR 55411; Wilshire Phoenix Order, 85 
FR 12612.
---------------------------------------------------------------------------

    While studies have found that the CME futures market does lead the 
spot Bitcoin market,\69\ as explained in the Sponsor's briefs and 
argument in its prevailing case before the D.C. Circuit Court of 
Appeals regarding its Bitcoin-based ETP proposal, the Sponsor believes 
that the lead/lag question is irrelevant. If a would-be manipulator 
were to attempt to manipulate either a spot ETP or futures ETP by 
trading futures on the CME, then a surveillance-sharing agreement with 
the CME would provide access to information concerning that 
activity.\70\ If, on the other hand, a would-be manipulator were to 
attempt to manipulate either a spot ETP or a futures ETP by trading on 
the spot market, then a surveillance-sharing agreement with the CME 
would also be able to provide access to information concerning that 
activity. If that were not true, the Commission could not have approved 
the Bitcoin futures ETPs. Given that the Commission has approved 
Bitcoin futures ETPs, the Commission must have concluded that the CME 
is capable of detecting manipulation attempts in the spot bitcoin 
market.
---------------------------------------------------------------------------

    \69\ See Memorandum to File from Neel Maitra, Senior Special 
Counsel (Fintech & Crypto Specialist), Division of Trading and 
Markets, U.S. Securities and Exchange Commission re: Meeting with 
Representatives from Fidelity Digital Assets, et al. and attachment 
(SR-CboeBZX-2021-039) (September 8, 2021), available at: https://www.sec.gov/comments/sr-cboebzx-2021-039/srcboebzx2021039-250110.pdf; Letter from Bitwise Asset Management, Inc. re: File 
Number SR-NYSEArca-2021-89 (February 25, 2022), available at: 
https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189-20117902-270822.pdf; Letter from Wilson Sonsini Goodrich and Rosati, 
P.C. and Chapman and Cutler LLP, on behalf of Bitwise Asset 
Management, Inc. re: File No. SR-NYSEArca-2021-89 (March 7, 2022), 
available at: https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189-20118794-271630.pdf.
    \70\ Grayscale v. SEC, No. 22-1142, Commission Reply Brief at 27 
(February 3, 2023).
---------------------------------------------------------------------------

    Regardless of the irrelevance of the lead/lag relationship and the 
mixed findings regarding the lead/lag relationship between the CME 
futures and Bitcoin spot markets, the Sponsor believes that the CME 
futures market represents a large, surveilled and regulated market and 
meets the Commission's definition of a ``significant market.'' For 
example, from November 1, 2019 to September 30, 2023, the CME futures 
market trading volume was over $1.4 trillion, compared to $1.15 
trillion in trading volume across the Constituent Trading Platforms 
included in the Index. With over 121% of the Index trading volume, the 
CME futures market represents significant coverage of U.S.-Compliant 
Trading Platforms in the Bitcoin market. In addition, the CME futures 
market trading volume from November 1, 2019 to September 30, 2023 was 
approximately equal to trading volume of the U.S. dollar-denominated 
Bitcoin spot markets referenced in the Bitwise Order.\71\
---------------------------------------------------------------------------

    \71\ These Bitcoin spot markets include Binance.US, Coinbase, 
Bitfinex, Kraken, Bitstamp, BitFlyer, Poloniex, Bittrex and itBit.
---------------------------------------------------------------------------

    Given the size of the CME futures markets, the Sponsor believes 
such markets meet the Commission's definition of ``significant market'' 
because there is a reasonable likelihood

[[Page 2675]]

that a person attempting to manipulate the ETP would also have to trade 
on that market to successfully manipulate the ETP, since arbitrage 
between the derivative and spot markets would tend to counter an 
attempt to manipulate the spot market alone. As a result, the 
Exchange's ability to obtain information regarding trading in the 
Shares and futures from markets and other entities that are members of 
the ISG, including the CME, would assist the Exchange in detecting and 
deterring misconduct.
    The Sponsor also believes it is unlikely that the ETP would become 
the predominant influence on prices in the market.
    While future inflows to the proposed Trust cannot be predicted, to 
provide comparable data, the Sponsor examined the change in market 
capitalization of Bitcoin with net inflows into the Trust, which 
currently trades on OTC Markets and is the largest and most liquid 
Bitcoin investment product in the world.\72\ From November 1, 2019 to 
September 30, 2023, the market capitalization of Bitcoin grew from $166 
billion to $527 billion, a $361 billion increase. Over the same period, 
the Trust experienced $6.6 billion of inflows. The cumulative inflow 
into the Trust over the stated time period was only 1.8% of the 
aggregate growth of Bitcoin's market capitalization.
---------------------------------------------------------------------------

    \72\ To further illustrate the size and liquidity of the Trust, 
as of September 30, 2023, compared with global commodity ETPs, the 
Trust would rank third in assets under management and fourth in 
notional trading volume from November 1, 2019 to September 30, 2023.
---------------------------------------------------------------------------

    Additionally, the Trust experienced approximately $153 billion of 
trading volume from November 1, 2019 to September 30, 2023, only 11% of 
the CME futures market and 13% of the Index over the same period.
* * * * *
    In summary, the Sponsor believes that the foregoing addresses 
concerns the Commission may have with respect to Bitcoin-based ETPs, 
based on the Commission's articulated concerns with respect to 
potential fraud and manipulation in Bitcoin-based ETPs. Specifically, 
the Sponsor believes that, although Bitcoin is not itself inherently 
resistant to fraud and manipulation, the Index represents an effective 
means to prevent fraudulent and manipulative acts and practices. As 
discussed above, the Trust has used the Index to price the Shares for 
more than seven years, and the Sponsor believes that the Index has 
proven its ability to (i) mitigate the effects of fraud, manipulation 
and other anomalous trading activity on the Bitcoin reference rate, 
(ii) provide a real-time, volume-weighted fair value of Bitcoin and 
(iii) appropriately handle and adjust for non-market related events. 
The Sponsor also believes that the CME futures market is a significant, 
surveilled and regulated market that is closely connected with the spot 
market for Bitcoin fulfills the requirements for surveillance sharing 
given the Exchange's ability to obtain information from markets and 
other entities that are members of the ISG to assist in detecting and 
deterring misconduct.
Creation and Redemption of Shares
    Authorized Participants may submit orders to create or redeem 
Shares under procedures for ``Cash Orders.''
    The Authorized Participants will deliver only cash to create Shares 
and will receive only cash when redeeming Shares. Further, Authorized 
Participants will not directly or indirectly purchase, hold, deliver, 
or receive Bitcoin as part of the creation or redemption process or 
otherwise direct the Trust or a third party with respect to purchasing, 
holding, delivering, or receiving Bitcoin as part of the creation or 
redemption process.
    The Trust will create Shares by receiving Bitcoin from a third 
party that is not the Authorized Participant and the Trust, or an 
affiliate of the Trust (and in any event not the Authorized 
Participant), is responsible for selecting the third party to deliver 
the Bitcoin. Further, the third party will not be acting as an agent of 
the Authorized Participant with respect to the delivery of the Bitcoin 
to the Trust or acting at the direction of the Authorized Participant 
with respect to the delivery of the Bitcoin to the Trust. The Trust 
will redeem Shares by delivering Bitcoin to a third party that is not 
the Authorized Participant and the Trust, or an affiliate of the Trust 
(and in any event not the Authorized Participant), is responsible for 
selecting the third party to receive the Bitcoin. Further, the third 
party will not be acting as an agent of the Authorized Participant with 
respect to the receipt of the Bitcoin from the Trust or acting at the 
direction of the Authorized Participant with respect to the receipt of 
the Bitcoin from the Trust.
    Cash Orders are made through the participation of a Liquidity 
Provider \73\ who obtains or receives Bitcoin in exchange for cash, and 
are facilitated by the Transfer Agent and Grayscale Investments, LLC, 
acting in its capacity as the Liquidity Engager. Liquidity Providers 
are not party to the Participant Agreements and are engaged separately 
by the Liquidity Engager.
---------------------------------------------------------------------------

    \73\ A ``Liquidity Provider'' means one or more eligible 
companies that facilitate the purchase and sale of Bitcoins in 
connection with creations or redemptions pursuant to Cash Orders. 
The Liquidity Providers with which Grayscale Investments, LLC, 
acting other than in its capacity as the Sponsor (in such other 
capacity, the ``Liquidity Engager'') will engage in Bitcoin 
transactions are third parties that are not affiliated with the 
Sponsor or the Trust and are not acting as agents of the Trust, the 
Sponsor, or any Authorized Participant, and all transactions will be 
done on an arms-length basis. Except for the contractual 
relationships between each Liquidity Provider and Grayscale 
Investments, LLC in its capacity as the Liquidity Engager, there is 
no contractual relationship between each Liquidity Provider and the 
Trust, the Sponsor, or any Authorized Participant. When seeking to 
buy Bitcoin in connection with creations or sell Bitcoin in 
connection with redemptions, the Liquidity Engager will seek to 
obtain commercially reasonable prices and terms from the approved 
Liquidity Providers. Once agreed upon, the transaction will 
generally occur on an ``over-the-counter'' basis.
---------------------------------------------------------------------------

    According to the Registration Statement, the Trust creates Baskets 
(as described below) of Shares only upon receipt of Bitcoins and 
redeems Shares only by distributing Bitcoins. ``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 and (ii) enter into an agreement with the Sponsor and 
Transfer Agent that provides the procedures for the creation and 
redemption of Baskets and for the delivery of Bitcoins required for the 
creation and redemption of Baskets via a Liquidity Provider (each, a 
``Participant Agreement''). An Authorized Participant may act for its 
own account or as agent for broker-dealers, custodians and other 
securities market participants that wish to create or redeem Baskets. 
Shareholders who are not Authorized Participants will only be able to 
create or redeem their Shares through an Authorized Participant.
    The Trust issues Shares to and redeems Shares from Authorized 
Participants on an ongoing basis, but only in one or more ``Baskets'' 
(with a Basket being a block of 10,000 Shares). The Trust will not 
issue fractions of a Basket.
    The creation and redemption of Baskets will be made only in 
exchange for the delivery to the Trust, or the distribution by the 
Trust, of the number of whole and fractional Bitcoins represented by 
each Basket being created or redeemed, which is determined by dividing 
(x) the number of Bitcoins owned by the Trust at 4:00 p.m., New York 
time, on the trade date of a creation or redemption order, after 
deducting the number of Bitcoins representing the U.S. dollar value of 
accrued but unpaid fees and expenses of the Trust (converted using the 
Index

[[Page 2676]]

Price at such time, and carried to the eighth decimal place), by (y) 
the number of Shares outstanding at such time (with the quotient so 
obtained calculated to one one-hundred-millionth of one Bitcoin (i.e., 
carried to the eighth decimal place)), and multiplying such quotient by 
10,000 (the ``Basket Amount''). The U.S. dollar value of a Basket is 
calculated by multiplying the Basket Amount by the Index Price as of 
the trade date (the ``Basket NAV''). The Basket NAV multiplied by the 
number of Baskets being created or redeemed is referred to as the 
``Total Basket NAV.'' All questions as to the calculation of the Basket 
Amount will be conclusively determined by the Sponsor and will be final 
and binding on all persons interested in the Trust. The number of 
Bitcoins represented by a Share will gradually decrease over time as 
the Trust's Bitcoins are used to pay the Trust's expenses. As of 
September 30, 2023, each Share represented approximately 0.0009 of one 
Bitcoin.
    The creation of Baskets requires the delivery to the Trust of the 
Total Basket Amount and the redemption of Baskets requires the 
distribution by the Trust of the Total Basket Amount.
    Although the Trust creates Baskets only upon the receipt of 
Bitcoins, and redeems Baskets only by distributing Bitcoins, an 
Authorized Participant will submit Cash Orders, pursuant to which the 
Authorized Participant will deposit cash with, or accept cash from, the 
Transfer Agent in connection with the creation and redemption of 
Baskets.
    Cash Orders will be facilitated by the Transfer Agent and Liquidity 
Engager, acting other than in its capacity as Sponsor. On an order-by-
order basis, the Liquidity Engager will engage one or more Liquidity 
Providers to obtain or receive Bitcoin in exchange for cash in 
connection with such order, as described in more detail below.
    Each Authorized Participant that submits a Cash Order to create or 
redeem Baskets will pay a fee based on the Total Basket NAV (the 
``Variable Fee''). The Variable Fee is intended to cover all of a 
Liquidity Provider's expenses in connection with the creation or 
redemption order, including any Bitcoin trading platform fees that the 
Liquidity Provider incurs in connection with buying or selling 
Bitcoins, and the risk of intervening spot Bitcoin market movements. 
The amount may be changed by the Sponsor in its sole discretion at any 
time.
    In the case of creations, to transfer the Total Basket Amount to 
the Trust's Digital Asset Account, the Liquidity Provider will transfer 
Bitcoin to one of the public key addresses associated with the Digital 
Asset Account and as provided by the Sponsor. In the case of 
redemptions, the same procedure is conducted, but in reverse, using the 
public key addresses associated with the wallet of the Liquidity 
Provider and as provided by such party. All such transactions will be 
conducted on the Blockchain and parties acknowledge and agree that such 
transfers may be irreversible if done incorrectly.
    Authorized Participants do not pay a transaction fee to the Trust 
in connection with the creation or redemption of Baskets, but there may 
be transaction fees associated with the validation of the transfer of 
Bitcoins by the Bitcoin Network, which will be paid by the Custodian in 
the case of redemptions and the Authorized Participant or the Liquidity 
Provider in the case of creations. Service providers may charge 
Authorized Participants administrative fees for order placement and 
other services related to creation of Baskets. As discussed above, 
Authorized Participants will also pay the Variable Fee. Authorized 
Participants will receive no fees, commissions or other form of 
compensation or inducement of any kind from either the Sponsor or the 
Trust and no such person has any obligation or responsibility to the 
Sponsor or the Trust to effect any sale or resale of Shares.
    The following is a summary of the procedures for the creation and 
redemption of Baskets.
Creation Procedures
    On any business day, an Authorized Participant may place an order 
with the Transfer Agent to create one or more Baskets.
    Cash Orders for creation must be placed with the Transfer Agent no 
later than 1:59:59 p.m., New York time.
    The Sponsor may in its sole discretion limit the number of Shares 
created pursuant to Cash Orders on any specified day without notice to 
the Authorized Participants and may direct the Marketing Agent to 
reject any Cash Orders in excess of such capped amount. In exercising 
its discretion to limit the number of Shares created pursuant to Cash 
Orders, the Sponsor expects to take into consideration a number of 
factors, including the availability of Liquidity Providers to 
facilitate Cash Orders and the cost of processing Cash Orders.
    Creations under Cash Orders will take place as follows, where ``T'' 
is the trade date and each day in the sequence must be a business day:

------------------------------------------------------------------------
                                      T+1, or T+2, as established at the
                 T                         time of order placement
------------------------------------------------------------------------
 The Authorized Participant   The Authorized Participant
 places a creation order with the     delivers the Total Basket NAV and
 Transfer Agent.                      any Variable Fee to the Cash
 The Marketing Agent          Account.\1\
 accepts (or rejects) the creation    The Liquidity Provider
 order, which is communicated to      transfers the Total Basket Amount
 the Authorized Participant by the    to the Trust's Digital Asset
 Transfer Agent.                      Account.
 The Sponsor notifies the    The Trust issues the aggregate
 Liquidity Provider of the creation   number of Shares corresponding to
 order.                               the Baskets ordered by the
 The Sponsor determines the   Authorized Participant, which the
 Total Basket NAV and any Variable    Transfer Agent holds for the
 Fee as soon as practicable after     benefit of the Authorized
 4:00 p.m., New York time.            Participant.
                                      Cash equal to the U.S.
                                      dollar value of the Total Basket
                                      NAV, plus any Variable Fee, is
                                      delivered to the Liquidity
                                      Provider from the Cash Account.
                                      The Transfer Agent
                                      delivers Shares to the Authorized
                                      Participant by crediting the
                                      number of Baskets created to the
                                      Authorized Participant's DTC
                                      account.
------------------------------------------------------------------------
\1\ The ``Cash Account'' means the account maintained by the Transfer
  Agent in the name of Grayscale Securities, LLC, designated as
  ``Special Account for the Exclusive Benefit of Customers of Grayscale
  Securities, LLC,'' for purposes of receiving cash from, and
  distributing cash to, Authorized Participants in connection with
  creations and redemptions pursuant to Cash Orders. For the avoidance
  of doubt, the Trust shall have no interest (beneficial, equitable or
  otherwise) in the Cash Account or any cash held therein.


[[Page 2677]]

Redemption Procedures
    The procedures by which an Authorized Participant can redeem one or 
more Baskets mirror the procedures for the creation of Baskets. On any 
business day, an Authorized Participant may place a redemption order 
specifying the number of Baskets to be redeemed.
    The redemption of Shares pursuant to Cash Orders will only take 
place if approved by the Sponsor in writing, in its sole discretion and 
on a case-by-case basis. In exercising its discretion to approve the 
redemption of Shares pursuant to Cash Orders, the Sponsor expects to 
take into consideration a number of factors, including the availability 
of Liquidity Providers to facilitate Cash Orders and the cost of 
processing Cash Orders
    Cash Orders for redemption must be placed no later than 1:59:59 
p.m., New York time on each business day. The Authorized Participants 
may only redeem Baskets and cannot redeem any Shares in an amount less 
than a Basket.
    Redemptions under Cash Orders will take place as follows, where 
``T'' is the trade date and each day in the sequence must be a business 
day:

------------------------------------------------------------------------
                                      T+2 (or T+1 on case-by-case basis,
                 T                         as approved by Sponsor)
------------------------------------------------------------------------
 The Authorized Participant   The Authorized Participant
 places a redemption order with the   delivers Baskets to be redeemed
 Transfer Agent.                      from its DTC account to the
 The Marketing Agent          Transfer Agent.
 accepts (or rejects) the             The Liquidity Provider
 redemption order, which is           delivers the Total Basket NAV,
 communicated to the Authorized       less any Variable Fee, to the Cash
 Participant by the Transfer Agent.   Account.
 The Sponsor notifies the     The Transfer Agent cancels
 Liquidity Provider(s) of the         the Shares comprising the number
 redemption order.                    of Baskets redeemed by the
 The Sponsor determines the   Authorized Participant.
 Total Basket NAV and any Variable    The Custodian sends the
 Fee as soon as practicable after     Liquidity Provider the Total
 4:00 p.m., New York time.            Basket Amount and cash equal to
                                      the U.S. dollar value of the Total
                                      Basket NAV, less any Variable Fee
                                      and any other charges and fees
                                      payable in connection with the
                                      redemption order, is delivered to
                                      the Authorized Participant from
                                      the Cash Account.
------------------------------------------------------------------------

Suspension or Rejection of Orders and Total Basket Amount
    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 practicable purposes not feasible to process 
creation orders or redemption orders or for any other reason at any 
time or from time to time.\74\ The Transfer Agent may reject an order 
or, after accepting an order, may cancel such order if: (i) such order 
is not presented in proper form as described in the Participant 
Agreement, (ii) the transfer of the Total Basket Amount comes from an 
account other than a Bitcoin wallet address that is known to the 
Custodian as belonging to a Liquidity Provider or (iii) the fulfillment 
of the order, in the opinion of counsel, might be unlawful, among other 
reasons. None of the Sponsor or its delegates will be liable for the 
suspension, rejection or acceptance of any creation order or redemption 
order.
---------------------------------------------------------------------------

    \74\ Extenuating circumstances outside of the control of the 
Sponsor and its delegates or that could cause the transfer books of 
the Transfer Agent to be closed are outlined in the Participant 
Agreement and include, for example, public service or utility 
problems, power outages resulting in telephone, telecopy and 
computer failures, acts of God such as fires, floods or extreme 
weather conditions, market conditions or activities causing trading 
halts, systems failures involving computer or other information 
systems, including any failures or outages of the Bitcoin Network, 
affecting the Authorized Participant, the Sponsor, the Trust, the 
Transfer Agent, the Marketing Agent and the Custodian and similar 
extraordinary events.
---------------------------------------------------------------------------

Availability of Information
    The Trust's website (https://grayscale.com/crypto-products/grayscale-bitcoin-trust/) will include quantitative information on a 
per Share basis updated on a daily basis, including, (i) the current 
NAV per Share daily and the prior business day's NAV per Share and the 
reported closing price of the Shares; (ii) the mid-point of the bid-ask 
price \75\ as of the time the NAV per Share is calculated (``Bid-Ask 
Price'') and a calculation of the premium or discount of such price 
against such NAV per Share; and (iii) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily Bid-
Ask Price against the NAV, within appropriate ranges, for each of the 
four previous calendar quarters (or for as long as the Trust has been 
trading as an ETP if shorter). In addition, on each business day the 
Trust's website will provide pricing information for the Shares.
---------------------------------------------------------------------------

    \75\ 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 NAV.
---------------------------------------------------------------------------

    One or more major market data vendors, will provide an intra-day 
indicative value (``IIV'') per Share updated every 15 seconds, as 
calculated by the Exchange or a third party financial data provider 
during the Exchange's Core Trading Session (9:30 a.m. to 4:00 p.m., 
E.T.).\76\ The IIV will be calculated using the same methodology as the 
NAV per Share of the Trust (as described above), specifically by using 
the prior day's closing NAV per Share as a base and updating that value 
during the NYSE Arca Core Trading Session based on the value of the 
Index during the trading day.
---------------------------------------------------------------------------

    \76\ The IIV on a per Share basis disseminated during the Core 
Trading Session should not be viewed as a real-time update of the 
NAV, 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 NAV per 
Share, 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 NAV for the Trust will be calculated by the Sponsor once a day 
and will be disseminated daily to all market participants at the same 
time. To the extent that the Sponsor has utilized the cascading set of 
rules described in ``Index Price'' above, the Trust's website will note 
the valuation methodology used and the price per Bitcoin resulting from 
such calculation. Quotation and last-sale information regarding the 
Shares will be disseminated through the facilities of the Consolidated 
Tape Association (``CTA'').
    Quotation and last sale information for Bitcoin will be widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. In addition, real-time price

[[Page 2678]]

(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 trading platforms on which Bitcoin is traded. The 
normal trading hours for Digital Asset Trading Platforms are 24-hours 
per day, 365-days per year.
    On each business day, the Sponsor will publish the Index Price, the 
Trust's NAV, and the NAV per Share on the Trust's website as soon as 
practicable after its determination. If the NAV and NAV per Share have 
been calculated using a price per Bitcoin other than the Index Price 
for such Evaluation Time, the publication on the Trust's website will 
note the valuation methodology used and the price per Bitcoin resulting 
from such calculation.
    The Trust will provide website disclosure of its NAV and NAV per 
Share daily. The website disclosure of the Trust's NAV and NAV per 
Share will occur at the same time as the disclosure by the Sponsor of 
the NAV and NAV per Share to Authorized Participants so that all market 
participants are provided such portfolio information at the same time. 
Therefore, the same portfolio information will be provided on the 
public website as well as in electronic files provided to Authorized 
Participants. Accordingly, each investor will have access to the 
current NAV and NAV per Share of the Trust through the Trust's website, 
as well as from one or more major market data vendors.
    The value of the Index, as well as additional information regarding 
the Index, will be available on a continuous basis at https://www.coindesk.com/indices.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services.
    Information regarding the previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m., E.T. in 
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting 
and entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00, for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting 
as registered Market Makers in Commodity-Based Trust Shares to 
facilitate surveillance. The Exchange represents that, for initial and 
continued listing, the Trust will be in compliance with Rule 10A-3 \77\ 
under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 
100,000 Shares of the Trust will be outstanding at the commencement of 
trading on the Exchange.
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    \77\ 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Trust.\78\ Trading in Shares of the Trust 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
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    \78\ See NYSE Arca Rule 7.12-E.
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    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IIV or the value of the Index 
occurs. If the interruption to the dissemination of the IIV or the 
value of the Index persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. In addition, if the Exchange 
becomes aware that the NAV per Share is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as the NAV per Share is available to all market participants.
Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\79\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
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    \79\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement (``CSSA'').\80\ The 
Exchange is also able to obtain information regarding trading in the 
Shares and the underlying Bitcoin, Bitcoin futures contracts, options 
on Bitcoin futures, or any other Bitcoin derivative in connection with 
such ETP Holders' proprietary or customer trades which they effect 
through ETP Holders on any relevant market.
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    \80\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Trust may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
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    Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a 
registered Market Maker in the Shares is required to provide the 
Exchange with information relating to its accounts for trading in the

[[Page 2679]]

underlying commodity, related futures or options on futures, or any 
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E 
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. 
To the extent the Exchange may be found to lack jurisdiction over a 
subsidiary or affiliate of an ETP Holder that does business only in 
commodities or futures contracts, 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.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the index, portfolio or reference asset, (b) 
limitations on index or portfolio holdings or reference assets, or (c) 
the applicability of Exchange listing rules specified in this rule 
filing shall constitute continued listing requirements for listing the 
Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an ``Information Bulletin'' of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
the procedures for creations of Shares in Baskets; (2) NYSE Arca Rule 
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to 
learn the essential facts relating to every customer prior to trading 
the Shares; (3) information regarding how the value of the Index and 
NAV are disseminated; (4) the possibility that trading spreads and the 
resulting premium or discount on the Shares may widen during the 
Opening and Late Trading Sessions, when an updated IIV will not be 
calculated or publicly disseminated; (5) the requirement that members 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction and (6) 
trading information.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as described in the Annual 
Report. The Information Bulletin will disclose that information about 
the Shares of the Trust is publicly available on the Trust's website. 
The Information Bulletin will also reference the fact that there is no 
regulated source of last sale information regarding Bitcoin, that the 
Commission has no jurisdiction over the trading of Bitcoin as a 
commodity, and that the CFTC has regulatory jurisdiction over the 
trading of Bitcoin futures contracts and options on Bitcoin futures 
contracts.
    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) \81\ 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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    \81\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares with 
other markets that are members of the ISG, and the Exchange or FINRA, 
on behalf of the Exchange, or both, may obtain trading information 
regarding trading in the Shares from such markets. In addition, the 
Exchange may obtain information regarding trading in the Shares from 
markets that are members of ISG or with which the Exchange has in place 
a CSSA. Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is 
able to obtain information regarding Market Maker accounts for trading 
in the Shares and the underlying Bitcoin or any Bitcoin derivative 
through ETP Holders acting as registered Market Makers, in connection 
with such ETP Holders' proprietary or customer trades through ETP 
Holders which they effect on any relevant market.
    The proposed rule change is also designed to prevent fraudulent and 
manipulative acts and practices because, although the Digital Asset 
Trading Platform Market is not inherently resistant to fraud and 
manipulation, the Index serves as a means sufficient to mitigate the 
impact of instances of fraud and manipulation on a reference price for 
Bitcoin. Specifically, the Index provides a better benchmark for the 
price of Bitcoin than the Digital Asset Trading Platform Market price 
because it (1) tracks the Digital Asset Trading Platform Market price 
through trading activity at U.S.-Compliant Trading Platforms; (2) 
mitigates the impact of instances of fraud, manipulation and other 
anomalous trading activity in real-time through systematic adjustments; 
(3) is constructed and maintained by an expert third-party index 
provider, allowing for prudent handling of non-market-related events; 
and (4) mitigates the impact of instances of fraud, manipulation and 
other anomalous trading activity concentrated on any one specific 
trading platform through a cross-trading platform composite index rate. 
The Trust has used the Index to price the Shares for more than seven 
years, and the Sponsor believes the Index has proven its ability to (i) 
mitigate the effects of fraud, manipulation and other anomalous trading 
activity from impacting the Bitcoin reference rate, (ii) provide a 
real-time, volume-weighted fair value of Bitcoin and (iii) 
appropriately handle and adjust for non-market related events, such 
that efforts to manipulate the price of Bitcoin would have had a 
negligible effect on the pricing of the Trust, due to the controls 
embedded in the structure of the Index. In addition,

[[Page 2680]]

certain of the Index's Constituent Trading Platforms also have or have 
begun to implement market surveillance infrastructure to further 
detect, prevent, and respond to fraud, attempted fraud, and similar 
wrongdoing, including market manipulation. The proposed rule change is 
also designed to prevent fraudulent and manipulative acts and practices 
based on the existence of the CME futures market as a large, surveilled 
and regulated market that is closely connected with the spot market for 
Bitcoin and through which the Exchange could obtain information to 
assist in detecting and deterring potential fraud or manipulation.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that there is a considerable amount of Bitcoin price and market 
information available on public websites and through professional and 
subscription services. Investors may obtain, on a 24-hour basis, 
Bitcoin pricing information based on the spot price for Bitcoin from 
various financial information service providers. The closing price and 
settlement prices of Bitcoin are readily available from the Digital 
Asset Trading Platforms and other publicly available websites. In 
addition, such prices are published in public sources, or on-line 
information services such as Bloomberg and Reuters. The NAV per Share 
will be calculated daily and made available to all market participants 
at the same time. The Trust will provide website disclosure of its NAV 
and NAV per Share daily. One or more major market data vendors will 
disseminate for the Trust on a daily basis information with respect to 
the most recent NAV per Share and Shares outstanding. In addition, if 
the Exchange becomes aware that the NAV per Share is not disseminated 
to all market participants at the same time, it will halt trading in 
the Shares until such time as the NAV per Share is available to all 
market participants. Quotation and last-sale information regarding the 
Shares will be disseminated through the facilities of the CTA. The IIV 
will be widely disseminated on a per Share basis every 15 seconds 
during the NYSE Arca Core Trading Session (normally 9:30 a.m., E.T., to 
4:00 p.m., E.T.) by one or more major market data vendors. The Exchange 
represents that the Exchange may halt trading during the day in which 
an interruption to the dissemination of the IIV or the value of the 
Index occurs. If the interruption to the dissemination of the IIV or 
the value of the Index persists past the trading day in which it 
occurred, the Exchange will halt trading no later than the beginning of 
the trading day following the interruption.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a CSSA. In addition, as noted above, 
investors will have ready access to information regarding the Trust's 
NAV per Share, 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. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2021-90 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NYSEARCA-2021-90. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2021-90 and should 
be submitted on or before February 6, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\82\
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    \82\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00636 Filed 1-12-24; 8:45 am]
BILLING CODE 8011-01-P