FR 2025-02223

The document under review is a notice from the Securities and Exchange Commission (SEC), detailing the approval of a proposed rule change filed by NYSE Arca. This change allows the listing and trading of shares of the Bitwise Bitcoin and Ethereum ETF. Structured under a specific rule for Commodity-Based Trust Shares, the ETF aims to give investors exposure to bitcoin and ether. The decision was made on an accelerated basis following a modification of the initial proposal.

General Summary

This notice signifies a regulatory decision allowing a new type of investment product to be traded on the NYSE Arca exchange. The product is an exchange-traded fund (ETF) that invests in two major cryptocurrencies, bitcoin and ether. The ETF will track their market capitalizations, providing investors with an opportunity to participate in the cryptocurrency market's potential growth, while taking on its associated risks. The SEC aims to ensure that such financial products operate transparently and are in compliance with existing regulations to protect investors.

Significant Issues or Concerns

Several issues merit consideration. First, the technical language used throughout the document may not be easily accessible to individuals without a strong background in finance or securities law. Terms like "Commodity-Based Trust Shares" and references to various sections of the Exchange Act could deter public understanding.

Furthermore, the document lacks detailed information about the financial implications for investors, such as costs or potential spending associated with the ETF. This absence might challenge a comprehensive audit for wasteful expenditures. Additionally, the proposal seems to favor specific organizations, such as Bitwise Investment Advisers, LLC, and their partners, without evaluating other potential candidates. This limited perspective might not represent the best interests of the public or other firms in the industry. Moreover, potential risks tied to investment in cryptocurrencies are not exhaustively discussed, which could lead to a lack of full disclosure required for investors to make informed decisions.

Impact on the Public Broadly

The approval of this ETF could encourage broader public interest and participation in the cryptocurrency market by providing a more accessible way to invest in digital assets. For many traditional investors, entering the cryptocurrency space directly can be complicated. This product simplifies that process, making it possible through conventional brokerage accounts.

However, the volatility inherent in cryptocurrency markets poses potential risks to investors. While some may see substantial returns, others may face significant losses. The public should be mindful of these risks and ensure they have sufficient understanding before investing.

Impact on Specific Stakeholders

Investors stand to benefit from an easier entry into cryptocurrency investments, potentially broadening their portfolio's diversification. This could also introduce risks due to cryptocurrency's well-known price volatility.

For NYSE Arca and associated financial service providers, the introduction of this ETF could lead to increased trading volume and revenue. The exchange might see inflows from investors looking to gain exposure to cryptocurrencies, indirectly benefiting from the increasing popularity of digital assets.

Regulators, such as the SEC, have an opportunity to shape how these kinds of financial products are structured and managed, setting precedents for future cryptocurrency-based offerings and ensuring investor protections are maintained.

On the downside, competitor firms and other market participants might view this as an uneven playing field if they feel alternative options weren't adequately considered.

This regulatory approval sets a crucial benchmark in the ever-evolving interface between traditional financial systems and the burgeoning cryptocurrency space. The document reflects ongoing efforts to align market innovations with established securities regulations.

The document under review involves a proposed rule change submitted by NYSE Arca, Inc. to list and trade shares of the Bitwise Bitcoin and Ethereum ETF. This change is set to fall under NYSE Arca Rule 8.201-E, regarding Commodity-Based Trust Shares. While financial specifics are sparse in the document, there are essential references worth highlighting.

Financial References and Allocations

The only substantial financial reference in the document centers around the Pricing Benchmarks. CF Benchmarks Ltd. is tasked with calculating these benchmarks based on an aggregation of executed trade flows from major bitcoin and ether trading platforms. The benchmarks are designed to provide a daily reference rate at 4:00 p.m. E.T. for the U.S. dollar price of one bitcoin or one ether. This establishes a transparent pricing mechanism intended to guide the valuation of the Trust’s assets, which include spot bitcoin and ether, and forms the basis for determining the net asset value (NAV) of the Trust each trading day.

Relation to Identified Issues

The document's financial references reveal a lack of detail on potential costs or spending associated with the Trust's operations, an issue that complicates identifying areas potentially misrepresenting or obscuring financial expenditures. By not providing comprehensive financial details, the document omits a critical element often necessary for stakeholders to assess economic efficiency, including public and regulatory scrutiny to avoid wasteful spending.

Additionally, the technical language surrounding the Pricing Benchmarks, such as calculations by CF Benchmarks Ltd. and definitions tied to the Pricing Benchmarks, is specialized. This further complicates understanding for those not versed in specific financial or regulatory terminology, aligning with the noted issue that the language may be difficult for non-specialists. Clarity in how precisely these benchmarks affect the overall financial landscape of the ETF could benefit stakeholders outside the immediate financial community.

Moreover, the use of established financial firms such as Coinbase Custody Trust Company, LLC, and the Bank of New York Mellon could suggest a preference or reliance on these entities. The document does not explore alternatives, raising concerns about potential market competition or the potential financial implications of limiting operational roles to these firms.

Lastly, the absence of a detailed breakdown on possible risks tied to these financial mechanisms impacts full investor disclosure. Such risks could be financial or operational and might influence investor decision-making processes, highlighting another area where document transparency is inadequate.

In conclusion, while the document describes specific financial mechanisms linked to the Pricing Benchmarks, it is insufficiently detailed concerning broader financial components and implications, which ties into the identified issues regarding transparency and comprehensive financial disclosure.