Cryptocurrency  |  January 10, 2024 22:23:00, updated

Statement Dissenting from Approval of Proposed Rule Changes to List and Trade Spot Bitcoin Exchange-Traded Products

Commissioner Caroline A. Crenshaw Jan. 10, 2024

Today the Securities and Exchange Commission approved a series of proposed rule changes that will allow for the listing and trading of bitcoin-based products on national securities exchanges.[1] These Commission actions are unsound and ahistorical. And worse, they put us on a wayward path that could further sacrifice investor protection. I cannot agree that these actions serve either our statutory or foundational investor protection mandates and, as such, I dissent from today’s Order.

  1. Background

The proposed rule changes were filed pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and applicable rules thereunder to list and trade shares of trusts that would hold spot bitcoin (the “exchange traded products” or “ETPs”).[2] The Commission must find that such proposals are consistent with the Exchange Act in order to approve them, which requires that the rules be designed to “prevent fraudulent and manipulative acts and practices” and “protect investors and the public interest.”[3]

Despite an ample and growing body of evidence indicating that the proposed rule changes are not reasonably designed to prevent fraudulent or manipulative acts and practices, or to protect investors or the public interest, the Commission’s Order finds that this standard is met. For the reasons discussed below, I strongly disagree.

  1. The Global Spot Markets Underlying the Bitcoin ETPs are Marred by Fraud and Manipulation, Concentrated, and Without Adequate Oversight

The ETPs that will be enabled by today’s Order are inextricably tied to the bitcoin spot markets. Fraud and manipulation that impacts the price of spot bitcoin surely impacts the price of the spot bitcoin held in the ETPs. So, our investor protection inquiry necessarily begins with the spot bitcoin markets. Are those markets safe? Substantial evidence indicates that the answer is no.

The spot markets that trade bitcoin are located all around the world. U.S. regulators, such as the Commission, have limited visibility into these spot markets. What little information we do have, however, is not reassuring.[4]

Fraud and Manipulation. Spot bitcoin markets are subject to fraud and manipulation.[5] One form of manipulation that appears to be pervasive in the crypto markets (and specifically bitcoin markets), is wash trading, a practice whereby traders seek to increase the appearance of high trading interest by both selling and buying the same products at the same time, often driving up prices, and then selling to unwitting third party market participants at inflated values. Wash trading distorts price and volume, causes volatility, reduces investor confidence and participation in financial markets, and of course, results in investor harm.[6] One analysis of 29 major crypto exchanges found that wash trading was, on average, as high as 77.5% of the total trading volume on unregulated exchanges.[7] The same researchers estimated that wash trading was present in over $4.5 trillion of crypto spot market trading and $1.5 trillion in crypto derivatives trading in the first quarter of 2020 alone.[8] Likewise, the Commission’s complaint against Binance and its affiliates alleges that the Defendants failed to implement trade surveillance or manipulative trading controls on the Binance.US platform (despite the fact that such controls were touted to investors); and, that the lack of such controls enabled Binance affiliates to engage in wash trading in select cryptocurrencies in order to artificially inflate trading volume.[9]

Specifically with regard to bitcoin, an analysis of 157 crypto exchanges found that 51% of the reported daily bitcoin trading volume was likely bogus.[10] In fact, though reporting regarding bitcoin frequently discusses the enormous size of the market, one market participant who now seeks to sponsor a spot bitcoin ETP has admitted that “approximately 95%” of the data used by many participants are “fake and/or non-economic.”[11] Indeed, in one salient example, according to testimony by one of his co-conspirators, the former CEO of FTX may have engaged in bitcoin price manipulation in an effort to keep its price under $20,000, presumably to the benefit of his company and himself.[12] In short, prices and demand for bitcoin may not actually be what they appear to be.

Indeed, just yesterday, prior to the issuance of our approval Order, one of the SEC’s social media accounts was compromised, and an unauthorized post falsely indicated that we had approved spot bitcoin ETFs.[13] Unsurprisingly, the price of spot bitcoin suffered “whiplash” in the minutes and hours following the false tweet.[14] While the facts underlying this misconduct hopefully will be uncovered by law enforcement in the future, I will be monitoring what may be yet another attempt to profit from wrongdoing in this market.

Concentration of Ownership. Concentration of ownership among spot bitcoin holders also leaves bitcoin investors (and now spot bitcoin ETP investors) vulnerable to the whims and trading practices of a few. Analysis shows that mining and holdings of bitcoin are highly concentrated.[15] This concentration may impact price movements in unpredictable ways. Investors have few resources to learn about and price these risks. And, large entities can create volatility and move the price of bitcoin through the exploitation of arbitrage opportunities among a small group of interconnected parties.[16] This concentration is ironic given that bitcoin was touted as the product to decentralize finance.

Lack of Unified Oversight. Among the reasons that crypto markets – including bitcoin spot markets – appear to be Petri dishes of fraudulent conduct is because there is little to no systemic oversight of these markets, nor other sufficient mechanisms in place for the detection and deterrence of fraud and manipulation. Spot trading of bitcoin is fragmented and scattered across different international trading venues, with many markets not subject to meaningful regulation. According to the Department of the Treasury, “[u]neven and often inadequate regulation and supervision internationally allow [virtual asset service providers] and illicit cyber actors to engage in regulatory arbitrage and expose the U.S. financial system to risk from jurisdictions where regulatory standards and enforcement are less robust.”[17] Additionally, even in the U.S., oversight of spot bitcoin markets is limited (at best).[18]

Evidence has shown that spot bitcoin trading underlying these products is so susceptible to manipulation, so rife with fraud, so subject to volatility, and so limited in oversight that we cannot credibly say that the proposed rule changes approved today were designed to prevent fraud and manipulation or that there are adequate investor protections in place. The Order does not meaningfully address or reconcile these critical issues. Rather, the Order “acknowledges these concerns,” and sidesteps them entirely stating (rather blithely) that the Commission does not apply a “cannot be manipulated’ standard.”[19] While that may be true, we also do not apply a “bury our heads in the sand” standard. The Order does not even begin to address these issues in the spot markets. Today’s analysis simply ignores important investor protection concerns.

In light of the above, it is no surprise that we have consistently disapproved proposed rule changes that would allow listing and trading spot bitcoin ETPs in the past. It has been the consistent and decided judgment of this Commission over the past five years that these products are unsafe and unfit for investors without the adequate guardrails in place. So, what has changed?

  1. Grayscale Investments, LLC v. SEC

In August of this year, the D.C. Circuit found that the Commission had not adequately explained the difference between two registered bitcoin futures ETPs, approved for listing and trading by the Commission in Spring 2022, and the disapproval of Grayscale’s proposal to list and trade a spot bitcoin ETP.[20] The Court found that it “is a fundamental principle of administrative law that agencies must treat like cases alike,”[21] and found that the Commission did not adequately explain its purportedly disparate actions. Of course, “like cases should be treated alike” is black letter administrative law.[22] The problem here, however, is twofold. First, there are important investor protection differences between the two species of products that justify disparate treatments. Second, the “correlation” analysis provided by Grayscale and relied upon by the Court, as well as the Commission’s correlation analysis, are inadequate to conclude that fraud or manipulation that impacts prices in spot bitcoin markets would likely similarly impact Chicago Mercantile Exchange (“CME”) bitcoin futures prices, such that a surveillance sharing agreement with one regulated market (i.e., the CME bitcoin futures market) would necessarily assist in surveilling for fraud in another market (i.e., the spot bitcoin market).

A. Futures ETPs and Spot ETPs are Not the Same Products

As the Court pointed out, the Commission previously approved certain ETPs that hold bitcoin futures, but not ETPs holding “spot” or “physical” bitcoin.[23] There are important differences between those products and the ones that will be listed as a result of our Order today. Those existing products hold bitcoin futures, cash-settled financial contracts betting on the price of bitcoin at some point in the future. The parties to these contracts are regulated entities trading on a U.S.-registered and regulated exchange.

On the other hand, the exchange traded products that will be listed as a result of our Order today hold “physical” or “spot” bitcoin rather than bitcoin futures contracts. Unlike products that only participate in the futures market, there is no primary regulator for the bitcoin spot markets. Spot bitcoin ETPs will be participating in an unregulated, fragmented, continuously traded, global free-for-all. Even if there were a primary regulator for this market, much of it could be beyond the reach of U.S. regulation. Thus, even if the Commission or exchanges were to identify specific fraud and manipulation there might be little to no recourse for investors. As one commenter put it, the difference between buying a bitcoin futures ETP and a bitcoin spot ETP “is like the difference between buying a lottery ticket from the state of New Jersey and buying a lottery ticket from Tony Soprano.”[24]

The D.C. Circuit was fundamentally correct to say that like products should be treated alike. These products, however, are not alike. It is today’s action that departs from well-grounded precedent, that bears characteristics of arbitrary decision-making, and that will restrict our future ability to protect investors.

B. Arguments that Rely on Correlation” With Other Surveilled Markets Will Not Protect Investors

When considering whether a proposed rule change to list bitcoin-based ETPs is designed to prevent fraudulent and manipulative practices, consistent with Section 6(b)(5) of the Exchange Act, the Commission has historically considered whether the listing exchange can demonstrate that it has entered into a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin asset.[25] Today’s Order concluded that it was “unable to make [] a finding” that the CME (the relevant market) is a market of “significant size” related to spot bitcoin.[26]

Because it cannot make such a finding under the traditional test, the Commission contorts itself to find “other means” have been demonstrated to satisfy the statutory obligation that an exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.[27] It relies on evidence of “correlation” between the CME bitcoin futures market, and the spot bitcoin market to conclude that adequate investor protections are in place to approve the proposals.[28] The “correlation” argument theorizes that fraud or manipulation that impacts prices in the spot bitcoin markets would likely similarly impact CME bitcoin futures prices, such that a surveillance-sharing agreement between a spot bitcoin ETP’s listing exchange and the CME reasonably can be expected to assist in surveilling for fraud and manipulation that may impact the spot bitcoin ETPs.[29] In other words, surveillance of the CME bitcoin futures market should carry over to protect the bitcoin spot market. The idea is that to the extent the bitcoin spot market shows price activity that is the result of fraud, the bitcoin futures market would reflect that. This is incorrect.

First, today we are creating a new standard – but it is not clear exactly what this standard is. Never before have we found that a proposed rule change satisfied Section 6(b)(5) obligations because of purported “correlation” between two markets. And even now, we do not describe what levels of correlation are sufficient and what is the basis for such a finding. Though the Grayscale opinion relies on unchallenged evidence of correlation, I do not read it to compel a new regulatory standard.[30]

Second, the correlation argument does not make sense here. Even if we could detect manipulation or fraud on the spot market because of perfect correlation with the surveilled CME – what could we do about it? As discussed above, much of the global spot market is altogether unregulated. That cannot be the basis for our investor protection findings.

Third, even assuming the argument did make sense, the Commission’s analysis relies on questionable data for a “subset” of selected spot bitcoin markets to examine the relationship between prices in the CME bitcoin futures market and the spot bitcoin market, but does not explain why such a subset is representative of the entirety of the spot markets worldwide. Indeed, it seems likely that the data we rely on suffer from selection bias – i.e., the venues for which we have data are those that chose to make it easily available; the data that we are lacking might suggest different conclusions about correlation. We do not learn much from even perfect correlation with incomplete data.

Fourth, the Order draws questionable conclusions from that questionable data. The Order states that the results of its correlation analysis support a finding that prices generally move in close (“although not perfect”) alignment, between the “spot bitcoin market” (again, there are many spot markets) and the CME bitcoin futures market; therefore, the Order concludes, fraud or manipulation that impacts prices in spot bitcoin markets would likely similarly impact CME bitcoin futures prices. But, what about the times when prices in the spot and futures markets are not aligned? Is that, in and of itself, indicative of fraud or market dislocation (and at precisely the time when market surveillance is giving us the least information)?

Fifth, the Commission’s analysis reveals that the percentage of correlation between the relevant markets consistently decreases as the time intervals get shorter.[31] But, many (if not most) market manipulation schemes happen only in matters of minutes.[32] While it may be true that problems or inefficiencies in Market A may be arbitraged away in Market B in the long run (over days or hours), it is also true that manipulation schemes often run in short bursts in an effort to evade detection. This sort of manipulation may show up as prices dislocating (that is, the spot price deviating from the futures price) for short periods of time.[33] Thus, significant correlation between the markets does not mean that manipulation schemes would necessarily be detectable.

Finally, correlation between two variables in the past does not necessarily mean those variables will continue to have a correlational relationship in the future. One could imagine that, as a result of the new listing of these ETP products, spot market activity will grow exponentially to eclipse the futures market, rendering the futures surveillance function meaningless to the un-surveilled spot market.

Today we rely on a questionable correlation between a disaggregated, unregulated spot market and a futures market that the SEC itself does not regulate.[34] As I noted, we rest our laurels on the idea, or hope, that whenever fraud and manipulation in that underlying spot market occurs it should hopefully become apparent in the surveillance of that futures market. I’m not convinced that such transparency will exist. And even if it did, we likely will not be able to remediate fraud beyond our reach.[35] I cannot make an investor protection finding on such attenuated protections.

  1. The Order Does Not Consider the Broader Public Interest

Exchange Act Section 6(b)(5) requires exchange rule proposals be designed to protect the public interest. But the Commission also has not taken into account adequately broader public interest considerations. For example, it is well-documented that many criminals use bitcoin to evade U.S. financial sanctions. Many ransomware attacks demand payment in bitcoin, and analysis shows that these payments may end up funding our geopolitical rivals or adversaries.[36] And the ability of bad actors to use these assets freely can have catastrophic results for our interests and those of our allies, from funding rogue weapons programs to aiding attacks on civilians.[37] In approving these products for listing and trading on American exchanges, could we inadvertently be working at cross purposes with the goals of other arms of our government? Will the increased liquidity in the spot bitcoin market make it easier for criminals and terrorists to move money quickly, to evade sanctions, and to use their funds to harm civilians? Will the increased transaction volume make it harder for staff in other parts of the government to track these money flows? And if one of the funds involved with today’s approval transacts with a criminal or terrorist, will investors be harmed when it is sanctioned?

Only a few years ago, the Commission unanimously disapproved a proposed rule change by an exchange where commenters raised concerns about the potential for money laundering and the Commission had unresolved questions about the ownership structure of the exchange.[38] Given that the exchange proposals approved today raise similar questions, further consideration of these issues is warranted.

Separately, when FTX imploded in November of 2022, many among us breathed a sigh of relief that the downfall of one of the most central players in the crypto market had little impact on global markets more broadly. Will approval of today’s products provide the previously attenuated nexus to traditional markets that allows crises in largely non-compliant crypto markets to spill over? These questions are not considered in today’s Order.

  1. Tomorrow’s Problems

And there are still other concerns about how these ETPs will operate now that they have been approved. For example, how will custody be handled when the market continues to press for in-kind creation and redemption processes?[39] Given that bitcoin has historically been subject to volatility, a fund holding a volatile asset like bitcoin could be expected also to be volatile.[40] What will happen if the price movements of a spot bitcoin ETP cause the ETP to enter a trading pause as a result of an exchange’s limit up-limit down mechanism?[41] In this case the underlying asset would not also be subject to the trading pause—rather, it would continue to trade, on a peer-to-peer basis and on a variety of exchanges around the world. Could the price of the underlying asset moving further away from the market price of shares of the spot bitcoin ETP result in investors being harmed when they are suddenly un-correlated, exposing them to risks they did not intend to take? These are just a few questions that our agency will likely encounter in the coming days, weeks, months and years. It is unclear to me that we have adequate answers in place.

  1. Wasn’t Bitcoin Supposed to Solve This?

I am aware of the grand claims made by proponents of these and similar products. They are disintermediating the financial system. Banking the unbanked. Enhancing freedom. Changing the world. And when I read the whitepapers, it can be hard not to buy in. Many of the goals of the crypto ecosystem are goals I support. How can you be against freedom and prosperity? But when I look at products like the ones at issue in today’s approval, I have a simple question: wasn’t bitcoin supposed to solve this? If the technology is so revolutionary, why do so many of its uses seem to revolve around recreating the existing financial system, except with less regulation, more opacity, fewer investor protections, and more risk?[42]

Bitcoin is a peer-to-peer system.[43] Individual investors in the U.S. who want to invest in the product may already do so, either by mining it themselves or by setting up a wallet and buying it from someone else, each of which they are able to do from the comfort of their living room. That is the whole point of creating a new, censorship-resistant digital currency. So why is so much energy being expended on linking it to the existing financial system? I fear that our actions today are not providing investors access to new investments, but instead providing the investments themselves access to new investors in order to prop up their price. While this is in the interests of the sponsors of the ETPs, as well as the law firms and service providers who will get paid by them, my duty is to consider investors, markets, and the public, whose overall interests I do not believe are in fact well-served today.

* * *

I am deeply concerned about today’s actions. I am concerned that these products will flood the markets and land squarely in the retirement accounts of U.S. households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets and will impact the ETPs. I am concerned that today’s actions will create the imprimatur of Commission approval and oversight of the underlying spot markets when really no such oversight exists. I am concerned that there will be confusion about what exactly these products are – (they are not ETFs registered under the Investment Company Act of 1940, the ubiquitous products that today are used by millions saving for retirement) – and that investors may infer protections that do not in fact exist.[44] I am concerned about what comes next – when new, potentially more speculative products bearing greater risks of investor harm seek to list, we will hear a chorus of well-heeled voices saying that the SEC’s hands are tied by the new standards that we have set. I fear that today we are setting ourselves up for tomorrow’s failure, and it will be the investors that we have a duty to protect who will ultimately pay the price.[45]

[1] See Omnibus Approval Order, Securities Exchange Act Release No. 34-99306 (Jan. 10, 2024) (“Order”). More specifically, today’s approvals would amend the rules of NYSE Arca, NASDAQ and Cboe BZX to allow for the listing and trading of shares of a trust that would hold spot bitcoin, in whole or in part.

[2] 15 U.S.C. § 78s(b)(1); 17 CFR 240.19b-4.

[3] 15 U.S.C. § 78f(b)(5). Under the Commission’s Rules of Practice, the “burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization that proposed the rule change.” See 17 CFR 201.700(b)(3)(i).

[4]See generally Letter from Better Markets, Inc. (January 5, 2024) regarding SR-CboeBZX-2023-028, SR-CboeBZX-2023-038, SR-NASDAQ-2023-016, SR-NASDAQ-2023-019, SR-CboeBZX-2023-040, SR-CboeBZX-2023-042, and SR-CboeBZX-2023-044.

[5]See, e.g., T. Peterson, To the Moon: A History of Bitcoin Price Manipulation, 13 J. of Forensic & Investigative Acct. 2 (May 19, 2021), available at (“We can say with near 100% confidence that bitcoin’s price has been fraudulently manipulated at some point in its lifespan since 2010. We can say with 95% confidence that bitcoin was manipulated in 2013; 95% confidence that bitcoin was manipulated in 2018; and 98% confidence that bitcoin was manipulated in 2019.”); N. Gandal et al., Price Manipulation in the Bitcoin Ecosystem, 95 J. of Monetary Econ. 86 (2018), available at (finding that the 2013 run-up in the price of bitcoin past $1,000—which, for many, was the first time they heard of the asset—was likely due to manipulation); P. Fratrič et al., Manipulation of the Bitcoin Market: An Agent-Based Study, 8 Fin. Innovation 60 (2022), available at (finding that price manipulation was “essential” to causing the large run-up in the price of bitcoin in late 2017; “without [fraud], it would have been very unlikely that the price had reached the heights as it did.”); B. Hu et al., Bitcoin Price Manipulation: Evidence from Intraday Orders and Trades, 29 Applied Econ. Letters 140 (2020), available at (also finding evidence of manipulation in the 2017 time period); J. Griffin and A. Shams, Is Bitcoin Really Untethered?, 75 J. of Fin. 1913 (2020), available at (finding statistically significant evidence that a so-called stablecoin issuer had been a major participant in the 2017 market manipulation); P. Vigna and A. Osipovich, Bots Are Manipulating Price of Bitcoin in Wild West of Crypto, Wall St. J. (Oct. 2, 2018), available at; M. Levine, Crypto Bots Manipulate Proudly, Bloomberg (Oct. 3, 2018), available at (financial journalist jokingly stating (relevant here) “What if our reaction to finding out that crypto markets are full of manipulation was not to crack down on the manipulation, but to be like ‘well that’s interesting, let’s see how that plays out?’ Obviously a lot of people would get defrauded!”); B. Bambrough, ‘Striking’ Bitcoin Market Manipulation Revealed, Forbes (Sept. 25, 2019), available at; Rachel McIntosh, Crypto Market Manipulation Is Still Alive and Well, Says Orbs' Ilan Sterk, Fin. Magnates (Jul. 10, 2020), available at (data collected during a six-month period in 2020 demonstrates strong evidence of manipulation and “regulation does not seem to deter bitcoin manipulation.”); S. Tully, There’s a Wild Theory that the Price of Bitcoin is Being Propped Up—And the Academic Who Proved Manipulation in 2017 Suspects it May Be Happening Again, Fortune (Feb. 2, 2023), available at (evidence from January 2023). See also notes 9 and 12, infra, discussing bitcoin price manipulation by two major participants in the industry.

[6]See W. Cong et al., Crypto Wash Trading, 69 Mgmt. Sci. 6427 (2023) at 1, available at

[7]Id. The estimate applies to four cryptocurrencies, of which bitcoin is by far the largest.

[8]See id.

[9]See Complaint, SEC v. Binance Holdings Limited et al., No. 23-cv-01599 (D.D.C. 2023), ECF No. 1 at ¶¶ 11-12; see also SEC v. Hydrogen Technology Corporation, Civ. A. No. 22-cv-08284 (S.D.N.Y. Sept. 2022) (describing market manipulation used to artificially inflate prices of Hydro token).

[10]See Forbes, More Than Half Of All Bitcoin Trades Are Fake (Aug. 26, 2022) available at

[11]See Submission from Bitwise at 23 (Mar. 9, 2019), available at See also I. Makarov and A. Schoar, Blockchain Analysis of the Bitcoin Market, (Apr. 18, 2022) at 12, available at (“90% of the Bitcoin volume on the blockchain [is] not tied to economically meaningful transactions.”).

[12]See Transcript of Proceedings, U.S. v. Samuel Bankman-Fried, No. 22-cr-673 (S.D.N.Y. 2023), ECF No. 360.

[13] The products we approve today are not Registered Exchange Traded funds (ETFs), which have different legal protections in place, but rather ‘33 Act exchange traded products – a common misperception. See note 45 and accompanying discussion, infra.

[14] Andrew Ross Sorkin, et al., DealBook Newsletter, The Big Bitcoin Tease, N.Y. Times, Jan 10. 2024.

[15]See I. Makarov and A. Schoar, supra note 11, at 6; Americans for Financial Reform Education Fund, SEC Approvalof Bitcoin ETF Would Put Investors at Greater Risk (Jan. 10, 2024) (citing River Learn, “Who Owns the Most Bitcoin in 2024?” available at Indeed, one of the spot bitcoin ETPs that will begin trading as a result of our decision today owns more than 3% of all circulating bitcoin on its own. See Grayscale Bitcoin Trust, Amendment No. 5 to Registration Statement on Form S-3, Registration No. 333-275079 (Jan. 9, 2024) (“[T]he Trust holds approximately 3.2% of the Bitcoin in circulation”). In addition to concentrated ownership, mining is also heavily concentrated; scholars estimate that the “top 10% of miners control 90% and just 0.1% (about 50 miners) control close to 50% of mining capacity.” Makarov and Schoar, supra note 11.

[16]See Molly White, Grayscale Bitcoin Trust: The Free Money Machine that Went into Reverse (Jan. 29, 2023), available at (Highlighting that individual investor outcomes may be determined by the specific caprice of a small group of industry insiders).

[17]See Department of the Treasury, National Money Laundering Risk Assessment (February 2022) at 41. See also Cong et al., supra note 6 (“As recent as mid 2022, regulated exchanges (Coinbase, BitStamp, Gemini, BitFlyer, Tibit, etc.) still only constitute less than 3% of spot market transactions.”)

[18]See, e.g., Letter of Better Markets, supra note 4.

[19]See Order at 17 and n.61.

[20]See Grayscale Investments, LLC v. SEC, 82 F.4th 1239 (D.C. Cir. 2023). The court found that the Commission “failed to adequately explain why it approved the listing of certain bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP.” Id. at 1252.

[21]Id. at 1242.


[23]See Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Shares of the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule 8.200-E, Commentary .02 (Trust Issued Receipts), Securities Exchange Act Release No. 34-94620 (April 6, 2022) [87 FR 21676 (April 12, 2022)]; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List and Trade Shares of the Valkyrie XBTO Bitcoin Futures Fund Under Nasdaq Rule 5711(g), Securities Exchange Act Release No. 34-94853 (May 5, 2022) [87 FR 28848 (May 11, 2022)].

[24] Letter from Better Markets, supra note 4.

[25] This is the analytical framework the Commission has applied to proposals to list and trade bitcoin-based commodity trusts and bitcoin-based trust issued receipts to assess whether the listing exchange can meet its obligations under Exchange Act Section 6(b)(5). See Order Disapproving a Proposed Rule Change to List and Trade Shares of the VanEck Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities Exchange Act Release No. 34-97102 (March 10, 2023) [88 FR 16055 (Mar. 15, 2023)], available at at 2. The Commission has “long recognized that surveillance-sharing agreements ‘provide a necessary deterrent to manipulation because they facilitate the availability of information needed to fully investigate a manipulation if it were to occur and thus enable the Commission to continue to effectively protect investors and promote the public interest.’” Id. at 6. The Commission further emphasized that “it is essential for an exchange listing a derivative securities product to have the ability that surveillance-sharing agreements provide to obtain information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of exchange rules and applicable federal securities laws and rules.” Id.

[26] Order at 5, 10.

[27]See Order at 6 (stating that the Commission finds that sufficient “other means” of preventing fraud and manipulation in this context have been demonstrated).

[28] Since bitcoin futures began trading on the CME, another federal regulator now suggests that it was misled during the initial approval of these certain bitcoin future contracts. See Complaint, CFTC v. Gemini Trust Company LLC, No. 22 Civ. 4563 (S.D.N.Y. 2022), ECF No. 1 (alleging defendant made misleading statements or omissions to the agency during its evaluation of the potential self-certification of a bitcoin futures contract, including information about the contract’s susceptibility to manipulation).

[29]See Order at 13.

[30] SeeGrayscale, 82 F.4th at 1246. The Court noted, in relevant part, that it would “not substitute our policy judgments for that of the agency.” Id. at 1245. Reliance on correlation alone is especially concerning because many events can appear correlated when evaluated using a sufficiently large timescale. For example, the 99.2% maximum correlation noted in the order is nearly identical to the correlation between the per capita consumption of margarine and the divorce rate in Maine, measured on a yearly basis (99.26%). See Tyler Vigen, Spurious Correlations (last accessed Jan. 10, 2024), available at

[31]See Order at 9. For example, while the correlation between the CME bitcoin futures market and the subset of spot bitcoin platforms for the full sample period is 98.4% using data at an hourly interval, the correlation using data at a one-minute interval for the full sample period is 76.9%, and the rolling three-month correlation results dip as low as 67.9% when using data at a one-minute interval.

[32]See, e.g., SEC v. O’Brien, 2023 WL 3645205, at *14 (S.D.N.Y. May 25, 2023) (in non-crypto context, noting manipulative events took only a matter of seconds). See, e.g., Griffin, supra note 5.

[33] In addition to manipulation, dislocations have historically occurred after bitcoin thefts. See S. Lee, N. el Meslamani, and L. Switzer, Pricing Efficiency and Arbitrage in the Bitcoin Spot and Futures Markets, 53 Rsch. in Int’l Bus. & Fin. (Oct. 2020), available at (“Deviations from no-arbitrage between spot and futures markets are persistent and widen significantly with bitcoin thefts (hacks, frauds) as well as alternative cryptocurrency issuances.”).

[34] Physical commodities markets are more transparent than digital commodities markets, so analogies between the two may not be helpful or wise.

[35] It has been argued that surveillance done by Coinbase should also shore up our investor protection findings. For reasons similar to those laid out above, I find these arguments unpersuasive.

[36]See, e.g., Fed. Bureau of Investigation, FBI Identifies Cryptocurrency Funds Stolen by DPRK (Aug. 22, 2023), available at

[37]See, e.g., E. Howcroft and R. Satter, Blockchain Analysts Suspect North Korea-linked Hackers Behind $70 Million Crypto Theft, Reuters (Sept. 15, 2023), available at .

[38]See Order Setting Aside Action by Delegated Authority and Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, Regarding the Acquisition of CHX Holdings, Inc. by North America Casin Holdings, Inc., Securities Exchange Act Release No. 34-82727 (Feb. 15, 2018) [83 FR 7793 (Feb. 22, 2018)] available at

[39] Letter from Jake Karlsruher, Senior Product Counsel, Grayscale (Dec. 19, 2023), available at

[40] For example, the bitcoin price rose above $67,000 in late-fall of 2021, dropped below $20,000 by summer of 2022, and rose back to the current price of around $45,000. See M. Levine, Bloomberg Business Week, The Crypto Story (Oct. 25, 2022), available at

[41] In 2012, the Commission approved a plan designed to address volatility in the securities markets (i.e., significant fluctuations in individual securities’ prices over short periods of time) with the goal of helping to promote investor protection and fair and orderly markets. The plan provided for a market-wide limit up-limit down mechanism to prevent trades in certain stocks from occurring outside of specific price bands, coupled with trading pauses to accommodate more fundamental price moves. See Joint Industry Plans; Order Approving, on a Pilot Basis, the National Market System Plan To Address Extraordinary Market Volatility, Securities Exchange Act Release No. 34-67091 (May 06, 2012); [77 FR 33498 (May 31, 2012)] available at

[42]See Levine, supra note 41 (Describing the promise of the ecosystem but noting that in some ways it is a “devolution of the traditional system . . . that unlearned important historic lessons about fraud and leverage and risk and regulation.”). See also M. Levine, Put the Bitcoins in the Box (Jan. 4, 2024), available at . (noting that much of the innovation of crypto appears to have dissipated, and describing how now, “‘[p]eople want to be able to put Bitcoins into a box and then sell shares of the box to regular investors in the regular financial system using their regular brokerage account.’”).

[43]See, e.g., S. Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008), available at

[44] Registered Exchange Traded Funds (“ETFs”) offer protections under the Investment Company Act, for example, relating to conflicts of interest, custody, and expense charges. Additionally, the Commission’s Division of Examinations has the authority to conduct examinations of these funds and their advisers—with or without cause.

[45] Though I disagree wholeheartedly with the outcome of today’s approval, I remain grateful to the staff who worked diligently (over the holidays) to carry out the Commission’s business. Thank you.


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