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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
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for a number of reasons, including the significant volume in the Bitcoin Futures market, the size of bitcoins market cap approximately $650
billion, and the significant liquidity available in the spot market. In addition to the Bitcoin Futures market data points cited above, the spot market for bitcoin is also very liquid. According to data from CoinRoutes from February 2021, the cost to buy or sell $5 million worth of bitcoin averages roughly 10
basis points with a market impact of 30
basis points.77 For a $10 million market order, the cost to buy or sell is roughly 20 basis points with a market impact of 50 basis points. Stated another way, a market participant could enter a market buy or sell order for $10 million of bitcoin and only move the market 0.5%.
More strategic purchases or sales such as using limit orders and executing through OTC bitcoin trade desks would likely have less obvious impact on the marketwhich is consistent with MicroStrategy, Tesla, and Square being able to collectively purchase billions of dollars in bitcoin. As such, the combination of Bitcoin Futures leading price discovery, the overall size of the bitcoin market, and the ability for market participants, including authorized participants creating and redeeming in-kind with the Trust, to buy or sell large amounts of bitcoin without significant market impact will help prevent the Shares from becoming the predominant force on pricing in either the bitcoin spot or Bitcoin Futures markets, satisfying part b of the test outlined above.
c Other Means To Prevent Fraudulent and Manipulative Acts and Practices As noted above, the Commission also permits a listing exchange to demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement. The Exchange believes that such conditions are present. Specifically, the significant liquidity in the spot market and the impact of market orders on the overall price of bitcoin mean that attempting to move the price of bitcoin is costly and has grown more expensive over the past year. In January 2020, for example, the cost to buy or sell $5 million worth of bitcoin averaged roughly 30 basis points compared to 10 basis points in 2/2021
with a market impact of 50 basis points compared to 30 basis points in 2/
77 These statistics are based on samples of bitcoin liquidity in USD excluding stablecoins or Euro liquidity based on executable quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, BinanceUS, and OKCoin during February 2021.

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2021.78 For a $10 million market order, the cost to buy or sell was roughly 50
basis points compared to 20 basis points in 2/2021 with a market impact of 80 basis points compared to 50 basis points in 2/2021. As the liquidity in the bitcoin spot market increases, it follows that the impact of $5 million and $10
million orders will continue to decrease the overall impact in spot price.
Additionally, offering only in-kind creation and redemption will provide unique protections against potential attempts to manipulate the Shares and the Sponsor notes that it has operated numerous products on this basis since 2018. While the Sponsor believes that the Index which it uses to value the Trusts bitcoin is itself resistant to manipulation based on the methodology described above, the fact that creations and redemptions are only available inkind makes the manipulability of the Index significantly less important.
Specifically, because the Trust will not accept cash to buy bitcoin in order to create new shares or, barring a forced redemption of the Trust or under other extraordinary circumstances, be forced to sell bitcoin to pay cash for redeemed shares, the price that the Sponsor uses to value the Trusts bitcoin is not particularly important.79 When authorized participants are creating with the Trust, they need to deliver a certain number of bitcoin per share regardless of the valuation used and when theyre redeeming, they can similarly expect to receive a certain number of bitcoin per share. As such, even if the price used to value the Trusts bitcoin is manipulated which the Sponsor believes that its methodology is resistant to, the ratio of bitcoin per Share does not change and the Trust will either accept for creations or distribute for redemptions the same number of bitcoin regardless of the value. This not only mitigates the risk associated with potential manipulation, but also discourages and disincentivizes manipulation of the Index because there is little financial incentive to do so.
Commodity-Based Trust Shares The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed on the Exchange pursuant to 78 These statistics are based on samples of bitcoin liquidity in USD excluding stablecoins or Euro liquidity based on executable quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, BinanceUS, and OKCoin during February 2021.
79 While the Index will not be particularly important for the creation and redemption process, it will be used for calculating fees.

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the initial and continued listing criteria in Exchange Rule 14.11e4. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchanges surveillance procedures for derivative products, including Commodity-Based Trust Shares. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Trust or the Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19g1 of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements.
If the Trust or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange may obtain information regarding trading in the Shares and listed bitcoin derivatives via the ISG, from other exchanges who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement.
Availability of Information The Exchange also believes that the proposal promotes market transparency in that a large amount of information is currently available about bitcoin and will be available regarding the Trust and the Shares. In addition to the price transparency of the Index, the Trust will provide information regarding the Trusts bitcoin holdings as well as additional data regarding the Trust. The Trust will provide an IIV per Share updated every 15 seconds, as calculated by the Exchange or a third-party financial data provider during the Exchanges Regular Trading Hours 9:30
a.m. to 4:00 p.m. E.T.. The IIV will be calculated by using the prior days closing NAV per Share as a base and updating that value during Regular Trading Hours to reflect changes in the value of the Trusts bitcoin holdings during the trading day.
The IIV disseminated during Regular Trading Hours should not be viewed as an actual real-time update of the NAV, which will be calculated only once at the end of each trading day. The IIV will be widely disseminated on a per Share basis every 15 seconds during the Exchanges Regular Trading Hours by one or more major market data vendors.
In addition, the IIV will be available through on-line information services.

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