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and execution quality for retail Paper Comments SECURITIES AND EXCHANGE customers. • COMMISSION The Exchange does not believe that Send paper comments in triplicate the proposed rule change will impose to Secretary, Securities and Exchange [Release No. 34–91521; File No. SR– any burden on intermarket competition Commission, 100 F Street NE, CboeBZX–2021–024] Washington, DC 20549–1090. since competing venues have and can Self-Regulatory Organizations; Cboe continue to adopt similar retail All submissions should refer to File BZX Exchange, Inc.; Notice of Filing of programs, subject to the SEC rule Number SR–IEX–2021–06. This file a Proposed Rule Change to List and change process. The Exchange operates number should be included on the Trade Shares of the WisdomTree in a highly competitive market in which subject line if email is used. To help the Bitcoin Trust Under BZX Rule market participants can easily direct Commission process and review your 14.11(e)(4), Commodity-Based Trust their orders to competing venues, Shares including off-exchange venues. comments more efficiently, please use The Exchange also does not believe only one method. The Commission will April 9, 2021. post all comments on the Commission’s that the proposed rule change will Pursuant to Section 19(b)(1) of the impose any burden on intramarket internet website (http://www.sec.gov/ Securities Exchange Act of 1934 (the competition that is not necessary or rules/sro.shtml). Copies of the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 appropriate in furtherance of the submission, all subsequent notice is hereby given that on March 26, purposes of the Act. While orders amendments, all written statements 2021, Cboe BZX Exchange, Inc. (the submitted by some Members will be with respect to the proposed rule ‘‘Exchange’’ or ‘‘BZX’’) filed with the treated differently, as described in the change that are filed with the Securities and Exchange Commission Purpose section, those differences are Commission, and all written (the ‘‘Commission’’) the proposed rule not based on the type of Member communications relating to the change as described in Items I, II, and entering orders but on whether the order proposed rule change between the III below, which Items have been is for a retail customer, and there is no Commission and any person, other than prepared by the Exchange. The restriction on whether a Member can those that may be withheld from the Commission is publishing this notice to handle retail customer orders. Further, public in accordance with the solicit comments on the proposed rule any Member can enter an RLP order. provisions of 5 U.S.C. 552, will be change from interested persons. C. Self-Regulatory Organization’s available for website viewing and I. Self-Regulatory Organization’s Statement on Comments on the printing in the Commission’s Public Statement of the Terms of Substance of Proposed Rule Change Received From Reference Room, 100 F Street NE, the Proposed Rule Change Members, Participants, or Others Washington, DC 20549 on official The Exchange rule change to list and Written comments were neither business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the trade shares of the WisdomTree Bitcoin solicited nor received. 3 filing also will be available for Trust (the ‘‘Trust’’), under BZX Rule 14.11(e)(4), Commodity-Based Trust III. Date of Effectiveness of the inspection and copying at the principal Shares. The shares of the Trust are Proposed Rule Change and Timing for office of the Exchange. All comments Commission Action referred to herein as the ‘‘Shares.’’ received will be posted without change. The text of the proposed rule change Within 45 days of the date of Persons submitting comments are is also available on the Exchange’s publication of this notice in the Federal cautioned that we do not redact or edit website (http://markets.cboe.com/us/ Register or within such longer period personal identifying information from equities/regulation/rule_filings/bzx/), at up to 90 days (i) as the Commission may comment submissions. You should the Exchange’s Office of the Secretary, designate if it finds such longer period submit only information that you wish and at the Commission’s Public to be appropriate and publishes its to make available publicly. All Reference Room. reasons for so finding or (ii) as to which submissions should refer to File the Exchange consents, the Commission Number SR–IEX–2021–06 and should II. Self-Regulatory Organization’s will: (a) By order approve or disapprove be submitted on or before May 6, 2021. Statement of the Purpose of, and such proposed rule change, or (b) Statutory Basis for, the Proposed Rule institute proceedings to determine For the Commission, by the Division of Change whether the proposed rule change Trading and Markets, pursuant to delegated authority.53 In its filing with the Commission, the should be disapproved. Exchange included statements J. Matthew DeLesDernier, IV. Solicitation of Comments concerning the purpose of and basis for Assistant Secretary. the proposed rule change and discussed Interested persons are invited to [FR Doc. 2021–07676 Filed 4–14–21; 8:45 am] any comments it received on the submit written data, views, and BILLING CODE 8011–01–P proposed rule change. The text of these arguments concerning the foregoing, statements may be examined at the including whether the proposed rule places specified in Item IV below. The change is consistent with the Act. Exchange has prepared summaries, set Comments may be submitted by any of forth in sections A, B, and C below, of the following methods: the most significant aspects of such Electronic Comments statements. • Use the Commission’s internet comment form (http://www.sec.gov/ 1 15 U.S.C. 78s(b)(1). rules/sro.shtml); or 2 17 CFR 240.19b–4. • 3 The Trust was formed as a Delaware statutory Send an email to rule-comments@ trust on March 8, 2021 and is operated as a grantor sec.gov. Please include File Number SR– trust for U.S. federal tax purposes. The Trust has IEX–2021–06 on the subject line. 53 17 CFR 200.30–3(a)(12). no fixed termination date.

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A. Self-Regulatory Organization’s submitted by the Exchange on June 30, companies. In January 2018, the Staff of Statement of the Purpose of, and 2016.8 At that time, blockchain the Commission noted in a letter to the Statutory Basis for, the Proposed Rule technology, and digital assets that Investment Company Institute and Change utilized it, were relatively new to the SIFMA that it was not aware, at that broader public. The market cap of all time, of a single custodian providing 1. Purpose bitcoin in existence at that time was fund custodial services for digital The Exchange proposes to list and approximately $10 billion. No registered assets.13 trade the Shares under BZX Rule offering of digital asset securities or Fast forward to the first quarter of 14.11(e)(4),4 which governs the listing shares in an investment vehicle with 2021 and the digital assets financial and trading of Commodity-Based Trust exposure to bitcoin or any other ecosystem, including bitcoin, has Shares on the Exchange.5 WisdomTree cryptocurrency had yet been conducted, progressed significantly. The Digital Commodity Services, LLC is the and the regulated infrastructure for development of a regulated market for sponsor of the Trust (the ‘‘Sponsor’’). conducting a digital asset securities digital asset securities has significantly The Shares will be registered with the offering had not begun to develop.9 evolved, with market participants Commission by means of the Trust’s Similarly, regulated U.S. bitcoin futures having conducted registered public registration statement on Form S–1 (the contracts did not exist. The Commodity offerings of both digital asset ‘‘Registration Statement’’).6 Futures Trading Commission (the securities 14 and shares in investment 15 Background ‘‘CFTC’’) had determined that bitcoin is vehicles holding bitcoin futures. a commodity,10 but had not engaged in Additionally, licensed and regulated Bitcoin is a digital asset based on the significant enforcement actions in the service providers have emerged to decentralized, open source protocol of space. The New York Department of provide fund custodial services for the peer-to-peer computer network Financial Services (‘‘NYDFS’’) adopted digital assets, among other services. For launched in 2009 that governs the its final BitLicense regulatory example, in December 2020, the creation, movement, and ownership of framework in 2015, but had only Commission adopted a conditional no- bitcoin and hosts the public ledger, or approved four entities to engage in action position permitting certain ‘‘blockchain,’’ on which all bitcoin activities relating to virtual currencies special purpose broker-dealers to transactions are recorded (the ‘‘Bitcoin (whether through granting a BitLicense custody digital asset securities under Network’’ or ‘‘Bitcoin’’). The or a limited-purpose trust charter) as of Rule 15c3–3 under the Exchange Act; 16 decentralized nature of the Bitcoin June 30, 2016.11 While the first over-the- in September 2020, the Staff of the Network allows parties to transact counter bitcoin fund launched in 2013, Commission released a no-action letter directly with one another based on public trading was limited and the fund permitting certain broker-dealers to cryptographic proof instead of relying had only $60 million in assets.12 There operate a non-custodial Alternative on a trusted third party. The protocol were very few, if any, traditional Trading System (‘‘ATS’’) for digital asset also lays out the rate of issuance of new financial institutions engaged in the securities, subject to specified bitcoin within the Bitcoin Network, a space, whether through investment or conditions; 17 in October 2019, the Staff rate that is reduced by half providing services to digital asset of the Commission granted temporary approximately every four years with an relief from the clearing agency eventual hard cap of 21 million. It’s 8 See Securities Exchange Act Release No. 83723 registration requirement to an entity generally understood that the (July 26, 2018), 83 FR 37579 (August 1, 2018). This seeking to establish a securities combination of these two features—a proposal was subsequently disapproved by the clearance and settlement system based systemic hard cap of 21 million bitcoin Commission. See Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 37579 (August 1, and the ability to transact trustlessly 2018) (the ‘‘Winklevoss Order’’). 13 See letter from Dalia Blass, Director, Division with anyone connected to the Bitcoin 9 Digital assets that are securities under U.S. law of Investment Management, U.S. Securities and Network—gives bitcoin its value.7 are referred to throughout this proposal as ‘‘digital Exchange Commission to Paul Schott Stevens, The first rule filing proposing to list asset securities.’’ All other digital assets, including President & CEO, Investment Company Institute an exchange-traded product to provide bitcoin, are referred to interchangeably as and Timothy W. Cameron, Asset Management ‘‘cryptocurrencies’’ or ‘‘virtual currencies.’’ The Group—Head, Securities Industry and Financial exposure to bitcoin in the U.S. was term ‘‘digital assets’’ refers to all digital assets, Markets Association (January 18, 2018), available at including both digital asset securities and https://www.sec.gov/divisions/investment/ 4 The Commission approved BZX Rule 14.11(e)(4) cryptocurrencies, together. noaction/2018/cryptocurrency-011818.htm. in Securities Exchange Act Release No. 65225 10 See ‘‘In the Matter of Coinflip, Inc.’’ 14 See Prospectus supplement filed pursuant to (August 30, 2011), 76 FR 55148 (September 6, 2011) (‘‘Coinflip’’) (CFTC Docket 15–29 (September 17, Rule 424(b)(1) for INX Tokens (Registration No. (SR–BATS–2011–018). 2015)) (order instituting proceedings pursuant to 333–233363), available at: https://www.sec.gov/ 5 All statements and representations made in this Sections 6(c) and 6(d) of the CEA, making findings Archives/edgar/data/1725882/ _ filing regarding (a) the description of the portfolio, and imposing remedial sanctions), in which the 000121390020023202/ea125858-424b1 (b) limitations on portfolio holdings or reference CFTC stated: inxlimited.htm. assets, or (c) the applicability of Exchange rules and ‘‘Section 1a(9) of the CEA defines ‘commodity’ to 15 See Prospectus filed by Stone Ridge Trust VI surveillance procedures shall constitute continued include, among other things, ‘all services, rights, on behalf of NYDIG Bitcoin Strategy Fund listing requirements for listing the Shares on the and interests in which contracts for future delivery Registration, available at: https://www.sec.gov/ Exchange. are presently or in the future dealt in.’ 7 U.S.C. Archives/edgar/data/1764894/ 6 The Trust has filed a registration statement on 1a(9). The definition of a ‘commodity’ is broad. See, 000119312519309942/d693146d497.htm. Form S–1 under the Securities Act of 1933, dated e.g., Board of Trade of City of Chicago v. SEC, 677 16 See Securities Exchange Act Release No. 90788, March 9, 2021 (File No. 333–254134) (‘‘Registration F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other 86 FR 11627 (February 26, 2021) (File Number S7– Statement’’). The description of the Trust and the virtual currencies are encompassed in the definition 25–20) (Custody of Digital Asset Securities by Shares contained herein are based on the and properly defined as commodities.’’ Special Purpose Broker-Dealers). Registration Statement. The Registration Statement 11 A list of virtual currency businesses that are 17 See letter from Elizabeth Baird, Deputy for the Trust is not yet effective and the Shares will entities regulated by the NYDFS is available on the Director, Division of Trading and Markets, U.S. not trade on the Exchange until such time that the NYDFS website. See https://www.dfs.ny.gov/apps_ Securities and Exchange Commission to Kris Registration Statement is effective. and_licensing/virtual_currency_businesses/ Dailey, Vice President, Risk Oversight & 7 For additional information about bitcoin and the regulated_entities. Operational Regulation, Financial Industry Bitcoin Network, see https://bitcoin.org/en/getting- 12 Data as of March 31, 2016 according to publicly Regulatory Authority (September 25, 2020), started; https://www.fidelitydigitalassets.com/ available filings. See Bitcoin Investment Trust Form available at: https://www.sec.gov/divisions/ articles/addressing-bitcoin-criticisms; and https:// S–1, dated May 27, 2016, available: https:// marketreg/mr-noaction/2020/finra-ats-role-in- www.vaneck.com/education/investment-ideas/ www.sec.gov/Archives/edgar/data/1588489/ settlement-of-digital-asset-security-trades- investing-in-bitcoin-and-digital-assets/. 000095012316017801/filename1.htm. 09252020.pdf.

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on distributed ledger technology,18 and assets.22 The OCC recently granted managers,29 university endowments,30 multiple transfer agents who provide conditional approval of two charter pension funds,31 and even historically services for digital asset securities conversions by state-chartered trust bitcoin skeptical fund managers 32 are registered with the Commission.19 companies to national banks, both of allocating to bitcoin. The largest over- Outside the Commission’s purview, which provide cryptocurrency custody the-counter bitcoin fund previously the regulatory landscape has changed services.23 NYDFS has granted no fewer filed a Form 10 registration statement, significantly since 2016, and than twenty-five BitLicenses, including which the Staff of the Commission cryptocurrency markets have grown and to established public payment reviewed and which took effect evolved as well. The market for bitcoin companies like PayPal Holdings, Inc. automatically, and is now a reporting is approximately 100 times larger, and Square, Inc., and limited purpose company.33 Established companies like having recently reached a market cap of trust charters to entities providing Tesla, Inc.,34 MicroStrategy over $1 trillion. As of February 27, 2021, cryptocurrency custody services, Incorporated,35 and Square, Inc.,36 bitcoin’s market cap is greater than including the custodian of the Trust (the among others, have recently announced companies such as Facebook, Inc., ‘‘Bitcoin Custodian’’).24 The U.S. substantial investments in bitcoin in Berkshire Hathaway Inc., and JP Morgan Treasury Financial Crimes Enforcement amounts as large as $1.5 billion (Tesla) Chase & Co. CFTC regulated bitcoin Network (‘‘FinCEN’’) has released and $425 million (MicroStrategy). futures represented approximately $28 extensive guidance regarding the Suffice to say, bitcoin is on its way to billion in notional trading volume on applicability of the Bank Secrecy Act gaining mainstream usage. Chicago Mercantile Exchange (‘‘CME’’) (‘‘BSA’’) and implementing regulations Despite these developments, access (‘‘Bitcoin Futures’’) in December 2020 to virtual currency businesses,25 and has for U.S. retail investors to gain exposure compared to $737 million, $1.4 billion, proposed rules imposing requirements to bitcoin via a transparent and and $3.9 billion in total trading in on entities subject to the BSA that are December 2017, December 2018, and specific to the technological context of announces minority stake purchase by virtual currencies.26 In addition, the MassMutual’’ (December 10, 2020) available at: December 2019, respectively. Bitcoin https://www.massmutual.com/about-us/news-and- Futures traded over $1.2 billion per day Treasury’s Office of Foreign Assets press-releases/press-releases/2020/12/institutional- in December 2020 and represented $1.6 Control (‘‘OFAC’’) has brought bitcoin-provider-nydig-announces-minority-stake- billion in open interest compared to enforcement actions over apparent purchase-by-massmutual. violations of the sanctions laws in 29 See e.g., ‘‘BlackRock’s Rick Rieder says the $115 million in December 2019, which world’s largest asset manager has ‘started to dabble’ the Exchange believes represents a connection with the provision of wallet in bitcoin’’ (February 17, 2021) available at: https:// 27 regulated market of significant size, as management services for digital assets. www.cnbc.com/2021/02/17/blackrock-has-started- further discussed below.20 The CFTC In addition to the regulatory to-dabble-in-bitcoin-says-rick-rieder.html and ‘‘Guggenheim’s Scott Minerd Says Bitcoin Should has exercised its regulatory jurisdiction developments laid out above, more traditional financial market participants Be Worth $400,000’’ (December 16, 2020) available in bringing a number of enforcement at: https://www.bloomberg.com/news/articles/2020- appear to be embracing cryptocurrency: 12-16/guggenheim-s-scott-minerd-says-bitcoin- actions related to bitcoin and against 28 trading platforms that offer Large insurance companies, asset should-be-worth-400-000. 30 cryptocurrency trading.21 The U.S. See e.g., ‘‘Harvard and Yale Endowments 22 See OCC News Release 2021–2 (January 4, Among Those Reportedly Buying Crypto’’ (January Office of the Comptroller of the 2021) available at: https://www.occ.gov/news- 25, 2021) available at: https://www.bloomberg.com/ Currency (the ‘‘OCC’’) has made clear issuances/news-releases/2021/nr-occ-2021-2.html. news/articles/2021-01-26/harvard-and-yale- that federally-chartered banks are able 23 See OCC News Release 2021–6 (January 13, endowments-among-those-reportedly-buying- to provide custody services for 2021) available at: https://www.occ.gov/news- crypto. issuances/news-releases/2021/nr-occ-2021-6.html 31 See e.g., ‘‘Virginia Police Department Reveals cryptocurrencies and other digital and OCC News Release 2021–19 (February 5, 2021) Why its Pension Fund is Betting on Bitcoin’’ available at: https://www.occ.gov/news-issuances/ (February 14, 2019) available at: https:// 18 See letter from Jeffrey S. Mooney, Associate news-releases/2021/nr-occ-2021-19.html. finance.yahoo.com/news/virginia-police- Director, Division of Trading and Markets, U.S. 24 The Exchange notes that the Sponsor is department-reveals-why-194558505.html. Securities and Exchange Commission to Charles G. finalizing negotiations with the Bitcoin Custodian 32 See e.g., ‘‘Bridgewater: Our Thoughts on Cascarilla & Daniel M. Burstein, Paxos Trust and it will submit an amendment to this proposal Bitcoin’’ (January 28, 2021) available at: https:// Company, LLC (October 28, 2019), available at: upon execution of an agreement with the Bitcoin www.bridgewater.com/research-and-insights/our- https://www.sec.gov/divisions/marketreg/mr- Custodian. thoughts-on-bitcoin and ‘‘Paul Tudor Jones says he noaction/2019/paxos-trust-company-102819- 25 See FinCEN Guidance FIN–2019–G001 (May 9, likes bitcoin even more now, rally still in the ‘first 17a.pdf. 2019) (Application of FinCEN’s Regulations to inning’’’ (October 22, 2020) available at: https:// 19 See, e.g., Form TA–1/A filed by Tokensoft Certain Business Models Involving Convertible www.cnbc.com/2020/10/22/-paul-tudor-jones-says- Transfer Agent LLC (CIK: 0001794142) on January Virtual Currencies) available at: https:// he-likes-bitcoin-even-more-now-rally-still-in-the- 8, 2021, available at: https://www.sec.gov/Archives/ www.fincen.gov/sites/default/files/2019-05/FinCEN first-inning.html. edgar/data/1794142/000179414219000001/ %20Guidance%20CVC%20FINAL%20508.pdf. 33 See Letter from Division of Corporation xslFTA1X01/primary_doc.xml. 26 See U.S. Department of the Treasury Press Finance, Office of Real Estate & Construction to 20 All statistics and charts included in this Release: ‘‘The Financial Crimes Enforcement Barry E. Silbert, Chief Executive Officer, Grayscale proposal are sourced from https:// Network Proposes Rule Aimed at Closing Anti- Bitcoin Trust (January 31, 2020) https:// www.cmegroup.com/trading/bitcoin-futures.html. Money Laundering Regulatory Gaps for Certain www.sec.gov/Archives/edgar/data/1588489/ 21 The CFTC’s annual report for Fiscal Year 2020 Convertible Virtual Currency and Digital Asset 000000000020000953/filename1.pdf. (which ended on September 30, 2020) noted that Transactions’’ (December 18, 2020), available at: 34 See Form 10–K submitted by Tesla, Inc. for the the CFTC ‘‘continued to aggressively prosecute https://home.treasury.gov/news/press-releases/ fiscal year ended December 31, 2020 at 23: https:// misconduct involving digital assets that fit within sm1216. www.sec.gov/ix?doc=/Archives/edgar/data/ _ the CEA’s definition of commodity’’ and ‘‘brought 27 See U.S. Department of the Treasury 1318605/000156459021004599/tsla-10k a record setting seven cases involving digital Enforcement Release: ‘‘OFAC Enters Into $98,830 20201231.htm. assets.’’ See CFTC FY2020 Division of Enforcement Settlement with BitGo, Inc. for Apparent Violations 35 See Form 10–Q submitted by MicroStrategy Annual Report, available at: https://www.cftc.gov/ of Multiple Sanctions Programs Related to Digital Incorporated for the quarterly period ended media/5321/DOE_FY2020_AnnualReport_120120/ Currency Transactions’’ (December 30, 2020) September 30, 2020 at 8: https://www.sec.gov/ download. Additionally, the CFTC filed on October available at: https://home.treasury.gov/system/files/ ix?doc=/Archives/edgar/data/1050446/ 1, 2020, a civil enforcement action against the 126/20201230_bitgo.pdf. 000156459020047995/mstr-10q_20200930.htm. owner/operators of the BitMEX trading platform, 28 On December 10, 2020, Massachusetts Mutual 36 See Form 10–Q submitted by Square, Inc. for which was one of the largest bitcoin derivative Life Insurance Company (MassMutual) announced the quarterly period ended September 30, 2020 at exchanges. See CFTC Release No. 8270–20 (October that it had purchased $100 million in bitcoin for its 51: https://www.sec.gov/ix?doc=/Archives/edgar/ 1, 2020) available at: https://www.cftc.gov/ general investment account. See MassMutual Press data/1512673/000151267320000012/sq- PressRoom/PressReleases/8270-20. Release ‘‘Institutional Bitcoin provider NYDIG 20200930.htm.

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regulated exchange-traded vehicle that could potentially be eliminated significant and quantifiable investor remains limited. As investors and through access to a bitcoin ETP. The protection issues, as further described advisors increasingly utilize ETPs to Exchange understands the below. In fact, the largest OTC Bitcoin manage diversified portfolios (including Commission’s previous focus on Fund has grown to $35.0 billion in equities, fixed income securities, potential manipulation of a bitcoin ETP AUM 41 and has historically traded at a commodities, and currencies) quickly, in prior disapproval orders, but now premium of between roughly five and easily, relatively inexpensively, and believes that such concerns have been forty percent, though it has seen without having to hold directly any of sufficiently mitigated and that the premiums at times above one hundred the underlying assets, options for growing and quantifiable investor percent.42 Recently, however, it has bitcoin exposure for U.S. investors protection concerns should be the traded at a discount. As of March 24, remain limited to: (i) Investing in over- central consideration as the Commission 2021, the discount was approximately the-counter bitcoin funds (‘‘OTC Bitcoin reviews this proposal. As such, the 14%,43 representing around $4.9 billion Funds’’) that are subject to high Exchange believes that approving this in market value less than the bitcoin premium/discount volatility (and high proposal (and comparable proposals actually held by the fund. If premium/ management fees) to the advantage of submitted hereafter) provides the discount numbers move back to the more sophisticated investors that are Commission with the opportunity to middle of its historical range to a 20% able to create and redeem shares at net allow U.S. investors with access to premium (which historically could asset value (‘‘NAV’’) directly with the bitcoin in a regulated and transparent occur at any time and overnight), it issuing trust; (ii) facing the technical exchange-traded vehicle that would act would represent a swing of risk, complexity and generally high fees to limit risk to U.S. investors by: (i) approximately $11.9 billion in value associated with buying spot bitcoin; or Reducing premium and discount unrelated to the value of bitcoin held by (iii) purchasing shares of operating volatility; (ii) reducing management fees the fund and if the premium returns to companies that they believe will through meaningful competition; (iii) the upper end of its typical range, that provide proxy exposure to bitcoin with reducing risks associated with investing number increases to $18.9 billion. These limited disclosure about the associated in operating companies that are numbers are only associated with a risks. Meanwhile, investors in many imperfect proxies for bitcoin exposure; single OTC Bitcoin Fund—as more and other countries, including Canada,37 are and (iv) providing an alternative to more OTC Bitcoin Funds come to able to use more traditional exchange custodying spot bitcoin. market and more investor assets flood listed and traded products to gain into them to get access to bitcoin (i) OTC Bitcoin Funds and Premium/ exposure to bitcoin, disadvantaging U.S. exposure, the potential dollars at risk Discount Volatility investors and leaving them with riskier will only increase. and more expensive means of getting OTC Bitcoin Funds are generally This raises significant investor bitcoin exposure.38 designed to provide exposure to bitcoin protection issues in several ways. First, in a manner similar to the Shares. the most obvious issue is that investors OTC Bitcoin Funds and Investor However, unlike the Shares, OTC are buying shares of a fund for a price Protection Bitcoin Funds are unable to freely offer that is not reflective of the per share Over the past year, U.S. investor creation and redemption in a way that value of the fund’s underlying assets. exposure to bitcoin through OTC incentivizes market participants to keep Even operating within the normal Bitcoin Funds has grown into the tens their shares trading in line with their premium range, it’s possible for an of billions of dollars. With that growth, NAV 39 and, as such, frequently trade at investor to buy shares of an OTC Bitcoin so too has grown the potential risk to a price that is out of line with the value Fund only to have those shares quickly U.S. investors. As described below, of their assets held. Historically, OTC lose 10% or more in dollar value premium and discount volatility, high Bitcoin Funds have traded at a excluding any movement of the price of fees, insufficient disclosures, and significant premium to NAV.40 bitcoin. That is to say—the price of technical hurdles are putting U.S. Trading at a premium or a discount is bitcoin could have stayed exactly the investor money at risk on a daily basis not unique to OTC Bitcoin Funds and is same from market close on one day to not in itself problematic, but the size of market open the next, yet the value of 37 The Exchange notes that the Purpose Bitcoin such premiums/discounts and volatility the shares held by the investor ETF, a retail physical bitcoin ETP recently launched thereof highlight the key differences in decreased only because of the in Canada, reportedly reached $421.8 million in assets under management (‘‘AUM’’) in two days, operations and market structure of OTC fluctuation of the premium/discount. As demonstrating the demand for a North American Bitcoin Funds as compared to ETPs. market listed bitcoin exchange-traded product This, combined with the significant 41 As of February 19, 2021. Compare to an AUM (‘‘ETP’’). The Purpose Bitcoin ETF also offers a class increase in AUM for OTC Bitcoin Funds of approximately $2.6 billion on February 26, 2020, of units that is U.S. dollar denominated, which over the past year, has given rise to the date on which the Commission issued the most could appeal to U.S. investors. Without an recent disapproval order for a bitcoin ETP. See approved bitcoin ETP in the U.S. as a viable Securities Exchange Act Release No. 88284 alternative, U.S. investors could seek to purchase 39 Because OTC Bitcoin Funds are not listed on (February 26, 2020), 85 FR 12595 (March 3, 2020) these shares in order to get access to bitcoin an exchange, they are also not subject to the same (SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix exposure. Given the separate regulatory regime and transparency and regulatory oversight by a listing Disapproval’’). While the price of one bitcoin has the potential difficulties associated with any exchange as the Shares would be. In the case of the increased approximately 400% in the intervening international litigation, such an arrangement would Trust, the existence of a surveillance-sharing period, the total AUM has increased by create more risk exposure for U.S. investors than agreement between the Exchange and the Bitcoin approximately 1240%, indicating that the increase they would otherwise have with a U.S. exchange Futures market results in increased investor in AUM was created beyond just price appreciation listed ETP. protections compared to OTC Bitcoin Funds. in bitcoin. 38 The Exchange notes that securities regulators in 40 The inability to trade in line with NAV may at 42 See ‘‘Traders Piling Into Overvalued Crypto a number of other countries have either approved some point result in OTC Bitcoin Funds trading at Funds Risk a Painful Exit’’ (February 4, 2021) or otherwise allowed the listing and trading of a discount to their NAV, which has occurred more available at: https://www.bloomberg.com/news/ bitcoin ETPs. Specifically, these funds include the recently with respect to one prominent OTC Bitcoin articles/2021-02-04/bitcoin-one-big-risk-when- Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors Fund. While that has not historically been the case, investing-in-crypto-funds. Bitcoin ETN, WisdomTree Bitcoin ETP, Bitcoin and it is not clear whether such discounts will 43 This is compared to another OTC Bitcoin Tracker One, BTCetc bitcoin ETP, Amun Bitcoin continue, such a prolonged, significant discount Product which had a premium of over 60% on the ETP, Amun Bitcoin Suisse ETP, 21Shares Short scenario would give rise to nearly identical same day, with a premium of over 200% a few days Bitcoin ETP, CoinShares Physical Bitcoin ETP. potential issues related to trading at a premium. earlier.

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more investment vehicles, including consideration as the Commission lose some or all of their bitcoin mutual funds and ETFs, seek to gain determines whether to approve this holdings. In the Bitcoin Custodian, the exposure to bitcoin, the easiest option proposal, particularly when the Trust as Trust has engaged a regulated and for a buy and hold strategy is often an a bitcoin ETP is designed to reduce the licensed entity highly experienced in OTC Bitcoin Fund, meaning that even likelihood of significant and prolonged bitcoin custody, with dedicated, trained investors that do not directly buy OTC premiums and discounts with its open- employees and procedures to manage Bitcoin Funds can be disadvantaged by ended nature as well as the ability of the private keys to the Trust’s bitcoin, extreme premiums (or discounts) and market participants (i.e., market makers and which is accountable for failures. In premium volatility. and authorized participants) to create addition, retail investors will be able to The second issue is related to the first and redeem on a daily basis. hold the Shares in traditional brokerage and explains how the premium in OTC accounts which provide SIPC protection (ii) Spot and Proxy Exposure Bitcoin Funds essentially creates a if a brokerage firm fails. Thus, with direct payment from retail investors to Exposure to bitcoin through an ETP respect to custody of the Trust’s bitcoin more sophisticated investors. Generally also presents certain advantages for assets, the Trust presents advantages speaking, only accredited investors are retail investors compared to buying spot from an investment protection able to create or redeem shares with the bitcoin directly. The most notable standpoint for retail investors compared issuing trust, which means that they are advantage is the use of the Bitcoin to owning spot bitcoin directly. able to buy or sell shares directly with Custodian to custody the Trust’s bitcoin Finally, as described in the the trust at NAV (in exchange for either assets. The Sponsor has carefully Background section above, recently a cash or bitcoin) without having to pay selected the Bitcoin Custodian, a third- number of operating companies engaged the premium or sell into the discount. party custodian that carries insurance in unrelated businesses—such as Tesla While there are often minimum holding covering both hot and cold storage and (a car manufacturer) and MicroStrategy periods for shares, an investor that is is chartered as a trust company under (an enterprise software company)—have 47 allowed to interact directly with the the New York Banking Law, due to its announced investments as large as $1.5 trust is able to hedge their bitcoin manner of holding the Trust’s bitcoin. billion in bitcoin.49 Without access to exposure as needed to satisfy the This includes, among others, the use of bitcoin exchange-traded products, retail holding requirements and collect on the ‘‘cold’’ (offline) storage to hold private investors seeking investment exposure premium or discount opportunity. keys and the employment by the Bitcoin to bitcoin may end up purchasing shares As noted above, the existence of a Custodian of a certain degree of in these companies in order to gain the premium or discount and the premium/ cybersecurity measures and operational exposure to bitcoin that they seek.50 In 48 discount collection opportunity is not best practices. By contrast, an fact, mainstream financial news unique to OTC Bitcoin Funds and does individual retail investor holding networks have written a number of not in itself warrant the approval of an bitcoin through a cryptocurrency articles providing investors with exchange traded product.44 What makes exchange lacks these protections. guidance for obtaining bitcoin exposure this situation unique is that such Typically, retail exchanges hold most, if through publicly traded companies significant and persistent premiums and not all, retail investors’ bitcoin in ‘‘hot’’ (such as MicroStrategy, Tesla, and discounts can exist in a product with (internet-connected) storage and do not bitcoin mining companies, among $35 billion in assets under make any commitments to indemnify others) instead of dealing with the management,45 that billions of retail retail investors or to observe any complications associated with buying investor dollars are constantly under particular cybersecurity standard. spot bitcoin in the absence of a bitcoin 51 threat of premium/discount volatility,46 Meanwhile, a retail investor holding ETP. Such operating companies, and that premium/discount volatility is spot bitcoin directly in a self-hosted however, are imperfect bitcoin proxies generally captured by more wallet may suffer from inexperience in and provide investors with partial sophisticated investors on a riskless private key management (e.g., bitcoin exposure paired with a host of insufficient password protection, lost basis. The Exchange understands the additional risks associated with key, etc.), which could cause them to Commission’s focus on potential whichever operating company they manipulation of a bitcoin ETP in prior decide to purchase. Additionally, the 47 New York state trust companies are subject to disapproval orders, but now believes disclosures provided by the rigorous oversight similar to other types of entities, aforementioned operating companies that current circumstances warrant that such as nationally chartered banking entities, that this direct, quantifiable investor hold customer assets. Like national banks, they 49 protection issue should be the central must obtain specific approval of their primary It’s been announced that MicroStrategy is regulator for the exercise of their fiduciary powers. currently contemplating a $600 million convertible Moreover, limited purpose trust companies engaged note offering for the purpose of acquiring bitcoin. 44 The Exchange notes, for example, that similar in the custody of digital assets are subject to even See: https://www.cnbc.com/2021/02/16/ premiums/discounts and premium/discount more stringent requirements than national banks microstrategy-shares-rise-after-revealing-plans-to- volatility exist for other non-bitcoin cryptocurrency which, following initial approval of trust powers, buy-more-bitcoin.html. related over-the-counter funds, but that the size and generally can exercise those powers broadly 50 In August 2017, the Commission’s Office of investor interest in those funds does not give rise without further approval of the OCC. In contrast, Investor Education and Advocacy warned investors to the same investor protection concerns that exist NYDFS requires in their approval orders that about situations where companies were publicly for OTC Bitcoin Funds. limited purpose trust companies obtain separate announcing events relating to digital coins or 45 At $35 billion in AUM, the largest OTC Bitcoin approval for all material changes in business. tokens in an effort to affect the price of the Fund would be the 32nd largest out of roughly 48 In addition to enforcing specific regulatory company’s publicly traded common stock. See 2,400 U.S. listed ETPs. reporting requirements, NYDFS consistently https://www.sec.gov/oiea/investor-alerts-and- 46 The Exchange notes that in two recent exercises its broad authority to examine trust bulletins/ia_icorelatedclaims. incidents, the premium dropped from 28.28% to companies for compliance with law, risk 51 See e.g., ‘‘7 public companies with exposure to 12.29% from the close on 3/19/20 to the close on management and general safety and soundness bitcoin’’ (February 8, 2021) available at: https:// 3/20/20 and from 38.40% to 21.05% from the close considerations, including to assess items such as finance.yahoo.com/news/7-public-companies-with- on 5/13/19 to the close on 5/14/19. Similarly, over the internal controls, client records and segregation exposure-to-bitcoin-154201525.html; and ‘‘Want to the period of 12/21/20 to 1/21/20, the premium of assets topics that are typically important to the get in the crypto trade without holding bitcoin went from 40.18% to 2.79%. While the price of ability of an entity to act as a qualified custodian. yourself? Here are some investing ideas’’ (February bitcoin appreciated significantly during this period In this regard, the Bitcoin Custodian is subject to 19, 2021) available at: https://www.cnbc.com/2021/ and NAV per share increased by 41.25%, the price annual examination, with specific attention to its 02/19/ways-to-invest-in-bitcoin-without-holding- per share increased by only 3.58%. internal controls and risk management systems. the-cryptocurrency-yourself-.html.

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with respect to risks relating to their protections that come from the year. For example, there was bitcoin holdings are generally securities registration process. approximately $28 billion in trading in Bitcoin Futures in December 2020 substantially smaller than the Bitcoin Futures registration statement of a bitcoin ETP, compared to $737 million, $1.4 billion, including the Registration Statement, CME began offering trading in Bitcoin and $3.9 billion in total trading in typically amounting to a few sentences Futures in 2017. Each contract December 2017, December 2018, and of narrative description and a handful of represents five bitcoin and is based on December 2019, respectively. Bitcoin risk factors.52 In other words, investors the CME CF Bitcoin Reference Rate.53 Futures traded over $1.2 billion per day seeking bitcoin exposure through The contracts trade and settle like other on the CME in December 2020 and publicly traded companies are gaining cash-settled commodity futures represented $1.6 billion in open interest only partial exposure to bitcoin and are contracts. Nearly every measurable compared to $115 million in December not fully benefitting from the risk metric related to Bitcoin Futures has 2019. This general upward trend in trended consistently up since launch trading volume and open interest is disclosures and associated investor and/or accelerated upward in the past captured in the following chart.

Similarly, the number of large open risen, as have the number of unique interest holders 54 has continued to accounts trading Bitcoin Futures. increase even as the price of bitcoin has

52 See, e.g., Tesla 10–K for the year ended window into a once-a-day reference rate of the U.S. indices/cf-bitcoin-reference-rate.html?redirect=/ December 31, 2020, which mentions bitcoin just dollar price of bitcoin. Calculation rules are geared trading/cf-bitcoin-reference-rate.html. nine times: https://www.sec.gov/ix?doc=/Archives/ toward maximum transparency and real-time 54 A large open interest holder in Bitcoin Futures edgar/data/1318605/000156459021004599/tsla- replicability in underlying spot markets, including is an entity that holds at least 25 contracts, which _ 10k 20201231.htm. Bitstamp, Coinbase, Gemini, itBit, and Kraken. For is the equivalent of 125 bitcoin. At a price of 53 According to CME, the CME CF Bitcoin additional information, refer to https:// approximately $30,000 per bitcoin on 12/31/20, Reference Rate aggregates the trade flow of major www.cmegroup.com/trading/cryptocurrency- more than 80 firms had outstanding positions of bitcoin spot exchanges during a specific calculation greater than $3.8 million in Bitcoin Futures.

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The Sponsor further believes that that bitcoin futures lead the bitcoin spot Section 6(b)(5) and the Applicable academic research corroborates the market in price formation.55 Standards overall trend outlined above and supports the thesis that the Bitcoin 55 See Hu, Y., Hou, Y. and Oxley, L. (2019). The Commission has approved ‘‘What role do futures markets play in Bitcoin numerous series of Trust Issued Futures pricing leads the spot market pricing? Causality, cointegration and price and, thus, a person attempting to discovery from a time-varying perspective’’ manipulate the Shares would also have (available at: https://www.ncbi.nlm.nih.gov/pmc/ articles/PMC7481826/). This academic research to trade on that market to manipulate markets dominate the dynamic price discovery paper concludes that ‘‘There exist no episodes the ETP. Specifically, the Sponsor where the Bitcoin spot markets dominates the price process based upon time-varying information share believes that such research indicates discovery processes with regard to Bitcoin futures. measures. Overall, price discovery seems to occur This points to a conclusion that the price formation in the Bitcoin futures markets rather than the originates solely in the Bitcoin futures market. We underlying spot market based upon a time-varying can, therefore, conclude that the Bitcoin futures perspective.’’

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Receipts,56 including Commodity-Based manipulation concerns to the point that size’’ standard is not the only means for Trust Shares,57 to be listed on U.S. the investor protection issues that have satisfying Section 6(b)(5) of the act, national securities exchanges. In order arisen from the rapid growth of over- specifically providing that a listing for any proposed rule change from an the-counter bitcoin funds since the exchange could demonstrate that ‘‘other exchange to be approved, the Commission last reviewed an exchange means to prevent fraudulent and Commission must determine that, proposal to list and trade a bitcoin ETP, manipulative acts and practices’’ are among other things, the proposal is including premium/discount volatility sufficient to justify dispensing with the consistent with the requirements of and management fees, should be the requisite surveillance-sharing Section 6(b)(5) of the Act, specifically central consideration as the Commission agreement.62 including: (i) The requirement that a determines whether to approve this (a) Manipulation of the ETP national securities exchange’s rules are proposal. designed to prevent fraudulent and The significant growth in Bitcoin (i) Designed To Prevent Fraudulent and manipulative acts and practices; 58 and Futures across each of trading volumes, Manipulative Acts and Practices (ii) the requirement that an exchange open interest, large open interest proposal be designed, in general, to In order to meet this standard in a holders, and total market participants protect investors and the public interest. proposal to list and trade a series of since the Wilshire Phoenix Disapproval The Exchange believes that this Commodity-Based Trust Shares, the was issued are reflective of that market’s proposal is consistent with the Commission requires that an exchange growing influence on the spot price, requirements of Section 6(b)(5) of the demonstrate that there is a which according to the academic Act and that it has sufficiently comprehensive surveillance-sharing research cited above, was already demonstrated that, on the whole, the agreement in place 59 with a regulated leading the spot price in 2018 and 2019. manipulation concerns previously market of significant size. Both the Where Bitcoin Futures lead the price in articulated by the Commission are Exchange and CME are members of the the spot market such that a potential sufficiently mitigated to the point that Intermarket Surveillance Group (the manipulator of the bitcoin spot market they are outweighed by quantifiable ‘‘ISG’’).60 The only remaining issue to be (beyond just the constituents of the investor protection issues that would be addressed is whether the Bitcoin Reference Rate 63) would have to resolved by approving this proposal. Futures market constitutes a market of participate in the Bitcoin Futures Specifically, the Exchange lays out significant size, which the Exchange market, it follows that a potential below why it believes that the believes that it does. The terms manipulator of the Shares would significant increase in trading volume in ‘‘significant market’’ and ‘‘market of similarly have to transact in the Bitcoin Bitcoin Futures, the growth of liquidity significant size’’ include a market (or Futures market because the Reference at the inside in the spot market for group of markets) as to which: (a) There Rate is based on spot prices. Further, the bitcoin, and certain features of the is a reasonable likelihood that a person Trust only allows for in-kind creation Shares and the Reference Rate (as attempting to manipulate the ETP and redemption, which, as further defined below) mitigate potential would also have to trade on that market described below, reduces the potential to manipulate the ETP, so that a for manipulation of the Shares through 56 See Exchange Rule 14.11(f). surveillance-sharing agreement would manipulation of the Reference Rate or 57 Commodity-Based Trust Shares, as described in assist the listing exchange in detecting any of its individual constituents, again Exchange Rule 14.11(e)(4), are a type of Trust and deterring misconduct; and (b) it is emphasizing that a potential Issued Receipt. unlikely that trading in the ETP would manipulator of the Shares would have 58 As the Exchange has stated in a number of be the predominant influence on prices to manipulate the entirety of the bitcoin other public documents, it continues to believe that 61 bitcoin is resistant to price manipulation and that in that market. spot market, which is led by the Bitcoin ‘‘other means to prevent fraudulent and The Commission has also recognized Futures market. As such, the Exchange manipulative acts and practices’’ exist to justify that the ‘‘regulated market of significant believes that part (a) of the significant dispensing with the requisite surveillance sharing market test outlined above is satisfied agreement. The geographically diverse and 59 As previously articulated by the Commission, and that common membership in ISG continuous nature of bitcoin trading render it ‘‘The standard requires such surveillance-sharing between the Exchange and CME would difficult and prohibitively costly to manipulate the agreements since ‘‘they provide a necessary price of bitcoin. The fragmentation across bitcoin deterrent to manipulation because they facilitate the assist the listing exchange in detecting platforms, the relatively slow speed of transactions, availability of information needed to fully and deterring misconduct in the Shares. and the capital necessary to maintain a significant investigate a manipulation if it were to occur.’’ The presence on each trading platform make Commission has emphasized that it is essential for (b) Predominant Influence on Prices in manipulation of bitcoin prices through continuous an exchange listing a derivative securities product Spot and Bitcoin Futures trading activity challenging. To the extent that there to enter into a surveillance- sharing agreement with are bitcoin exchanges engaged in or allowing wash markets trading underlying securities for the listing The Exchange also believes that trading or other activity intended to manipulate the exchange to have the ability to obtain information trading in the Shares would not be the price of bitcoin on other markets, such pricing does necessary to detect, investigate, and deter fraud and predominant force on prices in the not normally impact prices on other exchange market manipulation, as well as violations of because participants will generally ignore markets exchange rules and applicable federal securities with quotes that they deem non-executable. laws and rules. The hallmarks of a surveillance- 62 See Winklevoss Order at 37580. The Moreover, the linkage between the bitcoin markets sharing agreement are that the agreement provides Commission has also specifically noted that it ‘‘is and the presence of arbitrageurs in those markets for the sharing of information about market trading not applying a ‘‘cannot be manipulated’’ standard; means that the manipulation of the price of bitcoin activity, clearing activity, and customer identity; instead, the Commission is examining whether the price on any single venue would require that the parties to the agreement have reasonable proposal meets the requirements of the Exchange manipulation of the global bitcoin price in order to ability to obtain access to and produce requested Act and, pursuant to its Rules of Practice, places the be effective. Arbitrageurs must have funds information; and that no existing rules, laws, or burden on the listing exchange to demonstrate the distributed across multiple trading platforms in practices would impede one party to the agreement validity of its contentions and to establish that the order to take advantage of temporary price from obtaining this information from, or producing requirements of the Exchange Act have been met. dislocations, thereby making it unlikely that there it to, the other party.’’ The Commission has Id. at 37582. will be strong concentration of funds on any historically held that joint membership in ISG 63 As further described below, the Reference Rate particular bitcoin exchange or OTC platform. As a constitutes such a surveillance sharing agreement. for the Fund is based on materially the same result, the potential for manipulation on a trading See Wilshire Phoenix Disapproval. methodology (except calculation time) as the platform would require overcoming the liquidity 60 For a list of the current members and affiliate Administrator’s BRR, which is the rate on which supply of such arbitrageurs who are effectively members of ISG, see www.isgportal.com. bitcoin futures contracts are cash-settled in U.S. eliminating any cross-market pricing differences. 61 See Wilshire Phoenix Disapproval. dollars at the CME.

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Bitcoin Futures market (or spot market) points (compared to 30 basis points in WisdomTree Bitcoin Trust 65 for a number of reasons, including the 2/2021). For a $10 million market Delaware Trust Company is the significant volume in the Bitcoin order, the cost to buy or sell was trustee (‘‘Trustee’’). The Sponsor is Futures market, the size of bitcoin’s roughly 50 basis points (compared to 20 responsible for the creation of the Trust market cap (approximately $1 trillion), basis points in 2/2021) with a market and is responsible for the ongoing and the significant liquidity available in impact of 80 basis points (compared to registration of the Shares for their public the spot market. In addition to the 50 basis points in 2/2021). As the offering in the United States and the Bitcoin Futures market data points cited liquidity in the bitcoin spot market listing of Shares on the Exchange. In above, the spot market for bitcoin is also increases, it follows that the impact of addition, the Sponsor: (i) Selects the very liquid. According to data from $5 million and $10 million orders will Trustee, administrator, transfer Agent, CoinRoutes from February 2021, the continue to decrease the overall impact Bitcoin Custodian, marketing agent and cost to buy or sell $5 million worth of Trust auditor; (ii) negotiates various bitcoin averages roughly 10 basis points in spot price. agreements and fees; and (iii) performs with a market impact of 30 basis Additionally, offering only in-kind such other services as the Sponsor points.64 For a $10 million market order, creation and redemption will provide believes that the Trust may from time to the cost to buy or sell is roughly 20 basis unique protections against potential time require. A third-party points with a market impact of 50 basis attempts to manipulate the Shares. administrator, transfer agent, and points. Stated another way, a market While the Sponsor believes that the marketing agent will be responsible for participant could enter a market buy or Reference Rate which it uses to value the operation and administration of the sell order for $10 million of bitcoin and the Trust’s bitcoin is itself resistant to only move the market 0.5%. More Trust, for the issuance and redemption manipulation based on the methodology of Shares of the Trust, and for reviewing strategic purchases or sales (such as further described below, the fact that using limit orders and executing and approving marketing materials creations and redemptions are only 67 through OTC bitcoin trade desks) would prepared by the Trust, respectively. available in-kind makes the The Sponsor provides assistance in the likely have less obvious impact on the manipulability of the Reference Rate market—which is consistent with marketing of the Shares. The Bitcoin significantly less important. MicroStrategy, Tesla, and Square being Custodian will be a third-party able to collectively purchase billions of Specifically, because the Trust will not regulated custodian and will be dollars in bitcoin. As such, the accept cash to buy bitcoin in order to responsible for custody of the Trust’s 68 combination of Bitcoin Futures leading create new shares or, barring a forced bitcoin. price discovery, the overall size of the redemption of the Trust or under other According to the Registration bitcoin market, and the ability for extraordinary circumstances, be forced Statement, each Share will represent a market participants, including to sell bitcoin to pay cash for redeemed fractional undivided beneficial interest authorized participants creating and shares, the price that the Sponsor uses in and ownership of the Trust. The redeeming in-kind with the Trust, to to value the Trust’s bitcoin is not Trust’s assets will consist of bitcoin buy or sell large amounts of bitcoin particularly important.66 When held by the Bitcoin Custodian on behalf without significant market impact will authorized participants are creating of the Trust. The Trust generally does help prevent the Shares from becoming with the Trust, they need to deliver a not intend to hold cash or cash the predominant force on pricing in certain number of bitcoin per share equivalents. However, there may be either the bitcoin spot or Bitcoin (regardless of the valuation used) and situations where the Trust will unexpectedly hold cash on a temporary Futures markets, satisfying part (b) of when they’re redeeming, they can the test outlined above. basis. similarly expect to receive a certain According to the Registration (c) Other Means To Prevent Fraudulent number of bitcoin per share. As such, Statement, the Trust is neither an and Manipulative Acts and Practices even if the price used to value the investment company registered under As noted above, the Commission also Trust’s bitcoin is manipulated (which the Investment Company Act of 1940, as permits a listing exchange to the Sponsor believes that the amended,69 nor a commodity pool for demonstrate that ‘‘other means to independent Reference Rate purposes of the Commodity Exchange prevent fraudulent and manipulative methodology is resistant to), the ratio of Act (‘‘CEA’’), and neither the Trust nor acts and practices’’ are sufficient to bitcoin per Share does not change and the Sponsor is subject to regulation as justify dispensing with the requisite the Trust will either accept (for a commodity pool operator or a surveillance-sharing agreement. The creations) or distribute (for commodity trading adviser in Exchange believes that such conditions redemptions) the same number of connection with the Shares. are present. Specifically, the significant bitcoin regardless of the value. This not When the Trust sells or redeems its liquidity in the spot market and the only mitigates the risk associated with Shares, it will do so in ‘‘in-kind’’ impact of market orders on the overall potential manipulation, but also transactions in large blocks of price of bitcoin mean that attempting to discourages and disincentivizes aggregations of Shares (a ‘‘Creation move the price of bitcoin is costly and manipulation of the Reference Rate Basket’’). Authorized participants will has grown more expensive over the past because there is little financial incentive year. In January 2020, for example, the to do so. 67 The Exchange notes that the Sponsor is cost to buy or sell $5 million worth of finalizing negotiations with the administrator, transfer agent, and marketing agent and it will bitcoin averaged roughly 30 basis points 65 These statistics are based on samples of bitcoin submit an amendment to this proposal upon (compared to 10 basis points in liquidity in USD (excluding stablecoins or Euro execution of an agreement with the administrator, 2/2021) with a market impact of 50 basis liquidity) based on executable quotes on Coinbase transfer agent, and marketing agent. Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 68 The Exchange notes that the Sponsor is 64 These statistics are based on samples of bitcoin BinanceUS, and OKCoin during February 2021. finalizing negotiations with the Bitcoin Custodian liquidity in USD (excluding stablecoins or Euro 66 While the Reference Rate will not be and it will submit an amendment to this proposal liquidity) based on executable quotes on Coinbase particularly important for the creation and upon execution of an agreement with the Bitcoin Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, redemption process, it will be used for calculating Custodian. BinanceUS, and OKCoin during February 2021. fees. 69 15 U.S.C. 80a–1.

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deliver, or facilitate the delivery of, aggregates the trade flow of several Trust will provide an Intraday bitcoin to the Trust’s account with the bitcoin exchanges, during an Indicative Value (‘‘IIV’’) per Share Bitcoin Custodian in exchange for observation window between 3:00 p.m. updated every 15 seconds, as calculated Shares when they purchase Shares, and and 4:00 p.m. Eastern time into the U.S. by the Exchange or a third-party the Trust, through the Bitcoin dollar price of one bitcoin at 4:00 p.m. financial data provider during the Custodian, will deliver bitcoin to such Eastern time. The current constituent Exchange’s Regular Trading Hours (9:30 authorized participants when they bitcoin exchanges of the Reference Rate a.m. to 4:00 p.m. E.T.). The IIV will be redeem Shares with the Trust. are Bitstamp, Coinbase, Gemini, itBit calculated by using the prior day’s Authorized participants may then offer and Kraken (the ‘‘Constituent Bitcoin closing NAV per Share as a base and Shares to the public at prices that Exchanges’’). updating that value during Regular depend on various factors, including the The Reference Rate is calculated Trading Hours to reflect changes in the supply and demand for Shares, the based on the ‘‘Relevant Transactions’’ 71 value of the Trust’s bitcoin holdings value of the Trust’s assets, and market of all of its Constituent Bitcoin during the trading day. conditions at the time of a transaction. Exchanges, as follows: The IIV disseminated during Regular • Shareholders who buy or sell Shares All Relevant Transactions are added Trading Hours should not be viewed as during the day from their broker may do to a joint list, recording the time of an actual real-time update of the NAV, so at a premium or discount relative to execution, trade price and size for each which will be calculated only once at the NAV of the Shares of the Trust. transaction. the end of each trading day. The IIV will • The list is partitioned by timestamp Investment Objective be widely disseminated on a per Share into 12 equally-sized time intervals of 5 basis every 15 seconds during the According to the Registration (five) minute length. Exchange’s Regular Trading Hours by • Statement and as further described For each partition separately, the one or more major market data vendors. below, the investment objective of the volume-weighted median trade price is In addition, the IIV will be available Trust is to gain exposure to the price of calculated from the trade prices and through on-line information services. bitcoin, less expenses and liabilities of sizes of all Relevant Transactions, i.e., The website for the Trust, which will the Trust’s operation. In seeking to across all Constituent Bitcoin be publicly accessible at no charge, will achieve its investment objective, the Exchanges. A volume-weighted median contain the following information: (a) Trust will hold bitcoin and value its differs from a standard median in that The current NAV per Share daily and Shares daily based on the value of a weighting factor, in this case trade the prior business day’s NAV and the bitcoin as reflected by the CF Bitcoin US size, is factored into the calculation. reported closing price; (b) the BZX Settlement Price (the ‘‘Reference Rate’’), • The Reference Rate is then Official Closing Price 72 in relation to which is an independently calculated determined by the arithmetic mean of the NAV as of the time the NAV is value based on an aggregation of the volume-weighted medians of all calculated and a calculation of the executed trade flow of major bitcoin partitions. premium or discount of such price spot exchanges. The Trust will process By employing the foregoing steps, the against such NAV; (c) data in chart form all creations and redemptions in-kind in Reference Rate thereby seeks to ensure displaying the frequency distribution of transactions with authorized that transactions in bitcoin conducted at discounts and premiums of the Official participants. The Trust is not actively outlying prices do not have an undue Closing Price against the NAV, within managed. effect on the value of a specific appropriate ranges for each of the four partition, large trades or clusters of The Reference Rate previous calendar quarters (or for the trades transacted over a short period of life of the Trust, if shorter); (d) the As described in the Registration time will not have an undue influence prospectus; and (e) other applicable Statement, the Fund will use the on the index level, and the effect of quantitative information. The Trust will Reference Rate to calculate the Trust’s large trades at prices that deviate from also disseminate the Trust’s holdings on NAV. The Reference Rate is not the prevailing price are mitigated from a daily basis on the Trust’s website. The affiliated with the Sponsor and was having an undue influence on the price of bitcoin will be made available created and is administered by CF benchmark level. In addition, the by one or more major market data Benchmarks Ltd. (the ‘‘Benchmark Sponsor notes that an oversight function vendors, updated at least every 15 Administrator’’), an independent entity, is implemented by the Benchmark seconds during Regular Trading Hours. to facilitate financial products based on Administrator in seeking to ensure that Information about the Reference Rate, bitcoin. The Reference Rate is designed the Reference Rate is administered including key elements of how the based on the IOSCO Principals for through codified policies for Reference Reference Rate is calculated, will be Financial Benchmarks and serves as a Rate integrity. once-a-day benchmark rate of the U.S. publicly available at https:// dollar price of bitcoin (USD/BTC), Availability of Information www.cfbenchmarks.com. calculated as of 4 p.m. Eastern time. The In addition to the price transparency The NAV for the Trust will be Reference Rate is based on materially of the Reference Rate, the Trust will calculated by the administrator once a the same methodology (except provide information regarding the day and will be disseminated daily to calculation time) 70 as the Benchmark Trust’s bitcoin holdings as well as all market participants at the same time. Administrator’s CME CF Bitcoin additional data regarding the Trust. The Quotation and last-sale information Reference Rate (‘‘BRR’’), which was first regarding the Shares will be introduced on November 14, 2016 and 71 A ‘‘Relevant Transaction’’ is any disseminated through the facilities of is the rate on which bitcoin futures cryptocurrency versus U.S. dollar spot trade that the Consolidated Tape Association contracts are cash-settled in U.S. dollars occurs during the observation window between (‘‘CTA’’). 3:00 p.m. and 4:00 p.m. Eastern time on a at the CME. The Reference Rate Constituent Bitcoin Exchange in the BTC/USD pair that is reported and disseminated by a Constituent 72 As defined in Rule 11.23(a)(3), the term ‘‘BZX 70 The Reference Rate is calculated as of 4 p.m. Bitcoin Exchange through its publicly available API Official Closing Price’’ shall mean the price Eastern Time, whereas the BRR is calculated as of and observed by the Benchmark Administrator, CF disseminated to the consolidated tape as the market 4 p.m. London Time. Benchmarks Ltd. center closing trade.

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Quotation and last sale information bitcoin required is an amount of bitcoin 14.11(e)(4)(E)(iv)(a) and that no change for bitcoin is widely disseminated that is in the same proportion to the will be made to the trustee without prior through a variety of major market data total assets of the Trust, net of accrued notice to and approval of the Exchange. vendors, including Bloomberg and expenses and other liabilities, on the The Exchange also notes that, pursuant Reuters, as well as the Reference Rate. date the order to purchase is properly to Rule 14.11(e)(4)(F), neither the Information relating to trading, received, as the number of Shares to be Exchange nor any agent of the Exchange including price and volume created under the purchase order is in shall have any liability for damages, information, in bitcoin is available from proportion to the total number of Shares claims, losses or expenses caused by major market data vendors and from the outstanding on the date the order is any errors, omissions or delays in exchanges on which bitcoin are traded. received. Each night, the Sponsor will calculating or disseminating any Depth of book information is also publish the amount of bitcoin that will underlying commodity value, the available from bitcoin exchanges. The be required in exchange for each current value of the underlying normal trading hours for bitcoin creation order. The Administrator commodity required to be deposited to exchanges are 24 hours per day, 365 determines the required deposit for a the Trust in connection with issuance of days per year. given day by dividing the number of Commodity-Based Trust Shares; bitcoin held by the Trust as of the Net Asset Value resulting from any negligent act or opening of business on that business omission by the Exchange, or any agent NAV means the total assets of the day, adjusted for the amount of bitcoin of the Exchange, or any act, condition or Trust including, but not limited to, all constituting estimated accrued but cause beyond the reasonable control of bitcoin cash or other assets, less total unpaid fees and expenses of the Trust the Exchange, its agent, including, but liabilities of the Trust, each determined as of the opening of business on that on the basis of generally accepted not limited to, an act of God; fire; flood; business day, by the quotient of the extraordinary weather conditions; war; accounting principles. In determining number of Shares outstanding at the the Trust’s NAV, the administrator insurrection; riot; strike; accident; opening of business divided by the action of government; communications values the bitcoin held by the Trust aggregation of shares associated with a based on the price set by the Reference or power failure; equipment or software creation unit. The procedures by which malfunction; or any error, omission or Rate as of 4:00 p.m. Eastern Time. The an authorized participant can redeem delay in the reports of transactions in an administrator will determine the NAV one or more Creation Baskets mirror the underlying commodity. Finally, as of the Trust on each day that the procedures for the creation of Creation required in Rule 14.11(e)(4)(G), the Exchange is open for regular trading. Baskets. The NAV for a normal trading day will Exchange notes that any registered be released after 4:00 p.m. Eastern Time. Rule 14.11(e)(4)—Commodity-Based market maker (‘‘Market Maker’’) in the However, NAVs are not officially struck Trust Shares Shares must file with the Exchange in until later in the day (often by 5:30 p.m. The Shares will be subject to BZX a manner prescribed by the Exchange Eastern Time and almost always by 8:00 Rule 14.11(e)(4), which sets forth the and keep current a list identifying all p.m. Eastern Time). The pause between initial and continued listing criteria accounts for trading in an underlying 4:00 p.m. Eastern Time and 5:30 p.m. applicable to Commodity-Based Trust commodity, related commodity futures Eastern Time (or later) provides an Shares. The Exchange will obtain a or options on commodity futures, or any opportunity for the Trust, Benchmark representation that the Trust’s NAV will other related commodity derivatives, Administrator or administrator to be calculated daily and that these values which the registered Market Maker may detect, flag, investigate, and correct and information about the assets of the have or over which it may exercise unusual pricing should it occur. The Trust will be made available to all investment discretion. No registered Sponsor anticipates that the Reference market participants at the same time. Market Maker shall trade in an Rate will be reflective of a reasonable The Exchange notes that, as defined in underlying commodity, related valuation of the average spot price of Rule 14.11(e)(4)(C)(i), the Shares will be: commodity futures or options on bitcoin. However, in the event the (a) Issued by a trust that holds a commodity futures, or any other related Reference Rate was not available or specified commodity 73 deposited with commodity derivatives, in an account in determined by the Sponsor to not be the trust; (b) issued by such trust in a which a registered Market Maker, reliable, the Sponsor would ‘‘fair value’’ specified aggregate minimum number in directly or indirectly, controls trading the Trust’s bitcoin holdings. The return for a deposit of a quantity of the activities, or has a direct interest in the Sponsor does not anticipate that the underlying commodity; and (c) when profits or losses thereof, which has not need to ‘‘fair value’’ bitcoin will be a aggregated in the same specified been reported to the Exchange as common occurrence. The Sponsor will minimum number, may be redeemed at required by this Rule. In addition to the publish the NAV and NAV per Share at a holder’s request by such trust which existing obligations under Exchange www.wisdomtree.com as soon as will deliver to the redeeming holder the rules regarding the production of books practicable after their determination and quantity of the underlying commodity. and records (see, e.g., Rule 4.2), the availability. Upon termination of the Trust, the registered Market Maker in Commodity- Shares will be removed from listing. Based Trust Shares shall make available Creation and Redemption of Shares The Trustee, Delaware Trust Company, to the Exchange such books, records or According to the Registration is a trust company having substantial other information pertaining to Statement, on any business day, an capital and surplus and the experience transactions by such entity or registered authorized participant may place an and facilities for handling corporate or non-registered employee affiliated order to create one or more baskets. trust business, as required under Rule with such entity for its or their own Purchase orders must be placed by 4:00 accounts for trading the underlying p.m. Eastern Time, or the close of 73 For purposes of Rule 14.11(e)(4), the term physical commodity, related commodity regular trading on the Exchange, commodity takes on the definition of the term as futures or options on commodity provided in the Commodity Exchange Act. As noted futures, or any other related commodity whichever is earlier. The day on which above, the CFTC has opined that Bitcoin is a an order is received is considered the commodity as defined in Section 1a(9) of the derivatives, as may be requested by the purchase order date. The total deposit of Commodity Exchange Act. See Coinflip. Exchange.

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Trading Halts regarding trading in the Shares and general, to protect investors and the With respect to trading halts, the Bitcoin Futures via ISG, from other public interest. The Commission has approved Exchange may consider all relevant exchanges who are members or affiliates numerous series of Trust Issued factors in exercising its discretion to of the ISG, or with which the Exchange Receipts,78 including Commodity-Based halt or suspend trading in the Shares. has entered into a comprehensive 74 Trust Shares,79 to be listed on U.S. The Exchange will halt trading in the surveillance sharing agreement. national securities exchanges. In order Shares under the conditions specified in Information Circular for any proposed rule change from an BZX Rule 11.18. Trading may be halted Prior to the commencement of exchange to be approved, the because of market conditions or for Commission must determine that, reasons that, in the view of the trading, the Exchange will inform its members in an Information Circular of among other things, the proposal is Exchange, make trading in the Shares consistent with the requirements of inadvisable. These may include: (1) The the special characteristics and risks associated with trading the Shares. Section 6(b)(5) of the Act, specifically extent to which trading is not occurring including: (i) The requirement that a in the bitcoin underlying the Shares; or Specifically, the Information Circular will discuss the following: (i) The national securities exchange’s rules are (2) whether other unusual conditions or designed to prevent fraudulent and procedures for the creation and circumstances detrimental to the manipulative acts and practices; 80 and redemption of Baskets (and that the maintenance of a fair and orderly (ii) the requirement that an exchange Shares are not individually redeemable); market are present. Trading in the proposal be designed, in general, to (ii) BZX Rule 3.7, which imposes Shares also will be subject to Rule protect investors and the public interest. 14.11(e)(4)(E)(ii), which sets forth suitability obligations on Exchange The Exchange believes that the circumstances under which trading in members with respect to recommending proposal is, in particular, designed to the Shares may be halted. transactions in the Shares to customers; protect investors and the public interest. (iii) how information regarding the IIV Trading Rules With the growth of OTC Bitcoin Funds and the Trust’s NAV are disseminated; over the past year, so too has grown the The Exchange deems the Shares to be (iv) the risks involved in trading the potential risk to U.S. investors. equity securities, thus rendering trading Shares outside of Regular Trading Significant and prolonged premiums 75 in the Shares subject to the Exchange’s Hours when an updated IIV will not and discounts, significant premium/ existing rules governing the trading of be calculated or publicly disseminated; discount volatility, high fees, equity securities. BZX will allow trading (v) the requirement that members insufficient disclosures, and technical in the Shares during all trading sessions deliver a prospectus to investors hurdles are putting U.S. investor money on the Exchange. The Exchange has purchasing newly issued Shares prior to appropriate rules to facilitate or concurrently with the confirmation of 78 See Exchange Rule 14.11(f). transactions in the Shares during all a transaction; and (vi) trading 79 Commodity-Based Trust Shares, as described in trading sessions. As provided in BZX information. Exchange Rule 14.11(e)(4), are a type of Trust Rule 11.11(a) the minimum price Issued Receipt. In addition, the Information Circular 80 As the Exchange has stated in a number of variation for quoting and entry of orders will advise members, prior to the other public documents, it continues to believe that in securities traded on the Exchange is commencement of trading, of the bitcoin is resistant to price manipulation and that $0.01 where the price is greater than prospectus delivery requirements ‘‘other means to prevent fraudulent and $1.00 per share or $0.0001 where the manipulative acts and practices’’ exist to justify applicable to the Shares. Members dispensing with the requisite surveillance sharing price is less than $1.00 per share. purchasing the Shares for resale to agreement. The geographically diverse and Surveillance investors will deliver a prospectus to continuous nature of bitcoin trading render it such investors. The Information Circular difficult and prohibitively costly to manipulate the The Exchange believes that its price of bitcoin. The fragmentation across bitcoin will also discuss any exemptive, no- platforms, the relatively slow speed of transactions, surveillance procedures are adequate to action and interpretive relief granted by and the capital necessary to maintain a significant properly monitor the trading of the the Commission from any rules under presence on each trading platform make Shares on the Exchange during all the Act. manipulation of bitcoin prices through continuous trading sessions and to deter and detect trading activity challenging. To the extent that there are bitcoin exchanges engaged in or allowing wash violations of Exchange rules and the 2. Statutory Basis trading or other activity intended to manipulate the applicable federal securities laws. price of bitcoin on other markets, such pricing does Trading of the Shares through the The Exchange believes that the not normally impact prices on other exchanges Exchange will be subject to the proposal is consistent with Section 6(b) because participants will generally ignore markets 76 with quotes that they deem non-executable. Exchange’s surveillance procedures for of the Act in general and Section 6(b)(5) of the Act 77 in particular in that Moreover, the linkage between the bitcoin markets derivative products, including and the presence of arbitrageurs in those markets Commodity-Based Trust Shares. The it is designed to prevent fraudulent and means that the manipulation of the price of bitcoin issuer has represented to the Exchange manipulative acts and practices, to price on any single venue would require promote just and equitable principles of manipulation of the global bitcoin price in order to that it will advise the Exchange of any be effective. Arbitrageurs must have funds failure by the Trust or the Shares to trade, to foster cooperation and distributed across multiple trading platforms in comply with the continued listing coordination with persons engaged in order to take advantage of temporary price requirements, and, pursuant to its facilitating transactions in securities, to dislocations, thereby making it unlikely that there remove impediments to and perfect the will be strong concentration of funds on any obligations under Section 19(g)(1) of the particular bitcoin exchange or OTC platform. As a Exchange Act, the Exchange will surveil mechanism of a free and open market result, the potential for manipulation on a trading for compliance with the continued and a national market system and, in platform would require overcoming the liquidity supply of such arbitrageurs who are effectively listing requirements. If the Trust or the eliminating any cross-market pricing differences. 74 For a list of the current members and affiliate Shares are not in compliance with the Furthermore, as noted herein, Sponsor has members of ISG, see www.isgportal.com. indicated its belief that the Reference Rate is applicable listing requirements, the 75 Regular Trading Hours is the time between 9:30 Exchange will commence delisting reflective of a reasonable valuation of the average a.m. and 4:00 p.m. Eastern Time. spot price of bitcoin and that resistance to procedures under Exchange Rule 14.12. 76 15 U.S.C. 78f. manipulation is a priority aim of its design The Exchange may obtain information 77 15 U.S.C. 78f(b)(5). methodology.

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at risk on a daily basis that could market of significant size. Both the was issued are reflective of that market’s potentially be eliminated through access Exchange and CME are members of growing influence on the spot price, to a bitcoin ETP. As such, the Exchange ISG.82 The only remaining issue to be which according to the academic believes that this proposal acts to limit addressed is whether the Bitcoin research cited above, was already the risk to U.S. investors that are Futures market constitutes a market of leading the spot price in 2018 and 2019. increasingly seeking exposure to bitcoin significant size, which the Exchange Where Bitcoin Futures lead the price in through the elimination of significant believes that it does. The terms the spot market such that a potential and prolonged premiums and discounts, ‘‘significant market’’ and ‘‘market of manipulator of the bitcoin spot market significant premium/discount volatility, significant size’’ include a market (or (beyond just the constituents of the the reduction of management fees group of markets) as to which: (a) There Reference Rate 85) would have to through meaningful competition, the is a reasonable likelihood that a person participate in the Bitcoin Futures avoidance of risks associated with attempting to manipulate the ETP market, it follows that a potential investing in operating companies that would also have to trade on that market manipulator of the Shares would are imperfect proxies for bitcoin to manipulate the ETP, so that a similarly have to transact in the Bitcoin exposure, and protection from risk surveillance-sharing agreement would Futures market because the Reference associated with custodying spot bitcoin assist the listing exchange in detecting Rate is based on spot prices. Further, the by providing direct, 1-for-1 exposure to and deterring misconduct; and (b) it is Trust only allows for in-kind creation bitcoin in a regulated, transparent, unlikely that trading in the ETP would and redemption, which, as further exchange-traded vehicle designed to be the predominant influence on prices described below, reduces the potential reduce the likelihood of significant and in that market.83 for manipulation of the Shares through prolonged premiums and discounts The Commission has also recognized manipulation of the Reference Rate or with its open-ended nature as well as that the ‘‘regulated market of significant any of its individual constituents, again the ability of market participants (i.e., size’’ standard is not the only means for emphasizing that a potential market makers and authorized satisfying Section 6(b)(5) of the act, manipulator of the Shares would have participants) to create and redeem on a specifically providing that a listing to manipulate the entirety of the bitcoin daily basis. exchange could demonstrate that ‘‘other spot market, which is led by the Bitcoin The Exchange also believes that this means to prevent fraudulent and Futures market. As such, the Exchange proposal is consistent with the manipulative acts and practices’’ are believes that part (a) of the significant requirements of Section 6(b)(5) of the sufficient to justify dispensing with the market test outlined above is satisfied Act and that it has sufficiently requisite surveillance-sharing and that common membership in ISG demonstrated that, on the whole, the agreement.84 between the Exchange and CME would manipulation concerns previously (a) Manipulation of the ETP assist the listing exchange in detecting articulated by the Commission are and deterring misconduct in the Shares. The significant growth in Bitcoin sufficiently mitigated to the point that Futures across each of trading volumes, (b) Predominant Influence on Prices in they are outweighed by quantifiable open interest, large open interest Spot and Bitcoin Futures investor protection issues that would be holders, and total market participants resolved by approving this proposal. The Exchange also believes that since the Wilshire Phoenix Disapproval Specifically, the Exchange believes that trading in the Shares would not be the the significant increase in trading predominant force on prices in the deterrent to manipulation because they facilitate the Bitcoin Futures market (or spot market) volume in Bitcoin Futures, the growth availability of information needed to fully of liquidity at the inside in the spot investigate a manipulation if it were to occur.’’ The for a number of reasons, including the market for bitcoin, and certain features Commission has emphasized that it is essential for significant volume in the Bitcoin of the Shares and the Reference Rate an exchange listing a derivative securities product Futures market, the size of bitcoin’s to enter into a surveillance-sharing agreement with market cap (approximately $1 trillion), mitigate potential manipulation markets trading underlying securities for the listing concerns to the point that the investor exchange to have the ability to obtain information and the significant liquidity available in protection issues that have arisen from necessary to detect, investigate, and deter fraud and the spot market. In addition to the the rapid growth of over-the-counter market manipulation, as well as violations of Bitcoin Futures market data points cited exchange rules and applicable federal securities above, the spot market for bitcoin is also bitcoin funds since the Commission last laws and rules. The hallmarks of a surveillance- reviewed an exchange proposal to list sharing agreement are that the agreement provides very liquid. According to data from and trade a bitcoin ETP, including for the sharing of information about market trading CoinRoutes from February 2021, the activity, clearing activity, and customer identity; premium/discount volatility and cost to buy or sell $5 million worth of that the parties to the agreement have reasonable bitcoin averages roughly 10 basis points management fees, should be the central ability to obtain access to and produce requested consideration as the Commission information; and that no existing rules, laws, or with a market impact of 30 basis 86 determines whether to approve this practices would impede one party to the agreement points. For a $10 million market order, from obtaining this information from, or producing the cost to buy or sell is roughly 20 basis proposal. it to, the other party.’’ The Commission has historically held that joint membership in ISG points with a market impact of 50 basis (i) Designed To Prevent Fraudulent and constitutes such a surveillance sharing agreement. points. Stated another way, a market Manipulative Acts and Practices See Wilshire Phoenix Disapproval. participant could enter a market buy or In order to meet this standard in a 82 For a list of the current members and affiliate sell order for $10 million of bitcoin and members of ISG, see www.isgportal.com. only move the market 0.5%. More proposal to list and trade a series of 83 See Wilshire Phoenix Disapproval. strategic purchases or sales (such as Commodity-Based Trust Shares, the 84 See Winklevoss Order at 37580. The Commission requires that an exchange Commission has also specifically noted that it ‘‘is demonstrate that there is a not applying a ‘‘cannot be manipulated’’ standard; 85 As noted above, the Constituent Bitcoin instead, the Commission is examining whether the Exchanges are Bitstamp, Coinbase, Gemini, itBit comprehensive surveillance-sharing and Kraken. 81 proposal meets the requirements of the Exchange agreement in place with a regulated Act and, pursuant to its Rules of Practice, places the 86 These statistics are based on samples of bitcoin burden on the listing exchange to demonstrate the liquidity in USD (excluding stablecoins or Euro 81 As previously articulated by the Commission, validity of its contentions and to establish that the liquidity) based on executable quotes on Coinbase ‘‘The standard requires such surveillance-sharing requirements of the Exchange Act have been met. Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, agreements since ‘‘they provide a necessary Id. at 37582. BinanceUS, and OKCoin during February 2021.

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using limit orders and executing the fact that creations and redemptions If the Trust or the Shares are not in through OTC bitcoin trade desks) would are only available in-kind makes the compliance with the applicable listing likely have less obvious impact on the manipulability of the Reference Rate requirements, the Exchange will market—which is consistent with significantly less important. commence delisting procedures under MicroStrategy, Tesla, and Square being Specifically, because the Trust will not Exchange Rule 14.12. The Exchange able to collectively purchase billions of accept cash to buy bitcoin in order to may obtain information regarding dollars in bitcoin. As such, the create new shares or, barring a forced trading in the Shares and listed bitcoin combination of Bitcoin Futures leading redemption of the Trust or under other derivatives via the ISG, from other price discovery, the overall size of the extraordinary circumstances, be forced exchanges who are members or affiliates bitcoin market, and the ability for to sell bitcoin to pay cash for redeemed of the ISG, or with which the Exchange market participants, including shares, the price that the Sponsor uses has entered into a comprehensive authorized participants creating and to value the Trust’s bitcoin is not surveillance sharing agreement. redeeming in-kind with the Trust, to 88 particularly important. When Availability of Information buy or sell large amounts of bitcoin authorized participants are creating without significant market impact will with the Trust, they need to deliver a The Exchange also believes that the help prevent the Shares from becoming certain number of bitcoin per share proposal promotes market transparency the predominant force on pricing in (regardless of the valuation used) and in that a large amount of information is either the bitcoin spot or Bitcoin when they’re redeeming, they can currently available about bitcoin and Futures markets, satisfying part (b) of similarly expect to receive a certain will be available regarding the Trust and the test outlined above. number of bitcoin per share. As such, the Shares. In addition to the price even if the price used to value the transparency of the Reference Rate, the (c) Other Means To Prevent Fraudulent Trust will provide information and Manipulative Acts and Practices Trust’s bitcoin is manipulated (which the Sponsor believes that its regarding the Trust’s bitcoin holdings as As noted above, the Commission also methodology is resistant to), the ratio of well as additional data regarding the permits a listing exchange to bitcoin per Share does not change and Trust. The Trust will provide an IIV per demonstrate that ‘‘other means to the Trust will either accept (for Share updated every 15 seconds, as prevent fraudulent and manipulative creations) or distribute (for calculated by the Exchange or a third- acts and practices’’ are sufficient to redemptions) the same number of party financial data provider during the Exchange’s Regular Trading Hours (9:30 justify dispensing with the requisite bitcoin regardless of the value. This not surveillance-sharing agreement. The a.m. to 4:00 p.m. E.T.). The IIV will be only mitigates the risk associated with Exchange believes that such conditions calculated by using the prior day’s potential manipulation, but also are present. Specifically, the significant closing NAV per Share as a base and discourages and disincentivizes liquidity in the spot market and the updating that value during Regular manipulation of the Reference Rate impact of market orders on the overall Trading Hours to reflect changes in the because there is little financial incentive price of bitcoin mean that attempting to value of the Trust’s bitcoin holdings to do so. move the price of bitcoin is costly and during the trading day. has grown more expensive over the past Commodity-Based Trust Shares The IIV disseminated during Regular Trading Hours should not be viewed as year. In January 2020, for example, the The Exchange believes that the an actual real-time update of the NAV, cost to buy or sell $5 million worth of proposed rule change is designed to bitcoin averaged roughly 30 basis points which will be calculated only once at prevent fraudulent and manipulative (compared to 10 basis points in the end of each trading day. The IIV will acts and practices in that the Shares will 2/2021) with a market impact of 50 basis be widely disseminated on a per Share be listed on the Exchange pursuant to points (compared to 30 basis points in basis every 15 seconds during the the initial and continued listing criteria 2/2021).87 For a $10 million market Exchange’s Regular Trading Hours by in Exchange Rule 14.11(e)(4). The order, the cost to buy or sell was one or more major market data vendors. Exchange believes that its surveillance roughly 50 basis points (compared to 20 In addition, the IIV will be available procedures are adequate to properly basis points in 2/2021) with a market through on-line information services. monitor the trading of the Shares on the impact of 80 basis points (compared to The website for the Trust, which will Exchange during all trading sessions 50 basis points in 2/2021). As the be publicly accessible at no charge, will liquidity in the bitcoin spot market and to deter and detect violations of contain the following information: (a) increases, it follows that the impact of Exchange rules and the applicable The current NAV per Share daily and $5 million and $10 million orders will federal securities laws. Trading of the the prior business day’s NAV and the continue to decrease the overall impact Shares through the Exchange will be reported closing price; (b) the BZX in spot price. subject to the Exchange’s surveillance Official Closing Price in relation to the Additionally, offering only in-kind procedures for derivative products, NAV as of the time the NAV is creation and redemption will provide including Commodity-Based Trust calculated and a calculation of the unique protections against potential Shares. The issuer has represented to premium or discount of such price attempts to manipulate the Shares. the Exchange that it will advise the against such NAV; (c) data in chart form While the Sponsor believes that the Exchange of any failure by the Trust or displaying the frequency distribution of independently maintained and the Shares to comply with the discounts and premiums of the Official administered Reference Rate which it continued listing requirements, and, Closing Price against the NAV, within uses to value the Trust’s bitcoin is itself pursuant to its obligations under appropriate ranges for each of the four resistant to manipulation based on the Section 19(g)(1) of the Exchange Act, the previous calendar quarters (or for the methodology further described below, Exchange will surveil for compliance life of the Trust, if shorter); (d) the with the continued listing requirements. prospectus; and (e) other applicable 87 These statistics are based on samples of bitcoin quantitative information. The Trust will 88 liquidity in USD (excluding stablecoins or Euro While the Reference Rate will not be also disseminate the Trust’s holdings on liquidity) based on executable quotes on Coinbase particularly important for the creation and Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, redemption process, it will be used for calculating a daily basis on the Trust’s website. The BinanceUS, and OKCoin during February 2021. fees. price of bitcoin will be made available

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by one or more major market data the Exchange consents, the Commission should be submitted on or before May vendors, updated at least every 15 will: 6, 2021. seconds during Regular Trading Hours. A. By order approve or disapprove For the Commission, by the Division of Information about the Reference Rate, such proposed rule change, or Trading and Markets, pursuant to delegated including key elements of how the B. institute proceedings to determine authority.89 Reference Rate is calculated, will be whether the proposed rule change J. Matthew DeLesDernier, publicly available at https:// should be disapproved. Assistant Secretary. www.cfbenchmarks.com. IV. Solicitation of Comments [FR Doc. 2021–07675 Filed 4–14–21; 8:45 am] The NAV for the Trust will be BILLING CODE 8011–01–P calculated by the administrator once a Interested persons are invited to day and will be disseminated daily to submit written data, views, and all market participants at the same time. arguments concerning the foregoing, including whether the proposed rule SECURITIES AND EXCHANGE Quotation and last-sale information COMMISSION regarding the Shares will be change is consistent with the Act. disseminated through the facilities of Comments may be submitted by any of [Release No. 34–91526; File No. SR– the CTA. the following methods: NASDAQ–2021–018] Quotation and last sale information Electronic Comments Self-Regulatory Organizations; The for bitcoin is widely disseminated • Use the Commission’s internet Nasdaq Stock Market LLC; Notice of through a variety of major market data comment form (http://www.sec.gov/ Filing and Immediate Effectiveness of vendors, including Bloomberg and rules/sro.shtml); or Proposed Rule Change To Extend the Reuters, as well as the Reference Rate. • Send an email to rule-comments@ Implementation Date of Enhancements Information relating to trading, sec.gov. Please include File Number SR– to the End of Day Summary Message including price and volume CboeBZX–2021–024 on the subject line. on Nasdaq Last Sale Plus to May 17, information, in bitcoin is available from 2021 major market data vendors and from the Paper Comments exchanges on which bitcoin are traded. • Send paper comments in triplicate April 9, 2021. Depth of book information is also to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) of the available from bitcoin exchanges. The Commission, 100 F Street NE, Securities Exchange Act of 1934 normal trading hours for bitcoin Washington, DC 20549–1090. (‘‘Act’’),1 and Rule 19b–4 thereunder,2 exchanges are 24 hours per day, 365 All submissions should refer to File notice is hereby given that on April 6, days per year. Number SR–CboeBZX–2021–024. This 2021, The Nasdaq Stock Market LLC For the above reasons, the Exchange file number should be included on the (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the believes that the proposed rule change subject line if email is used. To help the Securities and Exchange Commission is consistent with the requirements of Commission process and review your (‘‘SEC’’ or ‘‘Commission’’) the proposed Section 6(b)(5) of the Act. comments more efficiently, please use rule change as described in Items I and B. Self-Regulatory Organization’s only one method. The Commission will II below, which Items have been Statement on Burden on Competition post all comments on the Commission’s prepared by the Exchange. The Commission is publishing this notice to The Exchange does not believe that internet website (http://www.sec.gov/ rules/sro.shtml). Copies of the solicit comments on the proposed rule the proposed rule change will impose change from interested persons. any burden on competition that is not submission, all subsequent necessary or appropriate in furtherance amendments, all written statements I. Self-Regulatory Organization’s of the purpose of the Act. The Exchange with respect to the proposed rule Statement of the Terms of Substance of notes that the proposed rule change, change that are filed with the the Proposed Rule Change Commission, and all written rather will facilitate the listing and The Exchange proposes to extend the communications relating to the trading of an additional exchange-traded implementation date of its proposed rule change between the product that will enhance competition enhancements to the End of Day Commission and any person, other than among both market participants and (‘‘EOD’’) summary message on Nasdaq those that may be withheld from the listing venues, to the benefit of investors Last Sale (‘‘NLS’’) Plus to May 17, 2021. and the marketplace. public in accordance with the The text of the proposed rule change provisions of 5 U.S.C. 552, will be is available on the Exchange’s website at C. Self-Regulatory Organization’s available for website viewing and Statement on Comments on the https://listingcenter.nasdaq.com/ printing in the Commission’s Public rulebook/nasdaq/rules, at the principal Proposed Rule Change Received From Reference Room, 100 F Street NE, Members, Participants, or Others office of the Exchange, and at the Washington, DC 20549 on official Commission’s Public Reference Room. The Exchange has neither solicited business days between the hours of nor received written comments on the 10:00 a.m. and 3:00 p.m. Copies of the II. Self-Regulatory Organization’s proposed rule change. filing also will be available for Statement of the Purpose of, and inspection and copying at the principal Statutory Basis for, the Proposed Rule III. Date of Effectiveness of the office of the Exchange. All comments Change Proposed Rule Change and Timing for received will be posted without change. Commission Action In its filing with the Commission, the Persons submitting comments are Exchange included statements Within 45 days of the date of cautioned that we do not redact or edit concerning the purpose of and basis for publication of this notice in the Federal personal identifying information from the proposed rule change and discussed Register or within such longer period comment submissions. You should any comments it received on the up to 90 days (i) as the Commission may submit only information that you wish designate if it finds such longer period to make available publicly. All 89 17 CFR 200.30–3(a)(12). to be appropriate and publishes its submissions should refer to File 1 15 U.S.C. 78s(b)(1). reasons for so finding or (ii) as to which Number SR–CboeBZX–2021–024 and 2 17 CFR 240.19b–4.

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