Federal Register - August 23, 2021
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Source: Federal Register
fact, mainstream financial news networks have written a number of articles providing investors with guidance for obtaining bitcoin exposure through publicly traded companies such as MicroStrategy, Tesla, and bitcoin mining companies, among others instead of dealing with the complications associated with buying spot bitcoin in the absence of a bitcoin ETP.47 Such operating companies, however, are imperfect bitcoin proxies and provide investors with partial bitcoin exposure paired with a host of additional risks associated with whichever operating company they decide to purchase. Additionally, the disclosures provided by the aforementioned operating companies with respect to risks relating to their
bitcoin holdings are generally substantially smaller than the registration statement of a bitcoin ETP, including the Registration Statement, typically amounting to a few sentences of narrative description and a handful of risk factors.48 In other words, investors seeking bitcoin exposure through publicly traded companies are gaining only partial exposure to bitcoin and are not fully benefitting from the risk disclosures and associated investor protections that come from the securities registration process.
Similarly, the number of large open interest holders 50 has continued to increase even as the price of bitcoin has
risen, as have the number of unique accounts trading Bitcoin Futures.
companys publicly traded common stock. See https www.sec.gov/oiea/investor-alerts-andbulletins/ia_icorelatedclaims 47 See e.g., 7 public companies with exposure to bitcoin February 8, 2021 available at: https
finance.yahoo.com/news/7-public-companies-withexposure-to-bitcoin-154201525.html; and Want to get in the crypto trade without holding bitcoin yourself? Here are some investing ideas February 19, 2021 available at: https www.cnbc.com/2021/
02/19/ways-to-invest-in-bitcoin-without-holdingthe-cryptocurrency-yourself-.html.
48 See e.g., Tesla 10K for the year ended December 31, 2020, which mentions bitcoin just nine times: https www.sec.gov/ix?doc=/Archives/
edgar/data/1318605/000156459021004599/tsla10k_20201231.htm.
49 According to CME, the CME CF Bitcoin Reference Rate aggregates the trade flow of major bitcoin spot exchanges during a specific calculation window into a once-a-day reference rate of the U.S.
dollar price of bitcoin. Calculation rules are geared toward maximum transparency and real-time replicability in underlying spot markets, including
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Bitcoin Futures CME began offering trading in Bitcoin Futures in 2017. Each contract represents five bitcoin and is based on the CME CF Bitcoin Reference Rate.49
The contracts trade and settle like other
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cash-settled commodity futures contracts. Nearly every measurable metric related to Bitcoin Futures has trended consistently up since launch and/or accelerated upward in the past year. For example, there was approximately $28 billion in trading in Bitcoin Futures in December 2020
compared to $737 million, $1.4 billion, and $3.9 billion in total trading in December 2017, December 2018, and December 2019, respectively. Bitcoin Futures traded over $1.2 billion per day on the CME in December 2020 and represented $1.6 billion in open interest compared to $115 million in December 2019. This general upward trend in trading volume and open interest is captured in the following chart.
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Bitstamp, Coinbase, Gemini, itBit, and Kraken. For additional information, refer to https
www.cmegroup.com/trading/cryptocurrencyindices/cf-bitcoin-reference-rate.html?redirect=/
trading/cf-bitcoin-reference-rate.html.
50 A large open interest holder in Bitcoin Futures is an entity that holds at least 25 contracts, which is the equivalent of 125 bitcoin. At a price of approximately $30,000 per bitcoin on 12/31/20, more than 80 firms had outstanding positions of greater than $3.8 million in Bitcoin Futures.
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Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Notices
