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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices the Bitcoin Futures market, it follows that a potential manipulator of the Shares would similarly have to transact in the Bitcoin Futures market because the Index is based on spot prices.
Further, the Trust only allows for inkind creation and redemption, which, as further described below, reduces the potential for manipulation of the Shares through manipulation of the Index or any of its individual constituents, again emphasizing that a potential manipulator of the Shares would have to manipulate the entirety of the bitcoin spot market, which is led by the Bitcoin Futures market. As such, the Exchange believes that part a of the significant market test outlined above is satisfied and that common membership in ISG
between the Exchange and CME would assist the listing exchange in detecting and deterring misconduct in the Shares.

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b Predominant Influence on Prices in Spot and Bitcoin Futures The Exchange also believes that trading in the Shares would not be the predominant force on prices in the Bitcoin Futures market or spot market 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.60 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 Bitfinex, Bitflyer, Bittrex, Bitstamp, Coinbase Pro, Gemini, HitBTC, Huobi, Kraken, KuCoin, and Poloniex.
60 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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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/
2021.61 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.
While the Sponsor believes that the Index which it uses to value the Trusts bitcoin is itself resistant to manipulation based on the methodology further described below, 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 61 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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particularly important.62 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.
ARK 21Shares Bitcoin ETF
Delaware Trust Company is the trustee Trustee. The Bank of New York Mellon will be the administrator Administrator and transfer agent Transfer Agent. Foreside Global Services, LLC will be the marketing agent Marketing Agent in connection with the creation and redemption of Baskets of Shares. ARK
Investment Management LLC ARK
will provide assistance in the marketing of the Shares. Coinbase Custody Trust Company, LLC, a third-party regulated custodian the Custodian, will be responsible for custody of the Trusts bitcoin.
According to the Registration Statement, each Share will represent a fractional undivided beneficial interest in the bitcoin held by the Trust. The Trusts assets will consist of bitcoin held by the Custodian on behalf of the Trust. The Trust generally does not intend to hold cash or cash equivalents.
However, there may be situations where the Trust will unexpectedly hold cash on a temporary basis.
According to the Registration Statement, the Trust is neither an investment company registered under the Investment Company Act of 1940, as amended,63 nor a commodity pool for purposes of the Commodity Exchange Act CEA, and neither the Trust nor the Sponsor is subject to regulation as a commodity pool operator or a commodity trading adviser in connection with the Shares.
When the Trust sells or redeems its Shares, it will do so in in-kind 62 While the Index will not be particularly important for the creation and redemption process, it will be used for calculating fees.
63 15 U.S.C. 80a1.

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