Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the Grayscale Bitcoin Mini Trust Under NYSE Arca Rule 8.201-E, Commodity-Based Trust Shares, 49931-49945 [2024-12793]
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Federal Register / Vol. 89, No. 114 / Wednesday, June 12, 2024 / Notices
the proposed rule change is tied to a
technological release that the Exchange
plans to implement by the end of June
2024, that such release may be ready
before the 30-day operative delay has
elapsed, and the Exchange seeks to
implement the proposed rule change
without delay. The Exchange explains
that the proposed rule change will assist
Entering Firms in minimizing their risk
exposure, which could enhance the
integrity of trading on the securities
markets and help to assure the stability
of the financial system, and that the
proposed rule change is not novel as it
is based on existing risk settings already
in place on other exchanges. For these
reasons, and because the proposed rule
change does not raise any new or novel
regulatory issues, the Commission
believes that waiver of the 30-day
operative delay is consistent with the
protection of investors and the public
interest. Accordingly, the Commission
hereby waives the operative delay and
designates the proposed rule change
operative upon filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
NYSECHX–2024–20 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.
18 For
purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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All submissions should refer to file
number SR–NYSECHX–2024–20. 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–NYSECHX–2024–20 and should be
submitted on or before July 3, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–12791 Filed 6–11–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100290; File No. SR–
NYSEARCA–2024–45]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change, as Modified by
Amendment No. 1, To List and Trade
Shares of the Grayscale Bitcoin Mini
Trust Under NYSE Arca Rule 8.201–E,
Commodity-Based Trust Shares
June 6, 2024.
On May 28, 2024, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the Grayscale Bitcoin Mini
Trust under NYSE Arca Rule 8.201–E,
Commodity-Based Trust Shares. On
June 5, 2024, the Exchange filed
Amendment No. 1, as described in Items
I, II, and III below, which Items have
been prepared by the Exchange.
Amendment No. 1 replaced and
superseded the proposed rule change in
its entirety. The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 1, from
interested persons.
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 Mini Trust (BTC) (the ‘‘Trust’’).
This Amendment No. 1 to SR–
NYSEARCA–2024–45 replaces SR–
NYSEARCA2024–45 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.
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
1 15
19 17
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CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Shares.’’ 3 The Exchange proposes to list
and trade shares (‘‘Shares’’) 4 of the
Trust pursuant to NYSE Arca Rule
8.201–E.5
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’’).6
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’’).
The Trust is a Delaware statutory
trust, formed on March 12, 2024, that
operates pursuant to a trust agreement
between the Sponsor and the Trustee
(‘‘Trust Agreement’’). The Trust has no
fixed termination date.
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Operation of the Trust
According to the Registration
Statement, the Trust’s assets consist
solely of Bitcoins.7
3 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.
4 The Shares are expected to be listed under the
ticker symbol ‘‘BTC.’’
5 On March 12, 2024, the Trust filed a registration
statement on Form S–1 under the Securities Act
(File No. 333–277837) (the ‘‘Registration
Statement’’). The descriptions of the Trust and
Shares contained herein are based, in part, on the
Registration Statement. The Registration Statement
is not yet effective, and the Shares will not trade
on the Exchange until such time that the
Registration Statement is effective.
6 According to the Sponsor, 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.
7 The Trust will not hold cash or engage a cash
custodian other than in connection with creations
and redemptions. 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
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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,8 less the Trust’s expenses and
other liabilities (which include accrued
but unpaid fees and expenses). The
Sponsor expects that the market price of
the Shares will fluctuate over time in
response to the market prices of Bitcoin.
In addition, because the Shares reflect
the estimated accrued but unpaid
expenses of the Trust, the number of
Bitcoins represented by a Share will
gradually decrease over time as the
Trust’s Bitcoins are used to pay the
Trust’s expenses.
The 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 9
and/or certain Trust expenses, (iii)
transferring Bitcoins in exchange for
Baskets surrendered for redemption
(subject to obtaining regulatory approval
from the Commission 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).
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.
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.
8 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.
9 The Sponsor’s Fee means a fee, payable in
Bitcoins, which accrues daily in U.S. dollars at an
annual rate that is a percentage 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 Sponsor’s Fee will be
determined upon listing on the Exchange. 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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Investment Objective
According to the 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.10
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.
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
10 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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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.11
4. Subtract the U.S. dollar amount of
accrued and unpaid Additional Trust
Expenses,12 if any.
5. Subtract the U.S. dollar value of the
Bitcoins, calculated using the Index
Price, to be distributed under pending
redemption orders, if any, determined
by multiplying the number of Baskets to
be redeemed represented by such
redemption orders by the Basket
Amount and then multiplying such
product by the Index Price (the amount
derived from steps 1 through 5 above,
the ‘‘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.
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Bitcoin and the Bitcoin Network
According to the Registration
Statement, 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
11 ‘‘Baskets’’ and ‘‘Basket Amount’’ have the
meanings set forth in ‘‘Creation and Redemption of
Shares’’ below.
12 ‘‘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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entity owns or operates the Bitcoin
Network, the infrastructure of which is
collectively maintained by a
decentralized user base. The Bitcoin
Network allows people to exchange
tokens of value, called Bitcoin, which
are recorded on a public transaction
ledger known as a Blockchain. Bitcoin
can be used to pay for goods and
services, or it can be converted to fiat
currencies, such as the U.S. dollar, at
rates determined on ‘‘Digital Asset
Markets’’ 13 that trade Bitcoin or in
individual end-user-to-end-user
transactions under a barter system.
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-enduser 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
13 A ‘‘Digital Asset Market’’ is a ‘‘Brokered
Market,’’ ‘‘Dealer Market,’’ ‘‘Principal-to-Principal
Market’’ or ‘‘Exchange Market,’’ as each such term
is defined in the Financial Accounting Standards
Board Accounting Standards Codification Master
Glossary. The ‘‘Digital Asset 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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49933
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 doublespending 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
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,
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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, offblockchain 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.
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 3.125
Bitcoin per block and this is expected to
decrease by half to become 1.5625
Bitcoin after the next 210,000 blocks
have entered the Bitcoin Network,
which is expected to be mid-2028. 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 predetermined 21 million Bitcoin. As of
March 31, 2024, approximately 19.7
million Bitcoins were outstanding and
the date when the 21 million Bitcoin
limitation will be reached is estimated
to be the year 2140.
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
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
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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.
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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 ‘‘airgapped’’) computer or electronic device
or storing the private keys on a storage
device (for example, a USB thumb
drive) or printed medium (for example,
papyrus, paper or a metallic object). A
digital wallet may receive deposits of
digital assets but may not send digital
assets without use of the digital assets’
corresponding private keys. In order to
send digital assets from a digital wallet
in which the private keys are kept in
cold storage, either the private keys
must be retrieved from cold storage and
entered into an online, or ‘‘hot,’’ digital
asset software program to sign the
transaction, or the unsigned transaction
must be transferred to the cold server in
which the private keys are held for
signature by the private keys and then
transferred back to the online digital
asset software program. At that point,
the user of the digital wallet can transfer
its digital assets.
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
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
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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 14 will follow the same
general procedure as transferring
Bitcoins to the Trust to create a Basket
by an Authorized Participant, only in
reverse.
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
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Digital Asset Trading Platform
Valuation
According to the 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, Crypto.com,
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 March 31, 2024, the Digital
Asset Trading Platforms included in the
Index are Coinbase, Bitstamp, Kraken,
LMAX Digital and Crypto.com. 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
14 ‘‘Authorized Participant’’ has the meaning set
forth in ‘‘Creation and Redemption of Shares’’
below.
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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.
Crypto.com: A Singapore-based
trading platform registered as an MSB
with FinCEN and licensed as a money
transmitter in various U.S. states.
Crypto.com 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 15 of the BTC–U.S. dollar
trading pairs of each of the Digital Asset
Trading Platforms included in the Index
as of March 31, 2024 16 using data
15 Market share is calculated using trading
volume (in Bitcoins) for certain Digital Asset
Trading Platforms, including Coinbase, Bitstamp,
Kraken, LMAX Digital and Crypto.com, as well as
certain other large U.S.-dollar denominated Digital
Asset Trading Platforms that were not included in
the Index as of March 31, 2024, including
Binance.US (data included from April 1, 2020),
Bitfinex, Bitflyer (data included from December 24,
2018), Bittrex (data included from July 31, 2018 to
December 3, 2023), Cboe Digital (data included
from October 1, 2020 to December 31, 2023),
FTX.US (data included from April 1, 2022 to
November 12, 2022), Gemini, 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 since inception to December
31, 2022).
16 On June 17, 2023, the Index Provider removed
Binance.US from the Index due to Binance.US’s
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reported by the Index Provider from
May 1, 2015 to March 31, 2024:
Digital trading
platforms included
in the index as of
March 31, 2024
Volume
(BTC)
Market
share
(%)
Coinbase ...................
Bitstamp ....................
Kraken ......................
LMAX Digital .............
Crypto.com ...............
46,909,311
23,776,144
13,702,667
9,621,915
991,845
25.24
12.79
7.37
5.18
0.53
Total BTC–U.S.
dollar trading pair
95,001,882
51.11
The domicile, regulation, and legal
compliance of the Digital Asset Trading
Platforms included in the Index varies.
Information regarding each Digital Asset
Trading Platform 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. dollardenominated 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 nonmarket 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.
announcement that the trading platform is
suspending U.S. dollar (‘‘USD’’) deposits and
withdrawals and plans to delist its USD 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 due
to the trading platform meeting the 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
due to the trading platform meeting the minimum
liquidity requirement, and did not remove any
Constituent Trading Platforms as part of its
scheduled quarterly review.
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Constituent Trading Platform Selection
According to the 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; 17
• Transparent ownership including a
publicly-owned ownership entity;
• Publicly available language and
policies addressing legal and regulatory
compliance in the U.S., including KYC
(Know Your Customer), AML (AntiMoney Laundering) and other policies
designed to comply with relevant
regulations that might apply to it;
• Be a U.S.-domiciled trading
platform or a non-U.S. domiciled
trading platform that is able to service
U.S. investors;
• Offer programmatic spot trading of
the trading pair,18 and reliably publish
trade prices and volumes on a real-time
basis through Rest and Websocket APIs.
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
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
17 ‘‘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.
18 Trading platforms with programmatic trading
offer traders an application programming interface
that permits trading by sending programmed
commands to the trading platform.
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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-thecounter or derivative platform data in
the future.
The Index Provider and the Sponsor
have entered into the index license
agreement (as amended, the ‘‘Index
License Agreement’’), governing the
Sponsor’s use of the Index Price.19
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.
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
19 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.
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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 nonmarket-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.
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 deweighted 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
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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,
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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
purposes of this illustrative example
only, assume that the Constituent
Trading Platforms used to calculate 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 belowlisted 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 deweighting 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 reweight it to the appropriate weighting
based on trading volume and pricevariance 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%.
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• 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.20 For the avoidance of
doubt, the Sponsor will employ the
below rules sequentially and in the
order as presented below, should one or
more specific rule(s) fail.
1. Index Price = The price set by the
Index as of 4:00 p.m., New York time,
on the valuation date.21 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.
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 weightedmedian techniques to such trade data
where half the weight is derived from
20 The Sponsor updated these rules on January 11,
2022.
21 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 nonbusiness 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.
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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 Registration Statement) (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
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other than Bitcoin).22 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.23
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.24
The Structure and Operation of the
Trust Protects Investors and Satisfies
Commission Requirements for BitcoinBased Exchange Traded Products
On January 10, 2024, the Commission
approved the listing and trading of
shares of Grayscale Bitcoin Trust (BTC)
and Bitwise Bitcoin ETF under NYSE
Arca Rule 8.201–E (Commodity-Based
22 According to the Sponsor, 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.
23 See note 8, supra.
24 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.
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Trust Shares); the Hashdex Bitcoin ETF
under NYSE Arca Rule 8.500–E (Trust
Units); the iShares Bitcoin Trust and
Valkyrie Bitcoin Fund under Nasdaq
Rule 5711(d) (Commodity-Based Trust
Shares); and the ARK 21Shares Bitcoin
ETF, Invesco Galaxy Bitcoin ETF,
VanEck Bitcoin Trust, the WisdomTree
Bitcoin Fund, Fidelity Wise Origin
Bitcoin Fund, and Franklin Bitcoin
ETF under BZX Rule 14.11(e)(4)
(Commodity-Based Trust Shares)
(collectively, the ‘‘Bitcoin ETPs’’).25 In
the Bitcoin ETP Approval Order, the
Commission found that the proposed
rule changes to list the Bitcoin ETPs
demonstrated that there were ‘‘sufficient
‘other means’ of preventing fraud and
manipulation,’’ including that:
[B]ased on the record before the
Commission and the improved quality of the
correlation analysis in the record, including
the Commission’s own analysis, the
Commission is able to conclude that fraud or
manipulation that impacts prices in spot
bitcoin markets would likely similarly
impact CME bitcoin futures prices. And
because the CME’s surveillance can assist in
detecting those impacts on CME bitcoin
futures prices, the Exchanges’ comprehensive
surveillance-sharing agreement with the
CME—a U.S. regulated market whose bitcoin
futures market is consistently highly
correlated to spot bitcoin, albeit not of
‘‘significant size’’ related to spot bitcoin—can
be reasonably expected to assist in
surveilling for fraudulent and manipulative
acts and practices in the specific context of
the [Bitcoin ETPs].26
The Trust is structured and will
operate in a manner materially the same
as the Bitcoin ETPs. Accordingly, the
Sponsor believes that, for the reasons set
forth in the Bitcoin ETP Approval
Order, listing and trading Shares of the
Trust would be consistent with the
requirements of the Act.27
25 Securities Exchange Act Release No. 34–99306
(January 10, 2024), 89 FR 3008 (January 17, 2024)
(SR–NYSEARCA–2021–90; SR–NYSEARCA–2023–
44; SRNYSEARCA–2023–58; SR–NASDAQ–2023–
016; SR–NASDAQ–2023–019; SR–CboeBZX–
2023028; SR–CboeBZX–2023–038; SR–CboeBZX–
2023–040; SR–CboeBZX–2023–042; SRCboeBZX–
2023–044; SR–CboeBZX–2023–072) (Order
Granting Accelerated Approval of Proposed Rule
Changes, as Modified by Amendments Thereto, to
List and Trade Bitcoin-Based Commodity-Based
Trust Shares and Trust Units) (the ‘‘Bitcoin ETP
Approval Order’’).
26 Bitcoin ETP Approval Order, 89 FR at 3009–11.
27 In particular, Grayscale Bitcoin Trust (BTC)
(‘‘GBTC’’), an affiliate of the Trust that is structured
identically to the Trust, currently lists its shares on
the Exchange under NYSE Arca Rule 8.201–E. The
Trust and GBTC are identically structured
investment vehicles and will have the same service
providers. The Trust will have a materially lower
sponsor’s fee than GBTC.
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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 28
who obtains or receives Bitcoin in
exchange for cash, and are facilitated by
28 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.
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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.
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 brokerdealers, 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
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
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49939
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.
The creation of Baskets requires the
delivery by the Authorized Participant
of the Total Basket Amount and the
redemption of Baskets requires the
distribution to the Authorized
Participant 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.
Unless the Sponsor requires that a
Cash Order be effected at actual
execution prices (an ‘‘Actual Execution
Cash Order’’),29 each Authorized
Participant that submits a Cash Order to
create or redeem Baskets (a ‘‘Variable
Fee Cash Order’’) 30 will pay a fee (the
29 With respect to a creation or redemption
pursuant to an Actual Execution Cash Order, as
between the Trust and an Authorized Participant,
the Authorized Participant is responsible for the
dollar cost of the difference between the Bitcoin
price utilized in calculating Total Basket NAV on
the trade date and the price at which the Trust
acquires or disposes of the Bitcoin on the settlement
date. If the price realized in acquiring or disposing
of the corresponding Total Basket Amount is higher
than the Total Basket NAV, the Authorized
Participant will bear the dollar cost of such
difference, in the case of a creation, by delivering
cash in the amount of such shortfall (the
‘‘Additional Creation Cash’’) to the Cash Account
or, in the case of a redemption, with the amount
of cash to be delivered to the Authorized
Participant being reduced by the amount of such
difference (the ‘‘Redemption Cash Shortfall’’). If the
price realized in acquiring the corresponding Total
Basket Amount is lower than the Total Basket NAV,
the Authorized Participant will benefit from such
difference, with the Trust promptly returning cash
in the amount of such excess (the ‘‘Excess Creation
Cash’’) to the Authorized Participant.
30 Unless the Sponsor determines otherwise in its
sole discretion based on market conditions and
other factors existing at the time of such Cash
Order, all creations and redemptions pursuant to
Cash Orders are expected to be executed as Variable
Fee Cash Orders, and any price differential of
Bitcoins between the trade date and the settlement
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ddrumheller on DSK120RN23PROD with NOTICES1
‘‘Variable Fee’’) based on the Total
Basket NAV, and any price differential
of Bitcoins between the trade date and
the settlement date will be borne solely
by the Liquidity Provider until such
Bitcoins have been received or
liquidated by the Trust. 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. The amount
may be changed by the Sponsor in its
sole discretion at any time, and
Liquidity Providers will communicate
to the Sponsor in advance the Variable
Fee they would be willing to accept in
connection with a Variable Fee Cash
Order, based on market conditions and
other factors existing at the time of such
Variable Fee Cash Order.
Alternatively, the Sponsor may
require that a Cash Order be effected as
an Actual Execution Cash Order, in its
sole discretion based on market
conditions and other factors existing at
the time of such Cash Order, and under
such circumstances, any price
differential of Bitcoins between the
trade date and the settlement date will
be borne solely by the Authorized
Participant until such Bitcoins have
been received or liquidated by the Trust.
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 in connection with
Variable Fee Cash Orders. Under certain
circumstances Authorized Participants
may also be required to deposit
additional cash in the Cash Account, or
be entitled to receive excess cash from
the Cash Account, in connection with
creations and redemptions pursuant to
Actual Execution Cash Orders.
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. Before a creation
order is placed, the Sponsor determines
if such creation order will be a Variable
Fee Cash Order or an Actual Execution
Cash Order, which determination is
communicated to the Authorized
Participant.
Trade date
(T)
Settlement date
(T+1, or T+2, as established at the time of order placement)
• The Authorized Participant places a creation order with the Transfer
Agent.
• The Marketing Agent accepts (or rejects) the creation order, which is
communicated to the Authorized Participant by the Transfer Agent.
• The Sponsor notifies the Liquidity Provider of the creation order ........
• The Sponsor determines the Total Basket NAV and any Variable
Fee and Additional Creation Cash as soon as practicable after 4:00
p.m., New York time.
• The Authorized Participant delivers to the Cash Account: *
(x) in the case of a Variable Fee Cash Order, the Total Basket NAV,
plus any Variable Fee; or
(y) in the case of an Actual Execution Cash Order, the Total Basket
NAV, plus any Additional Creation Cash, less any Excess Creation
Cash, if applicable (such amount, as applicable, the ‘‘Required Creation Cash’’).
• The Liquidity Provider transfers the Total Basket Amount to the
Trust’s Digital Asset Account.
• Once the Trust is in simultaneous possession of (x) the Total Basket
Amount and (y) the Required Creation Cash, the Trust issues the
aggregate number of Shares corresponding to the Baskets ordered
by the Authorized Participant, which the Transfer Agent holds for the
benefit of the Authorized Participant.
• Cash equal to the Required Creation Cash 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.
* The ‘‘Cash Account’’ means the account maintained by the Transfer Agent 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.
date will be borne solely by the Liquidity Provider
until such Bitcoins have been received by the Trust.
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Federal Register / Vol. 89, No. 114 / Wednesday, June 12, 2024 / Notices
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
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. Before a
redemption order is placed, the Sponsor
determines if such redemption order
will be a Variable Fee Cash Order or an
Actual Execution Cash Order, which
determination is communicated to the
Authorized Participant.
Trade date
(T)
Settlement date
(T+1 (or T+2 on case-by-case basis, as approved by Sponsor))
• The Authorized Participant places a redemption order with the Transfer Agent.
• The Marketing Agent accepts (or rejects) the redemption order,
which is communicated to the Authorized Participant by the Transfer
Agent.
• The Sponsor notifies the Liquidity Provider of the redemption order ..
• The Sponsor determines the Total Basket NAV and, in the case of a
Variable Fee Cash Order, any Variable Fee, as soon as practicable
after 4:00 p.m., New York time.
• The Authorized Participant delivers Baskets to be redeemed from its
DTC account to the Transfer Agent.
• The Liquidity Provider delivers to the Cash Account:
(x) in the case of a Variable Fee Cash Order, the Total Basket NAV
less any Variable Fee; or
(y) in the case of an Actual Execution Cash Order, the actual proceeds
to the Trust from the liquidation of the Total Basket Amount (such
amount, as applicable, the ‘‘Required Redemption Cash’’).
• Once the Trust is in simultaneous possession of (x) the Total Basket
Amount and (y) the Required Redemption Cash, the Transfer Agent
cancels the Shares comprising the number of Baskets redeemed by
the Authorized Participant.
• The Custodian sends the Liquidity Provider the Total Basket
Amount, and cash equal to the Required Redemption Cash 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.31 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
ddrumheller on DSK120RN23PROD with NOTICES1
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
49941
31 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.
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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 32 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.
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.).33 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.
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.
32 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.
33 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.
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.
Availability of Information
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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
(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, 365days 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
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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 34 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.
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.35 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
34 17
CFR 240.10A–3.
NYSE Arca Rule 7.12–E.
35 See
PO 00000
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Fmt 4703
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Exchange, make trading in the Shares
inadvisable.
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.36 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
and other entities that are members of
the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares and Bitcoin
derivatives from such markets and other
entities. In addition, the Exchange may
obtain information regarding trading in
the Shares and Bitcoin derivatives from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement
36 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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ddrumheller on DSK120RN23PROD with NOTICES1
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(‘‘CSSA’’).37 The Exchange is also able
to obtain information regarding trading
in the Shares and any underlying
Bitcoin, Bitcoin futures contracts,
options on Bitcoin futures, or any other
Bitcoin derivative in connection with
ETP Holders’ proprietary trades, or
customer trades effected through ETP
Holders on any relevant market.
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 any
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 and that subsidiary
or affiliate is a member of another
regulatory organization, the Exchange
could obtain information regarding the
activities of such subsidiary or affiliate
through a surveillance sharing
agreement with that regulatory
organization.
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
37 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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17:43 Jun 11, 2024
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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 Registration Statement.
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 CME Bitcoin futures
contracts and options on CME 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) 38 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
38 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00120
Fmt 4703
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49943
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca 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 and Bitcoin derivatives from
such markets. In addition, the Exchange
may obtain information regarding
trading in the Shares and Bitcoin
derivatives 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 trades which they effect on
any relevant market.
The proposed rule change is also
designed to prevent fraudulent and
manipulative acts and practices because
the Trust is structured similarly to and
will operate in materially the same
manner as the Bitcoin ETPs previously
approved by the Commission. The
Exchange further believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices because, as noted by
the Commission in the Bitcoin ETP
Approval Order, 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. In particular, the
CME Bitcoin futures market is 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
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49944
Federal Register / Vol. 89, No. 114 / Wednesday, June 12, 2024 / Notices
assist in detecting and deterring
potential fraud or manipulation.
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 nonmarket-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. GBTC 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 nonmarket related events, such that efforts
to manipulate the price of Bitcoin
would have had a negligible effect on
the pricing of the Trust, due to the
controls embedded in the structure of
the Index. In addition, certain of the
Index’s Constituent 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 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
VerDate Sep<11>2014
17:43 Jun 11, 2024
Jkt 262001
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
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
Exchange notes that the proposed rule
change will facilitate the listing and
trading of an additional type of
exchange-traded product, 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. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
NYSEARCA–2024–45 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–2024–45. 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
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Federal Register / Vol. 89, No. 114 / Wednesday, June 12, 2024 / Notices
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–2024–45 and should be
submitted on or before July 3, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–12793 Filed 6–11–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100292; File No. SR–
CBOE–2023–063]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Designation
of a Longer Period for Commission
Action on Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To Amend the
Exchange’s Rules Relating to Position
and Exercise Limits
ddrumheller on DSK120RN23PROD with NOTICES1
June 6, 2024.
On November 29, 2023, Cboe
Exchange, Inc. (the ‘‘Exchange’’ or
‘‘Cboe Options’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (the ‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its rules relating to position and
exercise limits The proposed rule
change was published for comment in
the Federal Register on December 14,
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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17:43 Jun 11, 2024
Jkt 262001
2023.3 The Commission received
comment letters regarding the proposed
rule change.4
On January 23, 2024, pursuant to
Section 19(b)(2) of the Act,5 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change.6
On March 12, 2024, the Commission
instituted proceedings under Section
19(b)(2)(B) of the Act 7 to determine
whether to approve or disapprove the
proposed rule change.8
Section 19(b)(2) of the Act 9 provides
that, after initiating proceedings, the
Commission shall issue an order
approving or disapproving the proposed
rule change not later than 180 days after
the date of publication of notice of filing
of the proposed rule change. The
Commission may extend the period for
issuing an order approving or
disapproving the proposed rule change,
however, by not more than 60 days if
the Commission determines that a
longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on December 14,
2023.10 The 180th day after publication
of the proposed rule change is June 11,
2024. The Commission is extending the
time period for approving or
disapproving the proposed rule change
for an additional 60 days.
The Commission finds that it is
appropriate to designate a longer period
within which to issue an order
approving or disapproving the proposed
rule change so that it has sufficient time
to consider the proposed rule change
and the issues raised therein.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,11
designates August 10, 2024, as the date
by which the Commission shall either
approve or disapprove the proposed
rule change (File No. SR–CBOE–2023–
063).
3 See
Securities Exchange Act Release No. 99119
(Dec. 8, 2023), 88 FR 86701 (‘‘Notice’’).
4 Comment letters regarding the proposed rule
change are available at https://www.sec.gov/
comments/sr-cboe-2023-063/srcboe2023063.htm.
5 15 U.S.C. 78s(b)(2).
6 See Securities Exchange Act Release No. 99417
(Jan. 23, 2024), 89 FR 5588 (Jan. 29, 2024).
7 15 U.S.C. 78s(b)(2)(B).
8 See Securities Exchange Act Release No. 99721
(Mar. 12, 2024), 89 FR 19622 (Mar. 19, 2024).
9 15 U.S.C. 78s(b)(2).
10 See supra note 3.
11 15 U.S.C. 78s(b)(2).
12 17 CFR 200.30–3(a)(57).
PO 00000
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49945
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–12795 Filed 6–11–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–100284; File No. SR–
NYSEARCA–2024–47]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 6.40P–O
June 6, 2024.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 31,
2024, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.40P–O (Pre-Trade and ActivityBased Risk Controls) pertaining to pretrade risk controls to make additional
pre-trade risk controls available to
Entering Firms. 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.
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,
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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]]>Agencies
[Federal Register Volume 89, Number 114 (Wednesday, June 12, 2024)]
[Notices]
[Pages 49931-49945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-12793]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100290; File No. SR-NYSEARCA-2024-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To List and
Trade Shares of the Grayscale Bitcoin Mini Trust Under NYSE Arca Rule
8.201-E, Commodity-Based Trust Shares
June 6, 2024.
On May 28, 2024, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the Grayscale Bitcoin Mini Trust
under NYSE Arca Rule 8.201-E, Commodity-Based Trust Shares. On June 5,
2024, the Exchange filed Amendment No. 1, as described in Items I, II,
and III below, which Items have been prepared by the Exchange.
Amendment No. 1 replaced and superseded the proposed rule change in its
entirety. The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 1, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 Mini Trust (BTC) (the
``Trust''). This Amendment No. 1 to SR-NYSEARCA-2024-45 replaces SR-
NYSEARCA2024-45 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.
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
[[Page 49932]]
Shares.'' \3\ The Exchange proposes to list and trade shares
(``Shares'') \4\ of the Trust pursuant to NYSE Arca Rule 8.201-E.\5\
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\3\ 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.
\4\ The Shares are expected to be listed under the ticker symbol
``BTC.''
\5\ On March 12, 2024, the Trust filed a registration statement
on Form S-1 under the Securities Act (File No. 333-277837) (the
``Registration Statement''). The descriptions of the Trust and
Shares contained herein are based, in part, on the Registration
Statement. The Registration Statement is not yet effective, and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective.
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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'').\6\ 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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\6\ According to the Sponsor, 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, formed on March 12, 2024,
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 Registration Statement, the Trust's assets consist
solely of Bitcoins.\7\
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\7\ The Trust will not hold cash or engage a cash custodian
other than in connection with creations and redemptions. 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,\8\ 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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\8\ 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 \9\ and/or certain Trust expenses, (iii) transferring Bitcoins in
exchange for Baskets surrendered for redemption (subject to obtaining
regulatory approval from the Commission 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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\9\ The Sponsor's Fee means a fee, payable in Bitcoins, which
accrues daily in U.S. dollars at an annual rate that is a percentage
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 Sponsor's Fee will be determined
upon listing on the Exchange. 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 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.\10\
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\10\ 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.
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
[[Page 49933]]
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.\11\
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\11\ ``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,\12\ if any.
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\12\ ``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 Registration Statement, Bitcoin is a digital asset
that is created and transmitted through the operations of the peer-to-
peer ``Bitcoin Network,'' a decentralized network of computers that
operates on cryptographic protocols. No single entity owns or operates
the Bitcoin Network, the infrastructure of which is collectively
maintained by a decentralized user base. The Bitcoin Network allows
people to exchange tokens of value, called Bitcoin, which are recorded
on a public transaction ledger known as a Blockchain. Bitcoin can be
used to pay for goods and services, or it can be converted to fiat
currencies, such as the U.S. dollar, at rates determined on ``Digital
Asset Markets'' \13\ that trade Bitcoin or in individual end-user-to-
end-user transactions under a barter system.
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\13\ A ``Digital Asset Market'' is a ``Brokered Market,''
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange
Market,'' as each such term is defined in the Financial Accounting
Standards Board Accounting Standards Codification Master Glossary.
The ``Digital Asset 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 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,
[[Page 49934]]
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
3.125 Bitcoin per block and this is expected to decrease by half to
become 1.5625 Bitcoin after the next 210,000 blocks have entered the
Bitcoin Network, which is expected to be mid-2028. 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 March 31, 2024, approximately 19.7 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 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
[[Page 49935]]
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 \14\ will follow the same general procedure as transferring
Bitcoins to the Trust to create a Basket by an Authorized Participant,
only in reverse.
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\14\ ``Authorized Participant'' has the meaning set forth in
``Creation and Redemption of Shares'' below.
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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 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, Crypto.com, 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 March 31, 2024, the Digital Asset Trading Platforms included
in the Index are Coinbase, Bitstamp, Kraken, LMAX Digital and
Crypto.com. 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.
Crypto.com: A Singapore-based trading platform registered as an MSB
with FinCEN and licensed as a money transmitter in various U.S. states.
Crypto.com 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
\15\ of the BTC-U.S. dollar trading pairs of each of the Digital Asset
Trading Platforms included in the Index as of March 31, 2024 \16\ using
data reported by the Index Provider from May 1, 2015 to March 31, 2024:
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\15\ Market share is calculated using trading volume (in
Bitcoins) for certain Digital Asset Trading Platforms, including
Coinbase, Bitstamp, Kraken, LMAX Digital and Crypto.com, as well as
certain other large U.S.-dollar denominated Digital Asset Trading
Platforms that were not included in the Index as of March 31, 2024,
including Binance.US (data included from April 1, 2020), Bitfinex,
Bitflyer (data included from December 24, 2018), Bittrex (data
included from July 31, 2018 to December 3, 2023), Cboe Digital (data
included from October 1, 2020 to December 31, 2023), FTX.US (data
included from April 1, 2022 to November 12, 2022), Gemini, 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 since inception
to December 31, 2022).
\16\ On June 17, 2023, the Index Provider removed Binance.US
from the Index due to Binance.US's announcement that the trading
platform is suspending U.S. dollar (``USD'') deposits and
withdrawals and plans to delist its USD 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 due to the
trading platform meeting the 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 due to the trading platform meeting
the minimum liquidity requirement, and did not remove any
Constituent Trading Platforms as part of its scheduled quarterly
review.
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Market
Digital trading platforms included in the index as Volume share
of March 31, 2024 (BTC) (%)
------------------------------------------------------------------------
Coinbase.......................................... 46,909,311 25.24
Bitstamp.......................................... 23,776,144 12.79
Kraken............................................ 13,702,667 7.37
LMAX Digital...................................... 9,621,915 5.18
Crypto.com........................................ 991,845 0.53
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Total BTC-U.S. dollar trading pair.............. 95,001,882 51.11
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The domicile, regulation, and legal compliance of the Digital Asset
Trading Platforms included in the Index varies. Information regarding
each Digital Asset Trading Platform 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.
[[Page 49936]]
Constituent Trading Platform Selection
According to the 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; \17\
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\17\ ``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.
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Transparent ownership including a publicly-owned ownership
entity;
Publicly available language and policies addressing legal
and regulatory compliance in the U.S., 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 U.S.-domiciled trading platform or a non-U.S.
domiciled trading platform that is able to service U.S. investors;
Offer programmatic spot trading of the trading pair,\18\
and reliably publish trade prices and volumes on a real-time basis
through Rest and Websocket APIs.
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\18\ Trading platforms with programmatic trading offer traders
an application programming interface that permits trading by sending
programmed commands to the trading platform.
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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
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 (as amended, the ``Index License Agreement''),
governing the Sponsor's use of the Index Price.\19\ 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.
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\19\ 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.
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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.
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
[[Page 49937]]
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 purposes of this illustrative example only,
assume that the Constituent Trading Platforms used to calculate 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.\20\ 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.
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\20\ The Sponsor updated these rules on January 11, 2022.
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1. Index Price = The price set by the Index as of 4:00 p.m., New
York time, on the valuation date.\21\ 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.
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\21\ 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.
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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
[[Page 49938]]
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 Registration Statement) (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).\22\ 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.\23\
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\22\ According to the Sponsor, 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.
\23\ See note 8, supra.
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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.\24\
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\24\ 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.
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The Structure and Operation of the Trust Protects Investors and
Satisfies Commission Requirements for Bitcoin-Based Exchange Traded
Products
On January 10, 2024, the Commission approved the listing and
trading of shares of Grayscale Bitcoin Trust (BTC) and Bitwise Bitcoin
ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares); the
Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E (Trust Units); the
iShares Bitcoin Trust and Valkyrie Bitcoin Fund under Nasdaq Rule
5711(d) (Commodity-Based Trust Shares); and the ARK 21Shares Bitcoin
ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust, the WisdomTree
Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and Franklin Bitcoin
ETF under BZX Rule 14.11(e)(4) (Commodity-Based Trust Shares)
(collectively, the ``Bitcoin ETPs'').\25\ In the Bitcoin ETP Approval
Order, the Commission found that the proposed rule changes to list the
Bitcoin ETPs demonstrated that there were ``sufficient `other means' of
preventing fraud and manipulation,'' including that:
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\25\ Securities Exchange Act Release No. 34-99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SRNYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-
2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-
040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; SR-CboeBZX-2023-072)
(Order Granting Accelerated Approval of Proposed Rule Changes, as
Modified by Amendments Thereto, to List and Trade Bitcoin-Based
Commodity-Based Trust Shares and Trust Units) (the ``Bitcoin ETP
Approval Order'').
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record, including the
Commission's own analysis, the Commission is able to conclude that
fraud or manipulation that impacts prices in spot bitcoin markets
would likely similarly impact CME bitcoin futures prices. And
because the CME's surveillance can assist in detecting those impacts
on CME bitcoin futures prices, the Exchanges' comprehensive
surveillance-sharing agreement with the CME--a U.S. regulated market
whose bitcoin futures market is consistently highly correlated to
spot bitcoin, albeit not of ``significant size'' related to spot
bitcoin--can be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific
context of the [Bitcoin ETPs].\26\
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\26\ Bitcoin ETP Approval Order, 89 FR at 3009-11.
The Trust is structured and will operate in a manner materially the
same as the Bitcoin ETPs. Accordingly, the Sponsor believes that, for
the reasons set forth in the Bitcoin ETP Approval Order, listing and
trading Shares of the Trust would be consistent with the requirements
of the Act.\27\
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\27\ In particular, Grayscale Bitcoin Trust (BTC) (``GBTC''), an
affiliate of the Trust that is structured identically to the Trust,
currently lists its shares on the Exchange under NYSE Arca Rule
8.201-E. The Trust and GBTC are identically structured investment
vehicles and will have the same service providers. The Trust will
have a materially lower sponsor's fee than GBTC.
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[[Page 49939]]
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 \28\ 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.
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\28\ 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.
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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 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.
The creation of Baskets requires the delivery by the Authorized
Participant of the Total Basket Amount and the redemption of Baskets
requires the distribution to the Authorized Participant 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.
Unless the Sponsor requires that a Cash Order be effected at actual
execution prices (an ``Actual Execution Cash Order''),\29\ each
Authorized Participant that submits a Cash Order to create or redeem
Baskets (a ``Variable Fee Cash Order'') \30\ will pay a fee (the
[[Page 49940]]
``Variable Fee'') based on the Total Basket NAV, and any price
differential of Bitcoins between the trade date and the settlement date
will be borne solely by the Liquidity Provider until such Bitcoins have
been received or liquidated by the Trust. 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. The amount may be changed by the Sponsor in its sole
discretion at any time, and Liquidity Providers will communicate to the
Sponsor in advance the Variable Fee they would be willing to accept in
connection with a Variable Fee Cash Order, based on market conditions
and other factors existing at the time of such Variable Fee Cash Order.
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\29\ With respect to a creation or redemption pursuant to an
Actual Execution Cash Order, as between the Trust and an Authorized
Participant, the Authorized Participant is responsible for the
dollar cost of the difference between the Bitcoin price utilized in
calculating Total Basket NAV on the trade date and the price at
which the Trust acquires or disposes of the Bitcoin on the
settlement date. If the price realized in acquiring or disposing of
the corresponding Total Basket Amount is higher than the Total
Basket NAV, the Authorized Participant will bear the dollar cost of
such difference, in the case of a creation, by delivering cash in
the amount of such shortfall (the ``Additional Creation Cash'') to
the Cash Account or, in the case of a redemption, with the amount of
cash to be delivered to the Authorized Participant being reduced by
the amount of such difference (the ``Redemption Cash Shortfall'').
If the price realized in acquiring the corresponding Total Basket
Amount is lower than the Total Basket NAV, the Authorized
Participant will benefit from such difference, with the Trust
promptly returning cash in the amount of such excess (the ``Excess
Creation Cash'') to the Authorized Participant.
\30\ Unless the Sponsor determines otherwise in its sole
discretion based on market conditions and other factors existing at
the time of such Cash Order, all creations and redemptions pursuant
to Cash Orders are expected to be executed as Variable Fee Cash
Orders, and any price differential of Bitcoins between the trade
date and the settlement date will be borne solely by the Liquidity
Provider until such Bitcoins have been received by the Trust.
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Alternatively, the Sponsor may require that a Cash Order be
effected as an Actual Execution Cash Order, in its sole discretion
based on market conditions and other factors existing at the time of
such Cash Order, and under such circumstances, any price differential
of Bitcoins between the trade date and the settlement date will be
borne solely by the Authorized Participant until such Bitcoins have
been received or liquidated by the Trust.
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 in connection
with Variable Fee Cash Orders. Under certain circumstances Authorized
Participants may also be required to deposit additional cash in the
Cash Account, or be entitled to receive excess cash from the Cash
Account, in connection with creations and redemptions pursuant to
Actual Execution Cash Orders. 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.
Before a creation order is placed, the Sponsor determines if such
creation order will be a Variable Fee Cash Order or an Actual Execution
Cash Order, which determination is communicated to the Authorized
Participant.
------------------------------------------------------------------------
Settlement date (T+1, or T+2,
Trade date (T) as established at the time of
order placement)
------------------------------------------------------------------------
The Authorized Participant The Authorized
places a creation order with the Participant delivers to the
Transfer Agent. Cash Account: *
The Marketing Agent accepts (x) in the case of a Variable
(or rejects) the creation order, which Fee Cash Order, the Total
is communicated to the Authorized Basket NAV, plus any Variable
Participant by the Transfer Agent. Fee; or
The Sponsor notifies the (y) in the case of an Actual
Liquidity Provider of the creation Execution Cash Order, the
order. Total Basket NAV, plus any
The Sponsor determines the Additional Creation Cash, less
Total Basket NAV and any Variable Fee any Excess Creation Cash, if
and Additional Creation Cash as soon applicable (such amount, as
as practicable after 4:00 p.m., New applicable, the ``Required
York time. Creation Cash'').
The Liquidity Provider
transfers the Total Basket
Amount to the Trust's Digital
Asset Account.
Once the Trust is in
simultaneous possession of (x)
the Total Basket Amount and
(y) the Required Creation
Cash, the Trust issues the
aggregate number of Shares
corresponding to the Baskets
ordered by the Authorized
Participant, which the
Transfer Agent holds for the
benefit of the Authorized
Participant.
Cash equal to the
Required Creation Cash 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.
------------------------------------------------------------------------
* The ``Cash Account'' means the account maintained by the Transfer
Agent 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 49941]]
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. Before a redemption order is placed, the Sponsor determines if
such redemption order will be a Variable Fee Cash Order or an Actual
Execution Cash Order, which determination is communicated to the
Authorized Participant.
------------------------------------------------------------------------
Settlement date (T+1 (or T+2 on
Trade date (T) case-by-case basis, as approved
by Sponsor))
------------------------------------------------------------------------
The Authorized Participant The Authorized
places a redemption order with the Participant delivers Baskets
Transfer Agent. to be redeemed from its DTC
The Marketing Agent accepts account to the Transfer Agent.
(or rejects) the redemption order, The Liquidity Provider
which is communicated to the delivers to the Cash Account:
Authorized Participant by the Transfer (x) in the case of a Variable
Agent. Fee Cash Order, the Total
The Sponsor notifies the Basket NAV less any Variable
Liquidity Provider of the redemption Fee; or
order. (y) in the case of an Actual
The Sponsor determines the Execution Cash Order, the
Total Basket NAV and, in the case of a actual proceeds to the Trust
Variable Fee Cash Order, any Variable from the liquidation of the
Fee, as soon as practicable after 4:00 Total Basket Amount (such
p.m., New York time. amount, as applicable, the
``Required Redemption Cash'').
Once the Trust is in
simultaneous possession of (x)
the Total Basket Amount and
(y) the Required Redemption
Cash, the Transfer Agent
cancels the Shares comprising
the number of Baskets redeemed
by the Authorized Participant.
The Custodian sends
the Liquidity Provider the
Total Basket Amount, and cash
equal to the Required
Redemption Cash 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.\31\ 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.
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\31\ 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 \32\ 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.
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\32\ 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.).\33\ 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.
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\33\ 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.
[[Page 49942]]
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 (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 \34\
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.
---------------------------------------------------------------------------
\34\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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.\35\ 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.
---------------------------------------------------------------------------
\35\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
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.\36\ 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.
---------------------------------------------------------------------------
\36\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares and Bitcoin
derivatives from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and
Bitcoin derivatives from markets and other entities that are members of
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement
[[Page 49943]]
(``CSSA'').\37\ The Exchange is also able to obtain information
regarding trading in the Shares and any underlying Bitcoin, Bitcoin
futures contracts, options on Bitcoin futures, or any other Bitcoin
derivative in connection with ETP Holders' proprietary trades, or
customer trades effected through ETP Holders on any relevant market.
---------------------------------------------------------------------------
\37\ 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.
---------------------------------------------------------------------------
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 any
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 and that subsidiary or affiliate is a
member of another regulatory organization, the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through a surveillance sharing agreement with that regulatory
organization.
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
Registration Statement. 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 CME Bitcoin futures contracts and options on CME
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) \38\ 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.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 and Bitcoin derivatives from such
markets. In addition, the Exchange may obtain information regarding
trading in the Shares and Bitcoin derivatives 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 trades which they effect on any relevant market.
The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because the Trust is structured
similarly to and will operate in materially the same manner as the
Bitcoin ETPs previously approved by the Commission. The Exchange
further believes that the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices because, as noted by the
Commission in the Bitcoin ETP Approval Order, 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.
In particular, the CME Bitcoin futures market is 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
[[Page 49944]]
assist in detecting and deterring potential fraud or manipulation.
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.
GBTC 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, 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 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, 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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEARCA-2024-45 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-2024-45. 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
[[Page 49945]]
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-2024-45 and should be submitted
on or before July 3, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-12793 Filed 6-11-24; 8:45 am]
BILLING CODE 8011-01-P
