United States securities and exchange commission logo
November 3, 2023
Anna Paglia
Chief Executive Officer
Invesco Galaxy Bitcoin ETF
c/o Invesco Capital Management LLC
3500 Lacey Road, Suite 700
Downers Grove, IL 60515
Re: Invesco Galaxy
Bitcoin ETF
Amendment No. 2 to
Registration Statement on Form S-1
Filed October 13,
2023
File No. 333-255175
Dear Anna Paglia:
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 provide us with
any fact sheets that you intend on distributing for our review. We
may have comments on
these materials.
2. Please file the
following as exhibits to the registration statement, or tell us why you are
not required to do so:
The agreement with
the Execution Agent;
The agreement with
the Benchmark Provider; and
The filing fee
table.
Refer to Item
601(b)(10) and (107) of Regulation S-K. In particular, we refer you to Item
601(b)(10)(i)(B) which
requires you to file material contracts in which you have a
beneficial interest.
Anna Paglia
Invesco Galaxy Bitcoin ETF
November 3, 2023
Page 2
Cover Page
3. Please revise your disclosure here to identify the initial Authorized
Participant as an
underwriter, and disclose the initial price per Share.
Prospectus Summary
Overview of the Trust, page 1
4. We note that "the Trust does not intend to purchase or sell bitcoin
directly, except that the
Trust expects to sell bitcoin to pay certain expenses." Please
describe the AML, KYC and
any other procedures conducted by the Trust and Sponsor to determine,
among other
things, whether the counterparty in any transaction is not a
sanctioned entity. To the extent
that the Trust, Sponsor, Authorized Participant or Bitcoin Custodian
may not know the
counterparty, please add risk factor disclosure regarding the
potential risk of transactions
with a sanctioned entity and the impact if such a transaction occurs.
Risk Factors
Adoption Risk
If the award of new bitcoin for solving blocks and transaction fees for
recording transactions are
not sufficiently high, page 14
5. 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 Related to the Markets and Service Ecosystems for Bitcoin, page 28
6. Please add a separately captioned risk factor discussing the
regulatory and reputational
risks attendant to bitcoin being used in the furtherance of criminal
activity.
The venues through which bitcoin trades are relatively new, page 28
7. Please revise to divide this risk factor into separate risk factors
with headings or sub-
headings that describe the specific risk highlighted. In this regard,
we note, for example,
that this risk factor currently addresses the different regulatory
requirements for bitcoin
trading venues, the risks of fraud and security breaches at bitcoin
exchanges, and the lack
of certain safeguards at many bitcoin trading venues. In addition,
please add separate risk
factors that highlight the risks related to manipulation,
front-running and wash trading.
Failure of funds that hold bitcoin, page 29
FirstName LastNameAnna Paglia
8. Please reconcile your statement here that "the Shares will not be listed
for trading on any
Comapany NameInvesco
securities Galaxy
exchanges" withBitcoin ETF
your disclosures elsewhere that the Trust's
Shares are expected
to be3,listed
November 2023for trading
Page 2 on Cboe BZX.
FirstName LastName
Anna Paglia
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The NAV may not always correspond to the market price of the Shares, page 34
9. We note your disclosure that the NAV of the Trust may not always
correspond to the
market price of its Shares. Please expand to discuss whether or not
slippage is more
pronounced in the trading of crypto assets as compared to other asset
classes and bitcoin
as compared to other crypto assets, how the amount of slippage is
calculated and if it can
constitute a material percentage, and whether or not you take any
steps to limit its impact.
Shareholders may be adversely affected by creation or redemption orders that
are subject to
postponement, page 36
10. Please expand this risk factor to describe what is deemed as an
"emergency" such that the
fulfillment of a purchase order or the redemption distribution is not
reasonably
practicable, and disclose the factors the Sponsor will consider to
determine whether the
suspension of creation and redemptions or the postponement of
settlement dates are
necessary for the protection of the Trust's Shareholders.
The Sponsor and its affiliates are subject to conflicts of interest, page 37
11. We note your response to comment 6 and re-issue in part. Please revise
to disclose:
All existing conflicts of interest between your Sponsor and its
affiliates and the Trust;
Whether the Sponsor or any insiders have bitcoin or
bitcoin-related exposure that
could create conflicts of interest; and
Any code of conduct or other requirements for pre-clearance of
bitcoin-related
transactions that apply to your employees, the Sponsor, or any of
its affiliates.
Risks Related to the Benchmark
Right to change Benchmark, page 39
12. We note 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
Benchmark 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 "Calculation of NAV" section or elsewhere, please
revise to disclose the
criteria the Sponsor will use to determine whether another index or
standard better aligns
with the Trust's investment objective and strategy, and how and when
the Sponsor will
notify Shareholders.
The Bitcoin Market
Forks and Air Drops, page 45
13. We note the Sponsor's discretion with respect to any fork, airdrop or
similar events to
determine what action the Trust will take, and which network it
believes is generally
accepted as the Bitcoin network and should be considered the
appropriate network and the
associated asset as bitcoin for the Trust's purposes. We also note the
factors the Sponsor
Anna Paglia
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expects to take into consideration in evaluating each fork, airdrop or
similar
occurrence. 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,
including how you determine whether a fork is material, and describe
the situations in
which the Bitcoin 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 a forked assets, so
state. Please also disclose how you will inform investors of any
changes to the Trust's
policy with respect to forks and airdrops.
14. Please reconcile your disclosure in this section regarding the
Sponsor's discretion with the
disclosure on page 16 which states "[i]n the event of a hard fork of
the Bitcoin network,
the Bitcoin Custodian will determine, in good faith, which
peer-to-peer network, among a
group of incompatible forks of the Bitcoin network, is generally
accepted as the Bitcoin
network and should therefore be considered the appropriate network for
the Trust s
purposes."
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.
The Trust
Overview of the Trust, page 49
16. We note your disclosure here and on the cover page and page 1 that
barring extraordinary
circumstances, the Trust does not intend to purchase or sell bitcoin
directly, except that
the Trust expects to sell bitcoin to pay certain expenses. Please
revise to clarify what you
mean by "extraordinary circumstances" by providing examples of such
circumstances.
Description of Lukka Prime, page 50
17. We note your response to comment 8 and re-issue in part. Please
enhance your disclosure
to address the following:
Include a table with market share and volume information for each
Benchmark
Pricing Source. Your revised disclosure should illustrate each
exchange's
proportionate representation of the global bitcoin market, and
include a brief
description of each of the Benchmark Pricing Sources, including
where they are
licensed or regulated, and a discussion on the price
differentials and trading volumes
across the exchanges;
Update the list of exchanges that make up the Benchmark Pricing
Sources to the most
recent practicable date;
Disclose here, if true, that the Sponsor may, in its sole
discretion, change either the
Benchmark or Benchmark Provider without Shareholder approval;
Disclose how the Sponsor will notify investors of any material
adjustments to the
Benchmark such as a change in methodology or a change in
Benchmark Pricing
Sources, or the Sponsor's decision to change the Benchmark or the
Benchmark
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Provider; and
Describe the material terms of the agreement with the Benchmark
Provider.
18. Please disclose the extent to which any bitcoin exchanges have
previously been removed
from the Benchmark by the Benchmark Provider and the reasons thereof.
19. Please disclose the date that the Benchmark was launched here and in
the risk factor
disclosure on page 38. In addition, to the extent material to
understanding the performance
of the Benchmark, please include a chart comparing the historical
Benchmark to the prices
on the each of the Benchmark Pricing Sources included in the
Benchmark.
20. We note your disclosure here that "[t]he Benchmark Provider
periodically reassesses the
exchanges eligible to be considered Benchmark Pricing Sources, and
makes adjustments
as needed." Please revise to describe in greater detail the
adjustments that may be made to
the Benchmark and the impact that such adjustments could have on the
NAV of the Trust.
21. Please revise to describe the Benchmark Provider's oversight
procedures to ensure the
integrity of the Benchmark. If there is no such oversight procedure,
so state.
22. For Step 1, describe how each of the characteristics (oversight,
microstructure and
technology) is evaluated and weighted in order to arrive at the Base
Exchange Score.
The Trust's Expenses, page 51
23. We note your disclosure that the Sponsor Fee will be calculated by the
Administrator
"based on the quantity of bitcoin held by the Trust." Please revise to
clarify how the
Administrator makes such calculation. 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.
24. We note your disclosure that the Sponsor has agreed to pay all of the
Trust s ordinary
expenses out of the Sponsor s unified fee, and the Trust may incur
certain extraordinary
expenses that are not contractually assumed by the Sponsor. Please
revise to
clarify whether any of the Trust's expenses payable by the Sponsor
from the Sponsor Fee
are capped.
Calculation of NAV, page 51
25. We note your response to prior comment 9 and your disclosure on page
51 related to the
calculation of NAV. Based on your disclosure, it appears the Benchmark
Provider will
establish a principal market for bitcoin, and you will use the price
on that market to
determine the value of bitcoin held by the Trust. Further, it appears
from your disclosure
on pages 3 and 50 that you have determined the process utilized by the
Benchmark
Provider to provide a fair market value for bitcoin aligns with U.S.
GAAP. Please explain
to us in greater detail how your fair value measurement methodology,
and determination
of principal market, is consistent with the guidance in ASC Topic
820-10. Please address
the following in your response:
Anna Paglia
Invesco Galaxy Bitcoin ETF
November 3, 2023
Page 6
Clarify how you considered the guidance in ASC Topic
820-10-35-6A which states
the principal market shall be considered from the perspective of
the reporting entity;
Tell us if you or your Authorized Participant plan to transact
in any, or all, of the
specific exchanges listed on pages 3 and 50 of the amendment that
are used by the
Benchmark Provider;
Tell us if you or your Authorized Participant plan to transact
in multiple markets and
the types of markets in which you expect to transact; in that
regard, we note that ASC
820-10-35-36A includes definitions of four types of markets (e.g.
brokered market,
dealer market, exchange market, and principal to principal
market); and
Explain how you considered the guidance in ASC 820-10-35-5A
that indicates the
principal market is presumed to be the market in which the entity
would normally
transact.
26. We note your response to prior comment 9 and the related revisions to
your disclosure. In
your disclosure on page 52 you describe actions the Sponsor's
Valuation Team may take if
unusual pricing is detected. Please tell us whether you expect these
actions (such as the
use of an alternative benchmark) to be part of your determination of
fair value for
financial statement purposes in accordance with U.S. GAAP.
27. Please disclose what policies or procedures you have in place if the
Benchmark becomes
unavailable or if the Sponsor or Administrator determines that the
Benchmark does not
reflect an accurate bitcoin price.
28. You state that the "pause between 4:00 p.m. EST and 5:30 p.m. EST (or
later)
provides the Sponsor s Valuation Team an opportunity to
algorithmically detect, flag,
investigate, and address 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 Benchmark and/or NAV. In that regard,
please provide a
definition for "Sponsor's Valuation Team" and describe what tools the
team has to detect
unusual pricing.
Intraday Indicative Value, page 52
29. Please clarify how the intraday indicative value is calculated
throughout the day. In this
regard, we note your disclosure that IIV is calculated "by using the
prior day's closing
NAV as a base and updating that value throughout the trading day to
reflect changes in the
most recently reported price of bitcoin as reported by the Benchmark
Provider or another
FirstName LastNameAnna Paglia
reporting service." Please clarify how the Benchmark Provider calculates
and reports the
Comapany NameInvesco
bitcoin GalaxytheBitcoin
price throughout day andETF
under what circumstances the
price would be derived
from3,another
November reporting
2023 Page 6 service.
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Additional Information About the Trust
Dissolution of the Trust, page 54
30. 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 Trust's bitcoins will be sold in connection with the
termination of the
Trust.
The Trust's Service Providers
The Sponsor, page 56
31. Please discuss here the Sponsor's relative experience sponsoring
exchange traded funds
and specifically its experience related to crypto asset markets.
Please also add a risk factor
describing any risks arising from the Sponsor's level of experience in
the crypto asset
markets.
The Execution Agent, page 57
32. Please describe the process in which the Execution Agent sells bitcoin
on behalf of the
Trust, including how the bitcoin is transferred from the Bitcoin
Custodian to the
Execution Agent and then sold for U.S. dollars and who is responsible
for any transaction
fees.
Custody of the Trust's Assets, page 57
33. We note your response to comment 10 and re-issue in part. Please
revise to provide a
materially complete discussion of:
The Bitcoin Custodian's personnel and system to access private key
information, and
whitelisting procedures;
Any entity that will be responsible and process for verifying the
existence of the
bitcoins;
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; and
The insurance coverage of the Custodian and the degree to which
the insurance
policy protects the Trust's assets held by the Custodian.
We note that you have provided a summary of your custody procedures,
but you should
discuss your custody procedures in greater detail here.
34. We note that the Bitcoin Custodian will keep a substantial portion of
the private keys
associated with the Trust s bitcoin in cold storage, with any
remainder of the Vault
Balance held as a Hot Vault Balance. Please disclose how the Bitcoin
Custodian
will determine what portion of the Trust's bitcoin will be held in
cold storage. Please also
revise to describe what you mean by "similarly secure technology."
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35. We note that the Bitcoin Custodian receives bitcoin from and transfers
bitcoin to
Authorized Participants in connection with creations and redemptions.
Please
disclose how and when the Bitcoin 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.
36. We note that "[t]he Bitcoin Custodian has also agreed in the Custody
Agreement that it
will not, directly or indirectly, lend, pledge, hypothecate or
rehypothecate any of the
Trust s bitcoin, and that the Trust s bitcoin assets are not
treated as general assets of the
Bitcoin Custodian but are instead considered custodial assets that
remain the Trust s
property." Please revise to confirm, if true, that the Trust's assets
will never be loaned,
pledged or hypothecated by the Trust, Sponsor, Bitcoin Custodian, or
otherwise.
37. You state that the Bitcoin Custodian s aggregate liability in
respect of each cold storage
address shall not exceed $100 million. Please revise to disclose
whether or not your
agreement with the Bitcoin Custodial limits the size of each storage
address to $100
million.
38. You disclose here that Coinbase may provide prime broker services,
including bitcoin
trade execution, from time to time as requested by the Sponsor,
through Connected
Trading Venues. Please identify the Connected Trading Venues. Please
also reconcile this
with the disclosure elsewhere that you have entered into an agreement
with the Execution
Agent to sell bitcoin through Connected Trading Venues. In addition,
please disclose any
risks or conflicts of interest that may exist in connection with how
Coinbase or the
Execution Agent arranges for the sale of the Trust's bitcoin.
Plan of Distribution
Authorized Participants, page 60
39. Please identify by name all of the Authorized Participants with which
you have an
agreement at the time of effectiveness of the registration statement.
Selling Shareholders, page 61
40. Please identify the seed investors that are known at the time of
effectiveness of the
registration statement.
Creation and Redemption of Shares, page 62
41. We note your response to comment 11 and re-issue in part. Please
revise to disclose:
Whether your Authorized Participants will be required to maintain
an account with
your Bitcoin Custodian;
The specifics of how an Authorized Participant will "facilitate
the deposit of bitcoin
with the Bitcoin Custodian," including the various steps necessary
to transfer the
bitcoin to its ultimate storage location;
Whether and how the Authorized Participants are able to
participate directly in the
Anna Paglia
Invesco Galaxy Bitcoin ETF
November 3, 2023
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acquisition, transfer or receipt of bitcoin;
Why and under what circumstances the Authorized Participants
will utilize agents to
transfer the bitcoin to the Bitcoin Custodian; and
Whether and to what extent transactions between the Authorized
Participants and the
Bitcoin Custodian will be settled on-chain or off-chain, and any
risks associated with
the settlement process.
Determination of Required Deposits, page 63
42. Please revise to disclose how the quantity of bitcoin required to
create the initial Creation
Basket is determined.
Suspension or Rejection of Redemption Orders, page 65
43. 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.
Voting by Shareholders; Management, page 71
44. Please revise your disclosure to include the information required by
Item 202 of
Regulation S-K, including the liquidation rights of the Shareholders.
Please disclose in the
prospectus summary section the extent to which Shareholders do not
have voting rights.
Governing Law; Consent to Delaware Jurisdiction, page 74
45. We note your disclosure 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,
FirstName LastNameAnna Paglia
please also ensure that the exclusive forum provision in the governing
documents states
Comapany NameInvesco
this clearly, or tell Galaxy Bitcoin
us how you willETF
inform investors in future
filings that the provision
does not apply
November 3, 2023 Page 9 to any actions arising under the Securities Act or
Exchange Act.
FirstName LastName
Anna Paglia
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Invesco Galaxy Bitcoin ETFPaglia
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Please contact David Irving at 202-551-3321 or Robert Telewicz at
202-551-3438 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Lulu Cheng at 202-551-3811 or Justin Dobbie at 202-551-3469 with any
other questions.
Sincerely,
Division of
Corporation Finance
Office of Crypto
Assets
cc: Paulita Pike