United States securities and exchange commission logo
November 14, 2023
Hunter Horsley
Chief Executive Officer
Bitwise Bitcoin ETP Trust
c/o Bitwise Investment Advisers, LLC
400 Montgomery Street, Suite 600
San Francisco, CA 94104
Re: Bitwise Bitcoin ETP
Trust
Amendment No. 1 to
Registration Statement on Form S-1
Filed October 25,
2023
File No. 333-260235
Dear Hunter Horsley:
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. 1 to Registration Statement on Form S-1
General
1. To the extent that you
intend to use a fact sheet, please provide us with a copy for our
review.
2. Please describe the
AML, KYC and any other procedures conducted by the Trust or
Sponsor 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
a 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.
3. Please revise your
disclosure to provide consistent use of terminology throughout. For
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
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FirstName LastName
example purposes only, if you intend for the following terms to have
different meanings,
please revise to disclose or, to the extent you use the following
terms interchangeably,
please revise to use one term: (i) "Constituent Platforms" and
"Constituent Exchanges"
(ii) "CME CF Cryptocurrency Pricing Products Oversight Committee" and
"CME
Oversight Committee" and (iii) "CME CF Reference Rate" and "BRRNY" and
(iv)
"Sponsor's management fee" and "Sponsor's Fee."
Cover Page
4. Please revise your disclosure here to identify the initial Authorized
Participant as an
underwriter, disclose the initial price per Share, and disclose the
termination date of the
offering, if any.
Statement Regarding Forward-Looking Statements, page i
5. We note your disclosure that "[t]his prospectus contains
'forward-looking
statements' within the meaning of Section 27A of the Securities Act of
1933 and Section
21E of the Securities Exchange Act of 1934 and within the Private
Securities Litigation
Reform Act of 1995." Section 27A(b)(2)(D) of the Securities Act and
Section
21E(b)(2)(D) of the Exchange Act expressly state that the safe harbor
for forward looking
statements does not apply to statements made in connection with an
initial public
offering. Please either remove any reference to the Private Securities
Litigation Reform
Act or clarify that the safe harbor does not apply to this offering.
Prospectus Summary, page 1
6. Please revise to disclose whether the Trust is a passive or active
investment vehicle and
that Shareholders do not have voting rights.
The Trust's Fees and Expenses, page 4
7. We note your disclosure that the "Sponsor's management fee is based on
a percentage of
the adjusted NAV of the Trust" and that the Sponsor's Fee is paid in
bitcoin. Please
disclose how the value of the bitcoin for the Sponsor's Fee is
determined, including how
the NAV of the Trust is adjusted. 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 bitcoin for costs not included in the Sponsor's Fee. Also
disclose whether any
of the Trust's expenses payable by the Sponsor from the Sponsor's Fee
are capped.
Custody of the Trust's Assets, page 5
8. Please revise your disclosure here to provide quantitative information
regarding the
portion of the Trust'sprivate keys that are held in cold storage, and
revise your disclosure
on page 59 to include a more detailed description of the Bitcoin
Custodian's procedures
for holding the Trust's assets and private keys. In this regard, we
note your disclosure on
pages 5 and 59 that "[t]he Bitcoin Custodian will keep a substantial
portion of the private
Hunter Horsley
Bitwise Bitcoin ETP Trust
November 14, 2023
Page 3
keys associated with the Trust s bitcoin in cold storage or
similarly secure technology
(the Cold Vault Balance ), with any remainder of the Vault
Balance held as a Hot Vault
Balance." Please revise your disclosure on page 59 to describe the
"similarly secure
technology." In addition, we note that the Trust may receive cash or
bitcoin from the
Authorized Participants and the Bitcoin Trading Counterparty in
connection with
creations and will give the Authorized Participants and the Bitcoin
Trading Counterparty
bitcoin or cash in connection with redemptions. Please disclose on
page 59 how and when
the Custodian is directed to transfer the bitcoin from the Cold Vault
Balance to the Hot
Vault Balance or from the Hot Vault Balance to the Cold Vault Balance
in connection
with (i) receiving bitcoin from the Authorized Participants, (ii)
receiving bitcoin from the
Bitcoin Trading Counterparty, (iii) selling bitcoin to pay the Trust's
expenses and
liabilities, (iv) transferring bitcoin to the Authorized Participants
or the Bitcoin Trading
Counterparty and (v) paying the Sponsor's fee.
Principal Investment Risks of an Investment in the Trust, page 5
9. Please revise your disclosure to provide quantitative information that
demonstrates the
volatility of the price of bitcoin.
10. Your disclosure on page 6 that "[a]ll creations and redemptions will
take place in-kind" is
inconsistent with your disclosure on page 3 that "[a]n Authorized
Participant will deliver,
or cause to be delivered, bitcoin or cash to the Trust in exchange for
Shares when it
purchases Shares, and the Trust will deliver bitcoin or cash to an
Authorized Participant,
or its designee, when it redeems Shares from the Trust." Please revise
for consistency, or
clarify what you mean.
11. Please revise here to briefly address 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.
Environmental concerns could slow or curtail the supply of bitcoin, page 12
12. Please briefly 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. In
addition, please revise here to discuss in greater detail the
regulations that states have
passed or are currently considering that impact crypto asset mining or
include a cross-
reference.
The prevailing
FirstName level of transaction
LastNameHunter fees, page 15
Horsley
Comapany
13. NameBitwise
Please Bitcoin
revise to provide ETP Trustinformation regarding the
fluctuations of transaction
quantitative
fees 14,
November of the Bitcoin
2023 Page 3network.
FirstName LastName
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
Page 4 14, 2023 Page 4
FirstName LastName
Risks Associated with the Market for Bitcoin
The venues through which bitcoin trades are relatively new, page 16
14. 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, the risk of price manipulation, the risk of
front-running and the
risk of wash-trading.
Risks Associated with the CME CF Bitcoin Reference Rate - New York Variant and
CME Real
Time Price
The BRRNY and CME Real Time Price each have a limited history, page 18
15. Please revise to describe the BRRNY's and CME Real Time Price's
limited history by
disclosing when each index was created. In addition, please clarify
here what you mean
by your disclosure that the Trust does not "transact in the Shares
based on the BRRNY,"
as you note that the Trust utilizes the BRRNY for cash creations.
Risks Associated with Investing in the Trust
The NAV may not always correspond to the market price of bitcoin, page 20
16. We note your disclosure that the NAV of the Trust may not always
correspond to the
Trust's bitcoin holdings. 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, if it can
constitute a material percentage, and whether or not you take any
steps to limit its impact.
Investors may be adversely affected by the creation or redemption orders, page
21
17. Please expand this risk factor to provide a brief description of what
is deemed as an
"emergency" such that the fulfillment of a creation or redemption is
not reasonably
practicable. In addition, revise your disclosure in the Suspension or
Rejection
of Redemption Orders section that begins on page 67 to provide a more
detailed
description of 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.
Investors may be adversely affected by an overstatement or understatement of
the NAV, page 22
18. On page 22, 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
BRRNY." Please expand this risk factor to briefly discuss when the
value of the Trust's
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
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bitcoins will be determined using techniques other than reliance on
the price established
by the BRRNY. In addition, revise your disclosure in the Trust and
Bitcoin Prices section
that begins on page 44 to provide a more detailed discussion of the
circumstances in
which the Trust's bitcoin investments may be valued using techniques
other than reliance
on the price established by the BRRNY, and disclose which of the
Trust's service
providers may make this determination.
The development and commercialization of the Trust is subject to competitive
pressures, page 24
19. We note your disclosure on page 24 that, if the Sponsor is unable to
generate "meaningful
revenues from the Trust," it could cause the Sponsor to dissolve and
terminate the Trust.
Please revise to quantify or otherwise describe what "meaningful
revenues" means.
Similarly, we note your disclosure on page 30 that "there can be no
assurance that the
Trust will grow to or maintain an economically viable size, in which
case the Sponsor
may elect to terminate the Trust, which could result in the
liquidation of the Trust s
bitcoin at a time that is disadvantageous to an investor in the
Shares." Please revise to
quantify or otherwise describe what "an economically viable size"
means.
Tax Risk
The IRS may disagree with or seek to challenge, page 29
20. We note your disclosure that the Sponsor has "delivered the
Prospective Abandonment
Notices to the Custodian stating that the Trust is irrevocably
abandoning, effective
immediately prior to settlement of any creation order for the purchase
of new Shares or
redemption order for the redemption of existing Shares, all Incidental
Rights or IR Assets
to which it would otherwise be entitled as of such time and with
respect to which it has
not taken any Affirmative Action at or prior to such time" and that
"the Trust has also
abandoned Incidental Rights and IR Assets through Affirmative
Actions." Please provide
a definition for the term "Affirmative Actions" here. In addition,
please revise
your disclosure in the Incidental Rights and IR Assets section on page
53 to disclose if
and, if so, how the Sponsor will notify Shareholders if it changes its
position of
abandoning all Incidental Rights and IR Assets.
Other Risks
Shareholders' limited rights of legal recourse against the Trust, page 34
21. Please expand this risk factor to discuss the insurance policy held by
the Bitcoin
Custodian so that investors understand the amount to which the
insurance policy covers
or does not cover the Trust's bitcoin held by the Bitcoin Custodian.
The Trust and Bitcoin Prices
The CME CF Bitcoin Reference Rate - New York Variant, page 44
22. We note your disclosure on page 45 that "[t]he Sponsor, in its sole
discretion, may
cause the Trust to price its portfolio based upon an index or standard
other than the
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
Page 6 14, 2023 Page 6
FirstName LastName
BRRNY at any time, with prior notice to the Shareholders, if
investment conditions
change or the Sponsor believes that another index or standard better
reflects the price of
bitcoin." 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.
In addition, please disclose how and when the Shareholders will be
notified that the
Sponsor has caused the Trust to price its portfolio based on an index
or standard other
than the BRRNY.
23. Please include a brief description of each of the Constituent
Exchanges, including where
they are located and how they are licensed and regulated.
Contingency Calculation Measures, page 46
24. Please revise your list of contingency provisions on page 46 to
clarify the difference
between each situation. For example, if a Relevant Transaction is not
available, it is
disregarded in the calculation, but, if one or more Relevant
Transactions occur but cannot
be retrieved, the Constituent Platform is disregarded in the
calculation. Clarify the
difference between a situation in which the Relevant Transaction is
disregarded and a
situation in which the Constituent Platform is disregarded. In
addition, please provide a
definition here for the "Calculation Agent."
Delayed Calculation & Publication, page 47
25. We note your disclosure on page 47 that "[s]hould the Administrator
not be able to
calculate and publish the BRRNY by 23:59:59 London time on that
Calculation Day then
the Calculation Failure provisions shall come into effect." Please
revise to disclose the
New York time at 23:59:59 London time. In addition, please revise this
sentence and
throughout to clarify whether by "Administrator" you are referring to
the BRR
Administrator or to the Trust's Administrator.
Calculation of NAV, page 51
26. We note your response to prior comment 7. Please address the following
with respect to
your application of ASC Topic 820:
Provide us with your accounting policy for determining the fair
value of bitcoin in
accordance with ASC Topic 820.
As the trust is expected to primarily transact with the bitcoin
markets through the
Authorized Participant, confirm for us that your determination of
the principal market
will be from the perspective of the Authorized Participant.
Tell us if you and/or your Authorized Participant plan to transact
in multiple
markets. If so, please ensure that your accounting policy reflects
that fact and
describes the types of markets in which you and/or your Authorized
Participant
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).
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
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FirstName LastName
Clarify for us whether you anticipate your principal market
will be one which you or
your Authorized Participant will be able to access and in which
you or your
Authorized Participant will normally transact. Refer to ASC
Topics 820-10-35-6A
and 820-10-35-5A respectively.
27. We note your disclosure on page 51 that the Exchange will calculate an
updated
ITV every 15 seconds from 9:30 a.m. EST to 4:00 p.m. EST using either
the CME Bitcoin
Real Time Price or another price of bitcoin derived from updated bids
and offers
indicative of the spot price of bitcoin. Please disclose how the
Exchange determines
whether to use the CME Bitcoin Real Time Price or another price of
bitcoin to calculate
the ITV. In addition, please revise to (i) include a description of
how the CME Bitcoin
Real Time Price is calculated, (ii) disclose the Exchange's source(s)
for updated bids and
offers, (iii) disclose how the Exchange determines which bids and
offers are "indicative of
the spot price of bitcoin," and (iv) include a description of how the
Exchange calculates
the price of bitcoin using the updated bids and offers. Also revise to
include a brief
definition of the term "CTA/CQ High Speed Lines."
28. Please clarify how the ITV is calculated from the last trade on each
exchange. In this
regard, we note your disclosure that the ITV "draws prices from the
last trade on each
trading platform." In addition, please revise to clarify what you mean
by your disclosure
that "[t]he NAV uses a 30-minute window" as your disclosure elsewhere
states that the
NAV is calculated by using the BRRNY, which includes Relevant Trades
from the
Constituent Exchanges that occur from 3:00 p.m. EST to 4:00 p.m. EST.
In addition,
please clarify what you mean by your disclosure that the "NAV is based
on a price
established during the business day in London" as elsewhere you
disclose that you use the
BRRNY, which "was designed to provide a daily, 4:00 p.m. New York time
reference rate
of the USD price of one bitcoin that may be used to develop financial
products."
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.
Additional Information About the Trust
The Trust's Fees and Expenses, page 52
30. We note your disclosure that the "Sponsor, from time to time, may
temporarily waive all
or a portion of the Sponsor's Fee at its discretion for a stated
period of time." Please
revise to disclose examples of when the Sponsor may waive all or a
portion of the
Sponsor's Fee, and disclose whether the Shareholders will be notified
and, if so, how.
31. Please explain how the Trust's bitcoins will be sold in connection
with the termination of
the Trust, and clarify whether Shareholders will receive a combination
of bitcoin and cash
or only cash. In this regard, we note your disclosure on page 53 that
"if the Trust is
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
Page 8 14, 2023 Page 8
FirstName LastName
terminated and liquidated, the Sponsor will distribute to the
Shareholders any amounts of
the cash proceeds of the liquidation remaining after the satisfaction
of all outstanding
liabilities of the Trust and the establishment of reserves for
applicable taxes, other
governmental charges and contingent or future liabilities as the
Sponsor will determine."
32. 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 Trustee or the Sponsor 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 Trustee or Sponsor arranges for the sale of
the Trust s bitcoin.
Amendment, page 56
33. Please revise to disclose how the Sponsor will notify the Shareholders
of material
amendments to the Trust Agreement.
Custody of the Trust's Assets, page 59
34. Please revise your disclosure to include a materially complete
discussion of your custody
arrangements. For example, disclose the term and termination
provisions of your custody
agreement, describe the procedures for moving the Trust's assets out
of cold storage in
connection with redemptions, the procedures for moving bitcoin into
cold storage in
connection with creations, the percentage of the Trust's private keys
held in cold storage,
the geographic location of where the Trust's assets will be stored,
the limit on the amount
that can be held in each cold storage account, and whether the
insurance provider or any
other entity will be responsible for verifying the existence of the
Trust's bitcoin. In this
regard, we note that you have provided a summary of your custody
procedures on page 5
but you should discuss your custody procedures in greater detail here
or include cross-
references to where investors can find such disclosure.
35. We note your disclosure on page 59 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." Please disclose whether
and under what
circumstances the Trust, the Sponsor or any other entity is permitted
to lend, pledge,
hypothecate or rehypothecate any of the Trust s bitcoin.
Plan of Distribution
Authorized Participants, page 61
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.
37. Please expand your disclosure regarding the mechanics of the creation
and redemption
transactions, including whether your Authorized Participants and
Bitcoin Trading
Counterparty will be required to maintain an account with your
Custodian, whether and
how the Authorized Participants are able to participate directly in
the acquisition, transfer
Hunter Horsley
FirstName LastNameHunter
Bitwise Bitcoin ETP Trust Horsley
Comapany 14,
November NameBitwise
2023 Bitcoin ETP Trust
November
Page 9 14, 2023 Page 9
FirstName LastName
or receipt of bitcoin and whether in-kind transactions with the
Authorized Participants or
bitcoin transactions with the Bitcoin Trading Counterparty will be
settled on-chain or off-
chain and any risks associated with the settlement process. In this
regard, we note your
disclosure on page 63 that the delivery of bitcoin to the Bitcoin
Custodian or to an
Authorized Participant "may settle on the Bitcoin Network." Please
also describe the
specifics of how an Authorized Participant and Bitcoin Trading
Counterparty 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 or Bitcoin Trading
Counterparty will
utilize an affiliate or third-party to transfer the bitcoin to the
Custodian.
Creation and Redemption of Shares
Cash Creation Procedures, page 64
38. Please revise to disclose the reasons why the Sponsor may choose to
limit the number of
Shares created pursuant to Cash Purchase Orders and the impact such
limitation may have
on the Trust's Shares in the secondary market.
39. Please revise to identify the Bitcoin Trading Counterparty, describe
the approval process
of the Bitcoin Trading Counterparty, including any specific criteria
for engagement as a
Bitcoin Trading Counterparty such as whether the Bitcoin Trading
Counterparty may be
an affiliate of the Trust and/or Sponsor, and disclose the material
terms of any agreement
you have with the Bitcoin Trading Counterparty, including whether and
to what extent
there will be any contractual obligations on the part of the Bitcoin
Trading Counterparty
to participate in cash orders for creations or redemptions.
40. Please disclose whether the Authorized Participants must pay a
non-refundable fee in
connection with the cash creations and cash redemptions.
Conflicts of Interest, page 69
41. Please revise to describe the Sponsor's policies and procedures to
identify the conflicts of
interest associated with its principals, officers, directors and
employees that are trading
bitcoin, bitcoin futures and related contracts or other bitcoin-linked
derivatives.
Governing Law; Consent to Delaware Jurisdiction, page 75
42. We note your disclosure on page 75 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
Hunter Horsley
Bitwise Bitcoin ETP Trust
November 14, 2023
Page 10
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.
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 Sandra Hunter Berkheimer at
202-551-3758 with
any other questions.
Sincerely,
FirstName LastNameHunter Horsley
Division of
Corporation Finance
Comapany NameBitwise Bitcoin ETP Trust
Office of Crypto
Assets
November 14, 2023 Page 10
cc: Richard J. Coyle
FirstName LastName