United States securities and exchange commission logo
November 2, 2023
Hany Rashwan
Chief Executive Officer
Ark 21Shares Bitcoin ETF
c/o 21Shares US LLC
477 Madison Avenue
New York, NY 10022
Re: Ark 21Shares
Bitcoin ETF
Amendment No. 2 to
Registration Statement on Form S-1
Filed October 11,
2023
File No. 333-257474
Dear Hany Rashwan:
We have reviewed your amended registration statement and have the
following
comments.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe a comment applies to your
facts and circumstances
or do not believe an amendment is appropriate, please tell us why in
your response.
After reviewing any amendment to your registration statement and
the information you
provide in response to this letter, we may have additional comments.
Unless we note otherwise,
any references to prior comments are to comments in our September 29,
2023 letter.
Amendment No. 2 to Registration Statement on Form S-1
General
1. Please revise
throughout your prospectus so that it includes updated information regarding
bitcoin, the Bitcoin
network, the crypto asset market, enacted and pending crypto asset
legislation and
regulation. By way of example only, we note that you disclose that the
Lightning Network does
not yet have material adoption as of April 2021, you disclose the
trading volume of
bitcoin futures that the CFTC regulated as of April 29, 2021, you
discuss the "proposed"
Taproot upgrade, and you do not include updated disclosure
regarding enacted and
pending legislation and regulation that may impact the Bitcoin
network and the crypto
asset market generally such as the March 9, 2022 Executive Order
on Ensuring Responsible
Development of Digital Assets and the resulting reports. We
may have additional
comments after reviewing your revised disclosure.
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2. To the extent that you intend to use a fact sheet, please provide us a
copy for our review.
3. Please describe the AML, KYC and any other procedures conducted by the
Trust, the
Sponsor, the Authorized Participant and the Custodian to determine,
among other things,
whether the counter-party in any transactions is not a sanctioned
entity. To the extent that
the Trust, Sponsor, Authorized Participant or Custodian may not know
the counter-party,
please add risk factor disclosure regarding the potential risk of
transactions with a
sanctioned entity and the impact if such a transaction occurs.
Cover Page
4. Please revise your disclosure here to identify the initial Authorized
Purchaser as an
underwriter, and disclose the initial price per Share.
Bitcoin and the Bitcoin Network, page 2
5. Please revise here or in the second bullet point on page 10 to provide
quantitative
information that demonstrates the volatility of the price of bitcoin.
Prospectus Summary
Overview of the Trust, page 2
6. We note your disclosure on page 2 that the Trust provides direct
exposure to bitcoin. This
disclosure is inconsistent with disclosure later in the same paragraph
and elsewhere in the
prospectus that an investment in the Shares of the Trust is not a
direct investment in
bitcoin. Please revise accordingly.
The Trust's Investment Objective, page 3
7. We note your disclosure on page 3 that "[b]arring the liquidation of
the Trust or
extraordinary circumstances, the Trust will not purchase or sell
bitcoin, although the
Sponsor may sell bitcoin to pay certain expenses, which may be
facilitated by the
Custodian." Please revise to clarify what you mean by "extraordinary
circumstances" by
providing examples of such circumstances.
Pricing Information Available on the Exchange and Other Services, page 4
8. Refer to your response to comment 5. On page 4, you disclose that "any
adjustments
made to the Index will be published on the Index Provider's website."
Please revise to
briefly describe here the adjustments that may be made to the Index
and describe in
greater detail in The Trust and Bitcoin Prices section that begins on
page 52 the
adjustments and the impact that such adjustments could have on the NAV
of the Trust. In
addition, please disclose here and on page 53 how you will notify
investors of any
material adjustments to the Index such as a change in methodology or a
change in
Constituent Exchanges or the Sponsor's decision to change the Index or
the Index
Provider. Also disclose here that the Sponsor may, in its sole
discretion, change either the
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Index or Index Provider without Shareholder approval.
The Sub-Adviser, page 5
9. We note your disclosure on page 5 that the "Sub-Adviser is primarily
responsible for the
day-to-day supervision and investment strategy of, and making
investment decisions for,
the Trust." Please revise to clarify here what you mean by the
"investment strategy of" the
Trust and the "investment decisions for" the Trust by summarizing the
type of strategies
and investment decisions that the Sub-Adviser and Sponsor may make. In
addition,
clarify whether the Trust is a passive or active investment vehicle.
Custody of the Trust's Assets, page 6
10. Refer to your response to comment 8. Please revise your disclosure
here to provide a brief
definition of a "multi-party" cold storage platform. In addition,
clarify here what portion
of the Trust's assets and private keys are held in cold storage, and
revise your disclosure
on page 64 to include a more detailed description of the Custodian's
procedures for
holding the Trust's assets and private keys. In this regard, we note
your disclosure on
page 64 that "[t]he Custodian will keep a substantial portion of the
private keys associated
with the Trust's bitcoin in 'cold storage' or similarly secure
technology." Please revise to
describe the "similarly secure technology." In addition, we note your
disclosure on the
cover page that "[t]he Custodian may be directed to transfer or sell
bitcoin to pay certain
expenses," and we note that the Custodian receives bitcoin from and
transfers bitcoin to
Authorized Participants in connection with creations and redemptions.
Please disclose on
page 64 how and when the Custodian transfers the bitcoin for such
purposes, including
whether and when it moves bitcoin to a hot wallet and when it
transfers the bitcoin it
receives from Authorized Participants to cold storage. In addition,
describe the
Custodian's whitelisting procedures on page 64, and provide a brief
definition of "SOC 1
Type 2" and "SOC 2 Type 2" reports.
The Trust's Fees and Expenses, page 6
11. We note your disclosure on page 6 that "[t]he Administrator will
calculate the Sponsor
Fee in respect of each day by reference to the Trust s NAV as of
that day" but that "[t]he
amount of bitcoin transferred or sold may vary from time to time
depending on the market
price of bitcoin relative to the Trust's expenses and liabilities."
Please revise to disclose
how you calculate the "market price of bitcoin." In addition, please
disclose whether the
Trust is responsible for paying any costs associated with the transfer
of bitcoin to the
Sponsor or the sale of the bitcoin or if these expenses are included
in the Sponsor Fee. In
addition, we note your disclosure that "the Sponsor has agreed to pay
all operating
expenses (except for litigation expenses and other extraordinary
expenses) out of the
Sponsor Fee." Please revise to clarify what you mean by "other
extraordinary expenses"
by providing examples of such expenses, and disclose whether any of
the Trust's expenses
payable by the Sponsor from the Sponsor Fee are capped.
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Principal Investment Risks of an Investment in the Trust, page 9
12. Refer to your response to comment 7. Please revise to briefly address
here the risks
associated with the competition you will face in launching and
sustaining your product,
including the risk that your timing in reaching the market and your
fee structure relative to
other bitcoin ETPs could have a detrimental effect on the scale and
sustainability of your
product.
Risk Factors
Risks Associated with Bitcoin and the Bitcoin Network
Spot markets on which bitcoin trades are relatively new, page 12
13. Please revise to divide this risk factor into separate risk factors
with headings that describe
the specific risk highlighted. In this regard, we note, for example,
that this risk factor
currently addresses the risks related to the lack of regulation of
crypto asset exchanges, the
risk of fraud and security breaches on crypto asset exchanges, the
risk of business failures
of crypto asset exchanges and the risks related to reputational harm
regarding Bitcoin
markets. In addition, please add separate risk factors that highlight
the risks related to
manipulation, front-running and wash trading.
The inability to recognize the economic benefit of a "fork", page 19
14. We note your disclosure on page 19 that the "[t]he Sponsor or the
Sub-Adviser . . . may
elect to support a fork based on predetermined criteria, but is under
no obligation to do so"
and your disclosure on the same page that "[u]nless otherwise
announced, the Sponsor and
the Sub-Adviser, as applicable on behalf of the Trust, will not
support the inclusion of any
forked assets" and that "[o]nly forks deemed material by the Sponsor
or Sub-Adviser, as
applicable, will be considered for evaluation." Please revise to
clarify whether you
currently have criteria for determining whether to support the
inclusion of forked assets,
and, if so, please describe the criteria in the Activities of the
Trust section or elsewhere,
including how you determine whether a fork is material, and describe
the situations in
which the Custodian may not agree to provide the Trust with access to
the new asset. If
you do not yet have criteria for determining whether to accept forked
assets, so state, and
if you have only a policy that you do not support the inclusion of any
forked assets,
disclose how you will inform investors if this policy changes.
Similarly, please disclose
in the Activities of the Trust section or elsewhere how you will
inform investors if the
Trust's policy of not participating in air drops changes.
15. Please revise to provide an example of the impact that hard forks have
had on crypto
assets, including quantitative information regarding the price of the
impacted crypto asset
immediately before and after the fork.
Operational cost may exceed, page 25
16. Refer to your response to comment 4. Please expand your disclosure on
page 26 to
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November 2, 2023
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describe how the "[i]ncentives for miners to contribute processing
power is set to decrease
over time." Also address the risks related to transaction fees once
new bitcoin is no longer
awarded for adding a new block, and revise your disclosure in the
Bitcoin, Bitcoin
Markets and Regulation of Bitcoin section to address halving, the
maximum number of
bitcoins that may be released into circulation and the number of
bitcoins currently
in circulation.
Electricity usage, page 26
17. Refer to your response to comment 4. Please expand this risk factor to
address the reasons
why bitcoin mining may implicate different risks than other crypto
asset mining such as
the differences in proof-of-work and proof-of-stake, and revise to
discuss in greater detail
the regulations that states have passed or are currently considering
that impact crypto asset
mining.
Risks Associated with Investing in the Trust
Custodian's limited operating history, page 34
18. Please expand this risk factor to address your custodian's limited
operating history or
revise the heading to summarize the risks being described.
Risks Associated with the Index and Index Pricing
The Index has a limited history, page 35
19. Please expand this risk factor to describe the Index's limited
performance history.
Right to change index, page 36
20. Refer to your response to comment 5. We note your disclosure on page
36 that "[t]he
Sponsor, in its sole discretion, may cause the Trust to track (or
price its portfolio based
upon) an index or standard other than the Index at any time, with
prior notice to the
Shareholders, if investment conditions change or the Sponsor believes
that another index
or standard better aligns with the Trust s investment objective and
strategy." In the Net
Asset Value Determinations section or elsewhere, please revise to
disclose the criteria the
Sponsor will use to determine that another index or standard better
aligns with the Trust's
investment objective and strategy.
Other Risks
The Trust is new, and if it is not profitable, the Trust may terminate and
liquidate, page 45
21. We note your disclosure that "[i]f the Trust does not attract sufficient
assets to remain
FirstName LastNameHany Rashwan
open, then the Trust could be terminated and liquidated at the direction
of the Sponsor (or
Comapany NameArk
required 21Shares
to do so becauseBitcoin ETF by the Exchange)." Please revise
to quantify or
it is delisted
otherwise
November 2, 2023describe
Page 5 what "sufficient assets to remain open" means.
FirstName LastName
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Shareholders may be adversely affected by an overstatement, page 45
22. Refer to your response to comment 5. On page 45, you disclose that
"[i]n certain
circumstances, the Trust s bitcoin investments may be valued using
techniques other than
reliance on the price established by the Index (in the case of a
determination of NAV) or
the principal market (in the case of a determination of the Principal
Market NAV)."
Please revise your disclosure in the Trust and Bitcoin Prices section
on page 52 to
describe the circumstances that the Trust's bitcoin investments may be
valued using
techniques other than reliance on the price established by the Index
or the principal market
and which of the Trust's service providers may make this
determination.
Shareholders may be adversely affected by creation or redemption orders, page
45
23. Please expand this risk factor to describe what is deemed as an
"emergency" such that the
fulfillment of a creation or redemption is not reasonably practicable,
and disclose the
factors the Sponsor will consider to determine whether the suspension
of creations
and redemptions or the postponement of settlement dates are necessary
for the protection
of the Trust's Shareholders.
The Trust and Bitcoin Prices
Use of the CME CF Bitcoin Reference Rate - New York Variant, page 52
24. Refer to your response to comment 5. Please revise to describe the
Index Provider's
oversight procedures to ensure that the Index is administered through
codified policies for
Index integrity, and provide a brief description of the material
codified policies for Index
integrity.
25. Please describe the CME CF Oversight Committee, including how many
members are on
the committee, how the committee members are selected, how often the
committee meets
to consider changes to the Index Methodology and the Constituent
Exchanges, any
changes that have been made to the Index or the Constituent Exchanges
since the creation
of the Index and what the committee considers to be "sufficient
reliability, detail and
timeliness."
26. Please include a brief description of each of the Constituent
Exchanges, including where
they are located and how they are licensed or regulated.
Net Asset Value Determinations
Calculation of NAV and NAV per Share, page 56
27. Please disclose what policies or procedures you have in place if the
Index becomes
unavailable or if the Sponsor, Sub-Advisor or Administrator determines
that the Index
does not reflect an accurate bitcoin price.
28. Please clarify how the intraday indicative value is calculated from
the last trade on each
exchange. In this regard, we note your disclosure that it is
calculated "by using the prior
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day's closing NAV per Share of the Trust as a base and updating that
value throughout the
trading day to reflect changes in the price of bitcoin and that the
IIV draws prices from the
last trade on each exchange."
29. You state that the "pause between 4:00 p.m. EST and 5:30 p.m. EST (or
later) provides an
opportunity to algorithmically detect, flag, investigate, and correct
unusual pricing should
it occur." Please revise to clarify who is responsible for monitoring
for unusual pricing,
who can correct the price, and how any such correction would impact
the Index Price
and/or NAV.
Net Asset Value Determinations
Calculation of Principal Market NAV and Principal Market NAV per Share, page 57
30. We acknowledge your response to comment 6 and that the determination
of the Principal
Market NAV and Principal Market NAV per Share is identical to the
calculation of NAV
and NAV per Share, respectively, except that the value of bitcoin is
determined using the
fair value of bitcoin based on the price in the bitcoin market that
the Trust considers its
principal market as of 4:00 p.m., New York time, on the
valuation date, rather than
using the Index. Please include a description of how you will identify
and determine the
bitcoin principal or most advantageous market for GAAP purposes
consistent with the
application of and fair value measurement framework in ASC 820-10.
Also tell us the
specific markets in which and your Authorized Participants expect to
transact and identify
them by type. In that regard, we note that ASC 820-10-20 includes
definitions of four
types of markets (e.g. brokered, dealer, exchange, and principal to
principal markets).
Refer also to ASC 820-10-35-36A.
Additional Information About the Trust
The Trust's Fees and Expenses, page 58
31. Please expand this section to describe the mechanics of how the Trust
s bitcoin will be
exchanged for U.S. dollars to pay the Trust s expenses and
liabilities, including whether
the Custodian will use a third party or affiliate to assist in the
sale of the Trust s bitcoins,
and, if so, disclose any risks or conflicts of interests that may
exist in connection with how
the Custodian arranges for the sale of the Trust s bitcoin.
Termination of the Trust, page 58
32. Please clarify whether shareholders will be entitled to cash or
bitcoins upon the
termination of the Trust. In addition, if shareholders will be
entitled to cash, please
explain how the the Trust's bitcoins will be sold in connection with
the termination of the
Trust.
The Trust's Service Providers
The Sponsor, page 61
33. Please discuss here the Sponsor's experience sponsoring exchange
traded funds and
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specifically its experience related to crypto asset markets.
Custody of the Trust's Assets, page 64
34. Refer to your response to comment 8. Please revise your disclosure
here to include a
materially complete discussion of your custody arrangements. For
example, describe the
material terms of your custody agreement, the procedures for moving
the Trust's assets out
of cold storage in connection with redemptions and the payment of the
Trust's expenses,
the procedures for moving bitcoin into cold storage in connection with
creations, the
percentage of the Trust's assets and private keys held in cold
storage, the geographic
location of where the Trust's assets will be stored, the Custodian's
policies related to
comingling assets and the amount held in each wallet, the insurance
coverage of the
Custodian and the degree to which the insurance policy protects the
Trust's assets held by
the Custodian, whether the insurance provider or any other entity will
be responsible for
verifying the existence of the bitcoin and the instructions that the
Sponsor has provided to
the Custodian regarding airdrops or forks. In this regard, we note
that you have provided
a summary of your custody procedures on pages 5, 6 and 7 but you
should discuss your
custody procedures in greater detail here or include cross-references
to where investors
can find such disclosure.
Form of Shares, page 65
35. Please revise your disclosure on page 65 to include the information
required by Item 202
of Regulation S-K, including the voting rights and liquidation rights
of the Shareholders.
To the extent that the Shareholders do not have voting rights, please
disclose in the
prospectus summary and the risk factors section. In addition, please
revise your
disclosure on page 81 to include the information required by Item 401
of Regulation S-K.
Authorized Participants, page 67
36. Please identify by name all of the Authorized Participants with which
you have an
agreement at the time of effectiveness of the registration statement.
Creation and Redemption of Shares, page 68
37. Refer to your response to comment 9. We note your disclosure that
"[b]itcoin held in the
Trust s Custodian account is the property of the Trust and is not
traded, leased, or loaned
except as may be necessary to pay the Sponsor Fee or the Trust s
expenses and
liabilities." Please revise to confirm, if true, that the Trust's
assets will never be leased or
loaned, including in connection with paying the Sponsor Fee or the
Trust's expenses and
liabilities.
38. Refer to your response to comment 9. Please provide a detailed
discussion of the
mechanics of the creation and redemption transactions, including
whether your
Authorized Participants will be required to maintain an account with
your Custodian,
whether and how the Authorized Participants are able to participate
directly in the
Hany Rashwan
Ark 21Shares Bitcoin ETF
November 2, 2023
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acquisition, transfer or receipt of bitcoin and whether and to what
extent creation and
redemption transactions will be settled on-chain or off-chain and any
risks associated with
the settlement process. Please also describe the specifics of how an
Authorized
Participant will "facilitate the deposit of bitcoin with the Trust,"
including the various
steps necessary to transfer the bitcoin to its ultimate storage
location with the Custodian,
and whether and under what circumstances the Authorized Participant
will utilize an
affiliate or third-party to transfer the bitcoin to the Custodian.
39. Please revise to disclose whether and how you will notify Shareholders
if the Trust has
suspended creations and redemptions, and describe the potential impact
of suspending
creations and redemptions.
Conflicts of Interest, page 74
40. Refer to your response to comment 11. Please revise to describe your
policies and
procedures related to conflicts of interest in greater detail and tell
us whether these will be
in place at the time of effectiveness.
Governing Law; Consent to Delaware Jurisdiction, page 82
41. We note your disclosure on page 82 that each Shareholder consents to
the exclusive
jurisdiction of the courts of the State of Delaware and any federal
courts located in
Delaware. Please disclose whether this provision applies to actions
arising under the
Securities Act or Exchange Act. If so, please also state that there is
uncertainty as to
whether a court would enforce such provision. If the provision applies
to Securities Act
claims, please also state that investors cannot waive compliance with
the federal securities
laws and the rules and regulations thereunder. In that regard, we note
that Section 22 of
the Securities Act creates concurrent jurisdiction for federal and
state courts over all suits
brought to enforce any duty or liability created by the Securities Act
or the rules and
regulations thereunder. If this provision does not apply to actions
arising under the
Securities Act or Exchange Act, please also ensure that the exclusive
forum provision in
the governing documents states this clearly, or tell us how you will
inform investors in
future filings that the provision does not apply to any actions
arising under the Securities
Act or Exchange Act.
Material
FirstNameContracts, page 83Rashwan
LastNameHany
Comapany
42. NameArk
Please revise to21Shares
disclose Bitcoin ETF provisions of each material
agreement, including the
the material
parties
November to thePage
2, 2023 agreement
9 and the term and termination provisions.
FirstName LastName
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FirstName LastNameHany
Ark 21Shares Bitcoin ETF Rashwan
Comapany 2,
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Please contact Kate Tillan at 202-551-3604 or Michelle Miller at
202-551-3368 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Sonia Bednarowski at 202-551-3666 or Justin Dobbie at 202-551-3469 with
any other
questions.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets