FR 2025-02945

General Summary

The document announces a proposal by Cboe BZX Exchange, Inc. to the Securities and Exchange Commission (SEC) to list and trade shares of a new exchange-traded fund (ETF) called the Bitwise XRP ETF. This ETF is designed to track the performance of XRP, a digital asset primarily used for quick and affordable cross-border payments. The proposal falls under rules for Commodity-Based Trust Shares, similar to past SEC approvals for Bitcoin and Ethereum ETFs. The SEC is in the process of gathering public feedback before deciding whether to approve this proposal.

Significant Issues or Concerns

Several concerns and issues emerge from the document. Firstly, the language is highly technical and laden with legal jargon, making it challenging for non-experts to fully grasp its implications. The document assumes a significant level of prior knowledge regarding financial and regulatory terms without offering simplified explanations. The presence of numerous footnotes and ongoing references to SEC rules and regulations contribute to the complexity, potentially alienating less-informed readers.

Moreover, while the document argues that XRP is less susceptible to manipulation compared to other commodities, it lacks concrete evidence or examples to support this assertion. The extensive legal background, including the mention of the Winklevoss Test and precedents, could be condensed to enhance clarity and better engagement with the audience.

Impact on the Public

For the general public, the proposal reflects a growing acceptance and integration of digital assets into mainstream financial products. If approved, the Bitwise XRP ETF could offer a new investment avenue for those interested in digital currencies, allowing exposure to XRP in a regulated marketplace. This may enhance transparency and investor protection compared to more loosely regulated digital asset trading platforms.

However, due to its complexity, the document might be less accessible to average investors who are not familiar with the intricacies of financial regulations and digital asset markets. This could result in a portion of the public not fully understanding how this ETF functions and the risks involved.

Impact on Stakeholders

For investors, particularly those interested in digital currencies, the approval of the Bitwise XRP ETF could provide a more secure and institutionalized method of investing in XRP. It could reduce risks associated with premium and discount volatility and management fees, which are prevalent in over-the-counter XRP trading environments.

Digital asset exchanges and custodians would also stand to benefit from this development through increased trading activity and potential partnerships to provide the necessary infrastructure for the ETF.

Conversely, stakeholders who rely on less regulated, high-volatility markets for XRP might face potential setbacks. The ETF's regulated nature may draw investors away from these traditional platforms, decreasing their market share and transaction volumes.

Overall, while the proposal could democratize access to digital asset investments by providing an alternative to traditional methods, its benefits and implications remain complex for the average investor due to the dense regulatory landscape it navigates.

In the document, there are several critical financial references related to the proposal for listing and trading shares of the Bitwise XRP ETF on the Cboe BZX Exchange. These references provide insight into the financial landscape surrounding XRP and illustrate the context in which this proposed rule change operates.

Financial Size of the XRP Market

The document mentions that U.S. investor exposure to XRP, via over-the-counter (OTC) XRP Funds and digital asset trading platforms, has grown into billions of dollars, highlighting the significant interest and investment in XRP. It further specifies a fully diluted market capitalization of greater than $300 billion for XRP. This figure underscores the substantial scale and value of the XRP market, suggesting that any exchange-traded product (ETP) involving XRP could potentially affect a significant number of investors and a large volume of assets. This scale is pertinent to discussions about market manipulation and the security of investments, as a large and liquid market is often less susceptible to such risks.

Market Susceptibility and Stability

The text argues that the $300+ billion fully diluted market value of XRP implies a robust market with numerous participants, making it more resistant to manipulation. The document cites that the dispersed and continuous nature of the XRP trading ecosystem reduces the likelihood of any single actor significantly affecting the market price. These assertions relate back to one of the identified issues of whether XRP is indeed less susceptible to manipulation. The financial references intend to reassure stakeholders of a stable regulatory environment where investor interests are safeguarded by the healthy size and distribution of the market.

Price Variation and Trading Rules

Another financial reference in the document is the minimum price variation set for quoting and entering orders on the Exchange. It specifies that this variation is $0.01 for prices greater than $1.00 per share and $0.0001 for prices less than $1.00 per share. Such rules are crucial for maintaining orderly market operations, providing transparency, and ensuring that price movements are not erratic or easily manipulable.

In summary, these financial references illustrate a portrait of the XRP market that is large, established, and potentially stable, factors critical in discussions about reducing the chance of fraudulent activities. While the document presents a robust financial framework, certain areas could benefit from additional clarity and simplification to make this information more accessible to the general public. Providing examples or analogies could help demystify the complexities surrounding these financial concepts and how they protect investor interests.